The Economist (November 16th 2019)

82 Pages·2019·17.341 MB·English

by  The Economist

Bolivia: a coup or not a coup?
Aircraft-carriers, mighty big targets
Italy’s ancient oligarchs
A special report on migration
NOVEMBER16TH–22ND2019
The $650bn binge
Fear and greed in the entertainment industry
Contents The EconomistNovember16th2019 5
The world this week Britain
8 Asummary of political 23 The politics of the NHS
andbusinessnews
24 Polling commuterland
26 Tactical voting
Leaders
28 Parliament’s class of 2019
13 The media business
28 The campaign in quotes
The $650bn binge
29 Spending splurges
14 Latin America
Was there a coup in 29 Floods on the trail
Bolivia? 30 BagehotTheDavosParty
14 Pension costs
Dependants’ day Europe
15 Immigration policy 31 Germany’s deficit rule
Unlock that door
32 Spain’s election
On the cover
16 Aircraft-carriers 33 The litigious Irish
Creative destruction in the Sinkorswim
33 Da Vinci’s wine
entertainment business has
had blockbuster results: 34 CharlemagneEurope’s
Letters
leader,page 13. Media giants twopaths
19 On Elizabeth Warren, the
are battling for viewers’
Berlin Wall, southern
attention. There will be blood: United States
Democrats, army food,
briefing,page62
WilliamRehnquist 35 Impeachment hearings
•Bolivia: a coup or not a coup? 36 Automatic clean-slate laws
The armed forces spoke up for Briefing 37 The economy
democracy and the constitution
20 Aircraft-carriers 38 Extreme broadcasting
against Evo Morales’s attempt
Toobigtofail?
38 Delta history
at dictatorship,page 14. The
former president leaves a 40 LexingtonTrump and
Special report: Migration
dangerously divided country, Erdogan
Aworld of walls
page 41
After page 42
The Americas
•Aircraft-carriers, mighty big
targetsWhen it comes to the 41 Evo Morales quits
largest ships, bigger isn’t always 42 Mexican marriage
better: leader,page 16. More
costly than ever, and more
vulnerable too, the queens of
the fleet are in trouble: briefing,
page 20
•Italy’s ancient oligarchs
Middle East & Africa
Octogenarians are shaking up
43 An assassination in Gaza
corporate Italy,page 59
44 Salafists in Libya
•A special report on migration
44 Africa’s big-agri problem
The simplest way to make the
45 West Africa’s gold rush
world richer is to allow more
BartlebyThe agonies of
people to move. Yet the politics 46 Gourmet grubs in Congo
videoconferencing,
of migration have never been
page 58
more toxic, afterpage 42.
Barriers to movement make the
world poorer. Only voters can
remove them: leader, page 15
1 Contents continues overleaf
6 Contents The EconomistNovember16th2019
Asia Finance & economics
47 Religious tension in India 65 America’s pensions
48 Japan’s electoral map 66 OPEC’s waning power
49 Cambodia’s opposition 67 Auto supply chains
49 Bushfires in Australia 68 ButtonwoodThe dollar
50 Myanmar’s monks 69 Fake firms in China
51 BanyanPeace talks in 69 Risk on
Afghanistan
70 Sentencing Italian bankers
70 How Jim Simons did it
China
71 Free exchange
52 Sheltering the homeless
Cost-benefitanalysis
53 Chaos in Hong Kong
54 ChaguanThe West, Science & technology
united in gloom
72 Giant 3D printers
74 Forging rhinoceros horn
74 High-tech rugby
International
55 What lies behind the
global wave of protests?
56 Why tear-gas is popular
Books & arts
75 Amuseum hotel
76 Kurt Vonnegut
77 The Cartiers
77 Ahistory of The Economist
Business
78 Johnson Unspeakable
57 Out with the proxies
things
58 Bartleby Say no to
video calls
Economic & financial indicators
59 Italy’s ancient oligarchs
80 Statisticson42economies
60 Lifts up for sale
60 Singles’ shopping
Graphic detail
61 Schumpeter Online 81 Americans’musicaltastesmirrortheirpoliticaldivides
grocerywars
Obituary
Briefing
82 Anwar Congo, a perpetrator of mass killings in Indonesia
62 The future of
entertainment
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8 The world this week Politics TheEconomistNovember16th2019
structure. The two countries violatingtheunconventionon Luiz Inácio Lula da Silva,
said they would work to “over- genocideinitstreatmentof Brazil’spresident from 2003 to
come any obstacles” facing a RohingyaMuslims. 2010, was freed from prison,
Chinese state-owned com- where he was serving a sen-
pany’s plan to upgrade the port Cambodia’sprimeminister, tence for corruption, after the
of Piraeus. Mr Xi promised HunSen,saidhewouldrelease country’s highest court decid-
support for Greece’s campaign 70oppositionactivistsarrest- ed that people convicted of
to secure the return of the Elgin edinrecentweeks.Under crimes could not be jailed until
marbles from Britain. pressurefrominternational they had used up all their
donorsthegovernmenthad appeals. Upon his release Lula
India’sSupreme Court award- earlierreleasedKemSokha,a attacked the right-wing gov-
ed the site of a mosque in the prominentoppositionleader, ernment of Jair Bolsonaro.
Unrest flared again in Hong city of Ayodhya that was de- fromhousearrest.
Kongafter a protester died. molished by Hindu zealots in Chile’spresident, Sebastián
Another was shot at close range 1992 to Hindus planning to Piñera, agreed to begin the
by a police officer, allegedly build a temple to the god Rama. All about Evo process of writing a new con-
while trying to grab his gun. A It also criticised the destruc- Evo Moralesquit as Bolivia’s stitution. But protesters who
man was set on fire by demon- tion. The government was president after nearly 14 years are demanding reformsreject-
strators after remonstrating ordered to provide land nearby in office. The chief of the ed his offer. They want an
with them. One senior officer for the construction of a new armed forces had suggested he assembly of citizens, rather
said society was on the “brink mosque. The decision leave following widespread than congress, to draft the new
of a total breakdown”. The prompted grumbles from protests, which broke out after document.
Chinese government said disappointed Muslims, but not Mr Morales’s victory in a du-
Hong Kong was “sliding into the violence many had feared. bious election on October
the abyss of terrorism”. 20th. Mr Morales accepted Dangerous days
Gambia lodged a complaint Mexico’s offer of political Israel killed a senior com-
China’spresident, Xi Jinping, against Myanmarat the Inter- asylum. Jeanine Áñez, a politi- mander of the Palestinian
paid a visit to Greece, an im- national Court of Justice on cal foe of Mr Morales, took Islamic Jihad group in Gaza,
portant partner in the Chinese behalf of the oic, a group of office as Bolivia’s interim setting off a wave of violence.
Belt and Road Initiative, which predominantly Muslim coun- president. She has said she will Palestinian militants fired
aims to improve global infra- tries. They accuse Myanmar of hold fresh elections. more than 150 rockets into 1
The EconomistNovember16th2019 Theworldthisweek 9
2Israel, which responded with causing“gravedamage”,ac- Trump should be impeached
air strikes. The fighting may Minority rapport cordingtothecity’smayor. for asking the Ukrainian gov-
increase the likelihood that the ernment to dig up political dirt
two main political parties in TheDutchgovernmentback- on Joe Biden. The first witness-
Israel will form a unity govern- trackedonpreviouspledges es in the Democratic-led pro-
ment, breaking two months of andreducedroadspeedlimits cess were diplomats with
political deadlock. to100kph(62mph)duringthe responsibility for Ukraine.
daytohelpmeetacourt-or-
Hassan Rouhani, Iran’spresi- deredreductioninemissions. America’s Supreme Court
dent, claimed that a new oil- Farmershavealsobeenasked rejected an appeal by Reming-
field containing 53bn barrels of tocutbackonlivestockin ton, a gunmaker, to block a
crude had been discovered. If ordertoreducenitrogen. lawsuit from relatives of the
true, this would increase Iran’s victims in the Sandy Hook
proven reserves, already one of IntheBritishelectioncam- school massacreof 2012, in
the world’s largest, by about a Spain’sgeneral election, the paign,BorisJohnson’sConser- which 20 children and six
third. Iran has struggled to fourth in four years, gave no vativePartygotaboostwhen adults were killed. The lawsuit
export oil since sanctions were party a majority. The Socialists, NigelFarage,leaderofthe accuses Remington of illegally
reimposed by America last who had been hoping to move BrexitParty,saidhewouldnot marketing combat weapons.
year. closer to one, actually lost fieldcandidatesinthe317seats
three seats. They swiftly struck theTorieswonin2017.The An appeal by a murderer
The central bank of Zimbabwe a deal with the far-left pressurewasonMrFarageto against his life sentence on the
began reissuing Zimbabwean Podemos party to attempt to gofurtherandwithdrawfrom ground that he had already
dollars after a decade-long form a coalition. Even allconstituencieswherehis “died” in hospital was rejected
hiatus. The new notes are in together, the two parties will partythreatenstosplitthe by a court in Iowa. Benjamin
effect the country’s third cur- need to find support among Leavevote. Schreiber argued that his heart
rency in the past three years. several regional parties to get had stopped during an emer-
The government has tried to over the line. gency procedure in 2015. But
stay a step ahead of a shortage Pass the popcorn the judges concluded that the
of cash caused by high Venicewas hit by its worst The first public hearingswere convict “is either still alive…or
inflation and economic floods for half a century. Water held in the inquiry that will he is actually dead, in which
mismanagement. entered St Mark’s Basilica, determine whether Donald case this appeal is moot”.
10 The world this week Business The EconomistNovember16th2019
Alibaba was reported to have undermined.Uberandothers British Steel, which has been
secured approval from the wantameasuretobeput in liquidation following a
Hong Kong stock exchange to beforevotersnextyearthat Brexit-induced slump in or-
sell shares in a secondary wouldexemptthemfromthe ders, received a takeover offer
listing. The Chinese e-com- law,whichcomesintoeffect from Jingye, a Chinese steel-
merce giant listed on the New onJanuary1st. maker. There is some uncer-
York bourse five years ago. It tainty about Jingye’s long-term
had been expected to float commitment. bsspecialises in
shares in Hong Kong earlier National health mistrust railway tracks and construc-
this year, before the outbreak A deal that will see Ascension, tion girders, technology that
of huge street protests; the an American hospital network, Jingye lacks back home.
threat of escalating unrest to share patient data with Google
Disney’s streaming video the financial hub still remains. attracted the ire of lawmakers Carl Icahn, an activist investor,
service went live, the latest in a worried about privacy. Suspi- revealed that he has built a
lengthening line of challengers The prospectus for Saudi cion about Google’s intentions 4.2% stake in hpand will push
to Netflix’s dominance of the Aramco’sipoprovided few in health is a running theme: it it to accept a takeover offer
market. The trove of program- details for investors, such as an was also criticised for a col- from Xerox.
ming on Disney+not only indicative share price or an laboration with a British hospi-
includes its archive of animat- exact date for its stockmarket tal in 2016, and with the Uni- Teslachose Berlin as the site
ed classics, but also catalogues debut on the Riyadh exchange. versity of Chicago a year later. for its first factory in Europe,
of material from other studios Those particulars are expected It was also reported that Google making electric cars and bat-
that Disney owns, which in- to be announced soon. The wants to move into banking, teries. “Berlin rocks,” raved
clude Marvel, Pixar and 20th prospectus did indicate that which could set up a clash with Elon Musk, Tesla’s boss. Pro-
Century Fox. Along with rivals 1bn shares in the state-owned financial regulators. duction should start in 2021.
like Amazon and Apple (but oil company will be offered to
not Netflix) Disney wants to Saudi Arabia’s small investors. In an update on the progress it
entice customers into its wider is making towards regulatory No need to be bitter
product range—in its case, The California Trucking Asso- approval to fly the 737max American connoisseurs of
theme parks and cruises. ciation launched a legal chal- aircraft, which has been craft brew were crying in their
lenge against the state’s new grounded for most of the year ale upon the news that
Donald Trump increased the law giving wage and benefit following two crashes, Boeing Anheuser-Busch InBevhas
pressure on China to agree to a protections to independent said it was “possible” that struck a deal to buy Redhook, a
“phase one” trade deal, threat- contractors. The rules are deliveries to airlines could pioneer in the small-brewers
ening to raise tariffs “substan- aimed at workers in the gig resume in December and that it revolution that began 40 years
tially” if it does not. Whether economy, though they will hopes soon to secure consent ago. The global beer conglom-
America removes all tariffs or also apply to caretakers, maids, for new pilot-training require- erate decided now was the time
just those that are scheduled to carers and many others. The ments. Southwest and to swallow the roughly 70% it
come into effect in December truckers’ group says its drivers’ American Airlines pushed does not already own of Craft
remains a sticking-point in the ability to set their own back the dates for when they Brew Alliance, which also
negotiations. Diplomats are timetables will be hampered expect the 737 maxcan take off owns Kona and other brands,
also searching for a neutral and interstate commerce again until early March. after its share price fell flat.
venue where the two countries’
presidents can sign a deal in
front of the world’s cameras,
after Chile cancelled the apec
summit in Santiago where the
ceremony was supposed to
take place.
gdpin both Germanyand
Japangrew by just 0.1% in the
third quarter compared with
the previous three months.
Germany avoided a recession
(its economy shrank by 0.2% in
the second quarter), helped in
part by a welcome rise in the
country’s exports, which have
struggled during global trade
tensions. Britainalso dodged a
recession, chalking up growth
of 0.3% following a previous
contraction. Solid perfor-
mances in the construction
and services sectors offset flat
growth in agriculture and
manufacturing.
Leaders Leaders 13
The $650bn binge
Creative destruction in the entertainment business has had blockbuster results
America has seen some spectacular investment booms: tive,too—YouTube(ownedbyAlphabet),Amazon and Apple, al-
think of the railways in the 1860s, Detroit’s car industry in though their collective market share is still small. The music in-
the 1940s or the fracking frenzy in this century. Today the latest dustry is also contested, with the biggest firm, Spotify, having a
bonanza is in full swing, but instead of steel and sand it involves 34% market share in America.
scripts, sounds, screens and celebrities. This week Disney Disruption has created an economic windfall. Consider con-
launched a streaming service which offers “Star Wars” and other sumers, first. They have more to choose from at lower prices and
hits from its vast catalogue for $6.99 a month, less than the cost can pick from a variety of streaming services that cost less than
of a dvd. As the business model pioneered by Netflix is copied by $15 each compared with $80 or more for a cable bundle. Last year
dozens of rivals, over 700m subscribers are now streaming video 496 new shows were made, double the number in 2010. Quality
across the planet. Roughly as much cash—over $100bn this has also risen, judged by the crop of Oscar and Emmy nomina-
year—is being invested in content as it is in America’s oil indus- tions for streamed shows and by the rising diversity of storytell-
try. In total the entertainment business has spent at least $650bn ing. Workers have done reasonably. The number of entertain-
on acquisitions and programming in the past five years. ment, media, arts and sports jobs in America has risen by 8%
This binge is the culmination of 20 years of creative destruc- since 2008 and wages are up by a fifth. Investors, meanwhile, no
tion (see Briefing). New technologies and ideas have shaken up longer enjoy abnormally fat profits, but those who backed the
music, gaming and now television. Today many people associate right firms have done well. A dollar invested in Viacom shares a
economic change with deteriorating living standards: job losses, decade ago is worth 95 cents today. For Netflix the figure is $37.
being ripped-off, or living under virtual monopolies in search Many booms turn to bust. Unlike, say, WeWork, most enter-
and social networks. But this business blockbuster is a reminder tainment firms have a plausible strategy, but too much cash is
that dynamic markets can benefit consumers with lower prices now chasing eyeballs. Netflix is burning $3bn a year and would
and better quality. Government has so far had little to do with the need to raise prices by 15% to break even—tricky when there are
boom, but when it inevitably peaks the state will have a part to over 30 rival services. It hopes that its fast-growing international
play, by ensuring that the market stays open and vibrant. markets will create economies of scale. As well as saturation, the
The entertainment business is fast-moving other danger is debt. Deals and high spending
by its very nature. It has few tangible assets, it have caused American media firms to build up
relies on technology to distribute its wares and $500bn of borrowing.
its customers crave novelty. The emergence of When the shake-out comes, history offers
sound in the 1920s cemented Hollywood as the two dispiriting examples of how a consumer-
centre of the global film business. But by the end friendly boom can turn into a stitch-up. Tele-
of the 20th century the industry had grown as coms and airlines in America saw a riot of com-
complacent as a punchline in a repeat episode of petition in the 1990s only to become financially
“Friends”. It relied on old technologies—ana- stretched and then reconsolidated into oligopo-
logue broadcasting, slow internet connections and the storage of lies that are known today for poor service and high prices.
sounds and sights on fiddly cds, dvds and hard drives. And the This is why government has a role in keeping the entertain-
commercial approach was to rip off consumers by overcharging ment business competitive. First, it should prevent any firm—
for stale content packaged into oversized bundles. including the tech giants—from acquiring a dominant share in
The first shudder came in music in 1999, with internet ser- the content business. Second, it should require the companies
vices soon putting established music firms such as emiand War- that own the gateways to content, such as telecoms firms or
ner Music under pressure. In television Netflix broke the mould handset providers such as Apple that can control what screens
in 2007 by using broadband connections to sell video subscrip- show—to have an open-access policy and not discriminate
tions, undercutting the cable firms. When the smartphone took against particular content firms. Last, it should make sure sub-
off it tailored its service to hand-held devices. The firm has acted scribers can move their personal data from one firm to another,
as a catalyst for competition, forcing the old guard to slash prices so they do not become locked in to one service.
and innovate, and sucking in new contenders. The boom has
seen star writers paid as if they were Wall Street titans, sent rents Don’t lose the plot
for Hollywood studio lots into the stratosphere and overtook the Few people look to Hollywood for economics lessons. But the en-
20th century’s media barons, including Rupert Murdoch, who tertainment epic has featured vibrant capital markets. Buy-out
sold much of his empire to Disney in March. firms, stockmarkets and junk bonds have all financed the indus-
Amid the debris and deals the outlines of a new business try’s reinvention. The stars have been billionaire entrepreneurs
model are becoming clear. It relies on broadband and devices, such as Reed Hastings, Netflix’s boss. And open borders have set
not cable-packages, and overwhelmingly on subscriptions, not the scene, since talent comes from around the world and a ma-
advertising. Unlike in search or social media, no firm in televi- jority of streaming subscribers now live outside America. Across
sion and video streaming has more than a 20% market share by the economy, these elements are at risk as politicians and voters
revenues. The contenders include Netflix, Disney, at&t-Time veer away from open trade and free markets. For a reminder of
Warner, Comcast and smaller upstarts. Three tech firms are ac- why they matter, turn on your screen and press play.7
14 Leaders The EconomistNovember16th2019
Latin America
Was there a coup in Bolivia?
The armed forces spoke up for democracy and the constitution against Evo Morales’s attempt at dictatorship
There are few more emotive words in Latin America than But he also commandeered the courts and the electoral au-
“coup”, and for good reason. From1930 to the1970s, the re- thority and was often ruthless with opponents. In his determi-
gionsufferedthefrequentoverthrowofciviliangovernmentsin nationtoremaininpowerhemadetheclassicstrongman’smis-
oftenbloodymilitaryputsches.Thevictimswereusuallyofthe take of losing touch with the street. In 2016 he narrowly lost a
left.In1954amoderatereforminggovernmentinGuatemalawas referendumtoabolishpresidentialtermlimits.Hegotthecon-
oustedinthenameofanti-communismbythecia.Othercoups stitutionalcourttosayhecouldrunforathirdtermanyway.He
followed, including that of General Augusto Pinochet against thenclaimedvictoryinadubiouselectionlastmonth.Thattrig-
SalvadorAllende,aradicalsocialist,inChilein1973. gered the uprising. An outside audit upheld the opposition’s
Since the democratisation of the region in the1980s, coups claimsofwidespreadirregularities.Hisoffertore-runtheelec-
havebeenrare.Buttheveryideahasbecomeapotentpropagan- tioncametoolate.
da tool, especially for leftists. Scarcely a week goes by without Mr Morales was thus the casualty of a counter-revolution
Nicolás Maduro, Venezuela’s fraudulently elected dictator, aimed at defending democracy and the constitution against
claimingthatheisthreatenedbyone.DanielOrtegainNicaragua electoral fraud and his own illegal candidacy. The army with-
says the same. Dilma Rousseff, a leftist presi- drewitssupportbecauseitwasnotpreparedto
dent in Brazil who spent her way to a second fireonpeopleinordertosustainhiminpower.
terminviolationofthecountry’sfiscalrespon- How these events will come to be viewed de-
sibility law, also claims that her impeachment pendsinpartonwhathappensnow(seeAmeri-
in 2016 was “a coup” even though it followed cas section). An opposition leader has taken
strictconstitutionalprocedures. overasinterimpresidentandcalledforafresh
The latest claim involves the fall of Evo Mo- election to be held in a matter of weeks. There
rales, Bolivia’s leftist president since 2006. He aretwobigrisksinthis.Oneisthatultrasinthe
resignedonNovember10th,fleeingintoexilein opposition try to erase the good things Mr Mo-
Mexico.Thispromptedachorusofdenunciationsofacoupfrom ralesstoodforaswellasthebad.Theotheristhathissupporters
the Latin American left and even some European social demo- seektodestabilisetheinterimgovernmentandboycotttheelec-
crats.Thistime,atleast,thecriticsarewrong. tion.Itmaytakeoutsidehelptoensureafaircontest.
True,MrMorales’stermwasnotduetoenduntilJanuary.His Thatthearmyhadtoplayaroleisindeedtroubling.Buttheis-
fall followed violent protests and a mutiny by the police, who sue at stake in Bolivia was what should happen, in extremis,
failedtosuppressthem.Thefinalstrawcamewhentheheadof whenanelectedpresidentdeploysthepowerofthestateagainst
thearmedforces“suggested”thathequit.Butthatistotellonlya the constitution. In Mr Morales’s resignation and the army’s
fractionofthestory. forcingofit,BoliviahassetanexampleforVenezuelaandNica-
Mr Morales, who is of Aymara indigenous descent, long en- ragua,thoughitisonethatisunlikelytobeheeded.Inthepastit
joyed broad popular support. He imposed a new constitution, wasright-wingstrongmenwhorefusedtoleavepowerwhenle-
whichlimitedpresidentstotwoterms.Thankstothecommod- gallyobligedtodoso.Nowitisoftenthoseontheleft.Theircon-
ityboomandhispragmaticeconomicpolicy,povertyfellsharp- stant invocation of coups tends to be a smokescreen for their
ly.Hecreatedamoreinclusivesociety. ownfloutingoftherules.Itshouldbeexaminedwithcare.7
Pension costs
Dependants’ day
America’s public pensions have been underfunded for decades. The crunch point is coming soon
Many workers in the private sector no longer have them. than 50% funded; Illinois has six of the worst.
But most public-sector employees in America are still enti- The cost of pension promises has risen because people are
tled to a valuable benefit: a pension linked to their final salary. A living longer, so they end up taking more out of the pot. Some
long-standing problem is that states and cities, which fund their states and cities have responded by trying to wriggle out of their
plans differently from the federal government, have been lax obligations and cut the benefits retirees get, but courts have of-
about putting aside enough money to cover these promises. ten decided against them, ruling that a contract is a contract. As a
The resulting black hole is becoming ever more alarming (see result states, cities and other public bodies are being forced to
Finance section). Although the American stockmarket has been funnel ever more into pension schemes. Having chipped in the
hitting record highs, the average public-sector pension fund has equivalent of 5.3% of their ordinary payroll bills in 2001, public-
a bigger deficit in percentage terms than it did in either 2000, or sector employers now pay in, on average, 16.5% a year.
the start of this decade. In some states and cities schemes are less Even those contributions have not been enough. Politicians 1
The EconomistNovember16th2019 Leaders 15
2have often failed to pay in as much as the actuaries recommend. even though they will still have to pay pensions whether they
In 2009 the actuaries for the Illinois Teachers scheme asked the earn that return or not. This has naturally led to a degree of opti-
state to cough up $2.1bn; it paid just $1.6bn. By 2018 the annual mism about future returns: many assume 7-7.5% a year.
bill had risen to $7.1bn but the state paid only $4.2bn. The hole in In the private sector, a pension promise is seen as a debt and
the pension scheme deepened to $75bn in 2018, or about $6,000 has to be discounted at corporate-bond yields, which are at his-
for every citizen in the state. And that is just for teachers. torically low levels. This makes pensions look more expensive
The problem could yet worsen. Pension schemes are vulner- and explains why many companies have closed their final-salary
able to a market downturn and many were left reeling after the schemes. If the public sector had to use the same approach, its
global financial crisis of 2008-09. Even if markets do not tumble, average funding ratio would be a lot lower than today’s 72% and
they would suffer in a long period of sluggish returns. That looks the resulting hole, currently $1.6bn in total would be a lot bigger.
plausible given that 30-year Treasury bond yields are just 2.4% Public bodies are going to have to boost their contributions
and American equity valuations are stretched relative to their even further. A study by the Centre for Retirement Research
historical average. Some schemes are betting on “alternative as- found that in the worst-affected states—Connecticut, Illinois
sets” like hedge funds and private equity to fill the gap. But and New Jersey—pension costs in 2014 were already 15% of total
hedge-fund returns have been disappointing over the past de- revenues. That will trigger a squeeze on the public finances, as
cade, and the private-equity industry is not large enough to ab- other spending has to be cut or taxes have to be cranked up. Ei-
sorb $4trn of public-sector pension assets. ther will be especially hard on younger people and workers in the
And there is a final problem: the schemes’ accounting. When private sector, who do not get the same benefits.
working out how much they need to put aside today, all funded The pensions crisis has been rumbling on for years, but some
schemes must calculate how much they are likely to pay out in states and cities will soon enter a downward spiral, in which
future. This means using a rate to discount the cost of tomor- pension costs lead to bad public services or tax rises, in turn en-
row’s pension payments. The higher the rate used, the lower the couraging workers and firms to move out, which then shrinks
cost seems to be. Public-sector pension schemes are allowed to the tax base, making promises even less affordable. When that
use the assumed rate of investment return as their discount rate, happens some states and cities will tumble into a black hole. 7
Immigration policy
Unlock that door
Barriers to movement make the world poorer. Only voters can remove them
Imagine you are offered a job at triple your salary. But first you earn far more and in many cases escape from oppression or sex-
must pass through a locked door, and someone with the key ism. Their birthplaces benefit from the money they send home
won’t open it. You might be willing to pay them to let you and the knowledge they bring back when they return, which usu-
through. Whether this is fair or not is beside the point. They have ally more than makes up for any “brain drain”.
the key and you don’t. If you gave them a portion of the increase The benefits to host countries are hefty, too. Skilled immi-
in your wages, you would both be better off. grants check pulses, write code and help local firms do business
This is not a bad analogy for global immigration policy. When with their homelands. Migrants are twice as likely as the native-
migrants move from a poor country to a rich one, they typically born to start a business and three times as likely to patent an
make three to six times as much money as before (see our Special idea. Blue-collar immigrants provide cheaper plumbing, child
report in this issue). If everyone who wanted to migrate were al- care and parcel deliveries. By one estimate, 83% of native-born
lowed to do so, the world would by one estimate rich-country workers benefit from immigra-
be twice as rich. Yet this vast gain cannot be real- tion. Migrants may drag down the wages of na-
Internationalmigrants
ised, because most would-be migrants are Hostcountries,byincomelevel,2017,% tive workers with similar skills, but the effect is
forced to stay where they are. The door is locked, 0 10 20 30 40 50 60 70 so small that economists are not sure it exists.
and voters in rich countries hold the key. The biggest cost of migration is the hardest to
High
Is there a way to open that door? Hardly any- measure. It is cultural. Many people like their
Middle
one is considering it. Instead, the debate in rich societies the way they are. Some bristle when
countries veers between fearmongering and Low they hear foreign languages on the bus, or when
moralising. Nationalists, from Donald Trump, a mosque replaces a pub. Since migrants tend to
America’s president, to Viktor Orban, Hungary’s prime minister, cluster, some places change uncomfortably fast. Such feelings
portray immigrants as a threat to the culture, wages and even are inflamed by demagogues, who wildly exaggerate the threat
lives of the native-born. Pro-migration liberals, by contrast, are from a tiny minority of migrants—especially from crime.
quick to dismiss those who disagree with them as racists, and Overcoming these objections will be hard. But not impossi-
mouth slogans that seem almost designed to alienate voters. ble, if policymakers observe four principles. First, border control
Several Democrats in America talk not of reforming but of abol- matters. Voters, perfectly reasonably, cannot abide chaos; gov-
ishing ice, the agency enforcing immigration laws. ernments must set and enforce the rules for who comes. Second,
A more pragmatic approach would be to think in terms of migrants must pay their way. Most already do, but it is crucial to
costs, benefits and how they might be distributed. The biggest design policies that encourage this, by making it easy for them to
beneficiaries of migration are the migrants themselves, who work and hard, at least for a while, to claim welfare benefits. 1
16 Leaders The EconomistNovember16th2019
2 Third, be creative. Australia’s “points-based” system is often shows that a country with sensible policies can be almost two
praised, not least by some Brexiteers. It favours migrants who are times as open to migration as Germany without even a hint of the
young, English-speaking and have useful skills. It is quick, trans- disaster that nativists predict. On the contrary, Australia has a
parent and welcoming. At the same time Australia pitilessly ex- lower homicide rate than Germany, its people live longer and it
cludes anyone who tries to enter without permission. Austra- has not had a recession since 1991. Many Australians grumble
lians mostly support this system because they feel in charge of it. about congestion in the cities most popular with migrants, but
More market-based systems are also worth trying. Countries this is fixable with the taxes those migrants pay.
could auction visas to the well-heeled. In addition, for those who If the flow is steady and orderly, and if the newcomers are en-
cannot yet afford to bid, they could allow more migrants in but couraged to support themselves and adapt to the host culture,
apply surtaxes to their wages for a period, and transfer the mon- immigration can be higher than most rich countries allow today.
ey to citizens. If this is the price of entry, many migrants will Singapore is 45% foreign-born, and a byword for prosperous
choose to pay it. And if voters see an immigration dividend, they tranquility. Countries can open up incrementally, with condi-
may find that new mosque does not bother them as much. tions, and reverse course if they choose.
Fourth, pace matters more than absolute levels. Political re- Today’s anti-migrant mood makes all this seem unlikely. Far
sistance to migrants spikes with sudden surges in immigration. from opening the door, many Western governments are double-
In 2015 net immigration to Germany more than doubled to al- locking it. Yet this creates an opportunity for others to snaffle the
most 1.2m, leading to a backlash. Yet the share of the population best brains repelled by chauvinism, to lure the most enterprising
that is foreign-born is 16%, compared with 29% in Australia. This migrants, and once again to become lands of opportunity. 7
Aircraft-carriers
Sink or swim
When it comes to aircraft-carriers, bigger isn’t better
“No piece of hardware better exemplifies America’s mili- Though guiding such missiles onto a distant moving target is
tary might than an aircraft-carrier,” declare the memoirs tricky, no navy will be keen on putting several billion dollars and
of Ashton Carter, America’s defence secretary in 2015-17. Nor thousands of sailors in peril. Carriers have become too big to fail.
does any other piece of hardware so plainly exemplify what is As a result, they will probably have to remain at least 1,000km
wrong with America’s military thinking. Aircraft-carriers are the away from shore, a distance that their warplanes cannot cross
largest and most expensive machines in the history of warfare. A without refuelling. That could have grave implications for Amer-
new American Ford-class ship costs $13bn—more than the annu- ica’s ability to project power across the Pacific—and so for allits
al defence budget of Poland or Pakistan. However, as precision allies (see Briefing). Carriers will also have to be cocooned with
missiles become faster, more accurate and more numerous, destroyers and frigates, which will absorb most of the resources
these beasts look increasingly like giant floating targets. of smaller navies, like those of Britain and France.
Although America has by far the world’s largest fleet of carri- Carriers are not entirely obsolete. Most wars will not be great-
ers—11 of the full-sized sort, plus half a dozen smaller ones— power clashes. They will remain useful against foes which lack
their appeal is global, and growing. China’s first domestically modern missile systems. Even in intense conflicts, warships will
built carrier will be commissioned within require air power to protect them from the pre-
months. Britain’s second modern carrier began dations of enemy ships and aircraft. As long as
its sea trials in September. Even pacifist Japan is navies have surface ships, they will want to be
converting two destroyers to carry jets, for the able to fly planes above them.
first time since the second world war. But what sort of planes? Even as missiles
Aircraft-carriers have proved their worth in force carriers farther offshore, the average com-
recent years. Many armed forces watched ad- bat range of their air wings has shrunk, from
miringly as American naval jets did the lion’s 2,240km in 1956 to around 1,000km today. (Mod-
share of bombing in the early months of war in ern munitions travel farther, but do not make up
Afghanistan in 2001and Iraq in 2003 (and again in 2014). Land the difference.) The obvious remedy is to use drones that can fly
bases were often unavailable because of awkward geography or longer, riskier missions than human pilots, allowing their host
recalcitrant allies. carriers to keep a safe distance away. But the Pentagon unwisely
But the seas off enemy shores look ever less safe. Russia and scrapped its programme for such a drone in 2016, replacing it
China are both developing long-range missiles that are man- with one that would merely refuel inhabited planes.
oeuvrable and accurate enough to hit large ships at sea. China’s Aircraft-carriers, like the warplanes on them, belong to a
df-21d, an anti-ship ballistic missile that can travel over 1,500km class of large, vastly expensive weapons that military types call
(950 miles), is already a threat. Several countries are building “exquisite”. A more homely approach to military technology is
cheaper anti-ship cruise missiles, which fly shorter distances warranted. Smaller, cheaper and, where possible, unmanned
but can be launched from planes. Anti-ship missiles are growing systems could be procured in larger numbers, dispersed more
in range, precision and number. By one estimate, an American widely and used more daringly. Such forces may lack the prestige
naval force within 2,000km of China might have to parry 640 in- of massive warships. But they are better adapted to a world in
coming weapons in a single salvo. which the projection of military power is growing ever harder.7