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52 International The Economist August 13th 2022 Russia’s exiles Many are too young to remember Mr Pu tin’s war against Georgia. But they share The best and the brightest the sentiment expressed on graffiti around Tbilisi: “Fuck Putin’s Russia”. Much of their TBILISI AND TEL AVIV energy and drive is being spent trying to ameliorate the impact of Mr Putin’s war Much of Russia’s intellectual elite has gone into exile. That will have dramatic against Ukraine. consequences for both Russia and the exiles themselves Tickets to the Vakke conference cost 20 On a recent warm and breezy Saturday which was now separate from the place lari. Along with the cake money, the cash night a few dozen Russians—mostly in they once called home. went to Emigration for Action, a charity their 20s and 30s—crammed into a small that provides medication for Ukrainian Sovietera apartment in Vakke, a well Nobody knows exactly how many peo refugees. Ekaterina Kiltau, one of its foun heeled part of Tbilisi, Georgia’s capital and, ple have left Russia since the start of the ders, was the final speaker. “We have come for now at least, their new home. While war. Estimates vary from 150,000 to to Georgia, and we have the privilege to do thousands of their compatriots were en 300,000. About 50,000 are thought to have and say what we want, to call the war a war joying Georgian food and wine in street ca settled in Georgia, an influx large and sud [the word is banned in Russia] and to help fés and Russianspeaking bars, they hud den enough to push up local rents. It is not Ukrainians,” she told the audience. dled around a projector, holding what they just the numbers that matter, but who the described as a “home conference”. émigrés are. Like those crammed into the Other volunteer projects such as “Help Vakke apartment, the diaspora consists ing to Leave” and “Motskhaleba” (which Émigré hangouts can be depressing largely of young, welleducated, politically means “mercy” in Georgian) grew out of places. This one exuded intellectual ener conscious, active, articulate and resource chat groups on social media. Now they in gy. The event was well structured, attend ful people—in other words, Russia’s intel volve hundreds of volunteers helping ees were well behaved, and there was al lectual elite. The exiles have taken with thousands of Ukrainian refugees escape most no drinking. Over the course of two them their habits, their networks, their from the war. Larisa Melnikova, one of hours a dozen speakers talked about their ability to selforganise and their values. Motskhaleba’s cofounders, is a digital de past and present pursuits. Their subjects That will have profound effects on both the signer and a business consultant who used ranged from the “pathology of propagan country they have left behind and the to work for the Russian branch of Boston da” and cleaning up the streets of Tbilisi to countries they have settled in. Consulting Group, an American multina recycling, driverless cars and helping peo tional. She has now turned her skills to ple with psychological trauma. In the in Georgia, a former Russian colony and writing an internet bot that helps human terval, they sampled homemade snacks, Soviet republic, has itself been on the re volunteers sort through requests for help. including vegan, glutenfree cake (5 lari— ceiving end of Russian aggression, most “I know that if I don’t do anything, I will be $1.85—a piece). In both form and content, recently in 2008. These days around 20% in greater pain,” she says. “I never voted for the conference was a snapshot of a country of its territory is in the hands of Russian Putin, but I paid taxes in Russia and I bear that the attendees wished to live in, and backed separatists. Now the country is pro responsibility for its actions.” viding refuge to activists and journalists. Back in Russia civic activists such as Ms Kiltau and Ms Melnikova helped monitor 012
The Economist August 13th 2022 International 53 elections, volunteered for independent has cut through families. Arguments have For many years after the fall of commu candidates and helped ovd-Info, a human split brothers from sisters and children nism the modernising elite and the Rus rights organisation that assists the victims from parents. (Such torn ties are the sub sian state managed an uneasy cohabita of Russian state repression. Had they ject of a documentary by Andrei Loshak, a tion. In the 1990s and early 2000s the chil stayed in Russia and publicly protested Russian filmmaker who is among those to dren of the Soviet intelligentsia rejected against the war, they would most likely be have moved to Georgia). Lately a barely de their parents’ beliefs, mocked anything So in prison. That is what happened to Alexei tectable, but nevertheless real, tension is viet and embraced capitalism as they un Gorinov, a Moscow city council deputy rising between those who left Russia and derstood it. They did not touch the founda sentenced to seven years in jail for criticis those who stayed, however similar their at tions of the state, but they made Russia ing the war, and who rejected the idea of titudes to the war. Behind the veneer of more liveable and attractive. They began to holding a children’s drawing competition composure and energy among émigrés lies transform Moscow into a comfortable while it was happening. “These people are the pain of broken lives, a fractured coun European capital, with cycle lanes and heroes, but I feel I am more useful here,” try and homes left in a hurry. trendy art galleries and a quick fooddeliv says Ms Kiltau. ery service called Yandex.Lavka—a subsid The effects of the latest wave of emigra iary of Yandex, a homegrown tech giant. Working as a volunteer in Georgia, she tion on Russia’s future is likely to be far says, is not just about helping Ukrainians greater than the mere numbers suggest. Ilya OskolkovTsentsiper is a media but also about preserving their own sense Andrei Zorin, a cultural historian at Oxford manager in his 50s who championed many of honour and sanity. “Pain, shame and re University, points out that the loss of the of Russia’s most successful urbanist pro sponsibility” are three emotions that Ms Westernised elite after the Bolshevik revo jects, including Afisha, one of Moscow’s Kiltau feels constantly. Her pain is acute: lution in 1917 was ameliorated partly by the first entertainmentlisting magazines. Sit Rubtsovsk, the small town in Siberia from rise of bright children from the Russian ting in a café in Tel Aviv, his new home, he which she hails, and which was once sur peasantry, who were eager for education, says the transformation began as an aes rounded by five gulag camps, became no and whom the new Communist authori thetic endeavour. “We imagined and de torious as one of the top destinations for ties were eager to help. scribed Moscow not as a depressing and parcels sent home by Russian soldiers criminalised city with social problems and looting civilian property in Ukraine. They were joined by ethnic minority inequality, but as a bohemian European groups within the Soviet Union—Jews capital. The project was so successful that Echoes of history from the shtetls, Armenians, Georgians we started to believe [the change] was for Like most Russian exiles in Tbilisi, those and people from the Baltic states, where real,” he says. who gathered in the Vakke “home confer literacy levels were highest. The reconsti ence” fled Russia in the first two weeks of tuted intelligentsia—which was depen Over the past decade or so those decora the war. They fled because they were dent on the Communist Party, but often tions became increasingly backed by sub afraid, and because they felt stifled by life also critical of it—was essential to the stance. Younger, engaged Russians created under a regime that brooks no dissent. state’s ability to develop technology, sci cultural institutions and launched volun Spontaneous and emotional as their exit ence and culture. In the 1980s it formed the teer projects independent of the state. seemed to them, it was also part of a Krem social basis of Mikhail Gorbachev’s liberal They helped children with autism, opened lin “special operation”. By spreading ru ising reforms. shelters for the homeless, recorded pod mours of imminent arrest or conscription, casts about Russian literature and occa and sending thugs to harass activists and These days, things are different. Having sionally came out on protest marches. A journalists, it drove those who publicly op rejected modernisation in favour of tradi survey of exiles conducted in March posed the war out of the country. tionalism, imperial nationalism and war, showed that 90% are interested in politics the state ejected Europeanised Russians as and 70% have donated money to nongov Some were relocated by the firms they superfluous, alien and dangerous. Today’s ernment organisations and opposition worked for. Others went under their own kleptocratic system squashes social mobil friendly media. steam. A survey of recent émigrés showed ity and holds little promise of progress. that about a quarter of those who left set The departure of the educated class today “We believed that our habits and our so tled in Georgia. The same number went to could end a modernising trend that began cial practices would make the country hu Istanbul, and another 15% ended up in Ar in the 18th century, says Mr Zorin. mane; that our small deeds would have an menia. (These places do not require visas effect,” says Sofia Khananishvili, a 23year for Russian citizens.) Nearly half of those old university graduate who used to teach who left work in computing and it, accord literature at a school in Moscow. These ing to a survey carried out in March. An days she works in a bookshop in Tbilisi other 16% were senior managers; 16% more called Dissident Books which she and her worked in the arts and culture. Only 1.5% of friends have opened. Among its titles is a emigrants ever supported Mr Putin’s Unit volume called “Youth in the City: Cultures, ed Russia party. Stages and Solidarities”. Today’s exiles are not the first Russians Ms Khananishvili and her contempo to flee abroad in the face of repressive rul raries were never in charge of the state, but ers. A hundred years ago, during the Rus they managed to coexist with it. “We did sian revolution, many aristocrats, soldiers not touch them and they did not touch us,” in the anticommunist White Army, and says one of her friends, an it specialist. members of the intelligentsia fled the Bol They lived in the folds of the empire, bene sheviks, who plunged Russia into a civil fiting from Russia’s oildriven economy war after they seized power. Like their suc but trying to build their own lives apart cessors a century later, they made their from a state that was growing increasingly way to Tiflis and Constantinople (modern militaristic and repressive. day Tbilisi and Istanbul). Few people tell the story of the relation Although today’s Russia is not em ship between the modernising class and broiled in civil war, its invasion of Ukraine the state as well as Ilya Krasilshchik, a me dia manager, and his girlfriend, Sonia Ar 012
54 International The Economist August 13th 2022 shinova. At 35 Mr Krasilshchik had already destroyed whoever they are,” he explains. give it away entirely for a real peace, but I been the youngest editorinchief at Afisha Most émigrés recognise that they are still cannot help thinking how my lan magazine; the publisher of Meduza, an in guage is going to be alive after so many dependent online outlet based in Latvia; both lucky and privileged to have been in a people have been killed in its name,” he and more recently an executive at Yandex position to leave. Many see their situation wrote in a recent column. .Lavka, the fooddelivery company. He as temporary, and continue to support started getting warnings about the war themselves by renting out their apart Some exiles talk about creating a virtual from inside Yandex back in November. The ments in Russia. (By May, flows of money state, where social structures can be built day after it started he met up with Ms Ar from Russia to Georgia had risen tenfold.) independently of any form of government shinova in a coffee shop in Moscow. or even geographical location. “Russia is “Everyone was talking about evacuation, Some of those who fled in the first not about longitude and latitude. The Rus looking up flights,” she recalls. weeks of the war, and who are not under an sian diaspora is intellectually strong, mo immediate threat of being arrested, have tivated and emotionally charged, so it will Ms Arshinova, who is 26, was a pro even been back to Russia temporarily, to undoubtedly survive,” says Fillip Dziadko, gramme director at Strelka, Moscow’s flag see their parents or take care of personal an author and publisher. “And we have ship design and architecture institute. (Its affairs. “It is the strangest feeling. You go learned to live without the state.” rooftop bar was once a haunt of the beauti back and everything looks exactly the ful and the wellconnected.) When the war same—the same dentist, the same shops, Their hope is that the internet, and against Ukraine began she was working on the same restaurants—but everything has their own energy, will allow them to retain bringing foreign experts to give lectures to changed,” says Lika Kremer, a Russian pod their presence in the same information a Russian audience on urban design. They cast producer. The façade of a wellheeled space as their peers who stayed behind. For never came. That day, she recalls, “The European city is still there. But it has been now at least, there are still holes in Russia’s bubble burst and the shit was dripping hollowed out. regime of online censorship. YouTube is down our eyes. We were behind the enemy still available. vpn software, which can lines and the enemy was our own city and It is the silence and the absence of any mask the websites a user is looking at, our own country. We capitulated.” overt sign of war that is most unbearable, gives the techsavvy access to the outside says Ms Kremer. Unlike Ukraine’s refugees, world. Independent media organisations A few weeks after they moved to Tbilisi, many of whom choose to return to their such as Meduza and tv Rain have de Russian authorities opened a criminal case homes as soon as they consider it at least camped to Riga, the capital of Latvia, and against Mr Krasilshchik. An Instagram somewhat safe, many of Russia’s exiles feel shifted their operations online. post about Russian atrocities in Bucha, a they have no country to go back to, and city in northern Ukraine, was enough to at struggle to define what “Russia” actually Shimon Levin, an Israeli rabbi who was tract charges of “discrediting Russia’s means. “We have our identity, and our so born and bred in Russia, who grew up with armed forces”. These days Mr Krasilshchik cial connections, but no country of our Russian literature and spent years serving scoots around Tbilisi on his red scooter, re own,” says Ilya Venyavkin, a historian. the Jewish community, sees parallels be cording podcasts and running a new start tween such thinking and the experience of up, a half media and half support group Next year in Moscow the Jews, who managed to keep a distinct called “Helpdesk Media”. It grew out of his The war, and physical separation from culture alive for thousands of years. The Instagram account, which has 150,000 fol Russia, have inspired the idea of a different reasons Jews succeeded in keeping their lowers, and has the consumerfriendly in Russian nation, one that does not depend identity, he explains, was that they put in terface of a Yandex service. on an imperial identity, or even on geogra tellectual freedom and books, not land, at phy. The first step for those pursuing that the centre of their national consciousness. Instead of fast food, it delivers advice to idea, argues Andrei Babitsky, a journalist people who need logistical, psychological who spends ten hours a week learning to “Geography is an important marker of or legal help. It also tells the stories of peo read and write in Georgian, is to rid them national identity, but identity is dynamic ple affected by the war: the dead, the selves of imperial arrogance. “I share this and can only thrive if it gets enriched by wounded, the refugees and the émigrés. arrogance. Even today…I cannot stop new meanings,” he continues. “If the Rus “Our focus is men and women at the time thinking of the Russian language and Rus sian intellectual elite manages to develop of war whose lives have been uprooted and sian culture. My culture. I would gladly its nonimperial identity and to focus on how to live in a new reality and what the “wonderful Russia of the future” [a term coined by Alexei Navalny, Russia’s opposi tion leader] should look like, it might at least partially compensate for the loss of their motherland.” The current wave of emigration has a slogan—Poka Putin Zhiv, or “While Putin is Alive”. Nobody knows how long that will be, though time is certainly on the émigrés’ side. Most are in their 20s and 30s; Mr Pu tin turns 70 later this year. But despite their optimism, it is not certain that they will ever go back. It is even less certain what Russia will look like when the war ends. “The ongoing exodus of Russia’s educated Westernised class could be Russia’s last wave of emigration,” Mr Zorin says gloomi ly, “since there are no ways of reproducing that elite.” Mr Dziadko, a former student, prefers not to think too far ahead. “We don’t know where we are going to land,” he says. “Because we are still in flight.” n 012
Business The Economist August 13th 2022 55 Private enterprise wealth since the start of 2020, according to data from Bloomberg. In the past few China’s new tycoons weeks The Economist has spoken to several of the new champions, and the mood is SHANGHAI tis, a carmaker (whose largest shareholder, surprisingly upbeat. Exor, partowns The Economist’s parent Who is winning in Xi’s economy? company), said that it would exit a Chinese This century China’s private sector has jointventure after complaining of “grow grown from a backwater into one of the Xi jinping has a master plan for China. ing political interference”. most dynamic in the world. According to Its ultimate goal is for the country to be the Peterson Institute for International the 21st century’s dominant superpower, Yet if you look closer the picture is more Economics (piie), an American thinktank, both feared and admired. China’s increas complex. Even as some businesses suffer, by 2020 privately controlled companies ing sabrerattling encapsulates the desire others are thriving in Mr Xi’s China. Com accounted for more than half of the market to be fearsome (see next article). As for ad panies have raised a record $58bn in initial capitalisation of China’s 100 biggest listed miration, that is to come from growing public offerings in mainland China so far firms, compared with less than a tenth a economic and technological heft. Here, Mr this year, according to Bloomberg, a finan decade earlier. The private sector employs Xi’s plan involves a reshaping of Chinese cialinformation firm, compared with just four in five urban workers, or around 150m private enterprise. $19bn in America and $5bn in Hong Kong. all told. Thirtytwo private Chinese com Another 1,000 firms are reportedly lining panies feature in the Fortune 500 ranking At first blush, this exercise has been up to go public. A fresh cohort of tycoons is of the world’s biggest firms by revenue, up painful for business. A crackdown against emerging, too. China’s ten richest mag from none in 2005. successful internet companies has wiped nates have accumulated a net $167bn in as much as $2trn from their collective The march from Maoism to markets has market capitalisation. On August 4th Ali → Also in this section been long and arduous. Until 1992 “entre baba, an ecommerce giant, reported its preneurs were looked down upon”, recalls first ever quarterly decline in revenues. A 57 Silicon Valley and the DoD reunite Zheng Chunying, back then a government day earlier its financial affiliate, Ant Group, functionary in Liaoning province. But revealed a slide in profits. Jack Ma, who co 58 Biotech crashes China was buzzing with talk of change and founded both firms, may soon cede control its ailing leader, Deng Xiaoping, had just of Ant. His net worth has fallen by more 59 Bartleby: Working for the baddies reaffirmed the government’s commitment than $20bn in the past couple of years. to economic reforms. Liaoning’s local gov That of Hui Ka Yan, the founder of Ever 60 Schumpeter: Peering inside Tencent ernment began encouraging officials and grande, a troubled property giant, has Communist Party members to start their crashed from $40bn in 2020 to $6bn. Last own firms. Mr Zheng became the proud co month Carlos Tavares, the boss of Stellan owner, with his wife and sister, of a small shop that sold imported clothing from Hong Kong and shoes from Europe. When in 1996 officials were suddenly banned 012
56 Business The Economist August 13th 2022 from running businesses, he quit his gov For richer or poorer 2 influence and guide the private sector, ernment job rather than closing his shop. 30 often through industrial parks and a sys Hurun China Rich List*, people by selected tem of statedesignated status. He was one of a cohort who chose busi industry, % ness over bureaucracy. His decision was Firms are free not to participate, but vindicated in 2002, when the party consti 201 † 2021‡ many will find great benefits to becoming tution was amended to let businesspeople 0 10 20 part of these ecosystems of talent, capital become members. After that China Inc and market access. Designations such as went from strength to strength. Entre Manufacturing “little giants” act as endorsements and sig preneurs cite the first five years of Mr Xi’s nal where capital ought to flow. Such labels leadership between 2012 and 2017 as the Health care/ also make for “good public relations”, says heyday of private enterprise. Technology pharmaceuticals Gu Jie, founder of Fourier, a robotics start groups such as Alibaba and Tencent (see up. Obtaining them eases access to places Schumpeter) and conglomerates like hna Property like Zhangjiang Robotics Valley in Shang and Dalian Wanda rose to global promi hai, part of a larger hightech development nence. Their founders became household Finance zone housing 150 research and develop names—and amassed Croesuslike riches. ment (r&d) centres, more than 24,000 Food/beverages companies and 400,000 workers. The lo Five years ago the mood began to shift. cal government owns and runs the zone. First came a swift crackdown on the con Retail glomerates, some of which subsequently Startups benefit in other ways. Mr Gu, went bust (for example, hna) or were Information whose firm is based in Zhangjiang, notes nationalised (Anbang, a big insurer). Then technology that securing the metal components for thousands of privately run shadow banks Media/ Fourier’s prototypes takes weeks rather were shut down. In the past two years came entertainment than months, because many of the suppli the turn of the tech giants, slapped with ers themselves reside in the technology regulatory probes, fines and tough new Apparel park. He has also been able to tap the local rules on everything from user data to the talent pool, hiring more than 600 engi treatment of workers, and of property Construction neers and scientists in the past few years. firms, whose ability to take on new debt Doing that in Silicon Valley or other global began to be restricted by the government. Energy tech hubs would be timeconsuming and Last year the private sector’s share of the prohibitively expensive, Mr Gu observes. market value of China’s 100 largest compa Metals/mining *Wealth above $300m-310m nies fell for the first time (see chart 1). †2,130 individuals ‡2,918 individuals Fourier has attracted money from Soft Source: Hurun Report Bank, a Japanese techinvestment group, Look beyond tech and property, though, and Aramco Ventures, the venturecapital and things are rather different. Many big The bosses of these new corporate arm of Saudi Arabia’s oil colossus. It has private companies “have not only avoided champions are dislodging tech moguls as also been backed by Chinese government regulatory assault but have also grown big owners of China’s biggest fortunes, notes funds. These state investments were ger”, says Huang Tianlei of piie. Anta has Rupert Hoogewerf of Hurun, a compiler of smaller than SoftBank’s. But they send an built a global sportswear empire. Batteries rich lists (see chart 2). China’s wealthiest message to the market about Fourier’s made by catl can be found in many of the man is now Zhong Shanshan, who built prospects. Such guidance funds, as they world’s evs. Zhifei Biological, a maker of Nongfu, which sells bottled water. are called, are proliferating. Many are run covid19 and other tests from the central by local governments. Other state entities city of Chongqing, has come out of no Many tycoons have greatly added to have taken over the controlling rights to an where to land on the Fortune 500 list. Mr their personal wealth with direct help from average of 50 privately run listed firms Zheng’s firm, Jala, now employs 8,000 local authorities. Take Muyuan, which has each year over the past three years, up from people and is one of the largest domestic grown into one of the world’s biggest hog six in 2017 and 18 in 2018, reckons Fitch, a makers of skincare products. His firm has producers. The Communist Party of Nan rating agency (see chart 3 on next page). become an important part of a cosmetics yang city, where the company is based, has development park called “Oriental Beauty an explicit goal of putting it on the Fortune Forward, guidance funds Valley”, where local brands have been en 500 list. In late 2021 the local party told offi The recipients of such largesse do not see couraged to set up labs and hire scientists. cials to make land available for Muyuan, this as the first step to nationalisation. and to streamline its various applications Zhou Hanyi, cofounder of Xinzailing, a Private property 1 and inspections. The company is to receive company specialising in lift safety, likens 100 subsidies for farm equipment, and local it instead to a bank loan without a fixed China, market capitalisation of engineers and other workers are to be con maturity, which does not typically engen 100 biggest companies, % of total nected with the company, the plan or der state meddling. dains. The fortune of Muyuan’s founder, State-owned 80 Qin Yinglin, has swollen to $23bn. The state’s goal in promoting guidance funds and schemes like “little giants” is to 60 As for the next generation of entre boost r&d and help train talent. If a partic preneurs, Mr Xi recently urged them to ular company fails, its technology and Mixed ownership 40 “dare to start a business”. His message has workforce can be absorbed by others with been one of unwavering support for start out too much waste, says Christopher Fong Privately owned 20 ups—as long as they focus on the areas the of Welkin Capital, a privateequity firm in 0 government has prioritised. These include Hong Kong (and investor in Xinzailing). 2010 12 14 16 18 20 21 cloud computing, green energy and high Older businesses, too, are opting to join end manufacturing. The central govern statebacked innovation parks. Mr Zheng, Source: Peterson Institute for International Economics ment wants to create 1m innovative small who built Jala with neither state help nor a and mediumsized firms between 2021 and party membership, has begun working 2025. Of those, 100,000 will be dubbed with a district government in Shanghai. “specialised new enterprises” and 10,000 will earn the distinction of “little giant”. The state still takes direct stakes in private companies. But it is finding new ways to 012
The Economist August 13th 2022 Business 57 All this hints that Mr Xi’s ideal private still try to dream up new products and ser American aerospace and defence startups sector might look something like Ger vices that appeal to a wide audience. But if tripled between 2019 and 2021, to $10bn many’s Mittelstand, according to Enodo more entrepreneurs find cosying up to (see chart). In the first half of 2022 such Economics, a research firm: “a large stable government a surer road to commercial firms raised $4bn, down a bit from the last of small private firms that are innovative, success, the private sector may lose some six months of 2021 but not as sharply as for generate highpaying jobs and produce of its dynamism. startups overall. On August 8th Palantir, a technologically advanced manufactured listed dataanalytics firm which works goods”. Some entrepreneurs say bureau Deng and his successors understood with soldiers and spooks, reported better cracy is being cut back in professionally the flaws of too much state control. Mr Xi thanexpected secondquarter revenues of managed industrial zones and that the seems intent on proving them wrong. As $473m, up by 26% year on year. The es state is meddling less in their operations. for the new tycoons, they will, like prag trangement between the crucible of Amer Yet there are reasons for scepticism. matic bosses everywhere, adapt in order to ica’s tech and the Pentagon may, in other prosper for as long as they can. n words, be coming to an end. The rekindled In practical terms, Mr Xi’s pursuit of bonhomie may reshape America’s mighty higherquality growth is easier in some Defence technology militaryindustrial complex. parts of the country than in others. The startup zones in Shanghai are welltuned Can tech reshape The dod played a large role in seeding machines with professional staff. Some the Pentagon? Silicon Valley’s early technologies, from employ former Wall Street bankers. By radar to semiconductors. Lockheed once contrast, an analyst who recently visited PALO ALTO AND WASHINGTO N, DC built missiles in Sunnyvale, wedged be an industrial park in the southern prov tween Mountain View (now home to ince of Hunan recounts that it resembled a Silicon Valley gets back together with Google’s parent company, Alphabet) and film set made to look like Hangzhou, a big the military-industrial complex Cupertino (home to Apple). The Vietnam tech hub and home to Alibaba, without any war changed all that. Antiwar sentiment real innovation taking place. Soon after Nancy Pelosi, speaker of permeated Stanford University’s lecture America’s House of Representatives, halls and faculty lounges, and the garages When startups soak up localgovern left Taiwan on August 3rd, China launched of startup founders of the day. Protests ment largesse, moreover, they tie them a series of war games around the island, against the conflict led Stanford to ban selves to the fate and interests of local offi which it claims as its own. This was a furi classified research and military recruit cials. This has always been a risk for com ous response to Ms Pelosi’s intentionally ment on its campus in Palo Alto. In 2018 a panies but is becoming a more pressing provocative act. It was also a dry run for a protest by thousands of Google employees concern as local authorities’ involvement bid to reunify Taiwan with the mainland by successfully stopped their employer from in business becomes closer. Last year the force, which China does not rule out. Trou bidding for a Pentagon cloudcomputing local government in Hangzhou conducted bling, then, for Taiwan and its Western contract. The search giant’s guidelines for a sweeping review of the holdings of backers, that in American simulations of its artificialintelligence (ai) projects ex 25,000 officials and their family members. the conflict the Chinese side often pre plicitly rule out weaponsrelated work. The city’s party chief, believed to have links vails. One congressional report in 2018 to Alibaba, was put under investigation warned that America could plausibly face a Now two forces are pulling the Valley and expelled from the party. “decisive military defeat” against China in closer to the Pentagon. The first is the a battle over Taiwan. mounting geopolitical risk. Even before Mr Xi’s vision faces another, more fun Russia’s invasion of Ukraine reminded the damental challenge. As a recent report China has since kept chipping away at West that big wars can still occur, a grow from the Institute on Global Conflict and American military superiority, including ing sense of insecurity was causing coun Cooperation, a thinktank at the Universi its technological edge. Pushing that edge is tries to beef up their defence budgets. ty of California, San Diego, puts it, the idea therefore a priority for the Department of Globally these exceeded $2trn for the first is ultimately for private firms to “cluster Defence (dod). And that would be easier if time in 2021. Citigroup, a bank, reckons and fill in the rest of the supply chain” America’s worldbeating software devel that 2% of gdp will go from being a largely around the state sector. In other words, opers worked more closely with its equally ignored target for defence spending rather than compete in a marketplace for formidable armsmakers, thinks Michael among nato members to the alliance’s customers who are themselves subject to Brown, who heads the department’s De floor. That would expand the worldwide competitive pressures, private companies fence Innovation Unit. Katherine Boyle of market for tech firms dabbling in defence. are increasingly expected to cater, directly Andreessen Horowitz, a venturecapital Christian Brose, strategy chief of Anduril, or indirectly, to the state itself. Some may (vc) firm, observes that America’s largest weapons manufacturers lack topflight Own goals 3 programmers. Silicon Valley has them in Boom! spades—but has also long displayed an China, number of state-owned enterprises buying aversion to battlefield technology. Venture-capital investment into controlling rights in privately owned enterprises aerospace and defence startups, $bn Now geopolitical strife, from Chinese 50 bellicosity to Russia’s invasion of Ukraine, 12 is suddenly making the defence sector look 40 more moral in techies’ eyes (see Bartleby). Rest of world 10 At the same time, technology is changing United States 8 how wars are fought. And big tech and 30 scrappy startups alike see the dod’s $140bn annual procurement budget, plus Ameri can allies’ smaller but cumulatively signif 6 icant kitties, as ripe for eating into. 20 Giants from Amazon to Microsoft are pitching for dod contracts. vc funding for 4 10 2 0 0 2017 18 19 20 21 2011 13 15 17 19 21 22* Source: Fitch Source: PitchBook *To July 1st 012
58 Business The Economist August 13th 2022 and Oracle are expected to divvy up the Biotechnology $9bn fiveyear contract to operate the Pen tagon’s Joint Warfighting Cloud Capability More cash, stat! (jwcc). Last year Microsoft was awarded a Armed and Skydioed $22bn contract to supply its HoloLens aug After a covid-fuelled adrenaline rush, mentedreality headset to simulate battles biotech is crashing which makes antidrone and other defence for army training for up to ten years. It is systems, says his firm will look to Ameri also helping develop the air force’s battle Three years ago no one had heard of ca’s allies to fuel growth. Since the start of management system, which aims to inte BioNTech. Today the German biotech the Ukraine war several European defence grate data sources from across the battle nology firm enjoys global renown, as well ministries have expressed interest in Pa field. In June Alphabet launched a new as annual revenues of $19bn. The company lantir’s data analytics. unit, Google Public Sector, which will com owes both the lustre and the lucre chiefly pete for the dod’s battlenetworks con to the successful mrna covid19 vaccine The second force is technology. Ad tracts. In a departure from Google’s earlier which it developed in partnership with vanced computing, and in particular ai, is wariness of the Pentagon, its cloud chief, Pfizer, an American drug giant. Yet even finding its way into weapons and the com Thomas Kurian, has insisted: “We the effective jab has not immunised it from mandandcontrol systems that connect wouldn’t be working on a programme like a downturn afflicting the biotech industry. them to one another. The Pentagon is jwcc purely to do backoffice work.” On August 8th BioNTech reported that therefore looking beyond its usual con sales fell by 40% in the second quarter, tractors to places like Silicon Valley, whose Smaller firms, too, spy an opportunity. year on year, as fewer people are left un machinelearning chops put to shame the In January Anduril secured a contract to jabbed and unboosted. Its share price tum “primes”, as defence giants such as Ray build antidrone defences worth $1bn over bled by nearly 9%. theon or Lockheed Martin are known. That ten years. The following month another is a big reason why Ash Carter, defence sec startup, Skydio, won one to sell the us The biotech industry is particularly vul retary under Barack Obama, created the Army $100mworth of drones. Palantir is nerable to the syndrome of slowing eco Defence Innovation Unit in 2015. “Less of one of several tech firms with contracts to nomic growth, higher inflation and rising the tech the Pentagon needs is developed flesh out the jadc2 vision. In July c3.ai, a interest rates. As with other tech startups, inside and more of it is becoming commer software firm that went public in 2020, rate rises make promised profits, most of cial and dualuse,” explains Mr Brown. was picked by Raytheon to develop ai for a which lie far in the future, look less hale to longrange precisiontargeting system. day. Unlike software firms, biotech compa Rather than buy isolated “platforms”— Steve Walker, chief technology officer of nies need constant injections of capital to aircraft, tanks and other advanced sys Lockheed Martin, says that his company is develop their drugs, which takes lots of tems—the dod would like to build more also looking to work with such firms. time and money. networks of cheaper battle units. Last year Israel demonstrated how this might work Tech’s conquest of warfare is far from Until recently that money was easy to by deploying swarms of connected drones assured. The tech giants’ earlier sorties tap. Biotech startups raised $34bn globally in Gaza. The Pentagon hopes to do some into defence have a mixed record. Little ap last year, twice the figure in 2020. In the thing similar through its Joint AllDomain pears to have come out of a big dod pro first six months of 2021, 61 such firms Command and Control (jadc2) system, gramme from 2015, joined by Apple, to de launched initial public offerings (ipos) in which enables datasharing among sen velop battleready wearables. The jwcc America alone. Since then cash has grown sors and battle units in real time. This has project was revived after an earlier version, scarcer. The first half of 2022 saw just 14 led to a shift in how the Pentagon views called jedi, was cancelled amid lawsuits American ipos. None of the 24 startups technology, says Raj Shah of Shield Capital, from Amazon, which had lost the contract that Silicon Valley Bank, a lender to techie a militaryfocused vc firm. The future of to Microsoft. The HoloLens deal has been companies, expected to go public this year warfighting is “software first”, reckons plagued by delays and criticised as waste has made the jump. Funding for private Seth Robinson of Palantir. ful. Despite robust revenue growth, Palan biotech businesses is down, too. Banks are tir reported another loss last quarter, dis reluctant to lend to earlystage firms, This is good news for software pedlars. appointing investors who were expecting whose fate is tied to treatments that might Big tech already equips the armed forces the 18yearold firm to make money at last. never materialise. and law enforcement with cloud storage, Its share price tumbled by more than 10%. databases, app support, admin tools and Adverse reaction 300 logistics. Now it is moving closer to the Among the upstarts, Anduril and Sky 250 battlefield. Alphabet, Amazon, Microsoft dio remain exceptions in having won big Nasdaq stockmarket indices contracts. Most smaller startups, says Ms January 1st 201 =100 Boyle, are “waiting to see if they are going to get a major contract”. A fraction of the Composite $1trn that America has spent on defence procurement since 2016 has gone to non 200 conventional defence contractors. As that share rises, the primes, which retain a lot Biotech 150 of power (and armies of lobbyists) in 100 Washington, may become less welcoming of the newcomers. 50 Such obstacles may yet be overcome. 2017 18 19 20 21 22 That appears to be in the interests not just of the tech disrupters but of the Pentagon, Source: Refinitiv Datastream too. In late 2020 America at last defeated China in one of the dod’s war games. The winning move was not more and better hardware. It was the rollout of clever soft wareenabled systems like jadc2. n 012
The Economist August 13th 2022 Business 59 Many companies are shedding staff. cils. Some companies suddenly look ly acquisitive—and, thanks to the $37bn it This week Atara and MacroGenics, two cheap, especially those with proven treat earned last year from sales of its covid vac mediumsized public firms, announced ments or drugs in latestage trials. Ven cines and treatments, particularly flush. big layoffs. An index of biotech companies turecapital firms have raised over $100bn On August 8th it agreed to pay $5.4bn for listed on New York’s Nasdaq exchange has to invest in lifesciences businesses in the Global Blood Therapeutics, a maker of a fallen by a quarter since its peak a year ago, past three years, notes Tim Haines of treatment against sicklecell disease, further than the sliding nasdaq index Abingworth, a biotechfocused asset man bringing its total takeovers to more than overall (see chart on previous page). Valua ager. They still have plenty of unspent “dry $25bn in the past 12 months. tions of unlisted companies are dropping powder” to deploy. faster than ever, says Lain Anderson of As for Pfizer’s covidvaccine partner, L.E.K. Consulting. Not all will pull through. Big pharma in particular may be eyeing BioNTech, it is still worth five times what it up biotech startups with promising drug was before the pandemic, despite a 50% As nonspecialist investors swept up in pipelines. The giants will see some crash in its market capitalisation since the the pandemic biotech boom retreat, more $300bnworth of patents expire by 2030, peak a year ago. Don’t bring out the defi discerning ones are sharpening their pen says Mr Haines. Pfizer has been particular brillator just yet. n Bartleby Working for the baddies Why would anyone want to toil for a tobacco firm or a casino? “Have you looked at our caps recent for a ghastly company but at least the pay and gas today enables them to fund the ly?” is the question a worried Nazi is great,” is not the kind of narrative that transition to lowcarbon energy tomor soldier puts to his comrade in a comedy people like to fall asleep to. Thomas Rou row. Diageo, a drinks firm, highlights its sketch performed by David Mitchell and let of Cambridge University’s Judge Busi programmes to encourage drinking in Robert Webb. He has just noticed that ness School points out in “The Power of moderation. Tobacco firms peddle ciga their uniforms are emblazoned with Being Divisive”, a book about stigma in rettes even as they endeavour to soften skulls; a doubt is nagging away at him. business, that employees of demonised the harm caused by smoking: British “Hans,” he asks. “Are we the baddies?” firms are often proud to be on the payroll. American Tobacco says that its purpose is to “build a better tomorrow by reduc No company employee has concerns The most basic reason for that is a ing the health impact of our business”. of this sort. But some sectors are stig classic freemarket narrative. If you be matised enough to be known as “sin lieve in freedom of choice, and companies It is easy to scoff at this corporate industries”—booze, gambling, tobacco having the licence of society to operate, cakeism. Easy, but unwise. First, hostility and so on. Other industries have gone that is justification enough to work there. itself can sometimes act as a kind of from being respectable to questionable: This may not seem especially purposeful: binding agent for employees of stig fossilfuel firms, say. (A few, like canna many employees would regard operating matised firms. A study by Mr Roulet bis firms, are travelling in the opposite legally and serving customer needs as a found that job satisfaction increased at direction.) Nationality now casts shad requirement rather than a source of pride. firms that faced disapproval, provided ows in ways it did not before: working for But it is a perfectly coherent position. their employees regarded the criticism as a Chinese company might once have illegitimate. Second, societies’ attitudes aroused admiration but now provokes Freedom of choice works less well as a can change, sometimes suddenly. The suspicion. In an age when everyone is rationale if the harm that products do, arms industry looks less evil now that its supposed to have a purpose, why would whether to lungs or to the environment, products are helping Ukrainians fend off employees who have a choice work for has been covered up, or if those products Russia’s tanks. Dependence on Russian the baddies? weaken consent by encouraging addic gas has made secure sources of energy, tion. But firms under fire are practised at even if they are not lowcarbon, seem The cynical answer would be pay. turning the negative effects of their pro more attractive. There is some evidence to suggest that ducts to their advantage. Energy firms executives in sin industries demand argue that the money they make from oil Third, employees in vilified indus more money to compensate them for the tries are often in a position to do valuable stigma of working there. A paper in 2014 things. Swapping from cigarettes to found that the bosses of alcohol, betting riskreduction products is a net gain for and tobacco firms earned a premium that people’s health. Widespread suspicion of could not be explained by those compa genetically engineered crops ignores the nies being more complex to run, less job copious evidence that they are safe and security or poorer governance. The size useful. And a rapid decline in the num of the premium did, however, line up ber of new petroleum engineers in Amer with periods of heightened bad publicity, ica will seem less desirable if a shortfall such as legal settlements in the tobacco in expertise holds back carbonseques industry. The stigma that wreathed these tration projects. executives was observable in other ways, too: they sat on fewer boards than bosses There may be a cohort of evil employ in more virtuous industries. ees who seek out demonised firms, steepling fingers, stroking cats and Pay is a lever that might work for plotting ways to ruin lives. But the peo some positions and some people, but not ple who work in these industries are for all of them. And it hardly satisfies as a more likely to think of their work as psychological explanation. “Yes, I work important. They may not be wrong. 012
60 Business The Economist August 13th 2022 Schumpeter WeChat, they snoop, no one wins Tencent is a brilliant success story bedevilled by the splinternet more than 60 interviews with senior executives. A big problem for any biographer is the firm’s publicityshy founder, Huateng Earlier this year it suddenly became clear what a subversive “Pony” Ma. He is an erudite engineer who seems to hate the sound force WeChat could become. It happened on April 22nd, when of his own voice. Ms Chen, a Bloomberg reporter who has covered Shanghai was in lockdown. A blackandwhite video swiftly went China’s tech firms for a decade, has spoken to him only once, as viral among the 1bnplus Chinese users of the socialmedia plat part of a gaggle of journalists in 2015. form owned by Tencent, China’s biggest internet firm. For six minutes, as a camera panned over Shanghai’s skyline, it carried an As it turns out, Mr Ma’s reticence is a source of strength, not audio montage of babies crying after being separated from their weakness. What he lacks in outward charisma, he makes up for quarantined parents, residents complaining of hunger, apartment with steely resilience (“You either wait for someone to kill you or dwellers banging bins, a mother desperately seeking medicine for you kill yourself first,” is how he describes the firm’s constant her child. “The virus is not killing people, starvation is,” a person efforts at reinvention). The lack of a domineering personality lets cries out. It was a haunting, dystopian scene. others thrive, for example Allen Zhang, creator of WeChat, who is equally shy, yet so competitive that he is a master gamer and As Lulu Yilun Chen recounts in her book, “Influence Empire: champion golfer. Most important of all, keeping a low profile has The Story of Tencent and China’s Tech Ambition”, China’s web cen kept Pony Ma personally out of the sort of political trouble Jack Ma sors swiftly blocked the video, though some netizens sought to (no relation), cofounder of Alibaba, has suffered—though it defy them by posting it upside down. It was a rare moment when hasn’t kept Tencent out of the government’s line of fire. WeChat (Weixin within China) was used to express people’s anger and pain, rather than the blander stuff—swanky dinners, clouds at Without rigid hierarchies, Tencent can let internal competi dusk—that people usually post. WeChat is Tencent’s flagship pro tion run amok, especially when it comes to creating innovative duct, a “Swiss Army Knife” of a super app, offering messages, new products. In his book, Mr Wu describes this as “internal search, ridehailing, food delivery and other applications on a sin horseracing” (as it happens, ma means “horse” in Chinese). He gle platform. But in a paranoid regime, its power is also a threat. says almost all of Tencent’s transformational ideas, including We Chat, came from secondtier teams competing against each other, One can only imagine how much the episode must have un not from the top brass. Like many Chinese businesses, Tencent nerved executives at Tencent. Since early 2021 its value has plum has often been accused of plagiarism. But its modus operandi is to meted by more than threefifths, to $365bn, amid a Communist make swift, incremental innovations that create blockbusters. Party crackdown on the consumertech industry. It is a firm that in many ways belies stereotypes about China and offers lessons to Mr Ma’s decentralised approach to the way Tencent deploys Silicon Valley. It eschews personality cults. It is obsessively inno capital has been similarly astute. According to Ms Chen, the com vative. It takes a radically decentralised view of investment. Yet in pany has made some 800 investments globally. More than 120 of recent years, like other tech firms in China, it has been under pres these have become “unicorns” worth more than $1bn. It owns Riot sure to bow to the whims of President Xi Jinping. That threatens Games, the franchise behind “League of Legends”, and has big its reputation in the West, where it is a huge investor in gaming stakes in Epic, creator of “Fortnite”, another gaming sensation, (among other businesses) and where it is keen to expand its reach. Meituan, a Chinese delivery app, Didi Global, a ridehailing giant, as well as numerous other trailblazers such as Spotify and Tesla. It Tencent is not easy to chronicle. Other tech giants, including prides itself on taking a handsoff approach to its minority invest Alibaba, its Chinese nemesis, have been the subjects of riveting ments. As Ms Chen puts it, it has become an incubator of startups, bestsellers. Before Ms Chen’s book, Tencent’s only corporate bio not a killer of potential competitors. graphy was an authorised one by Wu Xiaobo, a management scholar, published in Chinese in 2016. Mr Wu started by lamenting In short, her book—and that of Mr Wu, which it draws upon— that he had failed to find the secret to Tencent’s success despite paints a picture of a company whose executives are fascinatingly idiosyncratic, and almost as obsessed with products and design as Steve Jobs, Apple’s late cofounder. The trouble is that China’s do mestic politics and the messy SinoAmerican clash make it hard to feel confident about the future. The red Pony The first problem is internal to China. Tencent is embedded in al most every aspect of life there. It makes money from app fees, traf fic (via advertising) and transactions (such as selling virtual goods to gamers), as well as from cloud computing. This has overex posed it to the government’s techlash. Mr Xi’s crackdown on inter net firms has hit its gaming arm, its fintech plans and local invest ments such as Didi. It has to censor itself vigorously. It may hope that expansion abroad will help offset its problems in China. For example, it has plans for the global distribution of “Honor of Kings”, whose popularity at home has already made it the biggest mobile game in the world. But the more it has to com promise with the Chinese government to remain safe, the more its products like WeChat, as well as its games, run the risk of arousing hostility from China hawks in America. As SinoAmerican ten sions worsen, that is a game no one can win. n 012
Finance & economics The Economist August 13th 2022 61 The Gulf On a visit to Jeddah in July America’s Presi dent Joe Biden bumped fists with Muham Funding which future? mad bin Salman, the Saudi crown prince. Mr Biden had until recently kept the prince DUBAI, MANAMA AND WASHINGTON, DC at arm’s length; the current political imper ative to bring down petrol prices leaves lit A vast oil windfall offers Gulf states one last chance to splurge tle room for moral stances. In the north-western corner of Saudi estimates that energy exporters in the Mid Expensive oil augments the financial Arabia, not far from the mouth of the dle East and Central Asia will this year net power of the Gulf states at home and Gulf of Aqaba, sits a patch of mostly bare $320bn more in oil revenues than it had abroad, opening a gusher of public spend desert—the ostensible location of Neom. previously expected, a figure equivalent to ing and steering flows of money around This wouldbe city is intended to be a bold about 7% of their combined gdp. Over the the world. The long rise in oil prices in the step into the future, and the showpiece of next five years, the cumulative surplus 2000s helped fuel huge global imbalances, the kingdom’s attempt to diversify its could reach $1.4trn. depressed interest rates and attracted a economy away from oil. There has been stream of supplicants looking to curry fa talk of robots doing menial work, beaches Gulf leaders must now work out how to vour. Cheap oil brings shrinking ambi lined with crushed marble and fleets of spend the proceeds of what could be the tions. When the last sustained period of drones forming an artificial moon. One re last big gush of oil wealth. Some promise to high prices ended in 2014 it seemed as if cent whim is to create the world’s longest pay down debts and save for a postpetro the old social contract, which promised buildings; like skyscrapers laid flat, these leum future. Yet there will be pressure to hefty subsidies and cushy lifetime gigs in selfcontained ecosystems would stretch share the bounty with the public—and few the public sector, would have to change. for more than 100 miles. Estimates suggest checks on those who wish to splash out on There was talk of diversification, higher the city could cost as much as $500bn. megaprojects or global influence. The im domestic fuel and food prices—even taxes. pact in diplomatic circles is already visible. When this wild dream was first un A period of rockbottom oil prices, and veiled in 2017, financing it seemed near im → Also in this section the hit from covid, saw fiscal positions de possible. Now a torrent of oil money may teriorate. This year’s windfall offers an op allow Saudi Arabia to get things rolling. 63 Buttonwood: Repeat inflation shocks portunity to strengthen them (see chart 1 The world economy’s recovery from co on next page). Bahrain’s public debt rose to vid19, and Russia’s invasion of Ukraine, 64 An American economic boom? 130% of gdp in 2020, but the country’s bud have pushed up oil prices, triggering a stag get is based on the assumption that oil will gering transfer of wealth from global con 64 Europe’s uneven energy squeeze fetch a mere $60 a barrel. High prices may sumers to fuelexporting countries. From allow it to reduce its debt ratio by about 12 January to June, the price of a barrel of 65 China’s developers run out of room percentage points this year, even though it Brent crude rose from $80 to more than is the smallest producer in the Gulf Coop $120 (it is back below $100 today). The imf 66 Short-sellers fall short eration Council (or gcc, a group that also comprises Kuwait, Oman, Qatar, Saudi Ara 67 Free exchange: America v Europe bia and the United Arab Emirates). Oman’s debt burden is projected to fall by more 012
62 Finance & economics The Economist August 13th 2022 than 20 percentage points of gdp. Profits on tap 2 ficial islands shaped like a map of the Other leaders aim to save much of their world. More than a decade later, the archi Gulf countries, current-account balance pelago is derelict. The uae’s ambitious earnings. Mohammed alJadaan, the Saudi % of world GDP plans to become a semiconductormanu finance minister, says his government will facturing hub, and a centre for health tou not touch its oil bonanza, at least this year. Saudi Arabia UAE Kuwait rism, have similarly fizzled out. It will put away the money at the central Qatar Oman Bahrain bank, then use it in 2023 to replenish for Wild flights of fancy like Neom stand eign reserves or top up the Public Invest 0.5 ready to absorb a hefty chunk of the oil ment Fund (pif), the sovereignwealth money this time round. Saudi Arabia also fund that has become the kingdom’s main 0.4 wants to host the Asian Winter Games in driver of investment. Bahrain will use 2029, spraying desert mountains with some of its surplus to refill a fund meant to 0.3 snow; Dubai has a zany plan to create provide for future generations, which it 40,000 jobs in the metaverse in five years. drained during the pandemic. 0.2 Even less ostentatious projects may prove wasteful. Saudi Arabia sees tourism as the Yet the pressure to spend will be in 0.1 centre of its postoil economy, providing at tense. Gulf economies have not been as least 10% of jobs and gdp. The oil boom squeezed by soaring prices as the rest of 0 will give the pif billions to throw at re the world. The imf expects inflation in the sorts, amusement parks and other diver gcc to peak at 3.1% this year, well below * † -0.1 sions. Yet Saudi officials cannot point to a levels in America and Europe. Abundant, proper assessment showing that its hoped cheap foreign labour keeps wage costs low. 2000 05 10 15 20 22 for 100m tourists will in fact choose to visit Most countries rely on fuel subsidies to the kingdom each year. As Ali alSalim, a limit inflation. A strong dollar, meanwhile, Sources: World Bank; The Economist *Estimate †Forecast Kuwaiti investor, notes: “It’s a pretty fickle holds down the cost of imports (five of the business to be the linchpin of your eco six gcc members peg their currencies to are nationals. The Saudi government used nomic plan.” the greenback). past oil booms to offer more jobs and high er wages in the public sector. Doing so now The Gulf states would be wise to focus Under the pump would run counter to Vision 2030, an eco on areas where they have clearer competi Residents in the Gulf are nonetheless feel nomicdiversification plan meant to shift tive advantages. Developing expertise in ing the pinch. The uae phased out its fuel the kingdom away from oil. Firms already desalination techniques and technologies, subsidies in 2015, and petrol prices grumble about how hard it is to retain tal much as Israel has done, could make a vir climbed by 79% from January to July, when ent. Many young Saudis see privatesector tue of the region’s aridity. Investments in the government raised them once again, to work as a fun distraction until a govern greenenergy technologies like hydrogen 4.52 dirhams ($1.23) a litre. That is not bad ment job comes along. could offer a source of revenues after the by global standards, but shockingly expen energy transition. Mr Saidi proposes in sive for a rich petrostate—drivers in Saudi Oil wealth offers other ways to shield vesting in renewables projects and cli Arabia pay half as much. In July the uae an citizens from cost pressures. In 2016 the matemitigation strategies in Asia and Af nounced that it would almost double the Gulf states agreed to introduce a value rica, as a green version of China’s Belt and welfare budget for poor citizens, from addedtax of 5%, and four have done so Road Initiative. “This is a moment when 2.7bn dirhams to 5bn. Eligible families will since (the laggards are Kuwait and Qatar). you want to look again at how you provide receive stipends for housing and educa Saudi Arabia has gone much further. In foreign aid,” he argues. tion, plus an allowance to offset higher 2020 it tripled vat to 15%, hoping to offset food and energy costs. the fiscal effects of the pandemic and low Tee off oil prices. “You have a policy tool you Certainly, the boom stands to reshape the With just 1m citizens, representing 10% didn’t have before,” says Nasser Saidi, a Gulf’s relations with the rest of the world— of the total population, the uae can afford Lebanese economist who runs an advisory as demonstrated by Mr Biden’s trip to Jed to splurge a bit. Satisfying the citizenry will firm in Dubai. “Rather than increase dah. Enormous quantities of Saudi money be a bigger challenge in Saudi Arabia, spending or hiring, you could lower vat.” are being spent to burnish the kingdom’s where twothirds of the population of 35m reputation in other contexts as well. The Competing with such concerns is the world of golf, for example, is being trans Spurting 1 need to think longterm: beyond the boom formed as liv Golf, a Saudibacked rival to and, ultimately, beyond oil. At the modern the pga tour, lures stars with fantastical Revisions to 2022 forecasts*, percentage points ist offices of Bahrain’s sovereignwealth payouts. The country started hosting a For fund, such thoughts are sobering. “Of mula 1 race in 2021. Pop stars including Jus GDP growth Inflation rate Government course we’re all happy the oil price is high, tin Bieber, Mariah Carey and David Guetta debt, % of GDP 5 but the focus needs to stay on the nonoil have recently performed in the kingdom. economy,” says an executive. Working out 0 what that means in practice is no easy task. The boom will also have less tangible Some sovereignwealth managers in the international consequences. The gcc’s -5 Gulf say their mandates have become al combined currentaccount surplus this most contradictory. They are meant to hus year may run to more than $400bn, or Emerging markets -10 band oil wealth for future generations, but 0.4% of global gdp (see chart 2)—a slightly -15 are increasingly asked to deploy capital to higher share of world output than the big Qatar Bahrain fuel nonoil growth, a job that entails plen gest surpluses achieved before the global ty of risk. financial crisis of 200709. In past booms UAE Oman oil profits have been recycled into invest Saudi Arabia Kuwait Gulf countries have not always done a ment flows back to America (through pur good job of judging which risks to take. The chases of Treasuries, for instance), funding -20 region is littered with failed megaprojects America’s currentaccount deficits. from earlier booms. Saudi Arabia’s gleam Source: IMF *Differences between forecasts made in ing financial district, meant to compete April 2022 and those made in October 202 with Dubai’s, was plagued by delays and cost overruns. When it was eventually fin ished, it sat empty: banks saw no reason to move. The uae spent billions to create arti 012
The Economist August 13th 2022 Finance & economics 63 Yet America has become the world’s pecially from Russia, rather than robust cant leverage over less fortunate places, largest producer of oil, and big emerging growth in global demand. should they choose to wield it. economies have grown richer and devel oped a thirst for the stuff. Thus the Gulf’s More than a few governments have al It may well be the last such opportunity. surplus today is matched in part by weaker ready approached Gulf leaders for mon In poor countries and rich ones, the pain of balanceofpayments positions in big ey—albeit to meet urgent obligations rath soaring energy costs adds a new urgency to emerging economies. That includes China er than to greenify their economies. Like efforts to reduce dependence on fossil fu and India, but also scores of smaller coun China and India, Saudi Arabia and the uae els. At the heart of the boom, the feeling is tries, including a few, like Sri Lanka, for have played a growing role lending to poor palpable. “There’s a ‘daysarenumbered’ which the surge in the cost of imported oil er countries over the past two decades, tak kind of sentiment,” says Mr alSalim, the has been crippling. High oil prices have hit ing over a position once reserved for ad Kuwaiti investor. “You look at the state the world as a whole harder than they did vanced economies and multilateral insti Europe is in, I don’t think they’re going to in the 2000s. This is because they are large tutions like the World Bank. The develop allow themselves to be this vulnerable ly the result of interruptions to supply, es ing crisis across low and middleincome years from now.” Which raises a question. economies could give Gulf states signifi Will the Gulf? n Buttonwood Recurring nightmares How should investors prepare for repeat inflation shocks? Buy stocks so you can dream, buy ons are therefore worrying about the ing the risk of energyprice spikes. All bonds so you can sleep—or so the potential for repeat inflation shocks. Last this, the structuralists argue, means the saying goes. A wise investor will aim to year the debate in the halls of finance was current inflation shock is likely to be the maximise their returns relative to risk, about whether inflation would be “transi first of many: central bankers will be defined as volatility in the rate of return, tory” or “persistent”; this year it is about playing whackamole for a while yet. and therefore hold some investments whether it is “cyclical” or “structural”. that will do well in good times and some Recurrent inflation would upend 20 in bad. Stocks surge when the economy At the heart of this is not whether years of portfoliomanagement strategy. soars; bonds climb during a crisis. A mix central bankers can bring down prices, but If the correlation between stocks and of the two—often 60% stocks and 40% whether the underlying inflation dynamic bonds shifts from 0.5 to +0.5 the volatil bonds—should help investors earn a nice has changed. Those in the “structural” ity of a “60/40” portfolio increases by return, without too much risk. camp argue that the recent period of low around 20%. In a bid to avoid being inflation was an accident of history— wrongfooted once again, investors are Such a mix has been a sensible strat helped by relatively calm energy markets, updating their plans. As Barry Gill of egy for much of the past two decades. globalisation and Chinese demographics, ubs’s assetmanagement arm puts it, the Since 2000 the average correlation be which pushed down goods prices by lo task is “to realign your portfolio around tween American stocks and Treasuries wering the cost of labour. this new reality”. has been staunchly negative, at 0.5. But the recent rout in both stock and bond These tailwinds have turned. Covid19 What assets will allow investors to prices has wrongfooted investors. In the messed up supply chains; war and sabre sleep soundly in this new reality? Crypto first half of the year the s&p 500 shed rattling are undermining globalisation. currencies once looked like an interest 20.6% and an aggregate measure of the Manoj Pradhan, formerly of Morgan Stan ing hedge, but this year they have fallen price of Treasuries lost 8.6%. Is this an ley, points out that China’s workingage and risen in lockstep with stocks. A aberration or the new normal? population has peaked. Jeremy Grantham, recent paper by kkr, a private asset a bearish hedgefund investor, fears that management firm, argues, perhaps The answer depends on whether the switch to renewables will be slow and unsurprisingly, that illiquid alternatives, higher inflation is here to stay. When costly, and that lower investment in fossil like private equity and credit, are a good economic growth drives asset prices, fuel production will make it hard for way to diversify. But that may be an stocks and bonds diverge. When in energy firms to ramp up supply, increas illusion: illiquid assets are rarely flation drives them, stocks and bonds markedtomarket, and are exposed to often move in tandem. On August 10th the same underlying economic forces as American inflation data showed prices stocks and bonds. did not rise in July. Stocks soared—the s&p 500 rose by 2.1%—and shortterm There are other options. aqr suggests Treasury prices climbed, too. stockpicking strategies where success has little to do with broader economic For as long as central bankers kept a conditions, such as “longshort” equity lid on inflation, investors were protect investing (going long on one firm and ed. Yet look back before 2000, to a period short on another). Meanwhile, commod when inflation was more common, and ities are the natural choice for those you see that stocks and bonds frequently worried about a disorderly green transi moved in the same direction. aqr Capital tion, since a basket of them appears to be Management, an investment firm, notes uncorrelated with stocks and bonds over that in the 20th century the correlation long periods. In the search for new ways between stocks and bonds was more to minimise risk, investors dreaming of often positive than negative. high returns will have to get creative. That, at least, should tire them out by the Lots of hedgefund types, pension end of the day. fund managers and privateequity bar 012
64 Finance & economics The Economist August 13th 2022 America’s economy How low can unemployment go? that the Fed may have to keep raising rates until measured unemployment approach Two cheers amid United States es the nairu. If so, millions of people would lose their jobs. the fears Average hourly earnings, Unemployment % increase on a year earlier rate, % A more hopeful interpretation is that WASHINGTON, DC the gap may ultimately be closed more by 15 15 the nairu itself falling rather than by un For a change, a downside inflation employment rising. After the Fed’s most surprise and an upside jobs surprise 12 12 recent rate rise in July, Mr Powell laid out this perspective: “Logically, if the pandem What a difference a couple of data 99 ic and the disorder in the labour market points make. Much of the recent talk caused the natural rate to move up, then as about America’s economy had focused on 66 the labour market settles down, in princi the possibility of stagflation, as gdp ple you should see it move back down.” shrank and prices soared. Suddenly, 33 though, things look rosier. First, on August It is easy to see why the Fed no longer 5th, statisticians reported that 530,000 0 0 places the nairu on the pedestal that it jobs were created in the previous month— 2007 09 11 13 15 17 19 22 once did. Not only is it invisible, it is also more than twice as many as expected. unstable, especially when the economy it Then, on August 10th, they reported that Sources: Bureau of Labour Statistics; Federal Reserve self is in flux. Yet slippery as it is, it gets to consumer prices in July were the same as the crux of today’s concerns. Workers may in June—the first absence of monthon directly observable, it is based on esti rejoice at evidence of rapid job growth and month inflation since early 2020. Could mates. The concept of the nairu was once wage increases. Only when these occur the doomsayers be wrong, and America central to economic analysis and to the alongside a continued deceleration of in really be about to enjoy both an economic Fed’s thinking about rates. But it fell out of flation will economists’ consternation give boom and price stability? favour before the pandemic when unem way to true celebration. n ployment dipped below the assumed nai Not so fast. It is foolish to rush to any ru range of 45.5% without any discernible The winter ahead conclusion based on a week’s worth of da pickup in inflation. In a strategic review ta, especially amid the lingering covid19 published in 2020, the Fed indicated that Putin’s present pandemic and war in Ukraine. Previous the concept would no longer figure promi bursts of optimism have proved, unlike in nently in its policy decisions. Which European countries are most flation, to be transitory. Moreover, a closer vulnerable to surging energy prices? look at both reports gives as much reason However, the surge in inflation over the for consternation as for celebration. past year, alongside the sharp drop in job Europe is facing an enormous energy lessness, has put the nairu back in the price shock. But not all Europeans are Start with the jobs figures. America’s spotlight. There is a good case that it shift set to see the same hit to their living stan unemployment rate in July fell to 3.5%, ed markedly higher early in the pandemic. dards. According to estimates by the imf, matching a halfcentury low hit just before In mid2020 unemployment soared to al the burden for the average family in Fin the pandemic. Normally that would have most 15%. As Brandyn Bok and Nicolas Pe land will be equivalent to an additional 4% been greeted with unalloyed joy. But the troskyNadeau of the San Francisco Fed of household spending. The picture is con ultrastrong labour market is a challenge have noted, such a jump would normally siderably grimmer a twohour ferry ride for companies struggling to hire staff. have warranted a bigger slowdown in infla across the Baltic Sea. In Estonia house Wages rose at an annual pace of 5.2% over tion than actually occurred. holds face a hit of around 20%. the past three months, up from 4.7% in June. Meanwhile, the dominant factor in The fact that there was no deflation im Between these two countries lie most of the drop in inflation was the recent fall in plies that the natural rate of unemploy the continent’s economies (see chart). On oil prices. Once volatile food and energy ment probably shifted higher. The re costs are stripped out, core inflation is still searchers estimated that the nairu may Gas guzzlers up by 5.9% compared with a year earlier. have reached 8% in 2020, before edging down to 6% at the end of 2021. Now, the Increase in spending owing to higher energy prices* Taken together, the data cast a fresh economy may be experiencing the flipside 2022, % of total household spending light on a debate that has raged among of an elevated nairu: higherthanexpect economists this year: just how big a trade ed inflation as unemployment falls. Richest 20% Poorest 20% off the Federal Reserve faces between infla tion and jobs as it tightens monetary poli Structural changes in the economy dur 0 5 10 15 20 25 cy. Jerome Powell, the Fed’s chairman, has ing covid help explain why the natural rate Estonia long insisted that present labourmarket of unemployment may have increased. tightness may mean there is a path where From the boom in delivery and warehouse Czech Rep. by companies can reduce their demand for work to the subsequent recovery in restau new workers without large numbers end rant and travel work, employers’ staffing Italy ing up on the dole. In other words, the needs have evolved fast. Compounding tradeoff could be less severe than in previ that has been a change in what people ex Britain ous periods of monetary tightening. pect from their jobs, epitomised by the shift to more remote working. One normal Spain One way of understanding the debate is response from companies has been to offer to consider the nonaccelerating inflation higher wages. Germany rate of unemployment (nairu), also known as the natural rate of unemploy A gap between the measured unem Finland ment. It refers to the lowest level of unem ployment rate of 3.5% and the estimated ployment that an economy can sustain be natural rate of 6% implies that wage France *Forecast based on futures prices from May 2022 fore wage inflation starts to accelerate. Not growth is likely to remain strong in the compared with those from January 202 coming months. That will feed through Source: IMF into core inflation, even if oil prices con tinue to fall. A pessimistic interpretation is 012
The Economist August 13th 2022 Finance & economics 65 average, Europeans spend a tenth of their Property in China completed less than half that amount. In incomes on energy. Richer families tend to the past homebuyers could do little about have bigger houses and cars, but the in A finite problem these delays. They had already handed over crease in energy costs that results from their money, after all. this is generally not as big as the difference HONG KONG in incomes. That leaves poorer households But although they have paid their devel spending more of their budgets on energy. Mortgage boycotts are a symptom opers, they are still paying their banks. In The same pattern holds between countries of a broader crisis recent months, angry homebuyers have as within them. Europe’s poorer former threatened to stop repaying their mortgag communist east is more vulnerable to The german mathematician David Hil es if developers do not resume work on higher prices than its rich Nordic north. bert once imagined a hotel with an infi their flats. According to a crowdsourced nite number of rooms. Even if all of the document circulating online, this mort Dependence on natural gas is another rooms were occupied, he pointed out, the gage strike has spread to nearly 100 cities important factor in assessing vulnerabili hotel could accommodate a new arrival, and over 320 projects, including a Dragon ty. Wholesale prices have doubled since simply by asking each guest to move into City, a Peacock City and a Phoenix City. Ov Russia’s invasion of Ukraine. Coal prices the room next door. One guest would move er 40 of these projects are in Zhengzhou, are also up, but by a slightly more manage into a second guest’s room, freeing up a the capital of Henan province. able 60%. Meanwhile, the price of renew spot for the new arrival. The second guest ables is unchanged. Thanks to a mostly would move into a third guest’s room, and How widespread could boycotts be unified market for natural gas European so on. With an infinite number of rooms, come? There are some limits to their countries face similar wholesale prices: the sequence would never end. growth. Striking mortgageholders could power generators that use gas in Bulgaria, end up on credit blacklists, damaging their on the continent’s eastern flank, pay For years, China’s property developers access to loans. And in China, points out roughly the same as those in Ireland, on its operated along similar lines. They would s&p Global, a ratings agency, most individ western one. sell flats far in advance of building them. uals cannot declare bankruptcy, since The money raised for these flats was sup “their debts will never be forgiven”. Yet countries differ in their dependence posedly reserved for building them, just as on the stuff. Less than 3% of Sweden’s ener each room in Hilbert’s hotel was supposed In a gloomy scenario, mortgage loans gy comes from natural gas, with hydroelec ly reserved for an existing guest. But devel worth about 2.4trn yuan ($350bn) could tricity, wind and nuclear providing the opers would instead use the money for turn sour, reckons s&p Global. That bulk of it. Swedish homes are heated using other purposes, such as buying land. When amounts to roughly 1.3% of total bank communal systems, often fuelled by wood the time came to pay for construction, they loans, enough to endanger some smaller chips, or through heat pumps attached to would sell more unbuilt flats and use that lenders, but not enough to pose a systemic the electricity grid. That puts the average money instead. Just as Hilbert’s hotel ac threat to the banking system. increase in household spending at around commodated each guest in the room next 5% of budgets, compared with 10% in Brit door, China’s property developers built The true significance of the boycotts ain, which depends on natural gas. each presold flat with the money from the lies elsewhere. They show that Chinese next presale. As long as there were always households no longer believe that a flat The passthrough from wholesale to re new buyers, the sequence could go on. bought in advance will necessarily be deli tail prices also differs. In many countries, vered. This loss of faith is not confined to utilities buy gas on longterm contracts Unfortunately, China’s developers are the protesters. It is also showing up in and hedge their exposure to wholesale now running out of rooms. Their sales in weakening presales, especially for dis price increases. Different market struc the 12 months to June fell by 22% compared tressed developers. A reluctance to buy tures then mean prices pass to consumers with the previous 12 months. Advance sales new homes poses a bigger threat to China’s at different frequencies. In Spain, for in fell even faster (see chart). This painful economy than the more conspicuous re stance, consumer tariffs are typically up brush with finitude has left many develop fusal to repay existing mortgages. Weak dated every month (though it has capped ers without enough cash to continue sales will further squeeze the revenues of gas costs for power generators). In Poland building the flats their customers have al developers, adding to construction delays they are adjusted only twice a year. ready bought. China’s developers have and deepening disillusionment. started work on over 6bn square metres of Elsewhere, governments have frozen property in the past three years. They have How can this vicious circle be broken? costs. In France, where Électricité de In Henan, two stateowned enterprises (a France (edf), a stateowned utility, domi Advances retreat developer and a “bad bank”) have set up a nates the market, the government has relief fund to acquire distressed projects capped price rises at 4%. Most of the coun China, pre-sales* as % of new property sales and see them through to completion. But try’s electricity usually comes from nuc 12-month moving average China’s local governments lack the cash to lear power, but longdelayed maintenance revive confidence, according to Andrew means it is now being imported from 90 Batson of Gavekal Dragonomics, a research neighbours, where it is often generated by 88 firm. He believes a credible plan will re burning gas. The government absorbs the 86 quire the central government to step in. It costs through its ownership of edf. 84 is understandably reluctant to plough 82 more resources into a sector that already Capping price rises reduces the incen 80 commands too big a share of the economy. tive for households to cut their energy use. 78 But new money invested in stalled projects It also disproportionately helps the rich. A could yield a double dividend, helping far better option is to target support at the 2018 19 20 21 22 both to build unfinished flats and to re neediest. Yet, according to calculations by build confidence in presales. the European Central Bank, only 12% of eu Source: Haver Analytics *Properties still under construction states’ spending on measures to limit the In the longer term, China’s developers impact of higher energy prices has been need a less frenetic business model. They targeted in such a manner. An unevenly will have to rely less on selling flats in ad distributed energy shock requires more re vance and starting the next project before distribution in response. n finishing the last. In China, the demand for housing is vast. But it is not infinite. n 012
66 Finance & economics The Economist August 13th 2022 Hedge funds end of 2021, the s&p 500 quintupled, while hfr’s shortbias index dropped by 85%. Shorts, squeezed Kynikos Capital (since renamed Chanos & Co, after its founder Jim, who predicted the Short-sellers are struggling despite a bad year for stocks downfall of Enron) managed $7bn at its peak in 2008; today that has fallen to To napoleon, they were “treasonous”; Permabears around $500m. Muddy Waters, Mr Block’s to Tom Farley, a former boss of the New outfit, has assets of around $200m. York Stock Exchange, “icky and unAmeri Stockmarket indices, January 1st 2009=100 can”. Shortsellers, who bet against the When compared with the tens of bil stockmarket, have always been unpopu 500 lions managed by traditional “long” funds, lar—and essential. Today’s big names rose that leaves little scope for chunky manage to fame by exposing corporate wrongdoing S&P 00 400 ment fees. And even if a bet is successful, and irrational exuberance. Michael Lewis’s 300 the potential return is capped while the po “The Big Short”, a popular account of the tential loss is not: a stock’s price cannot fall global financial crisis of 200709, puts the 200 below zero, but it can rise indefinitely. “I “misfits, renegades and visionaries” who can make good money on our short calls,” bet against overvalued mortgagebacked HFR short-bias 100 says Mr Block, “but it’s hardly lifechang debt at the centre of the story. index* 0 ing money.” On the face of it this year ought to be a 2009 11 13 15 17 19 22 The final, euphoric phase of the recent glorious period for shortsellers. Markets bull market was accompanied by a stam have plunged on fears of persistent infla Sources: Refinitiv *Composed of hedge funds that pede of retail investors into “meme tion. Sagging growth makes it more likely Datastream; HFR bet on falling share prices stocks”, sometimes motivated by a desire that securities will fall in price rather than to drive up the price and give shortsellers be buoyed by a rising tide. Higher interest could find companies hiding stalled opera a bloody nose. Even though interest in rates and tighter credit conditions make it tions, says Dan Nord of Maxar Technol meme stocks has slumped along with the harder for poorly performing or outright ogies, a firm that uses satellites to photo market this year, their rise led some short fraudulent firms to stagger on by loading graph 4m square kilometres of the Earth sellers to decide “this was never going to up on debt. Despite a recent uptick, the s&p every day. Whereas distant supplychain work again,” says Mr Chanos. “They 500 index of large American stocks is down snarls, mothballed mines and shuttered thought if those stocks could trade there, by 12%. But the “shortbias index” of hedge ports would once have been brushed over any stock could trade anywhere.” funds that specialise in shortselling con in company filings, today they can be iden structed by hfr, a research firm, has not tified with everincreasing precision. At the same time, regulators and en risen by anywhere near enough to make up forcement agencies that once used short for years of poor performance in more dif Yet other changes have made the lives reports as starting points for criminal in ficult conditions (see chart). of shortsellers harder. Thirteen years of vestigations are increasingly investigating almost relentlessly buoyant equity mar the shortsellers themselves. A report in Shortsellers are understandably gloo kets, pumped up by low interest rates and a 2016 accusing Wirecard, a German fintech my. Andrew Left, an outspoken activist flood of quantitative easing, have left those star, of fraud and corruption resulted in a shortseller, said in 2021 that his firm betting on falling prices bloodied and fouryear investigation by Bavarian state would stop publishing “short reports” on bruised. Between the start of 2009 and the prosecutors and the German financial reg companies it thought were overvalued, ulator into the shorts who wrote it. (Wire after 20 years of doing so. Bill Ackman of card collapsed into insolvency in June Pershing Square, who during the financial 2020.) A recent flurry of subpoenas from crisis ran highprofile positions against America’s Justice Department to short Fannie Mae and Freddie Mac, two Ameri sellers—including Mr Block’s firm—has can governmentsponsored mortgagefi left many feeling as if they, rather than the nance firms, announced earlier this year fraudulent companies they try to uncover, that his hedge fund was quitting the busi are the enemy. ness of activist shortselling. In recent weeks Carson Block, who burst onto the Some fear that shortselling is just a scene in 2011 with a bet against SinoForest, fundamentally bad business, in which a Chinese forestry firm that was felled many of those involved are motivated amid a fraud scandal, publicly wondered more by the thrill of the chase than the op whether it was time to throw in the towel. portunity for outsized profits. When you publish flattering research on companies, What explains the malaise? Some tech says one hedgefund manager, “generally nological changes should have helped people like you, because generally people shortsellers. The proliferation of alterna are long. Everyone hates you when you’re tive data sources and opensource intelli short.” That hostility translates into an un gence ought to make it easier than ever to willingness to listen to even the most well unearth corporate malfeasance. Earlier argued short case, making it difficult to re this year, intelligence agencies and news alise profits from the position. papers alike used satellite imagery to fol low the buildup of Russian troops on It has a much darker side, too. Mr Left Ukraine’s borders. The same methods decided his firm would stop publishing short reports after retail traders on social media platforms shared his personal infor mation online and sent threatening texts to his children. Warren Buffett, notes an industry veteran, shorted stocks early in his career: “He doesn’t talk about it now.” n 012
The Economist August 13th 2022 Finance & economics 67 Free exchange America v Europe Why a comparison of riches leaves both sides red-faced health services per person; Germans managed just $7,000. The difficulty in working out a reasonable deflator is partly When david hockney’s mother visited the British artist in Los Angeles she made an observation that points to the diffi conceptual. What are people paying for when they buy health care, culties with transatlantic economic comparisons. “Strange,” she a service or an outcome? Is a unit of “healthcare services” the cost said, after a couple of days in the sun, “all this lovely weather and of a specific treatment or the cost of health? What does being you never see any washing out.” healthy even mean? International price indices simply (and a little unsatisfactorily) calculate the price per treatment. These differ It is an observation many European visitors have echoed. substantially. The oecd, a club of mostly rich countries, estimates American travellers to Europe, meanwhile, often despair at wash that a hip replacement in Norway costs seven times as much as erdryer machines that leave clothes damp. Indeed, for some one in Latvia and Lithuania. In any case, while American prices are American writers the lack of standalone dryers is symbolic of the higher than European ones, the gap is not big enough to account continent’s backwardness. While economic statistics should for the difference in healthcare consumption: Americans also solve such debates—by allowing for applestoapples compari undergo lots more medical treatment. sons—they are not immune to the problems posed by cultural dif ferences. Is it that Europeans cannot afford proper tumble dryers? Simon Kuznets, a Nobelprizewinning economist and statisti Or are they simply getting their “drying services” free of charge? cian, suggested estimates of gdp should exclude things an “en lightened social philosophy” would consider harms rather than Questions like these are important when comparing countries. benefits. For him, that included weapons, advertising, much of fi On the surface, America has by far the best case for prosperity. nance and anything necessary to “overcome difficulties that are, Gross domestic product (gdp) per person is almost $70,000. The properly speaking, costs implicit in our economic civilisation”. only European countries where it is higher are Luxembourg, Swit zerland, Norway and Ireland, where figures are distorted by firms’ Many Europeans would suggest this category rightfully in profit shifting. In Germany, Europe’s economic powerhouse, gdp cludes American healthcare spending. Life expectancy in Ameri per person (adjusted for purchasingpower parity) is $58,000. ca is five years lower than in Italy; lots of money is spent fixing the That puts it level with Vermont, but far below New York ($93,000) damage done by higher levels of violent crime, traffic accidents and California ($86,000). The comparisons are even less flattering and obesity. Follow Kuznets’s advice—by removing from the cal for other European countries. Incomes in Britain and France are culation finance, health, public administration and defence equal to those in Mississippi ($42,000), America’s poorest state. spending—and the gap between America and Germany in gdp per hour worked drops from $11 to just $4. Yet a lot is hidden by these figures. To understand why, consid er how they are calculated. Spending is deflated by some measure Much of the remaining gap is accounted for by “housing servic of price, to allow accurate comparisons between countries of the es”, a category of consumption similarly bedevilled by conceptual amount of goods and services purchased. For manufactured goods difficulties. International comparisons are done on the basis of this is a straightforward calculation: the amount Americans spend the rental cost per square metre. That flatters sparsely populated on dryers, divided by an index of their cost, will give a pretty accu America and its sprawling cities, where rents are generally cheap rate figure for total consumption. er. While nearly everyone would rather have a bigger house, pref erences for suburban over urban living are hardly universal. For services, it is harder to work out a reasonable deflator. And that matters because it is here, rather than household appliances, Top dollar where Europe and America differ most. Combined spending on There are diminishing returns to America’s spending on health health care, housing and finance accounts for about half the dif care. But treating all of it as an additional cost would be a mistake. ference in consumption between America and the biggest Euro Cancer survival rates are higher in America than Europe. Health pean economies. In 2019 Americans consumed $12,000worth of care spending can be considered a luxury good that a richer coun try may choose to spend more on (Germany, Norway and Switzer land spend the most in Europe). Meanwhile, as American defence hawks like to point out, Europe’s low military spending is possible only thanks to America’s largesse and the security it provides. America has other genuine advantages. The combination of higher productivity and the fact that workers spend more time at work allows Americans to enjoy greater quantities of consumer electronics, cars, furniture and clothes. The only categories in which Germans and the French consistently consume more are education, spending abroad, and food and drink, suggesting there is something to stereotypes of Europe’s cosmopolitan café culture and America’s infatuation with consumer goods. Still, while arguments can be made for Europe, there is no way of slicing the data, despite your columnist’s best efforts, to make the continent’s biggest economies richer than America. Even in the areas where Europe does consume more than America, the oldworld economies are not ahead by much. Maybe the true les son of the comparison is that neither side ought to be satisfied: Europeans should be unhappy with their lower incomes; Ameri cans really should be getting a lot more from their riches. n 012
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Science & technology The Economist August 13th 2022 69 The 24th International AIDS Conference ing, and created the productive hybrid that these meetings have now become. Protest and survive The aids establishment, activists and MONTREAL scientists alike, love a slogan. One of the first, “3 by 5”, captured the aspiration, pro Despite setbacks, hiv can be beaten. But doing so will take patience and money mulgated by the World Health Organisa tion (who) in 2003, to put 3m people on It is a tribute to human ingenuity and de vid19 has changed immediate medical pri art by 2005. This was followed in 2014 by termination that aids no longer makes orities in many countries, to the detriment the unaids target of 909090: the inten headlines. That is because hiv, the virus of hiv control. But if blip turns to slide, tion that, by 2020, 90% of those living with which causes it, is on the run. According to things could go wrong quite fast in some hiv would know their status, that 90% of the latest update by unaids, the un pro places, particularly in Africa. that 90% would be taking advantage of gramme that keeps tabs on such matters, treatment, and that 90% of those thus on deaths from aidsrelated illnesses have Balanced against that, though, the sci treatment would have the virus sup been falling since 2004 and new infections entific news about aids is positive. New pressed within their bodies. since 1996. Indeed, the fact that the num treatments—and particularly new preven ber of people living with the virus (current tions—are being developed and deployed, u=u ly about 38m) continues to rise is actually and an unexpected sideeffect of covid has The slogan du jour, though, is “u=u”, good news. It means they are being kept been a novel approach to vaccination that dreamed up by the Prevention Access Cam alive by antiretroviral drug therapy (art), seems wellsuited to tackling hiv as well. paign, a group of activists. This is not a rather than dropping out of the statistics mathematical identity. The two us stand by dying. But hiv still kills in numbers that To discuss these matters, exchange in for different things: “undetectable” and would never be off the front pages if a war, telligence and make battle plans, a crowd “untransmittable”, respectively. But it is rather than a virus, were the cause. So far, it of researchers, clinicians, activists and pa this equation, above all, which makes at has ended the lives of some 40m people, tients recently gathered under the auspic tempts to stop hiv spreading realistic—for with 650,000 of those deaths having hap es of the International aids Society (ias). the idea it encapsulates is that someone for pened in 2021. This latest meeting, the 24th, was held in whom art has suppressed viral load to the Montreal—a venue legendary in the field of point that it is undetectable cannot then There is, moreover, a feeling of ner aids. This was the place where, in 1989, ac pass the virus on. vousness among doctors and activists tivists and patients gatecrashed what had, alike. Funding directed at the problem in until then, been a purely scientific gather This may not sound surprising, but it poor and middleincome countries has was, until quite recently, hotly contested. shrunk since 2018. And the yearonyear → Also in this section Only with publication in the 2010s of well fall in new infections in 2021 was the controlled studies which proved the point smallest since 2016. This may be a blip. Co 71 Forming continents has u=u, known more formally as “treat ment as prevention”, been universally ac knowledged. The point, though, is obvi ous. Find, identify and treat every case of 012
70 Science & technology The Economist August 13th 2022 hiv infection on the planet and that would Slip-sliding away? 1 once every two months. be the end of the pandemic. The latest un The third prep offering, recommended aspiration, announced in 2021, is not quite Resources for HIV by funding source that ambitious. It is to achieve 959595 Low- and middle-income countries, $bn, 2019 prices in 2021 by the who, is also longlasting. It is (and a whole lot of other targets, many of the dapivirine vaginal ring (dvr), a flexible them social, rather than strictly medical) Domestic* US† Global Fund Other device made of silicone impregnated with by 2025. That, though, is ambition enough. 30 a powerful antiviral agent. This needs re placement but once a month. Unlike Tru As Paul DeLay, who helped make the rel 202 target 25 vada and Descovy, and cabotegravir, all of evant calculations, explained, modelling which have drug companies behind them shows that reaching those various targets 20 (Gilead Sciences for the first two and ViiV will be needed to achieve the wider un goal Healthcare for the third), the dvr is the of ending aids as “a publichealth threat” 15 product of a charity, the International Part by 2030. The un defines this as a reduction nership for Microbicides, founded in 2002 in new incidences of, and mortality from, 10 by Zeda Rosenberg and still run by her. hiv by 90%, compared with 2010. More specifically, the idea is to drive countries 5 art, too, now offers an alternative to below an incidencetoprevalence ratio daily pillpopping. Cabenuva, a combina (ipr) of 0.03. The ipr is defined as the 2010 12 14 0 tion of cabotegravir and a second drug, ril number of new infections occurring per 16 18 20 21 pivirine, was approved by the fda for use year, divided by the number of people liv Source: UNAIDS as a monthly injection in January 2021, and ing with hiv in a given population. If this *Public and private †Bilateral in some circumstances that approved in value is below 0.03, the epidemic will start terval has been raised to two months. contracting of its own accord. At the mo than others. ment, according to unaids, of 117 countries This was highlighted in the unaids re And then there is that idea borrowed with a published estimate, 31 have an ipr from the response to covid: deploying below that value. port (see chart 2). Even in subSaharan Af mrna vaccines against hiv. rica, the part of the world where hiv is None of this comes cheap, though. It is most widespread, about half of new cases The search for an hiv vaccine goes back the additional targets beyond 959595, in are in recognised risk groups (sex workers almost as far as the identification of the vi cluding such things as moregranular data and their clients, gay and bisexual men, rus itself. The result has been diddly squat. collection and more effort to reach particu transgender women, injecting drug users, An important reason is that, unlike viruses larly vulnerable populations, rather than a and the partners of all of these groups). In that have been successfully vaccinated simple desire for extra “business as usual” the rest of the world that figure is 94%. against in the past, hiv plays catand money, that has so massively put up the mouse with the body’s immune response, amount of cash unaids reckons will be The most at risk as each tries to outevolve the other. Mim needed in three years’ time (see chart 1). A consequence of this is that those most at icking this process with a vaccine is diffi risk often know who they are and so will cult. But mrna offers a way to do so. At the moment, there is some way to go come forward for prep—or, if they do not, to reach even the headline goal of 959595. can be sought out and offered it. And since Molecules of mrna carry the plans of According to a unaids update the numbers some of those most at risk are also in a po proteins, or fragments thereof. In the case last year were 858892. But even if the sition to infect many others, breaking the of those used in an aids vaccine, these are deadline slips, as it did for both 3 by 5 and chain of transmission here is a winning bits of the viral envelope. These plans are 909090, provided the political will to get strategy. then read by body cells and turned into en there is maintained and the money contin velope fragments which go on to stimulate ues to flow there is no obvious reason why Moreover, as technologies tend to, prep an immune response. Crucially, mrna is this goal should not eventually be met. is getting better. Besides Truvada and its easily tweaked to generate novel versions generic equivalents, and a closely related of these envelope fragments. That, re Moreover, other pharmaceutical tools product called Descovy, two other ap searchers hope, will allow a series of vacci than art are now available to assist. The proaches are now available. nations to mimic the process of coevolu most promising is preexposure prophy tion and thus coax the immune system to laxis (prep), which involves giving drugs Remembering to take a pill every day is wards producing the desideratum of an that ward off infection to those who feel a nuisance, so there is considerable inter hiv vaccine: socalled neutralising anti they may need them. prep is an idea that est in an injectable form of prep called cab bodies which disable the virus. has long been discussed, and the best es otegravir. This approach, approved by tablished version, a daily oral preparation America’s Food and Drug Administration There are, then, plenty of tools both called Truvada, has been available for a de (fda) in December 2021, requires a jab only around already and in the pipeline. But cade. But in the past two years prescrip they need to be deployed correctly. Here, Dr tions for Truvada and its generic equiva Those in peril 2 Fauci had some troubling news. These lents have taken off, with 1m new recipi were data on art compliance, and they ents in 2020 and 800,000 in 2021, accord New HIV infections, 2021, % of total showed that in America people adhere ing to unaids. properly to their regimes only about 40% 100 Transgender women of the time, suboptimally about 20% and Admittedly, as Anthony Fauci, Presi People who inject drugs poorly about 40%. That emphasises that dent Joe Biden’s chief medical adviser and Other however good a drug is, it is no good if peo a doyen of the field of aids, pointed out in 80 ple don’t take it or take it badly. People, as his pep talk to the meeting, those figures well as immune systems, often need to be are still far short of the tens of millions of 60 Men who have sex coaxed into doing the right thing. people who could benefit. But even tens of with other men millions might seem small beer compared As barriers to compliance, or seeking with the world’s population. For the truth 40 treatment in the first place, Dr Fauci men is that aids is not an equalopportunity Sex workers tioned things ranging from simple forget killer. Some people are at vastly greater risk fulness, via housing and food insecurity, to 20 Clients of sex workers stigma (always a problem with hiv, given and sex partners of prejudiced social attitudes towards the 0 groups above* Sub-Saharan Rest of Africa world Source: UNAIDS *Includes partners of incarcerated people 012
The Economist August 13th 2022 Science & technology 71 ways it is spread), misuse of alcohol and il Forming continents finger at plumes of hot matter rising from legal recreational drugs, and even “pill fa the Earth’s mantle to the surface, much like tigue”. On top of these, in countries less fa Impact creator bubbles in a lava lamp. Then, if sufficiently voured than America, one might add poor hot, their underside would melt to produce education—particularly, in many places, Earth may have been shaped by forces buoyant granite, leading to the first conti of girls—criminalisation of (as opposed to from outer space nental plateaus. prejudiced attitudes towards) homosexual behaviour, criminalisation of sex work, The earth is a poor archivist. The rigid The new study offers evidence that sits and poor medical infrastructure. tectonic plates of its outer layers are uncomfortably with this theory. Dr John continuously in motion, sliding over one son and his colleagues looked at the Pilbara Such things are, indeed, among the another to swallow almost all records of craton, an approximately 3.5bnyearold costraising nonmedical targets of the the past, melting them into the mantle and slab of northwestern Australia, roughly un’s 2025 goals. But many of them will re then casting them anew. This makes it dif the size of Germany, which represents one quire either political action that is unlikely ficult to reconstruct the 4.5bnyearold of the few remaining scraps of the early soon, or behavioural changes in people be planet’s formative years. Earth’s continental crust. yond those infected or in imminent risk of infection. That is a tall order and, it might A particular problem is the crucial bio The team traversed the craton to collect be argued, one which risks detracting from graphical detail of how the first continents zircon crystals, a mineral with two proper focused and measurable targets for pill came to be. Studies of ancient rocks sug ties ideally suited to the task. First, their popping. In the end, though, closing the gest that fragments of solid crust existed as content of radioactive uranium decays to gap between those on treatment (some far back as 4bn years ago, when the Earth lead at a rate that can be used to calculate 29m) and those who would benefit from was mostly covered in water, but their gen their age. And second, the isotopes of oxy being so (a further 10m) depends on it. esis remains disputed. While plate tecton gen found within their structure are repre ics are the dominant mechanism for gen sentative of the environment in which A game of hide and seek erating new continental crust today, in the they grew. Zircons whose ratio of oxy All of the art in the world is not, however, distant past Earth’s subsurface tempera gen18 to oxygen16 is 0.5% higher than the same as a cure—even though a compli tures are widely thought to have been too found in seawater, for example, would ant user of art has almost the same life ex hot to allow plates to form. have originated far below Earth’s surface. pectancy as an uninfected individual. Those with values closer to those found in Others are working on trying to cure those A paper published this week in Nature seawater formed much nearer the crust. already infected. There is no lack of ideas, attempts to resolve this conundrum. Tim but the problem is that hiv’s life cycle, a Johnson of Curtin University, Australia, Analysis led the researchers to con part of which involves copying its genes and his colleagues argue that the planet’s clude that the oldest crystals on the Pilba into the nuclear dna of cells it infects, transformation was not triggered by forces ra—those formed around 3.5bn years ago— means it can lie dormant in those cells in from within, but from outer space—in the must have originated close to the surface. definitely. Antiretroviral drugs can deal form of collisions from meteorites that This favours impact formation, as zircons with it when such a cell awakens. But they disrupted the surface, causing fragments transported by mantle plumes would have can neither cleanse dna so hijacked nor re of the crust to melt in the presence of wa more profound origins. “Giant impacts cognise and kill cells so afflicted. ter, cool and resolve themselves into buoy plus water is a really good way of making a ant patches of land that would later act as continent,” says Dr Johnson. In a session held before the main meet nuclei for new continents. ing began, Sharon Lewin of the University The textbooks will not be rewritten of Melbourne, who is the incoming presi Dr Johnson’s thesis is not new, but the overnight. Marion Garçon, a geologist at dent of the ias, outlined the options. These lack of direct evidence means it has never ClermontAuvergne University in France, include “shock and kill”, which would acti taken root. The more popular explanation finds the evidence of impact formation vate dormant carrier cells, exposing them for the first continent formation points the plausible on a local scale, but says more ev to attack by drugs; recruiting the immune idence will be needed to extrapolate it system in novel ways to attack dormant Here lies history planetwide. Fortunately, this can be done. cells as they wake up; gene therapy that Ancient continental fragments exist in modifies immunesystem cells collected other parts of Australia as well as Canada from a patient to introduce a genetic and South Africa. Analyses of their constit change that protects them from hiv infec uent zircons could well provide valuable tion and then retransfuses them back supporting evidence that Earth’s conti again; and similar therapy that works di nents owe their existence to bodies from rectly on cells in the body to excise hiv outer space. But the authors will also need dna from their chromosomes. to explain why zircons previously found at other, even older, sites do not display the All of these approaches have their draw same telltale signature of impact. backs. Progress is slow. Unlike antiretrovi rals, which are small, easily synthesised This work could be significant in other molecules that can be stored without diffi ways. While the rate of asteroid collisions culty, any practical therapy that might re experienced by early Earth generally de sult from them is likely to be fiddlesome clined over time, it may have spiked some and expensive, at least to start with. But 3.9bn years ago during a postulated event maybe not for ever. art itself started life as known as the Late Heavy Bombardment regimens which required multiple doses a (lhb). What are taken by some as signs of day and cost thousands of dollars a year. the lhb pockmark the static surfaces of Now, a single, daily pill costing 25 cents Mars and the Moon. Earth’s constant ruc will do the job. Technology, once invented, tions, however, will have destroyed any always gets better. You just have to come signs of it. If Dr Johnson is right, then the up with it in the first place. n formation of the continents could be the first earthly evidence of one of the solar system’s most dramatic moments. n 012
72 Culture The Economist August 13th 2022 → Also in this section 73 Jazz and the criminal underworld 74 Home Entertainment: “Bambi” 74 Taymour Soomro’s debut novel 75 Johnson: The data is in Interest rates global balance between savings and invest ment which, over time, exerts a magnetic Bernanke v Chancellor pull on central bankers trying to hit infla tion targets. Rates have been low in part Duelling books reveal the clashes between central bankers and their critics because desired savings have risen as soci eties have aged. It was Mr Bernanke who, in There is a particular kind of critic of The Price of Time. By Edward Chancellor. 2005, suggested that a “global saving glut” central banks who says that setting in Atlantic Monthly Press; 416 pages; $28. might have been weighing on global rates. terest rates—and especially setting them Allen Lane; £25 low—is an unwarranted interference with 21st Century Monetary Policy. By Ben Mr Bernanke’s framework is more com the free market. In a system of paper (and Bernanke. W.W. Norton; 512 pages; $35 pelling than Mr Chancellor’s, as low or electronic) currency, however, policymak and £24.99 even negative interest rates can coexist ers have no choice but to set what econo with humanity’s natural shorttermism. mists call a “nominal anchor”, a peg that financial instability, higher inequality and Suppose someone has a wage income of determines the value of money. Decades of pain for savers. As he makes his case, Mr 100 in their working life and zero in retire theory and evidence lie behind the modern Chancellor’s panoptic survey of the history ment. Though they may not target a 50/50 approach of pegging interest rates with the of interest, and what classical economists split, they will save to avoid penury. Lots of ultimate goal of controlling inflation. Yet said about it, will not fail to dazzle. The ar people building up a nestegg—even one nominal anchors are inevitably somewhat gument, however, is seriously flawed. that is small relative to their working in arbitrary because paper money has no in comes—creates an imbalance that can, as a herent value. The critics who label as artifi To see why, look to “21st Century Mone result of market forces, push rates lower cial the low interest rates that have pre tary Policy” by Ben Bernanke, who led than their discount rates. “Justice is violat vailed in the world economy in recent de America’s Federal Reserve through the glo ed when lenders receive little or nothing,” cades must therefore answer the question: bal financial crisis from 200614 (and a fool Mr Chancellor writes. He might as well low relative to what? in Mr Chancellor’s narrative). His book is rage against a population pyramid. partly a historical account of the past half “The Price of Time” is the answer of Ed century or so of policymaking at the Fed Mr Bernanke dispenses with many of ward Chancellor, a historian and financier and partly a study of the effectiveness and the criticisms of low rates with which Mr who has written a book by that name. Hu desirability of unconventional monetary Chancellor is taken; what his account lacks mans prefer jam today to jam tomorrow. tools, such as quantitative easing, that in vivacity it makes up for with analytical Interest rates are the reward for deferring have grown in importance after the crisis. clarity. For example, he gives short shrift to gratification, for renting out money that the idea that loose monetary policy pro could have been spent today. When rates For the likes of Mr Bernanke, the ulti longs the lives of “zombie companies” fall too low, grave consequences follow: mate determinant of interest rates is the whose capital would otherwise be reallo cated to more productive endeavours. If in terest rates are low because desired saving exceeds available lucrative investment op portunities, then of course capital will flow to less profitable ventures instead. 012
The Economist August 13th 2022 Culture 73 Low rates do not tie up capital, but make now recognise the importance of inflation lynching in America.” things easier for entrepreneurs who wish targets. Mr Chancellor would overturn Mr English makes the persuasive argu to borrow. Such an argument might not their primacy in pursuit of amorphous have the lustre of references to intellectu goals. His worldview has much in common ment that the birth of jazz, rooted in the Af als such as David Hume or Frédéric Bastiat, with the liquidationists of the 1930s who ricanAmerican experience, was “nothing but it is coherent. thought the Depression, in which Ameri less than an attempt to achieve salvation ca’s unemployment rate reached nearly through the tonal reordering of time and By contrast, “The Price of Time” reads 25%, was a necessary purging of the econ space.” But jazz could not scrub off the like a jumbled collection of every criticism omy. (At one point he argues the 1930s stain of violence. “Dangerous Rhythms” is to have been levied at low interest rates. Mr weren’t so bad after all because productiv not a book about music as an art form; it is Chancellor argues that low rates benefit ity growth was high.) By all means enjoy instead a nuanced account of how, in the financial interests, then laments that they his colourful challenge to conventional 60 or so years between the introduction of damage bank profits. He says low rates wisdom. But when the time comes to ap Prohibition and the enforcement of the hurt retirees by making annuities unaf point a central banker, choose someone rico Act—which brought the mafia to its fordable, but also that they benefit the el like Mr Bernanke. n knees in the 1980s—the development of derly at the expense of the young by push jazz was facilitated by some of the most no ing up property prices. It is not always clear Jazz and the criminal underworld torious criminals of the 20th century. whether he thinks low rates lead to too lit tle investment, too much investment or in Fast and loose Music brought business to the mob vestment in the wrong sorts of things. sters’ speakeasies. The most renowned Dangerous Rhythms. By T.J. English. names in jazz history, including Count Ba Messrs Chancellor and Bernanke do William Morrow, 448 pages; $29.99 and £25 sie and Duke Ellington, are linked with the agree that low rates increase financial risk names of the gangsters who fostered their taking, for reasons that economists do not “Strange fruit,” writes T.J. English, is careers. Louis Armstrong got his start in fully understand. In theory, low rates “the seminal jazz song.” This haunt the seedy clubs of Louisiana: “One thing I should make credit cheaper uniformly; in ing ballad, written by a Jewish high school always admired about those bad men when reality, the riskiest borrowers benefit the teacher, Abel Meeropol, in 1937 and burned I was a youngster in New Orleans is that most. But whereas Mr Chancellor sees this into the collective cultural memory by Bil they all liked good music,” he said. as sufficient reason to raise interest rates lie Holiday (pictured) two years later, por even when the economy is weak, Mr Ber trays the crime of lynching as central to the The criminal underworld was a male nanke sees it as an issue that is too little brutal history of the United States. “It is dominated place, yet some female per understood to form the basis of a monetary generally agreed that jazz as a new musical formers learned to navigate it. Mary Lou policy. Should the Fed ever raise rates to try art form began to take shape in the early Williams, a pianist and composer, was to contain financial excesses? “In princi years of the 20th century. It is not generally managed by Joe Glaser (who also repre ple, yes,” says Mr Bernanke. “But in prac commented upon that jazz, in its origins, sented Holiday and Armstrong); Glaser had tice, very cautiously and not very often.” was a response to the horror and reality of helped run Al Capone’s prostitution scheme in Chicago. Williams was under no Hence there is an amusing contrast be Lady sings the blues illusions when it came to the jazz scene in tween the books’ assessments of loose the 1930s: “Everyone was like a hoodlum.” monetary policy after the global financial crisis. Mr Chancellor blames it for almost Mr English—a journalist and author any ill he can identify in the American and who has written several books on gangs in world economies. Mr Bernanke regrets not America and Cuba—chronicles the privi having stimulated more, given how much leges of white supremacy. Black artists the economy subsequently undershot the found protection where they could in a Fed’s employment and inflation targets. society built on injustice. The second half Again, it is Mr Bernanke’s account that is of the book turns to the career of Frank Si more convincing—for the simple reason natra. His ties with organised crime are that critics of loose money in the 2010s re hardly a secret, but Mr English lays out peatedly predicted severe instability that those brazen connections with clarity. never came. It took the pandemic to cause markets to crash in the spring of 2020. Sinatra became a padrone of the music business, a singular achievement among Central banks’ recent blunder has not his peers. Mr English notes that Ol’ Blue been allowing excessive financial vulnera Eyes’ fame far eclipsed that of the black bilities to build. Their misstep has been a musicians who had been pathfinders for failure to control inflation. On this point, his art; Sinatra’s ambition—and his white readers are likely to find Mr Bernanke’s ness—set him apart. Though the singer book unsatisfactory, probably because it was on “the right side of the civilrights was written before the extent of the pro movement, both in words and deed”, was blem became clear. Readers may scoff his great financial success “fair market when he describes a “burst” of inflation compensation” for his talent? If financial troubling the economy, or labels Jerome reward were based solely on ability, Mr Powell, today’s Fed chair who has looked English says, “Billie Holiday would have hapless as inflation has risen, a “consum lived atop a mountain comprised of dia mate 21stcentury central banker”. Though monds and rubies.” the lengthy discussion of alternative forms of stimulus may prove relevant again later The author writes that “the dirty little in the decade, it will seem academic while secret of the American dream was that vio central banks are desperately raising inter lence was an integral part of social ad est rates to get price growth under control. vancement.” His book suggests that was true, but it also reveals the way in which Still, at least today’s central bankers violence helped to nurture one of the greatest of all art forms, too. n 012
74 Culture The Economist August 13th 2022 home death is just an everyday part of growing New fiction entertainment up. The film’s viewers may be perturbed by this attitude, but the animals aren’t. Our last summer “Bambi” This brisk lack of sentiment is typical Other Names for Love. By Taymour Burning up of a film which is far bolder than its fluffy Soomro. Farrar, Straus and Giroux; 256 reputation might suggest. Adapted from a pages; $26. Harvill Secker; £14.99 The animated film’s depiction of a novel by Felix Salten, an AustroHungar forest fire is grimly relevant ian author, Disney’s fifth featurelength “The father, the son. This is the ques cartoon is a gorgeous tapestry of different tion, isn’t it?” So says Rafik to his What is the most famous scene in animation techniques. There is no child, Fahad, at the outset of Taymour “Bambi”? Eighty years on from the adventure plot or triumphoveradversity Soomro’s debut novel. The relationship be film’s premiere in August 1942, there is theme imposed on the art: David Hand, tween father and son is one of the domi only one answer: it is the scene in which the supervising director, simply made a nant themes of “Other Names for Love”. Bambi’s mother dies. The Walt Disney 70minute chronicle of a wobbly legged The fraught dynamic between Rafik and cartoon—ostensibly about a deer gambol deer’s learning about life and death. Fahad is also one of the key sources of ten ling around an idyllic forest—has trauma sion in the book—an accomplished work tised generations of youngsters. What is Watching it now, in the middle of a which spans years and explores desire, in even more impressive is that the scene dangerously hot summer, the most horri heritance and the power of memory. doesn’t actually exist. Whatever memory fying sequence is the one in which a wild viewers might have, the film doesn’t ex fire consumes the forest. In later Disney Sixteenyearold Fahad expected to fly plicitly show the death of Bambi’s mother. cartoons, this sort of ecocatastrophe to London with his mother for the sum would be caused by lightning (as in “The mer. Instead, his father, a wealthy land About 40 minutes in (no, it’s not in the Jungle Book”) or by greedy hyenas (“The owner, has taken him from their family first ten minutes, although many share Lion King”). In “Bambi”, however, humans home in Karachi to their feudal estate, that false memory, too), doe and fawn are are squarely to blame. Not that any people Abad. There, Rafik plans to “grow him up” running from unseen hunters through a are depicted: Bambi is warned of a species and teach him “how a man should be”. He snowy meadow. A gunshot is heard. Bambi called “Man”, but, just as Hand omitted the starts by showing Fahad the lie of his many races back to his shelter in “the thicket”, killing of the fawn’s mother, he chose not lands, taking him through fields and vil only to realise, after a second of elated to show any humans on screen. lages. Rafik receives a hero’s welcome from relief, that he is alone. His majestic father everyone he encounters. then looms over him in silhouette and Instead, the flames from an unattend murmurs: “Your mother can’t be with you ed campfire are blown into a tree, and then Aware that his son could benefit from any more.” And that’s that. There are no an unstoppable blaze turns a green para the guidance of someone his own age, Ra poignant last words, no mourning period dise into an inferno. No one in particular fik introduces Fahad to Ali, “a tough, local or slow recovery. The film immediately is responsible. There is no snarling Cap sort”. Despite their differences, a friend cuts to a tralalaing song about falling in tain Hook, Maleficent or Cruella de Vil to ship forms and each comes to help the love in the springtime, and Bambi’s mum reassure viewers that only evildoers other: Fahad teaches Ali how to use a knife is never mentioned again. For Bambi, destroy the environment. Man in general, Thumper and their woodland friends, it seems, is so careless that he would rather lay waste to nature than go to the effort of putting out a campfire. Again, the film doesn’t have any wail ing or gnashing of teeth. No one delivers any speeches about the injustice of it all, and no one expresses the hope that it might not happen again. Wildfires are just one more thing that the animals have got used to. And now humans must get used to them as well: a thought as harrowing as the demise of Bambi’s mother. n Correction: In the summer double issue of July 30th we incorrectly attributed the photographs in “Hocus focus”, the article about magicians and social media. The photographer was in fact John Stanmeyer. Our apologies. 012
The Economist August 13th 2022 Culture 75 Johnson The data is in Whether “data” is singular or plural is a divisive question in English grammar For more than a millennium after the manage billions of bytes. Data points to lentils (a plural), and wheat (singular) fall of Rome, educated Europeans begin to seem like the water molecules in next to oats (plural). Head to the pasta were distinguished by their knowledge the ocean and so, in such contexts, to be section and see what happens to other of Latin. One of the three subjects of the perceived as a mass. Singular data is now languages’ words in English: spaghetti trivium—the basic tier of a classical more common than the plural in books, and lasagne, both Italian plurals, are education, itself based on a Roman mod and far more prevalent on the web. singular when served up in English. el—was Latin grammar. Europeans have long since stopped writing primarily in Data is hardly the first foreign word to Will readers be confused if they see Latin, but learned people are still expect undergo grammatical change in English. both singular and plural data? Probably ed to be able to deduce that to “decimate” The nearest equivalent is agenda, an old not. Plural data in the sense of “data means to destroy a tenth of something (a plural of agendum, “something to be acted points” will probably appear in one kind mutinous legion was punished in this on”. Once those collected agenda started of story exclusively (ie, those reporting way), or sprinkle annus mirabilis and being thought of as a list, the English on a study based on a number of observa mutatis mutandis into their speech. singular was born. (Candelabra, stamina tions), and massstyle singular data in and insignia were all Latin plurals, too.) others (especially those to do with com It is not for lack of knowledge of, or The Economist’s style guide prescribes a list puting). In any case, our style guide affection for, Latin that The Economist of Latin um words in English that plural already allows some collective nouns, marks a change this week. The reform ise with a (memoranda, strata), but many like council or staff, to be singular or involves one of the most curiously polar more that violate Latin grammar and take plural depending on whether it is the ising issues an ending on a foreign word ums (forums, stadiums, ultimatums). It entity or its constituents under dis has ever generated in English. We will demonstrates that those words are now cussion, with no resulting chaos. now allow singular use of data alongside English; Latin rules need not apply. the plural. Specifically, when considered You will not find a singular kudo in as a concept—as in data is the new oil— Those who oppose singular data argue our pages (a backformation of the Greek the singular will be acceptable, as well as that the word refers to a set of numbers. kudos, which is singular however much it when the data in question is considered Yet the properties of the thing itself are may look like an English plural). Nor as a mass (the data on this mobilephone not a reliable guide to a term’s grammar. should you see a criteria or a phenomena. plan is insufficient). However, when data Go to a shop where dried goods are sold Media will remain plural though, as with points are considered as a group of piec from barrels and note rice (a singular) next data, usage in the wider world varies es of information, the plural should still between singular and plural. be used: data from the National Oceanic and Atmospheric Administration indicate And if you need a piece of trivia for the hottest summer of all time. your next cocktail party: that trivium mentioned in the first paragraph was, Data, as every child at a grammar indeed, the source of trivia. Exactly as school once knew, is the plural of Latin’s with data, it was a Latin plural—now, for datum, “something given”. Originally most speakers, it is an English singular. that plural sense was carried over into (Trivia is is four times as common as English. But already in 1702, the Oxford trivia are in books, and the phrase a piece English Dictionary records, came the of can only go with singular nouns.) It is first appearance of singular data, in an poignant that a word that once meant a astronomy textbook. This was almost 60 knowledge of Latin now means a knowl years after plural data was first recorded. edge of impractical random facts. The rise of computing has changed Johnson does not consider grammar the balance. While an 18thcentury schol trivial. Precisely for that reason it is time ar’s data might be a single column of to recognise the facts of English gram numbers, today’s computers quickly mar: usage of data has changed, and The Economist will change with it. and fork; Ali gives Fahad lessons in how to book about him. But journeying back to author’s portrayal of Rafik and his strained shoot and how to speak Sindhi. The pair Abad causes Fahad to ruminate on his own connection with his son (Fahad regards his become more intimate, eventually making story, in particular the lifechanging chap father as “a cannonball, an avalanche, their true feelings clear during a passion ter with Ali all those years ago. something giant crashing through the jun ate encounter in a forest. gle”). The power play between Rafik and “Other Names for Love” revolves Mousey, a relative, is convincing, too. Mr Decades later, Fahad is a published around Fahad’s pivotal relationships with Soomro fleshes out Rafik by highlighting a writer living in London with his partner, strikingly different men. Ali—initially de ruthless streak which enables him to get Alex. One day he receives a call from his scribed by sensitive, bookish Fahad as a his own way, raise his profile and crush op mother informing him that his father is “savage”—is a welldrawn creation. How position. He leaves his mark on this ele facing financial ruin. Along with his house ever, Mr Soomro’s depiction of opposites gant and entrancing novel, a book which and his good name, he is losing his mind, attracting would have had more emotional demonstrates that family ties are not al and so Fahad returns to his homeland to impact had he allowed his characters’ ro ways tight bonds and that “one moment in offer his services. Rafik tasks him with mance to develop further. your life can cast such a long shadow.” n trawling through his files and writing a More successful is the BritishPakistani 012
76 Economic & financial indicators The Economist August 13th 2022 Economic data Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units balance balance % change on year ago % change on year ago rate 10-yr gov't bonds change on per $ % change % of GDP, 2022† % of GDP, 2022† latest quarter* 2022† latest 2022† % latest,% year ago, bp Aug 10th on year ago United States 1.6 Q2 -0.9 2.3 8.5 Jul 8.3 3.5 Jul -4.1 -6.0 2.8 142 - China 0.4 Q2 -10.0 4.0 2.7 Jul 2.4 5.5 Jun‡§ 2.8 Japan 0.4 Q1 -0.5 2.0 2.3 Jun 2.2 2.6 Jun 1.5 -6.2 2.5 §§ -22.0 6.76 -4.1 Britain 8.7 Q1 3.1 3.6 9.4 Jun 8.7 3.8 Apr†† -3.1 Canada 2.9 Q1 3.1 3.6 8.1 Jun 6.7 4.9 Jul 1.2 -6.1 nil -8.0 132 -16.3 Euro area 4.0 Q2 2.8 2.7 8.9 Jul 7.6 6.6 Jun 2.1 Austria 9.5 Q1 10.0 3.9 9.2 Jul 8.0 4.3 Jun -1.0 -5.0 2.0 133 0.82 -12.2 Belgium 3.3 Q2 0.8 2.2 9.6 Jul 9.3 5.5 Jun -1.0 France 4.2 Q2 2.1 2.2 6.1 Jul 5.5 7.2 Jun -1.4 -3.5 2.7 141 1.28 -2.3 Germany 1.5 Q2 -0.1 1.0 7.5 Jul 8.3 2.8 Jun 3.5 Greece 7.9 Q1 9.7 4.0 11.6 Jul 8.2 12.3 Jun -5.9 -4.3 0.9 136 0.97 -12.4 Italy 4.6 Q2 4.2 2.7 7.9 Jul 6.8 8.1 Jun 0.7 Netherlands 6.7 Q1 1.7 2.6 10.3 Jul 10.8 3.4 Jun 7.4 -4.6 1.4 166 0.97 -12.4 Spain 6.3 Q2 4.6 4.7 10.8 Jul 9.2 12.6 Jun 0.5 Czech Republic 5.1 Q1 0.8 1.4 17.5 Jul 15.2 2.5 Jun‡ -1.2 -4.8 1.5 170 0.97 -12.4 Denmark 6.3 Q1 -1.9 2.1 8.7 Jul 8.2 2.5 Jun 8.3 Norway 4.8 Q1 -3.8 3.2 6.8 Jul 4.8 3.2 May‡‡ 16.4 -5.7 1.4 156 0.97 -12.4 Poland 9.4 Q1 10.4 4.5 15.5 Jul 13.5 4.9 Jul§ -2.5 Russia 3.5 Q1 na -10.0 15.1 Jul 21.2 3.9 Jun§ 10.1 -3.2 0.9 136 0.97 -12.4 Sweden 3.8 Q2 5.7 1.8 8.7 Jun 6.9 8.6 Jun§ 3.0 Switzerland 4.4 Q1 1.9 2.6 3.4 Jul 2.9 2.2 Jul 6.4 -5.0 3.2 267 0.97 -12.4 Turkey 7.3 Q1 4.9 3.2 79.6 Jul 69.7 9.7 Jun§ -3.7 Australia 3.3 Q1 3.1 3.2 6.1 Q2 6.1 3.5 Jun 2.0 -6.1 3.0 245 0.97 -12.4 Hong Kong -4.0 Q1 3.6 0.7 1.9 Jun 2.9 4.7 Jun‡‡ 1.4 India 4.1 Q1 1.9 6.9 7.0 Jun 7.3 6.8 Jul -1.5 -3.2 1.2 155 0.97 -12.4 Indonesia 5.4 Q2 na 5.0 4.9 Jul 5.3 5.8 Q1§ 1.0 Malaysia 5.0 Q1 na 5.0 3.4 Jun 3.1 3.8 Jun§ 2.5 -5.2 2.0 175 0.97 -12.4 Pakistan 6.2 2022** na 6.2 24.9 Jul 18.5 6.3 2021 -5.3 Philippines 7.4 Q2 -0.4 7.1 6.4 Jul 4.8 5.7 Q2§ -3.6 -5.7 4.0 226 23.5 -7.8 Singapore 4.4 Q2 -1.0 3.6 6.7 Jun 5.6 2.1 Q2 18.1 South Korea 2.9 Q2 2.9 2.7 6.3 Jul 5.5 2.9 Jul§ 3.1 0.8 1.2 134 7.18 -11.6 Taiwan 3.1 Q2 -2.9 4.0 3.4 Jul 3.4 3.7 Jun 14.2 Thailand 2.2 Q1 4.7 2.9 7.6 Jul 5.7 1.5 Dec§ -0.3 8.7 1.4 76.0 9.51 -6.1 Argentina 6.0 Q1 3.5 4.3 64.0 Jun 70.2 7.0 Q1§ nil Brazil 1.7 Q1 4.0 2.0 10.1 Jul 10.2 9.3 Jun§‡‡ -0.4 -3.7 5.5 362 4.51 -13.3 Chile 7.2 Q1 -3.0 1.5 13.1 Jul 11.1 7.8 Jun§‡‡ -7.1 Colombia 8.2 Q1 4.0 6.3 10.2 Jul 10.2 11.3 Jun§ -5.2 -3.8 8.9 183 61.2 20.8 Mexico 2.1 Q2 4.1 2.4 8.2 Jul 7.6 3.3 Jun -0.8 Peru 3.8 Q1 8.1 2.5 8.7 Jul 7.6 6.7 Jun§ -3.6 -0.3 1.5 138 10.0 -13.1 Egypt 5.4 Q1 na 5.9 13.6 Jul 12.9 7.2 Q1§ -6.0 Israel 9.6 Q1 -1.8 4.9 4.4 Jun 4.3 3.3 Jun 2.9 nil 0.5 86.0 0.94 -2.1 Saudi Arabia 3.2 2021 na 7.5 2.3 Jun 2.5 6.0 Q1 15.9 South Africa 3.0 Q1 8.0 1.9 7.4 Jun 6.3 34.5 Q1§ -1.1 -3.9 16.1 -89.0 17.9 -51.8 -2.4 3.2 208 1.41 -3.5 -6.7 2.6 158 7.85 -0.9 -6.5 7.3 108 79.5 -6.4 -4.3 7.1 77.0 14,872 -3.3 -6.2 4.0 74.0 4.46 -5.2 -7.0 12.9 ††† 304 222 -26.1 -7.7 6.0 204 55.7 -9.5 -0.9 2.7 127 1.37 -0.7 -2.5 3.2 129 1,310 -12.3 -1.2 1.2 78.0 30.0 -7.4 -5.0 2.3 94.0 35.6 -5.9 -4.6 na na 134 -27.6 -6.5 12.2 252 5.05 3.4 -2.8 6.7 201 889 -12.0 -4.8 11.7 465 4,268 -6.5 -3.2 8.5 144 19.9 0.9 -2.1 7.9 146 3.93 3.3 -5.9 na na 19.2 -18.1 -1.7 2.4 142 3.26 -0.9 10.9 na na 3.76 -0.3 -6.2 10.0 107 16.1 -8.2 Source: Haver Analytics. *% change on previous quarter, annual rate. †The Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. ‡New series. **Year ending June. ††Latest 3 months. ‡‡3-month moving average. §§5-year yield. †††Dollar-denominated bonds. Markets Commodities % change on: % change on: Index one Dec 31st index one Dec 31st The Economist commodity-price index % change on Aug 10th week 2021 Aug 10th week 2021 In local currency 4,210.2 1.3 42,494.9 3.5 -4.7 2015=100 Jul 26th Aug 2nd Aug 9th* month year 12,854.8 1.5 -11.7 3,286.3 1.1 5.2 United States S&P 500 3,230.0 2.1 -17.8 Pakistan KSE 2,480.9 0.8 Dollar Index United States NAScomp 2,180.8 3.0 -11.3 Singapore STI 14,939.0 1.1 -16.7 China Shanghai Comp 27,819.3 0.3 -13.8 South Korea KOSPI 1,617.2 1.4 -18.0 All Items 152.3 155.7 155.8 -1.5 -6.5 China Shenzhen Comp 1,933.7 0.1 -3.4 Taiwan TWI 122,129.9 1.4 -2.4 Japan Nikkei 225 7,507.1 0.8 -2.9 Thailand SET 110,235.8 6.2 46.3 Food 139.4 142.9 145.6 -4.9 11.6 Japan Topix 19,885.9 1.7 Argentina MERV 47,808.2 1.7 Britain FTSE 100 3,749.3 0.5 1.7 Brazil BVSP 9,965.5 4.5 5.2 Industrials 164.4 167.7 165.3 1.6 -17.4 Canada S&P TSX 6,523.4 0.8 -6.3 Mexico IPC 2,076.3 3.5 -10.3 All Euro area EURO STOXX 50 13,700.9 0.8 -12.8 Egypt EGX 30 12,431.5 1.1 -16.3 France CAC 40 22,702.4 0.6 -8.8 Israel TA-125 69,744.9 1.7 Nfa† 153.3 147.0 149.7 -8.2 4.8 Germany DAX* -1.4 -13.7 Saudi Arabia Tadawul 2,803.4 1.7 0.2 Italy FTSE/MIB 724.3 2.6 -17.0 South Africa JSE AS 1.2 9.7 Metals 167.7 173.8 169.9 4.5 -21.8 Netherlands AEX 8,352.8 0.2 -9.2 World, dev'd MSCI 997.2 -5.4 Spain IBEX 35 54,955.8 1.1 -4.1 Emerging markets MSCI -13.3 Sterling Index Poland WIG 1,118.4 -0.2 -20.7 -19.1 Russia RTS, $ terms 11,155.1 5.4 -29.9 All items 193.0 194.5 196.7 -3.1 7.2 Switzerland SMI 2,829.6 0.5 -13.4 Turkey BIST 7,238.7 -0.8 52.3 Euro Index 166.7 169.3 169.0 -2.8 7.2 Australia All Ord. 19,610.8 0.8 -6.9 All items Hong Kong Hang Seng 58,817.3 0.6 -16.2 India BSE 7,086.2 0.1 1.0 Gold 1,719.1 1,777.1 1,792.7 3.5 3.8 Indonesia IDX 1,492.3 7.7 $ per oz Malaysia KLSE -4.8 US corporate bonds, spread over Treasuries West Texas Intermediate 36.2 $ per barrel 104.4 100.6 96.4 -3.2 Dec 31st Sources: CME Group; Cotlook; Darmenn & Curl; Datastream from Refinitiv; FT; ICCO; ICO; ISO; Live Rice Index; LME; NZ Wool Services; Basis points latest 2021 Thompson Lloyd & Ewart; Urner Barry; WSJ. *Provisional †Non-food agriculturals. Investment grade 168 172 120 High-yield 465 518 332 Sources: Refinitiv Datastream; Standard & Poor's Global Fixed Income For more countries and additional data, visit Research. *Total return index. Economist.com/indicators 012
Graphic detail Social capital The Economist August 13th 2022 77 It pays to → Poor children with more cross-class friendships have better outcomes be friends American counties Poor children*, average income aged 35, 2016 $ 70,000 Friendship across class lines may boost social mobility and decrease poverty Population, 201 Midwest 60,000 0m 50,000 Published in 2000, “Bowling Alone” 2m transfixed observers on American cul- 0. m ture in a way that few books ever do. In it, Robert Putnam, a political scientist, ar- South Other 40,000 gued that the steady erosion in social capi- 30,000 tal—interactions between people who are not family, close friends or colleagues— 20,000 was ailing America. In the intervening de- cades, that theory has proved contentious. 10,000 But new studies strike a blow in its favour. ← Fewer Cross-class friendships More → A large research team—including Raj Chetty of Harvard University, Matthew → These vary significantly by geography in America Jackson of Stanford University, and There- sa Kuchler and Johannes Stroebel of New Cross-class friendships by zip code York University—worked with proprietary data from Facebook on 72.2m young Amer- ← Fewer Average More → ican adults. The shape of every person’s network of friends could be converted into → In most settings, there is less mixing than might be expected empirical scores of social capital in a much finer-grained way than previously possi- For poorer Americans† Chance of befriending richer peer ble. And neighbourhood-level measures of Relative to expected level from setting social capital could be compared with de- Share of richer peers in setting sirable outcomes. Relative to expected level with no segregation Most classical measures of social capi- University +22.3% -4.7% tal, such as civic engagement and intra- Workplace -3.9 -5.4 class bonding, were not correlated with High school -6.5 -4.3 improved life outcomes, the researchers Recreational group -7.6 -2.5 found. However, one measure looked es- Religious group -13.6 +3.2 pecially important. “Economic connected- Neighbourhood -1 .0 -16.6 ness”—the extent of friendships across so- cial classes—was strongly associated with *Children with parents in 25th income percentile †Below-median socioeconomic status increased rates of high-school completion, Sources: “Social capital I: measurement and associations with economic mobility” & “Social reduced rates of teenage pregnancy and in- capital II: determinants of economic connectedness”, by R. Chetty et al., Nature, 2022 creased income for those born poorer. Moving from a place where friendships across social strata are relatively uncom- mon (a one-in-four chance of a friendship between someone in the top and bottom halves of the class distribution) to one where it was relatively standard (a one-in- two chance) translated into an 8.2 percen- tile increase in future earnings. The researchers then separated eco- nomic connectedness into two compo- nents: the share of wealthier people in a setting (exposure) and the rate at which wealthier and poorer people befriend each other (friending bias). Churches seem a more egalitarian setting than colleges. In universities, cross-class friendships form at a rate 5% lower than would be expected. In religious settings, friendships formed at a rate 3% higher than expected. Although it uses big data, the study’s findings are largely based on correlations. (It remains hard to experimentally vary so- cial capital.) But the imperative for integra- tion seems stronger still. n 012
78 Obituary Ann Shulgin The Economist August 13th 2022 The doors of perception knew. She had been in her mid20s at the time and working in the University of California medical centre as an administrator. Living Ann Shulgin, therapist and experimental drug researcher, in the lonely grey world of those who have left one home and not died on July 9th, aged 91 yet found the next. Dinners in cafeterias. Books as best friends. Soul in stasis. Then one day, in the cafeteria at work, a man had ap The first time she tried a hallucinogen, she was nearly sick. peared at her table, a doctor. He had pale hair and a nice laugh The taste of that witch’s brew—the thick, brown ooze that you and—and even at her age she sensed this was rare—didn’t mind get when you mash the peyote plant down—was so bad that she being told that he was wrong. retched the moment it hit her tongue. My God, it was awful. For a long time all she could do was to sit on her bed and try not to vo Though he didn’t respond that well when things actually went mit. Then the walls of her bedroom started to shimmer. Then time wrong. A few months later there was a pregnancy. It was the 1950s, stilled. Then—if there even was a “then” anymore—the dust and he was married, and ambivalent. So when, at two months, she motes, floating in the air above her, started to sing. It was Ann felt the contractions begin, she coped with the miscarriage alone. Shulgin’s first taste of hallucinogens, but not her last, for in her She squatted on the toilet, alone. She went to lie on the bed, alone. long life she would have around 2,000 psychedelic experiences. She woke, alone, in a pool of her own blood. Later, in hospital, she would be told that she had lost six pints of blood. She was struck by The aim was clear. Not merely to open the doors of percep that: didn’t humans only contain nine? When, lightheaded with tion—to see a world in a grain of sand and heaven in a wild flow blood loss, she saw her reflection in the mirror in hospital she gig er—but to step through those doors, and learn. William Blake had gled: greygreen, what a funny colour for a face to be. done it with poetry. Aldous Huxley, whose writing she loved, had done it with mescaline. She did it that first time with peyote. Later, She finally met Sasha in her 40s, after three previous marriag when she met her beloved husband—the chemist and “Godfather es, and was impressed. He had an Old Testament mane of hair, and of Ecstasy”, Alexander “Sasha” Shulgin—she did it with more or he smelt of carnations and cut grass. He invented drugs, he ex less anything he made in his lab. And he made a lot: mdma, pma, plained, and had taught at the University of California. When she pmma, mescaline. Though she never liked the stoning drugs. And asked him if the drugs he made were safe, he told her straight: no if you couldn’t make love on a drug, as she later said, stretching drug is ever safe. Nothing is. Did she really want to give it a try? out her wrinkled hands, then “there’s something not quite right.” They took their drugs with care. They didn’t go “banging about” Many thought there was something not quite right with all this on a Saturday night. They took them calmly, on Sunday mornings, anyway. Later, when the moral panics got going, and everyone often at his house, often with friends, always with rules. There started to agonise over ecstasy, people got so uptight about what must be no other drugs in your system; no violence; if there was a they did. It didn’t belong in a decent society. But, she would point problem, a hand should be raised. She knew things could still go out, psychedelic experiences weren’t so strange. People experi wrong. One time, she had wept and wept. And that first time, be enced altered states in everyday life. You can have a complete psy fore Sasha, she had felt a rapidly widening hole, a void, open in her chedelic experience just by falling in love, “no question.” body, just above the navel, below the ribcage. That had been odd. Which, she felt, was nice. Because no one can legislate against Their trips, like Huxley’s, were recorded. When, on a bright that. And falling in love, as she liked to point out, “is also poten May morning in 1953 Huxley had swallowed fourtenths of a gram tially very dangerous”. You could die from it. All those murders. of mescaline, he had been watched by a researcher who had re corded his responses to the drug. He had seen books glow like ru Though there were other ways to die from love, as well she bies; a slow dance of golden lights; flowers shine with eternal life. When the researcher asked Huxley how he felt about time, he had replied with clarity: “There seems to be plenty of it.” She had been so pleased to see that Sasha had Huxley on his bookshelves, too. Like Huxley, they approached psychedelia sci entifically, documenting delirium according to Sasha’s home made scale. “Plusone” was the beginning of a trip; it often in volved a touch of nausea. Plustwo: visual enhancement. Plus four was godlike. Plusfour offered, as Sasha’s notes to one drug put it, “a tinge of omnipotence, blended with a modest amount of omniscience.” Then, as if in proof of the “modest”: “I forget what the third omni is, but it’s present also.” They married and kept experimenting. It wasn’t just fun. Take a psychedelic, and you might become aware of yourself as a glowing thread in a tapestry and “all those…clichés”. But for her, mdma was more: it was “an insight drug”. That was its major function. As a lay therapist, she offered it to her patients: it offered insight without selfhatred. Creating a new drug was, she thought, like composing new mu sic; though not everyone liked the sound of that. In 1994 the Drug Enforcement Administration raided their home. They had violat ed regulations; they were to be fined $25,000; their life was turned upside down. She took a little insight from this, too, chiefly that drugs officers were heavyfooted. To Sasha’s disgust, they had stomped on some peyote cacti. “Not what I call good manners.” Later, the mood changed. Others started to follow what she had done. Universities and psychiatrists started to research the bene fits of mdma in therapy. She started to be called a “pioneer” and people started to write papers on how psychedelics can increase “brain connectivity” and “neuroplasticity”. But she would always put it more simply: they allowed you to love yourself. n 012
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