The Economist February 26th 2011

124 Pages·2011·54.06 MB·English

by  The Economist

The Battle of Wisconsin
The Unpacking IKEA
E CONOMIS Tt The French in London

Japan's banks, back on the prowl

FEBRUARY 26TH-MARCH 4TH 2011 Economist.com Why loneliness makes you ill
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Contents

On the cover

The West has to deal with
tyrants but it should do so on
its own terms: leader, page 11.
Our briefing begins with the
bloody battle in Libya, but also
brings in Egypt, Tunisia,
Morocco, Yemen and the Gulf,
pages 25-29. David Cameron
searches for a new foreign
policy, page 64, and so do his
peers in Europe: Charlemagne,
page 60. The diplomacy of
soldiers, page 65. The world
is badly placed to cope with
another oil crisis, page 79

The Economist online

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The
Economist

Volume 393 Number 8722

First published in September 1843

to toke port in "a severe contest between
intelligence, which presses forward, and
anunworthy, Grid ignorance obstructing
our progress.”

Editorial offices in London and also:

Atlanta, Beijing, Berlin, Brussels, Cairo,

Chicago, Hong Kong, Johannesburg, Los Angeles,
Mextoo City, Moscow, Mew Deli, New York, Paris,
San Francisco, $40 Paulo, Singapore, Tokyo,
Washington Dt

Release: Storehlags & Fantallag

& The world this week

Leaders

411 Qaddafi and his ilk
Blood and oil

12 The future of food
Crisis prevention

13 Labour law in America
Showdown in Madison

13 Japanese banks
Back from the dead

14 Basque politics
Hold your nose, and let
them run

Letters

16 On Germany, Scotland,
the Voting Rights Act, 3D
printing, American
sports, Italy, history

Briefing

25 The Arab uprisings
Endgame in Tripoli

26 The liberated east
Building a new Libya

28 Egypt and Tunisia
When regimes stick

28 Tensions in Morocco
Afirm royal hand

29 The nervous Gulf
Bullets and bribes

29 Protests in Yemen
Getting together

United States

31 Public-sector reform
Wisconsin and wider

32 Andrew Cuomo
Meanwhile, in New York...

34 Federal budget battles
Tick, tock

34 The Senate
The stealth deficit
commission
36 Rahm Emanuel wins
Chicago, 1AD
38 Drug courts
Stay out of jail clean
38 Abortion in Texas
Signs of pro-life
40 Lexington
How to close Guantanamo

The Economist February 26th 2011

The Americas

43 Venezuela's economy
On shaky ground

44 North American
integration
Petering out

44 Mexican butterflies
Kings of the sky

Asia

45 The surge in Afghanistan
The Marja gamble

46 China redrawn
All the parities in China

46 Thailand's yellow shirts
Eat, talk, pray, revolt

47 New Zealand's earthquake
When luck ran out

47 A huge Indian census
Heads up

48 Digging up Japan’s past
Deafening silence

50 Banyan
Taiwan's commansense
consensus

Africa

53 Uganda's election
Security first

54 South Africa’s economy
Nojobs, boys

54 Dyibouti's troubles
Wee but worrisome

Special report: Feeding
the world

The 9 billion-people
question

After page 54

Europe
55 Defence in Germany
The Teflon minister
56 German politics
Unhappy in Hamburg
56 Basque politics
Sortu’s difficult birth
57 Macedonia
Scandal and tension
57 Jews in Poland
Warsaw's wounds
58 Ukraine's president
Yanukovich turns eastward
60 Charlemagne
Europe should support
Arab democracy

Food Whatis causing prices to
soarand what can bedone
aboutit? Leader, page 12. The
world’s population will grow
from almost 7 billion now to
over 9 billion in 2050. Will
there be enough food to go
round? Read our special report
after page 54. Farewell to an
especially passionate chef:
Obituary, page 93

Wisconsin The fight to bring
private-sector disciplines to
America’s public sector has
begun: leader, page 13.
Mayhem in Madison, page 31.
Andrew Cuomo’s subtle
showdown, page 32. Chicago
begins life after Daley, Page 36

Paris-on-Thames The French
influx to the British capital
suggests what governments
can and can’t do to boost their
cities’ allure, page 61. The
mood on the Arab street {in
Knightsbridge), page 62

>> Contents continues overleaf
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IKEA The world’s largest
furniture retailer keeps
growing, but critics berate its
opacity, page 67. Companies
must decide what they really
need to keep private, and how
bestto do so, pages 75-77

Japanese banks The world has
largely forgotten about them,
It should refresh its memory:
leader, page 13. Japan's big
banks eye global expansion to
escape dismal domestic
prospects, page 81

Loneliness It could be bad for
your health, page 87.
Meanwhile, alchemy enjoysa
comeback, page 85

Britain
61 The French in London
Paris-on-Thames
62 Another diaspora
The Arab street in London
62 The police and firearms
Calling the shots
63 Banks and tax
No squeaks from these
pips
64 Bagehot
Cameron in the Middle
East

International

65 Military-to-military
relationships
The ties that bind

66 Political systems
The fashion to be federal

Business

67 IKEA
Flatpack leader

68 Commodity prices
Who will pay?

70 Bad publicity
Better to be reviled than
ignored

70 Hand-held digital games
Sony v Nintendo

72 Gambling in Singapore
Sin galore

73 An online scandal in China
Alibaba and the 2,236
thieves

73 Very big ships
Maersk’s armada

74 Schumpeter
Uncorking enterprise

Briefing

75 Companies and
information
The leaky corporation

Finance and economics

79 Energy prices

Oil pressure rising
80 Buttonwood

A theory of markets
81 Japanese banks

Home and away

The Economist February 26th 2011

82 Portugal's struggles
The winter of living
dangerously

82 The G20 process
Congregate, implicate,
obfuscate

83 Credit ratings
Downgrading expectations

83 Entertainment insurance
Break a leg

84 Economics focus
The canon of economics

Science and technology
85 Alchemy
A twisted history
86 Deep Carbon
Going underground
87 Healthy living
Mind and body
87 Collective behaviour
Follow my leader

88 The science of stuttering
Speech therapy

Books and arts
89 Forza Italia
The trials of unification
90 Japan’s dark underbelly
Lucie Blackman’s story
90 Odessa, a city
Mutiny and melancholy
91 Mischa Hiller’s new thriller
Hard to shake off
91 Gaza memoir
Bitter road

92 Hip-hop in Uganda
Dance in the night-time

Obituary

93 Santi Santamaria
A chef at war

105 Economic and financial

indicators

Statistics on 42
economies, plus closer
looks at GM crops and Wall
Street bonuses

ren Lee fe cere: =

Next week
We publish a special report
on property. Itis widely seen
as a safe asset. It is arquably
the most dangerous of all,
says Andrew Palmer

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Muammar Oaddafi, the ruler
of Libya, deployed tanks and
fighter jets in an attempt to put
down a popular uprising,
ignited by street protests, that
started in the east of the coun-
try and spread to Tripoli, the
capital. Rebels held large
swathes of territory after
taking heavy losses estimated
to be atleast1,oo0 killed and
many more injured. The uN
Security Council demanded
an end to the violence.

The open defiance of prot-
esters against authoritarian
governmentin the Middle East
spread to Morocco and Iraqi
Kurdistan. In Bahrain the royal
family ordered harsh force to
be used against the demonstra-
tors, killing several. But after
heavy criticism it relented and
vowed to work towards politi-
cal reform.

In Egypt the chief prosecutor
called for the freezing of assets
belonging to Hosni Mubarak,
the deposed president.

Two Iranian warships passed
through Egypt’s Suez Canal for
the first time in more than
three decades, en route to
Syria. Israel described the
ships’ presence off the Israeli
coast as a “provocation”.

President Yoweri Museveni of
Uganda won re-election with
an increased majority. The
election was said to be fairer
than the one five years ago.

In the Democratic Republic of
Congo a court sentenced
Kibibi Mutware, a militia
leader, to 20 years in prison for
mass rape. Forty-nine women
testified against him in the first
case of its kind.

The presidential stamp
Prosecutors in Brazil started an
investigation into Luiz Inacio
Lula da Silva, whose presi-
dential term ended last year,
for spending $3.5m of public
funds in 2004 to send letters
promoting low-interest loans.
The prosecutors say the letters
had no legitimate purpose and
only served to benefit a bank
that was subsequently linked
to a corruption scandal.

Cuba released seven more
political prisoners, bringing
the total to 70 freed since last
year. One of the released
prisoners is refusing, unlike all
the others, to go into exile.

State of the unions

Tens of thousands of union
sympathisers from across
America converged in Madi-
son, Wisconsin’s capital, to
protest against a plan by Scott
Walker, the new Republican
governor, to end collective-
bargaining in the public sector.
They were met by thousands
of tea-party activists. The
legislature was unable to form
a quorum to debate the issue
after Democratic state senators
absconded to Illinois. Other
states with big deficits are also
thinking about curbing worker
benefits. Union protests spread
to Ohio and Indiana.

In a surprise turnaround, the
Justice Department said it
would no longer argue in
favour of the Defence of Mar-
riage Act, a law signed by Bill
Clinton in 1996 that bars the
federal government from
recognising same-sex mar-
riage, and that it now consid-
ers the act to be unconstitu-
tional. The decision could
open the courts to thousands
of challenges from gay couples
from the handful of states
where gay marriage is legal.

Rahm Emanuel cruised to
victory in the Chicago mayor’s
race, picking up 55% of the vote
and thereby avoiding a run-off.
The second-placed candidate
came in some 30 percentage
points behind. Animmediate
problem facing Mr Emanuel
when he enters office in May
will be the city’s budget deficit.

Murky Merkel

Germany’s ruling Christian
Democratic Union suffered a
heavy defeat in a state election
in Hamburg. In a bad week for
Angela Merkel her defence
minister, Karl-Theodor zu
Guttenberg, was embroiled in
a plagiarism scandal that
forced him to relinquish his
doctorate. And after eight
weeks of tortuous negotia-
tions, her government agreed
ona costly compromise with
the opposition over reforms to
unemployment benefits and
the minimum wage.

Thousands of Basques
marched in Bilbao in support
of allowing the registration of
Sortu, anew separatist party.
Its predecessor, Batasuna, was
outlawed in 2003 for having
links to ETA, an armed terror
group. Prosecutors want Sortu
to be banned, too.

Anew government was
formed in Kosovo. Parliament
elected Hashim Thaci to serve
a second term as prime min-
ister, despite allegations link-
ing him to a murder and organ-
harvesting scandal after the
Kosovo war in 1999.

A fatal shake

Christchurch, New Zealand’s
second-largest city, was devas-
tated by an earthquake and
several aftershocks. Scores of
people died and hundreds
were missing in New Zea-
land’s worst natural disaster

The Economist February 26th 2011

for 80 years. Damages were
estimated at $6 billion. John
Key, the prime minister, said it
could turn out to be the coun-
try's “darkest day”.

An online campaign urged
people in Beijing and a dozen
other cities in China to heed
the example of the “jasmine
revolution” sweeping the Arab
world and to converge in
public places to call for polliti-
cal and economic rights. Very
few civilians turned up, but
police were outin droves and
censors banned the word
“jasmine” from China’s micro-
blogs. Activists reported that a
number of their leaders were
arrested ahead of the protests.

Afghanistan suffered several
suicide-bombings. The most
lethal attack killed at least 38
people queuing ata bankin
the eastern city of Jalalabad.
Others killed dozens in four
other cities. Meanwhile, it was
alleged that a NATO-led oper-
ation had resulted in the
deaths of 64 civilians in Kunar
province. An outgoing UN
official said that security is “at
its lowest point” in Afghani-
stan since 2001.

The governments of Thailand
and Cambodia agreed to let
the Association of South-East
Asian Nations send military
observers to a disputed area
along their border. A recent
exchange of fire around the
Preah Vihear temple killed at
least eight people. The observ-
ers will all be Indonesians.

Nearly 2.7m civil servants set
out around India to conduct
the world’s second-largest
census. For the first time the
census-takers will ask which
of three sexes—male, female or
“other”—the subject belongs
to, and record how many
Indians have electricity, toilets
and permanent dwellings.
Caste will also be tallied, ina
separate survey.

Shanghai announced a one-
dog policy, based along the
lines of China’s one-child law.
Owners of the city’s many
unlicensed pooches insisted
the local authorities were
hounding them.
3

Storeliage.com = Fies Mage

The Economist February 26th 2011

Business

l Oil price, $

West Texas Intermediate re

Source: Thameon Reuters

The political strife in Libya
caused oil prices to soar. Brent
crude traded at well above $115
a barrel in London and West
Texas Intermediate at around
$100 in New York. Investors
turned to precious metals as a
haven, helping to push up the
price of silver to a 31-year high.

In Céte d'Ivoire the interna-
tionally recognised winner of
November's disputed presi-
dential election extendeda
ban he has imposed on cocoa
exports from his country, in an
effort to make the incumbent
president stand aside. Cocoa
stocks are piling up in ports,
increasing the chance of the
beans decaying. There was
more violence in the west
African country this week,

Apple’s board of directors was
challenged by investors at the
annual general meeting to
reveal the succession plan it
has drawn up to replace Steve
Jobs should the chief executive
not return from medical leave.
In a vote shareholders backed
the board, which argues that
disclosing the plan now would
only help competitors. MrJobs
did not attend the meeting.

The bottom dollar

Wal-Mart reported another
poor quarter in America, with
revenue dipping again from
stores that have been open for
at least a year. Sales from the
retailer’s international busi-
ness, Which accounts for
around a quarter of its profit,
boosted its overall results,
Wal-Mart is facing stout com-
petition at home from the
spread of discount chains that
offer even-cheaper goods to
consumers who feel particu-
larly cash-strapped.

Making good on its recent
undertaking to conduct more
of its business in emerging
markets, BP bought a stake in
the maritime natural-gas assets
owned by India’s Reliance
Industries. Potentially worth
around $9 billion, the dealis
one of the biggest-ever foreign
investments in India.

BHP Billiton boosted its ener-
gy portfolio by agreeing to pay
$4.8 billion for shale-gas assets
in Arkansas. The mining com-
pany earns a fifth of its profit
from oil and gas resources.

Trade secrets

Huawei, China's biggest mak-
er of telecoms equipment,
reversed course and accepted
the recommendation of the
Committee on Foreign In-
vestment in the United States
that it revoke its acquisition of
assets owned by 3Leaf, an
American technology com-
pany. Huawei had already
bought the assets, but officials
at the Pentagon asked the
cr1us, which considers the
national-security implications
of takeovers, for its opinion. If
Huawei had persisted, the
White House would have had
torule on the deal.

Alibaba’s chief executive and
chief operating officer both
resigned after taking responsi-

neta Peal

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A STILL...WE
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FOREIGN

| INTERVENTION... /

bility for a scandal at the Chi-
nese e-commerce website, in
which some 2,300 online
dealers conned their custom-
ers. The sellers had used fake
documents to set up their
businesses on the site, alleged-
ly with the help of a small
number of Alibaba staff.

Hp’s share price fell sharply
after it delivered a weaker-
than-expected set of quarterly
earnings that showed sales
declining in the company’s IT
services and personal-comput-
ing businesses. HP shaved $1.5
billion from its revenue target
for the year.

A judge in Manhattan ruled
that the sale of Lehman
Brothers’ American business
to Barclays in 2008, shortly
after the investment bank’s
spectacular collapse, was in
order, throwing outa claim
from Lehman creditors that
they were entitled to an $n
billion “windfall” from the
deal. It was widely expected
that the creditors would lose
their case.

Meanwhile, there was another
political fuss in Britain over the
activities of big banks when
Barclays was forced to reveal
that it had paid just £13m
($176m) in British corporation
tax in 2009, equivalent to 2.5%

: mir

The world this week

of its global pre-tax profit that
year. Barclays coughed up
more than £2 billion in other
British taxes in 2009, mostly in
payroll-tax contributions, but,
as with other banks, was able
to reduce its corporate-tax
liability in Britain by offsetting
bad-debt charges it took during
the financial crisis.

Carrots and sticks

An experiment conducted by
the Nottingham School of
Economics suggested that the
payment of bonuses to work-
ers did not encourage greater
effort, and actually led to more
shirking. But when penalties
are introduced for slacking,
worker efficiency is enhanced,
reducing shirking by half.

Joseph Flom, a legendary
lawyer who participated in
many of the big hostile take-
overs of the 1970s and 1980s,
died at the age of 87. Mr Flom’s
clients included T. Boone
Pickens, James Goldsmith and
Ron Perelman. His services
were sometimes retained by
companies as a defence
against those corporate raid-
ers, A poor boy from Brooklyn,
Mr Flom entered Harvard Law
School without having earned
an undergraduate degree.

Other economic data and news
can be found on pages 105-106
fie = / == —_
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