TheEconomist

It’s getting hotter

Thu, 01 Oct 2015 14:46:02 +0000

SAVING the planet is now a matter of a few clicks—at least on a small scale. On September 22nd the UN’s Climate Change Secretariat launched Climate Neutral Now, a website that estimates an individual’s carbon footprint based on whereabouts, recycling habits, energy use and so on. Offsetting any resulting guilt is easy: the site takes donations to fund clean development projects. Your correspondent paid $24 to a facility capturing methane from pig dung to cover the carbon-dioxide emissions she had caused during the past year.

The initiative is one of many intended to spur action on greenhouse-gas emissions in the run-up to climate talks in Paris at the end of the year. Some seem quite successful: in recent weeks around 2,000 individuals and 400 organisations have committed to stop investing in firms that produce fossil fuels. More important, countries have responded to a shift in climate-change policy after the failure of negotiations in Copenhagen in 2009: rather than trying to agree on mandatory emissions reductions, they were asked to say by October 1st what they were willing to do.

America’s Clean Power Plan, announced in August,...

Low-hanging dirt

Thu, 01 Oct 2015 14:45:57 +0000

“IT’S like trying to slow down a supertanker.” This is how Durwood Zaelke of the Institute for Governance and Sustainable Development, a think-tank, describes efforts to limit the amount of carbon dioxide in the atmosphere by ensuring that less is released or, as with reforestation programmes, more is absorbed. But the carbon dioxide already emitted will continue to warm the planet: it lingers for around 500 years. By contrast methane and other short-lived pollutants, including hydrofluorocarbons (HFCs) and black carbon (soot), disappear much faster, so curbing them brings more immediate benefits.

Carbon dioxide is the second-most-plentiful greenhouse gas (after water vapour), but short-lived pollutants are catching up. In 2013 methane, a powerful heat-trapping gas, accounted for 10% of greenhouse-gas emissions caused by human activity in America. Emissions of HFCs, another class of greenhouse gases used as coolants in fridges, are increasing at about 8% annually—twice as fast as those of carbon dioxide. Soot, the most heat-absorbing component of particulate matter, increasingly peppers landscapes after escaping from diesel vehicles, wood-burning stoves and wildfires....

Naked capitalism

Thu, 24 Sep 2015 14:47:36 +0000

IT WAS 2012, and Fabian Thylmann’s goal was world domination. The man who had put together Manwin, an emerging online-pornography giant, now controlled most of the top ten porn “tubes”—aggregators that, like YouTube, contain thousands of videos and are wildly popular, because much of their content is free. If he could get hold of the two biggest, XVideos and XHamster, he could put it all behind a pay barrier and build an online porn empire. If competitors emerged, he would buy them, too. What antitrust authority would rein in a monopolist in a business that upstanding people pretend does not exist?

But neither of his targets would sell. The French owner of XVideos is said to have turned down an offer of more than $120m with a scornful “Sorry, I have to go and play Diablo II.” Mr Thylmann later sold out of Manwin (since renamed Mindgeek), after coming under investigation by tax authorities in Germany, his home country.

Still, Mr Thylmann left a lasting legacy—just not the one he had intended. Inadvertently, he helped cement the tubes’ dominance, turning porn into a commodity in the process. The upheaval suffered by other media...

A user’s manual

Thu, 24 Sep 2015 14:47:35 +0000

IN 2003 Peter Morley-Souter, a British teenager whose hobby was drawing comic strips with his sister Rose, was sent a parody of “Calvin and Hobbes”, a strip about a six-year-old boy and his stuffed tiger, by a friend. It showed the titular pair having sex with Calvin’s mother. Mr Morley-Souter posted his response online: a cartoon showing his anguished expression as he stared at his screen (not shown), captioned “Rule 34: There is porn of it. No exceptions.”

Back then Rule 34 seemed an exaggeration, though one that held enough truth about the variety of smut to be found online that the phrase quickly caught on. Now it seems pretty close to reality. Images and videos on commercial pornography sites and fast-growing “tubes”—aggregators that host free amateur and professional content, making their money from advertising—are searchable by hundreds of terms, including the performers’ attributes, the acts depicted and the body parts featured. No kink or “squick” (an “icky” kink) is too obscure to have its own website, from adult-baby minding to zoophilia.

“The internet is for porn,” as the lyrics of a song from “Avenue Q”, a Broadway...

The best medicine

Thu, 17 Sep 2015 14:55:10 +0000

Slum docs

WHERE do slum-dwellers go when they fall ill? In Mukuru, a densely packed warren of corrugated iron shacks in south-east Nairobi, the usual answer is to find a backstreet pharmacist. At one of these, customers can buy packets of pills for the ailments caused by living in a tough neighbourhood: antimalarials; antibiotics; aspirin. Drugs are not always reliable: fake or out-of-date medicines are common. A patient who thinks he has malaria when he actually has flu will not be put right by a slum pharmacist.

For the past few years, however, in one corner of Mukuru, people with medical problems have had a better option. Opposite a makeshift public urinal which costs five Kenyan shillings (about 5 cents) to use is a smart green- and white-painted clinic. From 7am until 8pm each day it offers primary health care to anyone who walks in. A price list explains that a consultation is 100 shillings; the various tests and treatments on offer cost a little more. Staff tap patients’ details into an iPad; the shift’s clinician, Ian Oyola, shows off an examination room with scales, blood-pressure monitor and the various other...

Beyond handouts

Thu, 17 Sep 2015 14:55:10 +0000

THE “largest gathering ever of world leaders”; a “step-change” in aid; a “massive step forward for humanity”: the UN meeting to be held on September 25th has had politicians, donors and aid workers reaching for superlatives (as well as jargon). Prime ministers, presidents and the pope will gather in New York to unveil the “Sustainable Development Goals” (SDGs) that are supposed to shape aid and development for the next 15 years. Is the hoopla justified?

Most of the SDGs’ predecessors, the Millennium Development Goals (MDGs), have been met, largely because of progress in China and India. But there were just eight of them, focused on cutting extreme poverty and improving health care and education, all clearly defined. By contrast there are 17 SDGs and a whopping 169 “associated targets”, covering world peace, the environment, gender equality and much, much more. Many are impossible to measure. They are “higgledy-piggledy”, agrees Lord (Mark) Malloch-Brown, who helped write their predecessors. A tighter focus and more precise definitions might have been wise. Even so, the SDGs are part of an important shift in thinking about development that is making...

Banks for bean counters

Thu, 10 Sep 2015 14:49:47 +0000

IN THE early 1970s Asia’s rice farmers faced ruin. The brown planthopper, an insect up till then found mostly in Japan, began to appear across the region. It fed on young plants and transmitted grassy stunt virus, causing crops to shrivel and brown. As it swept through Asia’s paddy fields, yields crashed. By the end of the decade it had caused damage costing over $300m—more than $1 billion in today’s money.

Scientists raced to find a solution. They screened over 6,000 samples of rice and its wild relatives until they found a unique sample from central India of a wild species called Oryza nivara that was resistant to the virus. By crossing it with domesticated rice strains, plant-breeders transferred the resistant genes into a new variety. Today, millions of farmers across Asia grow rice derived from such crosses.

“Crop wild relatives”—the wild ancestors of cultivated plants—are a valuable weapon in the fight against hunger. Together with varieties used by traditional farmers, they contain a wealth of genetic diversity. Yet they are under-researched and under-collected. With their survival threatened by...

A dying breed

Thu, 10 Sep 2015 14:49:47 +0000

Not for pansies

PLANT-COLLECTING has long attracted mavericks with a thirst for adventure. In Borneo in the 1960s John Wood, now at Oxford University, had to shave leeches off his legs with a machete. In the 1970s, at the outbreak of Lebanon’s civil war, Geoff Hawtin, now a trustee of the Royal Botanic Gardens in Kew, drove a collection of legumes down a mined road to the Syrian border (and back again when he found it was closed). In the 1980s Daniel Debouck, a Belgian bean-collector based in Colombia, narrowly escaped capture by narcos in Mexico and guerrillas in Peru.

Botanists think there are up to 80,000 wild species of flowering plant left to discover. But a scarcity of funds hampers efforts to collect them. The UN Convention on Biological Diversity of 1992, ratified by 195 states and the European Union, made things more complicated. It recognised plants as part of countries’ national heritage and outlawed “biopiracy”—profiting from plants without compensating the countries in which they were found.

That made exploiting plants fairer but collecting them harder. Some...

You have waked me too soon…

Thu, 03 Sep 2015 14:52:26 +0000

BRITAIN’S health department calls it “the silent killer”. Others have labelled it “the new smoking”. Lack of physical activity has crept up the list of global causes of death to fourth place, after high blood pressure, smoking and high blood sugar—not least because it helps waistlines expand.

Even a little exercise has a huge health effect, whether or not people shed their extra pounds. Research presented on August 30th at a cardiology conference in London suggests that walking fast for 25 minutes a day can buy three to seven years of extra life. A bigger study by a team at Cambridge University tracked 300,000 Europeans over 12 years, and found that a brisk daily 20-minute walk, or the equivalent, cut the annual death rate for people of normal weight by a quarter, and for the obese by 16%. Getting everyone sedentary to do this would save twice as many lives as ending obesity, says Ulf Ekelund, the lead researcher.

Walking 20 minutes a day falls just short of the minimum exercise that the World Health Organisation (WHO) recommends. Adults, it says, should do at least 150 minutes weekly of moderate exercise, such as walking...

Streetwise

Thu, 03 Sep 2015 14:52:26 +0000

AT 6am on a sweltering Sunday the centre of Gurgaon, a city in northern India, is abuzz. Children queue for free bicycles to ride on a 4km stretch of road that will be cordoned off from traffic for the next five hours. Teenagers pedal about, taking selfies; middle-aged men and women jog by. On a stage, a black-belt demonstrates karate; yoga practice is on a quieter patch down the street. Weaving through the crowd dispensing road-safety tips is a traffic cop with a majestic moustache.

Gurgaon’s weekly jamboree is called Raahgiri (“reclaim your streets”). Amit Bhatt of EMBARQ, a green think-tank, started it in 2013, inspired by Bogotá’s ciclovía, pictured above, for which Colombia’s capital closes 120km of streets on Sundays and holidays. Such events are part of a movement that is accelerating around the world.

From Guangzhou to Brussels to Chicago, cities are shifting their attention from keeping cars moving to making it easier to walk, cycle and play on their streets. Some central roads are being converted into pedestrian promenades, others flanked with cycle lanes. Speed limits are...

Journalist wanted

Thu, 27 Aug 2015 14:43:23 +0000

Journalist wanted: The Economist is looking for a journalist to write about global public policy, based in London but travelling everywhere. First-rate analytical and writing skills essential; sense of humour a plus. Salary negotiable. Applicants should send a CV and an original 600-word article on any subject, written in the style of The Economist, to econjob@economist.com by September 4th. For more details, see http://www.economist.com/publicpolicyjob

Travelling light

Thu, 27 Aug 2015 14:43:23 +0000

10,000 airmiles away from home

A TOURIST flying economy class from Britain to Kenya and back generates around a tonne of carbon emissions, according to the International Civil Aviation Organisation. No matter how many times he reuses his towels or sits on a composting toilet when he is there, he could never hope to offset the burning of all that jet fuel. Does that mean the very notion of “sustainable tourism” is an oxymoron?

The phrase has three possible meanings. The first is ecological. Given the contribution that transport, especially by air, makes to global warming, on this definition it is almost guaranteed to fall short. The only truly sustainable holiday would be camping in the back garden eating berries, says Harald Zeiss of the Institute for Sustainable Tourism at Harz University in Germany. The second is social. Ideally, when cultures meet and gain in mutual understanding the long-term benefits will be intangible, but real. The final one is economic. Tourists who step off the beaten track have a chance to help lift the poor out of poverty and encourage them to preserve their environments for financial gain. The...

A place to lay your bread

Thu, 27 Aug 2015 14:43:23 +0000

AT THE Burj Al Arab hotel in Dubai, one of the world’s most luxurious (pictured), guests can avail themselves of 24-carat gold iPads and caviar facials. The cheapest rooms cost $1,000 a night; those interested in the royal suite can expect to pay nearer $25,000. Such ostentation is not to everyone’s taste. But it illustrates a trend: the way that the rich spend their money is changing.

Once, the well-heeled bought fancy stuff. Nowadays they spend more on things to do and see. A report last year by the Boston Consulting Group (BCG) found that of the $1.8 trillion spent on luxury goods and services worldwide in 2012, nearly $1 trillion went on “luxury experiences”. Travel and hotels accounted for around half that figure.

This partly reflects the growing weight of rich folk from developing countries. Wealthy Chinese spend 20 days a year travelling for leisure, according to ILMT, a travel agency. The most popular destination was Australia, and nearly half made it as far as Europe. On average, affluent Americans went on holiday 3.9 times in 2014, says Resonance, a consultancy, up from 3 times in 2012. Around half travelled more than 1,000...

The persistence of history

Thu, 20 Aug 2015 14:47:08 +0000

This article has been corrected

“SPOILS of war,” snaps Dabiq, the English-language journal of Islamic State (IS). The reference is to thousands of Yazidi women the group forced into sex slavery after taking their mountain, Sinjar, in August last year. Far from being a perversion, it claims that forced concubinage is a religious practice sanctified by the Koran. In a chapter called “Women”, the Koran sanctions the marriage of up to four wives, or “those that your right hands possess”.

Literalists, like those behind the Dabiq article, have interpreted these words as meaning “captured in battle”. Its purported female author, Umm Sumayyah, celebrated the revival of Islam’s slave-markets and even proffered the hope that Michelle Obama, the wife of America’s president, might soon be sold there. “I and those with me at home prostrated to Allah in gratitude on the day the first slave-girl entered our home,” she wrote. Sympathisers have done the same, most notably the allied Nigerian militant group, Boko Haram, which last year kidnapped an entire girls’ school in Chibok (...

Journalist wanted

Thu, 20 Aug 2015 14:44:15 +0000

Journalist wanted: The Economist is looking for a journalist to write about global public policy, based in London but travelling everywhere. First-rate analytical and writing skills essential; sense of humour a plus. Salary negotiable. Applicants should send a CV and an original 600-word article on any subject, written in the style of The Economist, to econjob@economist.com by September 4th. For more details, see http://www.economist.com/publicpolicyjob

Journalist wanted

Thu, 13 Aug 2015 14:49:55 +0000

Journalist wanted: The Economist is looking for a journalist to write about global public policy, based in London but travelling everywhere. First-rate analytical and writing skills essential; sense of humour a plus. Salary negotiable. Applicants should send a CV and an original 600-word article on any subject, written in the style of The Economist, to econjob@economist.com by September 4th. For more details, see http://www.economist.com/publicpolicyjob

Caesar’s legions

Thu, 13 Aug 2015 14:49:55 +0000

A YEAR ago a hospital in São Paulo announced that its maternity ward would henceforth only admit clients from 10am to 4pm, Monday to Friday. The message was clear: births by appointment only—that is, by Caesarean section. For Arthur Chioro, Brazil’s health minister, it was equally unequivocal: the country’s attitude to birth “has become absurd”.

In 2009 Brazil became the first country where less than half of babies were born as nature intended. At the last count, in 2013, fully 57% of births were by Caesarean section, in which the baby is delivered through an incision in the abdomen and uterus—almost double the proportion two decades ago. In Brazil’s private health-care system, Caesareans now account for nearly nine in ten births. Brazilian mothers say, only half jokingly, that their obstetricians would not know how to pull out a baby without cutting them open.

A recent study of 21 countries published in the Lancet, a medical journal, estimated that 31% of births were by Caesarean section in 2010-11. The rate is rising almost everywhere. The Dominican Republic and Egypt have joined Brazil in the greater-than-...

A question of utility

Thu, 06 Aug 2015 09:49:12 +0000

THE Great Exhibition, staged in London in 1851, was intended to show off the inventive genius of Victorian Britain. In doing so it sparked a hardfought debate on intellectual property. On one side were public figures horrified at the thought of inviting the whole world to see the nation’s best ideas, only to have most of it go straight home and copy them. They called for the patent system to be made cheaper and easier to navigate, and for the rights it conferred to be more forcefully upheld. These demands, though, were met with a backlash. Supported by economic liberals who had successfully fought for the repeal of the protectionist Corn Laws a few years earlier, this side of the debate argued that free trade and competition were good for the economy; that patents were a restraint on both; and that therefore patents should be not reformed, but done away with.

The Economist, founded by opponents of the Corn Laws, was an enthusiastic promoter of this abolitionist movement. A leader in our...

A new age of espionage

Thu, 30 Jul 2015 15:08:56 +0000

CYBER-CAFÉS were once a favoured tool of Western intelligence and security agencies. They were inconspicuous, cheap to establish and highly effective. Set up near an international summit buzzing with targets, or close to a mosque favoured by Islamist extremists, these facilities allowed their masters to monitor browsing habits, obtain targets’ logins and passwords, and plant spyware for future use. This was legal: consent was buried in the terms and conditions which users clicked on without reading. And in a neat twist, security-conscious people trying to avoid using their own computers favoured such places. Some would hop between cafés, unaware that all the convenient ones were run by the authorities.

Not any more. Edward Snowden, a fugitive former contractor for America’s National Security Agency (NSA) now living in Moscow, revealed the use of cyber-cafés to spy on the G20 summit in London in 2009. Now people are wary. In many countries the cyber-cafés have been closed. The staff who ran them have had to be moved (and in some cases given costly new identities). As a result, keeping track of terrorism suspects is now harder, spooks say.

...

Breaking the baby strike

Thu, 23 Jul 2015 14:49:00 +0000

“THERE are no families with many children in this area any more—they all have one or two,” says Hasibe Enc, who lives in the small, affluent city of Urla in western Turkey. That is irksome for her, since she runs a kindergarten called Pink Dreams. But it is also a crisis for Turkey—or so the national government believes.

Although it is the youngest country in Europe, Turkey is no longer delivering enough babies to sustain its population in the long term. Recep Tayyip Erdogan, its president, rails against abortion and tells women to bear at least three children. To sweeten these vinegary exhortations, the government is introducing “birth aid” payments for each baby born to a citizen and longer parental leave for civil servants.

In Singapore couples receive S$6,000 ($4,450) for having one child, another S$6,000 for a second child and a further S$8,000 for a third. Families with babies go to the front of the queue for government housing, in which most Singaporeans live. In South Korea the state reminds lovers that they can marry cheaply, without throwing an expensive wedding. In Russia couples are encouraged to get it on for...

Red scare

Thu, 01 Oct 2015 14:46:08 +0000

ALONG the muddy banks of the River Severn in Newport, Wales, sits the “mega-shredder”, an industrial monster owned by one of the world’s biggest metal-recycling firms, Sims Metal Management. It is one of the planet’s biggest consumers of metals—literally. Every hour the 560-tonne machine gobbles up more than half its weight in cars, washing machines and other appliances, making the earth shudder as it grinds them to pieces. It then uses magnets to separate the ferrous from the non-ferrous bits, spitting out small nuggets of steel, copper and other scrap. These are shipped to smelters in Asia, where they are mixed with ore and re-blasted into the rods and sheets that feed that other great devourer of metals, China.

A decade ago, when the machine was installed, China’s hunger for scrap seemed insatiable. Plumbers the world over developed a nifty side business as copper merchants. Theft was so rife that Britain banned cash payments for scrap metal. But in the first half of 2015 exports to China were half the level of 2012, when demand was at its peak, says Ian Hetherington of the British Metals Recycling Association. Scrap dealers’ hunt for customers...

The vultures circle

Thu, 01 Oct 2015 14:46:02 +0000

THERE is no shortage of bad omens for the global economy at the moment. To name a few: plunging commodity prices, wobbly equity markets, weak world trade, reduced profit forecasts for American companies and lower long-term inflation expectations. In recent weeks, a new one has joined the list: rising corporate-bond spreads.

These spreads—the difference between the interest rates paid by governments and blue-chip companies and those paid by riskier borrowers—reflect the risk of default. Rising spreads imply that investors are getting antsier about being repaid. That anxiety may well stem from worry about the economy.

Spiking credit spreads have often been a harbinger of recession (see chart). As David Ranson of Wainwright Economics argues: “Yield spreads represent a market assessment of the strength of the economy and are not affected by any of the technical measurement problems that plague the GDP figures.”

As an indicator, credit is clearly not entirely reliable: a rise in spreads in 2012 was not followed by a downturn. As yet there is no sign of a rise in the default rate on high-yield debt: it...

Money for everything

Thu, 01 Oct 2015 14:46:02 +0000

CASH has many enemies. Banks have added contactless technology to their credit and debit cards; apps like Uber use pre-stored details for transactions and services such as Venmo allow people to make transfers to one another using only mobile phones. Peter Bofinger of the German Council of Economic Experts says cash should be phased out to save the money spent printing and distributing it, and to eliminate the annoying queues generated by shoppers who insist on using it. Lawmen dislike it, since it is an enticingly anonymous store of value for criminals. Now even central bankers are getting in on the act: the chief economist of the Bank of England has proposed eliminating cash as part of a plan to permit negative interest rates. (Storing bank notes under the mattress is an easy way of thwarting a bank intent on charging negative rates.) Yet for all its detractors, cash is puzzlingly resilient.

Economists had long assumed that as nations grow richer and their financial infrastructure becomes more elaborate, the amount of cash in circulation would first grow rapidly and then begin to slow, as alternatives gained traction. Eventually,...

Upwardly mobile

Thu, 01 Oct 2015 14:46:02 +0000

WHEN the bottom finally fell out of America’s housing market in 2006, it triggered the worst global recession since the 1930s. But rising house prices need not spell disaster. The Economist’s latest round-up of house prices across the globe shows that prices have risen over the past year in 21 of the 26 economies we track, at a median pace of 4.7% (see table). Not every rise is alike, however.

America is still—just—in the category of countries where the housing market remains in recovery. House prices there increased by 4.7% in the 12 months to July, according to the Case-Shiller national index. Prices have now risen by 25% from their 2011 trough, but still remain 7% from their 2007 peak. The Economist measures national affordability by comparing prices to the long-run average of their relationship with rents and income. On this basis, we reckon house prices in America are broadly at their fair value.

Not for long, perhaps. Activity is buoyant: sales of existing homes increased by 6.2% on the previous year. With 30-year fixed-rate mortgages at...

Under the cosh

Thu, 01 Oct 2015 14:46:02 +0000

BEING an emerging-market fund manager used to be fun. They enjoyed trips to exotic locations, faced less competition than those managing American or European equities and were so flush with cash that some funds could turn investors away. Today, emerging-market investing is less of a jaunt. The globetrotting that money managers do now is mainly to beg nervous investors not to sell up.

Their entreaties are falling on deaf ears. In August alone investors pulled $10 billion from bond funds and $24 billion from various types of equity funds, according to the Institute of International Finance. Add in the effect of falling markets and the stock of investment in emerging-market exchange-traded funds (ETFs) and mutual funds has fallen from $1.37 trillion in December to $1.17 trillion now, the lowest since June 2012. Money is being carted away from the emerging world almost as fast as during the “taper tantrum” of 2013. Brazil, China, Indonesia and Turkey have suffered the largest outflows, largely due to continuing doubts over their growth prospects and the stability of their currencies. Faced with pervasive uncertainty, investment managers of all stripes...

Taking a pounding

Thu, 01 Oct 2015 09:33:21 +0000

WHEN did Britain cease to be the world’s pre-eminent power? Some date its dotage to the end of the first world war; others to the second. By the time of Britain’s humiliation during the Suez crisis in 1956, America’s hegemony was clear to all. Yet perhaps the most significant indicator of decline went relatively unnoticed by contemporaries: the dollar’s usurpation of sterling as the world’s main reserve currency.

Fears that a similar fate awaits America and the dollar, at the hands of China and the yuan, have burgeoned over the past decade. They have been fuelled by China’s growing economic weight—last year it became the world’s biggest economy in terms of purchasing power—and by the efforts of its government to promote the use of the yuan in international transactions. That has prompted economic historians to re-examine sterling’s downfall, in search of clues about how the impending tussle between the dollar and the yuan might unfold. The research yields lessons in three broad areas—how a currency attains reserve status, whether a two-currency system is possible, and how poor policymaking can speed a currency’s decline.

...

Assessing the assessments

Thu, 01 Oct 2015 09:33:15 +0000

NEW YORK may have a reputation as a brusque, unfriendly place, but to those who buy expensive properties, at least, it can be very welcoming. Take the anonymous owner of the penthouse in Midtown Manhattan’s 90-storey One57 skyscraper. The flat sold for $100m in December, a New York record. The city collected a modest $2.8m in taxes, 2.8% of the price, when the deal went through. And the new owner’s first annual property-tax bill came to $17,268, just 0.02% of its value.

In contrast, if Britain’s main political parties can agree on anything, it is that expensive homes in London should be taxed heavily. In 2009 Vince Cable, a senior Liberal Democrat, first proposed a “mansion tax” on residences worth over £1m ($1.6m). Five years later Ed Balls, then Labour’s shadow chancellor, said he aimed to raise £1.2 billion a year from a similar policy. Not to be outdone, last December George Osborne, the Conservative chancellor, raised stamp duty, a levy on property purchases, for houses worth more than £1.13m. A hefty 12% of the portion of the sales price above £1.5m now goes straight into the government’s coffers.

...

Less of the same

Wed, 30 Sep 2015 11:06:00 +0000

An economic stimulus plan

Updated October 1st 2015

AFTER four months battling to pass unpopular security legislation, Shinzo Abe, Japan’s prime minister, lost no time in returning to somewhat safer ground: the economy. On September 24th he fired off what he called “three new arrows” in service of Abenomics, his programme of monetary easing, fiscal stimulus and far-reaching structural reform. Yet recent data suggest the economy may offer Mr Abe no respite from a bruising year.

Japan’s GDP shrank by 1.2% on an annualised basis in the second quarter, after expanding in the first. Now worries about the third quarter are mounting. Industrial production continued to fall in August, suggesting that the economy may even have entered recession in the quarter. In addition, for the first time since the government embarked on Abenomics in April 2013, prices in Japan are falling again, albeit only slightly. One key gauge of inflation, core CPI (the consumer-price index excluding fresh food), fell by 0.1% in August.

It is all dire news for the Bank...

Doughty but not superhuman

Thu, 24 Sep 2015 14:47:40 +0000

IN THE 1950s Caoyang New Village, then on the outskirts of Shanghai, became one of China’s first model settlements for heroic socialist workers. Thousands moved into its plain, lookalike homes to man its state-owned textile mills. Today, rising from the once-modest streets is a gaudy building intended for a new kind of model citizen: consumers.

Global Harbor (pictured) ranks among the world’s biggest shopping malls, its floor space equivalent to nearly 70 football fields. It blends ersatz European architecture with a distinctly Asian selection of stores. Beneath its vaulting glass domes and mock renaissance murals are a Hello Kitty café, a half-dozen noodle restaurants, jewellery shops dripping with gold and a theatre used for karaoke contests.

It is only a slight exaggeration to say that China’s economic hopes rest on the faux-Corinthian columns of Global Harbor. With the country’s decades-old investment boom fast dwindling, it needs consumption to kick in as a new driver of growth. This rebalancing has been talked about for years, but has become more urgent as China’s industrial downturn has deepened. The nationwide...

Greys’ elegy

Thu, 24 Sep 2015 14:47:40 +0000

THE population of the developed world is ageing. Everyone knows that it is happening but no one is sure what it will mean. A new paper from Morgan Stanley, part-written by Charles Goodhart, a former member of the Bank of England’s rate-setting committee, along with Manoj Pradhan and Pratyancha Pardeshi, suggests there may be dramatic economic impacts.

In particular, the paper suggests that the greying population may reverse three long-term trends: a decline in real (inflation-adjusted) interest rates, a squeeze on real wages and widening inequality. That is because those trends were driven by previous demographic shifts; first, the entry of the baby boomers into the workforce after 1970 and second, the more than doubling of the globally integrated workforce as China and eastern Europe joined the capitalist system.

This rise in the labour force produced downward pressure on real wages. It also led to slower improvements in productivity, particularly in Europe. As Mr Goodhart writes, “As labour cheapens, managers spend less effort and invest less capital in order to raise productivity.”

The falling cost...

The power of parity

Thu, 24 Sep 2015 14:47:40 +0000

JOAN RIVERS, a comedian who died last year, did not let chores get in the way of a career in showbusiness. “I hate housework,” she joked. “You make the beds, you do the dishes, and six months later, you have to start all over again.”

An escape from unpaid drudgery into paid work seems a distant prospect for millions of women. In South Asia, for instance, women carry out up to 90% of unpaid care work, including cooking, cleaning, and looking after children and the elderly. They are far less visible than men in work outside the home. Women make up less than a quarter of the paid workforce in India and account for just 17% of GDP, a measure of output that excludes unwaged work. By contrast, women contribute 41% of GDP in China.

A new report from the McKinsey Global Institute (MGI), a think-tank, underlines how gender inequality in work and society is itself distributed unequally across the world. The number-crunchers at McKinsey calculated gender-parity scores—gauges of how women fare at work and in society in comparison with men—covering over 90% of the world’s population. They reckon South Asia (India excluded) is the...

Repeat prescription

Thu, 24 Sep 2015 14:47:40 +0000

THIS was supposed to be the year when the Federal Reserve would raise interest rates, which have sat between zero and 0.25% since late 2008. Shortly after the Fed allowed rates to lift off, pundits presumed that the Bank of England, which since March 2009 has held its base rate at 0.5%, a three-century low, would follow.

But on September 17th the Fed balked. Andrew Haldane, the Bank of England’s chief economist, has meanwhile been airing the prospect of a further cut instead of a rise. Central banks that have raised rates in the past have had to retreat, including the European Central Bank and Sweden’s Riksbank, which has since pushed rates into negative territory (see chart). Yet the longer rates remain so low, the louder the chorus of concern about financial instability, as investors in search of higher returns pile into ever riskier assets.

This week the IMF delivered its riposte to such concerns, in the form of a report that concedes that financial risks are rising, but contends that higher rates are the wrong way to rein them in. Interest rates are low because of the disappointing recovery in advanced economies...

Hard-nosed compassion

Thu, 24 Sep 2015 14:47:36 +0000

THERE are 20m refugees worldwide, most of them children. Some 1.6m Syrians live in Lebanon; even more in Turkey. Humanitarian agencies struggle to meet their basic needs. In July the World Food Programme (WFP) cut assistance to refugees across the Middle East, saying that its regional operation was 81% underfunded. One way to make scarce aid money go further, argues a report* released this month by the Overseas Development Institute and the Centre for Global Development (CGD), two think-tanks, is for donors to give less in kind and more in cash.

Many developing countries hand cash to needy citizens to help them escape poverty. But less than 6% of humanitarian aid last year came in the form of cash. One concern is that refugees, like others in desperate circumstances, may not spend the money well. That’s because the stress of poverty engenders a “scarcity mindset”, as Sendhil Mullainathan of Harvard University calls it, which can lead to bad decision-making, in part through the overvaluation of present benefits over future ones. Abhijit Banerjee and...

All credit to them

Thu, 24 Sep 2015 14:47:36 +0000

AFTER credit dried up in America in 2008, the Federal Reserve scrabbled for ways to perk up spending. One trick it tried was to offer banks concessionary funding, hoping they would lend more to consumers and so induce Americans to open their wallets. An NBER working paper* published this week by Sumit Agarwal of the National University of Singapore, Souphala Chomsisengphet of the Treasury Department, Neale Mahoney of the University of Chicago and Johannes Stroebel of New York University looks at data from hundreds of millions of credit cards from 2008 to 2014 to work out why the results were so disappointing.

First, the researchers looked for evidence of pent-up demand for consumer credit. That involves comparing the credit-card balances of people who have very similar credit scores but end up on different sides of the various spending-limit thresholds that lenders impose on cardholders. The scale of excess borrowing by those with the higher limit, the theory runs, gives a sense of how much more those with the lower limit would spend if they could suddenly borrow more. This is important...

Pulling rank

Thu, 24 Sep 2015 14:47:36 +0000

Rwanda, business paradise

INDIA is mildly obsessed with rankings. More claims for record-breaking feats come from the country than from any other bar America and Britain, according to Guinness World Records, the publishers of a popular compendium of them. Its politicians like to boast that, as China’s economy falters, India is (or will soon be) the world’s fastest-growing big economy. And this month the commerce department published a ranking of India’s states according to the progress they had made on economic reforms. The initiative was inspired by the World Bank’s annual Doing Business report, which ranks countries on ten criteria, including the ease of starting a business, paying taxes and registering property. India lies a lowly 142nd out of 189 countries on the World Bank’s scorecard, but Narendra Modi, its prime minister, has pledged to propel it into the top 50.

Other leaders have similar ambitions. A favourable spot in the World Bank’s list is useful when pitching for foreign-direct investment or aid. Yet when such a measure becomes a target of policy, it may cease to be a reliable guide. Countries might seek to...

Rubber barons

Thu, 24 Sep 2015 14:47:36 +0000

YOU can make a good living buying a kilogram of rubber in the Ivory Coast for 50 cents and selling it in Singapore for $1.50. But you would need to buy 10m kilos to make the deal worthwhile. Traders who do not have the necessary $5m must borrow it. Before the financial crisis, big banks like BNP Paribas, Citigroup, HSBC and ING deployed $14 trillion a year on such deals. But new regulations and swingeing fines for serving shady customers, in addition to falling commodity prices, have caused that figure to halve, leaving a host of new lenders jockeying to fill the gap.

The money that commodity producers borrow to help them dig, grow, store, transport or otherwise market their wares is vital to the global economy. But commodity trade finance, as it is known, is having to find new arteries. It is not that banks have lost lots of money in trade finance—far from it. The commodities being shifted serve as collateral for the loans used to buy them, limiting the scope for losses. Instead, the business has become an unintended victim of post-crisis regulation.

A cap on leverage at banks has hit European lenders, the powerhouses of trade...

Whose model is it anyway?

Thu, 17 Sep 2015 14:55:15 +0000

A SIMPLE way to judge the solidity of a bank is to compare the amount of money it can afford to lose without keeling over to the size and riskiness of its business. After the financial crisis, regulators sensibly worked to boost the first figure: banks now fund their lending less with money they borrow themselves, often from depositors, and more with capital belonging to their shareholders. That was the easy bit. Trying to get to the bottom of how risky banks are, and so how much capital each requires, is now top of regulators’ minds. Beyond further denting the sector’s profits, the outcome of their review threatens to introduce risks of its own.

Although seemingly arcane, the level of capital banks need is central to their profitability—and, they argue, to their ability to finance the real economy. With interest rates close to zero in much of the rich world, borrowed money is cheap for banks, if not virtually free. Shareholder funds, on the other hand, cost them around 10% a year—the return typically demanded by investors for agreeing to bear the first losses in a sector with a tendency to blow up. So the debate between bankers and their watchdogs...

Caste iron

Thu, 17 Sep 2015 14:55:15 +0000

Stained by commerce

IN MOST countries a stint at a big international bank is no disqualification for a top job at a central bank. Mark Carney of the Bank of England (ex-Goldman Sachs), Mario Draghi of the European Central Bank (Goldman again) and Bill Dudley of the Federal Reserve Bank of New York (yes, Goldman too) are three prime exhibits. Yet the nomination of François Villeroy de Galhau, until recently a senior executive at BNP Paribas, as the new governor of the Bank of France has prompted an unusual rumpus.

Mr Villeroy de Galhau (pictured) is the impeccable product of French elite education. He graduated from not one but two of the country’s top public graduate schools—the Ecole Nationale d’Administration and Polytechnique—and is a former member of the inspection des finances, an elite corps of finance-ministry officials. Situated on what friends call “the Catholic left”, he also has long had ties to the Socialist Party of President François Hollande. Before joining BNP in 2003, he was chief of staff to two Socialist finance ministers, Christian Sautter and Dominique Strauss-Kahn.

...

Flow dynamics

Thu, 17 Sep 2015 14:55:15 +0000

THE man who calls himself Jack is a caricature of a small-time gangster. Sporting a chunky Louis Vuitton belt, a gold necklace and gold-rimmed sunglasses, he chomps on a Cuban cigar. He says he has come to a pawnshop across the street from the Ponte 16 casino in Macau, a gambling Mecca and former Portuguese colony that is administered separately from the rest of China, only for its fine Cohibas. But when asked for advice about how to exchange yuan held within China for foreign currency—a transaction officially limited by China’s capital controls—he breaks into a laugh and flashes a Chinese bank card. “Just swipe it,” he says. “However much money you have in your China account, you can transfer it here.”

Macau’s role as an illicit way station to move cash out of China, away from the government’s prying eyes, is nothing new. In recent months, though, things have been busier than normal. Capital outflows were already on the rise because of worries about the economy. During the summer, after the stockmarket crashed and the government let the yuan weaken, they soared. Official data indicate that more than $150 billion of capital...

Looking for the lifeboats

Thu, 17 Sep 2015 14:55:10 +0000

MORE investors fear the American stockmarket is overvalued than at any moment since 2000, according to Robert Shiller of Yale University. Recent research by Deutsche Bank, meanwhile, suggests that government bonds are as expensive as they have ever been. So it makes sense for investors to consider what assets they should buy to hedge against a sudden plunge in the value of equities or bonds.

New research by AQR, a fund-management group, looks at the ten worst quarters for global equities and government bonds between 1972 and 2014. On average, equities lost more than 18% during such quarters while bonds, a less volatile asset, lost 3.9%.

These two asset classes are often seen as complementary: the classic “balanced” portfolio comprises 60% equities and 40% government bonds. Shares are riskier and benefit from economic growth; bonds are safer but their value is eroded by inflation. The AQR numbers show that government bonds do act as a useful hedge for equities, earning an average return of 4.8% in the quarters when shares plummeted. That is good news: both assets may look overvalued but they are unlikely to fall in...

We all hang together

Mon, 28 Sep 2015 14:03:22 +0000

BY 2023 THE global offshore dollar shadow banking system had grown larger than America’s onshore domestic banking system. The euro’s credibility had slipped further after Italy’s partial default in 2018. The yuan’s ambitions beyond its borders came to a standstill during the final days of Xi Jinping’s rule in September 2019. In a last effort to placate conservative elements within the party, capital controls were temporarily reimposed, the head of the People’s Bank of China arrested for “deviations” and yuan deposits in Hong Kong were frozen. The redback’s use abroad never recovered.

That meant the dollar was more in demand than ever as the only reliable medium of payment for global trade. The dollar assets of China’s largest bank, ICBC, overtook JPMorganChase’s entire balance-sheet. Total offshore dollar credit reached $26 trillion, or about 100% of America’s GDP. Emerging countries, with their trade still denominated in dollars, continued to build ever larger dollar reserves. Congress’s failure to approve reform of the IMF and the subsequent withdrawal of China, India and Brazil meant there was no global lender of last resort.

In order to create a bigger supply of safe assets, Congress came close to approving the creation of the Invest America Fund, which sold Treasuries to foreigners and invested in shares overseas. But a bitter ideological row over...

Glad confident mornings

Mon, 28 Sep 2015 14:03:22 +0000

THE DEBATE ABOUT America’s special role in the world economy and China’s troubled rise is haunted by the work of Charles Kindleberger, who studied the Depression of the 1930s. A lost decade of trade skirmishes, unemployment and devaluations eventually led to an arms race and a world war, the worst there had ever been. Kindleberger concluded that one country had to be in charge to keep the world safe in future. “The international economic system was rendered unstable by British inability and the United States’ unwillingness to assume responsibility for stabilising it…When every country turned to protect its national private interest, the world public interest went down the drain, and with it the private interests of all.”

Writing in 1973, Kindleberger worried that America was no longer able to play that role—although, oddly, in those days the challenger he saw emerging was Europe. In time it was replaced by another supposed rival, Japan, but by 1991 that had burned out. A reasonable person might conclude that gurus have been fretting about America’s ability to hold on to its dominant economic position for decades. China, too, might crash and burn....

A longer march

Mon, 28 Sep 2015 14:03:21 +0000

TO TEST CHINA’S chops as an economic hegemon, just walk across the border from mainland China into the special territory of Hong Kong, a global financial centre and a laboratory of sorts for China’s ambitions. It lives on trade with the mainland and is a hub for yuan banking. Many shops and machines accept the redback. Yet even this place, on mainland China’s border and as open as an economy can get, remains a long way from adopting China’s financial habits.

Hong Kong has its own laws, institutions and currency, which has been pegged to the dollar for 32 years. Shares are mainly priced and paid for in Hong Kong dollars. They often trade at different prices to those listed on the Shanghai bourse, which is isolated and badly regulated, sometimes leading to distorted share prices. Only 11% of Hong Kong’s bank deposits are in yuan, compared with 30% in American dollars. Most of the capital raised on its markets is in its own currency or the greenback. A global bank, HSBC, is considering shifting its headquarters from London to Hong Kong, but only if it is supervised by the special territory’s impressive independent monetary authority, not the mainland’s...

Neither leading nor ceding

Mon, 28 Sep 2015 14:03:20 +0000

AFTER THE HORRORS of the second world war most Americans just wanted to “go to the movies and drink Coke”, observed Averell Harriman, who later became secretary of commerce. Instead their government built a world order centred around America. Its economic achievements were exemplified by the Marshall Plan to help rebuild war-ravaged Europe—“the most unsordid act in history”, according to Winston Churchill. It revived the world economy and made America richer, too. By 1950 Coca-Cola was selling 50m bottles a day in Europe.

This was a golden era of American foreign-policymaking. What did it take to make the country act in such enlightened self-interest? According to “The Wise Men”, a history by Walter Isaacson and Evan Thomas published in 1986, the magic ingredients included a rarefied East Coast foreign-policy elite who could easily glide between Wall Street and high office; responsible media; a thoughtful Congress capable of bipartisanship; a public that could be united against a common ideological enemy with which America had few economic links; and a president, Harry Truman, who was a war hero.

None of those conditions applies today...

Thrills and spills

Mon, 28 Sep 2015 14:03:19 +0000

JOHN MAYNARD KEYNES observed that in the late 19th century London’s influence on the global financial system was such that the Bank of England could be considered the world’s orchestra conductor. Today America is like the dominant rapper in an anarchic transnational collective. Some politicians reckon that the global monetary system is a source of American soft power. This article will argue that it is unstable and, if unreformed, poses a threat to American interests.

The global monetary system has long been a headache. The gold standard of the 19th century dissolved into depression and chaos in the 1930s. The post-war Bretton Woods system of fixed exchange rates collapsed in the 1970s, to be replaced by a freewheeling system of floating currencies and mobile capital. Today it suffers from three related problems. First, the old collective-action one that Keynes grappled with: how to resolve the imbalances between countries (their current-account deficits and surpluses) in a way that does not hurt world economic growth. If deficit countries are forced to bear all the burden of adjustment by cutting back their imports, world output will be lower. This...

The sticky superpower

Mon, 28 Sep 2015 14:03:11 +0000

IN JUNE THIS year Jack Ma, the founder of Alibaba, a giant Chinese e-commerce firm, addressed the...

It’s all go

Thu, 10 Sep 2015 14:49:52 +0000

Brainy trainers

ZHEJIANG IS THE most entrepreneurial place in China. Fan Li, celebrated as the ancestor of all Chinese merchants, worked there some 2,500 years ago. Li Linde, commemorated as China’s first international businessman for trading with Japan in the 9th century, also hailed from this province. In modern times, too, it has produced private-sector titans. Li Shufu, the boss of Geely, a carmaker, acquired Sweden’s Volvo. Lu Guanqiu, Wanxiang’s chairman, controls the world’s top independent car-parts firm. Zong Qinghou, founder of Wahaha, went from street hawker to drinks magnate. Guo Guangchang of Fosun, a Shanghai-based conglomerate, was born in Zhejiang, and the family of Ren Zhengfei, the founder of Huawei, came from there.

Since the province lacks natural resources and good farmland, locals have always had to use their ingenuity to scratch a living. Its rugged mountains make it hard to control. Its proximity to Taiwan worried the party, ruling it out as a location for many state-run industries. That turned out to be a blessing: in the absence of state capitalism, entrepreneurship flourished.

...

Fast and furious

Thu, 10 Sep 2015 14:49:52 +0000

How long to wait for a Chinese Apple?

“CHINA MUST RELY on innovation to achieve continuous and healthy economic development.” To anyone outside China, that seems to be stating the obvious. What makes it striking is who said it: none other than President Xi Jinping, speaking last December.

China has long pursued an industrial policy of “indigenous innovation”, obliging multinational companies to transfer technology and propping up SOEs in strategic sectors. That has not worked, so now the country is pouring money into a renewed push from the top down. It is spending more than $200 billion a year on R&D, up fourfold in a decade. As a proportion of GDP the figure, at 2%, now slightly exceeds that for the EU.

Thomson Reuters, a research firm, claims that China is an “undisputed patent leader”. Central planners now want to triple the number of patents by 2020, to 14 per 10,000 people. They aim to increase R&D spending further and eventually match America’s current level of 2.8% of GDP, in the hope that all this will make China an innovation superpower. Already a fifth of the world’s technical graduates...

The new Silk Road

Thu, 10 Sep 2015 14:49:52 +0000

Connected by silken threads

AN ENORMOUS MAP of the historic Silk Road hangs on a wall at Wensli, a leading Chinese silk producer. Nearby exhibits put China’s silkmaking tradition into context. The Chinese first encountered silkworms about 6,000 years ago. Two millennia later they built the first silk machine. When France emerged as Europe’s silk centre in the 16th century, it learned techniques from China, then the world’s most advanced economy.

The Chinese love invoking their country’s rich and glorious past, so they lapped up President Xi Jinping’s “One Belt, One Road” plan, announced in late 2013, which aims to restore the country’s old maritime and overland trade routes. Mr Xi hopes to lift the value of trade with more than 40 countries to $2.5 trillion within a decade, spending nearly $1 trillion of government money. SOEs and state financial institutions are being pushed to invest overseas in such areas as infrastructure and construction. According to the EIU, planners see this as an outlet for the vast overcapacity in industries such as steel and heavy equipment. It seems likely to lead to a massive spending binge,...

Back to business

Thu, 10 Sep 2015 14:49:52 +0000

SHANGHAI’S WUKANG ROAD has a long history. In 1897 John Calvin Ferguson, the American head of...

The wild, wild east

Thu, 10 Sep 2015 14:49:52 +0000

MORE THAN FIVE centuries ago Christopher Columbus scrawled in his copy of Marco Polo’s “Travels” that the Middle Kingdom would bring mercacciones innumeras (an immeasurable amount of commerce). Columbus never reached that promised land. China has continued to disappoint foreign businessmen ever since, not least because many ordinary Chinese people have been too poor to buy anything.

That is changing as the country’s middle class is growing explosively (see chart). In 2010 mainstream consumers—those with enough money to buy cars, fridges and phones but not Rolls-Royces—made up less than a tenth of urban households. In a new forecast, McKinsey predicts that by 2020 they will make up well over half. BCG reckons that urban private consumption will rise from $3.2 trillion today to $5.6 trillion in 2020.

Apple expects China soon to become a bigger market for its products than America. In the quarter ending in June, its sales in greater China were 112% up on the same period a year earlier. Six of its ten busiest stores across the globe are in China. At the height of the recent turmoil in the Chinese...

Paper tiger, roaring dragon

Thu, 10 Sep 2015 14:49:52 +0000

IN 1984, ELEVEN researchers from the Chinese Academy of Sciences (CAS) gathered in a cramped guardhouse in the elite institution’s grounds. Liu Chuanzhi, their leader, had managed to find about $25,000 to start a technology company. They had little knowledge of business, but Mr Liu was determined to revive entrepreneurship in his country.

The company he founded, Legend, is now a leading force in Chinese capitalism. In June its initial public offering valued it at $13 billion. Its most successful offshoot is Lenovo, the world’s biggest computer-maker, in which it holds a one-third stake.

Inspired by his father, a leading patent lawyer, Mr Liu has devoted his professional life to bringing modern business practices (including respect for intellectual property) to his country. He pushed Legend, and later Lenovo, to become more market-oriented, and insisted on professional managers, long-term strategy and teamwork.

China has millions of successful private-sector businesses. Its internet companies are among the world’s biggest. The fortunes of its 200-plus billionaires were earned in a range of industries (see charts). And yet...

Still made in China

Thu, 10 Sep 2015 14:49:52 +0000

AMID ALL THE excitement about high tech and the push into services, it is easy to forget that China’s modern economy was built on the strength of a solid and often low-tech manufacturing sector. Now manufacturing is widely thought to be in trouble. Factories are squeezed, labour costs are rising and jobs are being reshored to America. Competitors such as Germany are said to be leaving China behind by using robotics.

Chinese officials have responded in the only way they know. In May the State Council, China’s ruling body, approved “Made in China 2025”, a costly scheme that will use mandates, subsidies and other methods to persuade manufacturers to upgrade their factories. The plan is for China to become a green and innovative “world manufacturing power” by 2025.

China is already the world’s largest manufacturer, accounting for nearly a quarter of global value added in this sector. Research by Morris Cohen of the Wharton Business School finds that the country leads in many industries and that “reshoring to the developed economies is not happening on a large scale.” Even though some production is moving to countries nearer its consumers...

The good, the bad and the ugly

Thu, 10 Sep 2015 14:49:52 +0000

The future is private

“THE PURPOSE OF SOE reform is not to get rid of them from the market; on the contrary, we want to make them bigger…we need to maintain the status of state ownership as the dominant power in the Chinese economy.” Fu Chengyu, then the boss of Sinopec, a state-owned oil giant, was speaking exactly a year ago, at the Summer Davos conference, an annual gathering in China of global business executives and Chinese leaders organised by the World Economic Forum (this year’s meeting is taking place this week). His remarks prompted a sharp response from Dong Mingzhu, the chairman of Gree Electric, a state-owned firm and the world’s largest manufacturer of domestic air conditioners. She noted that Sinopec operated in a “monopolistic industry” whereas Gree had to fight for customers as a “private, market-oriented company”. She went on: “What we really need is an environment of free competition instead of support from the government.”

The two bosses’ exchange illustrates official China’s competing visions for SOE reform. The leadership is painfully aware of flagging economic growth and soaring debt and knows...

How red is your capitalism?

Thu, 10 Sep 2015 14:49:52 +0000

Ma shows how

“THERE ARE NO genuinely private companies in China,” declares a veteran adviser to multinational companies. In one sense he is right. The state and the party are omnipresent and their role is enshrined in the law. Moreover, as Kent Kedl of Control Risks, an investigative firm, explains, “you don’t become successful in China as a purely private entity, you need a powerful connection. But this can prove an asset or a liability.” Cronies of Bo Xilai, a once-powerful Communist Party boss who is now in jail, know this only too well.

To find out whether a given local firm is likely to behave like a state champion or a market-minded entity, you need to ask three questions. First, how strategic is its industry? Peter Williamson of Cambridge University’s Judge Business School argues that the government will always meddle with firms in industries it sees as strategic, even if they are multinationals. But the opposite is true, too. State firms that operate in sectors of little concern to the government can behave like private ones. Gree Electric, which makes appliances, is state-owned, but Dong Mingzhu, its fiercely...

The rich are always with us

Thu, 16 Jul 2015 14:48:40 +0000

MEASURED BY ITS Gini coefficient, Singapore is among the world’s most unequal countries. The comparison is unfair: Singapore is also a city, and Hong Kong, New York and London all have higher Gini coefficients than it does. But Singapore measures its coefficient rather differently, excluding shorter-term foreign workers and non-working families. And, understandably, it includes employers’ CPF contributions as income. Since these are capped for higher-paid workers, that narrows the income gap.

Egalitarians are troubled by Singapore’s reliance on several hundred thousand low-paid foreigners. They are ubiquitous on building sites. Many live in crowded dormitories or worse. The frustrations some suffer were exposed by a riot in December 2013 after an Indian construction worker, on his Sunday off, was run over and killed by a bus. But such events are highly unusual.

Lee Hsien Loong thinks Singapore should not fret overly about its inequality rankings. “If I can get another ten billionaires to move to Singapore,” he said in 2013, “my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in...

Many spokes to its hub

Thu, 16 Jul 2015 14:48:40 +0000

THE COMPARISON WITH Hong Kong is inevitable. Both are thriving ports and financial centres; both have Chinese-majority populations and legal systems inherited from the British. But in the past 30 years Singapore and Hong Kong have trodden very different economic paths. With the opening of China, Hong Kong’s manufacturing industry shifted over the border, falling from about 20% of GDP in 1980 to just 1% now (see chart). In Singapore, it has dropped from about 28% a decade ago, but only to 19%. That is far below the 30% or so seen in places such as China, South Korea or Taiwan, but far above the levels in other developed countries such as America, Britain, France or Spain, let alone Hong Kong.

Yet Singapore faces many of the same pressures as its main regional rival: land scarcity, a tight labour market and competition from lower-cost neighbours. The decision to retain a manufacturing base has been the government’s. It provides 420,000 jobs, many of them high-skilled. Rolls-Royce, for example, a British aerospace and marine-engineering firm, has what it describes as its most modern manufacturing, training and research facility in Singapore. Of the 2,...

The social contract

Thu, 16 Jul 2015 14:48:40 +0000

ON A RAINY Sunday morning, Chong Boon market is buzzing. This is “heartlands” Singapore, a housing estate in the district of Ang Mo Kio, row upon row of 12-storey blocks of flats with the usual playgrounds, shops and a market with a food court, where stalls serve local favourites at S$3-4 a meal. One stand serving char kway teow (stir-fried rice noodles) is so popular it gives people a queue number.

This is the group constituency of the prime minister, Lee Hsien Loong, though some in the food court say they were not aware of that. Many, however, feel the government has done well by them through two linked policies, on housing and retirement security. Since the 1960s, when the new country inherited a housing crisis, the government’s Housing Development Board has built over 1m flats. Now some 80% of Singaporeans live in HDB estates like these, overwhelmingly as owner-occupiers. The estates tend to look alike and they certainly pack people in. But Singapore has no slums and virtually no homelessness, the estates are generally clean and well-maintained, and property values have soared over the years....

The Singapore exception

Thu, 16 Jul 2015 14:48:39 +0000

AT 50, ACCORDING to George Orwell, everyone has the face he deserves. Singapore, which on...

Seven million is a crowd

Thu, 16 Jul 2015 14:48:39 +0000

WHEN SINGAPORE SEPARATED from Malaysia, says Tan Kong Yam, an economist at the Lee Kuan Yew School of Public Policy, it was as if a brain had been deprived of its lungs and legs. An urban centre with a hinterland became a country with none, depending on Malaysia for its water supply and on the outside world for its food. As a country, it was acutely short of space. One solution has been to add some: since independence Singapore has expanded by over one-fifth, from 58,000 hectares (224.5 square miles) to nearly 72,000, by filling in the sea with imported sand. Marina Bay Sands itself, a number of massive office blocks and a golf course are all on land that used to be sea. The government expects the land area to grow by a further 8%, or 5,600 hectares, by 2030. But there is a natural limit to this growth.

Another option—to seek a hinterland elsewhere—has proved tricky. Wong Poh Kam, an economist at the National University of Singapore’s business school, points out that Johor, the Malaysian state just over the strait, could be to Singapore what southern mainland China has been to Hong Kong, offering land and labour at far lower prices. Johor and...