China's lean, mean AI machine

The Starmer needs an EU reset

Amping up electricity trading
Economist Pontification: the pope's memoir
JANUARY 2STH-31ST 2025

Project 1897
The imperial presidency
The Economist January 25th 2025 3

Contents

The world this week Britain

5 A summary of political 16 Rachel Reeves on growth
and business news 17 The next deal with the EU
19 The biotech sector
Leaders 19 Why brokers are
7 Donald Trump diversifying
The imperial president 20 Pie-and-mash shops
8 Artificial intelligence 21 Bagehot A BA parable
China catches up
9 Tariffs
Europe
Making America poorer
9 Trading electricity 22 Poland the powerful
Power to the foreigners 23 Russia hunts civilians
On the cover 10 Britain and the EU 24 Dissecting missiles
For the first time in over a century Time for a reset 24 Germany's debt b rake
America has an imperial president: 25 Meloni, Trump and
leader, page 7- Donald Trump the pope
Letters
pardons with cynical glee, page 29.
He has a chance to build on 12 On deportations, alcohol, 26 Charlemagne Digital
America's strengths. Can he political perceptions, battlefields
subdue his own weaknesses? women in combat,
Lexington, page 34 children's books, United States
corporate hierarchy
29 Unpardonable abuses
China's lean, mean Al machine
The success of cheap Chinese 30 Proud, happy boys
Briefing
models threatens America's lead 31 Ross Ulbricht freed
and poses a dilemma: leader,
13 Chinese AI
Uncomfortably close 32 Birthright citizenship
page 8, and briefing, page 13. 32 An immigration
OpenA!'s latest model will change crackdown
the economics of software,
page 55. Donald Trump's priorities 33 North Carolinian mischief
for Al, page 56 34 Lexington A golden age

Starmer needs an EU reset

The Americas
Britain's prime minister should
aim higher: leader, page 10, and 35 Trump pummels Mexico
analysis, page 17. We speak to the 36 Replacing Justin Trudeau
chancellor, page 16. The parable 37 Brazil's left without Lula
of an arcane piece of aviation law:
Bagehot, page 21

Amping up electricity trading

To make power cheaper and
greener, connect the world's grids: Middle East & Africa
leader, page g. Why don't more 38 The West Bank and
countries import their juice? the ceasefire
Page50
0 39 Lessons for Trump
Pontification: the pope's Schumpeter Don't panic 40 Turkey's aims in Syria
memoir Autobiog raphies can be about America's tech 41 The world's first
a blissfu l art, or a dismal one, tycoons,page 60 WhatsAppocracy
page 72. The pope and Italy's prime 42 Africa v big tech
minister tussle over Donald Trump,
page 25

➔ The digital element of your

subscription means that you
can search our archive, read all
of our daily journalism and listen
to audio versions of our stories.
Visit economist.com ►► Contents continues overleaf
4 The Economist January 25th 2025

Contents

Asia Finance & economics

43 India's cash handouts 61 The Arctic's riches
44 Cracking down on 63 Warning signs in China
criticism in Uzbekistan 64 Buttonwood How bankers
45 Banyan Asia's jams became bulletproof
46 Australia Day culture wars 65 Japanese inflation
46 Political dysfunction in 65 Britain's financial laggards
Taiwan 66 Exit taxes
67 Free exchange The
China problem with tariffs
47 Is the Communist Party
still popular? Science & technology
48 Trump and China 68 Eliminating cane toads
49 A fortune-telling boom 69 Snake-bite antidotes
70 America quits the WHO
71 Wasp evolution
71 Well informed Breathing
International and stress
50 Trading electricity
52 The Telegram Imperfect Culture
and indispensable
72 Pontificating memoirs
73 The fashion for backpacks
74 A rockstar philosopher
74 Spotify and playlists
75 Back Story "A Real Pain"
Business
76 How Huawei won
55 OpenAr's latest model
56 America's AI push
Economic & financial indicators
57 TikTok's fortunes
58 Sick pay in Germany 77 Statistics on 42 economies
59 Bartleby Transparent pay '-'
Obituary
60 Schumpeter The
"oligarchy" that isn't 78 David Lynch, most surreal of America's film directors

Volume 454 Number 9432 Subscription service To manage your account online, please visit
Published since September 1843 For our full range of subscription offers, including my.economist.com where you can also access
to take part in •a severe contest between digital only or print and digital bundled, visit: our live chat service which is available 24/7.
intelligence, which presses forward,
and an unworthy, timid ignorance
obstructing our progress:
Economist.com/ offers

If you are experiencing problems when trying to

subscribe, please visit our Help pages at:
To call us, contact our dedicated service centre
on 00800 77112711 or +44 (0)203 868 6843.
O~ecyc1e
Editorial offices in London and also: www.economist.com/ help PEFC certified
Amsterdam, Beijing, Berlin, Brussels, Cape Town, for troubleshooting advice. This copy of The Economist
Chicago, Dubai, Lagos, Madrid, Mexico City, is printed on paper sourced
Montevideo, Mumbai, Nairobi, New Delhi, New from sustainably managed
York, Paris, San Francisco, Sao Paulo, Shanghai, forests certified by PEFC
Singapore, Taipei, Tokyo, Washington DC PEFC/16-33-582 www.pefc.org

Registered as a newspaper.© 2025 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper
Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Printed by Wal stead Peterborough Limited
The Economist January 25th 2025 5

The world this week Politics

eluded members of his own rose to 80 after the oldest deaths of 78 illegal miners in
family as well as Anthony guerrilla group, the National South Africa , where the au-
Fauci, the chief covid adviser, Liberation Army (ELN), target- thorities had cut water and
and Liz Cheney, an implacable ed dissidents of the Revolu- food supplies to the mine.
Republican critic of Mr Trump. tionary Armed Forces of
Colombia, which disbanded The Taliban in Afghanistan
Volodymyr Zelensky used his under a peace deal in 2016. freed two American captives in
speech at Davos to take Europe President Gustavo Petro sus- exchange for the release from
to task for not doing enough to pended talks with the ELN and an American prison of one of
protect its security, saying its announced a state of internal their number, who was found
leaders needed to do more than unrest. Clashes in the Guaviare guilty of running a drug ring to
just post agreements on social jungle killed another 20 people. buy rockets to attack American
Donald Trump was inaugurat- media. "Will Trump even no- The armed groups have long troops. The prisoner exchange
ed as America's 47th president tice Europe?" the Ukrainian fought for control of Colom- was announced on the final day
in a ceremony that was held president asked, as he con- bia's drug-producing regions. of the Bi den administration.
inside the Capitol Rotunda firmed that he wants to meet Two Americans are still held by
because of freezing conditions his American counterpart Safe at last the Taliban.
outside. On his first day Mr soon. Separately, Mr Trump
Trump signed orders with- said Vladimir Putin should A judge in Kolkata handed a life
drawing America from the make a deal on Ukraine, and sentence to a man convicted of
Paris climate agreement and that he was "destroying Russia" raping and murdering a junior
the World Health Organisa- by not doing so. He suggested doctor. The murder last August
tion, and revived sanctions on he would impose crippling prompted protests across
the International Criminal sanctions on Russia if Mr Putin India against the lack of pro-
Court. He also declared an refuses to negotiate. tections for female workers and
emergency at the border with the general disregard for wom-
Mexico, tasking the Depart- In Russia a closed-door court en's safety. The killer was a
ment of Defence to come up sentenced three lawyers who police volunteer.
with a plan to seal it and repel represented Alexei Navalny to
"invasion" from mass migration prison. Mr Navalny was the The ceasefire between Israel At his impeachment trial being
and trafficking. Refugee ad- leading figure opposing the and Hamas came into effect, heard by the Constitutional
missions were suspended and a Putin regime until his death in allowing aid to flow into the Court, Yoon Suk Yeo!, the
scheme that allowed people an Arctic penal colony a year Gaza Strip. After a small delay president of South Korea,
from Cuba, H aiti, Nicaragua ago. His lawyers were convict- caused by bickering over the defended his decision to im-
and Venezuela to move tempo- ed of supporting "extremism". details, H amas released the pose martial law briefly in
rarily to America was ended. first three hostages it has held December and denied that
At least 79 people died when captive for15 months in ex- troops had been ordered to
The Trump revolution fire engulfed a hotel at a ski change for90 Palestinian remove opposition MPs from
Other edicts prohibited federal resort in Turkey's Bolu moun- prisoners. Thirty-three hostag- parliament. Meanwhile, the
employees from interfering tains, which lie halfway be- es will be released over the anti-corruption agency in-
with free speech. An order tween Istanbul and Ankara. six-week period of the truce. vestigating Mr Yoon passed its
"restoring biological truth" Meanwhile, Israeli forces findings on to prosecutors,
officially defined sex as male or Axel Rudakubana pleaded launched a major operation in recommending that he be
female. All diversity, equity and guilty to murdering three Jenin, in the West Bank, target- charged with insurrection.
inclusion programmes in gov- young girls in Southport, a ing Hamas and other militants.
ernment were terminated town in England, last July. The Taiwan's opposition-
along with their mandates, killings had triggered riots that Lieutenant General Herzi controlled parliament voted to
policies and activities. There were blamed on the far right; H alevi decided to resign as freeze substantial parts of the
was even a presidential mem- Mr Rudakubana is the son of chief of staff of the Israel country's defence budget. A
orandum on "putting people Rwandan immigrants. The Defence Forces, saying he had defence minister said the deci-
over fish" in California. Most of prime minister, Sir Keir Starm- failed to protect the country sion would affect Taiwan's
Mr Trump's decrees will be er, admitted that the authori- from the H amas attack in ability to counter almost daily
challenged in the courts. ties had failed to stop the killer; October 2023. In his resigna- provocations from China. It
he had been referred to a terro- tion letter, General Halevi also could also incur the wrath of
Mr Trump also issued a flurry rism-prevention scheme three said that "The war's objectives D onald Trump, who has said
of presidential pardons, most- times but never put under have yet to be fully achieved." Taiwan needs to spend more on
ly for almost 1,600 people enhanced monitoring . Sir Keir its defence.
convicted for their part in the stopped short of calling the Nine people were shot dead by
attack on Congress on January murders a terrorist attack. soldiers at a gold mine in Gha- The first same-sex weddings
6th 2021. Shortly before leaving na, according to a local miners' were held in Thailand, which
office Joe Biden issued pardons A spate of violence between group. The army said that has become the only country in
of his own, many of them pre- rebel groups in Colombia scores of illegal miners were South-East Asia to legalise gay
emptive to counter possible killed scores of people and carrying rifles and had fired on marriage. More than 1,000
legal action by the new admin- displaced 32,000. The death security personnel. The in- couples took their vows on the
istration. Mr Biden's list in- toll in the Catatumbo region cident comes soon after the first day.
6 The Economist January 25th 2025

The world this week Business

Donald Trump took no time to been in a long-standing feud Pod Point, a provider of charg- "Squid Game", a wildly popular
issue a gale of executive orders with OpenAI, claimed the ing points for electric vehicles South Korean series, and
relating to business on his first companies didn't have the in Britain, warned that weak "Carry-On", a film thriller.
day as president. He declared money. That prompted a clash demand for EVs would cause its Confident of its success, Net-
an "energy emergency" and with Mr Altman, who said Mr annual revenues to be less than flix is increasing its subscrip-
terminated funding for renew- Musk was "wrong". expected. The company's share tion fees in America, raising the
ables infrastructure under Joe price plunged by 40%. It said price of a standard ad-free plan
Biden's Green New Deal, Google was reported to be the market for non-company- from $15.49 to $17.99 a month.
ditched a goal that 50% of new investing another $1bn in car EVs was "challenging" and
cars in America should be Anthropic, a startup that has that the government's consul- America's Federal Aviation
electric, and resumed export developed the Claude gener- tation on its planned zero- Administration ordered
applications for new liquefied ative-AI models. Amazon is also emission mandate for cars SpaceX to suspend further
natural-gas projects. Another collaborating with Anthropic "could further increase near- launches of its Starship project
order aims to expand the devel- to build Claude into its Alexa term uncertainty". after a rocket exploded min-
opment of resources in Alaska. voice-command service. utes after taking off from its
base in Texas. The accident
Netflix
Mr Trump also ordered a re- How green is your AI? caused dozens of airline flights
Worldwide su bscribers, m
view of existing trade deals Microsoft reportedly secured to be delayed or diverted in
300
and said he would create an carbon credits by paying to order to avoid the rocket's
External Revenue Service to restore parts of Brazil's forests, falling debris over the Carib-
collect tariffs. He warned that the latest attempt by a big tech bean and Atlantic. SpaceX is
he would levy tariffs of10% on company to offset the increas- hoping to conduct at least 12
Chinese goods by February 1st ing amount of energy it is Starship tests this year, but that
(which is a lot lower than the burning through because of the goal may now be in jeopardy.
60% he had aired on the cam- expansion of artificial-in- 2019 20 21 22 23 24
paign trail) and reiterated his telligence services. Microsoft's Source: Company reports Shedding a few pounds
intention to impose import carbon emissions in 2023 were LVMH overtook Novo Nordisk
duties of up to 25% on goods 29% higher than in 2020. Another19m subscribers to become Europe's most
from Canada and Mexico. "The joined Netflix in the final three valuable company on the stock-
European Union is very, very In Britain the government months of 2024, the most ever market, a crown the luxury-
bad to us," Mr Trump said, "so forced Marcus Bokkerink out for a quarter, taking its total goods company last claimed in
they're going to be in for as chairman of the country's membership base to 301m. The 2023. Novo Nordisk's stock
tariffs", too. He also ripped up a Competition and Markets company stepped up its push dropped after the body that
global deal on corporate taxes. Authority, reportedly because into live-streaming in the per- oversees America's Medicare
the regulator is not considering iod, broadcasting a boxing programme added its Ozempic
Tariffs were also dangled as a economic growth in its deliber- match between Mike Tyson and Wegovy diabetes and
further punishment to China if ations. The CMA's new interim and Jake Paul, and two Nation- weight-loss treatments to a list
a deal cannot be reached on head is Doug Gurr, who used to al Football League games. It of drugs that will be subject to
divesting TikTok. Mr Trump run Amazon's British business. also launched new episodes of price negotiations.
signed an order giving the
video platform a 75-day re-
prieve in America. It had tem- NOW ROAMS
FREE IN
porarily become inaccessible to WEMUST
its 170m American users on the OUR COUNTRY/ PEPORT
last day of the Eiden adminis- 1HESE
tration, after the Supreme ILLEGAL
Court decided that shutting M[GRANTS.
TikTok down on national-
security grounds was constitu-
tional. Shou Zi Chew, TikTok's
chief executive, attended Mr
Trump's inauguration.

Sam Altman, Larry Ellison and

Son Masayoshi, the bosses of
OpenAI, Oracle and SoftBank
respectively, joined Mr Trump
at the White House to an-
nounce a new project to build
infrastructure in artificial
intelligence. Named Stargate,
the project aims to spend
$1oobn on such schemes, rising
to $5oobn over the coming
years. Elon Musk, who has
The Economist January 25th 2025 Leaders 7
The
Economist

Project 1897
America has an imperial presidency and, for the first time in over a century, an imperialist president

HAT WILL Donald Trump do next? A decade after he be- Government Efficiency could ever dream of. By contrast Mr
W came the Republican front-runner, it is still the urgent
question. In a distracted era Mr Trump has an unmatched ge-
Trump's executive branch directly employs 4.3m people, in-
cluding 1.3m men and women in uniform. The president has at
nius for grabbing attention. And for reimagining presidential his disposal the mightiest military force ever assembled. As a
power. His second inauguration took place in the Capitol's Ro- share of GDP, the federal government spends nine times more
tunda, the same spot where four years earlier his supporters than it did in the 1890s. In order to fight two world wars and
had punched police officers in the face. The power he used to end racial segregation in the 20th century, the executive
pardon the Capitol rioters on January 20th was originally de- branch accumulated more and more power. Writing about this
signed to bring the nation together: to pardon political oppo- in the 1970s, Arthur Schlesinger described this presidency as
nents, not the president's supporters (or members of the out- "imperial". It was meant as a slur: the modern America didn't
going president's family). But that was the convention, not the do empire. Yet now it has an imperial president who spies ene-
law, and with Mr Trump in power, conventions are over. mies to conquer not only abroad, but at home, too.
Historians talk about the long 19th century ending in 1914. Mr Trump means to turn the presidency's immense power
Precisely when the 20th century ended is, in this sense, debat- inward as well as outward, to dominate America as no other
able. But it is over. Mr Trump is still constrained by some of president has since the second world war. Politics is in his fa-
America's oldest institutions, including federalism and the vour. As America has become more partisan, passing laws in
courts. But he has thrown off many of the recent ones. The go- Congress has become harder. The new president showed in his
vernance reforms after Watergate no longer apply. The con- first term that, when Congress is evenly divided, the threat of
sensus that America should be a benign superpower, born out impeachment no longer works as a practical restraint.
of the ashes after 1945, has gone, too. And Mr Trump wants This long power shift away from Congress has left the court
more: to see America unleashed, freed from norms, from polit- and the executive in charge. Key rules on abortion, climate
ical correctness, from the bureaucracy and, in some cases, even change, affirmative action, campaign finance and free speech
from the law. What's left is something old and new, an ideol- have been set by the president or the justices. It was the Su-
ogy from the railroad era mixed with the ambi- preme Court which decided that presidents
tion to plant the flag on Mars. are immune from prosecution for official acts
Out of the 19th century comes the idea that which, say, means that any meme coins
the frontier should always be expanding, in- launched by a president before he takes office
cluding by seizing other countries' territory. won't trouble the emoluments clause.
"We're taking it back," Mr Trump growled of That sets up a clash between Mr Trump
the Panama Canal, in his inaugural speech. and his felt-tip pens on one hand and the judg-
America must be "a growing nation", he add- es and their gavels on the other. As the new ad-
ed, one that "increases our wealth, expands ministration tests how far it can stretch the
our territory". Although this might reflect a passing enthusi- law-deploying the army against "invading" immigrants, or
asm, presidents have not talked like that for a century. The turning the Justice Department against Mr Trump's foes-
only one of his predecessors Mr Trump spent any time on in court battles are inevitable. Mr Trump appears to relish the
the speech was that "great president" William McKinley, prospect. His executive order seeking to end birthright citi-
whose term began in 1897. Mr Trump is not a reader of presi- zenship is flagrantly unconstitutional and so likely to be struck
dential biographies. He is not about to make bimetallism the down. But if it is, Mr Trump will claim that the robe-wearing
issue of the day (though both he and the first lady do now have elites are thwarting the will of the people who elected him. His
their own competing currencies). But it was a revealing choice. supporters will rally round-and he will pick another fight.
McKinley was an imperialist, who added Hawaii, Guam,
the Philippines and Puerto Rico to American territory. McKin- Today's McKinley in a state of Denali
ley also loved tariffs, at least at first. Before he was president, Mr Trump is not unusual in wanting to extend the power of the
he pressed Congress to pass a bill to raise them to 50%, a level executive-many ambitious (and some great) presidents have
exceeding even Mr Trump's (admittedly hazy) plans (see lead- done so. Neither is he sure to win. The courts are not the only
er). He was also backed by the commercial titans of the time: obstacle. Try as he might to disrupt and intimidate the bu-
J.P. Morgan and John D. Rockefeller both donated about $8m reaucracy, it is supremely good at delay. States and cities run
in today's money to his campaign. by Democrats will resist him. He will have to contend with di-
The new "golden age" Mr Trump envisions thus resembles visions in his team, with his own character, and with reality.
the Gilded Age, at least superficially. Mr Trump wants to be as Mr Trump has proved adept at tearing down the old order,
unencumbered by 20th-century norms as McKinley was. But but it is unclear what will replace it. The hope is that he will
the 21st-century presidency is much more powerful. Project keep his vows to make America's government more efficient,
1897 is combined with Project 2025. its economy more vibrant and its borders secure. But a far
McKinley governed when the federal government had worse outcome is also plausible. Either way, America's remain-
150,000 employees, many fewer than the new Department of ing checks and balances are about to be tested. ■
8 Leaders The Economist January 25th 2025

Artificial intelligence

Chinese AI catches up
The success of cheap Chinese models threatens America's lead-and poses a dilemma

THERE IS a single technology America needs to bring losses. But the cost per search was infinitesimal. This-and the
I F
about the "thrilling new era of national success" that Presi-
dent Donald Trump promised in his inauguration speech, it is
network effects inherent to many web technologies-made
such markets winner-takes-all.
generative artificial intelligence. At the very least, AI will add Ifgood-enough AI models can be trained relatively cheaply,
to the next decade's productivity gains, fuelling economic then models will proliferate, especially as many countries are
growth. At the most, it will power humanity through a desperate to have their own. And a high cost-per-query may
transformation comparable to the Industrial Revolution. likewise encourage more built-for-purpose models that yield
Mr Trump's hosting the next day of the launch of "the larg- efficient, specialised answers with minimal querying.
est AI infrastructure project in history" shows he grasps the po- The other consequence of China's breakthrough is that
tential. But so does the rest of the world-and most of all, Chi- America faces asymmetric competition. It is now clear that
na. Even as Mr Trump was giving his inaugural oration, a Chi- China will innovate around obstacles such as a lack of the best
nese firm released the latest impressive large language model chips, whether by efficiency gains or by compensating for an
(LLM). Suddenly, America's lead over China in AI looks smaller absence of high-quality hardware with more quantity. China's
than at any time since ChatGPT became famous (see Briefing). homegrown chips are getting better, including those designed
China's catch-up is startling because it had been so far be- by Huawei, a technology firm that a generation ago achieved
hind-and because America had set out to slow it down. Joe widespread adoption of its telecoms equipment with a cheap-
Biden's administration feared that advanced AI could secure and-cheerful approach (see Culture section).
the Chinese Communist Party (CCP) military supremacy. So If China stays close to the frontier, it could be the first to
America has curtailed exports to China of the best chips for make the leap to superintelligence. Should that happen, it
training AI and cut off China's access to many of the machines might gain more than just a military advantage. In a superintel-
needed to make substitutes. Behind its protective wall, Silicon ligence scenario, winner-takes-all dynamics may suddenly re-
Valley has swaggered. Chinese researchers devour American assert themselves. Even if the industry stays on today's track,
papers on AI; Americans have rarely returned the compliment. the widespread adoption of Chinese AI around the world
Yet China's most recent progress is upend- could give the CCP enormous political influ-
ing the industry and embarrassing American ence, at least as worrying as the propaganda
policymakers. The success of the Chinese threat posed by TikTok, a Chinese-owned vid-
models, combined with industry-wide chang- eo-sharing app whose future in America re-
es, could turn the economics of AI on its head. mains unclear (see Business section).
America must prepare for a world in which What should Mr Trump do? His infrastruc-
Chinese AI is breathing down its neck. ture announcement was a good start. America
China's LLMs are not the very best. But they must clear legal obstacles to building data
are far cheaper to make. QwQ, owned by Ali- centres. It should also ensure that hiring for-
baba, an e-commerce giant, was launched in November and is eign engineers is easy, and reform defence procurement to en-
less than three months behind America's top models. Deep- courage the rapid adoption of Al.
Seek, whose creator was spun out of an investment firm, ranks Some argue that he should also repeal the chip-industry ex-
seventh by one benchmark. It was apparently trained using port bans. The Biden administration conceded that the ban
2,000 second-rate chips-versus 16,000 first-class chips for failed to contain Chinese AI. Yet that does not mean it accom-
Meta's model, which DeepSeek beats on some rankings. The plished nothing. In the worst case, AI could be as deadly as nu-
cost of training an American LLM is tens of millions of dollars clear weapons. America would never ship its adversaries the
and rising. DeepSeek's owner says it spent under $6m. components for nukes, even if they had other ways of getting
American firms can copy DeepSeek's techniques if they them. Chinese AI would surely be stronger still if it now re-
want to, because its model is open-source. But cheap training gained easy access to the very best chips.
will change the industry at the same time as model design is
evolving. China's inauguration-day release was D eepSeek's Agencies or agency
"reasoning" model, designed to compete with a state-of-the- More important is to pare back Mr Biden's draft "AI diffusion
art offering by OpenAI (see Business section). These models rule", which would govern which countries have access to
talk to themselves before answering a query. This "thinking" American technology. This is designed to force other coun-
produces a better answer, but it also uses more electricity. As tries into America's AI ecosystem, but the tech industry has ar-
the quality of output goes up, the costs mount. gued that, by laying down red tape, it will do the opposite.
The result is that, just as China has brought down the fixed With every Chinese advance, this objection becomes more
cost of building models, so the marginal cost of querying them credible. If America assumes that its technology is the only op-
is going up. If those two trends continue, the economics of the tion for the likes of India or Indonesia, it risks overplaying its
tech industry would invert. In web search and social network- hand. Some tech whizzes promise the next innovation will
ing, replicating a giant incumbent like Google involved enor- once again put America far in front. Perhaps. But it would be
mous fixed costs of investment and the capacity to bear huge dangerous to take America's lead for granted. ■
The Economist January 25th 2025 Leaders 9

Trade

Why tariffs will make America poorer

Donald Trump's favourite policy is bad for the world, too

90 years ago Franklin Delano Roosevelt sur- In Mr Trump's most feverish moments, he has talked about
M ORE THAN
veyed the wreckage of the Great Depression. He pointed completely replacing income tax with tariffs. An "External
to one of its causes: sky-high tariffs had put America on the Revenue Service" would ensure that foreigners, rather than
"road to ruin" by inviting retaliation and suffocating invest- hardworking Americans, foot the government's bills. It is bril-
ment. It took decades of global effort, led by America, to bring liant marketing, but nonsense. The cost of tariffs is mostly
tariffs down and let commerce flourish again. It was a painful borne not by foreigners but by American consumers, through
lesson, and one that President Donald Trump has not learned. higher import prices (see Free exchange). And tariff revenues
To investors' relief, Mr Trump refrained from slapping ta- cannot come close to replacing income tax. Even if import lev-
riffs on all imports on his first day back in office. But make no els were to remain constant, a 10% universal tariff would fund
mistake: the man who says "tariff" is the most beautiful word little more than a twentieth of the federal budget. In fact, im-
in the dictionary is eager to ratchet up protection. He sees ta- ports would decline as higher tariffs raised their price.
riffs as a means to achieve lots of objectives: shrink America's The most optimistic assumption is that Mr Trump mainly
trade deficit, rebuild its manufacturing might wants to use tariffs as a negotiating tool. They
and generate a gusher of revenue for the gov- United States, tariffs could be a powerful one: America, as the
ernment. On every count he is wrong. Average rate on all dutiable imports,% world's biggest market, has plenty of weight to
Mr Trump's deployment of tariffs in his
first term did nothing to narrow America's
trade deficit. One reason is that they tend to
:: 20
throw around. But tariffs are just as likely to tie
America in knots. Once implemented, they are
hard to revoke, and their potency diminishes
strengthen the dollar. Tariffs reduce American 0 through repeated use. If, for instance, Mr
demand for imported goods, leading to less 1821 50 1900 50 2023 Trump doubles down on tariffs against China
demand for foreign currencies. But when few- because it blocks a sale ofTikTok, will he then
er dollars are sold, the greenback's value increases, which in triple down because of its export of fentanyl precursors and
turn depresses global demand for American exports. The re- quadruple down to counter its clout in the Panama Canal?
sult is that even as Americans buy less from the rest of the Mr Trump and many of his supporters have taken to prais-
world, they also sell less to it. ing the late 19th century as the golden age for America's econ-
The record of recent tariffs also proves that they do not omy, when high tariffs spurred vigorous growth. But that is not
magically create jobs in American factories. Manufacturing as what happened. Scholars have found that tariffs sheltered less-
a share of American employment has fallen since Mr Trump's productive companies and raised living costs. Other factors,
first tariffs went into effect. Companies in industries directly including a growing population, the deepening rule of law and
protected by tariffs during Mr Trump's first administration- the success of non-traded goods, fuelled America's growth.
notably steel and aluminium-did indeed increase their rev- This may all sound technical and academic, but it matters. By
enues. But that gain came at the expense of the thousands of misunderstanding history and economics, Mr Trump is steer-
downstream companies that suffered from higher input costs. ing America and the world back into a dead end. ■

Trading electricity

Power to the foreigners

To make electricity cheaper and greener, connect the world's grids

ORWEGIAN POLITICIANS have had a shock. Wholesale Europe and the planet. International cables make electricity
N power prices have been spiking, as wind-powered neigh- cheaper, greener and more reliable. Around the world, less
bours rush to import Norwegian electricity when the normally than 3% of all power crosses a border. Some countries, such as
blustery North Sea turns calm. The big political parties are Bangladesh and Singapore, are trying to import more (see
suddenly souring on the idea that Norway should export ever International section). Most others should do the same.
more of its abundant hydropower. Several want some of the ca- Connecting up grids brings a host of benefits. Countries
bles carrying electricity abroad to be switched off. The Pro- need fewer largely redundant power plants that are used only
gress Party, which is leading in the polls, also wants to increase when demand peaks or when other generation goes offline.
already generous subsidies for household bills. One way or an- The top-up to supply can come down a cable instead. This
other, in the name of reducing domestic prices, exports seem makes it cheaper to generate electricity at both ends of the
likely to be curbed after elections later this year. wire. Extra connections are especially helpful for cutting
Norway would be shooting-or zapping-itself in the foot. greenhouse-gas emissions. Grids with lots of solar or wind
Its transmission links to nearby countries are good for it, power see big fluctuations in generation and prices, depend- ►►
 10 Leaders The Economist January 25th 2025

► ing on the weather. If power can be exported when it's abun- can afford to subsidise household prices.
dant, instead of being wasted, investment in renewables be- Governments may worry that the country at the other end
comes more attractive. If the wind dies, power can come from will cut the power or that the cables will be sabotaged, as a
far off, where it is still blowing. subsea communications link off Taiwan may have been this
Savings are often to be had at one end of the cable or the month. And so they might-but the best defence is to have lots
other, depending on which market has higher prices at any giv- of cables to many countries. Diversifying sources of supply
en moment. Power can flow from where it is cheap to where it multiplies the economic benefits while reducing dependence
is costlier, lowering prices overall. on each supplier, and hence their leverage.
True, this means that the price rises in the cheaper market, Indeed, international cables help protect against the unpre-
which is the source of the dismay in Norway. But Norwegians dictable. Although Britain is typically a big power importer, it
are forgetting that domestically produced power is not always became an exporter when high natural-gas prices crimped
cheaper. Whenever the current in the cables flows towards power generation in the EU after Russia's invasion of Ukraine.
them, it helps reduce high prices. And even though Norway ex- France is usually a big exporter, but when many of its nuclear
ports more power than it imports, that is fantastic for domestic plants were closed for maintenance, it needed imports. Who
energy producers. Norway's state-owned power firms have knows-water levels may someday sink low enough in Nor-
been raking it in, which is one of the reasons the government way's reservoirs that it will want more cables, not fewer. ■

Britain and the European Union

Get ready for a reset

Sir Keir Starmer should aim higher in seeking closer relations with the EU

THE FIVE years since Britain formally left the European

N UK party that he is trying to overturn the referendum of 2016.
I Union on January 31st 2020, three things have become clear.
One is that Brexit has imposed costs, particularly on goods ex-
Labour strategists are especially worried about the threat from
Reform in Labour seats in northern England which voted
ports, without any large offsetting benefits. That should worry heavily for Leave.
Rachel Reeves, the chancellor, as she searches for ways to pep Sir Keir should be bolder. The Reform party's rising support
up a near-stagnant economy (see our interview in the Britain is now linked more to immigration than to the EU. Sir Keir
section). Second, the geopolitical situation has deteriorated. could gain the upper hand by reframing Britain's EU debate in
Russia's war in Ukraine, China's growing assertiveness and the terms of hard geopolitical interests. Whether in dealing with
return of Donald Trump in America all make striking out alone Vladimir Putin, or in responding to Mr Trump's demands for
in Europe less appealing. And third, public opinion has more military spending, or in seeking energy security, Euro-
switched markedly to the view that Brexit was a mistake, and pean countries, including Britain, are stronger together.
that if choices must be made it is better to move closer to And he should not be ashamed of the economic gains. The
Europe than to America. trade and co-operation agreement of December 2020 needs
These changes make this an opportune moment for Sir Keir bulking up (see Britain section). A veterinary deal would boost
Starmer to re-engage with the EU. Next week- food trade in both directions, reduce some of
end the prime minister will attend his first in- the most sensitive barriers to trade between
formal summit with other European leaders in Great Britain and Northern Ireland and help
Brussels, followed by a formal bilateral meet- angry British farmers. A youth-mobility agree-
ing in the spring. The plan is to open negotia- ment would be good for everyone. There is
tions on what Sir Keir is calling a "reset" in re- also scope for closer co-operation over energy
lations. The political momentum should be and climate-change policy. In general, greater
helpful. Not only has public opinion shifted, regulatory alignment, including an implicit
but Sir Keir has a big parliamentary majority role for the European Court of Justice, makes
and he leads a Labour Party that is overwhelmingly pro-Euro- sense, not least since half of the UK's exports still go to the EU.
pean. And there is much scope for improvement. Even the Experts say such a package could raise GDP by as much as
Conservative leader, Kemi Badenoch, has recently admitted 0.7%, a boost Ms Reeves sorely needs.
that her party never had a coherent plan for Brexit. Even with greater boldness and urgency, the forthcoming
And yet Sir Keir's approach to the EU, as to much else (see talks will not be the end of the story. Switzerland has been ne-
Bagehot), is marked by a plodding cautiousness. He is sticking gotiating trade arrangements with the EU for over 30 years.
firmly to the three red lines laid down in the Labour manifesto: Britain may have to accept a similar timetable. It could yet de-
no single market, no customs union and no free movement of cide that it would be better to be in a customs union, though
people. He has suggested some improvements to the present this would preclude trade deals with third countries (including
trade deal, but is vague when it comes to details. This may re- America). Or it might consider rejoining the single market, at
flect a genuine desire not to reopen the painfully long years of least (also rather like Switzerland) for goods, even if it means
Brexit debate between 2016 and 2020. But he is also making a payments to the EU budget and freer movement of people.
political calculation. Sir Keir does not wish to provoke claims What matters most is not the ultimate destination but the di-
from the Conservative opposition and Nigel Farage's Reform rection of travel-towards, not away from, the EU. ■
 EXECUTIVE FOCUS 11

Recruitment at African Export Import Bank AFREl<IMBANK

President & Chairman of the Board of Directors

About Afreximbank They would also be required to demonstrate a sharp

African Export-Import Bank (Afreximbank or the Bank), awareness of the challenges faced in the drive to transform
is a Pan-African multilateral financial institution that the African continent and re-integrate it with Its diaspora
finances, facilitates and promotes intra-and extra-African through expanding their trade and socio- economic
trade across Africa and Caribbean Community (CARICOM) relationships. Applicants must also be able to demonstrate
countries. For over 30 years, the Bank has been deploying a bold and courageous vision for taking the mandate of the
innovative instruments to deliver solutions that support Bank and its subsidiaries to the next level and demonstrate
the transformation of the structure of trade, while proven execution capabilities.
accelerating industrialization and intra-regional trade, Eligibility Criteria
thereby boosting economic expansion in Africa and recently,
Applicants will be expected to have:
Caribbean Community states.
• At least 25 years relevant experience in international
Recruitment of President & Chairman banking
of the Board of Directors Experience in African and Caribbean Community (CARICOM)
Afreximbank seeks to appoint a new President to succeed trade finance, project finance and financial service markets
the serving President, whose term of office expires in Extensive knowledge of the African/CARICOM economic
September 2025. The Headquarters of the Bank is in Cairo, context, including their economic history
Egypt. where the President sits. With 6 regional offices across
the African continent and in the Caribbean and employing Strong business and political networks across Africa
about 750 people directly and indirectly, the Bank In 2023 and its diaspora
reported total assets and guarantees of about USO 37 billion. Experience in other aspects of managing a systemic
Over the past 5 years, Afreximbank has evolved into a group world class financial group including; business origination,
entity comprising the Bank, its impact equity fund subsidiary negotiation, governance, asset and liability management,
called the Fund for Export Development Africa (FEDA), risk management and people management and
and its insurance management subsidiary, Afrexlnsure demonstrated competence in overseeing management
(together, "the Group"). The Bank is also a General Partner, of Bank operations
alongside the African Continental Free Trade Area Secretariat Experience in leading a skilled executive team in a highly
in the AFCFTA Adjustment Fund based In Kigali, Rwanda. complex and dynamic group environment
More information on the Bank is available on its website: Ability to motivate vision, innovation and drive execution
www.afreximbank.com in a complex environment
The President is both Chairman of the Board of Directors Demonstrated knowledge of the operations of multilateral
and Chief Executive Officer (CEO). With a 5-year mandate financial institutions and their legal foundations
(renewable once), the President is responsible for Strong analytical, interpersonal, communication and
the day- to-day management of the Bank, developing presentation skills
and implementing the organization's business strategies,
its relationship with outside parties and a variety of Nationality of one the Bank member states
stakeholders, including African and Caribbean Community (see www.afreximbank.com for details). Furthermore,
governments and their agencies, international financial the Afreximbank Charter exc ludes applicants who either,
institutions, the private sector, non-African governments possess dual citizenship, where one of the two citizenships
and other global institutions. He/she leads a highly skilled is of a non-African state; are nationals of the State where
multi- disciplinary and multi-cultural team of professionals the Headquarters of the Bank is situated (Egypt) or those
to develop the organization's policies and programmes who are of the same nationality as the sitting President
for the achievement of Its objectives. (currently, Nigeria).
Requirements for the Role of President & Chairman Reward & Benefits
of the Board of Directors The successful candidate will be offered an internationally
Applicants must demonstrate capability for long term competitive tax- free US Dollar based compensation package
strategic vision, extensive experience in international with very attractive benefits commensurate with the role of
banking, international trade and trade policies, trade finance, a CEO of a leading financial institution with global stature.
trade- related initiatives and trade development banking, Application Details
in the context of developing markets, as well as in the
Afreximbank retained the services of Egon Zehnder for
management of commercially-oriented financial institutions
at, or near, CEO level. Applicants must also demonstrate this search. Applicants are requested to send a detailed CV,
required leadership and communication skills, and knowledge cover letter, and references to
of the operations and governance of multilateral financial [email protected]
Institutions. They must be fluent In either English or French, Applications must arrive by email no later than midnight
with a working knowledge of the other. Knowledge of the CET on February 14, 2025. Egon Zehnder will enter further
Bank's other official languages, Arabic and/or Portuguese correspondence only with shortlisted applicants.
is useful.
Applicants must have a good knowledge of Africa and PS. Please note that applicants ore not nominated or sponsored
the Caribbean Community's financial systems and economies by a m ember state of the Bonk or by a shareholder. All must apply
and be able to command the respect of senior government in their indi vidual capacities. The appointment will be mode by
officia ls, global bankers and related stakeholders. shareholders on the recommendation of the Board of Directors.
12 The Economist January 25th 2025

LETTERS ARE WELCOME AND SHOULD BE ADDRESSED TO THE EDITOR AT:

Letters THE ECONOMIST, THE ADELPHI BUILDING, 1-11 JOHN ADAM STREET, LONDON WC2N 6HT
EMAIL: [email protected]. MORE LETTERS AVAILABLE AT: ECONOMIST.COM/ LETTERS

The process of deportation has within its power the option be effective, decision-making that children encountered in
The Economist argued that of verifying those numbers for needs to consider what is the Tudor era. Mr Orme traces
Donald Trump "will not be current workers. I would also acceptable (or a good look), children's literature in England
able to carry through his threat recommend a small financial what works (a good outcome) as far back as 1,000 years ago,
to deport 15m people", in part reward to employees who and what is deliverable (a good to the school dialogues of
because "shipping out such a disclose their employer's fail- option). As a pollster, I recog- Aelfric ofEynsham and Aelfric
huge number would be extraor- ure to complete form I-9. nise that sensitivity to percep- Bata. As early as the 15th centu-
dinarily expensive" ("Donald WILLIAM CHIP tion shouldn't trump policy or ry there are records of adults
the Deporter", January 11th). Washington, DC serve as a way of shouting being interested in what chil-
That assertion is not unreason- down good ideas but equally, it dren were reading.
able, given that the deporta- Moderate drinking should be seen as a vitally During the Reformation,
tions will entail tracking down You suggested that moderate important ingredient of William Tyndale, among
15m people, taking them into drinkers live longer than tee- successful policymaking. others, attacked popular liter-
custody, pushing them through totallers because some tee- BEN MARSHALL ature, such as the tales of Robin
deportation proceedings, and totallers are "sick quitters" who Research director Hood, for corrupting young
then forcing their native coun- wrecked their health with Ipsos people. Then, as now,
tries to accept their return. booze in the past ("Hard-liquor London children's literature could
However, having served as truths", January 11th). This "cause conniptions".
senior counsellor to the secre- argument was first made in the Women in combat RICHARD WAUGAMAN
tary of homeland security in 1980s and has been repeatedly Women are better suited than Clinical professor of psychiatry
the first Trump administration disproved, most recently in a men to certain key combat Georgetown University
I would challenge that premise. wide-ranging review from the roles in the armed forces Washington, DC
Both sides of the immigra- National Academies of Sci- ("Women warriors and the war
tion debate are largely in agree- ences, Engineering and Medi- on woke", January 11th). Our Know your place
ment that the overwhelming cine that found moderate daughter served on intelligence Bartleby mused about the
majority of illegal immigrants drinkers have a 16% lower rate missions with Army Rangers in importance of hierarchies in
are here to work. Accordingly, if of all-cause mortality than Afghanistan in 2017 targeting business, such as the seating
the opportunity to work and lifetime abstainers, which you some of the top leaders of arrangements that identify the
thereby earn that living is mentioned in your leader al-Qaeda, Islamic State and the corporate pecking order (Jan u -
withdrawn, illegal immigrants ("How to think about the Taliban. The army trained such ary11th). The key measure of
who do not fear severe persecu- demon drink", January 11th). women because men could not the pecking order used to be
tion in their homelands will One does not need to have interrogate females in conser- the company car. Whenever a
largely self-deport so that they blind faith in observational vative Muslim countries. new member of staff appeared,
can support themselves and epidemiology to accept the Night after night our everyone would cluster around
their families with more truth of this. The review notes daughter would accompany the the windows to identify what
modest earnings. that randomised controlled Rangers on these combat vehicle he or she had been
American employers who trials have shown that "moder- operations, fast-roping out of allocated. Whether it was a top
hire foreign workers are ate drinking favourably affects helicopters, coming under of the range car or an economy
required to complete form I-9, HDL cholesterol, low density enemy fire and hiking two model could imply several
identifying the worker and his lipoprotein (LDL) cholesterol, miles to the target site under grades of importance.
work eligibility. However, the and apolipoprotein A-1''. It the cover of darkness. The I remember when a col-
form is stored at the workplace would be remarkable if this did women and children would league's car was upgraded with
and only rarely reviewed by a not lead to lower heart disease then be sequestered in a sep- a sun roof at no extra charge.
government official. A and stroke risk, and it is this arate building and searched for When the car arrived the car-
regulation entitled G-Verify that explains most of the weapons before our daughter pool manager said the sun-roof
(government verification) was longevity gains enjoyed by started her interrogations. The was an extra not available for
drafted under the first Trump moderate drinkers. army would not send anyone my colleague's grade in the
administration and will almost DR CHRISTOPHER SNOWDON on missions like these who company, and asked if it could
certainly be given effect in the Institute of Economic Affairs could possibly compromise the be welded shut.
second. It would require that London operation because they lacked DAVID SCOTT
I-9s are filed online, resulting in the physical or psychological Port St Mary, Isle ofMan
the prompt discovery of Perceptions matter capabilities.
unlawful workers. Bagehot rightly laments a ANN MARSHMAN I never like to sit at the head of
Form I-9 applies only to tendency for British politics to Kennebunk, Maine the table at a meeting, either
workers known by their em- over-concentrate on what is or too much deference or one is
ployers to be foreign, and many isn't "a good look" (January Fairy tales obliged to pick up the tab. And
undocumented workers may 4th). Clearly, there is a jeopardy It may be true that until the it's always best to avoid the
disguise that from their bosses, in prioritising perception and 18th century there was no sniper's seat at the distant
who in many cases are happy to appearance over reality and distinct children's literature corner. I like to sit somewhat to
go along. Fortunately, there is actual policy. There is also the ("Grimm stuff", January 11th). the right of the big boss, to
£-Verify legislation pending in debate about the death (or rude But Nicholas Orme's wonder- indicate general supportive-
Congress that would require health) of"deliverism". ful book, "Tudor Children", ness just short ofgrovelling
online verification of each new A Venn diagram provides a provides a wealth of informa- obeisance.
employee's Social Security useful framework for tackling tion about the nursery rhymes, DAVID LAND
number. The executive branch these overlapping tensions. To plays, songs, stories and books Edinburgh
The Economist January 25th 2025 13

Briefing Chinese Al

Uncomfortably close

China's artificial-intelligence industry has almost caught up with America's-on the cheap

HE WORLD'S first "reasoning model", free-to-use version of the model. Another also better, matched only by the propri-
T an advanced form of artificial intelli-
gence, was released in September by
Chinese firm, DeepSeek, had released a
"preview" of a reasoning model, dubbed
etary models at Google and OpenAI. Paul
Gauthier, founder of Aider, an AI coding
OpenAI, an American firm. 01, as it is Rl, a week before that. Despite the Amer- platform, ran the new DeepSeek model
called, uses a "chain of thought" to answer ican government's efforts to hold back through his coding benchmark and found
difficult questions in science and mathe- China's AI industry, two Chinese firms had that it outclassed all its rivals except for 01
matics, breaking down problems to their reduced their American counterparts' itself. Lmsys, a crowdsourced ranking of
constituent steps and testing various ap- technological lead to a matter of weeks. chatbots, puts it seventh, higher than any
proaches to the task behind the scenes be- It is not just with reasoning models that other open-source model and the highest
fore presenting a conclusion to the user. Its Chinese firms are in the vanguard: in De- produced by a firm other than Google or
unveiling set off a race to copy this meth- cember DeepSeek published a new large OpenAI (see chart on next page).
od. Google came up with a reasoning mod- language model (LLM), a form of AI that
el called "Gemini Flash Thinking" in De- analyses and generates text. v3 was almost Enter the dragon
cember. OpenAI responded with 03, an up- 700 gigabytes, far too large to run on any- Chinese AI is now so close in quality to its
date of 01, a few days later. thing but specialist hardware, and had American rivals that the boss of OpenAI,
But Google, with all its resources, was 685bn parameters, the individual precepts Sam Altman, felt obliged to explain the
not in fact the first firm to emulate Open- that combine to form the model's neural narrowness of the gap. Shortly after Deep-
AL Less than three months after 01 was network. That made it bigger than any- Seek released v3, he tweeted peevishly, "It
launched, Alibaba, a Chinese e-commerce thing previously released for free down- is (relatively) easy to copy something that
giant, released a new version of its Qwen load. Llama 3.1, the flagship LLM of Meta, you know works. It is extremely hard to do
chatbot, QwQ, with the same "reasoning" the parent of Facebook, which was re- something new, risky, and difficult when
capabilities. "What does it mean to think, leased in July, has only 405bn parameters. you don't know if it will work."
to question, to understand?" the company DeepSeek's LLM is not only bigger than China's AI industry had initially ap-
asked in a florid blog post with a link to a many of its Western counterparts-it is peared second-rate. That may be in part ►►
 14 Briefing Chinese Al The Economist January 25th 2025

► because it has had to contend with Amer- launched in 2023, High-Flyer announced cheap, running it costs less as well. Deep-
ican sanctions. In 2022 America banned that it, too, was entering the race to create Seek splits tasks over multiple chips more
the export of advanced chips to China. human-level AI and span off its AI research efficiently than its peers and begins the
Nvidia, a leading chipmaker, has had to de- unit as DeepSeek. next step of a process before the previous
sign special downgrades to its products for As OpenAI had before it, DeepSeek one is finished. This allows it to keep chips
the Chinese market. America has also promised to develop AI for the public working at full capacity with little redun-
sought to prevent China from developing good. The company would make most of dancy. As a result, in February, when Deep-
the capacity to manufacture top-of-the- its training results public, Mr Liang said, to Seek starts to let other firms create services
line chips at home, by banning exports of try to prevent the technology's "monopol- that make use of v3, it will charge less than
the necessary equipment and threatening isation" by only a few individuals or firms. a tenth of what Anthropic does for use of
penalties for non-American firms that Unlike OpenAI, which was forced to seek Claude, its LLM. "If the models are indeed
might help, too. private funding to cover the ballooning of equivalent quality this is a dramatic new
Another impediment is home-grown. costs of training, DeepSeek has always had twist in the ongoing LLM pricing wars;'
Chinese firms came late to LLMs, in part access to High-Flyer's vast reserves of says Simon Willison, an AI expert.
owing to regulatory concerns. They wor- computing power. DeepSeek's quest for efficiency has not
ried about how censors would react to DeepSeek's gargantuan LLM is notable stopped there. This week, even as it pub-
models that might "hallucinate" and pro- not just for its scale, but for the efficiency lished R1 in full, it also released a set of
vide incorrect information or-worse- of its training, whereby the model is fed smaller, cheaper and faster "distilled" vari-
come up with politically dangerous state- data from which it infers its parameters. ants, which are almost as powerful as the
ments. Baidu, a search giant, had experi- This success derived not from a single, big bigger model. That mimicked similar re-
mented with LLMs internally for years, and innovation, says Nie Lane of Cambridge leases from Alibaba and Meta and proved
had created one called "ERNIE", but was University, but from a series of marginal yet again that it could compete with the
hesitant to release it to the public. Even improvements. The training process, for biggest names in the business.
when the success of ChatGPT prompted it instance, often used rounding to make cal-
to reconsider, it at first allowed access to culations easier, but kept numbers precise The way of the dragon
ERNIEbot by invitation only. when necessary. The server farm was re- Alibaba and DeepSeek challenge the most
Eventually the Chinese authorities is- configured to let individual chips speak to advanced Western labs in another way,
sued regulations to foster the AI industry. each other more efficiently. And after the too. Unlike OpenAI and Google, the Chi-
Although they called on model-makers to model had been trained, it was fine-tuned nese labs follow Meta's lead and make their
emphasise sound content and to adhere to on output from DeepSeek Rl, the reason- systems available under an open-source li-
"socialist values", they also pledged to "en- ing system, learning how to mimic its qual- cence. If you want to download a Qwen AI
courage innovative development of gener- ity at a lower cost. and build your own programming on top
ative AI". China sought to compete global- Thanks to these and other innovations, of it, you can-no specific permission is
ly, says Vivian Toh, editor ofTechTechChi- coming up with v3's billions of parameters necessary. This permissiveness is matched
na, a news site. Alibaba was one of the first took fewer than 3m chip-hours, at an esti- by a remarkable openness: the two compa-
wave of companies to adapt to the new mated cost of less than $6m-about a nies publish papers whenever they release
permissive environment, launching its own tenth of the computing power and expense new models that provide a wealth of detail
LLM, initially called Tongyi Qianwen and that went into Llama 3.1. v3's training re- on the techniques used to improve their
later abbreviated to "Qwen". quired just 2,000 chips, whereas Llama 3.1 performance.
For a year or so, what Alibaba produced used 16,000. And because of America's When Alibaba released QwQ, standing
was nothing to be excited about: a fairly sanctions, the chips v3 used weren't even for "Questions with Qwen", it became the
undistinguished "fork" based on Meta's the most powerful ones. Western firms first firm in the world to publish such a
open-source Llama LLM. But over the seem ever more profligate with chips: Meta model under an open licence, letting any-
course of 2024, as Alibaba released succes- plans to build a server farm using 350,000 one download the full 20-gigabyte file and
sive iterations of Qwen, the quality began of them. Like Ginger Rogers dancing back- run it on their own systems or pull it apart
to improve. "These models seem to be wards and in high heels, DeepSeek, says to see how it works. That is a markedly dif-
competitive with very powerful models de- Andrej Karpathy, former head of AI at ferent approach from OpenAI, which
veloped by leading labs in the West;• said Tesla, has made it "look easy" to train a keeps 01's internal workings hidden.
Jack Clark of Anthropic, a Western AI lab, frontier model "on a joke of a budget". In broad strokes, both models apply
a year ago, when Alibaba released a version Not only was the model trained on the what is known as "test-time compute": in- ►►
of Qwen that is capable of analysing imag-
es as well as text.
China's other internet giants, including
Tencent and Huawei, are building their
-
Near the top of the class
Selected large language models' performance against different benchmarks, January 2025
own models. But DeepSeek has different
origins. It did not even exist when Alibaba
GLPQ* advanced- MMLUt general- Cost of output, Arena
released the first Qwen model. It is de- knowledge, % knowledge, % $ per million tokens rank*

-
scended from High-Flyer, a hedge fund set
up in 2015 to use AI to gain an edge in 40 50 60 70 80 60 70 80 90 100 10 8 6 4 0
share-trading. Conducting fundamental OpenAI o1

~
research helped High-Flyer become one of QwQ-32B-Preview - - - -- n/a
the biggest quant funds in the country. Nodata Better ➔

But the motivation wasn't purely com- DeepSeek-V3

mercial, according to Liang Wenfeng, Gemini 1.5 Pro
I I

High-Flyer's founder. The first backers of Llama 3.1 4058

OpenAI weren't looking for a return, he has Instruct
observed; their motivation was to "pursue *Graduate-Level Google-Proof Q&A tMassive Multitask Language Understanding
Sources: LLM Stats; LMArena *Crowdsourced chatbot quality, out of 194 where 1=best
the mission". The same month that Qwen
 The Economist January 25th 2025 Briefing Chinese Al 15

► stead of concentrating the use of comput- under lock and key, because of the nature Chinese firms would naturally prefer to
ing power during the training of the model of the race we're in." Even if engineers at build on Chinese models, since they do not
they also consume much more while an- Chinese firms are not the first to discover a then need to worry that new bans or re-
swering queries than previous generations technique, they are often the first to pub- strictions might cut them off from the un-
of LLMs (see Business section). This is a lish it, says Mr Kant. "If you want to see derlying platform. They also know they are
digital version of what Daniel Kahneman, any of the secret techniques come out, fol- unlikely to fall foul of censorship require-
a psychologist, called "type two" thinking: low the Chinese open-source researchers. ments in China that Western models
slower, more deliberate and more analyti- They publish everything and they're doing would not take into account. For firms like
cal than the quick and instinctive "type an amazing job at it:' The paper that ac- Apple and Samsung, eager to build AI tools
one". It has yielded promising results in companied the release of v3 listed 139 au- into the devices they sell in China, local
such fields as maths and programming. thors by name, Mr Lane notes. Such ac- partners are a must, notes Francis Young, a
If you are asked a simple factual ques- claim may be more appealing than toiling tech investor based in Shanghai. And even
tion-to name the capital of France, say- in obscurity at an American lab. some firms abroad have specific reasons
you will probably respond with the first The American government's determi- for using Chinese models: Qwen was de-
word that comes into your head, and prob- nation to halt the flow of advanced tech- liberately imbued with fluency in "low-re-
ably be correct. A typical chatbot works in nology to China has also made life less source" languages such as Urdu and Ben-
much the same way: if its statistical repre- pleasant for Chinese researchers in Amer- gali, whereas American models are trained
sentation of language gives an overwhelm- ica. The problem is not just the administra- using predominantly English data. And
ingly preferred answer, it completes the tive burden imposed by new laws that aim then there is the enormous draw of the
sentence accordingly. to keep the latest innovations secret. There Chinese models' lower running costs.
But if you are asked a more complex is also often a vague atmosphere of suspi- This does not necessarily mean that
question, you tend to think about it in a cion. Accusations of espionage fly even at Chinese models will sweep the world.
more structured way. Asked to name the social events. American AI still has capabilities that its
fifth-most-populous city in France, you Chinese rivals cannot yet match. A re-
will probably begin by coming up with a The big boss search programme from Google hands a
longlist of large French cities; then at- Working in China has its downsides, too. user's web browser over to its Gemini chat-
tempt to sort them by population and only Ask DeepSeek v3 about Taiwan, for in- bot, raising the prospect of AI "agents" in-
after that give an answer. stance, and the model cheerfully begins to teracting with the web. Chatbots from An-
The trick for 01 and its imitators is to in- explain that it is an island in East Asia "of- thropic and OpenAI won't just help you
duce an LLM to engage in the same form of ficially known as the Republic of China". write code, but will run it for you as well.
structured thinking: rather than blurting But after it has composed a few sentences Claude will build and host entire applica-
out the most plausible response that along these lines, it stops itself, deletes its tions. And step-by-step reasoning is not
comes to mind, the system instead takes initial answer and instead curtly suggests, the only way to solve complex problems.
the problem apart and works its way to an "Let's talk about something else." Ask the conventional version of ChatGPT
answer step by step. Chinese labs are more transparent than the maths question above and it writes a
But 01 keeps its thoughts to itself, re- their government in part because they simple program to find the answer.
vealing to users only a summary of its pro- want to create an ecosystem of firms cen- More innovations are in the pipeline,
cess and its final conclusion. OpenAI cited tred on their AI. This has some commercial according to Mr Altman, who is expected
some justifications for this choice. Some- value, in that the companies building on to announce soon that OpenAI has built
times, for instance, the model will ponder the open-source models might eventually "PhD-level super-agents" which are as ca-
whether to use offensive words or reveal be persuaded to buy products or services pable as human experts across a range of
dangerous information, but then decide from their creators. It also brings a strate- intellectual tasks. The competition nip-
not to. If its full reasoning is laid bare, then gic benefit to China, in that it creates allies ping at American Al's heels may yet spur it
the sensitive material will be, too. But the in its conflict with America over AI. to greater things. ■
model's circumspection also keeps the pre-
cise mechanics of its reasoning hidden
from would-be copycats.
Alibaba has no such qualms. Ask QwQ
to solve a tricky maths problem and it will
merrily detail every step in its journey,
sometimes talking to itself for thousands
of words as it attempts various approaches
to the task. "So I need to find the least odd
prime factor of 20198 + 1. Hmm, that seems
pretty big, but I think I can break it down
step by step;' the model begins, generating
2,000 words of analysis before concluding,
correctly, that the answer is 97.
Alibaba's openness is not a coinci-
dence, says Eiso Kant, the co-founder of
Poolside, a firm based in Portugal that
makes an AI tool for coders. Chinese labs
are engaged in a battle for the same talent
as the rest of the industry, he notes. "If
you're a researcher considering moving
abroad, what's the one thing the Western
labs can't give you? We can't open up our
stuff any more. We're keeping everything
16 The Economist January 25th 2025

Britain

Britain's economy and sometimes subsidised, by the state.

The diagnosis, then, was clear. What
The Rachel Reeves theory of growth about the remedy? Britain's economy is in
dreadful shape. Growth has been feeble for
nearly two decades, a slowdown that has
worsened recently (see chart on next
page). On the campaign trail, Ms Reeves
DAVOS
said that investment would perk up under
The chancellor explains how she hopes to turn things around her more stable stewardship. But there has
been no economic growth at all since she
PEAK TO THE world's financiers assem- blem, but "there are too many things hold- took over as chancellor last summer. Will
S bled at Davos this week, and Britain ing back investment". W hat is needed is
"an active supply-side approach, to im-
she be bold enough to turn things around?
rarely comes up. When it does, the mood is "Britain is going for growth;' she says.
hardly complimentary. One banker re- prove the productive capacity of our coun- "I don't think what we're doing on plan-
marks on how many millionaires have re- try". By that logic, the government's job is ning, on regulation, on capital-markets re-
cently left the country. Another financial to remove barriers to investment, making form is timid:' But the Davos set's indiffer-
executive says that Brexit has shrunk the space for the private sector to direct capital ence to her agenda is telling. Many bigwigs
investor base. Others raise a comment by to productive uses. That emphasis on de- say they haven't seen enough to persuade
Ray Dalio, a billionaire, who warned on regulation marks a shift for Ms Reeves, them to give Britain another look. The gov-
January 21st of a "debt death spiral" in Brit- who in opposition took inspiration from ernment has struggled to sell a confident
ain if public spending is not reined in. Bidenomics- a more heavy-handed ap- story about its plans.
That left Rachel Reeves, Britain's chan- proach where private investment is guided, Ms Reeves's most consequential choic-
cellor, with an uphill task when she arrived es so far came in her budget in October,
at the Swiss alpine town to court investors which raised taxes by roughly £4obn
at the annual meeting of the World Eco- ➔ ALSO IN THIS SECTION ($49bn, 1.5% of GDP) and spending by
nomic Forum. She met a raft of Wall Street £7obn annually, ramping up borrowing to
17 The next deal with the EU
bosses, asset managers and pension funds fill the gap. Notably absent was a growth
in an effort to convince them that Britain 19 The biotech sector agenda; she left the clunky structure of
really is open for business, and that she is Britain's tax system untouched and picked
19 Corporate brokers
single-mindedly focused on growth. We employers' national insurance, a fairly inef-
asked her what all that really meant. 20 Pie-and-mash shops ficient and distortive tax, as her main rev-
Britain, she says, faces "a long-standing enue-raiser. Ms Reeves contends that
21 Bagehot: A BA parable
supply-side issue". Demand is not the pro- righting the ship was itself a growth strat- ►►
 18 Britain The Economist January 25th 2025

► China and the return of Donald Trump in duct-regulation and metrology bill will
America makes closer cross-channel ties Look back in anguish make it simpler to choose to align with EU
more urgent. And despite his red lines, the "In hindsight, do you think Britain was right or product-safety standards. When asked if it
EU sees Sir Keir as refreshingly non-ideo- wrong to vote to leave the European Union?" would be more sensible instead to join
logical over such issues as the alignment of Britain,% responding* with Mr Trump's America, Sir Keir re-
regulations or the involvement in dispute 70 sponds that it is unnecessary to choose.
resolution of the European Court of Justice But if a tariff war makes a choice unavoid-
(ECJ), notes Mujtaba Rahman of the Eur- 60 able, the politics and the economics both
asia Group, a consultancy. suggest that Britain would do better lining
The obvious place to start with is closer 50 up with the EU.
co-operation on foreign and security poli- 40
A final issue concerns some time-
cy, including defence. This is easier territo- bombs left in the current trade deal. The
ry than trade partly because it is largely in- Right
30 most likely to cause trouble, despite being
ter-governmental, though even here the .,.,,. of little economic significance, is fish. The
role of the EU institutions is growing. Brit- agreement on quota shares finishes in June
2016 18 20 22 24
ain and the EU already work closely on Uk- 2026. The EU wants it renewed, but British
Source: YouGov *Excludes don't knows
raine and sanctions against Russia. As a fishers are hoping for larger quotas. A Brit-
former prosecutor, Sir Keir is also well- ish concession could facilitate the more
placed to argue for tighter links with Euro- young. This is not a return to free move- valuable veterinary deal.
pean policing and justice bodies. ment by the back door but a time- and age- Britain also wants the EU to renew its
There may be more problems over de- limited attempt to regain something approval of British data-protection stan-
fence, as some countries, notably France, young people on both sides have lost in dards, which will expire in June this year.
think that any Eu-linked funds should be travel, short-term jobs and university stud- And in 2027 an agreement not to impose
largely spent in EU members. However, as ies. Almost half of businesses responding 10% tariffs on electric vehicles traded
Europe struggles to respond to Mr Trump's to a recent British Chambers of Commerce across the channel will come to an end un-
demands to raise defence spending, it survey said they wanted it to be easier for less renewed. Deals on all three would
would be bizarrely counterproductive not staff to work in the EU. smooth the path to a broader accord.
to find a way of including Britain. And there is hope of an early return to
the Erasmus scheme of student exchanges. Bregrets? I have a few
On the menu Since it started, Erasmus has sent some The economic benefit for Britain of such a
A foreign-policy and security pact could 60% more European students to British package may not seem that large: the Cen-
also help with trade talks. Brussels is wary universities than the other way round. This tre for European Reform, another think-
of reopening the trade deal, which suits imbalance may impose a net cost on Brit- tank, puts it at between 0.3% and 0.7% of
the EU better than Britain, and of any ef- ain's Treasury, but as one diplomat says, if GDP. Yet in a near-stagnant economy, that
fort to "cherry-pick" selective access to the only issue is money, it can surely be re- would be well worth having. And the poli-
parts of the single market. But there are ar- solved in negotiation. tics may not be as tricky as Sir Keir fears.
eas where both sides would benefit from More problematic are British hopes for Public opinion has shifted since 2016 to the
lower friction. mutual recognition of professional qualifi- view that Brexit was a mistake (see chart 2).
One is a veterinary (in the jargon, san- cations, a deal for touring musicians and The success of Reform reflects resistance
itary and phytosanitary) agreement that the easing of barriers to trade in chemicals. to immigration more than hostility to the
would remove technical obstacles to food All three raise EU fears of cherry-picking. EU. It is high time for Sir Keir to be bolder
trade. Such a deal would require dynamic But the passage of the government's pro- in his approach. ■
alignment with current and future EU
plant and food standards, and would also
imply a role for the EC). It would make a
trade deal with America near-impossible;
but despite continuing chatter about a UK-
us agreement, its chances are in truth re-
mote. A veterinary deal would boost food
commerce in both directions, do much to
reduce barriers between Great Britain and
Northern Ireland under the Windsor
framework and help British farmers, who
are cross with Sir Keir over inheritance tax.
Next is energy, where more co-opera-
tion across the North Sea would bring mu-
tual benefits. Better electricity connectors
would be good for both Britain and the EU.
There is also an urgent need to link emis-
sions-trading schemes. In January 2026 the
EU will impose its carbon border-adjust-
ment mechanism to penalise carbon-in-
tensive imports. If Britain stays outside the
EU's system, that could mean tariffs on ............
many exports to Europe, which aligning
the two schemes would avoid. ........................
The EU wants to cut red tape and visa
............
obstacles to mobility, especially of the
--------------
The Economist January 25th 2025 Britain 19

Biotech search centre, and his colleagues found Corporate brokers

that they are 2.6 times more likely to suc-
Cambridge lessons ceed when there is genetic evidence under- A very British affair
pinning how they might work.
Yet the involvement of Flagship speaks
to a commercial savvy that is missing in
GREAT CHESTER FORD
Britain. Much comes down to the deeper
Britain still struggles to capitalise and more educated capital pools and
on scientific ingenuity greater appetite for risk in America. The But becoming less so
two Cambridges are similarly matched for
VER THE past century, two break- research output, but life-sciences firms in ORPORATE BROKERS are a peculiarly
O throughs have changed the course of
biology most. Both were Anglo-American
the American city raised nearly ten times
as much venture-capital investment as
C British phenomenon. Serving as a
bridge between founders and investors,
efforts, propelled by Cambridge laborato- their British counterparts in the first half of brokers have worked at their clients' beck
ries. First came the unravelling of the dou- 2023 (see chart). Flagship, which raised and call for a fraction of the cost of an in-
ble helix by scientists including James $3.6bn in a funding round that concluded vestment banker in the hope of more lucra-
Watson (an American) and Francis Crick in July, is now looking for more opportuni- tive mandates down the road. But as list-
(a Brit). Then came the Human Genome ties abroad. The incubator recently opened ings have dried up, their fate has become
Project, which mapped the genetic code offices in London and Singapore; Quo- perilously entwined with another British
that acts as an instruction manual for hu- tient was its first foreign venture. "We're phenomenon: an ailing stockmarket.
man beings. That project was led by Amer- bringing Cambridge MA to Cambridge Many stock exchanges around the
icans, but the largest contribution came uK;' says Jake Rubens, Quotient's boss. world are shrinking. But London's has be-
from Cambridge's Sanger Institute, which Flagship approached the Sanger scien- come glaringly depleted. Last year 86 com-
sequenced a third of the billions of letters tists after scouring the literature for pro- panies (roughly one in 20 of all listed firms)
of code. These advances transformed the mising ideas. "If we'd had to develop a delisted or transferred their primary list-
way scientists understand disease. company ourselves, we would never have ing, making 2024 the worst year for exits
Quotient Therapeutics, a biotech com- done it;' says Ifligo Martincorena, a re- since the global financial crisis. Just 20
pany founded in 2022, hopes to take this searcher at Sanger. Helped by the Ameri- joined. For Peel Hunt, a City broker found-
transatlantic model and commercialise it. can incubator's connections, Quotient has ed in 1989 by old Etonian chums, Charles
Its main research lab is in Great Chester- already secured a deal to supply Pfizer, a Peel and Christopher Holdsworth Hunt,
ford, a village just outside Cambridge, pharma giant, with drug targets for renal this means fewer opportunities to generate
England. Its commercial headquarters is in and cardiovascular diseases. Dr Rubens ex- fees. "The London market has had a lousy
Cambridge, Massachusetts. The company pects the firm to create its own pipeline of three years;' concedes Steven Fine, the
is among dozens spun out by Flagship Pio- new therapies. firm's current boss.
neering, an American venture-capital firm Somatic genomics is not the only new Higher valuations and deeper pools of
which also incubated Moderna, a trailblaz- kind of analysis with potential. On January capital explain some of the exodus. Lon-
er in covid-19 vaccines based on mRNA 10th UK Biobank, a research body, an- don-listed firms trade at an average dis-
technology. Its aims-to revolutionise nounced the largest-ever study to use pro- count of 52% to their American counter-
treatment for a spectrum of diseases- are teins to find new drug targets, backed by a parts, according to Goldman Sachs, a
no less ambitious. The company also neat- consortium of 14 pharma firms. Most bio- bank. Flutter Entertainment, a gambling
ly illustrates the strengths and weaknesses tech firms fail before producing a drug. Yet company, and CRH, a building-materials
of Britain's biotech sector. so far Quotient has managed to mix British firm, are among the firms that have moved
The country's strengths in scientific re- scientific ingenuity with American com- their main listing to New York as a result.
search remain obvious. Quotient is a pio- mercial nous. In the next two years Dr Ru- In all, 150 firms listed their shares across
neer in the study of the genetic changes bens hopes to launch a host of new drug the pond last year. "If London could get a
that occur within the trillions of cells in the programmes, including for autoimmune handful oflistings each month, we'd be do-
human body over a person's lifetime, a field diseases, cancer and respiratory illnesses. ing cartwheels," Mr Fine says.
known as somatic genomics. One of its co- "There's no realm of human health and Private markets are another reason for
founders is Professor Sir Mike Stratton, disease that somatic genomics won't be the exodus. Abundant alternative sources
who led the Sanger Institute's Cancer Ge- able to touch," he says. ■ of funding have enabled businesses to stay
nome Project. Sir Mike's team discovered
that melanoma, a type of skin cancer,
could be caused by mutation in a gene
known as BRAF. By inhibiting the protein
-
Cells pitch
Venture-capital investment in life-science
private for longer, delaying the shareholder
scrutiny that comes from going public.
There are upsides to this approach, as Peel
Hunt's own listing demonstrates. Since it
that this mutated gene produces, says Sir companies, Jan-Jun 2023, $bn went public on London's Alternative In-
Mike, an "untreatable cancer was turned Selected cities vestment Market in 2021, its stock price
into a manageable one". Now, using the lat- 0 0.5 1.0 1.5 2.0 has plunged by more than three-fifths.
est technology, the team hopes to do the Cambridge, US
Private markets bring risks, too: they
same with mutations in normal tissues are more opaque and less regulated than
which may drive other diseases. San Francisco public ones. They are also less liquid. An
The findings of this kind of analysis Boston end to cheap borrowing signals new finan-
could be hugely valuable to pharmaceuti- Shanghai
cial realities for private funds that will, at
cal firms. Drugs generally work best when some point, expect a return. The pressure
London
they have a specific molecule within the to exit companies now "too big to be priv-
body to target. In clinical trials only about Cambridge, Britain ate", according to Mr Fine, will shift the
one in ten drugs are ever approved by reg- Oxford momentum back to public markets.
ulators. But a recent paper by Eric Minikel This is happening to a degree. In De-
Sources: Savills Research; PitchBook
of the Broad Institute, a genomics-re- cember London welcomed the blockbuster ►►
 20 Britain The Economist January 25th 2025

Traditional cuisine city's working class, London's pie-and-

mash shops are at risk of becoming as rare
A last bite of as Cockney rhyming slang. The Pie and
Mash Club, a society for the cuisine's en-
Cockney culture thusiasts, maintains lists of restaurants
that have closed and the dwindling num-
DEPTFORD
ber that remain-fewer than 40 of them in
Higher rents and changing tastes London, down from nearly 300 in the
threaten London's pie-and-mash shops mid-19th century.
Deindustrialisation and more recently
T 10.30AM ON a chilly Saturday the higher property prices have pushed many
A queue outside Manze's pie-and-mash of the Cockneys who once inhabited the
shop on Deptford High Street stretches 50 East End of London out into neighbouring
metres down the street. The restaurant has Kent and Essex. Steep rents have made it
been a fixture of the south-east London harder for independent shopkeepers to
neighbourhood since 1914, when the cur- compete with the chain restaurants that
rent owner's great-grandfather opened it. have come to dominate London's high
Aficionados have come to grab one of the streets (Manze's closure coincides with the
last pies before the place closes perma- end of its lease). Although a meal deal of
nently on January 25th. two pies and two servings of mash costs
Pie-and-mash eateries are a bit of Cock- only around £lo ($12) in many London pie
ney culture that has existed since Victorian shops, the same money can buy a relatively
Fewer stocks to trade times, when they first popped up in the healthy meal at Pret, a chain eatery, or a
city's docklands. Richard Holden, the less healthy one at Greggs, a bakery spe-
► listing of Canal+, a media company previ- Conservative MP for Basildon and Billeri- cialising in sausage rolls.
ously owned by Vivendi, a conglomerate cay in Essex, even led a debate in Parlia- Perhaps the biggest reason for the de-
backed by France's billionaire Bollore fam- ment last year on this matter of heritage, cline is changing food preferences. Jellied
ily. The deal marked the largest debut on calling for pie shops to be given protected eels are an acquired taste. Young people
the London Stock Exchange since 2022. intellectual-property status. today might associate pie with the round,
Shein's proposed stockmarket debut this The fare, sometimes referred to as the thick-crusted variety widely sold in pubs.
year is set to be even bigger: the fast-fash- "original fast food", has changed little over Still, Beth Mascall, the daughter of
ion group has an estimated valuation the years: an oval meat pie served with a George Mascall, Manze's owner, insists
of £51bn ($66bn). generous helping of mashed potatoes, all that their pie shop is not closing for any
New listing rules should also boost swimming in a parsley gravy called "liqu- lack of popularity. Her father is ready to re-
public offerings. They loosen restrictions or". Eels, which were once plentiful in the tire. But pie and mash has "proved to be a
on dual-class shares, offering founders Thames, accompany the pie in either tradition in lots of families, with grandpar-
more powerful voting rights. And they stewed or jellied form. The shops' interiors ents bringing grandchildren", she says, and
drop the requirement for shareholder votes are often as standardised as the menu. supporters of nearby Millwall Football
on acquisitions or disposals. The overhaul, White tiles cover the walls and black-and- Club "have always been attending before
announced in July by the Financial Con- white photos of the original owners may the home games". When your correspon-
duct Authority, Britain's financial watch- hang behind the bar. Some establishments dent asked a local queuing for one of
dog, brings the rules in line with New have sawdust-covered floors and long Manze's last pies how he felt about the
York's, but will take time to bear fruit. communal tables or benches. shop's closure, he frowned and called it "an
Mr Fine would like to see more done to Despite their long history of serving the end of an era". ■
incentivise domestic investment in British
equities. A third of British stocks are held
at home, compared with more than four-
fifths in the mid-199os. The Labour govern-
ment's plans to consolidate local-govern-
ment pension schemes into megafunds
could unlock billions of pounds for British
stocks. But the best prospects for stock-
markets lie with private-equity investors
seeking to cash out.
Until then, brokerage firms are working
to mitigate the impact of Britain's lan-
guishing capital markets. Many have
merged. Numis was acquired by Deutsche
Bank in 2023; Panmure Gordon and Libe-
rum, two midsized brokers, merged last
year. Peel Hunt has opened an office in
Copenhagen and is expanding in America.
It has also pivoted towards advising on the
mergers and acquisitions of listed compa-
nies. Fees at its investment-banking divi-
sion jumped by more than 60% last
year. Brokers are diversifying-and be-
coming less British. ■ Get 'em while you can
The Economist January 25th 2025 Britain 21

BAGEHOT
The parable ofthe slots

What an arcane piece ofaviation law says about Britain's government

for sale rarely and at a stonking price. Challengers are locked out,
or stay small. Inefficiency is rewarded: it is better for an airline to
send up small or empty planes than forfeit a slot to a rival.
The first cure is more airport capacity-and here the chancel-
lor, Rachel Reeves, is making encouraging sounds about backing
the expansion of Heathrow as well as London's Gatwick and Lu-
ton. But the benefit of new terminals and runways will be reduced
if you do not also fix how they are used.
The economists' answer is to auction slots, much like radio
spectrum. A market-based system would mean new airlines could
bid against incumbents; small airlines could grow into serious ri-
vals; customers would enjoy lower prices and better service. Air-
lines that bore the true value of slots would use them more effi-
ciently, sending bigger planes to more popular destinations; the
proceeds could fund new airport infrastructure.
The Competition and Markets Authority (CMA), a regulator,
has been mustard-keen on such market reform for years; Rishi Su-
nak's Conservative government appeared enthusiastic. Sir Keir's
Labour government is not. New ministers have their own priori-
ties, and have concluded that an immensely complicated fight
with vested interests is not worth the candle.
It is an illustration of how Britain has engineered the worst of
ASSENGERS CAN be strikingly loyal to their airlines' loyalty all possible Brexits. Since slot rules in Britain were fixed in EU law,
P schemes. People enjoy collecting points; they enjoy perks, here was that rare thing: a bona fide Brexit opportunity to shake
such as swish lounges and bigger baggage allowances, even more. off protectionist rules that cosset creaking national champions.
Little wonder that British Airways, a flag carrier, faces a backlash Singapore-on-Thames would welcome Singapore Airlines. In-
after tweaks to its programme will render its coveted "silver" and stead Britain has lost EU-market access, thereby weakening com-
"gold" cards out of reach for most leisure travellers. IAG, its parent, petition on British firms, while undertaking precious little of the
hopes a £7bn ($8.6bn) investment programme will fix a reputation regulatory simplification that might have fostered it.
for so-so customer service, tatty cabins and bad food. (Analysts
seem to think so; its share price is ascendant.) Nonetheless its ri- Take-off aborted
vals spy an opportunity: Virgin and Air France-KLM have invited But the parable of the slots reveals most about the limits of Sir
disgruntled fliers to join their programmes. Keir's radicalism. He talks a good supply-side game, as does Ms
Those competitors would stand a better chance if aviation Reeves. His speeches to investors are peppered with promises to
were a properly liberalised market, in which agile challengers "rip out the bureaucracy" and unlock "the shock and awe of in-
could take on flagging incumbents. If only. Control of slots- the vestment". Yet he is late in life to this agenda. His canape-circuit
right of an airline to take off or land from an airport at a particular turn resembles Steve Buscemi, a middle-aged actor, who tries and
time- is the biggest constraint on competition. BA holds 51% of fails miserably to pass as a high-schooler in "30 Rock~ an Amer-
those at Heathrow, London's hub airport (whose chairman also ican sitcom: "How do you do, fellow Schumpeterians?"
chairs The Economist Group), and 53% at London City, next to Airports are but one example of a lop-sided regulatory agenda.
Canary Wharf. Regulars may grumble that the BA cheese toastie is Ministers are placing huge weight on planning reform to boost
today's version of the notoriously unappetising British Rail sand- housebuilding and productivity. But deep thinking on how to fix
wich. Those on early flights to Frankfurt have little choice. other markets is in short supply. On January 16th Ms Reeves sum-
The regulation of runways may sound like an arcane concern. moned Britain's economic regulators for a dressing-down: "fresh
But it is a case study of what ails Britain. Call it the parable of the ideas" were needed to "drive growth". This was a bizarre piece of
slots. Britain, like other advanced economies, has seen competi- theatre: a six-month-old government should be imposing its agen-
tion weaken over the past 25 years. Markups have risen; the rate at da on the agencies, not demanding that they rustle one up.
which young firms displace old ones is falling. Many markets are The problem with pro-competition reform is that it invariably
gummed up. Consumers pay more than they should for baby for- means annoying incumbents. Sir Keir is happy to bash faceless op-
mula, vets, funerals and much else. The opportunity Brexit pre- ponents of growth, such as NIMBYs and Whitehall bureaucrats. A
sented to adopt a more nimble approach has been passed up. And confrontation with the airline industry would be harder. (Minis-
Sir Keir Starmer's government is much less gutsy at increasing ters claimed the ousting, on January 21st, of the chairman of the
competition than he claims. CMA was a sign that they wanted more "pro-business" decisions
The slots regime is a mid-century relic. In Britain-as around from regulators.) IATA, which represents the world's biggest air-
the world-rights are grandfathered: as long as an airline uses a lines, declares slot auctions a "disaster" that would scramble
slot 80% of the time, it can hold onto it, free, in perpetuity. That routes and wreck investment. It would entail political pain today,
was fine in the 1960s when runway space was abundant; now that in the hope of a better deal for consumers tomorrow. It would take
such space is heavily congested, it produces a clogged-up market. a true believer in the power of markets to do it. And Sir Keir, it is
At Heathrow, 99% of slots are grandfathered: spare ones come up becoming clear, is not that. ■
22 The Economist January 25th 2025

Europe

Poland ters and $2.5bn for the Integrated Battle

Command System, a digital hub for Patriot
Vigour on the Vistula air-defence missiles.
If Mr Kosiniak-Kamysz stresses Ameri-
can kit, it is because his true audience is in
the White House. Mr Trump has floated a
defence-spending target of 5% of GDP for
WARSAW
NATO members; Poland, the minister
Poland has emerged as a leading European defence power notes, is the only member already planning
to meet it. It reckons it spent 4.1% in 2024
T HAS BEEN centuries since Poland was fence minister and a deputy prime minis- and will hit 4.7% this year. "We have done
I last a great armed power, but the winged
hussars are back. When Russia seized Cri-
ter, thinks so. "We are facing an enormous
threat. If we did not take advantage of this
what Mr Trump expects," says Mr Kosi-
niak-Kamysz. Poland can be "a bridge be-
mea in 2014, Poland's armed forces were opportunity to build up our security, it tween the European Union and America".
the ninth-biggest in NATO. Today they are would be a historic, tragic failure:' Poland For all Poland's newfound strength, its
third after America and Turkey, having is buying hundreds of new tanks, howit- priority is keeping America engaged. One
doubled in manpower to over 200,000. The zers and multiple-launch rocket systems of the EU's most Atlanticist members, Po-
budget has tripled in real terms to $35bn; from South Korea. But the minister gives land long waved off initiatives for Euro-
in Europe, only Britain, France and Germa- pride of place to nearly $6obn-worth of pean strategic autonomy, especially under
ny spend more (see chart, next page). As a purchases from America, including a the Law and Justice (Pis) party that gov-
percentage of GDP, Poland is well in front. $1obn deal for 96 Apache attack helicop- erned between 2015 and 2023. (In 2018 that
This month Poland assumed the six- government tried in vain to get America to
month presidency of the EU Council. Its build an army base in Poland by promising
theme, unsurprisingly, is security. With ➔ ALSO IN THIS SECTION to name it "Fort Trump".) Mr Tusk is more
Russia advancing on the battlefield and EU-minded, and Mr Trump's equivocation
23 Hunting civilians in Kherson
Donald Trump's commitment to NATO un- has convinced the Poles that the continent
certain, Europe's eastern border is looking 24 Dissecting Russian missiles must do more for itself. But they still see
wobbly. Poland has a fast-growing econ- this as a way to keep the Yanks in. "With-
24 Germany's unpopular debt brake
omy and an able prime minister in Donald out America, NATO does not function;'
Tusk. Can it become Europe's new eastern 25 Meloni, Trump and the pope says Mr Kosiniak-Kamysz.
security anchor? Poland's hesitancy has been clearest on
26 Charlemagne: Digital battlefields
W ladyslaw Kosiniak-Kamysz, the de- the issue of stationing NATO troops in Uk- ►►
 The Economist January 25th 2025 Europe 23

► raine, if a ceasefire can be reached. Em- massacres in Volhynia during the second Pis by saying that if Mr Nawrocki opposes
manuel Macron, France's president, pro- world war, when Ukrainian partisans Ukraine's NATO membership, he should
posed the idea, and it gained momentum staged an ethnic-cleansing campaign that start military training to prepare for war
in December as Mr Trump vowed to end killed some 100,000 Poles. Polish historical with Russia. Justyna Gotkowska, a defence
the war quickly. Britain and Germany nei- researchers want permission to exhume expert at the Centre for Eastern Studies in
ther endorsed nor dismissed it. But Mr victims. But many Ukrainians consider the Warsaw, says Poland would find it hard to
Tusk was reluctant, saying Poland was "not partisans heroes, and officials have an- deploy a brigade in Ukraine anyway. The
planning" to send soldiers-an attitude gered Poles by playing down the atrocities. army's new capabilities will be fully opera-
seemingly at odds with aspirations to Ukraine agreed this month to allow ex- tional only in 2026-27.
greater security heft. Mr Kosiniak-Kamysz humations. But at a deeper level, Polish Mr Zelensky's visit reportedly aimed to
says any decision would have to be made ambivalence stems from a perception of find ways to persuade Mr Trump to stay
by NATO as a whole. ingratitude. Many Poles feel Ukrainians committed to NATO. Poland's main offer-
The main reason for the caution is po- have not thanked them enough for wel- ing is its rising defence budget. Unlike
litical. A two-round presidential election coming over a million refugees and acting other NATO members, it may not need to
starts on May 18th, and the fate of Mr as the main logistical hub for military aid. cut elsewhere: new defence spending is fi-
Tusk's government hinges on it. The prime More important is a sense that in dealing nanced by GDP growth of nearly 3% last
minister has been trying to root out the au- with allies, Ukraine bypasses Poland. Volo- year, says Michal Baranowski, a deputy
tocratic legacy of Pis, which packed the dymyr Zelensky, Ukraine's president, pref- minister of economic development. Mr
courts, inserted cronies in government and ers to speak to America, Britain, France, Tusk's government will push to get Uk-
turned the state media into propaganda. Germany and the European Commission. raine into NATO and the EU, however dis-
But the current president hails from Pis, His administration has little understand- tant the prospects-if only out of self-in-
and has been vetoing Mr Tusk's efforts. ing of its western neighbour. terest. "The strategy of the Polish army is
If the election is won by Rafa! Trzas- Mr Zelensky illustrated the point in a to keep Russia as far away as possible;'
kowski, the liberal mayor of Warsaw and visit to Warsaw on January 15th, irritating says Mr Kosiniak-Kamysz. ■
candidate of Mr Tusk's centrist Civic Co-
alition, the reforms may move ahead. If it
goes to Karol Nawrocki, the conservative Ukraine (1)
historian nominated by Pis (who is scepti-
cal of EU and NATO membership for Uk- Death from above
raine), the deadlock will go on. Polls give
Mr Trzaskowski a narrow lead.
The ruling coalition is fragile. Mr Tusk
has failed to liberalise abortion, one of his
main campaign promises. That has disap- KHERSON

pointed left-wing parties allied with him. Residents of Kherson are dodging murderous drones
The centre-right Poland 2050 party has
conservative views on abortion, and has :7'HERSON, A CITY in southern Ukraine, delivery vans, buses, fire engines and other
slowed reform. The farthest-right coalition
member is the small agrarian Polish Peo-
I ~ endured eight months of Russian oc-
cupation before Ukrainian forces liberated
first responders are routinely targeted. Sev-
eral administrative officials have been
ple's Party, led by Mr Kosiniak-Kamysz. it in November 2022. The Russians retreat- wounded. In one case, says Roman Mroch-
This month he helped the Catholic church ed to the other side of the Dnieper river, ko, the head of the military authority in
restrict sex education in schools. but have indiscriminately pounded the city Kherson, a minibus "was almost complete-
A second reason for Poland's reluctance ever since, no doubt fuelled by rage at hav- ly destroyed, but the driver heroically
to commit to a hypothetical deployment in ing swiftly lost the only provincial capital saved the injured people by driving, you
Ukraine is bilateral tension. The two coun- that they have managed to capture during could say on scrap metal, to the hospital."
tries have a long-running argument over the entire three-year course of the war so In the riverside neighbourhoods where the

-
Leading from the front
far. In June 2023 they blew up the nearby
Kakhovka dam, flooding low-lying areas of
Kherson. Now the city's 80,000 inhabit-
ants, down from a pre-war population of
attacks are concentrated, designated "red
zones" by Russians on Telegram channels,
life has been throttled. There is no gas, wa-
ter, electricity or municipal heat. Public
NATO members' defence spending, % of GDP
2024 estimate, selected countries 280,000, face a new sort of misery. For six transport is suspended. Ambulances wait
0 2 3 4 $bn months Russian drones have been attack- outside the area for police in armoured
Poland 35
ing civilians daily, chasing cars and pedes- cars to ferry the wounded to them.
trians through the streets in what locals The very few people still living in these
Estonia 1
call a "safari". areas, mostly pensioners, hardly dare to go
United States 968
There have been more than 1,000 drone out. People listen for the tell-tale buzz and
Latvia 1 strikes since last summer, injuring over 500 run from wall to wall, taking cover under
Greece 8 people and killing 36, according to munici- trees. They avoid using cars, which are easy
Lithuania 2 pal authorities. Surveillance drones patrol targets, in part because it is hard for drivers
Finland 7 high up in the skies; smaller attack drones to hear approaching drones. When people
Britain 82 (known as FPVs, or first-person-view do drive, they speed to outrun the attack-
Germany 98 drones), with a flying time of between 20 ers. Rain, which hampers drone flights,
Turkey 23 and 40 minutes, sit on rooftops to conserve sometimes provides a bit of respite.
France 64 battery power. The munitions dropped are Iryna Sokur, the director of the Kherson
Italy 34 often makeshift: mortar shells, grenades, Oncological Hospital, which was the only
Spain 21
canisters containing shrapnel or darts, or cancer facility in the region, describes a lit-
bottles of petrol that ignite. any of attacks against patients, staff and
Source: NATO
Shops, schools, clinics, private houses, ambulances. "On November 11th two am- ►►
 24 Europe The Economist January 25th 2025

► bulances were burnt in a drone attack. The Ukraine (2) tract, especially components sourced from
next day a third was hit. On November abroad. The catalogue, a sobering remind-
26th the head of our lab was killed on her Forensic er of Russia's ability to bypass Western
way to work:' One man was killed in his car sanctions, grows by the day. "Here is a
in the parking lot as he waited to pick up a examination block, Japanese, Sony company, here's the
relative after their treatment. Ms Sokur her- Shahed launch button, Bosch;' says Andriy
KYIV
self has been chased by drones on two oc- Kulchytskyi, the head of the laboratory.
casions. In early winter, as the situation be- Ukrainian scientists are learning a lot "Here's a Chinese engine with a screw that
came untenable, almost all the patients from downed Russian missiles says, Made in the USA:'
were evacuated. On December 20th two Some of the latest arrivals are charred
glide bombs destroyed the hospital. HE BACK of the Kyiv Scientific Re- bits of the Oreshnik, a new Russian mis-
The purpose of the latest Russian cam-
paign is not clear. Mr Mrochko suggests
T search Institute of Forensic Expertise
does not seem an unmissable attraction,
sile, which the institute's experts are clean-
ing and untangling. Russia fired the
that the Russians are training drone pilots especially on a damp winter morning. But Oreshnik against Ukraine in November,
on Kherson's civilians. Or it may be a tactic for weapons experts and intelligence the first known use of a multi-warhead
to establish a buffer zone, or to prepare for types, the place is a major draw. Fragments weapon in combat. Vladimir Putin has
an offensive to retake part of the west bank of Russian missiles, drones-some of them since threatened to do so again, against
of the river. The incidence of artillery almost wholly intact-and artillery shells Kyiv, boasting that Ukraine's air defences
strikes in Kherson has also been rising. lie on the ground, overlooked by rows of are no match for the nuclear-capable mis-
The bombardment that smashed the onco- Soviet-era apartment blocks. sile. He bills the "hypersonic" Oreshnik as
logical hospital on December 20th was the Inside nearby shipping containers, Uk- a new marvel of Russian technology. But
largest since the city's liberation, a barrage rainian researchers are dissecting the its remains tell a different story. One part
of more than 1,000 shells that covered a wreckage of the weapons with pliers and dates from 2017. Another, inside one of the
failed attempt by Russian forces to ad- screwdrivers, and recording what they ex- missile's warheads, dates to 2016. This ►►
vance closer to the city.
Belkis Wille of Human Rights Watch, a
rights watchdog, is compiling a report on Germany's fiscal policy
the Kherson attacks. She says they are "de-
liberate" and may be calculated "to force Easing the straitjacket
civilians to leave the area". Civilian casual-
ties often result from indiscriminate or dis-
proportionate attacks, Ms Wille notes, but BERLIN
the drones target civilians precisely.
Germans are growing cold on the debt brake
Reports of Russian drone attacks on ci-
vilians elsewhere near Ukraine's front lines
are increasing. On the battlefield, some le- HAT DO ANGELA MERKEL, Olaf ducted for the German Council on For-
thal drones already have a degree of auton-
omy, with artificial intelligence and object-
W Scholz, the Bundesbank, the IMF,
the OECD, Germany's biggest trade
eign Relations (DGAP) finds that a ma-
jority of Germans want reform of the
recognition software to keep homing in on union, its state-appointed council of debt brake to allow for higher invest-
their targets even in the face of electronic economic experts and most of its Euro- ment. "Present German voters with
jamming. Lethal drones with human pilots pean allies have in common? Not much, trade-offs, and it's clear what they want;·
seem brutal enough, but the step to fully on the face of it. But they all share the says Shahin Vallee of the DGAP. He
autonomous ones seems inevitable. Inten- view that Germany's "debt brake" is no thinks the focus on the debt brake in the
tionally targeting civilians with drones is a longer serving the country well. campaign for Germany's federal election
war crime, but it is effective at depopulat- The debt brake is a blunt instrument on February 23rd has concentrated
ing areas. "I think what's happening in placed in the constitution by Mrs Mer- minds. (A dispute in November over
Kherson is a harbinger," says Ms Wille. ■ kel's government in 2009. It limits the whether to relax the rule precipitated the
federal government's annual deficit to collapse of Mr Scholz's government.)
0.35% of GDP, after adjusting for the Will they get their way? Much de-
Former Kakhovka
economic cycle. It prevents the 16 states pends on Friedrich Merz, who polls
Reservo'.'-:'.
from borrowing at all. Now, as Ger- suggest will take over from Mr Scholz as
many's flatlining economy holds down chancellor. His centre-right Christian
UKRAINE revenues while spending demands Democrats are split, but Mr Merz has
Mykolaiv• mount, it is biting harder than ever. The hinted he could ease the rule. Now Ger-
Kherson ✓-
Dam site
' •
Kakhovka
country needs hundreds of billions for
infrastructure, decarbonisation and
many's brightest economic brains are
buzzing with ideas for reform. These
•Odessa Kherson education in the coming years. Add to include lifting the 0.35% limit; creating
that an extra €3obn ($31bn, or 0.7% of giant funds for infrastructure or defence;
GDP) a year that will be needed for de- or even replacing the rule with fuzzier
Black Sea Crimea
fence once a special fund created after guidelines with a role for parliament.
Ukrainian territory the invasion of Ukraine runs out in 2028. The last of those seems unlikely.
annexed by Germany's public-debt stock, at 64% Constitutional changes require two-
75km Russia in 2014
I of GDP and falling, is lower than that of thirds majorities in parliament, and a
J anuary 22nd 2025 most of its peers. Little wonder calls for proposal will emerge only after delicate
Russian- ■ Russian ■ Claimed as Russian- reform are growing, including from Mrs coalition talks. Mr Merz would have to
controlled operations' controlled Merkel herself. Crucially, voters seem to be mindful of the fiscal hawks in his own
•Russia operated in or attacked, but does not control agree. A forthcoming opinion poll con- ranks. Reform is likelier than revolution.
Sources: Institute for the Study of War; A El's Critical Threats Project
 The Economist January 25th 2025 Europe 25

► would confirm suspicions that the Oresh- Italy doorstep a prelate best known as a spirited
nik is no more than a souped-up version of defender of America's immigrants. Antici-
an older model, the RS-26 Rubezh inter- The Francis and pating the president's future plans, then-
mediate-range ballistic missile. Bishop McElroy had declared during Mr
Rather than a major threat, the Oresh- Giorgia show Trump's first term: "We must disrupt those
nik is a show of force, made with a Western who would seek to send troops into our
audience in mind, and a reminder of Rus- ROME streets to deport the undocumented, to rip
sia's nuclear capacity. For Ukraine, a more The pope and the prime minister mothers and fathers from their families:'
pressing concern is the new Shahed-136 tussle over Donald Trump The appointment of the feisty cardinal
suicide drone, which Russia is now pro- was seen in Rome as being a form of retali-
ducing at home having previously relied on ONFLICTING SIGNALS are reaching ation for Mr Trump's proposal of a hardline
imports from Iran. To date, Ukraine has
been able to divert or intercept more than
C the new American administration
from Rome. And some carry a whiff of in-
MAGA supporter for the job of American
ambassador to the Holy See. Brian Burch,
80% of the drones. Very few have managed cense. While Italy's prime minister, Gior- who heads a political activist group, Cath-
to strike Kyiv's centre. But the Shaheds are gia Meloni, was preparing to fly to Wash- olic Vote, has publicly rebuked Francis and
becoming more resistant to spoofing or ington to schmooze President Donald accused him of spreading confusion
jamming, Ukrainian engineers say. Trump and his chums, a leader on the other among the members of his church.
Upgrades have also made the Shaheds side of the Tiber was communicating stark Neither Mr Trump nor Pope Francis
faster, more manoeuvrable and capable of disapproval of their plans. would seem to be in a mood to co-operate.
flying higher. A wake-up call came on Janu- In a television interview on January 19th Yet both have a common interest in ending
ary 1st, in one of the biggest drone attacks Pope Francis described the president's the war in Ukraine. And Pope Francis's
since the start of the invasion, when at much-vaunted scheme for mass deporta- stance has been more in tune with Mr
least two Shaheds were able to breach Ky- tions of unauthorised immigrants as a dis- Trump than with most European leaders.
iv's Pechersky district, home to the govern- grazia. Though widely translated as a "dis- Last year he infuriated the Ukrainian gov-
ment quarter. One of them smashed into a grace", the term in Italian is arguably even ernment when he appeared to say it should
building only 150 metres from the presi- stronger. It can signify a "tragedy" or "ca- have "the courage of the white flag" and
dency building. Two people died. lamity". Francis added, with visible indig- start peace negotiations.
The earlier Shaheds used GPS technol- nation: "This won't do! You don't resolve Peacemaking has also been on Ms Mel-
ogy to navigate. Many of those now being things this way:' oni's mind. The only European leader to at-
used are packed with 4G data modems and Immigration is a touchy subject for the tend Mr Trump's inauguration, she had al-
Ukrainian SIM cards, which allow them to pontiff: his grandparents emigrated to Ar- ready been described by the president- at
travel using Ukrainian cell-phone towers, gentina. In his autobiography (see Culture an earlier meeting in his Mar-a-Lago resi-
as well as Chinese satellite navigation an- section) he describes how the ship they dence-as a "fantastic woman". Enveloped
tennas. This makes them more accurate were to have boarded with their son, the in the aura that American presidential ap-
and capable of dodging Ukrainian elec- future pope's father, sank in the Atlantic proval confers, Ms Meloni seems deter-
tronic-warfare (EW) defences. Recent re- with the loss of almost 300 lives. Mr mined to give Italy a wider and weightier
ports indicate some may be equipped with Trump's plans are largely directed at the role in international affairs. While she was
artificial intelligence, which Russia hopes pope's fellow Latin Americans. in Washington her foreign minister, Ant-
to use to launch autonomous drone salvos. This was not the first time the pope had onio Tajani, was flying out of Rome for
"In the near future," says Anatoly (not his shown his readiness to clash with the new talks with his Israeli counterpart, Gideon
real name), a Ukrainian engineer, "our EW administration. On January 6th he named Sa'ar, Israel's president, Isaac Herzog, and
systems may not be able to affect the Cardinal Robert McElroy, the bishop of the Palestinian prime minister, Moham-
flights of the Shaheds at all:' San Diego, as archbishop of Washington, mad Mustafa.
He and others are also seeing an in- DC. In so doing, he planted on Mr Trump's Ms Meloni herself will to travel to the
crease in the use of Russian parts. At the Middle East on January 26th for a visit to
start of the war the Kalibr, one of Russia's Saudi Arabia. Her talks there will no doubt
most destructive cruise missiles, used touch on Saudi Arabia's conditions for
mostly Western electronic components. joining Italy, Japan and Britain in a project
Today, most of what the researchers call for the construction of a next-generation
the Kalibr's "brains" come from Russia. combat aircraft. But it would be surprising
China is making up for the shortfall, if Ms Meloni did not also discuss with her
says Anatoly. He picks up a servo motor hosts a more lasting solution to the con-
found in a Russian KAB guided bomb, pro- flict between Israel and Hamas. In Jerusa-
duced by a Chinese company but falsely lem, Mr Tajani announced that Italy was
labelled as German. "Almost everything ready to send troops to Gaza as part of an
you see here", he says, "has a huge number Arab-led international peace mission.
of Chinese elements:• Western sanctions This is heady stuff for Italy. Though it is
are always one step behind, he says. "It's a member of the elite G7 group of rich
impossible to control what the Chinese Western countries, it has long wielded
have handed over to the Russians." much less diplomatic clout than its eco-
To Anatoly, the wreckage gathered in nomic importance would justify. It remains
his lab is a treasure trove. His one com- to be seen whether Italians will react with
plaint is that Ukraine does not have more pride than concern to an expanded
enough people to reverse-engineer some international role. But with Germany and
of the weapons Russia has been dropping France both hamstrung by their domestic
on its cities. "Our main task is to techno- politics, an opening for European leader-
logically outpace the Russians;' he says. ship exists. And Ms Meloni seems deter-
"But our best guys are in the trenches." ■ Not happy mined to grasp it. ■
26 Europe The Economist January 25th 2025

CHARLEMAGNE
The age ofgunboat digital diplomacy

Can the European Union regulate Donald Trump's big tech bros!

Apple, Alphabet and the like; throttled their acquisition drives;

and even raised the prospect that some firms may be broken up.
Another gripe is that Europe insists content that would be illegal
offline is also illegal when posted on a social network, and de-
mands that algorithms that sway public discourse by pushing
some users' posts over others must be subject to transparency
rules. Lastly, the EU (with the help of America, under previous
management) has cracked down on what it deems unfair tax ar-
rangements, which siphon profits to low-tax jurisdictions.
The tech outfits' hordes of lobbyists have long muttered that
Brussels hyper-regulation is not only bad for them but for Europe,
the very reason the continent's economy is stuttering. As if to
warn Europe, Apple and Meta are among those that have delayed
the launch of products in the EU market. Now they seem to be
goading Mr Trump to act on their behalf Mark Zuckerberg, Meta's
founder, has painted the fines imposed on big tech by the EU as
akin to tariffs-the kind of thing Mr Trump should retaliate
against, in other words. Earlier this month he described EU rules
as "institutionalising censorship", as if Eurocrats' demands that
rape videos must be taken down were like North Korean brain-
washing. In October Mr Trump railed at American companies be-
ing "taken advantage of' by the EU. His running-mate, now vice-
N AN ERA dominated by tech giants worth trillions of dollars, president, J.D. Vance, questioned whether America should keep
I no European firm started from scratch in the past 50 years is to-
day valued at more than a mere hundred billion (Spotify, a music-
defending Europe through NATO if Europe regulates X, the social
network owned by Elon Musk, who is now an adviser to Mr Trump.
streaming service based in Sweden, hovers around the mark). The At home, the new president has already kiboshed some of the
absence of entrepreneurial vigour is a recurring source of frustra- global tax rules that big tech railed against. Getting the EU to
tion for European politicians in search of economic pep and tax stand down will be harder. Much of the regulation it has crafted
receipts. With no local corporate tech titans to berate into creat- reflects its ancestral wariness of big business. Ensuring dominant
ing jobs, German chancellors, French presidents and their like companies do not profit unduly from their market power is not
have had to grit their teeth as they beseeched one visiting Amer- some fad: it is enshrined in the treaties that govern the EU. Lim-
ican bro after another to consider setting up a research facility, ar- iting big tech's sway over users is a matter of human rights, not
tificial-intelligence (AI) hub or gigafactory in their country. As easily circumvented. Something of a consensus exists that bits of
both sides posed for the obligatory selfie, it could be hard to tell EU regulation are indeed too cumbersome; there are moves to roll
who had the upper hand: the elected leaders, or the globally some of it back. But most Eurocrats believe that its rules are on the
known plutocrats with net worths bigger than most EU countries' whole working as intended.
budgets? At least, the politicians could tell themselves, even the
mightiest Amazons or Facebooks of the world would have to fol- Regulators at the gates
low European laws as a condition of doing business there. Getting the EU to stand down would be a win for big tech. Not
It turns out that this may be an imposition too many for the only is the European market second only to America when it
world's techies. Even before their bosses flexed their political comes to rich users, but regulations crafted by the EU are often
muscles by snagging prime seats at the inauguration of Donald copied by jurisdictions far beyond its borders. This "Brussels ef-
Trump on January 20th, a refrain could increasingly be heard that fect" is a point of pride for Europeans. Anu Bradford, a tech expert
the European Union's nagging regulations are an annoyance that at Columbia Law School who coined the term, says she expects
some of them would rather not abide by. Newish EU rules de- the EU will hold firm. "Nobody in Europe will look at big tech
signed to ensure that digital markets do not turn into cosy mono- companies this week and think, 'We wish they were more power-
polies, to limit the spread of harmful bilge on social networks and ful':' The fact that Mr Musk has used X to boost hard-right parties
to regulate AI are increasingly being painted as a Euro-ploy stand- in Europe has made policymakers there all the warier.
ing in the way of Trumpian plans to make America great again Various EU officials insist it is business as usual and that its
(again). Europe is already dreading the prospect of a trade war many investigations of big tech firms will be concluded and made
with its biggest commercial partner by far, not to mention the fu- public soon, fines and all. But the president of the European Com-
ture of its decades-old security guarantee from America as war mission, Ursula von der Leyen, told the World Economic Forum in
rages in Ukraine. If Mr Trump orders Europe to ease up on Amer- Davos the day after Mr Trump's inauguration, that Europe would
ican tech firms to please his new corporate chums, can his de- have to be "pragmatic" in dealing with the new administration.
mands be resisted? The final stage of punishing tech giants is in part a political deci-
Tech firms have three gripes about EU regulation. The first sion. There are reports of the commission "reassessing" how this
concerns its enforcement of antitrust rules, which has long been might be done, though no clear sense of how this will happen in
more stringent than America's (bar a burst of hyperactivity under practice. Europe will find it very hard to stand down against big
the Biden administration). This has resulted in a slew of fines on tech-but it may not like the price of standing firm. ■
workforce
The Economist January 25th 2025 29

United States

Presidential pardons kept busy before he left. On January 20th

he issued pre-emptive pardons for polaris-
The quality of mercy ing figures like Mark Milley, the retired top
general; Anthony Fauci, a public-health of-
ficial; and members of the House's January
6th committee. Mr Biden said that the par-
dons were not an admission of guilt so
WASHINGTON, DC
much as protection from "revenge" by the
Two presidents compete over the worst abuse of the pardon power new Trump administration.
Although Mr Biden's Department of
MERICAN PRESIDENTS are often dis- doned his predecessor, Richard Nixon. Re- Justice (DoJ) previously argued that immu-
A appointed to discover limits to their cent declarations have been less high- nity for presidents wasn't needed because
authority, but the country's founders in- minded. Bill Clinton pardoned a Demo- grand juries are "prohibited from engaging
tended the nearly absolute pardon power cratic donor's former spouse and, during in arbitrary fishing expeditions", and the
to be an exception. Alexander Hamilton, his first term, Mr Trump did the same for justice system broadly is "subject to public
for example, believed that legislators his son-in-law's father. scrutiny and rigorous protections for a de-
should not be involved in the pardons pro- Mr Trump's indiscriminate pardons of fendant's rights", the outgoing president
cess because "one man appears to be a those involved in the January 6th attack on grew more sceptical of safeguards in the
more eligible dispenser of the mercy of the Capitol understandably dominated system, even with his own party in control
government, than a body of men:• Ameri- headlines (see next story). But Mr Biden of the Do). That was the case in December,
cans might now question the wisdom of when Mr Biden cast doubt on the fairness
bestowing such responsibility on men like of the justice system he oversaw to justify
➔ ALSO IN THIS SECTION
Joe Biden and Donald Trump. breaking his pledge not to pardon his son.
Throughout American history, the use 30 Proud, happy boys Mr Biden's siblings and their spouses
of clemency has ranged from magnani- also received pre-emptive pardons in the
31 Ross Ulbricht freed
mous to contemptible. George Washing- final minutes of the administration. Mr
ton pardoned men involved in a violent in- 32 Birthright citizenship under threat Trump had considered a similar move after
surrection against his government over a the 2020 election but decided against it
32 An immigration crackdown
whiskey tax. Andrew Johnson granted re- after facing bipartisan criticism. Mr Biden
prieves to Confederate civil-war veterans. 33 Mischief in North Carolina had no such qualms, framing the last-mi-
Draft-dodgers were let off the hook by Jim- nute pardons as protecting the innocent
34 Lexington: A golden age
my Carter and Gerald Ford, who also par- from unfair prosecution. Never mind that ►►
 30 United States The Economist January 25th 2025

► Mr Biden's own Do) had investigated his granted clemency to most of the federal Mr Tarrio says a full pardon was what he
brother, or that Republicans allege he had prisoners on death row and thousands of expected "from day one after the election".
lied to Congress in testimony. non-violent offenders. Yet the most recent The plans he made for life after libera-
John Yoo, a legal scholar with an expan- data show he leaves office with nearly tion won't start just yet. His first day home
sive view of presidential power, suggested 10,000 petitions closed without presiden- is "a moment of zen" before he figures out
that such unprecedented pardons could tial action, up from just over 8,000 under what is next for him and for the Proud
create new vulnerabilities for those who Mr Trump four years ago. The number Boys. To those who say that the pardons
accept them. No longer subject to federal stood at around 500 when George H.W. represent a whitewashing of what hap-
prosecution, recipients such as Mr Fauci Bush left office in 1993. Margaret Love, pened on January 6th, Mr Tarrio replies
can't cite a right to avoid self-incrimination who was the Doj's pardon attorney in the that his imprisonment in the first place
when refusing congressional testimony. "If 1990s, says it is common to see someone was an injustice. "I understand their game,
we really want to know what happened convicted of a minor drug offence as a you take the opponents' pieces off the
with covid and lab leaks and federal fun- teenager seeking a pardon so they can be- board;' he says. "And I'm down to play that
ding...well, now Congress can find out;' come a lawyer as an adult. game, right? But we're not at that point
reckons Mr Yoo. He also noted that prose- During Mr Trump's first term, only yet:' He is not "calling for it", but he means
cutors at state level, who pursued cases about 11% of the 238 clemency grants were that his team too can lock people up.
against Mr Trump parallel to federal ones, recommendations from the Department of Mr Trump's amnesty was more sweep-
remain free to investigate and indict those Justice's pardon attorney. The president ing than its beneficiaries had expected.
with federal pardons. typically preferred flashier cases. "I hope "This is leaps and bounds better than I
Another little-noticed act of clemency Trump will take a careful look at how we're could have hoped;' says John Kinsman, a
came for Leonard Peltier, a Native Ameri- using the power;' says Ms Love. "Let's do Proud Boy who served four years in prison.
can activist convicted of murdering two some stuff for little people." ■ "Never in a million years" did he think that
federal agents. For decades the case was a Mr Trump would set every January 6th
cause celebre on the left. Meanwhile, the di- "hostage" free. All but 14 leaders of the
rector of the FBI expressed "vehement" op- Capitol offenders Proud Boys and Oath Keepers, a militia,
position to the release of a "remorseless who breached the Capitol building, were
killer". But Mr Eiden commuted Mr Pel- Liberation day granted full pardons. Their pardons lift
tier's sentence, citing health concerns. No penalties that typically arise from felony
doubt many of Mr Trump's supporters will convictions, such as restrictions on buying
point to this decision when defending his guns, visiting certain foreign countries
indefensible January 6th pardons. RALEIGH, NORTH CAROLINA and, in some states, voting. Those who
Those supporters also may cite Hamil- Donald Trump rewrites the history of weren't pardoned had their sentences
ton's admonition that "there are often crit- January 6th 2021 commuted. In their cases, Mr Trump said,
ical moments, when a well timed offer of his team needed to do "further research".
pardon to the insurgents or rebels may re-
store the tranquillity of the common-
"THIS big one;' Donald Trump said
IS A
as he signed a clemency order for
The outcome seemed surprising be-
cause a few days earlier J.D. Vance, now the
wealth". The difference is that such par- nearly 1,600 January 6th rioters just hours vice-president, told viewers on Fox News
dons were meant for a president trying to after being sworn into office. By evening that "if you committed violence on that
quell unrest-not to protect participants in Enrique Tarrio, the leader of the Proud day obviously you shouldn't be pardoned."
unrest that he had condoned. Others seem Boys, a far-right group, who had served Yet many who had were. Pam Bondi, Mr
to be learning depressing lessons from three years of a 22-year sentence in federal Trump's nominee to lead the Department
this: Eric Adams, the mayor of New York, prison for choreographing the attack on of Justice (DoJ), echoed Mr Vance's re-
who faces corruption charges, has started the Capitol in 2021, was in a holding cell in straint. The fact that Mr Trump overruled
courting Mr Trump in recent months. Louisiana awaiting release. Back in Miami, them suggests that the scope of his final ►►
Even when Mr Trump made a defensi-
ble choice on clemency, he went about it in
an unseemly way. On January 21st he par-
doned Ross Ulbricht, who had been sen-
tenced to life in prison after creating an
online marketplace for drug-dealers and
other criminals (see later story). Mr Trump,
who had previously called for the death
sentence for drug-dealers, alluded to a
campaign promise to libertarians and said
that "the scum" who convicted Mr Ulbricht
had pursued him too.
Presidential pardon power took a repu-
tational hit this week, deservedly. To
change it requires a politically impossible
constitutional amendment. Presidents
could wield it more responsibly, though.
To persuade them to do so would require
public pressure and awareness of what a
better system might look like.
While high-profile cases get the most
attention, thousands of anonymous Amer-
icans remain mired in a backlog of clemen-
cy reviews at the Do). Mr Eiden previously A bleak winter's day
 The Economist January 25th 2025 United States 31

► decision was his own idea. Mr Trump said It is unarguable that soon hundreds of The pardon exemplifies Mr Trump's
those imprisoned had served enough time. people who punched police, smashed win- brand of transactional politics. He origi-
To some on the inside, Mr Trump's ac- dows and broke through barricades will be nally promised to commute Mr Ulbricht's
tions only reinforce their belief that he home. Though many of them are ordinary sentence at the Libertarian Party's nation-
sought on January 6th to goad his suppor- doctors and businessmen, at least 200 have al convention last May. In exchange, many
ters to sack the Capitol. "This is one of the pledged allegiance to a militia-like group. of the party's supporters voted tactically
most candid acknowledgments that what In interviews Proud Boys across America for Mr Trump over their own candidate in
happened that day is what he intended;' say that jail time has subdued their move- November. Promises made, promises kept.
says a senior DoJ lawyer. It is indeed rea- ment-and watchdog groups like Miami And yet the way in which Mr Ulbricht's
sonable to see the pardons as an endorse- Against Fascism agree that their power has cause was taken up by libertarian voters is
ment of the mob violence that took place. been "severely diminished". also revealing. As Dread Pirate Roberts, he
In the summary of his now-dismissed case, Nonetheless political violence, both on represented a type of internet anarchism
published on January 7th this year, Jack the left and the right, has increased since that has, with the rise of cryptocurrency,
Smith, the special counsel who investigat- 2021; there were two lone-wolf attempts on grown hugely influential.
ed Mr Trump's role, wrote that his office Mr Trump's life during the campaign. Ac- Mr Ulbricht was caught because of a
had sufficient evidence to "obtain and sus- cording to an analysis by Robert Pape of stupid mistake-he posted his own email
tain a conviction". But Mr Trump has now the University of Chicago, the DoJ prose- address using an account he had used to
made sure that the meaning of the January cuted 26 threats against members of Con- promote the Silk Road. And yet in the case
6th assault will be long contested. To many gress between 2022 and 2023. Yet Mr against him, prosecutors suggested he was
of the president's supporters, the pardons Trump's administration may not pursue also a violent criminal who had paid a hit-
rectify an injustice arising from overreach domestic radicals as forcefully as Joe Bi- man to take out an informer. What they
by Mr Trump's foes. den's administration did. ■ did not reveal was that the supposed hit-
man was in fact an Drug Enforcement Ad-
ministration, Carl Mark Force IV, who was
Ross Ulbricht freed using his knowledge of the case to extort
bitcoin from Mr Ulbricht. The informer
Silk ties and his murder were fake. Mr Force and an-
other agent, Shaun Bridges, later pleaded
guilty to corruption offences.
Mr Ulbricht's supporters use this to ar-
gue that their man was unfairly punished.
CHICAGO According to a commentary posted on the
The returning president pardons a pioneer of crypto-crime "Free Ross" website, which operates with
the support of his family, Mr Ulbricht "is a
HERE CANNOT be many international involved in the modern day weaponisation peaceful first-time offender". Or as Angela
T crime leaders inspired by "The Prin-
cess Bride", a cult children's fantasy movie
of government against me;' wrote Mr
Trump on his social-media platform, Truth
McArdle, the chairwoman of the Libertar-
ian National Committee, put it after his re-
released in 1987. Ross Ulbricht, the foun- Social. The president, who has mused lease, Mr Ulbricht was a "political prison-
der of the Silk Road, the very first dark-web about executing drug-traffickers, said that er", and "one of our own". The Silk Road,
drug-trading network, certainly was. two life sentences were a "ridiculous" pun- she argued, was a libertarian project, all
When users signed up for the website, ishment. He was also honest about his rea- about "economic independence".
which went live in 2011, they were greeted son for the pardon. It was, he said, in hon- That is a stretch. When Mr Ulbricht
by a message from the founder, "Dread Pi- our of America's libertarian movement, was arrested, the government seized
rate Roberts", the hero of the film, explain- "which supported me so strongly". 144,000 bitcoin he had accumulated in
ing how the site worked. Shielded by Tor, commission on drug trades, then worth
which hides website servers, and using bit- around $3om (and rather more now). He
coin to make payments, users could order may not have killed anyone, but Mr Ul-
all manner of goods and services without bricht was arguably the first serious
revealing personal information. cryptocurrency criminal. The Silk Road
The combination of the two technol- was to organised crime a little like what
ogies, Tor and cryptocurrency, allowed the Napster was to the music industry. Had he
creation of something like an Amazon not been caught, Mr Ulbricht would plau-
Marketplace, only for illegal drugs. Users sibly be a billionaire by now.
could anonymously order parcels to their Nowadays, not only are dark-web mar-
homes, without ever having to encounter a kets still thriving, but bitcoin is also used
scary drug-dealer in person. Dread Pirate as a means of money-laundering for more
Roberts was its delightful outlaw organis- offline drug-dealing. Ransomware, a type
er. Until, of course, in 2013 the Silk Road of extortion dominated by Russian crime
was shut down by FBI agents and Mr Ul- groups, would be impossible without it.
bricht, then 29 years old, was arrested in "Cryptocurrency is foundational to mod-
the science-fiction section of a San Fran- ern cybercrime;' says Jamie Maccoll of the
cisco public library. In 2015, after a four- Royal United Services Institute, a British
week trial, he was convicted of various of- think-tank. In "The Princess Bride", Dread
fences and sentenced to life in federal pri- Pirate Roberts is revealed to be more than
son. And that is where he sat until January one man. The moniker shifts from one pi-
21st, when Donald Trump pardoned him. rate to another. Mr Ulbricht is free again.
"The scum that worked to convict him But he is no longer Dread Pirate Roberts;
were some of the same lunatics who were Promises kept now they are everywhere. ■
32 United States The Economist January 25th 2025

Birthright citizenship

Into a scrap
CHICAGO

To deny newborns citizenship, Mr

Trump misreads the constitution

N HIS INAUGURATION speech Donald

I Trump promised that, in his administra-
tion, "we will not forget our constitution:•
Before the day was over, Mr Trump had
signed an executive order that, if imple-
mented, would apparently end birthright
citizenship, which is guaranteed by the
14th Amendment to the constitution. Ac-
cording to the plain text of the amend-
ment, "all persons born or naturalised in
the United States, and subject to the juris-
diction thereof, are citizens of the United
States:• It doesn't mean what it appears to Anchors away
mean, Mr Trump claims.
Under Mr Trump's order, from next that when the framers of the amendment children could now be excluded from citi-
month the federal government will refuse wrote "jurisdiction" what they in fact zenship, too. Indeed, it is unclear what le-
to issue "documents recognising American meant was "allegiance". This "just looks re- gal status those children would have. In ef-
citizenship" (presumably passports) to versed-engineered", says Mr Spiro. fect, some legal immigrants would give
newborns unless they have a parent who is Since 1898, when United States v Wong birth to undocumented "immigrants".
either a citizen or a permanent resident of Kim Ark was decided by the Supreme The effect of ending birthright citizen-
the United States. Children born in Amer- Court, American law and practice has held ship, combined with America's current im-
ica to unauthorised immigrants would thus that birthright citizenship applies to the migration law, would be to create a grow-
be excluded. But so too would those of children of foreigners, says Alison LaCroix ing class of second-class residents-non-
around 3m people living in America on ex- of the University of Chicago's law school. immigrants who can never become citi-
change, work or student visas. In that case, an American-born child of zens. Fortunately, Mr Trump probably
Relatively few rich countries automati- Chinese migrants in San Francisco sued lacks the power to bring that about. ■
cally extend citizenship to everyone born when he was refused re-entry to America.
on their territory (though Canada does, as A president cannot overturn over a century
do most countries in Latin America). of precedent about how to interpret a con- Immigration
America started doing so at the end of the stitutional amendment with an executive
civil war. The constitution was amended order, says Ms LaCroix. Had it been ap- Border orders
then to overturn the Dred Scott decision of plied in the 1960s Mr Trump's rule would
1857, which held that black people were have stopped Kamala Harris from becom-
not Americans. The 14th Amendment en- ing a citizen.
sured that freed slaves and their children Mr Trump's order seems unlikely to sur- LOS ANGELES

would henceforth be citizens. vive legal challenges, even with a friendly The president cries "invasion"
The Trump administration's argument Supreme Court. But even if it does, imple- to justify a crackdown
is that the 14th Amendment "has never menting it would be difficult. When apply-
been interpreted to extend citizenship uni- ing for passports Americans have to sub- N "INVASION". That's how Donald
versally to everyone born within the Unit-
ed States". Narrowly speaking, this is true.
mit only a birth certificate to prove their
citizenship; these do not now record the
A Trump describes migration across
America's southern border. "For American
The American-born children of foreign citizenship or legal status of parents. Birth citizens, January 20th 2025 is Liberation
diplomats, who have immunity from pros- certificates are also issued by local govern- Day," he said in his inaugural address. The
ecution, have always been excluded from ments, so that is unlikely to change soon, notion that America is being invaded is the
American citizenship, under the clause at least in Democratic states. To exclude defining theme of ten executive orders on
about jurisdiction. Until the passage of the foreigners' children, everyone would have immigration and border enforcement he
Indian Citizenship Act in 1924, so too were to provide documentation. signed on his first day in office. This is de-
some native Americans. But Mr Trump Ending birthright citizenship would spite the fact that encounters at the border
seems to think the jurisdiction clause al- also create some perverse outcomes. Al- are the lowest they have been in four years.
lows him to exclude far more people. though work visas and the like are nomi- The orders fall into three categories: the
To justify this he draws on fringe think- nally meant to be temporary, in reality, rescission of Joe Biden's policies and rein-
ing, which has gained adherents on the many people have them (legally) for de- statement of Mr Trump's first-term plans;
right since the early 1990s. Republican rep- cades, and start families during that time. flashy things that sound tough; and ex-
resentatives in Congress have repeatedly In particular, because of a federal cap on treme measures that range from probably
introduced laws ending birthright citizen- the number of green cards available to citi- illegal to flagrantly unconstitutional.
ship, though none has got out of commit- zens of any one country, people from India In the first group Mr Trump issued a
tee, notes Peter Spiro of Temple University and China find it almost impossible to sweeping order that aims to increase de-
in Philadelphia. The argument made is convert to permanent residency. Their tention, coerce countries to take back their ►►
 The Economist January 25th 2025 United States 33

► citizens, encourage local police to help An unfinished election blessed by a federal judge.
with immigration enforcement and punish An analysis by Chris Cooper of West-
sanctuary cities, among other things. He Carolina scheming ern Carolina University finds that less than
resurrected Remain in Mexico, a policy he a quarter of the two largest groups of
introduced in 2019 that forced migrants to voters being challenged are Republicans.
wait on the other side of the border while And Mr Griffin is questioning overseas
their asylum claims were adjudicated. RALEIGH
votes in only four of North Carolina's 100
He also shut down CBP One, an app set A contested judicial race could counties-the most urban, Democratic
up by the Biden administration that helped shape a swing state's future ones. Mr Griffin is not shy about his goals:
migrants schedule appointments to apply in a brief filed last week he encouraged the
for asylum. Migrants already in the queue H EN SHOULD an election loser con- court to stop checking ballots once the
found their meetings abruptly cancelled
after Mr Trump took office. During his first
W cede? That question lies at the core
of a fight over a North Carolina state Su-
outcome flips in his favour.
At stake is the political future of one of
term, the number of refugees relocated to preme Court race that is still being con- America's swingiest states, a hotbed for
America plummeted. This time he sus- tested months after election day. Jefferson battles over redistricting. The state court is
pended all refugee resettlement for at least Griffin, a Republican, challenged the in- the arbiter of election maps. If Mr Griffin
three months. Another order increases vet- cumbent Democrat, Allison Riggs, for her were to secure a spot on the 5-2 Republi-
ting for migrants and directs agencies to seat in November. After losing by just 734 can-controlled bench, Republicans would
identify whether there are countries from votes he requested two recounts. When surely determine redistricting after the
which travel should be prohibited, perhaps both reaffirmed her win he brought law- 2030 census. But such a naked power-grab
a prelude to a ban like the one Mr Trump suits, challenging the ballots of nearly could backfire, says Mr Cooper. North Car-
imposed on arrivals from mostly Muslim- 70,000 voters. On January 7th the Republi- olina will host one of the country's most
majority countries in 2017. can court, which he hopes to sit on, de- competitive Senate races in 2026. Even Re-
Some orders sound harsh but may not layed certification of Ms Riggs's victory. publicans admit that a story about their
change much. One that demands physical Mr Griffin is questioning several sets of team trying to nullify legal votes could
border barriers, detention and deportation voters. They include 5,500 who live abroad help Democrats in that one.
is "just calling for enforcing laws that are or on military bases and did not present a Bob Orr, a former Republican justice
already on the books", says Julia Gelatt of photo ID with their absentee ballots. An- who has since left the party, reckons the
the Migration Policy Institute, a think- other group of just over 60,000 filed regis- idea of the legal challenge was prepared
tank. Additionally, Mr Trump declared a tration forms missing a Social Security or before the election for Donald Trump, in
national emergency at the southern bor- driving-licence number. Among the rest, case the presidential race in North Caroli-
der, which allows the defence secretary to he says, are felons and dead people. na was close. Paul Shumaker, who ran Mr
send troops to help secure the frontier with Democrats are up in arms about the Griffin's campaign, denies that. Republi-
Mexico. George W. Bush and Barack Oba- challenges. "This is probably the most cans claim that the state election board,
ma did something similar. Federal law lim- anti-democratic action we've seen on the which is run by Democrats, misinterpreted
its soldiers' roles in domestic affairs to state level;' says Morgan Jackson, a party North Carolina's voter-ID mandate. Al-
non-law-enforcement activities such as strategist. The two largest groups of voters though the rule exempting overseas voters
transport and logistical support, rather under scrutiny did nothing wrong. Accord- was unanimously confirmed by a rules
than actually arresting migrants. The na- ing to the rules set by the state election committee, Republicans believe that the
tional emergency also unlocks funds from board, overseas voters are exempt from appointed board ought not to be allowed
the Department of Defence for the fortifi- providing ID, and although the board was to carve out exceptions from state law.
cation of the border wall, a move the presi- aware that some voters had incomplete "Why should some people vote under dif-
dent made in 2019, too. registration forms, it chose not to fix them ferent rules?" Mr Shumaker asks.
That leaves the most extreme orders. before the election. That decision was Jim Stirling of the John Locke Founda-
One aims to end birthright citizenship, tion, a conservative think-tank, says chang-
which is enshrined in the 14th Amendment ing the game after everyone has played
(see previous article). The new president seems like a hard sell. Yet partisans are
kickstarted the lengthy process of classify- committed to the fight. Jason Simmons,
ing drug cartels as foreign terrorist organi- the Republican state-party chair, says that
sations and directed top officials to pre- Mr Griffin's loss simply made their un-
pare for the possibility that he will invoke resolved concerns more pressing. He reck-
the Alien Enemies Act, the only piece of ons Democrats are the ones playing dirty.
the Alien and Sedition Acts, passed in 1798 "Instead of allowing the process to play it-
when America was feuding with France, self out they want to adjudicate this in the
that was not repealed or allowed to lapse. courts of public opinion;' he says.
It permits the president to summarily de- Meanwhile the legal challenge is mov-
tain and deport citizens of countries at war ing through both state and federal courts.
with America. Yet America is not at war, On January 27th the federal Fourth Circuit
and drug gangs are not sovereign states, appeals court will hear arguments-its rul-
even if they do control some territory. ing would override a state one. So far one
This is where Mr Trump's talk of an "in- Republican state justice has voiced oppo-
vasion" becomes more than rhetorical sition to Mr Griffin's arguments. Citing
bombast. Framing the cartels as terrorists doctrine that prohibits changing election
invading America is meant to legitimise law late in the process, Richard Dietz chas-
his use of the law. And because America is tised Republicans for trying to scrap bal-
being invaded, Mr Trump argues, he can lots of voters who complied with current
block anyone from crossing the border. rules. Doing so, he wrote, "invites incredi-
The courts may not see it that way. ■ Bench marks ble mischief". ■
34 United States The Economist January 25th 2025

LEXINGTON
Golden Years

Donald Trump can build on America's strengths. Can he subdue his own weaknesses?

In Mr Trump's first term some of his aides saw the potential of

linking enhanced border security to broader reform of Ameri-
ca's immigration system. For all his harsh oratory about immi-
grants, Mr Trump has sometimes sounded sympathetic, particu-
larly about people brought as children. Last October, he told the
editorial board of the Wall Street Journal he had a practical reason
for his tough talk about illegal immigration: "The nicer I become,
the more people that come over illegally:• (The Biden administra-
tion learned that lesson to its sorrow.) But, Mr Trump said, "We
have a lot of good people in this country, and we have to do some-
thing about it:• In general, said Mr Trump, who is married to an
immigrant, and not for the first time, "I want a lot of people to
come in, but I want them to come in legally."
Mr Trump tries to win over any room he walks into, and that
may explain his comments to the Journal's editors. But he may
also recognise that he has amassed more credibility with immigra-
tion hardliners than any president in memory, and thus has an
opening to achieve what his recent predecessors could not. Com-
prehensive immigration reform has eluded presidents since 1986,
when Ronald Reagan signed into law heightened border security
along with an amnesty for almost 3m people in America illegally.
Other grand, bipartisan bargains are possible for Mr Trump.
AYBE YOU are in the habit of applying a hefty discount to He has not displayed interest in the kind of far-reaching tax re-
M claims by Donald Trump; no one could blame you. But he form that Reagan achieved, but in his first term he showed a flash
of ambition for the sort of gun-safety legislation that polls show a
really does have the chance to lead America into the golden age he
proclaimed in his second inaugural address. Historic circum- majority of Americans want. "It's not going to be talk like it has
stances, political dynamics and his own audacity could also en- been in the past," he told grieving parents and students after a 19-
able him to achieve the legacy he wants as "a peacemaker and a year-old gunman killed 17 people at a Florida high school in 2018.
unifier". His party has fallen into lockstep; his adversaries at home "It's been going on too long, too many instances, and we're going
are confounded and enervated, and America's opponents abroad to get it done:· He scolded Republican lawmakers for being
are preoccupied with their own troubles. Mr Trump has battled for "scared" of the National Rifle Association (but then, after talking
ten years against anyone he perceives to have crossed him. His to NRA officials himself, backed off).
most formidable adversary still standing is probably himself. Such deals at home would realise Mr Trump's vision of being a
As he assumes office again, Mr Trump has embarked on a mar- unifier. His opportunities to prove himself a peacemaker, extend-
keting offensive, a familiar routine, albeit this time with a twist: ing America's golden aura beyond its shores, await not in Panama
rather than having to persuade people something is grander than but in Eastern Europe and the Middle East, where war may have
it is- that the Trump Tower in Manhattan has 68 floors rather wearied America's allies but has surely weakened its adversaries,
than 58- he has to assign himself credit for things that are truth- Russia and Iran. The test for Mr Trump is whether he can insist on
fully better than Americans may yet realise. America's economy is fair deals for Ukraine, and for the Palestinians.
the envy of the world. America is already exporting record
amounts of gas and oil, and its biggest obstacle to pumping more With malice toward some
is global demand. But Mr Trump's declaration in his inaugural ad- From Abraham Lincoln to Franklin Roosevelt to Reagan, presi-
dress of a "national energy emergency" may help him vault to the dents who accomplished great things appear more as unifiers in
head of the kind of parade celebrating American glory that poor the eyes of history than they did in those of their contemporaries.
President Joe Biden lacked the wherewithal to summon. They were all dividers, too. They were also subjected to vicious
Similar gamesmanship explains Mr Trump's inaugural commit- criticism and even violent attack.
ment that Americans would now "be able to buy the car of your But Mr Trump has yet even to hint at the grandeur of spirit that
choice", which was equally true under Mr Biden (and equally un- those presidents brought to the job. The petty partisanship of his
true for those who chose a Ferrari but could not afford one), and inaugural address, along with his pardons of even violent January
his pledge to use troops to "repel the disastrous invasion of our 6th convicts, bodes poorly for the chances that he will ever over-
country" at the southern border, where arrests for illegal crossings come the weaknesses likely to cast a shadow over what could be a
are below the level when Mr Trump left office. golden age: self-pity, a flickering attention span, a vulnerability to
Yet Mr Trump's initial executive orders are meant to do more flattery and a reverence for strongmen. "Trump's sense of ag-
than gild the lily. In some cases they call for drastic action, partic- grievement reinforced his penchant for seeking affirmation from
ularly on immigration. As with Mr Trump's promises of tariffs and his most loyal supporters rather than broadening his base of sup-
his exhumation of "manifest destiny", no one knows how far he port;' General H.R. McMaster concludes in "At War With Our-
may go with his deportation initiative. But there is also a bigger, selves", his memoir about his time as Mr Trump's national security
more hopeful possibility: could his showy crackdown be part of a adviser during the first term. "Trump's indiscipline made him the
grand plan for the golden age? antagonist in his own story." And in America's. ■
The Economist January 25th 2025 35

The Americas

Trump v Mexico radios, vehicles or guns to the gangs. But it

creates new risks for businesses operating
Showdown in Mexico and migrants passing through it,
since most make payments to the gangs for
security or transport, even if unwittingly.
The designation also paves the way for
the United States to take unilateral mili-
MEXICO CITY
tary action in Mexico. In theory, the cir-
Donald Trump's first executive orders show his intention to pummel Mexico cumstances which permit this are extreme-
ly limited; doing so would deeply strain the
ORE THAN any other country, Don- have killed more Americans than groups two countries' relationship. Mexican offi-
M ald Trump went after Mexico on his
first day in office. He ordered its criminal
like Islamic State and Hamas, which do
have FT0 status. State Department offi-
cials are comforted by Marco Rubio, Mr
Trump's secretary of state, saying that he
gangs to be designated as foreign terrorist cials must now draw up a list of which favours co-operation with Mexico. But the
organisations (FT0s), declared an emer- groups to include. idea of unilateral military action is no lon-
gency at the southern border, reinstated The designation matters, says Cecilia ger fringe. On January 20th, when asked
policies that leave migrants languishing on Farfan-Mendez of the University of Cali- whether he might send special forces to
Mexican soil and ordered federal institu- fornia, San Diego. American officials al- Mexico to "take [the gangs] out", Mr
tions to call the Gulf of Mexico the "Gulf ready have the power to pursue gangs and Trump replied: "Could happen. Stranger
of America". He broke his promise to im- those who support them under the King- things have happened:'
pose a 25% tariff on goods imported from pin Act, but an FT0 designation gives them Mr Trump's actions on the border and
Mexico and Canada on "day one", but or- additional powers to investigate and pros- migration present more immediate diffi-
dered an investigation of trade imbalances ecute people. This is a good thing, says culties. Thousands of migrants hoping to
and rambled about a new date for impos- Eduardo Guerrero of Lantia, a consultan- enter the United States legally are now
ing tariffs, February 1st. cy, as it provides better ways to target peo- stuck there after Mr Trump closed all path-
His most unprecedented move was to ple-many of them American-who sell ways to do so. CBP One, an app that al-
kickstart the process of labelling Mexico's lowed migrants to make asylum appoint-
gangs as FT0s. Mr Trump is the first presi- ments, was shut down on January 20th.
➔ ALSO IN THIS SECTION
dent ever to do so, although others, includ- Humanitarian parole, which allowed
ing Barack Obama, considered it. Republi- 36 Replacing Justin Trudeau Cubans, Nicaraguans, Venezuelans and
can officials argue that by trafficking fen- Haitians who meet certain requirements to
37 Brazil's left without Lula
tanyl into the United States, the gangs stay in the United States for up to two ►►
 36 The Americas The Economist January 25th 2025

► years without either an asylum application Canada's Liberal leadership nothing to help his party in the polls. If the
or a visa, was ended too. Mr Trump rein- election were held tomorrow, the Conser-
stated Remain in Mexico, a policy from his Trudeau? Hardly vatives would thump them.
first term which requires asylum-seekers to Mr Carney's advantage is his relative
wait in Mexico for their hearings, and knew him distance from the departing prime minis-
which the Biden administration had end- ter. After running the Bank of Canada from
ed. His declaration of an emergency helps OTTAWA
2008 to 2013, Mr Carney then ran the Bank
him to seal the border, including by de- Those vying to lead the Liberal Party of England until 2020. That makes him an
ploying the army. One thousand five hun- disavow Justin Trudeau outsider in Canadian politics. After return-
dred troops have already been sent south. ing in 2020 he refused several entreaties
Mr Trump also started following HE SPRINT to succeed Justin Trudeau from Mr Trudeau to join his government.
through on his threat to deport "millions"
of people who entered the United States il-
T as the leader of Canada's Liberal Party
has begun. Eight candidates have put their
Mr Carney's rejection of Ms Freeland's fi-
nance portfolio, which Mr Trudeau offered
legally; some 5m of them are Mexican. The names forward ahead of the January 23rd to him in December, was the trigger for the
border town of Tijuana has declared its deadline, but the race will almost certainly latter's resignation.
own state of emergency, fearing being be won by either the former central-bank The former central banker is running
overwhelmed by a mixture of stranded mi- governor, Mark Carney, or Mr Trudeau's on his economic credentials. "The prime
grants and Mexican deportees. Both are former deputy prime minister and finance minister and his team let their attention
fodder for criminal gangs, who make bil- minister, Chrystia Freeland. Another for- wander from the economy too often;' Mr
lions from charging people to be smuggled mer minister in Mr Trudeau's cabinet, 37- Carney said during the rather punchless
across the border. year-old Karina Gould, is running with the launch of his candidacy in Edmonton on
On January 21st Mexico's president, aim of bringing back to the Liberal Party January 16th. "I won't lose focus:' That was
Claudia Sheinbaum, offered a measured the younger voters who have deserted it for a shot at Ms Freeland. Mr Carney told Jon
response. She insisted that Mexico would Pierre Poilievre's Conservatives. Liberal Stewart, a television host, in a much more
collaborate on tackling gangs, nodded at Party members will choose their new lead- effervescent appearance on January 13th,
co-operation on migration, and said that er on March 9th. that he was running as an outsider.
"the whole world" bar the United States' The likely successors are already aban- But many Liberals resent him for leap-
federal government would continue to call doning Mr Trudeau's policies and econom- ing late into the fray that has consumed
the Gulf of Mexico by its name. During Mr ic record. A signature Liberal achievement their party over the past three years, and
Trump's first term, Mexico became a hold- was winning three straight elections while which has seen them slide from first place
ing ground for migrants of all nationalities campaigning to introduce a carbon tax. in the polls to 26 points behind the Conser-
while their claims to asylum in the United Now, Mr Carney, Ms Freeland and Ms vatives. "The Liberal Party of Canada is
States were processed. Ms Sheinbaum said Gould all say they are prepared to pull not a hobby for me;· said Ms Gould. The
Mexico would not do so again, but that it back from the unpopular levy. Mr Tru- implication was clear: Mr Carney might
would help any migrant on its territory. deau's tax-and-spend budgeting? They say not stick around as leader if he loses the
Mr Trump's orders were expected, says Canadians are still smarting from the Lib- general election.
a Mexican official. Mexico has been pre- erals' largesse, and they want it to stop. No one can accuse Ms Freeland of dab-
paring to receive deportees, and has The winner will become prime minister bling in politics; her time at Mr Trudeau's
pledged to give 2,000 pesos ($100) to each immediately, but probably only briefly. side is the weak spot in her leadership bid.
to make their way home. Officials hope Opposition parties have said that they will Casting herself as a candidate of renewal
that Ms Sheinbaum's approach to tackling force a vote of no confidence in the govern- will be tricky. Hours of video show a vigor-
the gangs will forestall military action. A ment as soon as Parliament returns on ously nodding Ms Freeland standing be-
recent series of raids on fentanyl labs are March 24th. The new leader may well call side Mr Trudeau; she publicly approved of
offerings meant to placate. an election rather than face losing that all he said for almost a decade.
But Lila Abed, head of the Mexico In- vote. Mr Trudeau's departure has done Ms Freeland tells it differently. "For
stitute at the Wilson Centre, a think-tank quite some time I was in disagreement
in Washington, worries that the Mexican with the prime minister, particularly in re-
government's plans are not comprehensive gards to spending;' she said at her cam-
enough. Mexican officials have not yet had paign launch in Toronto on January 19th.
any formal contact with the Trump team. Their spat intensified after Donald
The next two weeks are likely to see a flur- Trump's election and his threat to wage
ry of activity to try to ward off the tariffs "economic war" on Canada. "When you
that Mr Trump has said will come on Feb- face an existential threat, you cannot af-
ruary 1st, and the preparation of tariffs of ford to make electioneering expenditures."
its own in case a response is needed. A big question for Liberal members is
Mexican officials say they still hope which candidate will best handle Mr
reason will prevail. "If they want to shoot Trump. Ms Freeland points to her experi-
themselves in the foot, there is not much ence dealing with his administration dur-
we can do about it," says one. Mexicans are ing free-trade negotiations in 2018. Mr Car-
rallying behind Ms Sheinbaum. Her ap- ney says guiding big central banks through
proval ratings have soared to 78%. Mr financial crisis (2008) and populist upheav-
Trump's plans, if carried out in full, will not al (Brexit) means he is best placed to han-
just hurt Mexico and the United States; dle what may be a staggering blow to Can-
they will not achieve his aims. Illegal mi- ada's economy.
gration will probably spike if legitimate Mr Trump never hid his contempt for
routes into the United States are shut Mr Trudeau. He may well be enjoying the
down. Mr Trump's impatience to pummel irony of his outsized role in determining
Mexico may well backfire. ■ At the foot of the 26-point mountain Mr Trudeau's successor. ■
The Economist January 25th 2025 The Americas 37

Brazil's Biden moment its stronghold. Both options are fraught.

Camilo Santana, the education minister, is
Left without Lula gaining ground but still lacks name recog-
nition. Rui Costa, the former governor of
the biggest north-eastern state, has had a
bumpy ride as Lula's chief of staff.
That leaves possible heirs to left-wing
SAO PAOLO
leadership from outside the PT. For a while
Brazil's left wing has no one that can replace Luiz Inacio Lula da Silva Guilherme Boulos, a 42-year-old socialist
congressman, seemed to be Lula's likeliest
INCE LEAVING hospital in December, All the while, the PT conducted vicious successor. He rebelled against his well-to-
S Luiz Inacio Lula da Silva, known as Lu- campaigns against any potential rival to do family at university, moved into a squat,
and became the leader of an organisation
la (pictured), has cut a smart figure. Brazil's Lula, maintaining his control of the party.
president has taken to wearing a Panama The corruption scandals dented Lula's that helps homeless people. Although he
hat to hide deep scars from two emergency reputation, but he remains a giant of Bra- embraced Brazil's poor, they have not em-
brain surgeries. They were carried out to zilian politics. After his release he regained braced him. In October he ran to be Sao
halt bleeding in his brain that followed the presidency from Jair Bolsonaro, a far- Paulo's mayor, and lost by almost 20 points
slipping in the bathroom and banging his right populist, in 2023. Fernando Morais, to the dull right-wing incumbent.
head. Lula, who is 79, has been in good Lula's biographer, describes him as "a buf-
spirits. He recently joked that he could live falo", gruff, disciplined and energetic. He Power couple
until 120. His Workers' Party (PT) insists has shrugged off concerns about his age by Tabata Amaral, a congresswoman from
that he will run again in Brazil's next presi- hinting that he has a lot of sex with his Sao Paulo and a young rising star of the
dential election, in 2026. wife, who is 21 years his junior. A poll of ov- left, does not yet appear to possess suffi-
There is less certainty behind the er 8,500 Brazilians taken between Decem- cient political heft. She also ran in Sao Pau-
scenes. On January 20th O Globo, a nation- ber 4th and 9th suggested that Lula would lo's mayoral race but received just 10% of
al newspaper, reported that Lula had sur- beat any rival in 2026. Yet a slim majority of votes. Her partner, Joao Campos, the
prised his cabinet by telling them that he Brazilians also said he should not run mayor of Recife, the capital of Lula's home
would not run again unless he is in good again. This year "things are going to get state of Pernambuco, may have a better
health. The Workers' Party has been messy" as candidates jockey for Lula's shot. In October he was re-elected mayor
thrown into a frenzy. He is the party's only blessing, says Mr Morais. with almost 80% of the vote. Both are 31,
popular figure. Its base has shrunk as the Top of the list of potential successors in and so open to charges of inexperience.
Brazil in which it was forged has changed. the PT is Fernando Haddad, the finance When Lula is not on the ballot the PT is
Once an industrial powerhouse built upon minister. Mr Haddad is considered a prag- fragile, and right-of-centre parties domi-
a unionised, largely Catholic workforce, matist, and a rare government voice that nate. The number of municipalities with
today Brazil relies on high-tech agriculture upholds fiscal continence. Yet this has PT mayors has fallen from 624 in 2012 to
and gig workers who flock to evangelical drawn the ire of the PT's base. His cerebral 252. Its base has shifted from the south-
temples. As Lula's star fades, the party he background-he has degrees in law, eco- east, the manufacturing heartland, to the
built, which dominates Brazil's left, faces nomics and philosophy, and wrote a doc- north-east, where many people rely on gov-
"an identity crisis", says Celso Rocha de toral thesis on "historical materialism"- ernment aid. That is a liability, since right-
Barros, the author of a book on the PT. makes him something of a hard sell. As the wing governments have also embraced
Lula's remarkable life-story and perso- PT's presidential candidate in 2018 he was handouts. "The PT used to depend on the
nal magnetism have helped him connect walloped by Mr Bolsonaro, who rode an organised poor," says Mr Barros. "Now
with voters in ways most politicians can anti-establishment wave to power. they depend on the disorganised poor." As
only dream of. Born to a poor family in Bra- The PT could yet plump for a popular Lula prepares to bow out, the movement
zil's drought-prone north-east, he eventu- minister or governor from the north-east, he built may struggle to outlast him. ■
ally moved to Sao Paulo, where he worked
his way up from shoe-shine boy to lathe
operator and later leader of the country's
metalworkers' union. He is the first Brazil-
ian president to be elected to three non-
consecutive terms. Barack Obama once
called him "the man".

The man
During his first two terms, from 2003 to
2010, Chinese demand for Brazilian com-
modities rocketed. The state oil firm, Pe-
trobras, discovered huge reserves of crude
oil. This helped to fund an expansive wel-
fare programme and reduce poverty.
Then Lula's luck ran out. Commodity
prices fell, and in 2014 the PT was engulfed
in a corruption scandal. Construction
firms had been paying kickbacks to Petro-
bras executives and politicians, including
many from the PT. In 2017 it caught up with
Lula, and he was sentenced to nine years in
jail (his conviction was later overturned). Lula's last round
38 The Economist January 25th 2025

Middle East & Africa

Gaza and the West Bank "We are determined both to fight Ha-
mas wherever it tries to operate and to pre-
Stoking the flames vent violence by Israeli citizens;· insists
one senior Israeli officer. These two mis-
sions do not sit comfortably together.
Many Israeli soldiers are settlers; some
have joined the rioters. Many of the IDF's
JERU SALE M
West Bank bases are next to the settle-
The ceasefire in Gaza could make violence in the West Bank more likely ments, and the main job of troops sta-
tioned there is to protect their residents.
HE PALESTINIAN villages of al-Funduk covering fire from drones and attack heli- And though the army claims to be fighting
T and Jinsafut have been under unoffi-
cial curfews since January 20th. Armoured
copters, descended on Jenin. The main
Palestinian city in the northern West Bank
settler violence, its political boss, the de-
fence minister Israel Katz, announced a
vehicles of the Israel Defence Forces (IDF) has long been a centre of militant activity. few days ago that he was releasing suspect-
patrol their deserted streets. At the exits But in recent months the security forces of ed organisers of past attacks on Palestin-
from other towns and villages in the West the Palestinian Authority have fought to ians from administrative detention.
Bank, long queues of vehicles wait hours restore order there. Now the IDF, which Both the settlers and H amas, the Islam-
for inspection at Israeli checkpoints. has struck Jenin twice in the past 20 ists who run Gaza and also have a presence
The official reason for the clampdown months, has returned in another show of in the West Bank, are keen to foment vio-
given by the IDF was a spate of shootings force. Israeli security officials deny the op- lence there. For now, Hamas wants to pre-
and stabbings in recent weeks, in the West eration was to assuage the settlers. They serve the ceasefire in Gaza. It has provided
Bank and in Tel Aviv, and explosive devices maintain that they were acting on intelli- the movement with some much-needed re-
hidden on the roads which killed and gence that Hamas is working in Jenin to spite from the IDF's incessant attacks since
wounded Israeli civilians and troops. But open up a new front in the West Bank. October 2023. However, it also needs to
the immediate trigger was riots by Israeli prove that it is still a fighting fo rce. It is us-
settlers, enraged that Palestinian prisoners ing the West Bank to do so.
➔ ALSO IN THIS SECTION
were returning to their homes as part of Meanwhile, the settler movement has
the deal between Israel and Hamas in Ga- 39 Lessons for Trump made no secret of its desire to rebuild its
za. Al-Funduk and Jinsafut were the main communities in Gaza, which Israel dis-
40 Turkey's ambitions in Syria
targets; settlers torched cars and buildings mantled in 2005. For that, they need the
on January 20th. Israeli security forces 41 Somalia's WhatsAppocracy war in Gaza to continue indefinitely, thus
were slow to arrive and repel the attackers. perpetuating Israeli control of the strip.
42 Africa v big tech
The next day two Israeli brigades, with Provoking a new conflagration with the ►►
 The Economist January 25th 2025 Middle East & Africa 39

► Palestinians in the West Bank might Regional politics da; unfortunately, the centrepiece was a
achieve that. More violence there could disastrous invasion of Iraq. Since then,
scupper the next round of ceasefire talks. It Back on the presidents have viewed the region as a
could also lead to attacks against the IDF headache, and their policy was an exercise
in Gaza by Hamas. Squeezing Binyamin president's desk in contradictions. They talked about dis-
Netanyahu, Israel's prime minister, politi- engaging but never actually did. They
cally might also achieve their goals. One of DUBAI
managed endless crises but rarely resolved
the settlers' leaders, Bezalel Smotrich, is America should try to end the Middle them (and often made them worse).
the finance minister and an important ally East's oldest conflicts, not manage them Donald Trump's in-tray is already over-
of Mr Netanyahu. He has promised to top- flowing: fragile ceasefires in Gaza and
ple the government if Israel does not re- T IS BECOMING an odd tradition: Amer- Lebanon, a fraught transition in post-As-
start the war in Gaza within six weeks.
On the ground in Gaza the ceasefire,
I ica's secretaries of state use their final
days to catalogue their failings in the Mid-
sad Syria and an Iranian nuclear pro-
gramme that has advanced to record levels.
which came into effect on January 19th, is dle East. John Kerry did it in 2016. Antony If he is to tackle these crises, he should
holding, so far. The first hostages have Blinken took his turn on January 14th. In a learn from his predecessors' mistakes.
been released as have 90 Palestinian pris- speech at the Atlantic Council, a think- First is to stop acting like an absentee
oners. Aid has begun to flow in. The IDF tank, he described a litany of problems in hegemon. When Hamas attacked Israel on
has begun to dismantle some of its bases. Gaza: the misery of civilians; the failure to October 7th, no one was particularly inter-
Displaced Gazans are returning to the rub- find an alternative to Hamas; the lack of a ested in how Russia, China or the Euro-
ble of their homes. broader peace plan. As a piece of analysis, pean Union would respond. Like it or not,
Will the truce hold beyond this first it was spot-on; as a farewell from America's America is still the only outside power with
stage? Much depends on Donald Trump. top diplomat, it was self-indictment. real influence in the Middle East.
In the weeks before he took office he exert- Joe Biden never worked out how to ex- It should behave accordingly. Under
ed significant pressure on Mr Netanyahu ert American power to achieve his goals. the past two administrations, key dip-
to accept the agreement with Hamas. But For a year his aides begged Binyamin Net- lomatic posts often sat empty. Both Mr Bi-
in the first hours of his presidency, he re- anyahu to moderate Israel's scorched- den and Mr Trump took more than a year
pealed sanctions placed by the Biden ad- earth tactics in Gaza and to accept a cease- to nominate ambassadors to Saudi Arabia.
ministration on some Israeli settlers. A fire. Israel's prime minister faced no conse- Advisers in the White House microman-
number of his key diplomatic appoint- quences for ignoring them. If allies did not aged their pet projects, while everything
ments, including the new secretary of fear Mr Biden, adversaries certainly did else was ignored. The goal was to keep the
state, Marco Rubio, and the future ambas- not. He wanted to force Iran into a new nu- Middle East off the president's desk,
sador to Israel, Mike Huckabee, have sup- clear deal, yet failed to enforce the sanc- which left America in reactive mode.
ported Israeli settlement in the West Bank. tions that were his main tool of pressure. When events forced it onto their desks,
In her Senate confirmation hearing on Jan- At other times, he did not even know presidents became enamoured of short-
uary 21st, Mr Trump's choice as the next his goals. Take his relationship with Saudi cuts. Barack Obama talked of Iran and
ambassador to the UN, Elise Stefanik, af- Arabia. Mr Biden promised to make the Saudi Arabia needing to "share" the region:
firmed her belief in Israel's "biblical right kingdom a "pariah". Then he begged it to Arab states should accommodate the Is-
to the entire West Bank". pump more oil. Eventually he offered the lamic Republic and its network of proxies,
Nevertheless, the impression of senior Saudis a package of goodies to recognise because they were too strong to confront.
Israeli officials and diplomats working Israel. He accomplished none of this. Then came Mr Trump, who saw Arab-Is-
with the Americans is that Mr Trump He was not an aberration. America has raeli normalisation as a magic wand that
wants to prioritise building a regional alli- not had a Middle East policy for almost would isolate Iran and stabilise the Middle
ance in which Israel and Saudi Arabia are two decades. George W. Bush was the last East. Mr Biden embraced that idea too.
central. Ending the war in Gaza is a key president with an ambitious regional agen- The events of the past 15 months should ►►
part of any such plan.
That leaves Mr Netanyahu in a political
bind. Itamar Ben-Gvir, the former national-
security minister and leader of one of the
two far-right parties in his coalition, has al-
ready resigned from the government in
protest over the Gaza deal. If Mr Smotrich
makes good on his threats, Mr Netanyahu's
coalition will lose its majority. The opposi-
tion has promised to support him until the
ceasefire is complete; but ultimately this
would mean holding an early election.
Mr Netanyahu is facing increasing calls
for a reckoning over the failure of Israel's
leadership to anticipate the catastrophic
attack by Hamas in October 2023 that
sparked the war. On January 21st the IDF's
chief of staff, Lieutenant General Herzi
Halevi, announced his resignation, taking
responsibility for the debacle. The man
who led Israel on that day still refuses to do
so. An explosion of violence on the West
Bank would help him defer the fateful day
when he is called to account. ■ Time to get stuck in
 40 Middle East & Africa The Economist January 25th 2025

► dispel such illusions. Iran's "axis of resis-

tance" was strong only because its enemies
were weak: faced with a real challenge, it
crumpled. At the same time, Israel's new
Arab allies wanted no part of the regional
war. They sat on the sidelines.
The path to regional stability is to end
the region's oldest conflicts. It is fanciful to
think that any American president could
end the Israeli-Palestinian conflict in the
next four years: circumstances are too
bleak. But Mr Trump has unique freedom
to break with Republican orthodoxy and
present a fair-minded peace plan. That
could offer a road map for future presi-
dents, constrain Israel's far right and offer
the Palestinians some needed hope.
He must also decide what sort of deal
he wants from Iran, and how far he is will-
ing to go if negotiations fail, two questions
he ducked in his first term. For once, there
is a chance of a grand bargain: Iran is weak,
and Saudi Arabia, which once opposed di-
plomacy with its rival, now supports it. Turkey and Syria
Many of America's relationships in the
Middle East are based on outdated notions The road to Damascus
of stability. The oil-for-security bargain
with Saudi Arabia is creaky: America is the
world's largest oil producer, and imports of
Saudi crude are at their lowest in decades.
Yet presidents still approach the kingdom ISTANBUL AND IOLIB

on transactional terms. On January 20th The magnitude of Turkey's ambitions in Syria is worrying some in the region
Mr Trump joked that he would trade a
presidential visit for a pledge to buy SAAD AL-SHAIBANI'S professors were nessmen rushed after them. A day after the
$5oobn of American weapons (a hard sell: A puzzled when the postgraduate stu- rebels entered Damascus, Turkey's top
that is around 50% of Saudi GDP). dent, a Syrian refugee, told them in No- construction and cement companies saw
Gulf states are desperate to transform vember that he would have to miss a few their shares surge. The country's national
their oily economies. A deal-minded presi- classes. A few weeks later, Mr al-Shaibani carrier, Turkish Airlines, will resume
dent should look for more opportunities to resurfaced in Damascus in the cabinet of flights to Syria on January 23rd.
boost ties around artificial intelligence Syria's new interim government. On Janu- As a result of offensives Mr Erdogan
(AI), clean energy and other vital sectors. ary 15th he made an official visit to Turkey, launched against Kurdish insurgents in
Mr Eiden did that in September, when he where he had lived for over a decade, as Syria's north, Turkish troops already occu-
struck a deal with the United Arab Emir- Syria's new foreign minister. py parts of the country. Syrian rebel groups
ates to co-operate on AI. Oil and guns were No country has as much to gain from a bankrolled by Mr Erdogan's government
a foundation for America's ties in the Gulf stable Syria as Turkey, and few have as police the enclaves. Turkey provides basic
in the 20th century. Trade and investment much to lose if it implodes. Turkey is home services, including education and health
make for a better foundation in the 21st. to more than 3m Syrian refugees, and care. Turkey also propped up the quasi-
Presidents are used to seeing the Mid- wants Syria to be safe enough for many to state HTS carved out in Idlib province, in
dle East through the lens of hard power- return. Nor does any other outside power Syria's north-west.
but economics is also a threat to regional have as far-reaching an agenda for Syria. Were it not for the destruction of over
stability. Sanctions are too often a wheel Turkey wants to smother Kurdish autono- 13 years of war, you could almost mistake
that turns in only one direction. Leaving my in Syria's north, help build a new Syrian parts of the north-eastern province ofldlib
them in place against post-Assad Syria will army and regain influence in a country it for Turkey. Shops offer Turkish products.
make that country more unstable. once controlled for 400 years. Many businesses accept only Turkish lira.
Egypt is another example. America Turkish officials have brushed aside Power lines from Turkey provide electricity
sends it $1.3bn in annual military aid in the claims, aired by Donald Trump, America's around the clock; in Damascus people
name of regional stability. Yet one of the newly inaugurated president, that their make do with barely four hours per day.
biggest threats to Egypt's stability is the country was behind the rebel offensive (Over the next year Turkey plans to supply
army itself, which gobbles up an ever-larg- that ousted Bashar al-Assad, Syria's former power to Aleppo.) On the road to Idlib, taxi
er share of the economy. America has enor- dictator. But signs of the outsize role Tur- drivers pull over to switch from Syrian SIM
mous influence at the IMF, which has $9bn key expects to play in the new Syria are cards, which do not work there, to Turkish
in outstanding loans to Egypt. Mr Trump hard to miss. Turkey's president, Recep ones. But with Syria's new government
should insist that the fund pushes Egypt Tayyip Erdogan, has offered to help Syria committed to unifying the country, Tur-
for serious economic reforms. come up with a new constitution. Turkey's key's occupation of northern Syria could
America has tried to ignore the region's foreign minister, Hakan Fidan, and its top be harder to sustain- or justify.
problems. They only get bigger. If Mr spy were the first high-level foreign digni- Turkey is unlikely to withdraw its
Trump wants the region off his desk, he taries to visit Damascus after Hayat Tahrir troops soon, nor has the new Syrian gov-
will need to start by making it a priority. ■ al-Sham (HTS) took power. Turkish busi- ernment asked it to do so. Instead, Turkey ►►
 The Economist January 25th 2025 Middle East & Africa 41

► is threatening to launch a new offensive ultimately served as an Iranian foothold in compounded fears in Ankara that Israel is
against the People's Protection Units the Arab world. Syria's neighbours do not backing the YPG against Turkey.
(YPG), American-backed Kurdish insur- want it to break free of Iran's influence Meanwhile, a recent Israeli government
gents. It wants the YPG's foreign fighters to only for it to come under Turkey's. report warned that Turkey's growing influ-
leave Syria, and the group to disarm. HTS, Turkey sees Israel as the main obstacle ence in Syria could place the two countries
however, is talking to YPG about folding to its ambitions in Syria. It has already on a collision course. War between one of
them into Syria's new army. It does not chastised the Israelis for strikes that de- NATO's biggest powers and Israel is unlike-
want a war with the Kurds. Ahmed al-Sha- stroyed much of Syria's surviving military ly. But the tension is a reminder of what is
raa, the head of HTS and Syria's de facto infrastructure, and for approving new set- at stake for Turkey. If the new Syria thrives,
leader, has asked Turkey for time to inte- tlements in the occupied Golan Heights. the rewards for Turkey will be greater than
grate the YPG. For now, under pressure Calls from Israel's foreign minister for for anyone else. If chaos returns, it will suf-
from America, Turkey is holding fire. But more co-operation with Syria's Kurds have fer the blowback. ■
its patience will not last indefinitely. "Ei-
ther someone else will take action;• says
Mr Fidan, "or we will." Somalia
Those around Mr Sharaa worry more
about the 90,000-odd fighters of the Syrian The world's first WhatsAppocracy
National Army (SNA), a motley bunch of
Turkish proxies, who outnumber those of
HTS. The SNA has been accused of extor- ADDIS ABABA
tion, kidnappings and other human-rights
Cheap data, social media and creativity are filling in for an absent state
abuses, especially against Kurdish civil-
ians, in areas occupied by the Turks. More
recently, some of its members have been HIRTYYEARS ago, making a phone forced hundreds of thousands of Somalis
involved in attacks on Alawites near Lata-
kia and Homs.
T call from Somalia meant crossing the
border into better-connected Kenya or
to flee their country. Those who have
stayed depend on them: the diaspora
Mr Erdogan's government has prom- Ethiopia. Yet by 2004 the lawless nation sends home around $2bn a year, roughly
ised to help. That means leaning on the had more telephone connections per double the government's budget. An
SNA to dissolve and come under the con- capita than any other east African coun- extensive phone network was needed to
trol of Damascus, says Dareen Khalifa of try. Today, the Somali state is still fragile: handle those vast remittance flows. In
the International Crisis Group, a think- insecurity is rife and government servic- Somalia's radical free market, the invisi-
tank. Turkey could stop funding the SNA es are poor. But mobile data in Somalia is ble hand did the rest. The upside of a
and instead contribute directly to Syria's cheaper than in Britain, Finland or Ja- lack of government is that there is no
central budget and thus its new army. Un- pan-and the signal is good, too. Jethro need to pay for licences or to bribe cor-
iting Syria's armed groups under one um- Norman, a Mancunian anthropologist rupt officials to get the job done.
brella would be almost impossible without who does research in Somalia, says he If telecoms flourished at first in the
Turkish support, says Ms Khalifa. gets better mobile coverage in some of absence of the state, cheap internet is
HTS, for its part, does not view itself as the remotest parts of the country than he now helping to replace it. A recent re-
a Turkish vassal. Mr Sharaa is keen on get- does in Manchester. search paper by Mr Norman shows how
ting support from all sides. Saudi Arabia is How has dysfunctional Somalia clan-based WhatsApp groups are
already sending aid and has offered to re- managed to developed such an out- increasingly being used to crowdsource
place Iran as Syria's main oil supplier. It standing telecoms network? The answer capital from "investors" in the diaspora,
can far outspend Turkey in rebuilding Syr- lies in the state's very weakness. Three and then to co-ordinate the building of
ia and hopes to use that to its advantage. decades of chaos and conflict have schools, hospitals and roads with the
Turkey wants to train and equip Syria's money that is raised.
new army, but another Middle Eastern Social media is filling in for the fail-
country has made a better offer, according ing state in other ways, too. WhatsApp
to one HTS official. "We are grateful;' he groups serve as virtual courts, for in-
says, referring to Turkey, "but we don't stance, where clan elders, rather than
need to put ourselves in any single camp." corrupt or distant judges, resolve dis-
putes. These online groups have rev-
Influencers enue-raising powers; members are re-
For now, at least publicly, Turkish officials quired to make monthly contributions,
are making a point of showing respect for which are then used to offer payments if
Syria's sovereignty and its government. someone is short of money, or as a kind
"They're not trying to pressure them into of health insurance to pay if they or a
taking specific actions," says Ms Khalifa. family member are ill. Those who do not
But the magnitude of Turkey's involve- pay are blocked from the groups.
ment in Syria is making some Arab govern- The rise of this WhatsAppocracy is
ments uneasy. The Saudis see Turkey as a not without its flaws. Hate speech that
rival for leadership in the Sunni world. The deepens clan conflict is common, partic-
United Arab Emirates and Egypt resent Mr ularly among the diaspora. And Whats-
Erdogan's support for Islamists. Because App groups can raise money to buy guns
this caused a painful standoff with the as well as schools. Still, for now, go-
Arab world a decade ago, the Turkish pres- vernance via WhatsApp seems to beat
ident will be wary of fanning the flames of rule by warlords. Somalis are making do
political Islam once again. The Assad re- with what they have.
gime publicly embraced pan-Arabism but
42 Middle East & Africa The Economist January 25th 2025

Regulating social media health services. It says they were (and re-
main) available on site from licensed pro-
Africa v big tech fessionals at all times. Meta argues that it
should not face charges since it did not
hire the workers directly.
In 2023, however, a Kenyan judge con-
cluded that Meta was, in fact, their "true
NAIROBI
employer". That opened the door to other
Three big lawsuits against Meta in Kenya may have global implications lawsuits against any of the big tech firms
working with third-party contractors in
s SOON AS the posts appeared on Fa- tant question: can big tech be sued in Afri- Kenya. In a similar case involving 10,000
A cebook, Abrham Mearag feared they
would be a "death sentence" for his father.
can countries, and thus others? content moderators in California, Meta
agreed to pay $85m in compensation for
In each case Meta argues that it cannot
A civil war was raging in Ethiopia and Mr be held liable in Kenya because it is regis- failing to protect the litigants from mental-
Abrham's father, a chemistry professor, tered in America. Like other big internet health harm. But this is the first time Meta
was of the wrong ethnicity in the wrong platforms, the firm outsources content could be "significantly subjected to a court
place at the wrong time. His name, photo moderation to third-party contractors. of law in the global south", notes Amnesty
and place of work all appeared on Face- Around 100,000 people worldwide work International, a rights group. The compa-
book in October 2021, along with allega- for companies such as Sama, the local con- ny is appealing to Kenya's supreme court.
tions that he was affiliated to rebels fight- tractor hired by Meta until 2023 to screen Mr Abrham's lawsuit demands not only
ing the Ethiopian government. Mr Abrham African-language content. Working like compensation but also changes to Face-
reported the posts to moderators at Meta, this meant tech firms could hire cheap book's algorithm to make it less potentially
Facebook's parent company, in a desperate English-speakers in places such as Kenya, deadly. Though Mr Abrham's father was
attempt to get them taken down. But his and avoid the costs of incorporating there. murdered in Ethiopia, Meta's terms of ser-
pleas were ignored-and on November 3rd They also believed doing so would shield vice require any claims to be filed in Amer-
2021 his father was murdered. them from potential litigation overseas. ica. At home, American internet compa-
On January 29th Kenya's high court will nies are usually protected from liability for
decide whether it has jurisdiction to hear a The laws they are a-changin' content disseminated through their plat-
$2.3bn case brought against Meta by Mr That no longer seems to be true. In the two forms. "It doesn't matter where the compa-
Abrham and two others. The group claim other cases brought against Meta in Kenya, ny is registered, the actual action which
that Facebook's algorithms amplified hate- former employees accuse Sama and anoth- caused the harm took place in Kenya;' says
ful speech which directly led to real-world er contractor of, inter alia, unlawful termi- Mercy Mute mi of the Kenyan law firm rep-
harm, including the death of Mr Abrham's nation and forced labour. They also allege resenting the plaintiffs in all three cases.
father. Since the moderators vetting Face- that sifting through graphic content with- But there are few precedents elsewhere.
book's Ethiopian content were based in out adequate psychiatric support seriously Lawsuits brought against Meta for its al-
Kenya, the plaintiffs argue, the company damaged their mental health. "You are leged role in spreading hate speech during
ought to be sued there. The lawsuit is the forced to watch, you cannot skip;' says Ro- the Rohingya genocide in 2017 have stalled
third to be brought against Meta in Kenya. bel Kahsay, one of 186 former Sama work- in courts in Britain and America.
They all concern the invisible army of ers taking the company to court. Among Faced with potential damage to its rep-
moderators used by tech firms to cleanse the horrors which live "rent-free" in Mr Ro- utation in Africa, an important and grow-
their platforms of violent or illegal content. bel's mind is the image of his cousin's ing market, Meta might settle. But given
Together the cases illuminate the grim re- bloodied corpse in Ethiopia's civil war, today's politics, it could "ignore a court
ality for low-paid African workers of the which he encountered on the job. Sama de- ruling it doesn't like," says Eugenia Siapera
global tech boom. And they raise an impor- nies failing to provide sufficient mental- of University College Dublin. Donald
Trump's return has boosted America's tech
titans. This month Meta announced that it
would stop fact-checking content on Face-
book, which could prompt it to rethink
how it does moderation in Africa. Mark
Zuckerberg, Meta's CEO, said recently that
he hoped to work with Mr Trump "to push
back on governments around the world".
Mr Zuckerberg has an ally in Kenya's
president, William Ruta. Mr Ruta wants to
promote Nairobi, its capital, as a tech hub.
Meta has already shifted its content-mod-
eration work out of Kenya to an undis-
closed location in Africa, so the president
has less bargaining power. (A spokesper-
son for Meta cited "the security of our cli-
ents" and ongoing litigation as reasons for
the lack of transparency.) Anxious not to
lose out on investment and jobs, Mr Ruta
has rushed to pass a bill which would make
it even harder to sue the biggest tech firms.
Kenya's government faces an impossible
choice, says Mark Graham of the Oxford
Internet Institute: "bad jobs or no jobs:' ■
The Economist January 25th 2025 43

Asia

India's electorial goodies Maharashtra, cows in public shelters are el-

igible for a so-rupee-a-day subsidy.
Handing out the money Although handouts seek to improve the
lot of women and farmers (and cows), ex-
pediency is foremost in politicians' minds.
Schemes tend to be announced on the eve
of elections. Last year in Maharashtra,
DELHI
state elections were reportedly postponed
Cash transfers are transforming the role of the state-perhaps for the worse so that money from a cash-transfer pro-
gramme could reach women's bank ac-
H EN THE Aam Aadmi Party (AAP), dia's adult female population, according to counts before they cast their votes.
W which leads Delhi's government, un-
veiled a new programme handing out 1,000
research by Axis Bank. The total splurge
amounts to 2trn rupees, equivalent to o.6%
If votes are the measure, recent elec-
tions suggest that largesse is rewarded. In
rupees ($11.50) a month to most women in oflndia's GDP. In some states, transfers ex- the Maharashtra state elections women
the capital, the response from political ri- ceed 5% of total government expenditure. who got cash transfers were likelier to vote
vals was predictable. The opposition Bha- Cash transfers are not limited to wom- for the winning BJP-led alliance, according
ratiya Janata Party (BJP), which runs the na- en. Farmers are another favoured group. to Lokniti-CSDS, a research outfit; benefi-
tional government, staged a protest and Telangana, a southern state, began doling ciaries were also likelier to show up to poll-
called the scheme a "deceitful act", a ruse out stipends to farmers in 2018, worth ing booths to vote.
to win local elections in February. Even 4,000 rupees an acre per season. Odisha in Such programmes are an especially po-
more predictable, though, was the BJP's un- the east soon followed. Eventually, so did tent political tool because ruling parties
veiling on January 17th of its own scheme, the national government. Nor are freebies can now connect directly with voters in a
one that outgunned the AAP's with a prom- limited to humans. In the western state of way they could not before. That is thanks
ised handout of 2,500 rupees. to Aadhaar, the government's universal
Across the political spectrum, India's biometric system that has created digital
➔ ALSO IN THIS SECTION
parties are embracing cash transfers as a identities for 1.4bn Indians. A proliferation
political and policy tool. Alongside Delhi, 44 Crackdown on criticism in Uzbekistan of bank accounts linked to Aadhaar has al-
some 11 states now implement cash-trans- lowed officials to transfer benefits directly
45 Banyan: Asia's traffic jams
fer programmes for women (see chart on to people across the country. In 2019 some
next page), and more are expected to do so 46 Australia Day culture wars 507 federal schemes operated in this way;
later this year. All told, these schemes by 2024, that had more than doubled, to
46 Political dysfunction in Taiwan
reach around 134m women, or a fifth of In- 1,206. Crucially, these transfers also make ►►
 44 Asia The Economist January 25th 2025

► it easier for political leaders to claim credit proven to be more effective. handouts do little to improve the quality of
for their munificence because, unlike other In addition, some economists say, cash schools or health-care facilities. Nor do
programmes, their implementation does transfers might actually hurt development they generate jobs, perhaps India's great-
not require middlemen. The BJP has pio- by eating into the budgets for other impor- est task. Fixing these issues calls for care-
neered this type of delivery and marketing. tant programmes. At the national level, ful policy design and implementation,
Over the past decade, dozens of the gov- spending on education and health over the which Dr Himanshu says Indian policy-
ernment's schemes have had the name of past five years has stagnated and remains makers run away from.
the prime minister, Narendra Modi, af- below that in Brazil or South Africa as a For now, they are only running faster,
fixed to them. The strategy has tended to percentage of GDP. In states that have im- and against each other. For instance, grand
yield political returns. plemented cash transfers for women, other schemes appear to be in the works ahead
To beat Mr Modi and the BJP other par- spending has been compromised. In Ma- of an election later this year in Bihar, In-
ties reckon they need to emulate them. Re- harashtra, for example, the 5% of the state dia's poorest state. One day, India's voters,
search by Neelanjan Sircar and Yamini Ai- budget allocated to the programme is taxpayers especially, may demand better
yar, two political scientists, suggests that more than the funds set aside for health from their politicians. Just 2% of Indians,
regional parties that have implemented (4.6%), rural development (3.9%) or energy mainly members of the urban middle class,
cash-transfer policies and linked them to (2.3%). In December the central bank pay income tax. They are becoming notice-
their own leaders have eaten into the BJP's raised concerns over states' deteriorating ably frustrated about bearing the burden
support in their states. India is in an era of fiscal positions, which were exacerbated of the state's generosity. Handouts might
"competitive welfarism", the authors say, in by rising subsidies and cash transfers. also lose their allure among beneficiaries.
which parties vie to woo voters with ever The biggest concern with freebies is "I would rather see the government invest
more generous policies. what they mean for the role of the Indian in health, education and better infrastruc-
But does the new welfare model actual- state. Cash has emerged as a "one-size-fits- ture," says Anamika Das, a domestic work-
ly improve lives? Giveaways certainly boost all" solution, says Himanshu, a professor at er in Delhi. Jobs, she says, are "far more im-
consumption. Examining recent cash Jawaharlal Nehru University in Delhi. Yet portant than handouts". ■
transfers to women, Axis Bank found that
spending in poorer households can jump
by between 7% and 45% in a month. Such Cracking down in Uzbekistan
handouts can also have other benefits.
"Cash transfers bring women dignity and The fate of a fuel-frustrated driver
confidence, and help us spend money ac-
cording to our needs;' says Bushra, a home-
maker and recipient of the AAP's cash
transfer in Delhi. Her perspective is borne
out in research. A study carried out in cen- ALMATY

tral India in 2013 found that transferring So much for the supposedly "new" Uzbekistan
money directly to women's bank accounts
gave them greater financial autonomy and HE JAILING of dissenters is nothing gal reforms, state pullbacks from swathes
even empowerment (by giving women
more standing in the family or community,
T new in Uzbekistan, Central Asia's most
populous country, where faulting the pres-
of the economy and guarantees of free
speech. "Surely in a democratic state
for instance). ident can land you in trouble. What is un- where there is freedom of speech, freedom
In other areas of development, however, usual is the recent public outcry after the of citizens and supremacy of the law, I
the evidence from India is less compelling. imprisonment of an ordinary motorist, have the right to speak?" Mr Dustov asked.
In education and health, unconditional who found himself behind bars after his ti- Apparently not. A court slung Mr Dus-
cash transfers do not seem to improve how rade over fuel shortages went viral. tov behind bars for 15 days on charges of
well children do at school or reduce malnu- Gayrat Dustov posted his profanity- hooliganism, to his countrymen's anger: he
trition. By contrast, transfers linked to laced rant late last year from a petrol sta- had "simply expressed the opinion of mil-
meeting certain conditions, such as at- tion in Tashkent, the capital. He had spent lions of his fellow citizens", one of them
tending school or completing an immuni- two nights queuing, unsuccessfully, to fill fumed online. A meme did the rounds of a
sation programme, have in some instances the van he drives trying to make a living in prisoner gripping the bars of his cell with a

-
Electoral candy
India, cash handouts for women*, rupees, trn
the gig economy. His harangue turned into
a jeremiad about precariousness. He tore
off his trainers and held them up to the
camera to show how his footwear was not,
ball and chain around his ankles, the ball
taking the form of a fuel container. Thanks
in large part to the outcry, Mr Dustov was
freed early on appeal, having spent the
2.0 as he put it, fit for a corpse. Mr Dustov new-year holiday in jail. Yet his imprison-
12 touched a chord with many Uzbeks, who, ment has inflicted "enormous damage on
though their country is among the world's public trust in the state", says Khushnud-
top 20 gas producers, reliably face fuel bek Khudoyberdiyev, a lawyer with a big
shortages every winter. Where, some ask, social-media following.
is the bruited "New Uzbekistan"? The outrage over Mr Dustov's brief in-
That is the slogan of Shavkat Mirzi- carceration was not a given. Other critics
yoyev, an apparatchik who came to power have been banged up for years with barely
as president in 2016 after the death of his a murmur from the public. Few reacted
tyrannical predecessor, Islam Karimov. Mr when Dauletmurat Tazhimuratov, a lawyer,
Mirziyoyev embarked on a series of liberal was handed a 16-year prison term in 2023
reforms to build what he claims is a peo- after being convicted of fomenting fatal
ple-friendly country that respects rather unrest in Karakalpakstan, an autonomous
Financial years ending March
than tramples on human rights and free- part of Uzbekistan. International watch-
Source: Axis Bank "Eligibility varies by state +Forecast
doms. His agenda included market and le- dogs called the case a travesty of jus- ►►
 The Economist January 25th 2025 Asia 45

► tice. Dozens of people have been impris- Cases of dissenters and their treatment that Mr Dustov received retribution from a
oned under legislation approved by Mr rarely rile the public. By contrast, Mr Dus- state that cannot, despite Mr Mirziyoyev's
Mirziyoyev in 2021 that makes it a crime, tov's imprisonment blew up the Uzbek in- promises of change, tolerate criticism.
with up to five years in prison, to criticise ternet. That was not despite his lack of The outcry over his treatment indicates
the president. One woman was even im- prominence but because of it. He is no out- that, after over eight years of talking about,
prisoned last year on charges that included spoken intellectual but an Uzbek Every- but failing convincingly to deliver, a "new"
making remarks about Mr Mirziyoyev in man, voicing the day-to-day concerns of Uzbekistan, the president and his reform
private voice messages. Such cases are the working poor. His incarceration was agenda have raised unmet expectations.
reminiscent of Karimov's iron-fisted rule. seen as a typically heavy-handed reaction Mr Mirziyoyev promised Uzbeks the right
They make "a mockery of President Mirzi- from a government that prefers to silence to speak freely. Now they expect to be able
yoyev's reform pledges", Human Rights critics rather than do anything about the to exercise that right without getting
Watch says. problems they raise. Many Uzbeks believe thrown behind bars. ■

BANYAN
Jam today, jam tomorrow
The middle classes love cars but hate traffic

NCHING THROUGH Kuala Lumpur, instead. Two lanes tacked on to the Kuala not immune, but can better insulate
Icently
Malaysia's megalopolis, Banyan re-
had a back-seat view of one
Lumpur-Karak expressway will let an
additional 2,800 cars an hour whizz by, its
themselves: drivers are hired and, in
cities like Cambodia's Phnom Penh,
of Asia's monstrous traffic jams. His developer boasts. In India, new lanes will obscenely big and showy suvs are ac-
driver lived in Kota Kinabalu, a sleepy soon be added to Kolkata's eastern bypass. quired to serve as mobile offices and
city far away across the water in Malay- In the Philippines, the previous president's entertainment rooms. Pedestrians, espe-
sian Borneo. So good was business in pledge to "Build! Build! Build!" and the cially the poor, are cut out entirely from
Kuala Lumpur that he flew in for weeks- incumbent's promise to "Build Better many benefits of city life and suffer most
long work stints. It seemed clear that More" mean more car-centric infrastruc- of the risks of traffic, in terms of fumes
much of the money is made sitting near- ture. In many parts of Asia, politicians and and accidents. In Phnom Penh they don't
ly stationary on Kuala Lumpur's in- their cronies skim money off the top of even have the pavements, because the
congruously named expressways. road projects- another incentive to build. suvs have parked up on them, engines
Successful cities pack economic Yet expanding road infrastructure running, while the boss is at lunch.
activity into dense areas. This produces alone nearly always fails. Drivers end up Asian cities are not doomed to grid-
welcome "agglomeration effects", but driving more and moving farther from the lock. In the 2000s Seoul made ambitious
when the agglomeration happens by city centre. The city sprawls, but con- changes. Bus routes were redesigned,
moving about by car, roads snarl up. gestion is little changed. Car-centricity is and congestion charges, low-emission
Traffic jams are a scourge. Lost time self-reinforcing, Walter Theseira of the zones and voluntary no-driving days
hurts productivity. There is a human toll Singapore University of Social Sciences curbed demand. Traffic speeds rose by
on health, both mentally and in terms of points out. More space for roads and up to four-fifths. Elsewhere, the idea of
air pollution and road safety. Asian cities parking means less for greenery and for congestion pricing is doing the rounds
are world-class for traffic. Of the top 20 people on foot. again, notably in Bangkok. Jakarta has
slowest-moving cities ranked by Tom- Many Asian cities have reached a point pondered a Singapore-style congestion
Tom, a navigation service, 12 are in that serves no one well. Wanting to pro- toll for years, having failed with milder
Asia- a mark of fast growth and mis- tect the middle class undermines fairness measures. (One such, "three-in-one"
managed urban development. instead. Car commuters lose time, respira- carpooling lanes, led to a cottage in-
The fix is no mystery. Cities with tory health and their sanity. The rich are dustry of "jockeys" being paid to sit in
good traffic make private cars less desir- cars, and was scrapped.) This year Hanoi
able to own and use. Singapore has will launch a pilot programme restricting
punishingly expensive ownership quo- high-emissions vehicles in some areas. In
tas, as well as congestion pricing. Tokyo the Philippine city of Baguio, north of
has fees and tolls, and tough limits on the capital, Manila, a proposed $4 con-
parking space. Both cities also have gestion fee has sparked controversy,
world-class public-transport systems, even though other fixes have failed.
and housing built near stations. The risks for politicians are real.
Yet elsewhere in Asia, politicians are Baguio's proposed fee led to criticism
shy about penalising car ownership that it would favour the rich; the mayor
because it clashes with growing middle- rushed to clarify that "nothing is final
class aspirations. The car is a potent yet:' But the criticism gets it backwards.
symbol of status and freedom. Nor do Easing traffic makes a city fairer. What is
governments want to hurt domestic more, cities that have enacted con-
carmakers employing millions. Across gestion pricing see public support for it
much of Asia, car sales in recent years rise over time, as people see the improve-
have been on a roll. ments with their own eyes. More poli-
So politicians opt to build more roads ticians should take the gamble.
46 Asia The Economist January 25th 2025

Australia Day controversies ended in the late 1980s. His party has
fanned the fears. The divisions threaten to
Aussie Aussie paralyse the government, even as Taiwan's
position in the world becomes more pre-
Aussie carious. China grows ever more aggressive,
claiming Taiwan as its own. And Donald
SYDNEY
Trump's return to power makes Taiwanese
Conservatives claim that wokeness is wonder whether America really would de-
destroying the national holiday fend them in the event of an attack.
Though Mr Lai won the presidency, his
EERS, BARBECUES and beaches are independence-leaning Democratic Pro-
B hallmarks of Australia Day. So is the gressive Party (DPP) lost the legislative
fight surrounding the national holiday. elections held at the same time. The Legis-
Every year Australians get tangled in an ar- lative Yuan, Taiwan's parliament, is now
gument over the celebration, on January controlled by the Kuomintang (KMT),
26th, which marks the landing of the First which leans towards China, and its smaller
Fleet of British convicts in Sydney Cove in ally, Mr Ko's TPP. The executive and legis-
1788. To many Australians, the day is the lature have since been at loggerheads.
foundation of their successful and genu- Late last month the opposition rammed
inely multicultural nation. To many indige- a number of combative bills through the
nous Australians, celebrating colonisation Wrapped in pride legislature. One draws the third branch of
feels like a slight. Atrocities that came with government into the drama. It requires the
European settlement seemed intended to has helped protect the country against the 15-member Constitutional Court to have a
drive their peoples to extinction. worst populist convulsions that have quorum of ten justices, with at least nine
For years, the question of whether to racked America and Britain, for instance. needed to declare any piece of legislation
move Australia Day to a less contentious Yet Mr Dutton is not the first Australian unconstitutional. Mr Lai does not have ve-
date has loomed over the festivities. Thou- political leader to whip up anger against to power, but his government can send a
sands of Australians now join annual prot- elites, Greg Barns, a former Liberal adviser, bill back to the legislature for reconsider-
ests against what they call "Invasion Day". points out. John Howard, a successful con- ation. On January 10th the Legislative Yuan
Companies increasingly allow staff to servative prime minister, built his base in endorsed the bill for a second time.
swap their holiday if they do not observe the 1990s by pitting Aussie "battlers" Legal scholars think the bill is uncon-
the date. In 2022 the centre-left Labor gov- (working-class folk) against affluent urba- stitutional, not least because it puts the
ernment revoked a conservative-era direc- nites. Voters struggling to make ends meet highest court at the mercy of the parlia-
tive which forced councils to hold citizen- may be drawn to anti-woke arguments. On ment. Su Yen-tu, a legal scholar at Taipei's
ship ceremonies, patriotically, on Australia the question of Australia Day, at least, pol- Academia Sinica, a research institution,
Day. Dozens of local governments have ling suggests that a majority of Austra- reckons Mr Lai will ask the Constitutional
since moved their events, citing solidarity lians, and growing, want to keep the na- Court itself, which currently has only eight
with indigenous populations. tional holiday as it is. ■ justices, to make a ruling. Either way, the
This infuriates conservatives, who com- outcome will be contentious.
plain that pious lefties are dismantling And now comes perhaps the most dis-
Australian traditions and shrouding the Taiwanese politics concerting development in the stand-off.
country in shame. They have inserted the Just when the government wanted to prove
debate into the campaign for the next fed- Courting disaster to Mr Trump that America's ally is doing its
eral election, due by May. "I don't want to bit to bolster its own defences against Chi-
be told by woke CEOs... that I can't cele- na, parliament voted just hours after the
brate Australia Day;' grumbled the opposi- new president's inauguration to freeze key
tion leader, Peter Dutton, this month. His TAIPEI parts of Taiwan's defence budget. The
Liberal (ie, conservative) Party would go Taiwan's political dysfunction risks freezes included half of Taiwan's subma-
back to insisting local governments hold playing into China's hands rine programme and 30% of its expendi-
ceremonies on Australia Day as "a sign of ture on military operations. Military an-
pride and nationalism in our country". ENS OF THOUSANDS of people con- alysts insist that much is politics and that
Mr Dutton likes to rail against woke-
ness. As defence minister, he identified a
T verged on Liberty Square in Taipei,
Taiwan's capital, earlier this month. Plac-
more defence spending will eventually be
passed. Still, the damage is done. Mr
"woke agenda" in the armed forces (he was ards depicted Lai Ching-te, the president, Trump has long complained that Taiwan is
exercised by tea parties held in support of as a horned devil, with the words: "Recall freeriding off America's underwriting of its
gay rights). He now complains about banks the dictatorial emperor Lai." The protest is defence. It is hard to think of a worse way
that set environmental targets, objecting just one act in a political drama that has to start off the relationship with the new
to one that denied, on environmental roiled the island country for weeks. administration in Washington.
grounds, a loan to a forestry group. And he Mr Lai's detractors accuse him of perse- DPP lawmakers have long accused op-
warns that children at school are being cuting Ko Wen-je, an opposition figure position politicians of being in cahoots
"preached to and indoctrinated on all sorts who ran for president last year. Mr Ko, who with China. Undoubtedly China mounts
of agendas". The Trumpian tone is clear. led the Taiwan People's Party (TPP), was in- extensive influence operations on the is-
As a strategy, stoking culture wars only dicted for corruption on December 26th. land. But the accusations are without evi-
gets Australian politicians so far, however. Though Mr Lai handily beat Mr Ko into dence. No matter. China must be gleeful.
The country's compulsory voting in elec- third place in the election, Mr Ko had sup- As Shelley Rigger of Davidson College in
tions means that they have to appeal to the port from younger voters. They claim his North Carolina points out, the chaos in
kind of moderate voter who might not indictment puts democratic Taiwan on a Taipei plays right into the hands of the
bother to turn out in other countries. This path back to its authoritarian era, which government in Beijing. ■
The Economist January 25th 2025 47

China

Social stability The country's leader, Xi Jinping, may

wonder whether a warning he gave in 2014,
You still like us, right? less than a year and a half after he took
power, is gaining relevance. "The ancient
Roman historian, Tacitus, proposed a the-
ory that when public authority loses cred-
ibility, no matter what it says or does, soci-
As the economy falters and the social compact frays, the Communist Party ety will view it negatively. This is the 'Taci-
wants to know if the public remains on side tus trap'," he told officials. "Of course, we
have not reached this point, but the pro-
HINA'S ANNOUNCEMENT on January ment was "particularly" the result of"time- blems that exist are indeed serious.. .If we
C 17th that its economy had grown by an
estimated 5% in 2024, right on target, was
ly" stimulus measures, it declared. There is
some truth in this. The economy did pick
were ever to reach that day, it would en-
danger the party's ruling foundation and
greeted with widespread disbelief on the up late in the year, partly helped by a state- governing position:•
country's social media. "It feels unreal- subsidised trade-in scheme that caused Even now there is little evidence that
everything around me seems so bleak;' sales of household appliances to leap by the party is tottering. But the danger of
wrote one netizen. "The folks at the statis- 39% year on year in December. But the falling into a Tacitus trap clearly haunts it.
tics bureau worked hard;' said another. On public remains unenthused. Following The term was invented by a Chinese schol-
Weibo, a microblogging platform, more three years of harsh (and, by the end, wide- ar, Pan Zhichang, who wrote about it in
than 240 comments were posted below ly resented) pandemic restrictions, and 2007. It took off after Mr Xi borrowed it. In
state television's summary of the GD P two subsequent years of economic mal- China, books and academic literature re-
news. Only a handful remained visible, aise, China's social compact is under pres- ferring to the trap have since proliferated.
suggesting that most had failed to meet sure. For many, the better life they had ex- It is often mentioned alongside two other
the account's strict censorship standards. pected in return for acquiescing to Com- potential pitfalls that Chinese officials fret
Amid high youth unemployment and a munist Party rule is not materialising. about. One is the "middle-income trap"
property-market slump, cynics abound. (so-named by Indermit Gill of the World
The government prefers a different Bank and Homi Kharas, now of the Brook-
➔ ALSO IN THIS SECTION
spin. Last year "social confidence was ef- ings Institution). It describes how, having
fectively bolstered and the economy reco- 48 How China views Trump's start enjoyed rapid growth, some countries fail
vered remarkably," it said in a statement to become rich. The other is the "Thucydi-
49 A rise in fortune-telling
about the economic data. This achieve- des trap", a term coined by an American ►►
 48 China The Economist January 25th 2025

► scholar, Graham Allison, which is about mood may be difficult for the government
the risk of war between a rising power and to monitor effectively. Fearing repercus-
the prevailing hegemon. sions if they speak out, people censor
A possible reason why Mr Xi appears themselves online, or find roundabout
more hesitant to talk about the Tacitus ways to express their views. The govern-
trap than the other two dangers is that it ment appeared to be blindsided by scat-
could invite uncomfortable comparisons tered small-scale protests against covid-19-
between him and the unpopular Roman related lockdowns late in 2022, some of
emperor, Galba, about whom Tacitus was which involved rare demands for political
writing. (Galba was murdered after a few freedom and Mr Xi's resignation. These
months in power.) But Mr Xi does high- may have hastened the scrapping of the ze-
light the dangers of regime collapse, often ro-covid policy, but the ensuing crackdown
referring to the fate of the Soviet Union. on dissent may also have made it harder for
"The Soviet Communist Party distanced it- officials to read the public mind (in recent
self from the people and became a privi- months they have silenced several econo-
leged bureaucratic group that only safe- mists who have dared to express pessi-
guarded its own interests;' he told provin- mism). Foreign pollsters struggle, too.
cial leaders in 2021. Keeping the public on They are forbidden from carrying out
side clearly matters to him. opinion surveys in China without domes-
tic Chinese partners, who have become
Poll watchers increasingly wary of getting involved.
The importance to the party of public Early in Mr Xi's rule, those looking for
opinion is reflected in the energy it ex- clues to China's long-term stability found Feeling 10% hopeful, 60% nervous
pends on trying to gauge it. Local officials food for thought in another foreign work,
often commission opinion polls to assess Alexis de Tocqueville's book "The Old Re- The inaugurations of American presi-
citizens' views of their policies. They use gime and the Revolution", published in dents are normally attended by China's
the public's "satisfaction level" when con- 1856. It became a bestseller in the country ambassador in Washington or an official
ducting officials' performance reviews. after Mr Xi's anti-corruption chief, Wang of similar stature. This year, though, China
China's rubber-stamp parliament, the Na- Qishan, recommended it. The message sent Han Zheng, its vice-president. He will
tional People's Congress, last month began many readers took from this work was that have heard Mr Trump promise to "tariff
soliciting opinions online about what the reformist regimes face danger after a per- and tax foreign countries to enrich our citi-
prime minister should say in March in his iod of prosperity if they fail to meet rising zens". But China was not singled out. In-
annual report to the legislature (don't public expectations. Chinese officials deed, Mr Trump mentioned the country
bother suggesting faster economic growth: clearly agree that the classics of the West only in passing-to claim that it was oper-
another year at around 5% is very likely to contain disturbing lessons. ■ ating the Panama Canal. (A private Hong
be the target he sets). Kong firm holds the contract to run a port
Given that the party controls news me- at both ends of the waterway.)
dia, officials pay particular attention to on- The new Trump administration Prior to the ceremony, Mr Han met
line comments-even as censors (or algo- Elon Musk, the boss of Tesla, which makes
rithms) delete those they don't like. Classi- A good start more than half of its electric vehicles in
fied digests of hot topics on social media, Shanghai. China hopes the businessman
and others summarising petitions submit- for China (who was given a prominent seat at the in-
ted to the government by aggrieved citi- auguration and heads the new Department
zens, circulate among bureaucrats. This in- of Government Efficiency) will be a voice
tensive monitoring of public opinion is HONG KONG
for pragmatism in Sino-American relations
part of what China trumpets as its "whole- But it could get worse quickly and a counterweight to the China hawks in
process democracy"-a form, it says, that Mr Trump's cabinet.
is better than the Western kind. HINA'S STATE media were not im- Mr Musk has even been rumoured as a
Amid the current economic gloom, of-
ficials regard such efforts as all the more
C pressed by Donald Trump's first days
back in charge of the country's great geo-
potential buyer ofTikTok, the popular vid-
eo app owned by ByteDance, a Chinese
important. They are keen to learn, not political rival. Xinhua, the official news ser- company. Mr Trump is keen to save the app
least, of public complaints that could vice, grumbled that Mr Trump's policies from a law which prohibits social networks
cause social unrest. Local governments of- have become more "unilateral and hege- controlled by "foreign adversaries" (see
ten prefer to satisfy workers' demands monic". It cited a Cuban researcher who Business section). On his first day in office
rather than risk the spread of strikes. Offi- said the president's abrupt reversal of his he delayed the ban, hoping that a sale can
cials have been putting pressure on com- predecessor's policies weakened America's be worked out. China's leaders seem newly
panies to make sure wages are paid in full "national credibility and international open to the idea, perhaps because it gives
before the country celebrates the lunar trustworthiness". A scholar from Mexico, them a bargaining chip. "Beijing could
new year on January 29th. Grumbling quoted in the same article, complained of frame its approval for a sale as a generous
about arrears, especially among construc- America's rising expansionism. favour to the us side;' noted Gabriel Wil-
tion workers, often triggers protests in the But don't be misled by the aggrieved dau ofTeneo, a consultancy.
run-up to the holiday. tone of this commentary. China's leaders China may have found other crumbs of
But a serious souring of the public must be quietly satisfied with Mr Trump's comfort in Mr Trump's first day. His deci-
start. The new president did not impose sion to withdraw from the World Health
fresh tariffs on day one, as some in Beijing Organisation and the Paris Agreement on
Chaguan, our China column, has been had feared. China's currency did not weak- Climate Change will make it harder to
suspended. Our goal is to reinstate it when en. And though the Chinese stockmarket fight future pandemics and global warm-
we have a new columnist resident in Beijing wobbled, it did not plunge. ing. That hurts everybody. But it also cedes ►►
 The Economist January 25th 2025 China 49

► leadership and influence to China within are turning to divination, spiritualism and
the international frameworks that past superstition. These act as a "pressure-relief
American presidents helped to build. By valve", says Mr Chen.
the cold logic of great-power rivalry, Amer- Most of the action is happening online.
ica's loss is China's gain. An app called Cece-which offers horo-
Leaders in Beijing may also see new op- scopes, tarot-card reading and fortune-
portunities to drive a wedge between telling-has been downloaded more than
America and its allies. Mr Trump threat- 15.5m times from Apple's app store in Chi-
ened the European Union, Canada and na, according to Sensor Tower, a research
Mexico with big new tariffs. That will in- firm. The number of monthly users has
troduce tension within the Western bloc of shot up in recent years (see chart). Another
countries, which may redound to China's fortune-telling app, called Wenzhenbazi,
geopolitical advantage. has experienced a similar surge. On Bilibi-
li, China's version ofYouTube, people have
The phoney war taken to using the wordjie (receive) when
China still has much to fear from the new responding to upbeat videos. By doing so,
administration. On his second day in of- they hope to capture the positive energy.
fice Mr Trump repeated an earlier threat to Around 80% of Chinese under 30 have
impose an additional 10% levy on Chinese had their fortunes told, reports NetEase,
goods, perhaps as soon as February 1st. an internet company. Apps are the most
The hike is supposed to punish China for common forum, but the trend can also be
failing to stem the flow of fentanyl, a po- seen in real life. "Metaphysical bars", where
werful synthetic opioid made from chem- drinks are served with a side of fortune-
icals that often originate in the country. Mr Young people telling, are popular in Beijing. Streets de-
Trump's words prompted a brief fall in voted to psychics can be found in cities
China's stockmarket. Star signs and across China. In 2024 sales of 18-bead
But the 10% threat is manageable com- bracelets, known for luck, jumped 11-fold,
pared with the 60% tariffs he talked about tarot cards year on year, according to data from
on the campaign trail. Those higher levies JD.com, an e-commerce giant.
will not be imposed for months (if at all), it BEIJING The Communist Party has long tried to
seems. Mr Trump has decided to wait until In the face of hardship, Chinese youth rid itself of what it calls "feudal supersti-
his economic team has carried out reviews are becoming more superstitious tion". Last year the Central Party School, a
of America's trade policy, including an as- training academy for officials, expressed
sessment of the "phase one" trade deal he OUNG PEOPLE have always come to Ms concern about the number of members
struck with Mr Xi at the end of 2019.
There is no compelling need for such a
Y Xia with questions about their relation-
ships. Now they often ask the astrologer
and cadres "believing in ghosts and gods".
It tried to clarify the party's restrictions by
study. The results of the phase-one deal about their finances and job prospects, too. publishing a Q&A on the matter. Occa-
are hardly a secret: China fell conspicuous- "People feel a sense of powerlessness;' sionally participating in local folk customs
ly short of its commitments to buy Ameri- says the 27-year-old from Changsha. She or consulting a fortune-teller on a name for
can products, food and energy, partly be- won't give them definite answers about your baby? That's fine. Spending a lot of
cause of disruptions inflicted by the co- their future. But for 200 yuan ($27) per ses- time and money, especially public funds,
vid-19 pandemic. The real reasons for delay sion, she will read their star signs and let on superstitious activities? Unacceptable.
may be different. Mr Trump presumably them know when their luck might turn. The masses are also discouraged from
wants to wait for his economic officials to Such guidance is increasingly sought by embracing such practices. A notice issued
get their feet under the table before young Chinese, who face a sluggish econ- by the city of Sanming in 2023 stated: "The
launching another trade war. And he may omy, a tight job market and intense com- public should improve their scientific liter-
not want to interrupt the stockmarket rally petition in many aspects of life. "They acy, enhance their psychological immunity
that greeted his victory in November. don't have hope;' says Chen Jinguo, a pro- to superstitious activities and not seek
Whatever the reason, Xi Jinping and fessor of philosophy and religion at Minzu spiritual comfort through 'fortune-telling'
China's other leaders will welcome the re- University of China. To find some, many when encountering real setbacks:' Other
prieve. But the flurry of decrees and cava-
lier comments from Mr Trump in recent
days is a reminder of his unpredictable go-
verning style. One of the lessons from the
-Fortune-making
China, fortune-telling apps,
cities have followed suit. Last year some lo-
cal governments cracked down on the
burning of fake money and other paper of-
ferings to the dead during the annual
trade war he launched in 2018 is that uncer- monthly active users•, m grave-sweeping festival.
tainty about tariffs can be as damaging to 1.4 State censors, with the help of internet
the economy as the tariffs themselves. 1.2
firms, have tried to curb the spread of su-
Businessmen will wait and see where Mr perstitious beliefs and divination services
Trump lands before making a decision 1.0 online. Search terms such as "astrology"
about where to build a new plant. That 0.8 and "fortune-telling" have been blocked
hesitation will interrupt the flow of invest- 0.6
on Taobao, an e-commerce market. But on
ment and the jobs and incomes it provides. Weibo, a social-media site, popular astro-
For now China's leaders are probably
taking some pleasure in Mr Trump's treat-
ment ofTikTok, his hostility towards allies Wenzhenbazi
I 0.4
0.2
0
logers have accumulated tens of millions
of followers. Some speak of playing a cat-
and-mouse game with the authorities. A
and the lack of tariffs on Chinese goods. 24-year-old tarot-card reader in Shanghai
2019 20 21 22 23 24
But if the president's first term is any indi- jokes that she tries to divine her own fate-
Source: Sensor Tower *On iOS devices
cation, things can change quickly. ■ to see if jail time is in the offing. ■
50 The Economist January 25th 2025

International

International trade ple. When countries can tap imports at

times of peak demand or reduced domes-
Power-sharing tic generation, they can avoid building
largely redundant and therefore costly
spare capacity. Cables under the English
Channel tend to carry power from Britain
to France in the morning, since French
LONDON AND SINGAPORE
consumers take more time over breakfast
Why don't more countries import their electricity? than Brits, but the other way in the after-
noon, as the British turn on their kettles to
HE WATERS off Singapore teem with in any modern economy. Yet some coun- make cups of tea. The one-hour time dif-
T tankers, container ships, freighters and
smacks, importing everything from oil to
tries are doing just that. The European Un-
ion wants all its members to be able to im-
ference between the countries also spaces
out peaks in demand.
electronics. Yet there is one commodity port or export electricity equivalent to at Trading power can also help countries
none of these vessels carries, and which least 15% of their domestic generation by decarbonise. Neither wind nor sunshine is
the city-state wants: electricity. The tiny, 2030. Britain already has undersea links constant, so grids with lots of solar or wind
rich island powers itself mostly by burning with six countries and is building power tend to suffer from too little gener-
imported natural gas, despite pledging to more. New cables in Africa, such as those ation on cloudy or still days and too much
cut emissions to net-zero by 2050. It has lit- between Kenya, Tanzania and Ethiopia, when the sun is blazing or the wind howl-
tle room to build its own wind or solar are making more power-sharing possible ing. Cables to other countries relieve both
farms. So Singapore plans to get hold of there. Bangladesh began buying Nepalese surfeits and shortages. Exporting coun-
clean power in a different way: down long- electricity via India's grid in November. tries can sell power that would otherwise
distance cables from its neighbours. Its Malaysia, Laos, Singapore and Thailand go to waste and importing countries get
government has given preliminary approv- have also begun trading multilaterally. And cheap, clean energy. All told, EU regulators
al for undersea transmission cables from Bolivia, Colombia, Ecuador and Peru re- estimated the benefits of integrating their
Cambodia, Indonesia, Vietnam and even cently agreed to further integrate their grids at €34bn ($35.5bn) a year in 2021.
Australia, some 4,300km away. In ten power grids, with the same aim in mind. Yet in 2023, only 2.8% of the world's
years' time Singapore wants to import a The rationale for such projects is sim- electricity was traded internationally. Out-
third of the power it consumes this way. side Europe, exchanges remain minimal-
At a time of rising geopolitical and mostly just a few big hydropower projects
trade tensions, it may seem mad to em- ➔ ALSO IN THIS SECTION sending electricity across nearby borders,
brace dependence on other countries for from Paraguay to Brazil, for instance, or
52 The Telegram: Not business as usual
electricity, perhaps the most critical input Laos to Thailand. The hold-up used to be ►►
 The Economist January 25th 2025 International 51

► technical: lots of power was lost in trans- est;' says Eugene Toh of Singapore's Ener- way. That gives it a more varied, and there-
mission, making long-distance exports un- gy Market Authority. fore more reliable, power supply. What is
economic. Nowadays, however, high-vol- Though the obstacles are daunting, in more, Britain typically imports more pow-
tage direct-current cables are extremely ef- practice trade in power tends to be a big er than it exports. But when Europe started
ficient. Projects in Brazil and China have success. Consider Britain's oldest "inter- to wean itself off Russian gas and some
shown their viability over distances of connector", as its two-way links to other French nuclear plants paused in 2022, the
thousands of kilometres. European countries are known: it has been predominant flow reversed, and Britain
Instead, the problem is geopolitics. carrying power back and forth to France briefly became a net exporter. As ever more
Governments worry that neighbours might for almost 40 years with only brief techni- wind farms are built in the North Sea, Brit-
pull the plug on their power supply. Agree- cal interruptions. Trading continued ish regulators expect their country to ex-
ing on and applying rules governing trade throughout Brexit. Britain has added a fur- port lots of power, allowing the flow to re-
in power requires savvy regulators. And ther eight interconnectors, with a total ca- verse more lastingly.
citizens fret, too, either that a valuable na- pacity of almost 10Gw, or roughly a fifth of Since Europe has shown the potential
tional resource will be siphoned off by for- its peak power consumption. Its regulators for long-distance connections, more ambi-
eigners or, conversely, that grasping for- want to almost double that, to 18GW by tious projects are being started. A cable is
eign firms will exploit local consumers. 2032. In 2021 National Grid, the firm that being laid from Greece to Cyprus, a daunt-
owns most of Britain's interconnectors ing task given the 900km distance and the
Current events along with counterparts from the coun- depth of the Mediterranean. Other models
The concerns are understandable. Europe, tries concerned, estimated that current offer one-way transmission, such as a pro-
after all, was punished following the inva- and planned links would save British con- posed cable from Morocco to Britain.
sion of Ukraine for its dependence on Rus- sumers £2obn ($24.5bn) by 2045. xLinks, the firm behind it, argues that the
sian gas. Russian sabotage in the Baltic Sea Investors are energised, too. Britain's combination of wind at night, sun during
also shows that subsea cables are vulner- first interconnector to be built under the the day and batteries as needed means it
able to hostile foreign powers. Norwegians current regulatory regime, to Belgium in can provide both baseload and peaking
are miffed that power prices have spiked at 2019, was so profitable in its first five years power. Sun Cable, the firm hoping to con-
home because of power shortages on the that it hit a legally binding cap, and has nect Australia and Singapore, offers a simi-
other side of the Skagerrak. And Icelanders had to return £185m to consumers. This lar mix over an even greater distance.
ask whether it is worth flooding pristine has sparked others' interest. Meridiam, an Another variation is to build connec-
valleys for hydroelectric schemes whose asset manager, is funding a new cable link- tions from the same offshore wind farm to
entire output would be exported. ing Britain to Germany. The tunnel under more than one country. That means the
Links between India and Pakistan or Ja- the English Channel now carries cables as power produced can be sent to the most lu-
pan and South Korea could bring huge well as trains. National Grid, whose inter- crative market at any given moment, and
benefits to all the countries concerned, but connector to Denmark is the world's lon- the cables can be used as an interconnec-
mutual distrust means they are unlikely to gest at 765km, has even contemplated link- tor when the weather is calm. The first
happen soon. By the same token, the grids ing Britain and America. Longer distances such scheme, in the Baltic between Den-
of America and Mexico would benefit from mean more upfront costs, but the power mark and Germany, is already running.
closer connections, but "disagreements ov- grids at either end are less likely to have Others are planned in the North Sea.
er the rules of the game" prevent this, says the same weather or demand patterns,
Ismael Arciniegas Rueda of RAND, a think- meaning more potential for arbitrage, says Electrons for peace
tank. The fear that other countries might Rebecca Sedler of National Grid. Europe is both wealthy and unusually eco-
be snaffling a valuable resource seems to One advantage of Britain's interconnec- nomically integrated, of course. It has
have contributed to Malaysia's ban on the tors is flexibility in an uncertain world. The high-powered regional regulators that can
export of renewable power in 2021 (it lifted grids to which Britain is linked have differ- develop and enforce the rules required to
the ban in 2023). "Every country is, under- ent energy mixes. France relies on nuclear, connect national grids, which often run on
standably, looking out for their own inter- whereas hydropower dominates in Nor- different frequencies and voltages, and un-

-
Diplomatic cable
2025
NORWAY
der different pricing regimes. The high-
voltage cables needed have also risen in
price as more projects compete for scarce
supply. But there is no reason in principle
\ why other parts of the world could not
- Electricity grids
- Main cross-border
benefit as much. South-East Asian coun-
interconnectors
\ ../ SWEDEN
tries, for example, could save $10obn by
2040 by adding 230Gw of new transmis-
sion and interconnection, reckons Trans-
DENMARK •
----
J B,,'::::i
itionZero, a climate-research firm.
North Sea
~ { . >
Western Europe also has stable geopol-
itics. This is not by chance. European
economies are tied together in a self-con-
·(~
scious effort to banish conflict. A mutual
~
IRELAND POLAND dependence on power-trading elsewhere

ATLANTIC
OCEAN
\__ BRITAIN

~-
""'"" BEL.
NETH.

/!,
GERMANY
\. ~ /_
may similarly help to diminish worries
about neighbouring countries. If not, the
solution to fears about relying on a single
import cable is to have lots of them, as Brit-
CZECH REP. ain has and Singapore plans to. As with all
trade, selling power across borders bene-
FRANCE ..,I'
Sources: German Institute for International and
, AUSTRIA ~
fits everyone. That so many countries ig-
Security Affairs (2021); ENTSOE; OpenStreetMap
nore the potential is shocking. ■
52 International The Economist January 25th 2025

THE TELEGRAM
America the imperfect, indispensable nation

Sceptics ofAmerican power are wrong to call Donald Trump business as usual

litically. The same officials can be admirers of Henry Kissinger's

unsentimental, interests-led approach to foreign policy, and ar-
dent defenders of reforms dating back to Jimmy Carter's presi-
dency, that urge American embassies and envoys to promote hu-
man rights and democracy whenever the national interest allows.
Diplomatic veterans are sure that Mr Trump marks a rupture,
and is not merely America with the mask off. They do not expect
pure isolationism from Mr Trump. The returning president seeks a
legacy as a peacemaker in Ukraine and the Middle East. His new
secretary of state, Marco Rubio, is called deeply knowledgeable
after years as a Republican senator focused on foreign policy, no-
tably in Latin America. Instead, old-timers worry about Mr
Trump's focus on coercion rather than persuasion when trying to
bend foreign powers to his will, and his seeming hostility to demo-
cratic norms. They also remember his first administration's record
of scorning the sort of expensive, thankless missions that America
has led when no other country would or could.
Examples abound. Africa hands cite the fight against the Ebola
virus. In 2014 Barack Obama sent scientists, mobile laboratories,
isolation units and 3,000 troops to west Africa, to lead multina-
tional efforts to quell an outbreak. Mr Trump, then a vocal New
York property tycoon, called it "stupid" to send troops to infected
HESE ARE happy, "I told you so" times for foreign-policy cyn- regions, adding that Ebola-infected Americans should be banned
T ics. In many world capitals the inauguration of an America
First president inspires not shock, but vindication. Over a policy-
from coming home. "People that go to far away places to help out
are great-but must suffer the consequences!" he tweeted. Amid
filled lunch in Asia, a veteran official tells The Telegram that his fresh outbreaks in 2018, the first Trump administration tried to cut
government feels "serene" about the return of President Donald $252m in Ebola funding as "excessive spending" overseas. All eyes
Trump. Westerners are forgetting their history, he suggests, if they are now on PEPFAR, a multi-billion-dollar project launched by
mourn the crumbling of a principled, America-led world order George W. Bush in 2003 to test for and treat HIV in Africa, estimat-
that has supposedly prevailed for So years. Tell that to Asian peo- ed to have saved 26m lives. Up for renewal this year, it was target-
ples attacked by colonial European troops as they fought for inde- ed for cuts by the last Trump administration.
pendence, he says. Moral values never guided the post-war world.
At least under Mr Trump, the mask is off, and interests are all. Cynics will miss the old America if it vanishes
Jump to Latin America, and coffee with a former government Longtime diplomats insist that America has good works to be
minister. Talk turns to free trade, and how Mr Trump's love of ta- proud of in Latin America, as well as misdeeds to regret. They cite
riffs alarms allies. The Trump era's true novelty is honesty, the pol- two decades of bipartisan support for Colombia that built up
itician retorts: "I negotiated with two American administrations. everything from its justice system to tax collection and education
They were both protectionist, one just admits it more openly." when drug gangs and leftist rebels left the country "almost a failed
If many elites in emerging economies are impatient with West- state" by the mid-199os. An official who recently left office recalls
ern dismay over Mr Trump, they are in step with their publics. A the crisis in 2022 when Jair Bolsonaro, Brazil's populist, right-wing
survey of some 29,000 people in 24 countries by the European former president, sought to overturn an election defeat. American
Council on Foreign Relations, a think-tank, finds deep gloom generals and defence chiefs quietly urged Brazilian counterparts
about Mr Trump's re-election in western Europe and in South Ko- to respect democratic values and their oaths to the constitution,
rea, a close ally. In contrast, his transactional approach to state- he says. Such calls helped "turn the tide" and prevent a coup. The
craft is called good for America and for world peace by pluralities Trump worldview is different. Though he faces conspiracy char-
from Brazil to China, India, Saudi Arabia and South Africa. ges in Brazil, which he denies, Mr Bolsonaro was invited to Mr
Officials from the global south are right that America can fall Trump's inauguration (a confiscated passport kept him in Brazil).
short. But to claim that Mr Trump is just another president, guided Scepticism of America has many causes. Some good deeds
like all the others by selfish interests, is crude and unfair. Just ask a must go unsung, for America's aim is to strengthen partners, not
different group: American diplomats with long careers under shame them. American help is taken for granted, too. China is
Democratic and Republican presidents. A wave of them are quit- much praised in the developing world, though it is a stingier donor
ting or retiring from the State Department. Some resignations than America and a hard-nosed lender. But it is a newcomer, and
were ordered by Mr Trump's team. Others reflect bleak career eschews lectures about corruption or human rights. Still, a resent-
prospects for traditional envoys. A former ambassador describes ful America First response miscalculates the costs and benefits of
"deep despair" over signs of meteoric promotions for a few magnanimity. Take American free- and preferential-trade pacts
Trump-supporting colleagues, regardless of age or experience. with very poor countries, from Africa to Haiti. They amount to a
Trump loyalists will cheer such exits, for they scorn the State "rounding error" in global trade, notes a veteran diplomat. But
Department as a treasonous, left-wing, anti-American "deep they create vital jobs, curbing instability and migrant flows. Im-
state". In reality, career diplomats are often hard to pigeonhole po- perfect America is indispensable at times. ■
Building the
Intelligence Grid.
Fror-n Abu Dhabi
to the World.

g42.ai G42
Scan to join the conversation
i mpact.economist.com/food-imperative
The Economist January 25th 2025 55

Business

Artificial intelligence (1) to change completely;· said Franr;ois Chol-

let, an AI researcher, on X, a social-media
Marginal revolution site, on the day 03 was made public.
Mr Chollet has helped drum up excite-
ment about 03. In June he launched a $1m
prize for models that could run a gauntlet
he had created five years earlier called the
SAN FRANCISCO
"Abstraction and Reasoning Corpus", or
OpenAI's latest model will change the economics of the software industry ARC. It is a plethora of simple-looking vi-
sual-reasoning puzzles (see diagram on
HEN OPENAI announced a new gen- more expensive to query, the zero-margin- next page) intended to be "easy for humans
W erative artificial-intelligence (AI)
model, called 03, a few days before Christ-
al-cost era is left further behind.
Investors value OpenAI like a tech dar-
and impossible for modern AI". The prize
wasn't just challenging for its own sake. Mr
mas, it aroused both excitement and scep- ling: it is worth $157bn, going by a recent Chollet said beating an ARC task was a
ticism. Excitement from those who expect- fundraising. They hope that thanks to the "critical" step towards building artificial
ed its reasoning capabilities to be a big success of products like ChatGPT, it will general intelligence, meaning machines
step towards superhuman intelligence. become the next trillion-dollar giant. But beating humans at many tasks.
Scepticism because OpenAI did not re- the higher costs of state-of-the-art models, Six months later OpenAI aced the test.
lease it to the public and had every incen- as well as other pressures from suppliers, Its 03 model achieved a breakthrough
tive to overplay the firm's pioneering role distributors and competitors, suggest score of 91.5%. Its success in the challenge
in AI to curry favour with Donald Trump, model-making may not confer the monop- showed a step-change in Al's ability to
the incoming American president. oly-like powers enjoyed by big tech. "One adapt to novel tasks, Mr Chollet said. The
Yet since then one point of consensus very important thing to understand about new model is not just better; it is different.
has emerged. The model, as well as its pre- the future: the economics of AI are about Like 01, it uses a "test-time compute" ap-
decessor, 01 (02 was skipped because it is proach, which produces better results the
the name of a European mobile network), more time that is spent on inference (when
produces better results the more "think- ➔ ALSO IN THIS SECTION a trained AI model answers queries). Rath-
ing" it does in response to a prompt. More er than simply producing an answer as
56 "Stargate" enterprise
thinking means more computing power- quickly as it can spit it out, 03 is built to, in
and a higher cost per query. As a result a 57 TikTok's temporary turn-off effect, think harder about the question.
big change is afoot in the economics of a That is where the higher costs come in.
58 The German sickness
digital economy built on providing cheap Mr Chollet set a limit of $10,000 on the
services to large numbers of people at low 59 Bartleby: Opening up the payslip amount that contestants can spend on
marginal cost, thanks to free distribution computing power to answer the 400 ques-
60 Schumpeter: America's tech oligarchy
on the internet. Every time models become tions in his challenge. When OpenAI put ►►
 56 Business The Economist January 25th 2025

► forward a model under the limit, it spent Google and Facebook made in the past era. Artificial intelligence (2)
$6,677 (about $17 per question) to score High marginal costs mean the model-
82.8%. The score of 91.5%, achieved by 03, builders will have to generate meaningful Build, baby, build
came from blowing the budget. The com- value in order to charge premium prices.
pany didn't reveal the amount spent, but The hope, says Lan Guan of Accenture, a
said that the expensive version of the pro- consultancy, is that models like 03 will
cess used 172 times the amount of "com- support AI agents that individuals and SAN FRANCISCO

pute" as the cheaper approach-suggest- companies will use to increase their pro- $5oobn says a lot about Donald
ing around $3,000 to solve a single query ductivity. Even a high price for the use of a Trump's AI priorities
that takes humans seconds. reasoning model may be worth it com-
Past AI models had already challenged pared with the cost of hiring, say, a fully HEN PRESIDENT Donald Trump an-
the low-marginal-cost norm of the soft-
ware industry, because answering queries
fledged maths PhD. But that depends on
how useful the models are.
W nounced a half-trillion-dollar of priv-
ate-sector investment in American artifi-
required substantially more processing Different use cases may also lead to cial-intelligence (AI) infrastructure on Jan-
power than using equivalent tools like a more fragmentation. Jeremy Schneider of uary 21st, his second day in office, he
search engine. But the costs of building McKinsey, a consultancy, says providing AI basked in the accolades of the three men
large language models and running them services to corporate customers will re- backing the "Stargate" project: OpenAI's
were small enough in absolute terms that quire models that are specialised for the Sam Altman, Son Masayoshi, a Japanese
OpenAI could still give free access. needs of each enterprise, rather than gen- tech mogul, and Larry Ellison of Oracle, an
With the latest models that is no longer eral-purpose ones such as ChatGPT. IT firm. He called it the largest AI invest-
the case. OpenAI restricts the "pro" version Instead of domination by one firm, ment in history. Then came the kicker.
of the 01 model to users on its $200-a- some expect model-making to be more "This is money that normally would have
month subscription tier (and loses money, like an oligopoly, with high barriers to en- gone to China:•
according to Sam Altman, its boss, be- try but no stranglehold- or monopoly pro- Considering that AI will be the defining
cause customers are spending more on fits. For now, OpenAI is the leader, but one technology of his time in office, Mr Trump
queries than the company had budgeted of its main rivals, Anthropic, is reportedly can sound awestruck by it. "AI seems to be
for). Pierre Ferragu of New Street Re- raising money at a $6obn valuation, and very hot," he said. But as the announce-
search, a firm of analysts, reckons that XAI, majority-owned by Elon Musk, is ment of the four-year project (which starts
OpenAI may charge as much as $2,000 a worth $45bn. That suggests there are high with the construction of massive data cen-
month for full access to 03. hopes for them, too. With 03 OpenAI has tres in Texas) foreshadowed, AI is likely to
The power of such models relies on demonstrated its technical edge, but its be a priority within his administration.
them bringing a version of the sector's business model remains untested. ■ That is for strategic as well as economic
"scaling laws" closer to the end user. Until
now, progress in AI had relied on bigger
and better training runs, with more data
and more computer power creating more
-
T est your superintelligence
reasons. The government's "north star", as
one tech insider in Washington puts it, will
be how to beat China in the AI war.
Silicon Valley has China hawks already
Sample visual reasoning task for
intelligence. But once a model was trained, advanced artificial intelligence nestled in the White House. David Sacks,
it was hard to use extra processing power Mr Trump's AI and crypto tsar, is a venture
Examples
well. As 03's success on the ARC challenge capitalist who believes that the benefits of
Input Output
shows, that is no longer the case. Scaling America winning the geopolitical battle
laws appear to have moved from training with China outweigh the economic costs
models to inference. of isolating it. Michael Kratsios, an AI
Such developments change the eco- policymaker in both Trump administra-
nomics facing model-makers, such as tions and formerly of Scale AI, a tech start-
OpenAJ. A dependence on more process- up, thinks that China is "hell bent" on ex-
ing power strengthens their suppliers, such porting its AI technology worldwide. Jacob
as Nvidia, a maker of specialist AI chips. It Helberg, Mr Trump's pick for under-secre-
also benefits the distributors of AI models, tary for economic growth and a former ad-

Ebca ~
notably cloud-service providers like Ama- viser to Palantir, a Silicon Valley darling,
zon, Microsoft and Alphabet. And it may has argued that it is imperative for America
justify the fortunes these tech giants con- to win the AI arms race with China.
➔
tinue to invest in data centres because The big question is, will Mr Trump con-
more inference will need more computing tinue the Biden administration's approach
power. On January 21st Mr Trump an-
nounced "Stargate", a huge private-sector d3 ~ of prioritising constraints on China, with
export curbs and the like, to maintain
project to build data centres in America in- America's lead in AI? Or will he put more
volving OpenAI (see next article). The firm Test emphasis on freeing America's tech firms
Input Output*
is being squeezed from both sides. to out-innovate China?
Then there is competition. Google has
released its own reasoning model, Gemini
2.0 Flash, and other tech firms probably
will, too. Open-source models are expect-
EP ca ➔ ?•
There are justifications for trying to
keep China at heel. In Silicon Valley, sup-
porters of a crackdown say Chinese firms
steal American intellectual property, help-
ed to follow. Customers will be able to
draw on multiple models from different
providers. And although generative-AI
d3 B::i ing their large language models (LLMs) to
advance fast. They argue that Chinese tech
firms have evaded export controls on
models may improve a little through their *Answer: The same light blue squares as the input with the American semiconductors, either by buy-
addition of dark blue squares to form four two-by-two blocks
interactions with customers, they lack true Source: ARC-AGI
ing cutting-edge American graphics-pro-
network effects, unlike the products cessing units (GPUs), the chips used to ►►
 The Economist January 25th 2025 Business 57

► train and run AI models, on the black mar- well as cracking down on Chinese malfea- Technology and politics
ket, or by renting out capacity on other sance, the Trump administration will push
countries' cloud servers. This doesn't only to promote American competitiveness by Art of the deal,
help China's tech industry. They note that loosening the reins. As John Villasenor, an
China is far ahead of America in incorpo- expert on tech policy at the University of Chinese edition
rating AI into military tech, so hobbling it California, Los Angeles, puts it, "The best
is justified on national-security grounds. way to stay ahead of China is not to over-
An early test of Mr Trump's support for regulate at home:· Donald Trump tried to ban TikTok in his
such curbs will be his reaction to Mr Bi- On his first day in office Mr Trump took first term. Can he save it in his second?
den's "Framework for Artificial Intelli- a step in this direction by scrapping Mr Bi-
gence Diffusion", released for a four- den's executive order of 2023 that required HE LONG campaign to outlaw TikTok
month review period days before Mr Eiden
left office. It aims to impose strict licens-
builders of advanced LLMs to share infor-
mation with the American government.
T in America succeeded at last when the
Chinese-owned video app was forced to
ing requirements on the export of ad- Tech insiders in Washington say they ex- shut down on January 18th. But the black-
vanced GPUs, as well as the data that un- pect the new administration to take a "sec- out lasted only a matter of hours. The next
derpin frontier LLMs, to close the loop- tor-specific" approach instead. In other day TikTok sprang back to life for its 170m
holes that America believes Chinese firms words, rather than overarching AI regula- American users, issuing a message thank-
use to build their models. tion, federal agencies would oversee the ing an unlikely ally: Donald Trump.
The framework would make it more dif- use of AI within their own domains. Mr Trump, who tried to outlaw TikTok
ficult for some countries, including Amer- Some may worry that, with less regula- during his first presidential term, now in-
ican allies in the Middle East and Asia, to tion, tech firms will overstep the limits of tends to "save" it from a ban enacted by his
build large data centres. Supporters, in- AI safety. But for now "accelerationists" successor, Joe Eiden. On his first day back
cluding some Republicans in Congress, have overtaken "doomers", who worry in the White House Mr Trump signed an
hope it will curb China's access to Ameri- about safety. In a sign that deregulation is executive order giving the app a 75-day
can technology and send a clear signal to high on Mr Trump's agenda, he promised stay of execution. Keeping TikTok alive in
other countries that if they want access to the partners in Stargate to make it "as easy the long run will require him to persuade
American AI infrastructure they need to as it can be" for them to build their project. China to allow its sale. The outcome of
stay out of China's orbit. One further force promoting AI innova- that negotiation will be consequential not
But there is opposition, too. Nvidia, a tion could be defence spending. America just for the tech industry but for America's
semiconductor giant that still sells GPUs in puts only a tiny fraction of its $85obn de- relationship with its main global rival.
China, says the "misguided" framework is fence budget into AI. Silicon Valley execu- The Protecting Americans from For-
far too prescriptive and will undermine tives hope that the Trump administration eign Adversary Controlled Applications
American innovation. Some argue that will allow more participation by startups Act (PAFACA), which came into force on Mr
putting too many restrictions on third building AI weapons and systems in the Biden's last day in office, makes it illegal to
countries' access to American AI infra- competition for defence contracts. "distribute, maintain or update" apps con-
structure will push them into China's arms. In short, there is synchronisation. Mr trolled by "foreign adversaries", singling
Moreover, constraints on China may be Trump wants lots of investment in Ameri- out TikTok by name. On January 17th the
counter-productive. The release on Janu- ca, a roaring stockmarket and the ability to Supreme Court upheld the law, exhausting
ary 20th of the latest models by DeepSeek, claim he is vanquishing China. America's TikTok's legal appeal and prompting the
a Chinese AI company, which were cheap- AI giants want to build bigger models to app to shut down. When Mr Trump indi-
er to build than similar American ones, compete with each other and keep ahead cated his willingness to seek a solution,
may be a sign that curbs have encouraged of China, and to have more customers to TikTok switched its service back on.
Chinese firms to become hyper-efficient. justify their investments. Stargate looks The president's change of heart reflects
In the tech industry, the hope is that as like the shape of things to come. ■ a change in public opinion. Whereas in
early 2023 half of American adults wanted
to ban TikTok, by last summer the figure
had fallen to one-third, according to the
Pew Research Centre, a think-tank. Mr
Trump, who joined the app last year and
has 15m followers, credits TikTok with win-
ning him youngsters' votes and providing
competition to Mark Zuckerberg's Meta.
"If you get rid of TikTok, Facebook and
Zuckerschmuck will double their busi-
ness;' he warned last year.
Yet Mr Trump's power to save the app is
limited. His executive order instructs the
attorney-general not to enforce PAFACA for
75 days. But tech companies appear ner-
vous of flouting the law, which threatens
fines of $5,000 per user-$85obn in Tik-
Tok's case. Apple and Google have re-
moved TikTok from their app stores, mak-
ing new downloads or updates impossible.
Mr Trump said on January 21st that he did
not have TikTok on his phone but planned
to install it. For now, he will find that hard.
Central artificial intelligence agency To escape PAFACA's ban, TikTok would ►►
 58 Business The Economist January 25th 2025

► have to cut ties with its Chinese owner, global ad revenue was $4.5bn a year.
ByteDance. The company has long said If no deal is done and TikTok vanishes
TikTok is not for sale; the app's acquisition in America, the race will be on to capture
is opposed by China's government, which its users, who spend an average of nearly
has a tight grip on private companies. Chi- an hour a day on the app. The main benefi-
nese officials have described America's ef- ciaries would probably be Meta's Facebook
forts to buy TikTok as "plundering" and and Instagram, with Google's YouTube the
classified the app's recommendation algo- runner-up (see chart).
rithm as a sensitive technology that cannot A TikTok ban would have wider conse-
be exported. quences. American social apps such as
The return of Mr Trump makes a deal Facebook and YouTube are already banned
somewhat more likely. China is keen to in China, but other American companies
avert the trade war that the new president would be vulnerable to retaliation. Apple
has threatened; TikTok is a card it could has been hastily moving production to In-
play. Mr Trump raised TikTok with China's dia, but still makes most of its gadgets in
president, Xi Jinping, in a phone call on China. Tesla has a giant factory in Shang-
January 17th. A few days later he said it hai. China has an arsenal of new laws it can
would be "somewhat of a hostile act" if deploy against foreign firms. Recently it
China blocked the app's sale-and that ta- has used them to disrupt the operations of
riffs could follow. companies including Skydio, a drone-mak-
What would a deal look like? China's er, PVH Group, which owns brands such as
government is said to be considering Elon Calvin Klein, and Intel, a chipmaker.
Musk as a potential buyer, or broker of an There may be aftershocks in America, ($42bn) a year. German workers are sick on
acquisition by others. Mr Musk, an ally of too. TikTok is not the only popular Chinese average 15 days a year compared with eight
Mr Trump, already owns a social network, app there. Social networks such as Xiao- days for the EU as a whole.
X. His investments in China via his car- hongshu, China's answer to Instagram, Ola Kallenius, the boss of Mercedes,
maker, Tesla, may persuade Chinese offi- have risen up the download charts recent- agrees with Mr Bate. He warns of the "eco-
cials that he is a reliable partner-or some- ly. Chinese e-commerce platforms like nomic consequences" of a sickness rate in
one over whom they have leverage. Mr AliExpress and games such as Whiteout Germany that is often twice as high as in
Trump has suggested Larry Ellison, chair- Survival have proved international hits. other European countries. Mercedes also
man of Oracle, which provides cloud ser- How America tackles its TikTok problem manufactures cars and vans in Hungary,
vices for TikTok in America, as another is a sign of how it will manage the many di- Romania, Spain and Poland in factories
possible buyer. lemmas yet to come. ■ with comparable working conditions but
A host of others have signalled interest. with far fewer unwell workers taking time
Perplexity AI, a search startup, has report- off. Another impediment is the last thing
edly offered to merge with TikTok, eyeing German workers' benefits German business needs at a time when the
its big catalogue of video training data. A economy is in recession for the second
consortium led by Frank McCourt, a for- Champions consecutive year, energy prices remain
mer owner of the LA Dodgers baseball high and a trade war is looming.
team, has put in a bid. Jimmy "MrBeast" of sick leave Germany has one of the most generous
Donaldson, the most-followed YouTuber, sick-leave regimes in the world and it is
said he would make an offer with "a bunch costing businesses dearly. It is not clear
of billionaires". "Every rich person has BERLIN
that Germans are more poorly than other
called me about TikTok;' Mr Trump said Businesses lament yet another handicap Europeans. An ageing society and the pan-
on January 20th. demic have caused a new vulnerability to
Any sale is unlikely to include the app's ISTORICALLY GERMANY has been a respiratory illnesses and mental-health
prized algorithm, believes Wedbush Secu-
rities, an investment firm, which estimates
H world champion of the rights of work-
ers related to their health. In 1883 Otto von
challenges but that it true of most other
countries. "It's very hard to police;' says Jo-
TikTok's resulting value at $4obn-5obn. Bismarck, chancellor of the German em- chen Pimpertz of the German Economic
That is a hefty discount for an app whose pire, set up the world's first statutory Institute (Iw). In a study he found that the
ad revenue in America this year is forecast health-insurance system with the Health total nominal cost of sick pay for employ-
to reach nearly $16bn, according to Insurance Act, which included paid sick ers rose from €36.9bn to €76.7bn between
eMarketer, a research firm. When Mr Musk leave. Bismarck's Krankenversicherungsge- 2010 and 2023 (a 57% increase, adjusted for
paid $44bn for Twitter three years ago, its setz was not motivated by concern for inflation). That is partly a result of higher

-
Tikking over
workers' welfare so much as a strategy to
beat socialists at their own game. Yet it laid
the foundations of Germany's welfare
state and was followed by laws on accident
wages and a bigger workforce, but also be-
cause more people are calling in sick.
There is clear correlation between the
generosity of the system and the number
United States, reallocated TikTok ad spending
by platform/channel, 2025*, % and disability insurance. of sick days, says Nicolas Ziebarth of the
■ lnstagram Facebook ■ YouTube German bosses are warning that the Leibniz Centre for European Economic
■ Other social ■ Connected rv+ Other channels pioneering policy has become a handicap. Research. Germany's arrangements are
0 20 100
Germany is now "the world champion lavish compared with elsewhere in Europe
when it comes to sick days;• according to and have become easier to manipulate.
Oliver Bate, the boss of Allianz, Europe's Workers receive 100% of their pay from the
biggest insurer. In an interview with Han- first day of sickness for up to six weeks. In
delsblatt, a newspaper, Mr Bate called for a Britain, for example, employees are not en-
*Forecast, assumes ban goes into effect +Excluding YouTube
Source: eMarketer
"waiting day" (an unpaid first day of sick titled to pay for the first three days of ill-
leave), which he claimed could save €4obn ness (a waiting period the government has ►►
 The Economist January 25th 2025 Business 59

► promised to abolish) and then get £117 he says, will probably encourage the sick to that Germany could adopt to reduce time
($144) a week, a fraction of their salary. In go to work, possibly infecting others or taken off such as hygiene routines that
2022 the average Briton took only six sick even hurting themselves or causing acci- protect workers from infection, improved
days. In 2023 it became easier for Germans dents. Swedish employers do, however, pay occupational safety and better ergonom-
to call in sick as workers were allowed to 80% of a worker's salary for two weeks, ics. Company doctors might provide flu
get an electronic doctor's certificate by after which a health insurer takes over as vaccinations and advice on both physical
phone rather than see one in person. paymaster. But perhaps the most innova- and mental health. Policymakers have the
Perhaps Germany should adopt a more tive features of the system is partial sick hardest task: finding the right balance be-
Scandinavian approach. Sweden used to leave. Doctors can determine that a person tween giving genuinely sick workers time
have a waiting day but this was abolished a is unwell but is still fit for doing some work to recover without encouraging the sort of
few years ago. Mr Ziebarth also opposes and can therefore turn up for fewer hours. malingering of which Bismarck would al-
the introduction of one in Germany which, There are other more general measures most certainly have disapproved. ■

BARTLEBY
J(nowing what your colleagues earn
The pros and cons ofgreater pay transparency

ow MUCH do your colleagues get cause average wages were suppressed. job applicants whose salary expectations
H paid? In a few countries, such as
Norway, you can take a good guess by
Transparency appears to hand employers
a powerful bargaining tool: firms can
bear no resemblance to budgets.
Transparency can also stoke motiva-
looking at public records on individuals' argue that a pay rise for one individual tion. A recent paper by Cedric Gutierrez
overall tax payments and income. But in would need to be replicated for others. of Bocconi University and his co-authors
most places, finding out people's salaries A Danish law from 2006, requiring that found that pay transparency among
means asking them what they earn. And firms above a certain size disclose gender American academics increased the effort
that is about as socially acceptable as pay gaps among comparable workers, of those who were revealed to be over-
saying "What an ugly baby." provides an example. In a paper published paid. If you're earning a lot more than
In a recent study Zoe Cullen of Har- in 2019 Morten Bennedsen of INSEAD and others, you'd better prove your worth.
vard Business School and Ricardo Perez- his co-authors found that the gap between As for wage disparities between
Truglia of the University of California, men and women narrowed, primarily bosses and those below them, you might
Los Angeles, offered monetary rewards because male employees saw slower wage imagine that gaps foster resentment. But
to employees of a South-East Asian bank growth. A lower wage bill is not necessar- they can also pique aspiration. Other
if they were able to accurately estimate ily good news for firms, however. Produc- research by Ms Cullen and Mr Perez-
the wages of some of their peers. The tivity at affected Danish firms also went Truglia suggests that employees not only
researchers found that a majority of down, perhaps because lower earners were consistently underestimate how much
employees were very uncomfortable fed up to discover they were undervalued managers earn but also work harder
asking colleagues about their pay and or because higher earners resented the when they find out the rewards that
were also unwilling to reveal their own slower wage growth that followed. promotion can bring.
salaries to their colleagues, particularly if Disclosure can lead to different out- Transparency makes it more impor-
they thought they might be earning comes. Requirements to include salary tant to get performance-based pay right.
more than them. details on job postings appear to push up A recent paper by James Flynn of Miami
Norms of privacy and secrecy around pay, for example, in part because firms as University looked at what happened
income help explain why legislators who well as employees have better information when the previously secret salaries of
fret about unfair pay differentials about market rates. It is surely worth ice-hockey players in North America
increasingly require greater transpar- paying a bit more to avoid wasting time on were published in the middle of the 1990
ency. Few jurisdictions are as radical as season. Underpaid players shifted their
the Scandinavians, but more and more of efforts towards scoring goals and provid-
them are mandating that firms disclose ing assists, which were more highly
gender (and other) wage gaps, publish rewarded than defensive contributions,
pay ranges on job adverts or refrain from to the detriment of their teams' perfor-
asking about applicants' prior earnings. mances as a whole.
New transparency laws take effect in Pay transparency offers prizes and
Illinois, Minnesota and Vermont this pitfalls for managers, in other words. If
year; an EU directive is due to come into things go well, it ought to close unjust
force in 2026. pay gaps and provide workers with more
A recent review by Ms Cullen into the information on their options inside and
effects of all this sunlight reveals a outside their firms. If things go badly,
mixed picture. Greater transparency morale and productivity may suffer as
about what people in similar jobs are the pursuit of equity catalyses slower
earning has helped close pay gaps be- wage growth; performance-based pay
tween men and women. This is not may converge on things that are easier to
because lower-paid employees were measure, not what matters most. Sun-
given big pay bumps, however, but be- light is lovely. It can still cause damage.
60 Business The Economist January 25th 2025

SCHUMPETER
America, tech oligarchyr

Why you shouldn't panic about the tech-industrial complex

port their total wage bills but sales and general administrative ex-
penses combined with research-and-development costs give a
rough idea. Add this to earnings before interest, taxes, deprecia-
tion and amortisation, and Amazon, Meta and Tesla correspond
to 1.8% of American GDP.
Even if you add Apple and Alphabet, whose CEOs also attend-
* ed Mr Trump's swearing-in but who are hired stewards rather than
founder-owners and thus decidedly unoligarchic, the figure rises
to just 3.1%. In Russia, home to the original oligarchs (in the non-
ancient-Greek sense), the figure is much higher. A study from 2004
in the Journal ofEconomic Perspectives found that two dozen mag-
nates employed nearly a fifth of all workers and earned 77% of
sales in manufacturing and mining, which at the time accounted
for two-thirds of Russian output. In Hungary, the closest the
Western world has to a real oligarchy, chums ofViktor Orban, the
strongman prime minister, may oversee 20-30% of the economy,
according to one estimate.
Other measures tell a similar story. Amazon, Meta and Tesla
make up 9% of business investment by America's 1,500 largest
firms. In India, Mr Ambani's Reliance Industries accounts for 16%.
The trio's capital spending is equivalent to 0.4% of GDP, compared
with nearly 1% for John D. Rockefeller's Standard Oil in 1906.
HAT NATION can you fit into the Capitol Rotunda? Answer: The experience of Rockefeller points to another reason not to
W somewhere between a Portugal and a Thailand. Each coun-
try's total household net wealth was $1.3trn, give or take, accord-
panic. Despite his immense wealth-at its peak almost twice Mr
Musk's relative to the size of America's economy-he struggled to
ing to the latest available figures from a few years ago. This is have his voice heard in the corridors of power, points out Tevi
around the accumulated fortune of the billionaires who turned up Troy, author of "The Power and the Money", a history of American
for Donald Trump's second presidential inauguration in Washing- potentates' rapports with commanders-in-chief President James
ton on January 20th. Bernard Arnault, owner of LVMH, a luxury Garfield did not know how to spell his name.
empire, and Europe's richest man, represented the old continent's Even though Mr Trump is clearly friendlier to business than his
fat cats. Mukesh Ambani, an Indian industrialist who is Mr Ar- trustbusting predecessors a century ago, his feelings towards tech
nault's Asian opposite number, stood in for the global south's. do not seem to run deep. The word "technology" did not feature
However, it was Elon Musk, Jeff Bezos and Mark Zuckerberg in his inaugural address (in contrast to "liquid gold"). Moreover, in
(collective net worth: $911bn, a bit shy of three Luxembourgs) who America public opinion still matters, and could easily turn against
got the most attention- and better seats than the incoming cabi- the tech billionaires. Sections of MAGA already loathe them.
net. Only the Trump family stood between the tech moguls and Crucially, in contrast to Rockefeller, who wielded near-total
the 47th president as he took the oath of office. control over a critical economic input in the form of refined petro-
This proximity to power- literal and figurative- alarms many. leum products, they cannot hold the American economy to ran-
In his farewell address from the White House five days earlier Joe som. No Amazon? Walmart will happily sell you everything you
Biden warned that "an oligarchy is taking shape in America" and need. Instagram says access denied? Great, then you have time to
of a rising "tech-industrial complex that could pose real dangers read Mr Troy's riveting book. Want a new car? Tesla may anyway
for our country". It is not just Americans who are worried. On Jan- not be your top pick of vehicle these days. Even Mr Musk's SpaceX
uary 18th Reuters reported that Germany's ambassador to the Un- rockets may not be the only game in town for ever, though Rocket
ited States, a sober Teutonic type not normally given to hyperbole, Lab, the firm's closest competitor, and Blue Origin, a company
had confidentially alerted the government in Berlin that, among founded by Mr Bezos, are still some way behind.
other disruptive moves by the second Trump administration, "big
tech will be given co-governing power." Teeming with rivals
Inaugural seating arrangements notwithstanding, such assess- The rocket rivalry highlights the last reason for calm. Big tech is
ments seem far too bleak. America is no oligarchy-and unlikely not a monolithic interest group, like the Russian oligarchs whose
ever to become one, for three reasons. First, the supposed techn- businesses mostly do not overlap. The technology tycoons' inter-
oligarchs control far too small a portion of the country's vast and ests are often in conflict. Messrs Bezos and Musk compete in
vastly diverse economy to be able to influence its overall direc- space. Mr Musk and Mr Zuckerberg own rival social-media plat-
tion- one of the big fears behind warnings like Mr Biden's. forms. Amazon is taking a bite out of Meta's online-advertising
Although Mr Bezos's Amazon, Mr Zuckerberg's Meta and Mr business. Everyone is piling into artificial intelligence.
Musk's Tesla together account for one-tenth of the value of all list- Mr Trump is more transactional than presidents before him,
ed stocks in America, their economic contribution is much more which increases the risk of cronyism and self-dealing. But Amer-
modest. This contribution, or gross value added, is calculated by ica's economy, including its technology industry, is too unwieldy
adding a firm's profits before net taxes and financing costs to what and dynamic to petrify into an actual oligarchy, whatever dip-
its employees earn in salaries and benefits. Companies seldom re- lomats and departing presidents say. ■
The Economist January 25th 2025 61

Finance & economics

Mining and more than balanced by the fact that species from
southern and temperate waters, including
Break the ice Atlantic cod, are moving to areas such as
the Barents and Bering seas. Nutrient-rich
water could also help populations grow
faster, while receding ice opens up new
grounds and lengthens fishing seasons.
Mackerel did not arrive off Greenland until
The Arctic offers climate change's great economic opportunity 2011. By 2014 the oily fish represented 23%
of the island's total export earnings.
OR BEARS of both the market and polar big as the opportunities. Last month Nor- Such benefits may pale in comparison
F kind, a planet without an ice cap is a way paused plans for deep-sea mining; to those offered by new shipping routes. To
tragedy. The Arctic is warming four times Russia's own efforts have halted. Can the grasp how climate change may transform
faster than the world at large, causing ice prize be grasped? And on what timescale? them, see the map on the next page. Melt-
to shrink by an area the size of Austria each One benefit already on offer is bigger ing ice could open three paths. The first,
year. Since the 1980s the volume of ice has catches. Some species, such as snow crab known as the Northern Sea Route (NSR),
fallen by 70% or more. The Arctic's first and Alaska's king salmon, are struggling in hugs the Russian coast to connect the Ba-
ice-free day may occur before 2030. warmer, somewhat acidified water. And an rents Sea with the Bering Strait. A second,
A warming Arctic should yield enor- international agreement has restricted dubbed the North-West Passage (NWP),
mous dividends. Retreating ice will create fishing in the high seas. But this is more runs along the North American Arctic
shipping shortcuts. Maritime access and coastline, from the Beaufort Sea to Baffin
melting glaciers will make it easier to ex- Bay. Last comes the Transpolar Sea Route
➔ ALSO IN THIS SECTION
tract minerals, just when the world craves (TSR), which runs over the North Pole.
resources from the Arctic's virgin geology. 63 Warning signs flash in China All three could shorten trips between
Warming waters may entice hordes of fish. Asia, North America and Europe, which
64 Buttonwood: Bulletproof bankers
This could up-end trade, energy and geo- account for most shipping, saving on fuel
politics. The prospect has sparked a rush 65 Has Japan truly escaped low inflation? and wages. They could also avoid choke-
of diplomats and miners. In December points such as the Panama and Suez ca-
65 Britain's underperforming investors
China set a world record, unveiling a "po- nals, which are busy, charge fee s and, in
lar-ready" 58,000-tonne cargo ship. One 66 Europe gains a taste for exit taxes the case of Suez, link to dangerous waters.
red-hatted politician has talked of seizing Exactly when these promises might be
67 Free exchange: Tariffs and inflation
Greenland. The obstacles, though, are as fulfilled depends on the route. The NWP, ►►
 62 Finance & economics The Economist January 25th 2025

► which runs through Canada's Arctic Archi- untapped natural gas. But its deposits are withstand the Arctic. Miners must learn
pelago, consists of narrow, winding chan- among the costliest to exploit-not ideal how to extract and process metals that are
nels. It is melting more slowly than the when demand for oil is flagging and a glut often found in low concentrations or min-
NSR. Although it stretches 1,500km, it has of natural gas, produced more cheaply in gled with others. Seven out of eight Arctic
only one deep-water port and lacks emer- America and Qatar, is on the way. nations are members of NATO; they may
gency facilities. Canada claims the NWP is Instead, the hope lies with the Arctic's have to reinvent China's techniques if they
in its waters; America and Europe deem it "green" minerals, which global warming is or their partners decide to limit its involve-
an international strait. The route is also making more accessible. They include co- ment in future projects.
shallow, limiting the size of vessels. balt, graphite, lithium and nickel, impor-
The TSR dodges many of these pro- tant ingredients in electric-car batteries; Cold comfort
blems. It traverses the Central Arctic zinc, used in solar panels and wind tur- Three types of people must also be con-
Ocean, which is much deeper. It avoids ter- bines; copper, required for all sorts of vinced: investors, national governments
ritorial waters, cooling the political tem- things electric; and rare earths, crucial to and locals. Lumina Sustainable Materials,
perature. And it provides the shortest route many types of green and military equip- Greenland's sole mine, offers a preview of
from the North Atlantic to the Pacific. Pro- ment. Niche metals including titanium, the challenges. Set up in 2013, it was first li-
ponents foresee thousands of vessels a tungsten and vanadium, used to make "su- censed to make a refined form of anortho-
year shuttling between North America and per-alloys", are also prized. Greenland site, a light-coloured rock used in fibre-
Asia, stopping en route at Alaska's Dutch looks especially well resourced in this re- glass and paint. Yet the delicate material
Harbour. Even when the ice is gone, gard. The island has reserves of 43 out of was too difficult to ship. By 2020 the mine
though, the route will be littered with ice- 50 minerals deemed "critical" by the Amer- had exported little. It took a new deep-sea
bergs, making it navigable only by ice- ican government. Its known rare earths port, and sustained lobbying by the firm's
breakers. The vision of thousands of ships amount to 42m tonnes, some 120 times new management-no longer in Vancouver
may have to wait until 2050 or so. more than the world mined in 2023. but in Greenland-for Lumina to be al-
Most of the Arctic's minerals have not lowed to export the rock in coarser form.
Sea change been mapped out in detail, notes Per Kal- Production is set to increase to 210,000
That makes the NSR the most promising vig, who co-wrote a geological survey of tonnes in 2025, up from 35,000 in 2019, all
option available. The route has been open Greenland. As such, any exploitation could of which will be shipped abroad. The mine
to ice-resistant ships in the summer almost be at least a decade away. But the Interna- sits on a deposit of some 4bn tonnes.
every year since 2005. Sections are naviga- tional Energy Agency, an official forecast- In recent history, the Arctic's allure has
ble all year, albeit with the help of an ice- er, reckons that the global market for such been as a place on which to put garrisons,
breaker escort, which is expensive. Traffic minerals will double in value by 2040, if spy devices and nuclear weapons. Plenty of
is rising nevertheless: a record 92 ships countries stick to existing climate pledges. obstacles may prevent its transformation
navigated the NSR last year, up from 19 in Western countries are also eager to discov- into a modern El Dorado. Pooling the cash,
2016. As ice continues to melt, the NSR er new sources so as to bypass China, tech and goodwill required to spark a
could appeal to two types of voyages. One which dominates supply. boom will involve more time and effort
is traffic focused on the transport of re- Firms that use artificial intelligence to than merely waiting for the ice to go. Com-
sources from Russia's far north. The coun- sift through historical and scientific data petition without co-operation risks hold-
try has long aimed to secure year-round in order to identify deposits could speed ing back progress. But the prize on offer is
energy exports by shipping liquefied natu- up progress. Ice-capable rigs, autonomous such that, over coming decades, the Arctic
ral gas to Europe in the winter (for heating) mining vehicles, heavy-lifting drones and will surely become an economic as well as
and Asia in the summer (for cooling). Al- other technologies are being developed to a geopolitical venue. ■
though that grand vision receded after
Vladimir Putin's invasion of Ukraine, when
Europe cut some links with its neighbour,
the NSR could still help Russia ship coal,
-
Treasure map
Arctic countries with significant
- - - - - Canada
Copper, nickel,
gas and metals to China and India. reserves of select ed natural resources • • '.:.,
rare earths, zinc
The route may also lure some of the
traffic connecting Asia to Europe. It is un- Greenland(Denmark) "'- • . -- _♦
likely to be used much for container ships, Cobalt, copper, graphite, - - -- ~ • ~,~ • Alaska (US)
lithium, nickel, rare earths Baffin,_ •- - - Copper, rare
which tend to hop along hubs in the Gulf earths, silver, zinc
• Bay
or South-East Asia rather than travel the /
whole route between Europe and Asia, Iceland
says Rasmus Bertelsen of the uiT Arctic Aluminium - - -- - •..,,. • Dutch Harbour
University of Norway. The north's rough '' Bering
seas also risk thwarting the just-in-time lo- Norway •' • Sea
Copper, nickel, si lver ~ : •
gistics of the modern goods trade. How- \· I
• I
ever, it could reduce the distance between
Sweden , • •
Rotterdam and Shanghai by 5,000km, or
25%, and slash the journey from 30 to 14
days. As a consequence, despite the route's
Copper, rare earths,

::: :::~nc J•#: . ~

,t,"
-!!'
<_,f

1
defects, it could still boost overall trade be- • -• - - Russia
Cobalt, copper, graphite, • Aluminiu m, cobalt,
tween Asia and the EU by 6%, according to lithium, nickel : copper, nickel,
Eddy Bekkers, now at the World Trade Or- • rare earths, silver
ganisation, and colleagues. •
The Arctic's last prize concerns com-
Met al deposits • Base • Precious • Ferrous • Energy Special
modities. This used to mean hydrocar-
• Hydrothermal fields ♦ Diamond deposits
bons. The region is thought to hold 13% of
Sources: Geological Survey of Norway; The Arctic Institute; The Economist
the world's undiscovered oil and 30% of
 64 Finance & economics The Economist January 25th 2025

► sure on the bond market. Even if this hap- has already been a move in this direction: A surefire way to take pressure off the
pens, however, the impact may be muted. issuance hit a record high in December, bond market would be to relax capital con-
Corporate earnings declined for a third reaching 1.8trn yuan ($25obn). Much of trols, not least because Chinese demand
consecutive year in 2024, falling by more this borrowing was part of a plan to allow for overseas investments is extremely high.
than they did in 2022, when China was par- local governments to refinance their debt. Yet the more China's economic outlook de-
alysed by lockdowns. Moreover, if the state Any further increase would have to come teriorates, the more difficult it will be to do
did somehow manage to manufacture a hand-in-hand with a desire to increase this. Above all else, ministers want to avoid
boom, a widening gap between valuations state spending or cut taxes. Although it is a situation in which capital flees the coun-
and company fundamentals would only set still unclear what the government's plans try. That is why the government is in fact
the scene for a subsequent crash. are on this front, a finance minister did say more likely to tighten, rather than loosen,
Another solution might be to increase on January 10th that China's fiscal policy controls this year-regardless of how low
the supply of government bonds. There would be "highly active" this year. bond yields fall. ■

BUTTONWOOD
Bulletproofbankers
How the masters ofthe universe avoided MAGA '.s anti-globalist revolt

ALL STREET was poorly repre- tors during his confirmation hearing. It would also be more difficult to
W sented in the expensive seats
behind Donald Trump at his inaugura-
When Scott Bessent, Mr Trump's pick this
time around, was quizzed by senators,
march pitchforks down Wall Street
today. That is not because finance has
tion. That honour fell instead to the Wall Street and its implosion in 2008 lost its flare for creative destruction, or
leaders of America's technology in- hardly came up. How cool was this former because ofbodyguarding by its indefati-
dustry, who turned up en masse. Was lieutenant of George Soros as he prepared gable lobbyists. It is because Wall Street
this a humbling exclusion? Not quite. to take a post in the counter-revolutionary would provide a slippery target for Mr
Whereas Silicon Valley travelled east to struggle against the globalist elite. Trump's "revolution of common sense",
avoid retribution, Wall Street stayed Absence of catastrophe is not the only as its risk-taking has become more dis-
away because it expects none. reason Wall Street is enjoying political persed. Since the financial crisis, reg-
Bankers are likely to thrive in Amer- irrelevance. Culture has replaced inequal- ulation has pushed the hard edge of
ica's MAGA era. The expectation of broad ity as the overwhelming focus of Amer- finance from banks to more-and more
financial deregulation, provided by a ican politics. In his inaugural address, Mr complex- institutions in private markets
president obsessed with the stockmark- Trump promised to restore meritocracy and among hedge funds. Obscurity
et, has made investors giddy. News that and free expression. This change puts big brings its own risks, but is a shield
Michael Barr, who has sparred with tech, rather than big banks, most squarely against angry politicians. Big-tech firms
banks over capital requirements, will in the stocks. The same tech firms could do not benefit from such protection.
relinquish responsibility for financial also play a decisive role in America's com- In Europe things are different. On the
regulation at the Federal Reserve marks petition with China, whereas bankers continent, bankers remain the kings of
the start of a more amiable period of probably will not. Proximity to power finance, and a punch-bag for populists.
supervision. If in recent years it has felt means greater whiplash when it shifts. There is nothing like big tech to take
like high noon in the Valley, it is now Since November Wall Street's executives their place. In Italy, for example, threat-
morning again on the Street. have needed only to kiss the ring: in- ening to introduce new taxes on banks
J.D. Vance, America's vice-president, stitutions have exited a green banking seems to have become an annual event.
announced that the Republican Party alliance, for instance. Those at the helm of Negotiating bank mergers within the
was done "catering to Wall Street" dur- America's biggest tech firms, meanwhile, bloc passes for foreign policy. Some
ing the election campaign. Indeed, Mr are in danger of swallowing it. governments are still selling stakes in
Vance is alive to the irresolvable tension financial institutions, a legacy of crisis-
between markets and conservatism. era bail-outs. America might be in dan-
Some in his orbit even decry "financial- ger of forgetting some lessons from the
isation", shorthand for a misalignment of crisis; Europe is still living through it.
interests between America's financial Although the beating heart of Amer-
industry and its people. So it is strange ican finance is now more remote, its
to imagine Wall Street elites in Davos risk-taking ethic has infiltrated the
cheering the ascension of this self-styled American psyche. Increasingly complex
common man. Yet bankers have never products for retail investors, legalised
felt so bulletproof. sports betting and cryptocurrency's
Their mood owes something to a boom reflect the appetites of Main
strong economy and the passage of time. Street. Mr Trump's decision to launch his
When Steven Mnuchin became treasury own meme coin, days before taking
secretary at the start of Mr Trump's first office, was an extraordinary act of perso-
term, the collapse of Lehman Brothers, nal greed. But wouldn't most Americans
an investment bank, was recent history. do the same thing, if given the opportu-
His time at Goldman Sachs and property nity? It is easy to be a banker when such
deals were noisily scrutinised by sena- a mood has taken hold.
The Economist January 25th 2025 Finance & economics 65

Hopeful central bankers for the third time this cycle. Their growing
confidence mostly stems from the national
Yielding results pay picture. Since last spring, nominal base
wages for full-time workers have risen at a
rate of nearly 3% year on year. So have ser-
vices-producer prices, a leading indicator
for broader services inflation, which is sen-
SINGAPORE
sitive to wage growth.
Has Japan truly escaped low inflation? Analysts expect a second year of pay
rises near 5% following shunto, annual
APAN IS USED to the position in which it wage negotiations between firms and un-
J currently finds itself: apart from the rest
of the rich world. Elsewhere, as inflation
ions that will conclude in March. More-
over, inflation expectations are reaching a
exceeded central-bank targets, rate-setters "screaming point", says David Bowers of
tightened monetary policy in rough pro- Absolute Strategy Research, a consultancy.
portion to the size of their overshoot. If the Surveys of businesses' and consumers' me-
Bank of Japan had behaved in a similar dium-term inflation expectations are at, or
manner to its G10 peers, notes Tim Baker of approaching, record highs. "It has now be-
Deutsche Bank, the country's interest rates come possible to envision achieving the
would have increased by two percentage price-stability target in a sustainable and
points over the past few years. Instead, stable manner;' said Himino Ryozo, the
they barely crept up, rising from -0.1% to Bo J's deputy governor, on January 14th.
0.25%, despite nearly three years of price Investors are buying into the turna- Asset management
growth above the Bo j's target of 2%. round, too. Short- and long-term Japanese
That is because Japanese policymakers yields have rallied (see chart). On January Boazvbozos
would like to kill off the country's disinfla- 15th the ten-year yield reached its highest
tionary decades once and for all. They re- level since 2011. The two- and 30-year
ceived a gift when the current wave of in- yields have recently set similar records. Al-
flation arrived from overseas. In 2021 and though this increase has coincided with
2022, as import prices surged and the yen surging yields in America, Germany and An American hedge fund wages war
plunged, Japan received a whopping cost Britain, Japan's bond market has been dri- on flailing British investment trusts
shock. Companies had little choice but to ven by very different underlying condi-
pass on higher costs, in the process break- tions. Investors are not spooked. Rather, "HAVE YOU no shame?" cried Boaz
ing a taboo against price rises. Workers, in inflation has provided them with optimism Weinstein during a presentation to
turn, received a strong incentive to seek that Japan's economy can regain its vim. investors on January 14th. The boss of Saba
higher wages. The Bo j's policymakers were And rather than being driven by a worsen- Capital, an American hedge fund, was rail-
pleased: they hoped to turn a bout of exter- ing fiscal trajectory, inflation has led to a ing at fund managers in Britain's venerable
nal "cost-push" inflation into internal "de- bump in tax receipts. A slimmer budget investment-trust industry. Mr Weinstein
mand-pull" inflation, by way of a virtuous deficit has nudged down government debt has picked seven trusts, overseeing £4bn
feedback loop between wages and prices. as a share of GDP. Higher yields could in ($5bn), whose performance he deems so
Now the central bank is beginning to time raise public interest payments, but abysmal that both boards and managers
change tack. On January 24th policymak- this will take a while. More than half of Ja- must be fired. Saba has bought stakes in
ers will almost certainly raise interest rates pan's government bonds are five or more each and sought votes to oust their boards.

-
Rising in the east
years away from refinancing.
Despite the increasingly hopeful state
of affairs, Japan's central bankers face a dif-
ficult balancing act. Households bristle at
If successful, it will appoint new directors
and seek to manage the trusts itself. At the
first such poll, held on January 22nd, share-
holders rejected Mr Weinstein's overtures.
Japan,%
the high food and energy costs wrought by Six more chances remain.
a weak yen, which is near a four-decade Saba's victims are a small slice of a sec-
Government-bond yields
3
low. Interest-rate rises that are too cautious tor that invests £27obn, but their fate will
would prolong the pain unnecessarily. On reverberate across it. Their managers-
2
the other hand, too ambitious a rate-rising Baillie Gifford, Janus Henderson, Manulife
Ten-year
cycle could strengthen the yen before in- and Herald Investment Management- in-
0 flation has taken root domestically, which clude some of British asset management's
Two-year -1
might undermine the rise in inflation ex- biggest names. More important, other
pectations that the BoJ has worked so hard trusts share their vulnerabilities, and Mr
2020 21 22 23 24 25 to achieve. With Japan's economy showing Weinstein is raring for a broader assault.
signs of slack, China exporting enormous He is certainly right on one count: re-
Bank of J apan policy interest rate quantities of cheap goods and Donald cent performance has been lousy. Saba
0.3 Trump preparing tariffs, disinflationary points out that, in the three years before it
0.2
hazards are appearing everywhere. The started buying stakes, six of the seven

,J.
bank's policymakers are likely to stick with trusts had underperformed their bench-
0.1
a gradual approach, nudging up rates at a marks. The worst laggard, Baillie Gifford's
0 pace slow enough to disrupt nothing. Dis- us Growth Trust, had done so by more
-0.1 comfort for Japanese shoppers today is a than 50 percentage points. Its managers
price worth paying for the chance of a might quibble that this timeframe was
2020 21 22 23 24 25
much healthier economy in the years, and cherry-picked to begin at the peak of a ma-
Sources: Haver Analytics; LSEG Workspace
maybe even decades, to come. ■ nia for growth stocks, which was followed ►►
 66 Finance & economics The Economist January 25th 2025

► by a broad crash. But that would not de-

fang Mr Weinstein's second argument: Exit taxes
that as well as dismal returns, poor man-
agement has caused the trusts' market val- In search of growth
ue to drop well below the net asset value
(NAV) of their holdings. If Mr Weinstein
succeeds in seizing the reins, he promises
to close these "NAV discounts" and provide
European governments are struggling to stop rich people from fleeing
quick profits to shareholders.
The NAV discounts are possible be-
cause of the strange structure of trusts. HEN A GOVERNMENT falls apart, omy and stockmarkets have lagged far
They are "closed-end" funds, which means
they invest permanent pools of capital that
W pay attention to the laws ministers
still manage to pass. Germany's collaps-
behind those across the Atlantic. This
both increases the incentive for people
investors cannot tap directly. Instead, the ing "traffic-light" coalition was unable to to invest elsewhere and for governments
investors own shares in a firm-the trust- agree on climate policy or a budget, but to look for new sources of revenue.
that manages the capital. If they want out, it flashed green for one change: an exit But how much money do exit taxes
they must sell their shares on the market tax. Since January 1st anyone with over actually bring in? Not much. The well-
rather than asking the trust to liquidate as- €500,000 ($520,000) in investment funds heeled are well-motivated to find loop-
sets and give them back their money, as has had to pay income tax on gains holes. European laws further complicate
they would with an "open-end" fund. This earned in Germany if they wish to ex- matters. Germany's new rules may vio-
allows trusts to trade less frequently, lo- tract their money from the country. late EU legislation protecting the free
wering costs. They can also invest in assets Germany's exit-tax enthusiasm is movement of capital, says Christian
that cannot easily be sold. These include replicated across Europe. Norway's Kempges of Grant Thornton, a consul-
shares in unlisted firms, such as Elon government also brought in changes for tancy. Options on a more solid legal
Musk's SpaceX, that retail investors might the new year. In a second stiffening of foundation, such as adding a "tail" to the
otherwise struggle to own. the rules in as many years, rich Norwe- tax, where departees are on the hook
A quirk of this structure is that a trust's gians will now pay levies on dividends if only if they sell their assets within a set
shares can trade at a price which differs they plan to remain outside their fa- number of years after leaving, create the
from theirNAV. The shares of those chosen therland. A doomed French budget opportunity for avoidance, according to
by Saba have all been trading much lower, would have tightened an exit tax that Arun Advani of CenTax, a think-tank.
with average discounts over the three years left-wing lawmakers complain has been This dysfunction shows up in rev-
before the campaign began ranging from gutted. Dutch parliamentarians have enues that are collected. Norway's Min-
12% to 15%. It is a damning verdict on the instructed their government to investi- istry of Finance estimates its amended
trusts' managers that their portfolios gate introducing an exit tax of its own. exit charge will raise $12om a year once
would be worth more if they were carved An exit tax can be a helpful piece of its 12-year tail has run out, an amount
up and sold for parts. For Mr Weinstein, it politics. So many rich Norwegians equivalent to 0.04% of the state's total
also marks a failure of the trusts' boards. moved to Switzerland after the introduc- revenue in 2023. Little surprise, then,
They could have improved matters by or- tion of a higher wealth tax, that DNB, that others are giving up on the taxes.
dering managers to sell some assets and Norway's biggest bank, set up a Swiss Finland and Sweden both published
use the proceeds to buy back shares at a office, and the socialist party created a proposals the year that Norway first
price close to their NAV. Saba's campaign "wall of shame" for emigres. Exit taxes, tinkered with its measure, only to aban-
has spurred several to do so; share prices swiftly toughened, then appeared to be don them. For Norwegians sick of choc-
have duly risen and discounts narrowed. prudent fiscal planning (and a way to olate and yodelling, there may even be
If Mr Weinstein prevails, he promises to shift blame to those who had upped some relief: opposition parties are scep-
go further. He will liquidate more holdings sticks). In recent years Europe's econ- tical of the tax, and ahead in the polls.
to give investors more chances to sell at
prices close to NAV. Then he will roll out
his strategy, buying other trusts that are
trading at a discount. The pickings look
rich: at 15%, the NAV discount at the aver-
age British investment trust is even higher
than among the group Saba is currently
targeting. Investors could either quit via
the buy-backs or stick around for the ride.
Naturally, the trusts are urging share-
holders to turn away Mr Weinstein. Their
best argument is that his proposals have
little to do with why investors handed over
their money in the first place: to hold
shares in high-growth firms for the long
haul. Anyone investing in such a strategy
must be prepared to tolerate spells of poor
returns. Even then, for those with steady
nerves and a Machiavellian streak, there is
a trade here. They could sell to Mr Wein-
stein at close to NAV, then reinvest in other,
similar funds run by the original managers. An expensive flight
Just so long as they are still in business. ■
The Economist January 25th 2025 Finance & economics 67

FREE EXCHANGE
Do tarifft raise inflationr

Usually. But the bigger problem is that they harm economic growth and innovation

Yet even if the dollar rises, the pain simply shifts to exporters,
whose wares become more expensive for international buyers
(which is why Mr Trump usually favours a weaker dollar). For his
part, Mr Miran argued in a recent paper that the greenback's pop-
ularity imposes "externalities" on America's economy, since de-
mand for assets yanks the dollar above its fair value, hobbling ex-
porters in the process. This theory is questionable on its own mer-
its. The big deficits that recent administrations have run could not
have been financed so cheaply without a queue of foreigners buy-
ing Treasury bonds. Moreover, if Mr Miran had his way, any boost
to the dollar from tariffs would be short-lived: a dollar devaluation
would once again leave households facing higher prices.
Tariff-boosters also downplay the odds that other countries
will respond in kind. And patience, even among allies, is already
wearing thin. "One tariff would be followed by another," warned
Claudia Sheinbaum, president of Mexico, in November. Justin
Trudeau, Canada's prime minister, has vowed "robust, rapid" re-
taliation. Such moves would pull the dollar in opposing directions:
American demand for imports from abroad would fall, but so
would foreign demand for American exports. All told, American
households would be left with little insulation from tariffs.
So tariffs raise prices. Does that mean they cause painful infla-
OUNTAIN-NAMING turned out to be a curiously high priority tion? Not necessarily. A one-off increase in prices might create
M for Donald Trump. Mere hours after his inauguration, the only a short-term pop in inflation, not a sustained rise. Tariffs
erode consumers' overall spending power, and falling consump-
president signed an executive order to change the name of Amer-
ica's highest peak from Denali, of indigenous Alaskan origin, back tion of things produced at home creates offsetting disinflation ov-
to Mount McKinley, as it was officially known until Barack Oba- er time. Yet there is at least a danger that a one-off shock would set
ma intervened in 2015. The rechristening reflects more than just off an upwards spiral of prices and wages. After several years of
the usual culture-war ping-pong. Like Mr Trump, William McKin- high inflation, such a risk is now more pronounced.
ley was a "tariff man". As a congressman and later president, he
swung America toward protectionism in the late 19th century. Mountainous problems
"President McKinley made our country very rich through tariffs Worse still, tariffs also crimp economic growth by creating "dead-
and through talent;' said Mr Trump in his inaugural address. weight loss", as demand is skewed towards domestic companies
Over a century later, Mr Trump hopes to pull off the same trick. even when they are less efficient. As a consequence, resources are
His raft of day-one executive orders did not institute any new ta- wasted on production that is more expensive than it otherwise
riffs, focusing on mountains, a border emergency, drilling for oil would have been. The result is a vast economic distortion and low-
and halting DEI programmes. But the president still found time to er incomes throughout the economy.
threaten a 10% tariff on China, as well as a 25% tariff on Canada This effect is exacerbated by the fact that tariffs induce com-
and Mexico, to be introduced as soon as February 1st. He also panies to innovate less and misbehave more. Sheltered from bet-
floated a "global supplemental tariff", which would apply to any ter-run foreign rivals, firms have less incentive to produce superior
good imported from abroad, no matter its country of origin. and cheaper products. Alla Lileeva of York University and Daniel
Higher tariffs, Mr Trump and his backers say, will boost Amer- Trefler of the University of Toronto have found that reductions in
ican manufacturing and fund tax cuts at little cost to the every- American tariffs in the late 1980s and 1990s prompted previously
man, with foreigners footing the bill instead. These justifications less productive factories in Canada to innovate more, adopt ad-
are feeble, just as they were in McKinley's day. For a start, firms vanced technology and, as a result, increase the productivity of
usually pass on tariffs by raising prices. During Mr Trump's last their workers. Tariff regimes also tend to be chock-full of exemp-
sortie against Chinese manufacturing in 2018-19, prices of impact- tions, which the savviest firms learn to exploit, at the same time as
ed items went up roughly one-for-one with higher tariffs. their lobbyists seek more carve-outs. Mr Trump's love of doling
Mr Trump's more thoughtful advisers, such as Scott Bessent, out favours could cause a particular problem in this regard.
nominated for treasury secretary, and Stephen Miran, for chair of Over the course of his political career, McKinley's own enthu-
the Council of Economic Advisers, accept this dynamic. But they siasm for protectionism softened. Although America's 25th presi-
emphasise that tariffs also strengthen the dollar by pushing Amer- dent never transformed into a free-trader of The Economist's vari-
icans to purchase less from abroad. This lifts their purchasing ety, he did come to appreciate the benefits of mutually advanta-
power and so should help cancel out higher prices. Exchange rates geous trade deals with friendly countries. "We must not repose in
depend on much more than goods trade, so the effect of tariffs fancied security that we can for ever sell everything and buy little
during Mr Trump's first term was small. In 2018-19, for instance, or nothing," he announced in Buffalo, New York, in 1901, before
they explain at most a fifth of the move in the dollar over the per- adding that "commercial wars are unprofitable". America's 45th
iod, according to Olivier Jeanne and Jeongwon Son ofJohns Hop- and 47th president has perhaps not learned the correct lessons
kins University. Bigger tariffs would have bigger effects. from his predecessor. ■
68 The Economist January 25th 2025

Science & technology

Combating invasive species few natural checks, the animals bred and
spread. Well over zoom toads are thought
Wart wars to live in Australia today, hopping deter-
minedly across most of the tropical north
and halfway down the east coast.
This population explosion has had seri-
ous ecological consequences. Cane toads
TOWN SV ILLE, QUEENSLAND
secrete a substance called bufotoxin from
Genetic engineering, among other techniques, could help rid Australia of cane toads glands in their shoulders. This can be le-
thal to native wildlife, which has evolved
HIS WEEK, between January 18th and gum, a local conservation charity. no protection. Predatory marsupials, fresh-
T 27th, thousands of volunteers in a band
of territory stretching across north-eastern
Cannibalism is one of several weak-
nesses discovered during years of studying
water crocodiles, monitor lizards (known
as goannas) and several of Australia's most
Australia from Darwin to Brisbane are ven- how these Latin American amphibians venomous snakes suffer as the toads move
turing into the night with torches and col- have adapted to their new home. Combin- in. In some places, up to 90% of goannas
lecting-buckets. They are taking part in ing such knowledge with genetic technol- vanished upon the toads' arrival. The dis-
the Great Cane Toad Bust, an annual at- ogies has brought hope of slowing, or even appearance of these large predators dis-
tempt to keep a lid on the population of reversing, the relentless invasion. torts entire ecosystems. Prey species
these invasive, toxic amphibians. Toads boom. Smaller predators go unchecked.
thus caught will be killed humanely by be- Hop it! Carrion is left to rot.
ing chilled in refrigerators and then frozen. The problem began in 1935, when 101 cane Attempts to control the toads have
Popular though this toad-busting party toads were brought to northern Queens- been going on for decades, yet their ad-
is, however, it is not very effective. The land in a failed attempt to control pesky vance has accelerated. In the tropics, they
toad's prolific breeding habits soon re- beetles that were eating the local sugar- now travel up to 70km westward every wet
place such losses. To do the job properly, cane. Tens of thousands of reinforcements season, compared with 10km when they
other methods are needed. And one which were added in subsequent years and, with first arrived. They are thus poised to enter
is gaining ground is tadpole trapping. some of Western Australia's most trea-
Toads live in dense populations, and sured ecological areas.
➔ ALSO IN THIS SECTION
their tadpoles are not above cannibalising Toad biologists call this acceleration
the eggs of others, attracted by a chemical 69 High-tech antidotes for snake bites the Olympic Village effect. It is a superb
signal they release. Scientists at the Uni- example of evolution in action. Only the
70 Donald Trump and the WHO
versity of Queensland, in Brisbane, have most athletic toads make it to the invasion
isolated this substance to develop lures for 71 Wasp evolution front, where they breed. Over the genera-
tadpole traps. Six thousand of these traps tions, toads on the front have thus devel-
71 Well informed: Breathing and stress
have now been made and sold by Water- oped larger size, longer legs and even an ►►
 The Economist January 25th 2025 Science & technology 69

► urge to travel in a single direction. ins. The results showed a 45-fold increase species or support breeding programmes.
Armed with this knowledge, some pro- in resistance to bufotoxin. The team's hope But gene modifications have not been em-
pose dropping toads from the core popula- is that they can replicate this in their target ployed in the wild before. "This is really
tion onto the invasion's front line. These species, the endangered northern quoll. the first demonstration of gene editing for
toads are less physically impressive but Quolls, which resemble ferrets, are the wildlife-conservation purposes to target
much more competitive breeders. The largest carnivorous marsupials left on the an anthropogenic problem that we've
hope is to dilute the athleticism of the Australian mainland. Northern quolls cur- created;' says Professor Pask.
front-line toads and thus slow the advance, rently exist in isolated groups either be- His team reckon a toxin-resistant quoll
a process called genetic backburn. hind or immediately ahead of the toad could be ready for release in as little as five
Other genetic solutions are in develop- front line. Though quolls are also threat- years, though the exact schedule will de-
ment. Tadpole cannibalism has inspired a ened by habitat loss and introduced preda- pend on approval by regulators. Peter Pan
team at Macquarie University to engineer tors such as foxes and feral cats, studies tadpoles already have the green light. But
"Peter Pan" tadpoles, so called because the show the arrival of toads crashes their pop- the gene-edited quo!!, the DNA of which
genes which allow them to grow up into ulations. A toxin-resistant quoll would not would be changed in ways that could (and
adults have been disabled. Releasing hun- only survive the toads' arrival, but might ideally would) be inherited, is likely to face
gry swarms of these should keep pools also actively hunt them, thus reducing higher hurdles. More sophisticated forms
clear of toad eggs for years. their numbers. The team hope something of genetic engineering, in particular ones
The genetic changes involved are so similar may also be possible with other that allow for traits to spread rapidly
cautious that Peter Pan tadpoles are not predators, such as goannas. through a population, will be an even
even recognised as genetically modified Genetics is already widely used in con- tougher sell. But desperate times require
organisms under Australian law. The af- servation-for example to monitor elusive desperate measures. ■
fected genetic material in them is being
deactivated, rather than added to. And the
fact that the animals do not mature means Snake bites
changes cannot be passed on to a new gen-
eration. "We're very carefully testing reac- Lifelines
tions of native fauna to our non-metamor-
phosing tadpoles before we talk about re-
leasing them in the wild;' explains Rick
Shine, the team's leader. "We're trying not
to repeat the folly of 1935:' BENGALURU

Turning tadpoles against their own Genetic engineering and AI are powering the search for antivenins
kind is far less labour-intensive than trap-
ping them. However, even Peter Pans die HE BITE of a black mamba (pictured quated, batch-based approach, with its
eventually, and must be replaced. So this is
not a permanent fix.
T below) causes respiratory muscular pa-
ralysis. And death. Disturb a Russell's vi-
risk of provoking allergic reactions, with
one that yields an allergen-free product
Thus far, the new tadpoles have been per and the encounter may lead to kidney cheaply and in quantity. Early results from
confined to the laboratory. But New South damage and excess bleeding. And death. two groups, one working in old-fashioned
Wales and the Northern Territory have giv- As to the fer de lance, well, you get the idea. wet labs and the other using new-fangled
en permission for them to be tested in the Whatever the assailant, though, snake- artificial intelligence (AI), look promising.
field. The first sites are likely to be small bite treatment has been the same for a cen- The wet-labbers are based at Scripps
isolated ponds in the Northern Territory, tury: inject an antivenin containing anti- Research in San Diego, the Indian Insti-
where the team already conducts research, bodies produced in a horse or sheep. tute of Science (ns) in Bengaluru and the
with release happening at the end of this Doctors would love to replace this anti- Liverpool School of Tropical Medicine.
wet season, in March or April. Meanwhile, The problem they are trying to overcome,
work continues to scale up the production according to Kartik Sunagar of the ns, is
of tadpoles from a few thousand now to the multiplicity of venom types, both with-
the tens of thousands. in and between species of snake. To sim-
plify things, they are concentrating initial-
Resistance is useful ly on a group of molecules called long-
But it is not only the toad that is ripe forge- chain three-finger alpha-neurotoxins.
netic engineering. A team at the University These are important parts of the arma-
of Melbourne, led by Andrew Pask, has mentaria of the elapids, a group of snakes
partnered with Colossal Biosciences, age- that includes mambas.
netics company in Dallas, Texas, to create The AI track is led by David Baker of
gene-edited marsupial cells resistant to the University of Washington, winner of a
bufotoxin. In a preprint last year on bioR- share of the 2024 Nobel chemistry prize
xiv, the researchers proved they could re- for his work on computational protein de-
place part of a gene in the fat-tailed dun- sign. He and his colleagues also have long-
nart, a small marsupial, with a modifica- chain three-finger alpha-neurotoxins in
tion found in African and Asian monitor their sights.
lizards known to be resistant to toad tox- Both groups are looking for proteins
able to neutralise a range of types of the
target alpha-neurotoxins-molecules that
The Richard Casement internship. We are accepting
applications for the 2025 Richard Casement internship.
are, themselves, proteins- by binding to
The successful candidate wi ll spend three months with them and thus rendering them ineffective.
us in London writi ng about science and technology. As they describe in a paper published
Details available at economist.com/casement2025. Black death last year in Science Translational Medicine, ►►
 70 Science & technology The Economist January 25th 2025

► the wet-lab team is trying to supercharge most of this is earmarked for specific pro-
antibodies-or immunoglobulins, as they grammes such as "polio" or "health emer-
are known to molecular biologists-and gencies" that it chooses to fund. America's
also cut out the use of animals. (Existing actual subscription for 2025 is just
antivenins are created by the messy pro- $126m-a minuscule fraction of the $1.7trn
cess of injecting snake venom into the cho- the federal government spends on health.
sen animal to provoke an immune re- The WHO also collaborates with Amer-
sponse, and then extracting the resulting ican agencies like the Centres for Disease
antibodies from the animal's blood serum.) Control and Prevention (which, itself, has
The amino-acid chains of an immuno- offices in 60 countries), the Food and Drug
globulin include "hypervariable" regions Administration (FDA) and the National In-
where the sequence of amino acids differs stitutes of Health. Loss of this collabora-
from protein to protein. Different se- tion is more concerning for many inside
quences bind to different targets, and a the WHO than the loss of income.
huge number of sequences is possible- Mr Trump has been keen to criticise the
theoretically, up to a billion billion. More- WHO for its response to the covid-19 pan-
over, it is easy to generate large numbers of demic. An independent inquiry requested
different immunoglobulins, or fragments by UN member countries did indeed find
thereof, in a laboratory, by inserting the the organisation had been too slow to de-
relevant DNA into yeast cells. clare a public-health emergency, and that
To find the right candidate, the team international alert systems (set by UN
screened billions of antibody fragments, members, but within which it had to work)
expressed on the surfaces of these geneti- were not swift enough.
cally modified yeasts, against eight repre- America and the World Health Organisation The inquiry also found, however, that
sentative alpha-neurotoxins. They then in- February 2020 was a "lost month" for many
jected groups of mice with the winner and No Trump, doubled countries-America not excepted-and
with venom from one of three types of ela- that there was a failure by authorities all
pid: black mambas, many-banded kraits and vulnerable over the planet to take measures to halt the
and monocellate cobras. All survived. covid virus's spread. Moreover, Mr Trump,
Professor Baker's approach, just pub- who was president at the time, has been
lished in Nature, ignored immunoglobu- America's departure from the WHO widely criticised elsewhere for playing
lins in favour of entirely new types of pro- would harm itself as well as others down the severity of the virus in the out-
tein molecule, designed from scratch. His break's early stages, along with failures to
AI first calculated what shape a protein ONALD TRUMP has once again set his implement a national testing strategy or
would need to be to fit snugly into the tox-
in's active site (the place that binds to its
D sights on the World Health Organisa-
tion (WHO). On January 20th America's
any national strategy at all. His administra-
tion also pushed the FDA to make a drug
target). In this he was helped by the fact newly inaugurated president signed an ex- called hydroxychloroquine available on
that, though alpha-neurotoxin molecules ecutive order signalling that his country the back of flaky evidence that it helped,
vary a lot in their peripheries, their active would withdraw from the UN agency. The and even after it was tied to 87 deaths.
sites are similar. A second program then order cites the WHO's mishandling of co-
worked out which amino acids, and in vid-19, failure to reform and lack of inde- WHO loves ya, baby?
what order, would be needed to make such pendence as reasons for withdrawal. Nor would the WHO (and, by extension,
optimal proteins, coming up with multiple Mr Trump's previous attempt to arrange the non-American world) be the only loser
answers to this question. A third then as- America's departure from the WHO began from the United States withdrawing.
sessed whether the amino-acid chains thus in July 2020, when he issued a similar order America itself would lose. Its absence
lit upon really would fold into the desired which his successor (and now predecessor) would limit its access to global-health data
shape, and so might do the job. Joe Biden rescinded in January 2021. With- such as those American drug firms use to
drawal from the WHO requires a year's no- help design annual flu vaccines. And it
Fit and proper tice to the UN. Antonio Guterres, the UN's could also hurt in a way that even Mr
Only at this point, having picked the most secretary general, will therefore need to Trump might find disturbing. Leaving the
plausible candidates, did the team actually decide whether the new notification "un- WHO's councils would give China an op-
do experiments. They synthesised pieces pauses" the old one, leaving only six portunity to increase its soft power by pre-
of DNA that encoded the most promising months before it takes effect, or resets the senting itself as the leader of efforts to
designs, inserted them into yeast, churned clock back to a full 12 months. keep the world healthy.
out the relevant proteins, and tested them There could be legal challenges, too. This week's executive order might not,
against venom samples. They then picked One may come from Lawrence Gostin, a though, be the end of the matter. As hap-
the most successful of these and injected professor of global-health law at George- pened in 2020, it could be a prelude to ne-
them into mice. Depending on the dose, town University who said on social media gotiation. In 2020 Tedros Ghebreyesus,
the toxin and the protein being tested, be- that the decision required congressional then and now the WHO's director-general,
tween 80% and 100% of the mice survived. approval since it was Congress that put told The Economist that America asked for
How all this will play out in people re- America in the WHO in the first place. concessions in order not to leave. On that
mains to be seen. Much work remains if America has been a cornerstone of the occasion he felt unable to comply with
these discoveries are to be turned into ac- WHO since its foundation in 1948-as it them. However, if further negotiations are
tual medicines. But if that does happen, was previously of the Pan American Health not on the cards, America's departure
human casualties from snake bites, which Organisation, founded in 1902, which was would weaken the apparatus of global-
cause around 100,000 deaths a year and folded into the WHO and became its west- health security and might sow the seeds of
thrice that number of disabilities, may sig- ern-hemisphere arm. But although it pro- future outbreaks of disease from which it,
nificantly diminish. ■ vides the organisation with $1.3bn a year, too, would be at risk. ■
The Economist January 25th 2025 Science & technology 71

Wasp evolution
Well informed
Viral load-up
Can you breathe stress away?
It won't hurt to try. But scientists are only beginning
to understand the links between the breath and the mind
Wasps stole genes from viruses

EOPLE DOMESTICATED sheep and cat- EVERAL TIMES a day groups of those in the control group. The effect
P tle, wheat and maize. Wasps domesti- S young-professional types gather at was small but significant, roughly in line
cated viruses. And, just as domesticating 7Breaths, a meditation studio in central with the benefit from online cognitive
other species helped human populations London, simply to breathe. The studio behaviour therapy.
explode, so viral domestication assisted an offers yoga and meditation sessions but These findings come with caveats,
explosion of wasps. That, at least, is the their signature class is focused on however. Several studies, for example,
conclusion of Benjamin Guinet, an evolu- "breathwork". Those attending sit cross- recruited participants who were seeking
tionary biologist at Lyon University, in legged atop small cushions in the warm, help for stress and compared a subset
France. As he writes in the Proceedings of minimalist space, as an instructor gently who took part in breathwork classes with
the Royal Society, he thinks an ancestor of a guides them first to pay attention to their others who remained on a waiting list for
group of wasps called the Cynipoidea, breath and then to gradually lengthen care. This is a problem, as waiting for
which parasitise flies, corralled 18 viral the inhales, the exhales and the pauses mental-health treatment can create a
genes into its genome in an act of domes- in between. The goal: to de-stress. "nocebo effect", where well-being gets
tication that happened 75m years ago, and The Bhagavad Gita, a Hindu scrip- worse. Comparing the people who re-
that this helped the group flourish. ture from 1st or 2nd century BC, talks ceive treatment with a deteriorating
The nest-dwelling, picnic-disrupting about "pranayama"-a yoga practice of control group can make interventions
black-and-yellow terrors that generally controlling the breath-and yoga texts look better than they really are.
come to mind when the word "wasp" is from a few centuries later describe its In 2023 researchers at Stanford Uni-
mentioned are actually unrepresentative of benefits for steadying the mind. For versity published a study in Cell Reports
the group. Most wasps are small, solitary modern breathwork-enthusiasts who say Medicine. Participants performed either
and reproduce by laying their eggs in or on that guided breathing helps them feel mindfulness, "cyclic sighing" (two short
other arthropods, particularly insects and better, it undoubtedly does. But to test inhales, one long exhale), "box-breath-
spiders. Cynipoidea specialise on fly lar- whether such exercises can reduce stress ing" (inhale, pause, exhale, pause), or
vae. As with other parasitoid wasps, when in the as-yet-unconverted, you need "cyclic hyperventilation" (30 short in-
their eggs hatch, the hatchling grubs then randomised-controlled trials (RCTs). hales and exhales, followed by a 15 sec-
eat their hosts alive. A meta-analysis published in Scientif ond pause), for five minutes a day, for a
To assist their offspring in this endeav- ic Reports in 2023 compiled the results of month. Everyone got an initial mood
our, mother Cynipoidea wasps also squirt 12 RCTs, including 785 participants, to boost at the start, but only those who
into the flies a mix of venom, viruses and examine the effect of slow-breathing on were doing breathwork reported that
other materials that sabotage the host's stress. The studies used a mixture of their mood continued to improve as the
immune system. Some of this material in-person coaching, online classes and study progressed. The best results were
consists of proteins that look remarkably self-guided breathing. Participants who in the cyclic-sighing group.
like ones which viruses themselves pro- took part in the breathwork sessions How might breathing control mood?
duce to attack other organisms. reported greater stress-reduction than One idea is that it forces attention away
These virus-like proteins are, neverthe- from negative or stressful thoughts.
less, encoded not in viral genes but in Researchers have also found that volun-
genes which are now part of the wasps' ge- tarily slowing breathing can increase
nomes. Dr Guinet therefore presumed that heart-rate variability- the fluctuations in
ancestral cynipoids had swiped them from the timing between heart beats. This is
viruses at various times in the past. He often low in people with psychiatric
wondered when. To find out, he and his disorders like depression, bipolar and
colleagues analysed the genomes of 41 Cy- ADHD. Increasing it, the theory goes,
nipoidea wasps from six subfamilies using should therefore be a good thing. There
molecular-clock techniques that estimate is also evidence that slow breathing and
how fast genes in different lineages have stress regulation might share brain cir-
diverged from each other. That let them cuits, at least in rodents. A study pub-
work out when each gene had arrived in lished in Nature Neuroscience in Novem-
the ancestral genome. ber 2024 found that stimulating a path-
The answer was the same for all 18. So it way which causes slow breathing in mice
seems that the domestication of these also suppressed anxious behaviours.
genes was a single event. Intriguingly, this The evidence on breathwork might
corresponds to the moment in the Creta- still be unclear, but the practice appears
ceous period when the group of flies that to have no real downsides. Everything
cynipoids parasitise began itself to diversi- from gut health to infection is now un-
fy. Dr Guinet reckons that viral domestica- derstood to influence mental health.
tion helped facilitate the wasps' diversifi- Slow, controlled breathing may soon be
cation in response to the multiplication of added to the list.
the number of host species. ■
72 The Economist January 25th 2025

Culture

Pontificating memoirs a human, of course). It contains phrases

like "We all love a lamppost:·
The good, the bad and the boring The pope had intended "Hope" to be
published posthumously-perhaps even
popes fear reviewers- but he has brought
it forward because of "the needs of our
times". Less the "life story" promised by
the blurb than a sermon, its evident aim is
Autobiographies can be a blissful, or a dismal, art to make readers question such things as in-
equality, poverty and war. But "Hope" also
and will probably sell millions of copies. raises other questions, such as: surely the
Hope. By Pope Francis with Carlo Musso. Spiritual memoirs are often big hits: St pope can find a way to go out for pizza? Is
Translated by Richard Dixon. Random House; Augustine's "Confessions", written in the it a good idea to have a book title that
320 pages; $32. Viking; £25 fourth century, still attracts faithful buyers. rhymes with your own title? And above all,
Autobiographies of the very famous sell what makes a good autobiography?
IS HOLINESS POPE FRANCIS- the better yet: Prince Harry's "Spare" was the Bestseller lists offer some answers.
H 266th bishop of Rome, supreme pon-
tiff of the Universal Church, sovereign of
bestselling autobiography of 2023 in Amer-
ica, and Melania Trump's was top of the
They tend to feature lives that have gone
very right or appallingly wrong (in the past
the Vatican City State- is a man with fan- charts in 2024. Meanwhile, in Britain one couple of years two memoirs by Holocaust
cy titles, a simple soul and simpler prose. of the most popular books over Christmas survivors, Elie Wiesel and Viktor Frankl,
He likes punctuality ("I like punctuality"), was "A Pawtobiography", the memoir of a have been in America's top ten). Or, better
does not feel worthy ("I feel unworthy") celebrity dog called Ted (ghostwritten by yet, both: the memoir of Matthew Perry, an
and thinks war is stupid ("War is stupid"). actor who died of a drug overdose, sold
He reveres humility, his grandmother, well in 2023 and 2024. Mere fame is not
football, God and pizza, probably not in ➔ ALSO IN THIS SECTION enough, says Jonny Geller, a literary agent
that order. His great sadness on becoming who represented John le Carre and Nelson
73 Backpacks are back
pope was that he could no longer pop out Mandela: "It's got to be a good story."
for pizza but must order it in to the Vatican 74 A philosopher's take on time This is tricky for a pope. Almost by
instead ("quite a different flavour"). He is definition, if you are a good candidate for
74 How playlists changed music
very nice, very kind and very, very boring. the papacy, you are a bad one for biogra-
Pope Francis is a good man who has 75 Back Story: "A Real Pain" phy. 'Tm not sure it's possible in that posi-
written a bad book. This hardly matters. It tion to write a frank book;' says Robert
76 The truth about Huawei
is the first autobiography by a sitting pope Harris, a novelist, who was inspired by ►►
 The Economist January 25th 2025 Culture 73

► Pope Francis to write his novel "Conclave" biblical; many are both. Chapter one is
(now a film). A great memoir should be "in- titled, mystifyingly, "May My Tongue Stick
timate, genuine and revelatory", and that to My Palate"-a wish that raises more
would "hardly be compatible with the job". questions than it answers.
There have been fun papal biographies; One reason autobiography is so hard is
most are contained in a book called "The that people assume it is easy: everyone
Bad Popes". This offers lashings of sin, a thinks he is an expert about his own life.
sprinkling of Borgias and a good dose of But as Robert Douglas-Fairhurst, a profes-
Pope Benedict IX, who died around 1050 sor of English at the University of Oxford
and was "a demon from hell, in the dis- and author of his own memoir, "Metamor-
guise of a priest", accused of rape, murder, phosis", points out, you are not. 'The one
simony and hosting orgies. Pope Francis, person that you can't watch is yourself."
who stopped watching television for 35 You are your own "great blind spot".
years after seeing an (alas unspecified) Nor is all of what you see usable. Much
"sordid scene", cannot compete. of life is what Virginia Woolf called "cot-
ton wool": mere wadding, nondescript
Chapters and verse non-moments that, almost unnoticed, pad
He does not even try. Part of the out a life (tooth-brushing, tax returns,
problem is that the pope did not use a Tuesdays). Tell a story that is truly like life,
ghostwriter, who might have taken more and it will be "just one damn thing after an-
control. (Instead he worked with a co- other", says Mr Douglas-Fairhurst.
author, Carlo Musso, an Italian writer.) The very best autobiographies do more:
This was a mistake. Holy fathers are better they take the humdrum daily detail of life,
with holy ghosts. "People can be excep- fillet, shape it and so, says Mr Douglas- ping straps and zippy zips.
tional in certain fields," says Mr Geller, Fairhurst, "redeem all that chaos". The What changed? Workplaces have be-
"then write very wooden prose." Not every- pope's biography does not do this. It gives come more casual; at the same time back-
one uses ghosts-but many do. Both ghost the reader a mass of detail: trousers, pizza, packs are being designed to look more
and author are often haunted by the expe- his parents' first address. But it does noth- fashionable. Materials such as waxed can-
rience. Andrew O'Hagan, a novelist, wrote ing with this. As a result, this biography of vas and leather offer backpacks a more ele-
an excruciating account of ghosting for a pope offers, ironically, no redemption- vated air than rucksacks of yore. Airlines'
Julian Assange (of WikiLeaks fame), who and precious little sense of the man him- baggage fees may have also given back-
he said "talked as if the world needed him self. The devil, as always, is in the details. packs a bump: faced with higher prices for
to talk and never to stop". The pope, alas, is not. ■ checking suitcases, people are anxious to
"Hope" still offers some nice moments. carry more on board with them, and lug-
The pizza is one; Pope Francis's refusal to ging weight on one's back is easier than on
wear the usual papal white trousers ("I Style a single shoulder. Longer commutes into
don't want to be an ice cream seller") is the office- after some opted to move far-
another. But far too much of this is too Ready to bag it? ther out of cities during covid-have also
abstract to be gripping. Consider the con- converted people into daily "backpackers".
tents page. In a good autobiography this Humans have schl~pped stuff on their
can-and should-be telling. The memoir backs for millennia. Otzi, a mummified
of Rupert Everett, an English actor, offers "iceman" who lived some 5,300 years ago,
chapter titles including "An Escort Called is thought to have hauled around a wooden
Joe" and "Nude Sunday in Berlin". Readers Backpacks are having a moment backpack before meeting his chilly demise
instantly know what they are in for. in the Alps. Long used during war, includ-
The first pages of First Ladies' memoirs HEY WERE once the accessory of ing the Battle of Waterloo, backpacks
are also revealing- if less thrilling. One of
Hillary Clinton's has chapter titles such as
T choice for hikers, paupers and pupils.
No adult with even vague ambitions of
evolved in the early 20th century, when an
American mountaineer added zips, replac-
"Africa: Guns or Growth?"; Michelle Oba- style would be caught dead with one. But ing heavy straps and buckles. In the 1960s
ma's offers the almost equally earnest "Be- backpacks have hitchhiked into greater ac- Murray McCory and Jan Lewis founded
coming Me"; and Mrs Trump's goes for less ceptance. Young people are now opting for JanSport, designing compartments instead
philosophical, more practical titles, such them over briefcases and tote bags. Sales of top-loading bags.
as: "Lights, Camera, Model", "My Hus- in America rose to a new high in 2022, as A fresh generation of boutique bag-
band, the President" and "Why Was the workers returned to the office after covid, makers is thriving and experimenting with
Speech Not Vetted?". according to Circana, a research firm. new, durable fabrics. Packolab, based in
Even philosophers can be clear: Nietz- "Twenty years ago, you couldn't wear a Ukraine, sells backpacks that cost around
sche's autobiography has chapters called backpack into work," says Taylor Welden, $400; they are so popular that the firm has
"Why I Am So Wise", "Why I Am So Clev- creative director at Carryology, a platform implemented a lottery system to manage
er" and "Why I Write Such Good Books". for designers and writers who are enthusi- demand. Fashion brands, from Chanel to
But Pope Francis's chapters are vaguer. His astic about bags. That has changed. Andy Saint Laurent, have taken notice, too. In
introduction is titled "All Is Born to Blos- Fallshaw, co-founder of Carryology and 2023 Dior partnered with Mystery Ranch, a
som"-an ominous start. Things get little Bellroy, a bagmaker, compares backpacks bag designer in Montana best known for
better from there. One chapter is called to sneakers. Once a niche product worn making kit for firefighters, hunters and sol-
"Life and the Art of Encounter"; another is by athletes, sneakers have snuck into pop- diers, to create a limited-edition backpack
"I Am Just One Step". Most feel like quotes ular culture and now strut down pave- with a $4,000 price tag. Yeti, an outdoor-
from Paulo Coelho, an indecipherable Bra- ments and even catwalks. A growing com- products firm, acquired Mystery Ranch
zilian novelist, which have been translated munity of "bagheads" take to online fo- last year. Even established bagmakers are
by ChatGPT. Some are baffling; some are rums and social media to gush about strap- following the pack. ■
74 Culture The Economist January 25th 2025

Henri Bergson was progressive Catholics' favourite phi- "vibe". This smooths away connection and
losopher. Logically minded philosophers context, argues Liz Pelly, an American
Prime time accused Bergson of mushiness and mysti- journalist, in her sceptical account of Spot-
cism. In 1922 at an event headlined by Al- ify's shift from scrappy startup to Goliath
bert Einstein, Bergson was asked to share with a lust for algorithmic personalisation.
his views that challenged Einstein's con- Novelty suffers, too. By one estimate
ception of time. The physicist slapped him nearly three-quarters of streamed songs
down with a curt riposte: "The time of the are over 18 months old. Compared with the
philosopher does not exist." raucous explosion of genres that character-
Herald of a Restless World. By Emily Herring. "Herald of a Restless World" is the sto- ised popular music until the 20oos-hip
Basic Books; 320 pages; $32 and £25 ry of Bergson's life more than a definitive hop in all its iterations, the innovation of
analysis of his philosophy. But it is also a golden-era British dance music-contem-
ANY PEOPLE think that there must be good primer on his ideas, which are need- porary music can seem oddly flat.
M something more to the fabric of reali-
ty than what science can explain. Four-
ed more than ever, Ms Herring argues, at a
time when intelligent machines are be-
Some musicians have been delighted
when an old B-side is added to a favoured
fifths of Americans believe in the existence coming more powerful. She views him as a playlist, generating a surprise windfall. But
of "something spiritual beyond the natural corrective to a way of thinking that puts others have contorted their efforts to suit
world", according to Pew Research Centre, too much faith in science. His work is also human curators or algorithms with impen-
a think-tank. But they do not get much a useful challenge to spiritual folk who etrable preferences, to little success. For
support from contemporary scientists or have too little faith in it. ■ listeners of a less engaged bent, the lack of
philosophers, who tend to endorse the nat- friction is the point. "If a user comes to the
uralist view. If Henri Bergson were alive, or platform every night for a playlist called
even remembered, they would get more. Spotify's influence on music 'Chill Vibes'.. .it matters very little what is
In his heyday-in the 15 years or so be- actually found" on it, Ms Pelly writes.
fore the first world war-Bergson was the (Don't) name That insight sparked another. Spotify
most famous man in the world, Emily Her- may have revived the fortunes of ailing re-
ring, a writer, claims in the first biography that tune cord labels by persuading users to pay for
of him in English. Fans stole locks of his music, but it was struggling to make mon-
hair from his barber. A lecture in New York ey itself. Enter "Perfect Fit Content", or
caused Broadway's first traffic jam. Berg- PFC. In Ms Pelly's telling, based on ac-
son influenced writers such as T.S. Eliot counts from former employees, Spotify
and Virginia Woolf and himself received Mood Machine. By Liz Pelly. Atria; 288 pages; commissioned jobbing musicians, often
the Nobel prize in literature in 1927. $28.99. Hodder & Stoughton; £22 operating under fake names, to produce
What entranced audiences at his lec- formulaic fodder at cheap rates, bypassing
tures was the "quiet, mannered voice that FEW YEARS after Spotify's founding labels. ("The goal for sure is to be as
rang out to the depths of our troubled A in 2006, executives commissioned a milquetoast as possible," explains one mu-
lives", wrote one listener. So, too, the ideas study. It revealed that many listeners were sician.) In-house curators were encouraged
it expressed. The French thinker, well- using the streaming service as background to replace major-label fare on playlists with
versed in science himself, challenged sci- accompaniment to the quotidian activities, cheaper PFC content. Ms Pelly predicts a
entists' view that the world is basically a from workouts to ironing, that filled their wave of AI-generated music will be next.
machine. The insight on which he built days-and nights. (Sleeping playlists Spotify has already been moving away
much of his work is that science misses boomed.) Rather than use it actively as a from curated playlists towards AI-powered
something important about time by view- digital jukebox, many were happy to out- personalisation: algorithmically compiled
ing it in terms of space: an hour measures a source to Spotify the work of deciding streams of music optimised for the circum-
24th of Earth's rotation. Time, on this view, what to hear next. The company hired edi- stances of the individual listener. Thus ►►
marches on. But that is not how individuals tors to build playlists and tweaked its plat-
experience it. Bergson used a musical ex- form to nudge passive listeners towards
ample: a note has meaning only because of them. Spotify came to see its only competi-
the notes that precede it. The "pure pre- tion as "silence", according to one insider.
sent", he wrote, is "the invisible progress of That changed incentives for musicians,
the past gnawing into the future". too, especially as streaming supplanted
Duree, or duration, as Bergson called other forms of listening: it now accounts
this idea, is why the future is not merely a for 84% of global recorded-music rev-
rearrangement of matter. Each moment is enues. The 30-second threshold to trigger
unique, and therefore the next one is un- royalty payments encouraged "stream-
predictable; humanity, and life itself, can bait"- music with early hooks designed to
creatively shape the future. Bergson did stop listeners skipping. (One such song,
not reject science and its material founda- "Rockstar" by Post Malone, was issued
tions. He saw life as both dependent on, with a remix that consisted of nothing but
and engaged in a struggle with, matter. loops of the catchy chorus.) As playlists
"Intuition" joins the intellect as a means of became more important, the firm spawned
apprehending the world. a new genre, which critics dubbed "Spot-
Bergson was reviled as much as he was ify-core": pensive, mid-tempo songs that
celebrated: by antisemites (who consi- suit placement on multiple playlists.
dered him not French), by leftists (who de- (Think Billie Eilish, an American singer.)
plored his patriotism during the first world Popular playlists yank together music
war) and by the Roman Catholic church, from different eras, places and back-
which banned his books, partly because he grounds in the service of a frictionless
 The Economist January 25th 2025 Culture 75

► bewildering micro-genres present only on than that of Taylor Swift. ingenuity against Spotify seem over-
Spotify, such as "metropopolis" or "brain- Ms Pelly's sympathies sit firmly with wrought, she convincingly argues that it
dance", flourished. Some listeners, weary the indie labels and artists that have strug- has reshaped both the economics of music
of homogeneous, unchallenging streams gled to find a footing in the streaming and the culture of listening. Overlooked,
of music, switch of£ But most do not. Spot- world. Musicians in America and else- perhaps, is the role of consumer choice.
ify now claims over 640m active monthly where have begun to organise against what For the casual listener, armed with a smart-
users worldwide, despite regularly hiking they regard as Spotify's punishingly low phone and a cheap subscription, the fric-
its subscription fees. It has invested deeply rates and its growing "pay-to-play" busi- tionless convenience of streaming can be
in podcasts and is dipping into audio- ness model, which involves artists and la- unbeatable. Not all have been hoodwinked
books. Last year the company was report- bels accepting lower royalty rates in ex- by Spotify. It may be tough on musicians; it
edly on track to turn its first profit; Daniel change for inclusion in certain playlists. may not be great for musical innovation.
Ek, its co-founder, has a net worth higher If some of Ms Pelly's allegations of dis- But listeners are voting with their ears. ■

BACK STORY
The sorrow and the pithy
:4 Real Pain; Jesse Eisenberg's witty and wise film, raises deep moral questions

H E BATHETIC scene will be familiar ironies are mixed with a reverential awe.
T to many Jews who have traced their
roots in eastern Europe. You go in search
When David, Benji and the rest of the
group visit Majdanek, another Nazi
of der heim, your family's cradle and the camp, the wisecracks stop; the trilling
fulcrum of its lore, and discover there is Chopin soundtrack falls silent. As the
nothing left to see. Amid the vacant lots visitors peer into a gas chamber, the
and communist architecture, there is camera does not follow their gaze but
little even to feel. "It's so unremarkable," looks back at their expressions, as if
says Benji (Kieran Culkin) when, in "A acknowledging that today's audiences
Real Pain", he and his cousin David find can know this hell only at a remove.
their grandmother's house in Poland. Suffering is always personal. "A Real
Out in British cinemas now and Pain" is a tale of idiosyncratic characters,
streaming on Hulu in America, "A Real set in the wake of a specifically Jewish
Pain" is a stealth contender for the Os- catastrophe. At the same time it evokes
cars. With a running time of 90 minutes, questions with which every thinking
it shows how a seemingly modest film person contends. For starters, how do
can encompass grand philosophical you weigh private woes against large-
themes. Amid the zigzagging mood, it scale calamities? As war rages in Ukraine
deftly raises moral quandaries at once uprisings, Benji's tomfoolery wins every- and Sudan, for instance, how sad are you
specific to its characters and universal. one over. David sulks. entitled to be if a project or relationship
Played by Jesse Eisenberg (also the Since 2002, when Jonathan Safran Foer fails? In the scheme of things, how much
writer and director), David is a tense published "Everything is Illuminated", a does your own pain really matter?
New Yorker with a wife, a child and a job madcap quest into a Jewish family's past, David and Benji wrestle with this
peddling advertising banners; or, as his the third generation's perspective has problem in Poland. Memories of their
cousin puts it, "selling shit online". In his been a dominant lens on the Holocaust. shared childhood, and of mooching
Golden Globe-winning turn as Benji, Mr This cohort grew up in the shadow of around New York, jostle with recol-
Culkin reprises the manic charisma of persecution but didn't experience it; it lections of their beloved grandmother.
his role in "Succession", but with added knows the heart-wrenching stories but Even as they mourn her, and strive to
pathos. Where David's feelings are doesn't feature in them. As James (Will honour her legacy, other worries beset
withheld, Benji's emerge unfiltered. His Sharpe), the tour guide in "A Real Pain", them- not least the awareness that their
is the sort of antic life that is fun to notes, the likes of Benji and David find once-entwined paths have diverged, and
watch but punishing inside. "I love him, themselves, with unsettling irony, "staying that a chasm of incomprehension has
and I hate him;' David summarises, "and in fancy hotels [and] eating posh food" opened between them.
I want to kill him, and I want to be him:• while pondering their forebears' agony. Then there is the bedrock challenge
Their recently deceased grandma, Focusing on the descendants' angst, ofliving alongside evil and disaster.
who survived the Holocaust by "a thou- rather than the ancestral horror, might "People can't walk around the world
sand miracles", left them some money seem self-indulgent. But an indirect ap- being happy all the time;• Benji rails.
for this pilgrimage to Poland, perhaps in proach can be more respectful than trying Eloge, the Rwandan, is baffled by how
the hope of rekindling the closeness of to confront a tragedy head-on. The power "The world seems to carry on like there
their youth. In Warsaw they join a Jew- of tact was demonstrated recently by "The aren't a million reasons to be shocked:'
ish-heritage tour group that includes Zone oflnterest", a film about the domes- This is a conundrum, even for philoso-
Eloge (Kurt Egyiawan), a survivor of the tic life of the commandant of Auschwitz, phers. One way or another, though, life
Rwandan genocide who has converted to which declined to cross the barbed wire does carry on- and, after their minia-
Judaism out of a sense of solidarity. As and enter the concentration camp itself. ture, tragicomic odyssey, in a film both
they visit monuments to ghettos and In "A Real Pain", the third-generation slight and deep, so do David and Benji.
76 Culture The Economist January 25th 2025

The truth about Huawei ness with purely private entrepreneurs

would have made Huawei an oddity. An-
Spies in disguise? alysts often look for direct ownership by
state or military companies as proof that a
company might be swayed by the Commu-
nist Party. But no such direct link needs to
exist. As Chinese companies grow and be-
SHANGHAI
come more important, they inevitably be-
The Chinese telecoms firm was the first to raise America's hackles come more entwined with the state and
the party. The largest internet firms, such
years ago to designing some of the world's as Alibaba and Tencent, collaborate exten-
House of Huawei. By Eva Dou. Portfolio; most advanced semiconductors today. sively with the government and sometimes
448 pages; $34. Abacus; £25 Ms Dou's analysis is timely. The group invest with it in projects. (In early January
was the first of now many Chinese com- America added Tencent to a list of com-
T IS ONE of the world's most controver- panies that have raised national-security panies it thinks work with the military.)
Ideveloping
sial companies, supplying much of the
world with vital telecoms kit.
concerns in Washington. On January 19th
TikTok, a popular short-video app, tempo-
Huawei's collaboration with the state
may tarnish its reputation outside China,
American officials swear it is a spying tool rarily shut down its product in America, but it has been a valuable part of its busi-
for China's Communist Party. It has been before making it available again after Do- ness. In the mid-199os the company sought
accused of all manner of infractions, in- nald Trump said he would give it more connections with state telecom opera-
cluding intellectual-property theft, receiv- time to secure a deal with an American tors-and pledged to transfer its technolo-
ing lavish state subsidies that allow it to partner (to avoid being banned). Not long gy into state hands. Along with party offi-
undercut rivals on price and equipping the ago Huawei was dealt a more serious blow, cials, Mr Ren was an early voice calling for
Chinese government with the most ad- when Mr Trump banned the sale and im- Chinese self-sufficiency in technology.
vanced tools for surveillance and digital port of communications equipment from Today Huawei is at the forefront of
oppression of its own citizens. several Chinese firms. helping the government accomplish that
No other company has drawn the For decades journalists and researchers goal. In 2023 the group managed to pro-
world's two most powerful leaders, Amer- have tried to prove that Huawei is state- duce its own high-powered chips for
ica's and China's presidents, into a direct owned and Mr Ren is a high-ranking mili- smartphones, three years after Mr Trump
geopolitical stand-of£ And yet Huawei, a tary officer. Ms Dou explains how Mr Re n's banned it from buying American ones.
Chinese tech group, continues to thrive. In time in the army was actually largely spent This allowed Huawei to relaunch its smart-
2023 its revenues were around $10obn, doing low-level jobs, sometimes in a fact- phone business. It has also been one of the
nearly twice as much as those of Intel, an ory in a cave; he was not, as many in the main suppliers of surveillance technology
iconic Silicon Valley firm. West believed, a signals-intelligence offi- used to watch over Uyghurs, China's main-
"House of Huawei" investigates these cer. Huawei's early shareholding records ly Muslim ethnic group who have been de-
accomplishments and accusations. Eva are convoluted. Early investors included tained en masse in the country's north-
Dou, a technology-policy reporter at the people who worked at state-owned firms, west. It once designed a "Uyghur alarm"
Washington Post, has parsed decades' and the group may have hired a plant from for a facial-recognition programme.
worth of Chinese documents to piece to- the country's domestic spy agency to serve Ms Dou points out that Huawei first
gether how Ren Zhengfei, the company's in senior roles. irked American snoops in the mid-199os
enigmatic founder, rose from poverty to Some of this strikes at the heart of the when it began expanding its fibre-optic
lead what is probably China's most power- West's misunderstanding about how Chi- cables overseas. At that point America's
ful company. Huawei has gone from mak- na works. In the 1980s China's economy National Security Agency "found itself
ing basic telephone switches nearly 40 was dominated by the state; doing busi- shut out from many of the conversations it
would have liked to hear". This mistrust
would eventually culminate in Mr Ren's
daughter, Meng Wanzhou, being arrested
in Canada on American orders in 2018,
sparking a bitter diplomatic dispute. Mr
Trump called Huawei one of the biggest
threats to national security.
Has America's fear of Huawei-and of
others such as TikTok- been overwrought?
Revelations about the biggest Chinese
hacking incident ever cast Huawei and
TikTok in a slightly different light. Late
last year it was revealed that Chinese spy
agencies had gained access to large
amounts of phone data from top American
officials and could listen in on private con-
versations. American telcos have been rip-
ping out and replacing Huawei gear for
years. The breach should raise new ques-
tions about how democracies can protect
themselves from China. Kicking Huawei
out has been a political win for many in
Washington. It has not, however, stopped
Trump's way or the Huawei? the Communist Party from listening in. ■
The Economist January 25th 2025 77

Economic & financial indicators

Gross domestic product Consumer prices Unemployment Current-account Budget Interest rates Currency units
% change on year ago % change on year ago rate balance balance 10-yr gov't bonds change on per$ % change
latest quarter" 2024' latest 2024' % % of GDP, 2024' % of GDP, 2024' latest,% year ago, bp Jan 22nd on year ago
United States 2.7 03 3.1 2.7 2.9 Dec 2.8 4.1 Dec -3.4 -6.5 4.6 49.0
China 5.4 04 6.6 4.9 0.1 Dec 0.3 5.1 Dec*' 2.1 -4.4 1.4 §§ -96.0 7.28 -1.1
Japan 0.5 03 1.2 -0.2 2.9 Nov 2.6 2.5 No, 4.2 -4.7 1.2 55.0 156 -5.5
Britain 0.9 03 0.1 0.9 2 .5 Dec 3.2 4.4 Octtt -2.9 -4.0 4.7 67.0 0.81 -3.7
Canada 1.5 03 1.0 1.3 1.8 Dec 2.4 6.7 Dec -0.6 -1.7 3.3 -15.0 1.44 -6.3
Euro area 0.9 03 1.6 0.8 2.4 Dec 2.4 6.3 No, 3.2 -3.2 2.5 24.0 0.96 -4.2
Austria -0.6 03 -0.5* -0.9 2.1 Dec 2.9 5.0 No, 2.2 -2.3 2.9 7.0 0.96 -4.2
Belgium 1.2 03 1.2 1.1 4.4 Dec 4.3 5.8 No, -0.3 -4.6 3.0 19.0 0.96 -4.2
France 1.2 03 1.6 1.1 1.8 Dec 2.3 7.7 No, -0.4 -6.2 3.3 47.0 0.96 -4.2
Germany -0.1 04 -0.4 -0.1 2.8 Dec 2.4 3.4 No, 6.3 -1.6 2.5 24.0 0.96 -4.2
Greece 2.5 03 1.1 2.2 2.9 Dec 3.0 9.6 No, -6.4 -1.3 3.3 -9.0 0.96 -4.2
Italy 0.4 03 nil 0.6 1.4 Dec 1.1 5.7 No, 1.3 -4.2 3.6 -23.0 0.96 -4.2
Netherlands 1.7 03 3.3 0.9 3.9 Dec 3.4 3.7 Dec 9.9 -2.0 2.7 16.0 0.96 -4.2
Spain 3.3 03 3.2 3.0 2.8 Dec 2.9 11.2 No, 3.1 -3.2 3.2 -8.0 0.96 -4.2
Czech Republic 2.1 03 2.1 1.0 3.0 Dec 2.4 2.8 Nov* 1.3 -2.4 4.0 18.0 24.1 -5.6
Denmark 2.9 03 3.6 1.8 1.9 Dec 1.3 2.9 No, 10.8 2.1 2.2 -18.0 7.16 -4.3
Norway 3.5 03 -7.1 1.7 2 .2 Dec 2.2 3.9 OctU 17.3 12.5 3.9 28.0 11.3 -6.8
Poland 2.7 03 -0.4 2.3 4 .7 Dec 3.8 5.1 Dec• 0.3 -5.7 5 .9 61.0 4.06 -1.2
Russia 3.1 03 2.7 3.7 9 .5 Dec 8.4 2.3 No,' 3.2 -1.6 15.9 426 99.2 -11.3
Sweden 0.6 03 1.1 0.6 0.8 Dec 1.9 7.4 No,• 6.0 -0.9 2.3 -3.0 11.0 -5.1
Switzerland 2.0 03 1.7 1.2 0.6 Dec 1.1 2.6 Dec 7.0 -0.9 0.4 -50.0 0.91 -4.4
Turkey 2.1 03 -0.8 2.9 44.4 Dec 57.7 8.4 No,• -0.9 -4.1 25.8 76.0 35.7 -15.2
Australia 0.8 03 1.3 1.1 2.8 03 3.1 4.0 Dec -2.0 -1.2 4.6 55.0 1.59 -5.0
Hong Kong 1.8 03 -4.2 2.5 1.4 Dec 1.7 3.1 Dec*' 12.0 -3.2 3.9 25.0 7.79 0.4
India 5.4 03 3.0 6.6 5.2 Dec 4.8 7.8 Dec -0.5 -4.9 6.7 -46.0 86.3 -3.8
Indonesia 4.9 03 3.8 5.0 1.6 Dec 2.3 4.9 Aug' -0.2 -2.4 7.1 54.0 16,285 -4.0
Malaysia 4.8 04 -1.2 5.2 1.7 Dec 1.8 3.2 No,• 1.5 -4.4 3.8 nil 4.44 6.5
Pakistan 3.2 2024•• na 3.2 4.1 Dec 12.6 6.3 2021 0.5 -6.7 12.2 t tt -241 279 0.3
Philippines 5.2 03 7.0 5.5 2.9 Dec 3.2 3.9 04' -2.6 -5.6 6.3 nil 58.5 -3.8
Singapore 4.3 04 0.4 3.8 1.6 Dec 2.4 1.9 03 19.6 0.2 2.9 -2.0 1.36 -0.7
South Korea 1.3 04 0.4 2.2 1.9 Dec 2.3 3.8 Dec• 4.1 -1.8 2.8 -54.0 1,437 -6.8
Taiwan 4.2 03 0.9 5.0 2 .1 Dec 2.2 3.4 Dec 13.5 0.5 1.6 36.0 32.8 -4.3
Thailand 3.0 03 4.9 2.6 1.2 Dec 0.4 0.9 No,• 2.2 -3.7 2.4 -40.0 33.8 5.5
Argentina -2.1 03 16.4 -2.6 118 Dec 219.9 6.9 03• 0.4 0.3 na na 1,047 -21.5
Brazil 4.0 03 3.7 3.4 4 .8 Dec 4.4 6.1 Novi** -2.1 -7.5 14.9 408 5.94 -16.3
Chile 2.3 03 2.7 2.3 4.5 Dec 3.9 8.2 Novi** -2.5 -2.5 5.9 34.0 993 -8.5
Colombia 2.0 03 0.8 1.6 5.2 Dec 6.6 8.2 No,• -2.8 -5.7 11.1 150 4,282 -8.6
Mexico 1.6 03 4.4 1.5 4.2 Dec 4.7 2.7 No, -1.0 -4.9 10.1 84.0 20.6 -16.6
Peru 3.8 03 2.8 3.1 2.0 Dec 2.4 4.5 Dec' 1.7 -3.9 6.6 -3.0 3.73 0.5
Egypt 3.5 03 38.0 2.4 24.1 Dec 28.7 6.7 03' -5.2 -3.7 na na 50.3 -38.6
Israel -1.1 03 4.0 0.3 3 .2 Dec 3.0 2.6 Dec 4.6 -7.3 4.4 5.0 3.53 6.5
Saudi Arabia -0.8 2023 na 1.3 1.9 Dec 1.7 3.7 03 0.4 -2.5 na na 3.75 nil
South Africa 0.3 03 -1.4 0.8 2.9 Dec 4.4 32.1 03' -1.9 -5.2 9.0 -71.0 18.5 3.6
*% change on previous quarter, annual rate. t"fhe Economist Intelligence Unit estimate/forecast. §Not seasonally adjusted. *New series. **Year ending June. ttlatest 3 months. **3-month moving average. §§5-year yield.
tttoollar-denominated bonds. Source: Haver Analytics Note: Euro area consumer prices are harmonised.

Markets Commodities
% change on: % change on:
Index one Dec 29th Index one Dec 29th The Economist commodity-price index % change on
In local currency Jan 22nd week 2023 Jan 22nd week 2023 2020=100 J an 14th Jan 21st• month year
United States S&P 500 6,086.4 2.3 27.6 Pakistan KS E 113,443.4 -0.9 81.7 Dollar Index
United States NAS Comp 20,009.3 2.6 33.3 Singapore STI 3,781.2 0.2 16.7 All items 135.5 137.4 1.3 8.3
China Shanghai Comp 3,213.6 -0.4 8.0 South Korea KOSPI 2,547.1 2.0 -4.1 Food 153.7 154.2 0.7 18.2
China Shenzhen Comp 1,920.4 1.0 4.5 Taiwan TWI 23,525.4 4.5 31.2 Industrials
J apan Nikkei 225 39,646.3 3.1 18.5 Thailand SET 1,361.8 0.6 -3.8 All 120.5 123.5 2.0 -0.2
Japan Topix 2,737.2 1.7 15.7 Argentina MERV 2,680,946.0 -0.9 188.4 Non-food agriculturals 133.6 134.5 0.7 3.8
Britain FTSE 100 8,545.1 2.9 10.5 Brazil BVSP• 122,971.8 0.3 -8.4 Metals 117.1 120.6 2.3 -1.3
Canada S&P TSX 25,311.5 2.1 20.8 Mexico IPC 50,944.6 1.4 -11.2
Sterling Index
Euro area EURO STOXX 50 5,205.8 3.4 15.1 Egypt EGX30 29,979.1 2.0 20.4
All items 142.7 143.5 3.3 11.6
France CAC 40 7,837.4 4.9 3.9 Israel TA-125 2,574.7 0.6 36.4
Germany DAX• 21,254.3 3.3 26.9 Saudi Arabia Tadawul 12,362.4 1.2 3.3 Euro Index

Italy FTSE/MIB 35,854.1 0.6 18.1 South Africa JSE AS 84,654.6 1.4 10.1 All items 150.4 151.0 1.2 12.8
Netherlands AEX 914.5 2.3 16.2 World, dev'd MSCI 3,838.2 2.5 21.1 Gold
Spain IBEX 35 11,882.7 -0.1 17.6 Emerging markets MSCI 1,082.3 2.5 5.7 $ per oz 2,672.8 2,740.3 4.8 35.2
Poland WIG 85,298.3 2.9 8.7
Brent
Russia RTS, $ terms 952.8 9.4 -12.1 US corporate bonds, spread over Treasuries
$ per barrel 80.4 79.5 7.9 -0.8
Switzerland SMI 12,207.9 3.6 9.6 Dec 29th
Turkey BIST 10,105.4 3.8 35.3 Basis points latest 2023 Sources: Bloomberg; CME Group; FT; LSEG Workspace; NZ Wool
Australia All Ord. 8,680.5 2.6 10.9 Investment grade 94 154 Services; S&P Global Commodity Insights; Thompson Lloyd & Ewart;
Hong Kong Hang Seng 19,778.8 2.6 16.0 High-yield 311 502 USDA; WSJ. *Provisional.
India BSE 76,405.0 -0.4 5.8
Indonesia IDX 7,257.1 2.5 -0.2 Sources: LSEG Workspace; Moscow Exchange; Standard & Poor's For historical indicators data, visit
Malaysia KLSE 1,587.8 1.6 9.2 Global Fixed Income Research. *Total return index. economist.com/economic- and-financial-indicators
78 The Economist January 25th 2025

OBITUARY
David Lynch

The artist who mesmerised filmgoers with beauty, mystery and horror died on January 16th, aged 78

(1977), a black-and-white film he produced while on a fellowship at

the American Film Institute. Its very weirdness made critics no-
tice him. The hero, Henry Spencer, the new father of a mutant-fe-
tus baby, was an innocent whose wedge-shaped hair seemed to ex-
plode with confusion. He moved wide-eyed through the horror,
beauty and mystery of the world, trying to figure out how every-
thing could be the way it was, as did the straight-arrow-cherry-pie
detectives of "Blue Velvet" and "Twin Peaks". Their director saw
himself in all of them.
It did not bother him that audiences were often left completely
at sea. It was good to ask questions and compare interpretations.
He himself knew exactly what he wanted; his task was to transfer
his dreams and intuitions perfectly to the screen, turning fragile
glass to steel. No detail-the placing of a cup, the dirt beneath a
radiator, the precise orange hue of a lipstick-could escape his at-
tention. But the plots, he felt, were simple. "Mulholland Drive",
the mesmerising tale of one aspiring actress unwisely befriending
another, was a film that attacked the power structures of Holly-
wood. "Inland Empire", which came later and did less well, was the
story of an actress increasingly terrified by the death of the wom-
an who had played the part before. At their simplest, almost all his
films involved characters confronting the dark sides of them-
HE FIRST long, proper kiss David Lynch had with a girl took selves. And those were so dark that his lighting man struggled to
T place in a ponderosa pine forest in America's north-west. Pine
needles, incredibly soft, covered the floor to a depth of about two
produce a black that was black enough.
He himself, however, displayed no dark side. He seemed to
feet. High treetops pierced the blue sky. The feel of the woods he come straight out of the 1950s, with his khakis, blazers and shirts
knew as a boy stayed with him all his life: the smell of them, their buttoned right to the top because he didn't like air on his collar-
dim lost interiors, the crispness of the air. "Twin Peaks", the myste- bone. Male friends were "buster" and good things "peachy-keen".
rious TV series that made him wildly famous in the early 1990s, For months and years he would eat the same breakfast every day,
opened with a shot of pines, mountains and mist. The mist too lin- coffee and a chocolate milkshake at Bob's Big Boy in LA, and the
gered, drifting in deep bass notes across the face of Laura Palmer, same lunch, a grilled-cheese sandwich. He smoked as though the
the high-school homecoming queen whose dead body, wrapped practice had never been outlawed, getting emphysema in the end.
up in plastic, lay at the heart of the story. Beneath the surface ordi- With his actors he was no yeller, but gentle, indicating what he
nariness, violent disturbance was going on. wanted with just a word or a touch on an arm. This went right to
That seemed true of most small towns. He grew up in them, es- them. His aspect was so serene- the result of the meditations he
pecially in Boise, Idaho, and sometimes felt romantic for those had done twice daily since 1973-and he asked so nicely, that his
neat yards and white picket fences, the scrubbed children and actors would strive to do whatever he wanted, even when it in-
Sunday excursions. Yet under those lawns (as under the pine nee- volved ceremonial rape and sado-masochism (in "Blue Velvet") or
dles), insects were tangling and devouring each other. Entropy ate rolling in the dirt and masturbation (in "Mulholland Drive").
away at every new thing. As a boy he liked to walk the streets at The only thing that maddened him was loss of control of the
night, curious not about the brightly lit windows but the low-lit, work. In 1983 he agreed to direct "Dune", a science-fiction epic
curtained ones. Curtains hid secrets. Behind them, a man and a based on a bestselling novel. Its scale and its setting, in the empty
woman might be sitting in silence in an atmosphere of coiled-up desert, did not suit him at all. He was a man of interiors, details
menace. Should he stay silent himself? Should he speak? What and harrowing close-ups; this was a Hollywood production for the
would happen next? In his film "Blue Velvet" (1986), one small- extra-wide screen. Besides, he was an artist, who could no more
town field produced a newly severed ear, evidence, eventually, of a collaborate on directing than on doing his lumpy, child-like paint-
psychopath's sexual rampages. A woman also appeared out of the ings. Consequently, neither Hollywood nor the TV companies
dark at the end of a street, naked, with a bloodied mouth. That really took to him. He won no Oscars. Another director got the fi-
was something he had witnessed himself-in Boise. It was in such nal cut on "Dune", producing a version he refused to recognise.
a tender state, all this flesh, in an imperfect world. Worse was what happened to "Twin Peaks", when halfway
His view of what was ugly or grotesque was not like other peo- through the second series ABC thought it was going too slowly,
ple's. Textures obsessed him, the very look and feel of mud, dust, and forced him to reveal who the killer of Laura Palmer was. All
scales and slime. Sores and wounds could be beautiful. He tried to the narrative tension leaked out of it then, and ABC killed it off.
concoct by himself the gruesome growths on the face of Joseph That was Fate, perhaps. He made further visits to the town, a pre-
Merrick in ''The Elephant Man". And he loved abandoned fac- quel film and in 2017 a hugely popular third series, because he
tories in their full grime and ruination. As a young man, hoping to seemed to love Laura too much to leave her. Her face was still ap-
live "the art life", he went to study painting in then-run-down Phil- pearing and disappearing in the mist. And it gave him an excuse to
adelphia. His enchantment with its smoky walls, stark shadows, go to the forest again, braving the haunted depths, to celebrate
broken windows and wailing trains was poured into "Eraserhead" what a strange, beautiful trip life was. ■
 PROPERTY 79

Your Hassle-Free
Mayfair Pied-a-Terre
47 Park Street5 M offers a selection of luxuriously
furnished, spacious apartments in Mayfair for the
amount of time you personally require in London each
year - at a fraction of the cost of whole ownership.

Residential Benefits Include:

• Fully integrated property management
• 24-hour concierge, maid, and room service
• Valet storage facility with wide usage options
• No stamp duty
· Individual and corporate fractional interests
from £108,300

COURSES *
 .A.-
\ I , ~
\\ ,n-
\'-' / i

s\I
'
•

Pirate J ohn
clip

Van Cleef & Arpels

Haute Joaillerie, place Vendome since 1906