The Economist September 17

104 Pages·2010·44.68 MB·English

by  The Economist

The global schools revolution
The Israel, Egypt and Barack Obama

E C O nN @) mM ] S Tt Japan's avoidable energy crisis

Bank of America’s road to recovery

SEPTEMBER 17TH-23RD 2011 Economist.com Tinker, tailor, soldier, actor

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Contents. 201

On the cover

Saving the euro requires
urgent action on a huge scale.
Unless Germany rises to the
challenge, disaster looms:
leader, page 11. The euro zone
is in intensive care, page 73.
Misdiagnosing the problem,
page 74. The costs of a break-
up, page 75. Brussels boxed
in: Charlemagne, page 54.
British glee is dangerously
naive: Bagehot, page 60

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Hits
Economist

Volume 400 Number 8751

First published in September 1843

to toke port in “a severe contest between
intelligence, which presses forward, and
an unworthy, timid ignorance obstructing
our progress. "

Editorial offices in London and also:
Atlanta, Beijing, Berlin, Brussels, Cairo,

Chicago, Hong Kong, Johannesburg, Los Angeles,

Mexico City, Moscow, New Delhi, New York, Paris,
San Francisco, Sao Paulo, Singapore, Tokyo,
Washington DC

7 The world this week

Leaders

11 Europe's currency crisis
How to save the euro

13 American health care
Justice delayed

13 Banking reforms in
Britain
Good fences

14 Japan’s energy
monopolies
Out with the old

Letters

16 On America and the
Middle East, Jean
Monnet, Yahoo!,
high-speed rail, paper,
rhetoric, oxymorons

Briefing

23 Reforming education
The great schools
revolution

24 Education theories
The horse before the cart

United States
27 Republican governors
Brave swingers

28 The stimulus debate
From deficits to jobs,
and back

28 Poverty and health care
Pinched

29 New York politics
Taking the ninth

30 Voter identification
First, show your face

30 Electronic education
Flipping the classroom

34 Lexington
Obama and the Middle East

The Americas

37 Colombia’s infrastructure
Bridging the gaps

38 Taxes in Cuba
Get used to it

38 Brazil's business
environment
Baby steps

Asia
39 Taliban attacks in
Afghanistan
On the front-line
40 Politics in China
Not fade away
40 ATaiwan blockbuster
Blood-stained rainbow
41 Books in South Asia
Engrossed
42 North Korea
Deprive and rule
44 Banyan
New lightin Myanmar?

Middle East and Africa

45 Israel and Egypt
The heat of isolation

46 The new Libya...
Patience, please

46 ...and its fugitives
Catch them if you can

47 Syria’s turmoil
Will foreigners intervene?

47 Rwanda and France
Still edgy

48 Zambia's election
Cobra v codger

48 Racism in South Africa

Song of liberation or hate?

Europe

49 Russian politics
A cast of buffoons

50 The French rumour-mill
Scandalous times

50 Health spending in Spain
Fat-trimming needed

51 Berlin's election
The cost of cool

54 Charlemagne
In the Brussels bunker

Britain

55 Bank reform
To rip asunder

56 Anglo-Russian relations
Cold comforts

57 Scottish politics
The changing mood on
independence

57 Public-sector strikes
War of attrition

60 Bagehot
English for Schadenfreude

The Economist September 17th 2011 [Kj

The schools revolution
Education remains the
trickiest part of attempts to
reform the public sector. But
as ever more governments
embark on changes, some vital
lessons are beginning to be
learned, pages 23-25. Howthe
internetis finally helping
teaching, page 30

The Middle East Egyptians
relish Israel’s growing
discomfiture in the region. But
they do not want another war,
page 45. Barack Obama is stuck
between Israel, Turkey, Egypt
and Palestine: Lexington,
page 34

#*,

Murder in KabulIn the
capital, sound and fury in
broad daylight as the Taliban
attacks, page 39

>> Contents continues overleaf
ili

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4 Bene

Bank of America Brian
Moynihan’s battered bank
tries to hack and sack its way
back to prosperity, page 77

Japan’s energy crisis The new
government should break up
the electricity monopolies:
leader, page 14. The country’s
energy problems are far from
over, page 65. Daniel Yergin
gazes into the future, page 89

Smiley's world John le Carré’s
thriller remade—and
remodelled, page 92. Britain's
prime minister visits Moscow
where the spies now rule, page
56, and allis not well, page 49

International

61 Human rights
The compass fails
62 The OECD and corruption
The tents of the righteous
64 Undeclared beneficial
ownership
Licence to loot

Business
65 Energy in Japan
Bright ideas needed
66 Independent films
Scripts, not effects
66 Microsoft and Intel
A marriage frays
67 Frankfurt Motor Show
Autoficial intelligence
67 Pet care in Latin America
Profitable pooches
68 Bribery abroad
A tale of two laws

69 Corporate governance
The doofus factor

69 Corporate political
donations
Measuring transparency

72 Schumpeter
Green growth

Briefing
73 The euro-zone crisis
Fighting for its life
74 The proper diagnosis
Profligacy is not the
problem

75 The costs of break-up
After the fall

Finance and economics

77 Bank of America
Strife of Brian

78 Buttonwood
Bargain-hunting

79 Commodity markets
Back to the futures

79 The R-word index
Up means down

The Economist September 17th 2011

80 Auditing in China
Deloitte's dilemma

80 Emerging-market debt
Non-stick securities

81 Vegetable oil
What's cooking?

82 Economics focus
The Fed's focus: prices
or jobs?

Science and technology

85 Particle physics
The dark at the end ofthe
tunnel?

86 L’Aquila’s earthquake
Scientists in the dock

88 Fossil feathers
Not just for the birds

Books and arts
89 The quest for energy
Keeping the lights on
90 Nuruddin Farah
Somali son
90 Nature conservation
The constant gardener
91 Calvin Trillin
Funny man
91 Dark side of youth
Lost in transition
92 “Tinker, Tailor, Soldier,
Spy”
Give us a Smiley

Obituary

93 Vann Nath
Witness to genocide

101 Economic and financial

indicators

Statistics on 42
economies, plus closer
looks at employment by
educational attainment
and long-term
unemployment

Next week

We publish a special report
on the world economy. The
shift in economic power from
West to East is accelerating,
says John O'Sullivan. The rich
world will lose some of its
privileges

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The Economist September 17th 2011

The world this week :
aa Recep Tayyip Erdogan, Tur- Noguera, to 25 years in jail for Getting bolder and bolder
Politics key’s prime minister, received collaborating withright-wing The Talibanlaunched an auda-

a hero’s welcome on a visit to paramilitaries. Alvaro Uribe,a _—_— cious attack in the centre of
Cairo. Mr Erdogan told Arab former president whoappoint- Kabul, the Afghan capital,
foreign ministers thatrecogni- | edMrNoguera,maintainsthat which security forces took 20
tion of Palestinian indepen- he never gave an order to hours to quell. Gunmen fired
dence was an “obligation”; his |= commitan illegal action. on the American embassy, the
speech followed a further headquarters of the NATO-led
deteriorationin Turkey’s once- Taking it on the road International Security Assis-
warm relationship with Israel. | Barack Obama went out to tance Force and other build-
stump for his new $447 billion —_ ings used by diplomats; at least
Trying to keep the peace jobs plan. The package calls 27 people were confirmed
Amob of Egyptianssmashed _forpayroll-taxcutsforemploy- dead, including ninsurgents.
through security barriers, ers and workers, an extension
broke into the building that of unemployment-insurance
With Greek bond yields offthe housestheIsraeliembassyin _ benefitsand spending on
chart, the lack of investor Cairo andtrashedtheinterior. _—_ infrastructure projects. Mr
confidence in the ability of Some 80 diplomats and their Obama insisted that his plan
Greece toavoidadefaultonits familiesleftinIsraeliaircraftas | would be deficit-neutral.
debt and remain in the euro Egyptian commandos dis-
zone weighed on market persed the assailants. Barack The Republicans won a stun-
sentiment.Inapublicshowof |Obamahadto call Egypt's ning victory in an election for
support for Greece, Angela interim leader, Field-Marshal a seat in New York, left vacant
Merkel and Nicolas Sarkozy, Muhammad Tantawi, to urge by the resignation of Anthony
the German and French lead- him to intervene. Weiner over some saucy pho-
ers, reaffirmed their commit- tographs. The district, covering
ment to previous bail-out To fend off calls for more free- parts of QueensandBrooklyn, Hundreds of people were
arrangements, andsaidGreece dom, Algeria’s president, had been solidly Democratic killed and 300,000 left home-
was an “integral” part of the Abdelaziz Bouteflika, an- for decades. The Republicans less by monsoon flooding in
currency block. nounced plans to allow in- saidtheir winunderscoredthe Pakistan, which reached
dependent radio and televi- unpopularity of Mr Obama, Karachi, the commercial capi-
Amid scuffles between police sion stations for the first time but the Democrats pointed to tal. More rains are expected.
and protesters, Italy’s parlia- since independence in 1962. local issues.
ment passed a much-amended In Taiwan a military court
austerity budget worth €54 A UN panel warned that America’s poverty rate cleared an airman of raping
billion ($74 billion). It earlier Yemen was close to civil war. jumped to 15.1% in 2010; 46.2m and murdering a young girl—
emerged that Silvio Berlus- Its president, Ali Abdullah people were belowthepover- _14 years after he was executed.
coni’sgovernmentis peddling Saleh, still recuperating in ty line, the largest number in The court concluded that his
its debt to Chinese sovereign- Saudi Arabia after being hurt the 52 years since poverty confession had been forced.
wealth funds. Italy’shugedebt inanattackonhispresidential estimates werefirstpublished. Taiwanresumed executions
pile isa cause of graveconcern, palace three months ago, told last year, after a four-year
adding totheeuro-zonecrisis. —_ his vice-president to arrange moratorium.
for power to be handed over to
Dominique de Villepin, a anew government. Yoshihiko Noda, Japan’s new
former French prime minister, prime minister, promised to
was acquitted onappealinthe |The Kenyan government, a restart the country’s nuclear
Clearstream trial, in which he state oil company and resi- plants, after they have passed
had beenaccusedof allowing dents of a Nairobislum safety checks. Before the tsuna-
false rumours about Nicolas blamed each other for an oil miin March nuclear reactors
Sarkozy tobecirculatedahead _ pipeline explosion that killed provided 30% of Japan’s pow-
of the 2007 presidential elec- more than 80 people. er. Two-thirds are now idle. But
tion. But separate allegations Mr Noda said Japan should cut
emerged that Mr de Villepin Not quite there its reliance on nuclear energy
and Jacques Chirac, Mr Sar- Otto Pérez Molina, a former America commemorated the over the long run.
kozy’s predecessor, had re- general who promisestocrack tenth anniversary of the Sep-
ceived illegal donations from down on crime, won the first tember uth attacks. MrObama Mr Noda’snew government
Africa, which both men deny. round of Guatemala’s presi- was joined at the site of the got off to an unfortunate start
dential election. But with 36% World Trade Centre in New when the industry minister
Hours after Belgium’s caretak- of the vote,hefellwellshortof York by George Bush junior, resigned, after making a joke
er prime minister said he was the absolute majority needed the firsttime thetwomenhave aboutradiation.
resigning to take up ajobin to avoid arun-off.He willface | attendedaremembrance
Paris, the country’s fractious Manuel Baldizon, a populist service together. A national In China 32 people were ar-
parties said they had madea businessman, in the second memorial was opened to the rested for selling cooking oil
breakthrough in negotiations round in November. public. MrObamaalsoattend- _ that had been processed from
to form a government. Bel- ed a memorial service at the sewage and restaurant refuse.
gium has been withouta A court in Colombia sen- Pentagon, and at the field in Up to 3m tonnes of illegal
proper government for well tenced a former head of the Pennsylvania where one ofthe cooking oil is consumed in
over a year. intelligence services, Jorge hijacked planes crashed. China each year. »>
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The Economist September 17th 2011

Business

| Share prices

July 1st 2011=100

100
Agricole 60
Société Genérale ve
20
Jul Aug Sep
2011
Source: Thomson Reuters
Amid the deepening euro-

zone crisis, Moody's down-
graded the credit rating of both
Société Générale and Crédit
Agricole, two of France’s
largest banks, over concerns
that they hold insufficient
capital to withstand a Greek
default. BNP Paribas, France’s
biggest bank, denied reports
that it was having trouble
raising funds in the markets.
French officials insisted that
the country’s financial sector
was sound and did not needa
further injection of capital
from the government.

A strong response

Germany nominated Jorg
Asmussen, the deputy finance
minister, to be its highest-
ranking official at the Euro-
pean Central Bank, after the
sudden resignation of Jiirgen
Stark as the ECB’s chief econo-
mist. Mr Stark stepped down
in apparent protest at the
central bank’s increasingly
interventionist role in shoring
up weaker countries in the
euro zone.

In an unprecedented move,
the British government sought
to sue the ECB over anew rule
that requires clearing houses
to be located in the euro zone if
they handle more than 5% of
the market in a euro-denom-
inated product. The govern-
ment thinks the rule hampers
the free flow of capital. It could
also eventually threaten the
City’s predominant role in
European financial markets.

The Federal Reserve came
under more political pressure
just ahead of acrucial meeting
that will decide whether to
launch anew round of bond
buying. At their latest debate

the Republican presidential
candidates tore into the Fed for
being too interventionist. But
from the other side of the aisle,
Barney Frank, a senior Demo-
crat, criticised the Fed’s region-
al presidents for not doing
enough to create jobs.

Bank of America continued
its restructuring effort, and is to
shed almost10% of the work-
force in its consumer-banking
business, or 30,000 jobs, to
save $5 billion from the $83
billion it spends each year.

The final report of the Vickers
commission on British bank-
ing was given a cautious wel-
come by the City. The commis-
sion called for retail banking to
be ring-fenced and to operate
under a separate board of
directors from a bank’s in-
vestment-banking division,
and proposed that ring-fenced
operations hold equity capital
equal to at least10% of risk-
weighted assets. George Os-
borne, the chancellor, said that
“a great deal of detailed work”
would be needed before the
proposals became law.

McGraw-Hill became the
latest big company to an-
nounce that itis splitting in
two, separating its markets
business, which includes the
Standard & Poor's credit-rat-

ings agency, from its educa-
tion-services division to trade
as two independent compa-
nies. The move was not entire-
ly unexpected, given the pres-
sure McGraw-Hill has come
under from activist investors.

uBs said it had uncovered
unauthorised dealings by a
rogue trader in its investment-
banking division, which could
cost the Swiss bank $2 billion
and may cause it to post aloss
for the quarter.

Management decisions
Warren Buffett recruited a
second hedge-fund manager to
help run Berkshire Hathaway’s
investment portfolio, as he
prepares a new generation of
leaders to take the reins. Ted
Weschler manages a hedge
fund based in Virginia; he joins
Berkshire’s senior ranks along-
side Todd Combs, whom Mr
Buffett appointed last year.

News Corporation came
under renewed pressure for
decisions taken at some of its
subsidiaries. A parliamentary
committee recalled James
Murdoch, who isin charge of
News Corp’s British newspa-
per business, to question him
about the veracity of testimo-
ny he gave in July relating toa
phone-hacking scandal. Anda
group of American investors

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broadened the scope of a
lawsuit against another sub-
sidiary, in which it accuses
News Corp’s board of ignoring
“improper practices”.

Government loans to renew-
able-energy companies came
under the spotlight when a
congressional committee held
a hearing on the fate of
Solyndra, which made solar
panels. Based in Silicon Valley,
Solyndra received $528m from
the public purse, only to file for
bankruptcy. Some other solar-
energy firms that have gone
bust have blamed the sub-
sidies China hands out to its
solar industry, but Solyndra’s
detractors claim it was never
viable and should not have
received government help.

Rock on

As expected, the European
Union extended the copyright
on musical recordings from 50
to 70 years. Many of the earlier
songs recorded by bands such
as the Rolling Stones and the
Beatles were due to go out of
copyright over the next few
years, which some said was
unfair as performers should
have their rights preserved for
life. Musical artists are protect-
ed for 95 years in America.

Other economic data and news

can be found on pages 101-102

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