The Economist — May 12th, 2018

69 Pages·2018·8.735 MB·English

by  The Economist

Trump and Iran: what next?
Argentina in trouble again
The plasma trade, a bloody mess
Rules of the robo-road
MAY12TH–18TH2018
The $100 billion bet
How Masayoshi Son is shaking up Silicon Valley
Contents TheEconomistMay12th2018 5
33 SocialpolicyinPoland
8 Theworldthisweek
Zlotysfortots
33 Spain
Leaders Thehistoryofterror
11 Techinvesting 34 WolvesinGermany
The$100bnbet Huffingandpuffing
12 ThewoesofArgentina 35 Charlemagne
Tangotantrum WhatdoEuropeanswant?
12 Plasma
Bloodmoney
UnitedStates
14 IranandAmerica
36 Publicpolicy IranDonaldTrump’s
Anewdeal?
Makeworkcan’twork withdrawalfromtheIran
16 Malaysia’selections nuclearagreementisunlikely
37 GinaHaspel
Whatthedoctorordered TheCIA’snextboss todoanyoneanygood:leader,
Onthecover page14.Tensionsurgesacross
37 Primaryelections
Succeedorfail,Masayoshi Letters Thecentremostlyholds theMiddleEastasAmerica
Sonischangingtheworldof turnstougheronIran,page45.
technologyinvesting:leader, 18 Onjuries,economics, 38 MichaelCohen RenewedAmericansanctions
page11.Theimpactofhis EnochPowell,Guatemala, Truthandconsequences willmakeithardtorevivethe
robots
$100bnVisionFundwillbe 39 Childmentalhealth deal,page46
profound,page21 Attentiondeficit
Briefing 40 Rentcontrol
21 SoftBank’sVisionFund Thewrongremedy
TheEconomistonline TheSonkingdom 41 Lexington
Dailyanalysisandopinionto 23 Ridehailing DiamondandSilk
supplementtheprintedition,plus Steeringgroup
audioandvideo,andadailychart
TheAmericas
Economist.com
Britain 42 CentralAmerica
E-mail:newslettersand
25 ThepoliticsofBrexit Abriefprosecutorial
mobileedition
Cabinetsplits,partytwists goldenage
Economist.com/email
26 London’sgangs 43 Canada
Printedition:availableonlineby
Exitthematrix Rethinkingasylum
7pmLondontimeeachThursday ArgentinaAplummeting
Economist.com/printedition 26 MajorLeagueBaseball 43 Venezuela currencypromptsthe
Audioedition:availableonline PitchingtotheBrits Caracasrunsdry governmenttoseekacredit
todownloadeachFriday 28 Independenteducation 44 Bello linefromtheIMF,page63.The
Economist.com/audioedition The£52-per-weekschool PovertyinPeru economyhasmuchincommon
withyesterday’semerging
28 Housingsupply
markets,butlittleincommon
Anewstorey
MiddleEastandAfrica
withtoday’s:leader,page12
29 TheLiberalDemocrats 45 DitchingtheIrandeal
Happycockroaches Nuclearfallout
Volume427Number9091 30 Bagehot 46 SanctionsonIran
Thedegree-lessclass Thehighestlevel
PublishedsinceSeptember1843
46 ElectionsinIraq
totakepartin"aseverecontestbetween
intelligence,whichpressesforward,and Europe Seekingavisionary
anunworthy,timidignoranceobstructing
ourprogress." 31 VladimirPutin 47 Africa’seconomies
Sixmoreyears Don’texpectmiracles
EditorialofficesinLondonandalso:
Beijing,Berlin,Brussels,Cairo,Chicago,Madrid, 32 Eurovision 48 Mozambique
MexicoCity,Moscow,Mumbai,Nairobi,NewDelhi,
NewYork,Paris,SanFrancisco,SãoPaulo,Seoul, Warblegames Deathofarebel
Shanghai,Singapore,Tokyo,WashingtonDC 32 Estonia 48 Madagascar
ToRussophoneswithlove Ravalomananamañana
Blood plasmaMany countries
ban payment for it. This is
mistaken: leader, page 12.
Prejudice and misconception
leave the global market for
life-saving products
dangerously reliant on
America, page 55
1Contents continues overleaf
6 Contents The EconomistMay12th2018
65 Studentaccommodation
Asia
Higherearning
49 Malaysianpolitics
66 IslamicbanksinIndonesia
Um,no
Actoffaith
50 MediainCambodia
67 Bondissuance
Launderandpress
Fintechunbounded
50 Australia’sbudget
67 Tariffs
Bankingontaxcuts
Steelingforbattle
51 Kashmir
68 Buttonwood
India’spyrrhicvictories
Timetravel Radical ideasWhat liberal
AutonomousvehiclesHowdo 52 IBnadnoynaensia’spresident 69 Freeexchange democracy needs is a bigger
youdefine“safedriving”in Diversityineconomics role for the market, page 74.
Visit our online debate on the
termsthatamachinecan
understand?Page70 China state of the global trading
Scienceandtechnology system
53 TheSouthChinaSea
70 Autonomousvehicles Economist.com/openfuture
Makingmischief
Roboticrulesoftheroad
54 TheWenchuanearthquake
71 Evolutionarypsychology
Ajolttocivilsociety
Facingreality Subscription service
For our full range of subscription offers,
72 Oceanography
including digital only or print and digital
International Smallisbeautiful combined visit
55 Payingforblood(1) 72 Butterflies EYocoun coamn iaslts.oc osumb/socfrifbeers by mail or telephone at
Thickerthanwater Ablindalley the details provided below:
56 Payingforblood(2) Telephone: [phone]
Americanexceptionalism Web: Economist.com/offers
Booksandarts
Post: The Economist
74 Marketsandsociety SubscriptionCentre,
Malaysia’selection Business Saleofthecentury P.O. Box 471,
Haywards Heath,
Astunningwinforafresh-faced 57 Americanshale 75 Impeachingapresident RH16 3GY
92-year-old,Mahathir Inthelight,sweetspot Highcrimes UK
Mohamad:leader,page16.
58 WalmartbuysFlipkart 76 Experimentalfiction Subscription for 1 year (51 issues)
Controlofthecountrywill BentonvilleandBangalore Thetalkingcure Print only UK – £145
switchforthefirsttime,page49
59 Xiaomitogopublic 76 Thesecretlifeoffish
Littlerice,lotsofdough Asalmon’slament Principal commercial offices:
60 DrugpricinginAmerica 77 SlaveryinAmerica The Adelphi Building, 1-11John Adam Street,
Thepayers’revolt Noearsforcryin’ London WC2N 6HT
Tel: [phone]
60 AirFrance-KLM 78 Johnson Rue de l’Athénée 32
Struckdown Outofthemouthsofbabes 1206 Geneva, Switzerland
61 Videogames Tel: [phone]
Ahardday’sFortnite 750 3rd Avenue, 5th Floor, New York, NY 10017
80 Economicandfinancial Tel: [phone]
62 Thecoachindustry
indicators 1301Cityplaza Four,
FiftyshadesofGreyhound
Statisticson42economies, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong
plusourmonthlypollof Tel: [phone]
Financeandeconomics forecasters Other commercial offices:
FinancialtimetravelThe Chicago, Dubai, Frankfurt, Los Angeles,
momenthascomeforour 63 Argentina’seconomicwoes Paris, San Francisco and Singapore
ThecrisisofMacrinomics Obituary
columnisttoregenerate:
Buttonwood,page68 64 India’seconomy 82 Bassam Ghraoui
Thegreattrade-off Of war and chocolate
65 China’sstockmarket
IT,phonehome
PEFC certified
This copy of The Economist
is printed on paper sourced
from sustainably managed
forests certified by PEFC
PEFC/16-33-582 www.pefc.org
Registeredasanewspaper.©2018TheEconomistNewspaperLimited.Allrightsreserved.Neitherthispublicationnoranypartofitmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical,
photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The
Economist Newspaper Limited. Printed by Wyndeham Peterborough Limited.
8 The world this week The EconomistMay12th2018
Politics ashortageofforeigncurrency, AMalaysianinvestorwhose manipulated byalliesofthe
isnowatriskofsuffering an firm hasdone public-relations Guatemalan president, Jimmy
acute liquiditycrisisin its workfortheCambodian Morales.
alcohol market. Delta, itsbig- governmentboughtthe
gestbrewer, isrunningout of Phnom Penh Post, the lastdaily Not too Trumpy, please
ingredientsbecause itcannot newspaperin Cambodia that Anumberofpartyprimaries
getdollarsto payforimports; it regularlycriticisesthe govern- were held acrossAmerica. The
mayhave to cutbeersupplies. ment. Manyofitsjournalists mostcloselywatched result
resigned in a rowaboutits wasforthe Republican Senate
Afriendly start coverage ofthe acquisition. candidate in WestVirginia.
The leaderofthe protests Don Blankenship, a former
againstArmenia’sgovern- Pakistan’sinteriorminister, coal baron and jailbird who
ment, Nikol Pashinian, was Ahsan Iqbal, survived an campaigned on a message of
elected asprime ministerby assassination attemptafter being“Trumpierthan Trump”,
parliament. The Russian presi- beingshotin the shoulder. Mr lostto PatrickMorrisey, who
PresidentDonald Trump dent, VladimirPutin, congratu- Iqbal’soutspoken defence of had the supportofthe party
pulled America outofthe deal lated him. MrPashinian has minoritieshasearned him the hierarchy, includingDonald
brokered byworld powersin promised thathe will not enmityofMuslim radicals. Trump.
2015 to roll backIran’snuclear- breakwith the Kremlin.
weaponsprogramme, sayingit North Koreareleased three
was“rotten”. He reimposed all MrPutin wasre-inaugurated Americansspeciouslyaccused
sanctionsand gave foreign asRussia’spresident, after ofespionage and “hostile
firmsup to sixmonthsto stop winninga landslide election acts”. Mike Pompeo, the secre-
doingbusinesswith the coun- victoryin March. Hisfourth taryofstate, returned to
try. Othersignatories—Britain, term lastssixyears; itis sup- America with the three after
France and Germany—said posed to be hislast. Protests visitingNorth Korea to discuss
theywould continue to hon- againsthim were violently arrangementsfora summit
ourthe agreement, to which broken up. between Donald Trump and
Iran seemed to be adhering. “If Kim JongUn, the North’s
we achieve the deal’sgoalsin Italyremained withouta dictator. MrKim wentto China
co-operation with othermem- government; butthe oddsfor fora second meetingwith
bersofthe deal, itwill remain one led bya technocratap- PresidentXi Jinping. He was The Senate held a hearingon
in place,” said President pointed bythe presidentreced- the firstNorth Korean leader to whetherto confirm Gina
Hassan Rouhani ofIran. ed. Acoalition between the go abroad byplane in 32 years. Haspel asthe nextdirector of
radical Five StarMovement the CIA. She wasasked about
Binyamin Netanyahu, Israel’s and the right-wingNorthern Sun Zhengcai, a formermem- herrole overseeinga secret site
prime minister, applauded Mr League seemed to be backon berofChina’srulingPolitburo, where prisonerswere tortured
Trump’s“bold decision”. the cards. wassentenced to life in prison and ruled outanyreturn to a
Twentyrocketswere fired from afterbeingfound guiltyof similarprogramme. MsHaspel
Syriainto the Israeli-con- Anight to remember takingbribesworth $27m. offered to withdrawfrom
trolled side ofthe Golan consideration daysbefore the
Heights. Israel blamed Iran The place they called home hearing, an offerthatwas
and struckbackatdozensof The Trump administration rejected byMrTrump.
targetsin Syria. Itwasthe said itwasendinga “tempo-
biggestexchange offire across raryprotected status” pro- EricSchneiderman resigned as
the bordersince 1974. gramme for57,000 Hondu- the attorney-general ofNew
ranslivingin America. They Yorkstate, afterwomen with
Hizbullah and itsalliesgained will have to leave by2020. The whom he had been romanti-
seatsin Lebanon’sparliament, governmentgave the statusto callyinvolved claimed he had
accordingto preliminary Honduransaftera hurricane slapped them in the face and
election results. The Iranian- strucktheircountryin 1998. choked them. MrSchneider-
backed militia-cum-political The administration also an- man wasa prominentbacker
partyincreased itsshare of Malaysia’sopposition won a nounced plansto separate ofthe #MeToo movement. He
poweratthe expense ofthe stunningupsetvictoryatthe children and parentscaught deniesthe allegations, and
country’sprime minister, Saad polls, pavingthe wayforthe enteringthe countryillegally. sayshe has“neverengaged in
Hariri, whose partysustained country’sfirsteverchange of non-consensual sex”.
heavylosses. government. The rulingparty Marco Rubio, a senatorfrom
used all mannerofdirtytricks Florida, suspended American An unholyrowin the House of
An outbreakofEbolakilled at to pervertthe vote, butstill fundingfora UN-backed anti- Representativesoverthe sack-
least17 people in the Demo- lost. Najib Razak, the prime corruption commission in ingofitschaplaincame to a
craticRepublicofCongo. This minister, whom American Guatemalaknown asCICIG. miraculousend when Paul
isthe ninth outbreakofthe officialshad accused ofembez- MrRubio said the longsen- Ryan, the Speaker, decided to
disease in the countrysince its zlingnearly$700m, isout. tencesgiven to a Russian fam- allowhim to stayin the job. Mr
discoveryin the 1970s. MahathirMohamad, a spright- ilyconvicted ofbuyingfalse Ryan had asked FatherPatrick
ly92-year-old formerprime passportssuggested thatthe Conroyto resign, reportedly
Zimbabwe, which hassuf- ministerwho had quitthe Kremlin influenced the com- forprayingthatthe benefits of
fered a cripplingliquidity crisis rulingpartyin disgust, will mission. SupportersofCICIG the recenttaxreform should be
in financial marketsbecause of replace him. sayMrRubio isthe one being “shared byall Americans”. 1
The EconomistMay12th2018 Theworldthisweek 9
Business sale and underwritingof would not“mop up the losses India’sleadingonline retailer.
residential mortgage-backed ofAirFrance” bybailingitout. The country’se-commerce
securitiesin 2005-07. Because sectorisexpandingrapidly;
Argentinacalledin the IMF, $3.5bn ofthe $4.9bn fine is Underpressure to showthat Flipkart’snetsalesgrewby
aftera run on the peso covered byprovisionsalready theyare doingmore to police more than 50% in the year
prompted the central bankto made, RBS—ofwhich the Brit- theirplatforms, Google endingMarch 31st. Thatmay
raise itsbenchmarkinterest ish governmentstill owns banned all political advertise- be one reason whyAmazon
rate to 40% and spend $5bn of more than 70%—should avoid mentsaboutIreland’sforth- wassaid to be interested in
reservesin an effortto prop up slidinginto a lossthisyear. comingreferendum on abor- biddingforFlipkart, onlyto be
the currency. PresidentMaur- tion from itswebsites, a day thwarted byitsarch-rival.
icio Macri wenton television Takeoffandlanding afterFacebooksaid itwould
to explain thathe had turned blockadsaboutthe referen- One ofthose sellingitsstake in
to the IMFto avoid the type of Air France-KLM dum from non-Irish sources. FlipkartwasSoftBank, which
economiccrisesthathave Share price, € made an investmentthrough
besetArgentina in the past. Mr In China, Wu Xiaohui, who itsVision Fund and earned a
15
Macri hasbeen praised forhis transformed Anbangfrom a tidyreturn on itstrade. The
reformingzeal, butcallingon small insurerinto a global Japanese tech giantreported
10
the fund, which iswidely conglomerate, wassentenced an operatingprofitof¥155bn
blamed in Argentina forthe 5 to 18 yearsin prison forfraud ($1.4bn) forthe latestquarter.
country’sfinancial crisisin and abuse ofpower. The Thatwasup by60% from the
2001, ispoliticallyrisky. 0 governmenttookcontrol of same period in 2017, in large
2017 2018 Anbangearlierthisyear, say- partbecause ofincome from
The multimedia revolution Source: Thomson Reuters ingitsrapid expansion was a the fund. Sprint, an American
In anothersign ofthe ThesharepriceofAirFrance- threatto financial stability. wirelessoperatorowned by
convergence between the KLMtumbled by10%, afterits SoftBank, made itsfirstannual
wirelessand cable industries, chiefexecutive quitamid a Glencoreand the Qatar netprofitin 11years.
Vodafoneoffered to buya protracted paydispute with InvestmentAuthority
chunkofthe assetsin Europe unions. The companywas scrapped a plan to sell their Ashot in the arm
held byLibertyGlobal. The formed bythe mergerin 2004 jointstake in Rosneft, Russia’s Nestléstrucka $7.2bn deal for
transaction, valued at€18.4bn ofthe French and Dutch na- stateoil company, to CEFC, a the rightsto sell packaged
($21.8bn), seesVodafone taking tional carriers. Pilotsand staff private Chinese conglomerate coffee and otherproducts
overUnitymedia in Germany, atAirFrance have carried out a whose bosshasapparently underthe Starbuckslabel.
aswell asLiberty’sholdingsin seriesofstrikes; theyhave fallen foul ofthe authorities. Productslike packaged coffee
the Czech Republic, Hungary rejected the latestproposal on The pairdissolved theirven- beansand podsaccountfor
and Romania. wages. The French govern- ture. QIAnowholdsan equity just8% ofsalesatStarbucks. It
ment, the biggestshareholder stake of18.9% in Rosneft; intendsto use the proceeds
Afterseveral weeksof in AirFrance-KLM, criticised Glencore retains0.6%. from the deal to accelerate its
courtship, Shireaccepted the unions, pointingoutthat sharebuy-backprogramme.
Takeda’stakeoverbid of KLMismore competitive. In itsbiggestacquisition so far,
£46bn ($62bn). Ifapproved by Bruno Le Maire, the finance Walmartagreed to pay$16bn For other economic data and
shareholdersthe deal will minister, warned thatthe state fora 77% stake in Flipkart, news see Indicators section
create one ofthe world’s
biggestdrugcompanies. It
would also representthe
largestforeign takeoverby a
Japanese company.
Volkswagen’sboard was
reportedlyconsideringwheth-
erto seekdamagesfrom Mar-
tin Winterkorn in relation to
the emissions-cheatingscan-
dal thatsurfaced in 2015. Mr
Winterkorn resigned asCEO
when the scandal broke. He
wascharged recentlybyAmer-
ica’sJustice Departmentwith
conspiracy, which maymuddy
the carmaker’sargumentthat
seniormanagementknew
nothingaboutthe tampering.
MrWinterkorn hasrepeatedly
denied anywrongdoing.
Royal BankofScotlandsaid
thatithad reached a settle-
mentin principle with the
Justice Departmentoverthe
Leaders The EconomistMay12th2018 11
The $100 billion bet
Succeed orfail, Masayoshi Son is changing the world oftechnologyinvesting
TWO years ago, if you had startupsthewherewithal to outgun worse-funded rivals. Mr
asked expertsto identify the Son’sbetsdo nothave to payoffforhim to affectthe race.
mostinfluential person in tech- MrSon’ssecond impactwill be on the venture-capital in-
nology, you would have heard dustry. To compete with the Vision Fund’spotofmoolah, and
some familiarnames: JeffBezos with the forays of other unconventional investors, incum-
ofAmazon, Alibaba’sJackMa or bentsare havingto bulkup. Sequoia Capital, one ofSilicon Val-
Facebook’sMarkZuckerberg. To- ley’smostfamousnames, israisingitsbiggest-everfund in re-
day there is a new contender: sponse. MrSon isalso bringingcapital to placeswhere itisstill
Masayoshi Son. The founderofSoftBank, a Japanese telecoms in fairlyshortsupply—to India, to South-EastAsia and to sever-
and internetfirm, hasputtogetheran enormousinvestment al European countries. When the Vision Fund invested close to
fund thatisbusygobblingup stakesin the world’smostexcit- $500m in Improbable, a British virtual-realityfirm, it broke a
ingyoungcompanies. The Vision Fund isdisruptingboth the fundingrecord, and its€460m ($565m) in Auto1, a German on-
industriesin which itinvestsand othersuppliersof capital. line cardealer, wasone ofthe country’sbiggestsuch invest-
The fund isthe resultofa peculiaralliance forged in 2016 be- mentsin several years. Ratherthan waitforfounders to make
tween MrSon and Muhammad bin Salman. Saudi Arabia’s the trip to California, investorsare undergreaterpressure to
thrustingcrown prince handed MrSon $45bn aspartofhis at- seekoutentrepreneurs.
temptto diversifythe kingdom’seconomy. Thatgreatdollop of The Vision Fund’s unprecedented span, across countries
capital attracted more investors—from AbuDhabi, Apple and and industries, leadsto itsthird impact. MrSon says he wants
others. Add in SoftBank’sown $28bn ofequity, and MrSon has to create a “virtual Silicon Valleyin SoftBank”, meaninga plat-
awarchestof$100bn. Thatfarexceedsthe $64bn thatall ven- form on which unicornscan offereach othercontactsand ad-
ture capital (VC) fundsraised globallyin 2016; itisfourtimes vice, buygoodsand servicesfrom each other, and even join
the size ofthe biggestprivate-equityfund everraised (see Brief- forces. The conceptofportfolio companiescollaborating isfa-
ing). One VCgrandee callsVision Fund “the mostpowerful in- miliarfrom private equity, butthe fund’ssheerbreadth marks
vestorin ourworld”. itout. MrSon is, forexample, tryingto orchestrate hisvarious
ride-hailinginvestmentsso thattheydo notburn through so
Masastroke... much cash by competing with each other. He encouraged
Powerdoesnotnecessarilymean success. Scepticsabout the Uberto sell itsSouth-EastAsian businessto Grab earlier this
Vision Fund have lotsofammunition. Aftera longbull market, yearand isurgingitto make a deal in India with Ola.
the valuationsoftech firmsare stretched. MrSon personally The Vision Fund model isdisruptive, then. Butisit good for
makes most of the investing decisions. He has notched up innovation and consumers? MrSon’sprojectcertainlyhas its
some triumphsin hiscareer, includingan earlybeton Alibaba. attractions. Itisshakingup the cosyworld ofSilicon Valley
Buthisdotcom-era investmentsmean he isalso the person to venture capital. And itmaynurture competition against the
have lostmore moneythan anyone else in history. Hispursuit tech giants. The fund offersfoundersofstartupsan alternative
ofthe “singularity”, the pointatwhich computerintelligence to cashingoutto the likesofGoogle, Facebookand Amazon; its
exceedsthe human kind, mightmake him a visionary—or just massive chequebookalso givesthose entrepreneursa better
an eccentric. The moneyisbeingshovelled outalmost asfast shotatcompetingwith the titans. The fund mayperform a
asitwastaken in. The fund hasalreadyspent$30bn, nearlyas similarfunction in China, where nearlyhalfofall unicorns are
much asthe $33bn raised bythe entire American VCindustry bynowbacked byone ofthe country’sfourtech giants, Baidu,
in 2017. And because abouthalfofitscapital isin the form of Alibaba, TencentorJD.com.
debt, itisunderpressure to make interestpayments. Thiscom-
bination of gargantuanism, grandiosity and guaranteed ...orMasachism?
payoutsmayend up in financial disaster. Indeed, the Vision Yetitsdisadvantagesextend beyond the riskoflosses. Itssheer
Fund could markthe giddytop ofthe tech boom. size risks raisingthe cost ofrunninga startup foreveryone.
Buteven ifthe fund endsup flopping, itwill have several Youngfirmsthatreceive itscash often spend iton sales and
lastingeffectson technologyinvesting. The firstis thatthe de- marketing, which putspressure on everyothercompany in the
ploymentofso much cash nowwill help shape the industries industryto spend aslavishlyin orderto acquire customers.
ofthe future. MrSon ispumpingmoneyinto “frontiertechnol- Companiesthatreceive hundredsofmillionsofdollars ofcap-
ogies” from roboticsto the internetofthings. He already owns ital in one go are elevated farabove theircompetitors. That
stakes in ride-hailing firms such as Uber; in WeWork, a co- handsa single individual kingmakingpowers, while keeping
workingcompany; and in Flipkart, an Indian e-commerce firm youngfirmsoutofthe clarifyingglare ofthe public marketsfor
thatwasthisweeksold to Walmart(see Businesssection). In even longer. Attempts to carve up markets amongportfolio
five years’ time the fund plansto have invested in 70-100 tech- firmsmayin time raise a differentsetofcompetition concerns.
nology unicorns, privately held startups valued at $1bn or Aproperverdicton the Vision Fund will notbe possible for
more. Itsmoney, often handed to entrepreneursin multiples of years. Butthe fate ofmanystartupsand the choicesconsumers
the amountstheyinitiallydemand and accompanied bythe enjoyin the future will be guided bythe betsMrSon ismaking
threatthatthe cash will go to the competition ifthey balk, gives today. Fortune’sbiggestwheel isspinning. 7
12 Leaders TheEconomistMay12th2018
ThewoesofArgentina
Tango tantrum
Argentinahasmuchincommonwithyesterday’semergingmarkets,butlittle in common with today’s
YAWNINGdeficits,stubborn deficitswiththerestoftheworld.
Argentinepesoper$ inflation, a plungingcurren- Andalthough manyemergingmarketshave heavydebts,
Invertedscale cy, spiking interest rates, dwin- theydonotshare Argentina’sold-fashioned need to borrow in
18
dling reserves and a humbling othercountries’ currencies. Almost64% ofArgentina’scom-
20
turn to the IMF. Argentina binedgovernmentand corporate debtisdenominated in dol-
22
seemstobegoingthroughaclas- larsandotherforeign monies, accordingto the Institute ofIn-
24
Jan Feb Mar Apr May sic emerging-market crisis, cul- ternational Finance. Amongthe bigemergingmarkets, only
2018 minating in the government’s Turkeycompares, with 56%. The equivalentfigure forThailand
decision this week to seek a precautionary loan from the is17%,forBrazil only16%.
fund—aninstitutionthatfearsArgentinaalmostasmuchasAr-
gentinafearsit. Letitgo
Thecountryisnotquiterepeatingitsowncrisis-riddenhis- Lowinflation,modestcurrent-accountdeficitsand limited for-
tory.Argentinatodayhasareformistgovernmentlargelyin- eign-currencydebtthusdistinguish manyoftoday’semerging
tentondoingtherightthing,ratherthanthepopulistadminis- marketsfromthe peso—and from theirown past. These attri-
trationsthatblighteditsrecentpast(seeFinancesection).But butesdonotrenderthem immune from the global financial
itstroublesarereal.Manywonderiftheywillspreadtoother forces that have rocked the peso. All emerging economies,
emergingmarkets.Severaleconomiesshareoneortwoofits eventhebiggest, muststill watch the Federal Reserve, rising
vulnerabilities.Mercifullyfewshareallofthem. Americanbond yieldsand the strengtheningdollarwith trepi-
Argentina’srateofinflation,whichexceeds25%,seemsto dation.Inmanycasestheirlong-term interestratesseem as
belong to a lost world. Only in Egypt, Nigeria and Turkey sensitivetoAmerica’scentral bankasto theirown.
(amongnotableeconomies;Venezuelaisonadifferentplanet) But theirnew virtues do give emergingeconomies more
isinflationevenindoubledigits.Itisnowcomfortablybelow roomformanoeuvre. Theycan ease theirown interestrates if
the government’s target in Brazil, China and Russia (among borrowingcostsrise too much. And ifcapital fleesthey can al-
otherplaces)anduncomfortablybelowitinThailand.These lowtheircurrenciesto fall withoutthe economyfaltering. That
countries’monetaryauthoritieshavealreadywonthebattle isbecausetheyneed notworrythata one-offrise in import
forpricestabilitythatArgentinaisstillwaging. priceswilltranslate into ongoinginflation orthata weakerex-
Inseveralemergingeconomies,includingBrazil,Egyptand changeratewill renderdollardebtsimpossible to service.
India,thegovernmentfinancesare,ifanything,worsethanin Thedistinctionsbetween Argentina and the broadergroup
Argentina.Brazil’sfiscaldeficitisprojectedtoexceed8%ofGDP ofemerging markets have not gone unnoticed. In 2009 the
thisyear,accordingtotheIMF,comparedwithanoveralldef- countrywaseven reclassified asa “frontier” marketbyMSCI,
icitof5.5% forArgentina. Buteven asthese othercountries’ anindexprovider. Butin itsstruggleswith inflation, deficits,
governmentslivefarbeyondtheirmeans,theirprivatesectors dollardebtand depreciation, Argentina’seconomyresembles
arelivingwellwithinthem.Forthatreason,theirlargefiscal aclassicemergingmarketmore faithfullythan manyecono-
deficitshavenottranslatedintoequallylargecurrent-account miesthatstillcarrythe label.7
Compensatingblooddonors
Blood money
Manycountries ban paymentforblood plasma. This is mistaken
THIS year marks the 200th transfusion,demand forwhich isfallingasmedical techniques
anniversary ofthe first suc- improve, butofplasma (see International section). Most ofthis
cessful human-to-human blood comes from plasma-collection centres, where it is extracted
transfusion, conducted by from whole blood and the plateletsand blood-cellsare trans-
James Blundell, an English ob- fused backinto the donor. Plasma isused to make drugs such
stetrician working just across asfactorVIII, which helpshaemophiliacs’ blood to clot, and
the Thames from The Econ- vaccinesforrabies, tetanusand Rhesusdisease. Almost 50m li-
omist’s offices. Today blood is tresofitwere used in 2015, enough to fill 20 Olympicswim-
bigbusiness—with global exportsworth more, in 2016, than mingpools. America, the OPECofplasma, produces15 ofthose
global exportsofaeroplanes. Butthattrade isdistorted bythe swimming-pool equivalents. Forget steel and cars: plasma
refusal ofmostgovernmentsto allowpaymentto people who makesup 1.6% ofAmerica’stotal goodsexports.
give plasma, blood’syellowish liquid component. The secretofthissuccessissimple: America letscompanies
The blood trade today consists mostly not of blood for paypeople fortheirplasma. So do the fewothercountries that1
14 Leaders The EconomistMay12th2018
2aregoodatcollectingthestuff,includingGermanyandHunga- ma,fewerwillvolunteerto donate whole blood fortransfu-
ry.Othersdon’t.BigimporterssuchasAustralia,Franceand sions.(Payingforwhole blood would be unwise, since itcan-
Belgiumhavebannedpayment.InCanada,wheretheissueis notbesterilisedasplasma can.) Butthere isno evidence that
alivedebate,thelonecompanytryingtocollectpaidplasma payingforplasmadiminishesthe supplyofdonated blood.
hasrecentlybeenbannedintwoprovincesandrisksthesame Thatiswhy,inCanada,more than 30 economistsand philoso-
inathird. pherswroteanopenletterarguingagainstbanson paid plas-
ma.Americansvoluntarilydonate asmuch blood perperson
Bloodandtreasure asdoCanadians.
Theaversiontopaidplasmarestsonthreereasonable-sound- A third argument is that paying for plasma preys on the
ingbutlargelygroundlesspropositions.Thefirstisthatitisun- poor.Itispossiblethatthose sellingplasma need the money
safe.Paymentmightencouragedonorstoconcealdangerous andthereforemightgive too often. In America plasma donors
behaviour—such as intravenous drug use. In the 1980s and cangivetwiceaweek;those in Europe can give justonce a
1990s,taintedbloodproductsinfectedhalftheworld’shaemo- week.Thereisnoevidence ofharm to theirhealth in either
philiacswithHIV,alongwithtensofthousandsofplasmado- case,butmorelong-term studywould be prudent.
norsinChina.Butmodernplasmaproductsdonotcarrysuch Thoseagainstallowingpaymentsuggestusingvoluntary
risks.Theyareheat-treatedandbathedinchemicalstosanitise donorsinstead.Yeteverycountrythatdoesnotpayends up
them (an impossibility for blood for transfusion). Since the importingplasma.Andthe factthatAmerica isbyfar the dom-
adoptionofthesetechniquestherehasnotbeenasinglecase inantsuppliercarriesrisksofitsown. The dependence on a
oftransmissionofHIVorhepatitisviaplasmaproducts.Doc- singlesourceleavestherestofthe world vulnerable to an in-
torsagreethatplasmaproductsfrompaiddonorsarejustas terruptionofsupply.To protecttheirpeople, therefore, other
safeasthosefromunpaidones. governmentsneedtodiversifytheirsuppliesofplasma. Pay-
Asecondargumentisthat,ifpeoplearepaidfortheirplas- ingforitwouldmakeabigdifference. 7
IranandAmerica
A new deal?
Donald Trump’s withdrawal from the Iran deal is unlikelyto do anyone anygood
BY PULLING out of the Iran riseupagainsttheiroppressors.
nuclear deal, President Do- Atitsheart, MrTrump’splan isbased on a hunch about
nald Trump iscountingon rene- sanctions. Firstitassumesthat, with heaviersanctions, Iran’s
gotiation orregime change. He is economywill be lessable to finance warfare in Iraq, Syria, Leb-
more likelyto end up with war. anon and Yemen. YetIran’sbelligerence isnotthe outcome ofa
On May 8th Mr Trump did book-keepingexercise. Notwithstandinglastyear’sstreetprot-
notcutAmerica’stieswith the ests, which called formore spendingathome, Iran finances
Iran deal so much astake an axe troops, militiasand terroristsbecause itcravesinfluence and it
to it. The JointComprehensive Plan ofAction, asitis known, perceives threats. Mr Trump set out to intimidate Iran this
curtailsIran’snuclearprogramme fora numberofyearsand week: he mayhave leftitmore determined.
permanentlysubjectsitto intrusive inspections, in exchange Second, MrTrump assumesthateconomicpain from new
forthe liftingofsanctions. MrTrump’swithdrawal from the sanctions could force Iran to the negotiating table, as it did
“decayingand rotten” agreementhonoured a campaign pro- North Korea. Heavysanctionscan indeed lead regimesto ne-
mise. However, the presidentwasunexpectedlyharsh in vow- gotiate, asIran showed in the deal thatMrTrump has nowre-
ingto extend sanctions, notjustrestore them, and to punish jected. ButMrTrump displayslittle sense ofhowthe verylead-
anyfirm doingbusinesswith Iran whereveritisbased. ers he has just welched on can surrender wholesale to his
Since the UNsaysthatIran washonouringthe agreement, demandsand survive.
aseven itscriticsallow, MrTrump hasstrengthened the argu- Perhapsthatisthe point, and hisreal betisthat sanctions
mentsoffoesthatAmerica cannotbe trusted and that the glo- will bringabouteconomicagoniesthattopple the regime. The
bal rulesitclaimsto uphold are made to be broken. The ques- mullahswill notrule Iran forever. Butthe Castrosin Cuba
tion forthe otherpartiesto the deal (Russia, China, Germany, have withstood sanctionsfordecades. Iran’stheocratshave
Britain, France and the European Union) is: what next? The proved perfectlywillingto keep orderbyforce.
question forthe world asa whole, especiallythe Middle East, Thisnewspaperwould welcome an end to Iranian belliger-
is: whatdoesthismean forIran’sabilityto getthe bomb? ence and to the regime itself, buta wish based on a hunch is
not a policy. Instead, faced with the probable failure ofMr
Firsttragedy, then Farsi Trump’sscheme, the partiesto the deal should strive to keep it
In Tuesday’s announcement MrTrump offered his own an- alive foraslongastheycan. One aim isto demonstrate to Mr
swers. He said thathe is“ready, willingand able” to negotiate a Trump and hissupportersthatglobal rulesdo matter. The EU
newdeal thatlimitsIran’sregional aggression aswell asits nu- should, for instance, continue to meet Iranian officials and
clear weapons, though he offered no plan for bringing that protestto the World Trade Organisation aboutAmerican sanc-
about. He also issued a veiled appeal to the Iranian people, tionson itscompanies, asitdid 20 yearsago when America ap-
who he said are beingheld “hostage” bytheirgovernment, to plied secondarysanctionsoverCuba. The otheraim is to hold 1
16 Leaders TheEconomistMay12th2018
2Iranbackfromrestartingitsnuclear-weaponsprogramme. underground—literally and figuratively—there may not be
Realistically,however,ChinaandRussiamaynotwantto enoughintelligencetoassessthethreat.Moreover, with sanc-
digMrTrumpoutoftheholehehasmadeforhimself,andthe tionsalreadyratcheteduphigh,MrTrumpandhissuccessors
EUcannotsavethedealonitsown.Thedollarisstilldominant willhavelimiteddiplomaticscopetogetIrantostop. Instead,
(thoughMrTrumphassurelybroughtforwardthedaywhen theywillhavetoresorttomilitaryaction.
China clears global payments in yuan). Companies with a YoudonotgotowarwithIranlightly—would MrTrump
choicebetweenoperatinginAmericaorIranwillinevitably fightover,say,someextracentrifuges?Iranwould be able to
choosethebiggermarket. creeptowardsthenuclearthreshold.And,unlike the Iraqi and
SothegainsfromapartialdealwillbenegligibleandIran Syrianprogrammes,whichweredestroyedinone mission by
maywellsoonerorlaterrestartitsnuclearprogramme.The theIsraeliairforce,Iran’sknow-howandindustrial capacity
Irandealguardedagainstthat,byprovidinganearlywarning cannotbebombedoutofexistence.IfIranisdetermined to get
and the option to reimpose sanctions. Without it, Iran may aweapon,AmericaorIsraelwillhavetobomb itevery few
seektoreturntotheoldlimitedinspectionsregime,tobuild years.Howwouldtheyjustifythat?Itishardto think ofany
new centrifuges, to enrich uranium to near weapons-grade previous American president tossing aside an international
andtominiaturisewarheads.IftheIranianprogrammegoes agreementforsuchpooroddsandatsuchaheavycost. 7
Malaysia’selections
What the doctor ordered
Astunning win forthe fresh-faced, 92-year-old MahathirMohamad offers Malaysia a chance to clean up
ELECTIONS in Malaysia are edtokeepMalayvotersloyaltoUMNO.Whatismore, Pakatan
normallypredictable. In fact, Harapan, asthe victoriouscoalition isknown, resorted to pop-
the United MalaysNational Or- ulism to counter UMNO’s election-rigging, promising to roll
ganisation (UMNO) and various backan unpopularbutnecessarygoods-and-servicestax and
allieshad won all ofthem since to reinstate subsidieson petrol thatMrNajib had scaled back.
1955, until this week. Over the The newgovernment’smajorityalso restson an unwieldy
yearsUMNOhasresorted to ev- coalition ofotherdefectorsfrom UMNOand veteran opposi-
eryconceivable trickto remain tion politicians with relatively little experience of govern-
in power: stirringcommunal tensionsamongMalaysia’seth- ment. In particular, there isbad blood between DrMahathir,
nicgroups, lockingup critics,riggingthe electoral system in its who is 92 years old, and Anwar Ibrahim, a former deputy
favour, bribingvoterswith populisthandoutsand threatening prime ministerwhom DrMahathirfirsttreated asa protégé
chaosifitlost. In the run-up to the election on May 9th itdid all and laterhad jailed on spurioussodomycharges. MrAnwar is
ofthat. Itwastestimonyto the awfulnessofthe government of nowthe leaderofone ofPakatan Harapan’scomponentpar-
Najib Razakthatthe opposition waseven in contention. And it ties, and would have been itsprime ministerial candidate had
istestimonyto the good sense ofMalaysian votersthat the op- MrNajib nothad him jailed again. Although DrMahathir and
position won, convincingly, pavingthe wayforMalaysia’sfirst MrAnwarclaim to be reconciled, itisnotclearhowthey will
everchange ofgovernment. geton afterMrAnwarisreleased from prison nextmonth.
For a country where politics has always been run along Nonetheless, itishard to imagine thatUMNO’slosswill not
communal lines, the shockingupsetholdsoutthe prospect of change Malaysia forthe better. Forone thing, itisin the new
amore meritocraticform ofgovernment. Forthe region, where lot’sinterestto make the electoral system fairerand to promote
rulerswith authoritarian instinctshave been steadily curbing afreerpress. Betteryet, the resultssuggestthatcentrism has
political freedoms, it is a heartening victory for democracy. more electoral appeal than both UMNO’sMalaychauvinism
And forMrNajib, who wasaccused byAmerica’sDepartment and the IslamiczealotryofPAS, an opposition partythatde-
ofJustice ofpersonallypocketing$681m looted from a Malay- clined to join Pakatan Harapan. Manyofthe newMPs, having
sian governmentagency, itisa welcome comeuppance. experienced variousformsofofficial biaswhen UMNOwasin
power, will have a natural desire to make the bureaucracy
Living up to its image more impartial. Doingawaywith preferencesforMalays was
Malaysia isoften putforward asa rare example oftolerance alwaysgoingto be a tall order, given the cloutofMalay voters.
and democracy among countries with a Muslim majority. Butatthe veryleastPakatan Harapan islikelyto reform some
Both claimshad been lookingshakyasUMNOresorted to ever ofthe handouts, to make them lessofa gravytrain for UMNO
more unfair tactics, and ever more strident appeals to the cronies. Itspledge to investigate MrNajib’salleged corruption
country’sMalayMuslim majority, to remain in power. How should also help clean up politics.
much thischangesdependson the good faith and efficiency of Perhaps the new government will succumb to infighting
the newgovernment. and fail to getmuch done. Butitsveryexistence isa potentre-
Scepticsnote thatitisled byMahathirMohamad, a former minderto Malaysiansand theirneighboursthatgovernments
five-term UMNOprime ministerwho pioneered manyofthe can and should, from time to time, change peacefully. With
underhand tacticsto which MrNajib resorted in hisfailed bid luck, Cambodians, Singaporeans, Thais and Vietnamese,
to remain in power. DrMahathirwasalso a champion of Ma- among others, will begin to wonder if something similar
laysia’sodioussystem ofracial preferences, which he expand- mightone dayhappen to them. 7
18 Letters The EconomistMay12th2018
hardlytouchedupontherich ofblood”speech (“Fiftyyears
Reachingaverdict Assemblyinstructions
bodyofresearchandfindings down-river”, April 21st)?
IreadwithinterestJohnson’s abouteconomicgrowththat Powell’sanecdotal middle- Itistrue thatartificial intelli-
columnonthebafflinglegalese aresomewhatoutsidemain- aged constituentmusthave gence struggleswith physical
containedininstructionsgiven streamwriting.Thereis,for been one ofmanywho found tasksthatappearsimple to
tojuries(April14th).Mycol- example,significantresearch theirneighbourhood trans- humans(“The Kamprad test”,
leaguesandIhavepublisheda exploringthecharacteristicsof formed overnightbystrangers. April 21st). There isa straight-
numberofexperimentsabout thesocialandculturalenviron- Neitherquickenough nor forward explanation forthis
howlaypeopledo,andcom- mentsthatfostergrowth. wealthyenough to have fled observation. AIsystemsexcel
monlydonot,understandthe Extensivestudieshavebeen elsewhere, theyfelttrapped whenevertheycan learn from
categoriesofmentalstatesthat writtenoninstitutionsin- and abandoned. In contrast, an immense numberofex-
thedefendantcanbesaidtobe volvedineconomicgrowth those livingin leafysuburbs amples. In the case ofchess or
inatthetimeofthecrime.To andhowtheyhavechanged were cushioned from the avideo game, theycan practise
giveasenseofthemagnitude overtime.Thishasbeenillu- realitiesofmassimmigration. byplayingmillionsofmatches
ofconsequencesthatcan minatedbymanyeconomists, YUGO KOVACH in shorttime periods. When
followwhenajurormisun- notablyDouglassNorth.There Winterborne Houghton, Dorset attemptingto learn a physical
derstandscriminalmental- isalsoasubstantialempirical task, however, theyare con-
states,thedifferencebetween literatureonhowtechnologi- strained byphysical laws.
Guatemala and Belize
beingconvictedofa“know- caladvances,theprimary Watchingwhetheran
ing”homicideanda“reckless” driverofeconomicgrowth, Itisnottrue thatGuatemala assembled chairfallsoveror
homicidefortheverysameact comeaboutandthekeyin- claimshalfofBelize’sterritory staysuprighttakestime.
canbeasmuchas14yearsin stitutionssupportingthem. (“HalfofBelize, please”, April MORITZ GROSSE-WENTRUP
prison,inthefirstcase,and Moregenerally,thepast40 21st). Belize hasa rightto self- Professor of data science
probationwithoutprisontime yearshaveseenthedevel- determination. Butwe are in Ludwig Maximilian University of
inthelattercase.Itistypically opmentofempiricaland disagreementabouta treaty Munich
juries,notjudges,whodecide theoreticalresearchthatviews from 1859. Belize wasnota
whichofthesetwomental growthasanevolutionary partyto thattreaty, which still
statesthedefendantwasin. process,takingupthemes damagesGuatemala. That
Theexperimentswere introducedbyJoseph cannotbe forgotten. However,
motivatedbythesensethat Schumpeter. Guatemala’sclaim isto its
thelawhadtoocomfortably Theconcernsthathaveled territorial, insularand mari-
assumedthatjurorsunder- tothisletterareinpartabout time rights, which are based on
standhowtoapplythemen- thatparticularFreeexchange international lawand univer-
tal-statecategoriesthatthelaw column,butaremoregeneral sal legal principles. Both Gua-
created.Whentheycan’t, thanthat.Wealsobelieveitis temala and Belize wantto lay
justiceislikelytomiscarry. importantthatTheEconomist outtheirargumentsatthe
OWEND.JONES isawareofhowtheknowl- International CourtofJustice,
Director edgeofeconomistswhowork alegal processthatdoesnot
MacArthurFoundationResearch outsidethemainstreamtext- referto damages. The Kamprad test, which tasks
NetworkonLawand booksandjournalsisevolving. The referendum held in robotswith the seemingly
Neuroscience GIOVANNIDOSI Guatemala on April 15th was impossible job ofassembling
Nashville,Tennessee ScuolaSuperioreSant’Annain notan actofprovocation. And an IKEAchair, appearsde-
Pisa regardingthe notion thatthe signed to comfortusmere
CONSTANCEHELFAT referendum was“irrelevant”, mortalsthatwe will notbe
Economists respond
DartmouthCollege turnout, at26%, wasthe high- easilyreplaced byAI. Instead,
RegardingyourFree exchange FRANCOMALERBA estin all ofthe popularconsul- itevokesa dystopian future
column purportingto review BocconiUniversity tationsheld in Guatemala so where artificiallyintelligent
howeconomistsunderstand JOELMOKYR far; 96% ofthose voterssup- computersserve asthe world’s
growth (April 14th), we also NorthwesternUniversity ported the agreement. Belize thoughtleadersand problem-
share seriousmisgivingsabout RICHARDNELSON will hold an identical consul- solverswhile theirhuman
the adequacyofthe analysis ColumbiaUniversity tation atthe end ofthisyear or serfstoil awayin physical
ofeconomicgrowth thatone ANDREASPYKA nextyearand I trustBelize’s tasks. PerhapsI should learn to
seesin the standard textbooks UniversityofHohenheim authoritieswill have the same welcome ournewcomputer
and in much ofthe current PIERPAOLOSAVIOTTI supportoftheirpeople. overlords, because being
literature. Grantingthe legiti- UtrechtUniversity Guatemala and Belize want relieved ofstressful cognitive
macyofthattarget, however, F.M.SCHERER peace and prosperity, which is taskswill leave me more time
we found thatyoufell short KennedySchool,Harvard whywe both decided to bring to enjoyThe Economist.
when describinghowthe University ourdifferencesto the ICJ. I ANDREW WHITEHAIR
limitationsofthe earlyneo- SIDNEYWINTER wantto emphasise thatthe Cleveland7
classical growth modelswere WhartonSchool,Universityof damagessuffered byGuatema-
recognised, leadingto newer Pennsylvania la asa consequence ofthe
models, and in discussingthe non-compliance with the Letters are welcome and should be
range ofempirical understand- treatyof1859 isnotan object of addressed to the Editor at
An infamous speech The Economist, The Adelphi Building,
ingsthatgrowth accounting Guatemala’slegal claim
1-11John Adam Street,
and otherquantitative meth- Since when hasitbeen wrong againstBelize. London WC2N 6HT
odsused bythe profession foran MPto empathise with ACISCLO VALLADARES MOLINA E-mail: [email protected]
have broughtto light. the plightofa constituent, as Ambassador of Guatemala More letters are available at:
More importantly, you Enoch Powell did in his“rivers London Economist.com/letters