The Economist (November 24th, 2018)

67 Pages·2018·4.703 MB·English

by  The Economist

Hard truths about a no-deal Brexit
The Trump and AMLO show
Going, going, Ghosn
Emerging-market currencies’ comeback
NOVEMBER24TH–30TH2018
Staying alive
Why the global suicide rate is falling
Contents TheEconomistNovember24th2018 5
The world this week United States
10 Around-up of political 23 The baby bust
andbusinessnews
24 Falling carbon emissions
25 In praise of EITC
Leaders
25 Building walls
13 Suicide
26 Mancamps gentrify
Staying alive
27 LexingtonNixon had it
14 The killing of Khashoggi
harder
See no evil
14 Taxes on homebuyers
The Americas
Stamp them out
28 AMLO and Trump
15 UN regulatory bodies
Agencyproblems 30 BelloThe difficulty of
being Duque
16 Brexit
On the cover
Thetruthaboutnodeal
Why the global suicide rate is
falling and how to bring the
Letters
numbers down further still:
17 Onthefirstworldwar,
leader,page 13. Suicide is
Asia
Italy,individualism,tax
declining all over the world,
data,synagogues,Brexit 31 Talking to North Korea
thanks to greater freedom and
32 Rohingyas fear return
somehelpfulpolicies,page50
Briefing 33 BanyanUS-China rivalry
•Hard truths about a no-deal
19 Ano-dealBrexit engulfs the APEC summit
BrexitTime to bust the last
Freefalling
34 India’s most orderly city
great myth of Brexit: leader,
page 16. What to expect if
nothing gets sorted, page 19.
China
How Brexit compares with other
great debacles: Bagehot, page 49 35 Out of the closet, quietly
36 Aprivate university
•The Trump and AMLO show
Ties between Mexico and 37 ChaguanAbuses of
America are strong. Will their Muslims in Xinjiang
nationalist presidents loosen
them?Page 28
•Going, going, Ghosn
Accusations of financial Middle East & Africa
misconduct topple a giant of the 39 Nigeria’s deadly jihadists
car industry,page 55
40 Pentecostals in Ethiopia
•Emerging-market currencies’ 41 Syria’s documents men
comebackExchange rates have
41 Netanyahu and the right
strengthened, but threats to
42 Bahrain’s unhappy Shias
growth remain, page 60
42 ABritish student jailed in
the UAE
ChaguanWhy Western
governments are at last
complaining about
China’s new gulag,
page 37
1 Contents continues overleaf
6 Contents The EconomistNovember24th2018
Europe Finance & economics
43 Drugs in Europe 60 Emerging-market
currencies
44 AGerman slowdown
44 Moscow’s dynamic mayor 61 Buttonwood The big
bank theory
45 Italy’s troubled coalition
62 Tech stocks tumble
46 CharlemagneThe power
offish 62 Reforming auditors
63 Seasonal work
Britain 64 Double-taxation treaties
47 Rebellious Conservatives 64 Aprovocateur at the RBI
48 The wobbly Northern 65 Free exchange Home
Irish alliance economics
49 BagehotBrexit v other
great debacles Science & technology
66 Repairing and destroying
satellites
International 67 InSight’s mission to Mars
50 The decline of suicide 68 An ion-powered aircraft
51 Anti-suicide volunteers 69 University v work
in Japan
69 Acat’stongue’ssecrets
Books & arts
70 Mapping the making of
America
Business
71 Hollywood and the mob
54 Facebook’s future
72 The history of blood
55 The ousting of Ghosn
72 Anovel of Brexitland
56 BartlebyAmericans need
74 Oficeandmirages
abreak
57 Ninebot rides the
Economic & financial indicators
e-scooter craze
76 Statisticson42economies
58 The FDA v menthol
cigarettes
Graphic detail
59 SchumpeterKey-person
77 ThegoldenageofTVinAmerica
risk
Obituary
78 Stan Lee, Marvel Comics’ creative superhero
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Politics
10 The world this week The EconomistNovember24th2018
Trumpcriticisedtheruling, curredonthesoutherncoast, movement went on trial for
whichhesaidhadbeenmade raisingconcernsthatajihadist causing a public nuisance.
byan“Obamajudge”.That insurgencymaybereigniting
earnedararepublicrebuke afterseveralyearsofquiet. Two leaders of the former
fromJohnRoberts,thechief Khmer Rouge regime in
justiceoftheSupremeCourt, Americakilled44fightersfrom Cambodiawere found guilty of
whosaid“wedonothave al-Shabab,ajihadistgroupin genocide, the first time that
ObamajudgesorTrump Somalia,inseveralairstrikes. senior members of the Marxist
judges”but“dedicatedjudges”. AfricanUnionforcesbackedby dictatorship have been con-
Americanjetshavebeenbat- victed of that crime, and pos-
AprivateAmericanfirm,Ocean tlingal-Shababformorethana sibly the last. Nuon Chea and
Infinity,foundthewreckofan decade.Theinsurgentsstill Khieu Samphan were judged at
ThehardBrexiteersinBritain’s Argentinesubmarine,theSan controlmuchofthecountry. a un-backed tribunal for trying
ConservativePartyopposedto Juan,thatdisappearedinNo- to wipe out ethnic Vietnamese
TheresaMay’sBrexitdealwith vember2017with44crew Eightunpeacekeeperswere and Cham groups. The mass
theeustruggledtogetenough membersonboard.Argenti- killedfightingrebelsinthe killings of allegedly bourgeois
supporttodeposeher.Thedeal na’sdefenceministersaidthe DemocraticRepublicof Cambodians for such things as
willhavearoughrideinParlia- governmentdidnothavethe Congoinapartofthecountry wearing a watch have been
ment.Inawarningshot, equipmenttoraisethesub- affectedbyanoutbreakof treated as crimes against hu-
NorthernIreland’sDemocratic marinefromitsrestingplace, Ebola.Fightinghasmadeit manity rather than genocide.
UnionistParty,whichMrsMay some900metresbelowthe difficultforhealthworkersto
reliesuponforagoverning surfaceoftheAtlanticOcean. containthespreadofthevirus. At least 55 people were killed in
majority,votedagainsther Kabulwhen a suicide-bomber
governmentonbudgetmea- AlanGarcía,aformerpresident targeted a meeting of clerics
sures,claimingshehadbroken ofPeru,soughtasylumin APEC headache who had gathered to honour
promisesaboutthetreatment Uruguay’sembassyinLima.A The annual Asia-Pacific Eco- the birth of the Prophet
oftheprovinceunderthedeal. judgebarredMrGarcíafrom nomic Co-operationsummit Muhammad.
ThefocusswitchedtoBrussels, leavingthecountrywhile was marred by tensions be-
whereMrsMayengagedin prosecutorsinvestigateallega- tween America and China.
someshuttlediplomacytoiron tionsthathetookbribes.Mr Mike Pence, America’s vice- The latest results
outthedetailsofheragree- Garcíasaysheisavictimof president, represented the After a manual recount, Rick
mentaheadofaneusummit. politicalpersecution. United States at the gathering Scott, a Republican, won Flori-
in Papua New Guinea. The da’sSenate race, snatching the
Russiatriedtogetitsnominee rivalry between the two powers seat from a Democratic in-
chosenasthenewheadof Undermining his intelligence was evident in the decision by cumbent of 18 years. Ron De-
Interpol,theinternational “Maybe he did and maybe he America to help Australia build Santis, another Republican,
policingorganisation.After didn’t!” said Donald Trump, a naval base in Papua, a move won the governor’s race. In
last-minuteoppositionby dodging the question of intended to curb China’s grow- GeorgiaStacey Abrams ac-
manycountries,aSouthKore- whether Muhammad bin ing influence in the region. knowledged that her Repub-
anwaselectedinstead.The Salman, the crown prince of lican opponent, Brian Kemp,
mainobjectiontohaving Saudi Arabia, ordered the had won the governorship, but
VladimirPutin’smaninthejob killing of Jamal Khashoggi, a claimed that the election had
wasthatRussiaoftentriesto dissident Saudi journalist. The been neither free nor fair.
useInterpoltoarrestblame- ciareportedly concluded that
lesscriticsabroad. Prince Muhammad is respon- Other final counts from the
sible for Khashoggi’s death. mid-term elections showed
TheEuropeanCommission Ignoring his own intelligence that Democrats had won every
ruledthatItaly’sbudgetfor agency, Mr Trump said Ameri- congressional district in Cali-
nextyearviolatesitsfiscal ca would remain a “steadfast fornia’s Orange County, until
rules,andproposedaprocess partner” of the kingdom. recently a Republican bastion.
thatcouldleadtosanctions
underitsexcessive-deficits A British phdstudent was The White House restored the
procedure.Europe’sleaders found guilty of spying and After the apecsummit Xi accreditation of Jim Acosta, a
mustapprovethemovebefore sentenced to life in prison in Jinping paid a visit to the journalistfrom cnnwho
itgoesanyfurther,possiblyata the United Arab Emirates. Philippines, an ally of America annoyed President Trump. A
summitinDecember. Matthew Hedges denies the that has been gradually shift- judge had earlier temporarily
charge; his family says he was ing its allegiance under the overturned the decision to ban
made to sign a confession he presidency of Rodrigo Duterte. Mr Acosta from press confer-
Restraining order could not read. Mr Duterte said China and the ences, citing press freedom.
Ajudge in America temporarily Philippines were developing a
blocked an order by Donald Gunmen shot and wounded “deepening trust”. During Mr Julian Assange, a prolific
Trump that would deny mi- several children and kid- Xi’s trip the two sides signed an leaker of state secrets who has
grantswho enter the country napped an Italian woman who agreement on energy explora- been holed up inside the Ecua-
illegally the opportunity to was doing voluntary work with tion in the South China Sea. dorean embassy in London for
claim asylum. The judge said a charity in Kenya. It was the eight years, has been charged
Mr Trump had tried to “rewrite first abduction of foreigners in In Hong Kongactivists in the by America’s Justice Depart-
the immigration laws”. Mr six years. The incident oc- pro-democracy Umbrella ment. With what, is unclear. 1
Business
12 The world this week The EconomistNovember24th2018
A campaign to attain severance pricing plan that the president government, facing an election
pay for staff at Toys “R” Uswho introduced in May remains next year, had put pressure on
lost their jobs when the com- largely unaccomplished. the central bank to intervene in
pany declared bankruptcy the economy.
resulted in the creation of a A sovereign-wealth fund in
$20m hardship fund by Bain Abu Dhabilaunched a lawsuit
Capital and kkr, two private- against Goldman Sachsfor The FAANGs lose their bite
equity firms. Both were in- losses it incurred linked to the Stockmarketshad another
volved in the buy-out of the 1mdbscandal in Malaysia. choppy week as the broad
retailer in 2005, and have been America’s Justice Department sell-off in technology shares
blamed by workers’ groups for recently laid charges against gathered steam, pushing the
its demise. Other firms have two former employees of the nasdaqand s&p500 indices
Underincreasingpressure been asked to contribute. The bank. Goldman insists it knew closer to their lowest points of
abouttheserialmanagement workers say the fund needs to nothing about their activities, the year. Apple’s market value
mishapsatFacebook,Mark reach $75m to cover payments but has acknowledged that it has fallen dramatically since
Zuckerbergsaidhewouldnot promised to them. may face severe penalties. early August, when it broke the
relinquishhistitleaschair- $1trn mark for the first time. It
manandthatinvestorswho Boston Scientificagreed to American regulators fined is now worth around $840bn.
wantedhimtostepdownfrom buy btgfor £3.3bn ($4.2bn). Société Généralemore than
thepositionandfocuson The deal enhances Boston $1.3bn for facilitating dollar Cryptocurrencies also took a
beingchiefexecutivewere Scientific’s business in transactions with several hammering, fuelled by specu-
misguided.(Asthecontrolling interventional medicine. btg, countries between 2003 and lation that regulators are pre-
shareholderhecannotbe for instance, produces small 2013 in violation of sanctions. paring to clamp down on the
forcedfromthejob.)Healso glass microspheres that deliver It is the second-largest penalty digital-currency market. Bit-
stoodbySherylSandberg, radiation directly to liver to be levied on a bank for coinshed 10% in a day. It is
Facebook’sbeleagueredchief tumours. btgstarted life as a breaching American sanctions, now 80% below the peak of
operatingofficer.Thelatest research division of the British behind the $8.9bn imposed on $19,800 it hit last December.
scandaltoenvelopthesocial government. It also has a bnpParibas, another French
networkcentresonitscontract pharmaceutical arm that bank, in 2015. Britain’s best-paid chief
withaconsultancytodigup focuses on antidotes; its best- executivejust got richer.
dirtonitsdetractors.Mr selling product is a treatment Following a nine-hour meeting Denise Coates, who turned her
ZuckerbergandMsSandberg for rattlesnake bites. of its board, the Reserve Bank family’s betting firm in her
bothsaytheywereunawareof of Indiareached a compromise home town of Stoke-on-Trent
Facebook’srelationshipwith Pfizerannounced price with the government and said into Bet365, a private online
thefirm. increases for around 10% of its it was willing to review both its gambling giant, is thought to
drugs, starting in the new year. transfer of surpluses to the have received £265m ($352m)
In July it had pledged to post- public coffers and the rules in total annual compensation,
Fasten your seat belts pone price rises in response to that restrict lending at last year according to the firm’s
The global car industry reacted Donald Trump’s rebuke of the distressed state-controlled accounts. That amounts to
with shock to the arrest of pharmaceutical industry for banks. This came after a month around 40% of the entire
Carlos Ghosnin Tokyo. Mr alleged price-gouging. A drug- of politicking in which the budget for Stoke city council.
Ghosn forged, and heads, the
alliance between Nissan and
Renault that was later joined by
Mitsubishi. He is being de-
tained at the behest of Japanese
prosecutors after Nissan al-
leged that he had understated
his earnings and misused
company assets. Before his
arrest Mr Ghosn’s push for
deeper integration between
Nissan and Renault had report-
edly met some stiff resistance
from Nissan’s board.
Israel’s minister for tourism
warned that he would seek to
impose a punitive tax on
Airbnb’soperations in the
country, after the firm delisted
properties located in Israeli
settlements in the West Bank.
The home-rental platform
acted in response to a cam-
paign by activists to scrub the
settlements from its website.
Leaders Leaders 13
Staying alive
Why suicide is falling around the world, and how to bring the numbers down further still
“You know,”saysatraderin“MarginCall”,afilmaboutthe groupsglobally,arereckonedtohavecontributedto the drop in
crash of 2008, as he standshigh on a building above Wall the number of elderly suicides.
Street, “the feeling that people experience when they stand on But the decline is not just the consequence of big social
the edge like this isn’t the fear of falling—it’s the fear that they trends. Policy plays a role, too. When Mikhail Gorbachev restrict-
might jump.” Suicide fascinates us. It is at once appalling and ed the production and distribution of booze in the mid-1980s,
yet, in the darkest places in our minds, appealing. It is the most both drinking and suicide fell sharply. The collapse of the Soviet
damaging sort of death. A child’s suicide is a parent’s worst Union swept those regulations aside, and both drinking and sui-
nightmare, and a parent’s marks their children for life. It is a cide shot up again. Restrictions introduced by Vladimir Putin in
manifestation not just of individual anguish but also of a collec- 2005 are reckoned to have contributed to the recent decline.
tive failure: if society is too painful to live in, perhaps we are all Governments can also help limit the consequences of social
culpable. and economic turbulence. Active labour-market policies, which
The suicide rate in America is up by 18% since 2000. This is help re-train jobless workers and ease them back into work, pre-
not merely a tragedy; it matters politically, too. The rise is largely vent many suicides. And spending on health services, especially
among white, middle-aged, poorly educated men in areas that those that most benefit the old and sick, can make a big differ-
were left behind by booms and crushed by busts. Their deaths are ence: fear of chronic pain is one of the things that leads people to
a symptom of troubles to which some see President Donald seek a quick way out. The remarkable recent fall in suicide
Trump as the answer. Those troubles should not be ignored. among elderly Britons may have happened in part because Brit-
Nonetheless, beyond America’s gloomy trend is a more opti- ain’s palliative-care system is the best in the world.
mistic story: that at a global level, suicide is down by 29% since Efforts to curb access to the means to kill oneself can help,
2000 (see International section). As a result, 2.8m lives have too. Suicide is surprisingly impulsive. A study of young Chinese
been saved in that time—three times as many as have been killed women who had tried to kill themselves showed that three-fifths
in battle. There is no one reason. It is happening at different rates had been contemplating suicide for less than two hours, and one
among different groups in different places. But the decline is in ten for less than a minute. Of 515 people who had survived the
particularly notable among three sets of people. leap from San Francisco’s Golden Gate bridge be-
One is young women in China and India. In tween 1937 and 1971, 94% were still alive in 1978—
most of the world, older people kill themselves which suggests that a suicide postponed is like-
more often than the young, and men more than ly to be a suicide prevented.
women. But in China and India, young women Governments can do a lot to put self-slaugh-
have been unusually prone to suicide. That is ter a little further out of reach. The most toxic
decreasingly the case. Another group is middle- pesticides account for one-seventh of suicides.
aged men in Russia. After the collapse of the So- When South Korea outlawed paraquat in 2011, it
viet Union, alcoholism and suicide rocketed saw a decline in suicides but no drop in agricul-
among them. Both have now receded. A third category is old peo- tural output. Requiring potentially lethal medicines to be sold
ple all around the world. The suicide rate among the elderly re- only in small quantities, as some countries have done with aspi-
mains, on average, higher than among the rest of the population, rin and paracetamol, has also been shown to help. But the most
but has also fallen faster since 2000 than among other groups. effective measure of all is limiting access to guns. Half of all
Why are these people now less likely to take their own lives? Americans who commit suicide shoot themselves, and the over-
Urbanisation and greater freedom have helped. Accounts of all rate in America is about twice that in Britain, which has strict
those who attempt suicide, and of the relatives of those who suc- gun controls. The difference in gun ownership largely accounts
ceed, suggest that many young Asian women were driven to des- for the state-by-state variation in suicide rates.
pair by violent husbands and overbearing in-laws. As people The media can also do their bit. Suicide is strangely conta-
move to cities and the grip of tradition loosens, women have gious. When Robin Williams, an actor, killed himself in 2014, his
more choice about whom they marry or live with, making life method and motives were reported in great detail. Researchers
more bearable. Leaving the village helps in another way, too. Be- calculated that there were 1,800 more suicides than would other-
cause farming involves killing things, rural folk are likelier to wise have been expected in the next four months, often using the
have the means to kill themselves—guns, pesticides—to hand. same method. Journalists should cover such tragedies in less de-
Social stability is alsoa factor. In the turbulence that followed tail, and with more restraint.
the collapse of the Soviet Union, many middle-aged people saw For a few people—those who are terminally ill, in severe pain
their sources of income and status collapse. Unemployed people and determined to die—suicide may be the least terrible option.
kill themselves at around two-and-a-half times the rate of those In such circumstances, and with firm safeguards, doctors should
in work. The financial crash of 2007-08 and the resulting reces- be allowed to assist. But many of the 800,000 people who kill
sions are reckoned to have caused an extra 10,000 or so suicides themselves each year act in haste, and more could be saved with
in America and western Europe. As crises recede and employ- better health services, labour-market policies and curbs on
ment rises, so suicide tends to ebb. And falling poverty rates booze, guns, pesticide and pills. America, in particular, could
among the old, which have declined faster than among other spare much pain by learning from the progress elsewhere.7
14 Leaders The EconomistNovember24th2018
The killing of Jamal Khashoggi
See no evil
Donald Trump’s refusal to blame anyone for a blatant murder is hurting America’s interests in the Middle East
Fewpoliticalmurdersareasgruesomeandwellrecordedas sidents.Hehasalsoshown,onceagain,thathepreferstheword
that of Jamal Khashoggi. The exiled Saudi journalist was ofanautocrattothatofthecia,whichbelievesthecrownprince
throttled, dismembered and probably dissolved in acid in the istoblameforKhashoggi’smurder.
SaudiconsulateinIstanbullastmonth.Turkishintelligencehas Even in narrow geopolitical terms, Mr Trump is wrong. The
leaked the faces and names of the15-man hit squad sent from crownprinceisturningSaudiArabiaintoaforceforinstability,
Riyadhonprivatejets.Westernspookshavelistenedtoaudiore- andsoishelpingIranextenditsinfluence.HiswarinYemenis
cordingsofKhashoggi’slastexcruciatingmoments. unwinnable and causing widespread hunger and disease; it is
After weeks of lies, the Saudi government has admitted the hurtingSaudiArabiaanditsWesternalliesmorethanIran.His
guiltofitsgoons.Theonlyquestioniswhetherthecrownprince, feudwithQatarhaspusheditclosertoIran.Eventhoughitco-
Muhammad bin Salman, personally ordered the hit. President operates in the fight against jihadist groups, Saudi Arabia still
DonaldTrumpappearsnottocare.“Maybehedidandmaybehe feeds their ideology through textbooks that promote the view
didn’t!”heannouncedinaremarkablestatementonNovember thatJews,Christians,ShiaMuslimsandothersareinfidels.What
20th,addingthatAmericawouldremaina“steadfastpartner”of aboutoilandarmssales?SaudiArabiawantstoraise,notcut,the
Saudi Arabia. He sees the kingdom as a useful priceofoil.Andithassignedcontractsforonly
allyagainstIranandIslamistextremism,anoil $14.5bn of the $110bn-worth of arms purchases
supplier that can keep prices low and a splen- thatMrTrumplikestotout.
didlyhugebuyerofAmericanweapons.Thedis- TherearemanyreasonsfortheWesttokeep
tortions and many exclamation marks suggest Saudi Arabia close. It is crucial to Islam and to
thatMrTrumpdraftedthestatementhimself.It regionalstability.However,workingwiththeAl
startsandendswith“AmericaFirst!” Sauds should not mean doing whatever they
At first blush, Mr Trump’s position is strik- ask. They need America more than it needs
inglycandid.Histransactionalattitudetodiplo- them.AmericashouldtelltheSaudistogetout
macywithSaudiArabialooksliketherealpolitikofpastAmeri- ofthewarinYemenandmakeupwithQatar.Aboveall,itshould
can presidents in dealing with the Al Sauds, minus the cant tellthemthatrulebyfearisnorecipeforstabilityathome.
about human rights. In reality, Mr Trump’s glossing over the Itdoesnottakeaciareporttoknowthatultimateresponsi-
murderofapeacefulcriticisanalarmingdepartureforAmerica. bilityforKhashoggi’smurderlieswithMuhammadbinSalman.
Ithelpstocreateaworldthatismoredangerous,notsafer. Hisreputationasaneconomicandsocialreformer,whoallowed
Previouspresidentshavesoughttobalancemoralvaluesand cinemas to open and women to drive, has transmogrified into
nationalinterests.MrTrumphasgivenupalmostallpretenceat thatofanold-fashionedArabtyrant:insecure,brutalandrash.
defending morality; his sanctions on 17 Saudi officials are de- TherearefewangelsinArabpalaces.ButKhashoggi’sbloodis
signed to protect the crown prince, not punish him. Mr Trump apermanentstainonthecrownprince.Itisincreasinglyhardto
has thus abandoned an important tool of American power—its imaginehimbeingastableandreliablemonarch.Thestoriesof
role as a model of democracy. In repeating the absurd Saudi disquietamongtheAlSaudsaregrowing.KingSalmanwouldbe
claimthatKhashoggiwasan“enemyofthestate”,MrTrumphas wise to start sharing power more widely—starting with the ap-
givenlicencetoautocratseverywheretokilljournalistsanddis- pointmentofanewcrownprince.7
Taxes on homebuyers
Stamp them out
Taxes on property transactions are among the world’s most damaging levies. Scrap them
In recentyearsmany rich-world politicians haveatlastwo- government policies, which have coincided with lower real in-
ken up to the blight of expensive housing. TheresaMay,Brit- terestrates,havepushedpricesup(seeFreeexchange).Thefun-
ain’s prime minister, describes pricey houses as “thebiggestdo- damental mistake is excessive regulation of house-building in
mestic policy challenge of our generation”. Justin Trudeau,Can- andaroundsuccessfulcities.Butasecondsenselessdistortion
ada’s prime minister, has promised a “robust, comprehensive, makesthingsworse:taxesonpropertytransactions.
life-changing” impact on the housing market. Australia’s new Suchlevies,orstampdutiesastheyareoftencalled,arecom-
prime minister has fretted that youngsters are putting off par- mon. Many European countries have them, including France,
enthood while they save up for homes. Recognition is growing GermanyandSweden,wherehousepriceshavegrownparticu-
that rapid house-price inflation has caused intergenerationalin- larlyrapidlyinrecentyears.Allbut12Americanstateslevychar-
equity, destabilised finance and constrained economicgrowth. ges, typically around1%, when property changes hands. Some
If only the rhetoric was matched by action. Dysfunctional countriesaremuchmoreaggressive.InAustraliathetoprateof1
The EconomistNovember24th2018 Leaders 15
2stampdutyreaches7%;inBritainthefigureis12%forthemost should not encourage them to do so—especially when high
expensiveproperties.EvenanaverageterracedhouseinLondon priceshaveleft many families wanting more space.
attracts tax of over £15,000 ($19,000) every time its ownership Thereisan obvious replacement for transaction taxes: higher
changes,ayear’searningsattheminimumwage. annuallevies on property values or, ideally, on land values. Such
First-timebuyersareoftenpartiallyexemptfromstampdu- taxestargetwealth, and can be just as progressive as stamp duty,
ties. Yet that barely limits the damage. The problem is that a buttheydonot distort markets much. In a transition from one
wedgebetweenwhatbuyerspayandwhatsellersreceiveslows system to the other, the obvious losers would be those who do
thepaceatwhichpropertieschangehands.Byoneestimatefor notintendto move in future: settled property owners, many of
cheaper houses, a 1% increase in stamp duty reduces annual whomhaveenjoyed windfall gains as house prices have soared.
churninpropertyownershipby3.5%.Whenfewermovesmean True,somewould be poorer old people, who could not afford an
fewer job switches, the labour market becomes less efficient. annual levy to stay in their homes. But the taxes could be de-
Productivity growth may slow. Thankfully, transaction taxes ferreduntiltheir houses are sold upon their deaths.
tendtobitehardestonlyforexpensivehomes.Butgummingup This suggestion may sound like a long shot. That a tax as
thetopofthehousingmarkethasknock-oneffects.Thosewho boneheadedas stamp duty can persist reveals the apparent emp-
wouldoccupymansionsstayincheaperhomesinstead. tiness of politicians’ commitment to fix housing markets. Yet
The taxes also discourage downsizing, a particularly unwel- changeisnot impossible. The region containing Canberra, Aus-
come effect in ageing societies. More than two-fifths of British tralia’s capital, has begun a 20-year process to phase out stamp
housingequityisownedbyover-65s,manyofwhomaresitting duty and replace it with a residential land-value tax. Countries
onlarge,emptynests.MorethanathirdofBritain’sowner-occu- that still tax property transactions, especially those that do so
piedhouseshavetwoormoresparebedrooms.Peopleareenti- swingeingly, cannot claim to be serious about reversing decades
tled to hold on to their houses if they wish. But the tax system ofhousing-policy errors until they follow suit. 7
UN regulatory bodies
Agency problems
The bodies for shipping, aviation and postal services are in thrall to producer interests
It is a lesson straight from undergraduate economics. Do not firms, reckons Transparency International, an anti-corruption
give the regulated power over the regulators, unless you want group; that adds up to about a tenth of delegates. At an imo envi-
consumers to lose out and producers to game the system. The ronmental-committee meeting last year, almost a third of coun-
merger of water suppliers and their regulators in Britain in 1973 tries were represented, at least in part, by business interests.
provides a good example. Water companies fiddled their pollu- The third way in which producer interests are protected is
tion targets; Britain’s rivers and beaches became the dirtiest in through a spectacular lack of transparency. The agenda of the
Europe. After the separation of firms and supervisors in 1989, imo’s council this week in London is available only to those with
Britain soon had some of the cleanest rivers on the continent. a password. Journalists are forbidden to report what delegates
That lesson has been learned in many places around the say or how they vote. There are no rules on the suitability or con-
world. National regulators are increasingly independent of the flict of interests of delegates. In 2014 St Lucia appointed a Saudi
firms they regulate. But international ones still have further to billionaire without previous shipping experience as its imo rep-
go—and none further than the specialised agencies of the United resentative; a court in London judged in 2016 that the appoint-
Nations, such as the International Maritime Organisation (imo) ment was obtained in order to gain diplomatic immunity against
for shipping, the International Civil Aviation Organisation divorce proceedings. There are no limits on the amount of gifts
(icao) for airlines and the Universal Postal Union (upu) for post- that can be showered on representatives. Goodies put on top of
al services. These bodies regulate the cross-border aspects of desks at an imo assembly meeting last year were so heavy that
their industries, from safety and pollution to technical harmoni- they broke 137 sets of headphones underneath.
sation between different countries. They are also clubs that pro- Such swampiness matters. The imo and the icao are respon-
tect producer interests. sible for limiting emissions from ships and planes, which were
Those interests are upheld in several ways. The first is the dis- excluded from the Paris climate deal. Green groups say, for in-
tribution of voting rights between countries. At the imo, for stance, that the icao’s new “corsia” rules on carbon offsets
example, Panama and Liberia, with populations of just 4m and could cause an increase in carbon emissions.
4.8m respectively, can automatically get seats on its decision- Some countries are interested in reform. At the imocouncil
making body as they have the world’s biggest merchant fleets. meeting this week Australia proposed allowing journalists to re-
The second is the assignment of those voting rights by indi- port on its meetings as a first step. The Marshall Islands has tak-
vidual countries. Remarkably, many governments have handed en back some of its votes from the private firm that runs its flag
voting rights to private-sector firms. At the upu, for instance, registry. But more radical change is needed. Countries should
Britain has assigned its vote to Royal Mail; Germany has done the send civil servants, not private actors, as their representatives.
same with Deutsche Post. These firms stand accused of using The un’s rules on conflicts of interest should be imposed. And
their votes to sustain low fees for the delivery of their post in for- voting rights should be allocated with the interests of consumers
eign countries. The imo is worse still. At least 17 countries have in mind. These lessons have been widely absorbed within bor-
assigned their voting rights to flag registries operated by private ders. They ought to cross them, too.7
16 Leaders The EconomistNovember24th2018
Brexit
The truth about no deal
Time to bust the last great myth of Brexit
The british body politic is again convulsing. Theresa May Moreimportant,nodeal would mean not just no trade deal,
has appointed new ministers, including her third Brexit sec- but the rupture of a whole corpus of legal arrangements with the
retary and counting, following another round of cabinet resigna- eu. Britain would be left without rules to govern the trade in ra-
tions. The prime minister’s own backbenchers are feverishly (if dioactive materials, international electricity markets, financial-
ineptly) plotting to bring her down. The Labour opposition’s po- contract clearing, aviation, medicines regulation, immigration
sition is hopelessly unclear. The cause of this chaos is that those control and much else. What some Brexiteers describe as a “clean
with long-standing delusions about what Brexit would mean break” from Europe would in fact be horrifically messy.
have been forced to swallow a dose of reality. No-deal proponents counter that Britain and the eu would
With negotiating time almost up, Britain has the imperfect quickly sign side-deals to mitigate the worst of the chaos—al-
deal that it was always going to get. Promises of having cake and lowing flights to carry stranded citizens home, for instance. But
eating it have given way to a less appetising offering. Yet among it is unlikely that the eu would do more than the minimum if
Brexiteers, one hopeful fantasy lives on: the idea that, if all else Britain defaults on its debts. What little goodwill remains would
fails, Britain can prosper outside the European Union without turn to dust. Brexiteers say that shortages could be avoided if
signing a deal at all. The idea’s proponents tout a no-deal Brexit Britain threw its borders open to eu products without checks.
as a way to avoid giving ground, or money, to Brussels. They dis- But eschewing any sort of regulation would be an odd way for
miss objections as another round of the alarmist “Project Fear” Britain to “take back control”, as the Leave campaign promised.
that Remainers deployed before the referendum. If Mrs May wonders how this dire outcome has come to be
They are gravely mistaken. It is time to debunk the last, and more popular than her hard-won deal, she should start by re-
most dangerous, of the Brexit fantasies. reading her own speeches. Her mantra that “no deal is better
The notion that Britain should leave the euwithout agreeing than a bad deal” was supposed to persuade the euto give Britain
on exit terms or paying its tab has gained currency. Perhaps two better terms. It didn’t work. But it struck a chord at home. David
dozen Tory mps want such an outcome, now that a cake-and- Davis, her first Brexit secretary, compared the talks to buying a
eat-it deal is off the menu. Given the government’s wafer-thin house: “You don’t walk in and say, ‘I’m going to buy the house,
majority, this small band has undue clout (see now what’s the price?’ So why should it be any
Britain section). Assurances by level-headed different in a big negotiation like this?” The an-
ministers that Parliament would block a no-deal swer is that not buying a house means sticking
exit are constitutionally questionable. The pub- with the status quo, whereas not signing a Brexit
lic, meanwhile, are worryingly relaxed about no deal means swapping the status quo for a new,
deal. Polls find that many voters would rather do very bad alternative. The house-buying analogy
a runner from the eu than accept the compro- works only if the buyer has burned down their
mise that Mrs May has struck. existing home and is negotiating to buy the only
The reality is that no deal amounts to a very one on the market.
bad deal, as our briefing this week spells out. It would rip up 45 Advocates of no deal brim with the same misplaced confi-
years of arrangements with the continent that in living memory dence with which they approached the Brexit talks. The grim
has gone from existential threat to vital ally. It would swap mem- warnings of what would happen after the referendum have
bership of the eu’s single market for the most bare-bones trading turned out to be overblown, they point out. Britain has not fallen
relationship possible. Reneging on £39bn ($50bn) in obligations into recession, as Remainers forecast, though its performance
to the eu would devastate Britain’s international credibility. relative to other advanced economies has declined. Might the
Reaching no deal on the Irish border would test the Good Friday impact of no deal turn out to be less bad than feared?
Agreement that ended a serious armed conflict. And the violent Perhaps. But the disruption caused by an unmediated exit
dislocation of nearly every legal arrangement between Britain would be far more dramatic than the economic harm caused by
and Europe would affect daily life like nothing outside wartime. the Brexit vote. The public cannot easily see what they have lost
The myth has taken hold that no deal simply means no trade as a result of Britain’s slip from being the fastest-growing mem-
deal. Proponents of a no-deal exit say it will involve Britain trad- ber of the g7 to one of the slowest. A no-deal Brexit, by contrast,
ing with the euon the standard terms used by other members of could have highly visible effects. Essentials drying up, travellers
the World Trade Organisation (wto). No-dealers argue, correctly, stranded, motorways gridlocked: these things bring down gov-
that Britain could eventually adjust to this. It would be painful, ernments and undermine faith in democratic politics. In 2000
but the economy could move beyond industries like carmaking, Tony Blair’s administration was plunged into crisis when prot-
which would be ruined by the 10% tariffs that the euwould im- esting lorry-drivers blockaded oil refineries. The protests lasted
pose on British exports. Consumers would gain if the govern- barely a week but still forced supermarkets to ration bread and
ment took the highly unlikely step of abolishing all tariffs, as no- milk, and the government to deploy army ambulances.
dealer economists recommend. But protected sectors, particu- It is hard to imagine any government surviving the chaos of a
larly agriculture, would wither. And many Leave-voters might be no-deal Brexit, let alone one as weak as Mrs May’s. So far the deci-
surprised that the price of exit was the collapse of much of Brit- sion to quit the euhas slowed Britain down, rather than derail-
ain’s high-end manufacturing and the demise of farming. ing it. Leaving with no deal, however, could result in a wreck. 7
Letters The EconomistNovember24th2018 17
whilestubbornlyadheringtoa “flaunting” its Christianity? Is
The peace line Debtatonement pre-capitalist,indeedanti- Kehilath Jeshurun “flaunting”
Charlemagne’s ruminations on TheFreeexchangecolumnon capitalist,morality. its Jewishness, or is it merely
the 100th anniversary of the Italypositsthatmutualisation Youconclude,“itwillbe existing as a house of worship?
armistice concluded that it was ofthecountry’sdebtthrough- hardtoturntheclockbackon I take issue with the unfor-
“political twists in Berlin, not outtheeuwould“relieve individualism”.Onecanonly tunate word because it implies
crushing defeat on the battle- youngItaliansofdoingpen- hope,butpoliticianstheworld that the proper conduct for a
field” that pushed Germany to ancefortheirforebears’sins” overaredoingtheirverybestto synagogue is to become
sue for peace in 1918 (November (November10th).Thereare doso,aidedandabettedby unmarked. On the contrary,
10th). This calls to mind the fourinseparablerequirements those“illiberalliberals”inthe American Jews and our tem-
infamous Dolchstoss, or stab- forabsolvingsins:self-exami- academy,asProfessorGray ples have long enjoyed a visible
in-the-back myth, through nation;regretforhavingdone rightlycallsthem. presence across the United
which the Nazis and their thesinfulact;afrankconfes- jameslennox States, even in the face of
extreme-right predecessors sionoftheguilt;andastrong Professoremeritusofhistory violence. Now is not the time
sought to blame socialists and commitmenttoactwiselyin andthephilosophyofscience to run and hide.
Jews for Germany’s defeat in future.Onlythecompletionof UniversityofPittsburgh sarah tishler
the first world war. thesefourprocessesmakesthe New York
In reality, the political absolutionrational,otherwise
twists in Berlin came about thecultureofsinningissureto OECDrulesondatasafety
almost entirely because of the continuehappily.Something Youseemedperplexedby Brexit humour
dire military situation facing forItalianeconomistsandthe Switzerland’srefusaltoswap Johnson proposes “divorce” as
Germany after the failure of the eu’spoliticianstoconsider. taxdatawithcountriessuchas a metaphor for Brexit (Novem-
German spring offensive on jerryczarnecki Russia,ChinaandPakistanon ber 3rd). May I suggest a better
which the high command had LaHabra,California data-safetygrounds,“even analogy would be “open
staked all, the worsening food thoughtheoecdconsiders marriage”. It is not a complete
and materials shortage caused thosecountriessafeto break that is being sought, so
by the Allied naval blockade, In praise of individualism exchangeinformationwith” much as contemporaneous
the surrender of key German Your reviews of John Gray’s (“Elmerthud”,October20th). relationships with other par-
allies, and a string of Allied “Seven Types of Atheism” ThegovernmentsofRussia, ties and a lowering of contribu-
victories on the Western Front. (“The valley of the shadow”, ChinaandPakistanarewell- tions, while still maintaining
The high command, led by Paul November 10th) and Paul knownfortheirofficialarbi- access to the original partner.
von Hindenburg, knew in Collier’s “The Future of Capi- trarinessandgravehuman- ben aveling
November 1918 that the army talism” (“The old ways”, No- rightsviolations.Weshould Sydney
was incapable of withstanding vember 3rd), correctly identi- expectthattheywouldabuse
further Allied attacks. On fied the absence of any positive Swissdatatopursuepeople As a reader of The Economistfor
November 10th 1918 Hinden- recommendation of a morality standinginthewayoftheir two decades, it has taken me a
burg instructed Matthias Erz- that could serve as a guide for politicalends.Thetaxauthori- while to adjust to your new
berger, a minister in the civil- living in the 21st century. You tiesinRussia,forexample, layout, which I am now enjoy-
ian government, to sign the pointed instead to the fact that havemadelifehardforthose ing. However I must point out
armistice on Germany’s behalf, the secular moralities of duty whosupportliberalcauses. one oversight. Surely post-
whether or not he was able to and utility, which rose to su- Thistellsusmoreaboutthe Brexit your newspaper needs
gain any concessions from the premacy during the Industrial shortcomingsoftheoecd’s to move the Britain section to a
Allies. No concessions were Revolution, defend the same assessmentthanaboutthe place that will properly reflect
made, and Erzberger signed, virtues preached by every safetyoftaxdatainthe that country’s new-found
albeit under protest. variety of theism, especially assessedcountries. status in the world? After the
david ellis the sacrifice of the individual alfredsteyrer Obituary seems appropriate.
Queen Mary, University of to some “higher” authority. Basel,Switzerland john flockhart
London What 21st-century capi- Lund, Sweden
talism needs, as Ayn Rand
The German army was in full argued over 60 years ago, is not Wearing religion with pride Last week’s cover noted that
retreat by the autumn of 1918, a morality that apologises for I was heartened to see The this is now “Brexit’s endgame”.
having been forced from its the system, but one that cele- Economistdevote space to the In Samuel Beckett’s “Endgame”
powerful defensive positions. brates the virtues responsible topic of anti-Semitism in the there are four characters. One
The Allied powers captured for the astounding improve- United States and Europe (“The cannot stand, another cannot
thousands of prisoners daily, ments in human life that capi- mourning that never ends”, sit, and the other two live in
the British army taking some talism has created; the virtues November 3rd). However, I was dustbins.
100,000 in October alone. The of rationality, productivity and dismayed by your remark that Sounds about right.
military situation was so des- pride in individual achieve- the Kehilath Jeshurun congre- malcolm corbould
perate that it caused the men- ment. When Professor Collier gation in Manhattan “flaunts Horsham, West Sussex
tal collapse of General Erich insists that the state must be its Jewishness”. The synagogue
Ludendorff, one of the leaders able to harness markets to an bears the Hebrew letters of its
in the German high command. ethical purpose, he is implicit- name underneath stained- Lettersarewelcomeandshouldbe
It was military defeat that ly denying that the dynamic, glass windows displaying Stars addressedtotheEditorat
TheEconomist,TheAdelphiBuilding,
forced German commanders to productive activity of individ- of David. Would you find that a
1-11JohnAdamStreet,LondonWC2N6HT
seek an armistice. uals pursuing their own values church with a sign bearing its Email:[email protected]
jonathan moore is ethical. Here again, we see an name and a stained-glass Morelettersareavailableat:
Economist.com/letters
London attempt to defend capitalism window of the cross was