The Economist Articles for May. 1st week : May. 5th(Interpretation)

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The Economist Articles for May. 1st week : May. 5th(Interpretation)

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Leaders | The rise of a new economic power

How strong is India’s economy?

It isn’t the next China, but it could still transform itself and the world

In six weeks’ time Narendra Modi is expected to win a third term as India’s prime minister, cementing his status as its most important leader since Nehru. The electoral success of this tea-seller’s son reflects his political skill, the potency of his Hindu-nationalist ideology and his erosion of democratic institutions. But it also reflects a sense among ordinary voters and elites that he is bringing India prosperity and power.

Mr Modi’s India is an experiment in how to get richer amid deglobalisation and under strongman leadership. Whether it can grow fast and avoid unrest over the next 10-20 years will shape the fate of 1.4bn people and the world economy. As our special report explains, Mr Modi’s formula is working—up to a point. But there are questions over whether India’s success can last and whether it depends on him remaining in power.

India, the world’s fastest-growing big country, is expanding at an annual rate of 6-7%. New data show private-sector confidence at its highest since 2010. Already the fifth-largest economy, it may rank third by 2027, after America and China. India’s clout is showing up in new ways. American firms have 1.5m staff in India, more than in any other foreign country. Its stockmarket is the world’s fourth-most-valuable, while the aviation market ranks third. India’s purchases of Russian oil move global prices. Rising wealth means more geopolitical heft. After the Houthis disrupted the Suez canal, India deployed ten warships in the Middle East. Presidents Joe Biden and Donald Trump have courted it without disputing that it will remain an independent actor.

If you are looking for “the next China”—a manufacturing-led miracle—it isn’t India. The country is developing at a time of stagnating goods trade and factory automation. It therefore needs to pioneer a new model for growth. One pillar of this is familiar: a massive programme of infrastructure that knits together a vast single market. India has 149 airports, double the number a decade ago, and is adding 10,000km of roads and 15gw of solar-energy capacity a year. Some of this infrastructure is intangible, including digital payments, modern capital markets and banks, and a unified digital tax system. All this allows firms to exploit national economies of scale.

A second, more novel pillar is services exports, which have reached 10% of gdp. Global trade in services is still growing and Indian it firms have marketed “global capability centres”—hubs that sell multinationals r&d and services such as law and accounting. Yet despite its slick tech campuses, India is still a semirural society. That explains the economic model’s final pillar, a new type of welfare system in which hundreds of millions of poor Indians receive digital transfer-payments. New data suggest the share of the population living on less than $2.15 a day in 2017 prices, a global measure of poverty, has fallen below 5% from 12% in 2011.

How much credit does Mr Modi deserve? His most successful policies draw on the liberal agenda that emerged in India in the 1990s and 2000s, but there is nothing wrong with that. He deserves credit for forcing through stalled reforms, personally overseeing key decisions and browbeating laggards and opponents in the bureaucracy. Some say he has fostered crony capitalism. Yet although some big firms get favours, concentration in business is falling, corruption has waned and business boasts a rich diversity. A cross between a ceo and a populist, Mr Modi relishes PowerPoint presentations as much as rallies. If he wins five more years, India will continue to grow strongly. So will its middle class: 60m people earn over $10,000 a year; by 2027, 100m will, reckons Goldman Sachs, a bank that now has 20% of its staff in India.

Yet India faces a daunting problem. Out of a working-age population of 1bn, only 100m or so have formal jobs. Most of the rest are stuck in casual work or joblessness. Mr Modi’s humble beginnings help him speak to these people. To absorb some of India’s spare labour he is using a state-run incentive scheme to promote manufacturing. But even if the scheme hits its targets, it will create just 7m jobs. President Xi Jinping’s plan for a Chinese export surge will only make the task harder.

India’s economy must generate mass employment to sustain its growth. One path would be an even bigger it sector, acting as a hub for a digitising world, and a cluster of export industries, including digital finance, food and defence (where stronger links with America would help). Spending by workers in these industries would in turn create more jobs in other sectors, from construction to hotels. An efficient, single domestic market would raise overall productivity and well-targeted welfare could help those who fall behind. For this, India would have to transform education and agriculture, and enable much more migration from the populous north to the big southern and western cities.

Judged by those epic standards, Mr Modi has too little to say. His Bharatiya Janata Party (bjp) has some talent and ideas but is mostly focused on ideology and Muslim-bashing. A rising illiberalism has curtailed political opposition and free speech. The fact that firms fear Mr Modi may explain why investment has yet to surge. The process of preparing the public for huge social change in the 2030s has barely begun. Remaking education, cities and agriculture will require the co-operation of state governments that are not led by the bjp and social groups that are facing disruption, but Mr Modi’s rebarbative politics have left many of them estranged.

India’s Lee Kuan Yew or its Erdogan?

The question for India and its heavyweight economy is not whether Mr Modi wins, but whether he will evolve. Aged 73, he may find his powers of management fade. To create a new reform agenda on a par with the one that emerged out of the 1990s, and to foster a thriving knowledge economy that rewards people for thinking for themselves, he will have to temper his autocratic impulses. To attract more local and foreign investment and to find a growth-minded successor, his party will need to curb its chauvinistic politics. If not, Mr Modi’s mission of national renewal will not live up to its promise.

Asia | Trump-proof tiger

Without fanfare, the Philippines is getting richer

And its economy is unusually well-defended against American politics

photograph: getty images

Apr 23rd 2024|cotabato and manila

At cotabato airport travellers must join a long sweaty queue to pay a tax of ten pesos (less than $0.20). Having handed over their cash—cards are not accepted—they must wait while three unhurried officials produce a paper receipt and stamp it. If they could avoid this hassle by having the tax added to their ticket, most would be delighted, even if the tax were ten times larger. Yet this simple reform has not happened, perhaps because it would cost those three unhurried officials their jobs.

Visitors to the Philippines have ample time to imagine ways to make its transport system less frustrating. When not queuing in rickety airports, they are often stuck in traffic. A typical commute from an outlying suburb to the centre of Manila, the capital, takes two hours, including nearly 30 minutes waiting for a bus to show up.

Yet things are improving. Roads are being paved, bridges built. In February the government picked a private consortium to revamp and double the capacity of Manila’s main airport. Later this year, it is expected to award contracts to modernise several regional airports, too. Manila is scheduled to have its first underground metro line by 2029.

chart: the economist

The Philippines is often an afterthought for investors: neither a giant like India nor a manufacturing superstar like Vietnam. But growth has been brisk at around 6% a year since 2012 (except during the pandemic). The economy has quietly boomed under a variety of regimes, from the liberal President Benigno Aquino (2010-16) to the thuggish President Rodrigo Duterte (2016-22). The run is set to continue under President Ferdinand “Bongbong” Marcos (see chart 1). The World Bank says the Philippines will soon be an upper-middle-income country.

This might seem surprising, given its politics. Mr Marcos, the son of an appalling kleptocrat, was elected to the top job in 2022. He was helped by a massive campaign of disinformation aimed at rehabilitating the family name. Still, businesses rate his administration as more competent than his predecessor’s. Whereas Mr Duterte filled key posts with his drinking buddies from Davao, the city where he was mayor for many years, Mr Marcos has mostly appointed technocrats. His economic team is widely praised. “We appreciate the high level of collaboration between the government and the private sector,” says Alberto De Larrazabal, the chief financial officer of Ayala, a conglomerate.

Many of the reasons for optimism about the Philippines have nothing to do with who is in charge. The country is at a demographic sweet spot, with a bulge of working-age citizens. With half its people still living in the countryside, there is plenty of potential to shift from farming to better-paid urban jobs. But governance matters, too, and so far Mr Marcos is nowhere near as bad as many observers feared.

He has continued with his predecessor’s efforts to upgrade the infrastructure linking the archipelago’s 7,600 islands to each other and the world. Returns on investment in physical and digital infrastructure in the Philippines are higher than in neighbouring countries because “the gaps are huge”, says Ndiamé Diop of the World Bank. An improvement in respect for human rights helps, too. Whereas Mr Duterte loudly urged police to murder drug suspects, leading to thousands of extra-judicial executions, Mr Marcos stresses treatment for addicts. The police still shoot a lot of people, but the country no longer has a leader who says things like: “If it involves human rights, I don’t give a shit.” That probably makes investors less skittish about doing business there.

Mr Marcos has wooed foreign investment in improving broadband access, which is wildly uneven; congress is mulling a bill to spur more competition in this area. The roll-out of a national digital-identity system should make it easier for Filipinos to do business and get access to government services online. Since it began in 2020, roughly 70% of Filipinos have enrolled: impressive, though far behind the nearly 100% rate in India, a poorer country.

Asian exceptionalism

Like many of its neighbours, the Philippines worries about another Donald Trump presidency. His tariff hikes could hurt its exports of electronic goods. But it has handy sources of foreign currency that may be Trump-proof.

chart: the economist

One is remittances from its 2m citizens working abroad, steering ships on the high seas or nursing patients in the Gulf (see chart 2). Though their numbers are equivalent to a mere 4% of the labour force in the Philippines, they send home the equivalent of 9% of gdp a year, a cash gusher that flowed steadily even during the pandemic. Remittances kick-start small businesses in every village. Norhaya Daud, a young mother in Cotabato, says she earned five times as much as a domestic worker in Qatar as she could have at home, and used the savings to buy land. Now she grows corn and coconuts, and runs a village shop.

Another Trump-proof source of dollars is tourism, which could boom when the airports improve. The Philippines has enormous untapped potential: warm weather, pristine beaches, coral reefs to snorkel over and a culture of hospitality. Yet it attracted only a fifth as many international tourists as Thailand in 2022, partly because it is so hard to get there. clsa, a bank, predicts that annual tourist arrivals will soar from 5.5m in 2023 to 43m by 2030, and tourism revenues will grow from 9% of gdp to a hefty 22%.

The biggest threat to this cheerful scenario is geopolitics: the Philippines often clashes with China over its baseless claims to Philippine waters, and China’s government could warn Chinese tourists not to go there.

The third source of resilience is exports of services, which may be less affected by a future trade war than physical goods. With their fluent English and familiarity with baseball, Filipino call-centre workers are much in demand by American firms. The country’s business-process outsourcing firms employ more than 1.7m people. Jack Madrid, the head of ibpap, the industry association, predicts revenue will grow by nearly 9% in 2024 to $40bn, as banks and health insurers move more back-office operations offshore.

Some expect artificial intelligence to destroy jobs in call centres, but Dominic Ligot, the head of research at ibpap, doubts it. Today the industry’s growth is constrained by a lack of sufficiently skilled staff. ai could help make the less capable ones more productive, he predicts.

Obstacles remain. No farmer in the Philippines may own more than five hectares, so farms stay tiny and inefficient. Several laws discourage foreign investment: foreigners may not own stakes of more than 40% in a wide variety of industries, from public procurement to trading. Mr Marcos promises to ease rules on foreign ownership, but has met fierce resistance.

And the global environment is deeply unpredictable. When Mr Marcos visited the White House earlier this month for a summit with President Joe Biden and Japan’s prime minister, Kishida Fumio, he received a warm welcome. But Mr Biden may not be president next year, and Mr Trump could suddenly declare war on outsourcing. Relations with China, meanwhile, are dismal and could get worse. Nonetheless, “there’s a guarded optimism among businesspeople in the Philippines, despite everything that’s happening in the world,” says Mr De Larrazabal.

China | Chaguan

China’s ties with Russia are growing more solid

Our columnist visits a future Russian outpost in China’s most advanced spaceport

illustration: chloe cushman

Apr 25th 2024

China’s first tropical spaceport, Wenchang, is proof of national swagger. During the cold war, China launched rockets from the Gobi desert and other desolate inland spots, for fear of enemy attack. Once China was more confident that it could deter invaders, though, Wenchang became a fine gateway to space. This close to the equator, on the southern island of Hainan, the Earth’s rotation gives a boost to every launch. The palm-fringed coastal site allows the largest Long March rockets to be delivered by sea. Wenchang finally opened in 2016. Its well-guarded launch areas are flanked by a science-education centre (closed to foreign visitors), replicas of rockets, statues of flag-waving astronauts and other tourist kitsch, like a Communist Party homage to Florida.

Here, in this showcase for Chinese technology, a privileged foreign friend—Russia—is being given a precious piece of real estate. Moscow Power Engineering Institute, a large Russian technical university, has been invited to open a branch in Wenchang with room for 10,000 students of aerospace engineering and science. Russian and Chinese scholars and officials held a ground-breaking ceremony in January. Though the 40-hectare campus is bare earth for now, Chinese media have already announced that, unusually, the Hainan institute will be a Russian-led academy, rather than a joint venture with a Chinese university.

Russia’s outpost in Wenchang will be next to a vast, partly built space-technology park. On a muggy weekday a forest of cranes rises above future laboratories, a satellite-assembly shed and a radar receiving station. The prime site is evidence that Sino-Russian space co-operation, long held back by mutual suspicion between the countries, is surging ahead.

Examples abound in a study published last year by the China Aerospace Studies Institute, a research arm of the us Air Force. The study details Russia’s growing willingness to help China build missile-warning and defence systems, and to sell it advanced rocket engines, overcoming qualms about China selling Russian technology to others. It describes Chinese and Russian agreements to link up their respective satellite-navigation systems, Beidou and Glonass. The two countries have pledged to build a joint base on the Moon and to work together on detecting space debris—a technology also useful for tracking an adversary’s satellites. The study quotes Xi Jinping, China’s supreme leader, linking technical co-operation with Russia to plans for “the reform of the global governance system” (ie, pushing America from centre stage).

The study describes why the countries have moved closer. China wants to harness Russia’s decades of expertise in space. Russia’s space programme needs China’s money. It has also wanted access to Chinese components ever since Vladimir Putin invaded Crimea in 2014 and Russia was hit by Western sanctions. Mr Putin’s all-out war on Ukraine, launched in 2022, has caused ties between China and Russia to grow even deeper. Ordinary Chinese citizens are noticing, including in sleepy Wenchang.

Zhao Chenxi is head of the Russian department at the Hainan College of Foreign Studies, a vocational school in Wenchang. It is a far humbler institution than the Russian-run campus due in her city. But the Moscow school’s opening should make her Russian-language pupils “more confident about their future careers”, she says. She may be right. Chaguan met students in a Russian culture class who described Russia as a land of opportunity. Several plan to transfer to Altai State University in Western Siberia. One of them is a 20-year-old surnamed Gao. He calls Mr Putin “very imperious” and the person he admires the most after Xi Jinping.

There are parallels between space co-operation and China’s broader support for Russia. Western sanctions after the Crimea invasion pushed Russia’s space industry to overcome its doubts about China. Today American officials accuse Chinese firms of supplying microelectronics, drone engines and machine tools that Russia’s defence industry uses to make missiles, tanks and aircraft for the war against Ukraine. Those dual-use items undermine Western sanctions meant to starve Russia of weaponry. Imposing sanctions was a rational strategy. Yet they have pushed Russia into China’s arms. Russia sends discounted oil and gas eastwards, and imports Chinese electronics, cars and more.

A partner against the West

Even before Antony Blinken, America’s secretary of state, landed in China on April 24th for a brief visit, the Biden administration and China’s government were arguing, publicly, about commercial sales to Russia that prop up Mr Putin’s war machine. With President Joe Biden and his team imposing ever-higher tariffs on Chinese goods and ever-stricter bans on sensitive high-tech exports to China, they cannot credibly use promises of access to American markets to change Chinese behaviour. Instead Team Biden is taking a twin-track approach. First come threats of American sanctions on Chinese banks that finance sales to Russia’s defence industry. Next, suggestions that Europe’s more open markets may start to close if Chinese firms help Russia to attack Ukraine.

American sanctions are a powerful threat: banks cut off from the dollar lose access to most international markets. It is less clear that China really believes it is risking the loss of European markets. When Germany’s chancellor, Olaf Scholz, met Mr Xi in Beijing on April 16th, he raised the issue of dual-use items sold to Russia. China’s leader gave no detectable ground on Ukraine.

For years American and Western politicians have taken comfort in the notion that China and Russia were in an unequal, unstable “marriage of convenience” that suited neither very well. Mutual distrust did constrain ties. But look carefully, including in far-off spots like Wenchang, and Sino-Russian interests are aligning in ways that may prove enduring.

United States | Clumsy college crackdowns

Efforts to tackle student protests in America have backfired badly

Police intervention at Columbia has provoked protests at other universities

photograph: imagn

Apr 23rd 2024|new york and washington, dc

Part of the reason Elisha “Lishi” Baker wanted to go to Columbia University, an Ivy League university in New York, was its Middle Eastern History programme. He loved his first year and says he “felt great as a Jewish student at Columbia”. But since the Hamas attacks on Israel on October 7th, the atmosphere on campus has changed. Within days there were protests. He heard students calling for an intifada. He kept being told: “You’re interpreting it wrong”, but this week there was no misinterpreting, he says, the undercurrent of antisemitism on campus. “We’re coming for you,” other Jewish students say they were told: “Get off our campus.”

University presidents are struggling with policing free speech on campus: how to deal with pro-Palestinian protests? Having seen the heads of Harvard and the University of Pennsylvania being forced to step down after their timid responses, they are trying a tougher approach. They are in danger of over-correcting.

The trigger for the latest troubles was the clearing by police of tents and protesters at Columbia on April 18th, and the arrest of more than a hundred students. This was an “alarming decision”, wrote Jameel Jaffer, from the university’s free-speech centre, adding that “it was not evident to us how the encampment and protest posed such a danger” as to justify the escalation. According to the New York Police Department (nypd), the arrested protesters were peaceful and offered no resistance. “It was so scary,” says Layla Saliba, who saw the arrests. “All these cops just swarming everywhere and we had people in like full riot gear.” Within days another encampment sprang up on a nearby lawn.

In a letter posted on Columbia’s website Minouche Shafik, Columbia’s president, wrote that she asked the nypd to intervene after other efforts failed: she did so “out of an abundance of concern for the safety of Columbia’s campus”. The move only inflamed matters. “The irony is that in trying to quiet things down and assert control over the encampment, the administration unleashed this firestorm,” says David Pozen, a law professor at the university.

That firestorm spread, with tent encampments popping up far beyond Columbia. The demands by student protesters are largely the same: divest endowments from Israeli firms and any weapons manufacturers that sell there; end academic partnerships with Israeli institutions; and condemn Israel’s actions in the war.

As at Columbia, administrators elsewhere are overcoming their reluctance to call the cops. On April 22nd nearly 50 protesters were charged with trespassing for taking part in a week-long occupation of a plaza at Yale (protesters returned the next day). At New York University police broke up a copycat encampment, arresting more than 130. At the University of Texas dozens were arrested after state troopers in riot gear swept through the campus. “These protesters belong in jail,” Texas’s governor, Greg Abbott, wrote on X. Police clashed with protesters as they attempted to clear the campus at the University of Southern California (usc).

Long before the debacle at Columbia, instances of disruptive behaviour had put administrators on edge. In February pro-Palestinian activists at uc Berkeley shattered a glass door leading to a lecture by an Israeli speaker. Weeks later others interrupted an event at the home of Erwin Chemerinsky, the dean of the law school.

Last year Columbia suspended two pressure groups, Students for Justice in Palestine and Jewish Voice for Peace, for organising unauthorised demonstrations. The New York Civil Liberties Union has sued over the move. Equally controversial was usc’s decision to cancel the graduation speech of its pro-Palestinian valedictorian, who is Muslim; the school cited safety threats. usc has since cancelled all guest speakers at commencement.

Presiding over an American university was once a plum job; now it is a minefield. On April 17th Dr Shafik was the latest president to be grilled by the House Education Committee about antisemitism on campus. Unlike the presidents of Harvard and the University of Pennsylvania, who fumbled their appearances in December, Dr Shafik survived—for now. When asked the question that both Claudine Gay, at Harvard, and Elizabeth Magill, at Pennsylvania, had struggled with (whether calling for the genocide of Jews violated their university’s code of conduct), she and her colleagues answered simply: “Yes, it does.”

Critics say she has not defended free speech adequately. The university’s rules, wrote Mr Jaffer, guarantee broad protection “even for speech that is objectionable or offensive to some listeners”. In her own public letter, Dr Shafik insists: “we cannot have one group dictate terms and attempt to disrupt important milestones like graduation to advance their point of view.”

Dr Shafik is not out of the woods. Donors are restive and politicians are circling: on April 24th the House speaker, Mike Johnson, visited Columbia and said calling in the National Guard should be an option. He told students who heckled him to “enjoy your free speech”, and described Dr Shafik as “a very weak and inept leader”. For her part, Dr Shafik touted progress in talks with student protesters, raising the possibility of an internal resolution.

At Columbia, life is now disrupted for the majority of students not taking part in protests. Classes have moved partially online. Helicopters circle above. The bullhorns from protesters outside the gates are so loud that students studying for the mcat, an exam for medical school, cannot find a quiet spot for practice tests.

Middle East and Africa | Iran’s defensive tactics

How Iran covered up the damage from Israel’s strikes

New images shared with The Economist show how a swap helped calm a crisis

photograph: ap

Apr 24th 2024

When iran and Israel exchanged drone and missile strikes earlier this month, the world was braced for a fully-fledged war in the Middle East. In the end both sides, having violently made their point, let matters rest. New satellite images now show how Iran saved face and backed down: it simply swapped one destroyed air-defence radar for a fresh one.

On April 19th, in response to an Iranian barrage days earlier, Israeli jets are thought to have fired several air-launched ballistic missiles towards an air base near the Natanz nuclear complex south of Tehran. The site has been key to Iran’s nuclear programme since it was publicly exposed 22 years ago and is heavily defended with its Russian-made s-300 air-defence system.

Read all our coverage of the war between Israel and Hamas

Israeli missiles appear to have scored a direct hit. They struck a 30n6e2 “Tombstone” radar, which is designed to track incoming air and missile threats, allowing interceptor missiles to take them out, according to analysis by Chris Biggers, an imagery expert who used to work for America’s National Geospatial-Intelligence Agency. The rest of the battery had been moved away, presumably in case Israel were to strike again.

New images acquired by Mr Biggers and shared exclusively with The Economist now show that Iran, by the next day, had pulled a switcheroo. It replaced the Tombstone radar with a different 96l6e “Cheese board” radar, placing it on the same spot. It also kept the launcher canisters, which fire interceptors, in an upright position, as though ready to fire. “It’s a case of denial and deception,” concludes Mr Biggers, “to suggest the site is still operational.” It almost certainly is not. The two radars are not interchangeable and the battery will not work with a damaged Tombstone.

Iran is unlikely to fool America or Israel, both of which have high-end satellites and will know that the battery is kaput. But the kabuki radar allows the country’s propagandists to claim that all is well. That may have averted a broader crisis.

One lesson is that Israel can strike Iranian air-defence systems—and the valuable sites they protect—without even entering Iranian air space. Another is that commercially available satellite images, once the preserve of a few big states, can expose the obfuscation of governments.

The third and final lesson is that this transparency is still patchy. American satellite firms have long been subject to legal restrictions on publishing high-resolution images of Israel. Though the rules were eased a few years ago, most providers are still nervous about releasing sharp images of sensitive Israeli sites. That can have perverse consequences. Iran’s supporters have circulated low- and medium-resolution images to suggest their attacks on April 13th were highly accurate.

Decker Eveleth of the Middlebury Institute of International Studies has studied private high-resolution images of those strikes. He says they were, in fact, possibly less precise than Iran’s attack on an American air base in Iraq four years ago, either because of Israel’s gps jamming or the distance the missiles had to travel.

Still, the absence of clear-cut evidence lets Iran claim the win. Much like the radar switch, that may suit all concerned. ■

The Americas | Latin America’s tech superstar

Meet Argentina’s richest man

The boss of Mercado Libre ponders Javier Milei, self-doubt and the dangers of wokery

photograph: getty images

Apr 25th 2024|montevideo

Even billionaires ponder the path not taken. At 17, Marcos Galperin had returned from a tour playing competitive rugby in Australia and New Zealand, two egg-chasing powerhouses, when he was offered a place at the University of Pennsylvania to study business. “I had to make a choice,” recalls the 52-year-old founder of Mercado Libre, Latin America’s dominant e-commerce and payments firm, from his office in Montevideo, Uruguay’s capital. But old dreams die hard. “If I were to be born again I would definitely go for a sports career,” says Mr Galperin. Still, being a billionaire has its compensations. Last year he bought the Miami Sharks, a rugby team in the United States.

Argentina’s rugby team could have used a handy fly-half in the 1990s, but both Mr Galperin’s home country and Latin America are much better off for his choice of business. It is hard to overstate Mercado Libre’s impact. In a region of 670m people, the firm counted 218m active users last year. They buy and sell goods online, and use Mercado Pago, the firm’s payments arm, to pay for everything from roadside snacks to football tickets. Mr Galperin is the mega-star of Latin America’s technology scene. With a net worth of over $6bn he is one of the region’s wealthiest men. Already powerful in business, he is increasingly outspoken on social media.

Mr Galperin was born into traditional Argentine wealth: a family-owned leather empire. Excited by the internet, he made the classic moves of an aspiring tech mogul, attending Stanford Business School and starting a business in a garage. That was in 1999. Today Mercado Libre has a market capitalisation of some $70bn, making it the second-most valuable publicly traded company in the region after Petrobras, a Brazilian oil giant. After battling sluggish service and frequent price rises from postal companies, Mercado Libre built its own vast delivery network, boasting planes and the continent’s biggest fleet of electric vehicles. Mercado Pago processed payments worth $183bn last year and provides credit cards and loans to some 15m people, 60% of whom had never had a loan before, says Mr Galperin.

As a young man he had lashings of self-confidence. “To be honest, we thought we were going to get here much faster,” he quips. Yet he also admits to having doubts about whether Mercado Libre would make it, and underlines luck as an element of his success. “All these years I had all this anxiety…You have your balance in the bank coming down every month. It’s a horrible feeling.” Breaking even in 2005 was not a moment of celebration, but of relief.

In keeping with this, in 2014 he complained about bosses using their firms as a route to fame. Mercado Libre was different, he said. “We want the company to be famous. The lower our personal profile, the better.” This, however, has changed.

Today he is outspoken, particularly about Argentina, where his social-media posts regularly make waves. The Argentine economy is like a sports player who was once the best in the world, he says. “Now he’s obese, a drug addict, has cancer, aids and is an alcoholic.” Like many Argentines, Mr Galperin has been radicalised by years of economic chaos. In 2019 he called himself a Bill Clinton Democrat. Today he backs Argentina’s president, Javier Milei, a self-described “anarcho-capitalist”. When Mr Milei was elected in November, Mr Galperin posted a photo of doves breaking out of chains with one word: “Free.”

Mr Milei has had an impressive start, he says, pointing to monthly budget surpluses, falling inflation and growing market confidence. “They took away the alcohol and drugs, but that’s also very painful,” he says, referring to the recession prompted by deep spending cuts. There is a long way to go: “The patient still has cancer and aids and is obese because for that to change you need to reform a lot of things.” Despite this bleak analysis, Mr Galperin reckons the odds of Mr Milei succeeding at reforming the economy are improving.

Argentina’s story shapes his other views, too. He is bullish about bitcoin, which can be bought and sold on Mercado Pago, because he claims it is a better store of value than dollars, euros or yen. “Coming from Argentina, I know what happens when you have permanent deficits: your currencies deval‎ue,” he says, skating over bitcoin’s own gyrations.

His scepticism of government runs wider. “There is no innovation in Europe,” he claims, blaming excessive regulation. He loves Israel, by contrast, because it shows “the triumph of capitalism”. In Argentina too many people argue about capitalism rather than doing it, he suggests. And he frets about the influence of woke thinking, a prominent feature of Argentina’s last Peronist government; he draws a straight line from wokery to socialism and dictatorship. “It all starts with a really nice speech about equality and it ends up in authoritarianism and poverty,” he says.

Success is the best revenge

Mr Galperin is at his most strident on X, a social-media platform, where he tangles with public figures and random accounts, mocking critics with memes, kiss emojis and questions about whether they own shares in Mercado Libre. A secular Jew, he is vociferous in his support of Israel in its war in Gaza. He waves away the possibility that his outspokenness might pose a risk to Mercado Libre. Few outside Argentina care what he says, he argues, before insisting that he is in fact not that outspoken.

Mercado Libre is certainly booming. On April 17th it said it would hire another 18,000 people, taking its total workforce to 76,000. That is perhaps the most telling riposte to his leftist online critics. ■

Europe | Hard times

Two years of war have impoverished many Ukrainians

The elderly, the displaced and the disabled are the worst affected

photograph: daniel ceng shou-yi/zreportage.com/eyevine

Apr 21st 2024|kyiv

As soon as the volunteers appear, those that have been waiting for them on Kyiv’s central Independence Square (known as Maidan) form a queue, shuffle forward and take a warm drink and a freshly cooked meal. An elderly man tries to calm a noisy outburst from his mentally disabled adult son. The war has left millions struggling economically, but two years after the beginning of the full-scale invasion some are suffering much more than others. The hardest hit are the elderly, the disabled and the displaced.

In 2023 Ukraine’s gdp was 72% of what it was in 2021. Millions have either lost their jobs, or had their pay cut by struggling employers. But walk around any of the big cities set back from the frontlines and today you would hardly know there was a war on. Last month a huge new bookshop opened a few minutes’ walk from where the volunteers of Sant’Egidio, a Rome-based charity, distribute their food. Shops, businesses, cafés and restaurants are packed and plenty of people are driving fancy cars.

Read more of our recent coverage of the Ukraine war

However, the war has tipped many into poverty, especially those who were hard-pressed before, and above all those whose homes and livelihoods have been lost. A World Bank survey last November found that 9% of Ukrainians had run out of food at some point in the previous 30 days. In March, according to the Centre for Economic Strategy, a think-tank in Kyiv, 23% were in a state of food insecurity. Some 14% were unemployed.

Yevhen Hlibovytsky, an analyst, says some caution is needed when interpreting such data. The war has indeed caused “a lot of poverty”, he says. But Ukrainian society is less “atomised” than its Western counterparts. Family safety-nets help to a greater extent than in the West.

That is certainly true. But lining up for food on Maidan are the unlucky ones. Many of the pensioners there say that, far from getting help from their children, they are begging them for money. Some of those in need spend their days travelling around Kyiv picking up help from different humanitarian organisations. After food, utilities, medicines and communal housing charges they all say they have nothing left. There is a good reason for this. In 2022 inflation hit 26.6% and in 2023 it was still 5.1%. Although pensions have increased, the increments have varied and have not kept pace with inflation. Pensioners have all seen their incomes severely eroded. Average monthly pensions are the equivalent of $135.

More than a quarter of the population, 10.5m people, are pensioners. But they are far from the only ones to have lost out, says Oksana Zholnovych, the minister for social policy. So have the 3m who receive a disability benefit. Their number has increased by 300,000 in two years, thanks to wounded soldiers, injured civilians and people who have had other issues ranging from heart attacks to war-related stress.

Many of the volunteers on Maidan initially came to Sant’Egido because, having fled from fighting or Russian occupation, they needed help themselves. There are 3.7m internally displaced people (idps) in Ukraine. On her phone Natasha shows a satellite image of a ruined apartment block in the eastern city of Bakhmut, which fell to the Russians in May 2023 after almost a year of heavy fighting. “My home,” she says. In Bakhmut she was a kindergarten teacher, and her family all had their own homes. She had extra income from renting out two other properties. Now she says, her friends and family are either unemployed or work at jobs in supermarkets for which they are very overqualified. “It was a comfortable life,” she says. “Now I live off humanitarian aid.”

Although many do get aid, their mainstay has been social security. Until March 1st some 2.5m idps received a monthly payment (of $77 for those with children or disabilities and $51 for others) , which could be topped up with other help. Anyone deemed capable of working is now ineligible to receive this idp payment, and the number of recipients is expected to drop to about 1.5m.

In this time of war, pensions and social-security payments have a far greater significance than just cash in the bank, says Ms Zholnovych. When everyone got their money in March 2022, the first disbursement after the beginning of the full-scale invasion, it was hugely symbolic. Those payments meant then, and still mean she says, that “we are fighting, we are holding on, the state exists.” Ukraine’s allies have understood this. The budget for all of Ukraine’s social payments, except for pensions, is now being financed with their money.

For 2024 Ukraine needs $37.3bn of external financing and there is likely to be a shortfall. That will mean cuts in social spending, and perhaps an increase in energy prices, which have not kept pace with inflation. Hlib Vyshlinsky, who heads the Centre for Economic Strategy, says he thinks that 2024 will be just about “manageable”. What worries him is how to keep going in the years to come if the war continues “and we do not have foreign support.” Grinding Ukrainians down on the front and impoverishing them behind it, so that they lose the will to fight on, is clearly part of Vladmir Putin’s plan.

International | Autarky rules OK

The tech wars are about to enter a fiery new phase

America, China and the battle for supremacy

photograph: nick little

Apr 25th 2024|washington, dc

Flows of information and energy underpin all economic activity, and advanced technologies support both. Hence the sky-high stakes in the tech wars between America and China. Started during Donald Trump’s first term in office, between 2017 and 2021, they have continued under Joe Biden. China’s leader, Xi Jinping, bridles at America’s export controls on “chokehold technologies”. The struggle is reshaping relationships and supply chains the world over. And its costs are mounting. Estimates vary, but the imf reckons that the elimination of high-tech trade across rival blocs could cost as much as 1.2% of global gdp each year—about $1trn.

Whether China or America controls energy and information technologies is an “ethno-civilisational question”, says Evan Ellis of the Army War College. The temperature of the confrontation is likely to rise over the coming years. Neither Mr Biden nor Mr Trump will shrink from challenging China, perhaps the issue which enjoys the highest level of bipartisan support in Washington. And for China to back down from what it sees as its rightful place in the global order is unthinkable for Mr Xi.

The next stage of the tech wars will play out in two major arenas. One is chipmaking, which creates the world’s information-processing infrastructure, including the one that trains and runs artificially intelligent software. Any degree of Chinese control over the production of chips is intolerable to America. The other is green technology, as its components may become the backbone of the entire global economy. For China the strength of its companies in this arena is not just a natural consequence of two decades of focused industrial policy, but a confirmation of its important role as a global leader.

At the moment the battle is over apps. On April 23rd Congress passed a bill asking the Chinese owners of TikTok, a video platform used by 170m Americans, to sell up in 270 days or face a ban. Days before Chinese authorities forced Apple to drop WhatsApp and Threads, platforms owned by Meta, from its Chinese app store. But despite the outcries, apps are a second-order concern as they require chips and energy to run—not the reverse.

Consider the current positions of the two countries. America is pushing chipmakers to expand cutting-edge production on its shores. On April 8th the government announced $6.6bn in subsidies for Taiwan’s tsmc for three new fabs in Arizona. On April 15th came $6.4bn for South Korea’s Samsung to build fabs in Texas. The moves fall under its $280bn chips and Science Act, an industrial policy introduced in 2022, which incentivises the creation of fabs and the training of staff for them. Also in America’s toolkit is the Inflation Reduction Act (ira), a $369bn green-subsidy package passed in 2022. It supports domestic production of green gear through tax credits. Meanwhile, America maintains high tariffs on Chinese solar panels and evs, of 14.25% and 25% respectively.

China has nonetheless raced ahead in green tech. Longi is the world’s largest solar-panel manufacturer; catl is the largest battery maker and byd is wrestling with Tesla for the title of the world’s largest maker of evs. Chinese chipmaking has not panned out so spectacularly, however, despite government subsidies of about $150bn over the past ten years. That is to some degree a measure of America’s success in blocking the flow of chipmaking technology into the country over the past two years.

So what next when it comes to chipmaking? The first casualty in the tech wars was Huawei. It was the company on which the Trump administration honed the export controls that are now used on China as a whole. The question is what comes after America’s election in November. Whoever wins, the next president will almost certainly launch a new, Huawei-style campaign against other Chinese tech firms. This is partly because China hawks will pack any new American cabinet.

Under a Trump presidency, foreign companies may have extra reasons to fret. tsmc is one such: in July last year Mr Trump grumbled that Taiwan had taken away America’s chip business. But it is South Korean chip firms, sk Hynix and Samsung, that stand out most, having invested some $35bn in China since 2020. “Trump 2.0 is going to play a lot more hardball with the Koreans,” says one congressional staffer who works on Chinese tech policy. Under Mr Trump, he says, American subsidies will come with a requirement not to invest in China at all.

Firms in related industries are on alert. mgi Tech, a spin-off of the Chinese giant bgi which makes genome-sequencing equipment, is likely to be a target. Republicans, in particular, are upset that mgi’s machines have been installed in European hospitals. “Major multilateral controls on quantum technology” being exported to China are also likely, says a Republican staffer. That may be intended to deny China access to quantum computing and sensing technologies which may become important in the future, rather than waiting until they prove themselves in the market.

American corporations are not entirely relaxed, either. Although advisers and lawyers believe the chips Act will remain in force, some big companies, such as Intel, may be keen to know that the contracts governing their disbursements under it are ironclad. “We want to make sure that is legally binding,” says a chip executive.

Tech bosses may also dislike discussions about reforming the Bureau of Industry and Security (bis). This is the agency in charge of the export controls which have been used extensively over the past six years to attack Chinese technology firms. Many Republicans and some Democrats believe that bis staff have been slow-pedalling the controls. But chip firms rely on the bureau’s machinery, according to one tech boss. Some would consider moving some operations abroad and altering supply chains if bis comes under fire, so as to be freer of Washington’s control.

If America acts against Chinese chipmakers, China lacks responses which are not obviously self-destructive. It found one last year: placing export controls on gallium and germanium, two materials which are small but important ingredients in the chipmaking process. China could do so because it supplied 98% and 60% of global output in 2022. Commodity-export controls are weak, however, compared with America’s grip on intellectual property.

More powerful are Chinese efforts to dominate the production of less technologically advanced chips. One open question in the tech wars is the extent to which growing Chinese control of less advanced chip manufacturing can satisfy global demand for the sort of computation that is found in evs and smart grids.

What about green technologies? America has little it could deny China, and so its plan over the coming years is to withhold access to its market, the world’s second-largest, and to persuade allies to do the same. Mr Biden will probably continue down the climate-friendly path he has followed in office. He will reinforce links with allies and use public money to accelerate America’s decarbonisation while blocking many, if not all, Chinese imports. Mr Trump is a different story. Talk of the more aggressive, climate-agnostic approach that he is likely to adopt is already rattling executives in America and around the world.

The ira should survive either man. “No Republican is going to say ‘I support it’, but I think they’re ok with the ira continuing to exist,” says one Republican insider. That may be because $74bn of the $106bn ira-stimulated investment to date has gone to Republican counties. An extreme aim may be to remove any and all Chinese components from the supply chains whose creation the ira is encouraging. “The ability for Chinese companies to receive a single dime from the ira is going to go,” says the same insider. It’s possible that the act morphs from a climate initiative into one exclusively supporting high-tech manufacturing in America.

The automotive industry could be among those which struggle most amid an anti-green onslaught. Mr Trump has called evs a “hoax” and says Chinese-made evs will destroy America’s car industry. That leaves car firms in a bind. The biggest, says one lobbyist, have developed plans to establish joint ventures with Chinese battery companies on American soil. So far only Ford has spoken publicly about its plans to license technology from catl; Republican attacks followed. “I know that companies have negotiated these things. I suspect they’re waiting, because if Trump gets elected these [deals] will disintegrate,” explains the lobbyist.

Chinese solar, ev and battery firms will keep trying to find ways into the American and European markets. That could be through joint ventures with domestic companies, or through factories built in countries such as Mexico with which America has a free-trade agreement. But China’s domestic market, and that of the world outside the West, provides plenty of opportunity; China installed more solar in 2023 than America has in total. In chips China has market power, but not technological dominance. With green tech it has both.

Uncovering the costs

The potential effects of prolonging the tech wars are sobering. Any American administration that fights China on every front could lose focus on the fronts that matter most. Chinese green-tech exports are booming all around the world (see chart), and installations within China are growing faster than anywhere else, so denying access to the American market may not do much to weaken the grip of Chinese firms. And a more unilateral approach to controlling the flow of advanced technologies into China may harm the fragile co-operative relationship that the Biden administration has built with the Japanese, among others, in recent years. American policy could also alienate European allies. American policymakers report a lack of interest from their European counterparts on export controls and outbound investment screening against China.

chart: the economist

But the biggest costs of the tech wars could be the bifurcation of the world’s information and energy-technology industries, leading to sagging economic growth and slower decarbonisation. They will probably accelerate firms’ secretive efforts to develop offerings for the Chinese market over which the American government has little or no control. That could inadvertently give China more power to set technological standards in parts of the world that use its equipment.

The Biden administration’s approach to China and technology has been relatively predictable. For that reason, it has been less disruptive. By all accounts, Mr Trump would break with Mr Biden’s policy even though it is a continuation of his own first term. Unfortunately, an even more aggressive campaign may lead to worse outcomes for America, China and the world. ■

Business | Bartleby

Pssst! Want to read something about rumour and innuendo?

Gossip in the workplace

illustration: paul blow

Apr 25th 2024

Gossip is everywhere. On one estimate, from Megan Robbins and Alexander Karan of University of California, Riverside, people spend 52 minutes a day on average talking about other people. Gossip pervades the workplace. You hear it in conversations among colleagues; you know who to go to for the latest round of it. You can tell when gossip is imminent: voices suddenly lower and there may well be some theatrical looking around to check that the target is not in earshot. Sometimes it is offered up explicitly, like a vol-au-vent at a drinks party: “Do you want to hear a bit of gossip?” And yes, you almost certainly do.

Managers have grapevines, too. Scholars of gossip (what happens when these people all get together at a conference is a subject for future research) tend to describe it as informal exchanges of eval‎uative information about people who aren’t there. Those exchanges can be complimentary as well as critical. By that definition, bosses who do not gossip about employees may not be doing their job properly.

Its ubiquity suggests that gossip must have some benefits. It is definitely a lot more entertaining to talk about colleagues, particularly if they are seen furtively entering a hotel room together, than the latest set of quarterly numbers. Evolutionary psychologists also reckon that gossip is helpful in instilling social norms. In their book “The Social Brain”, Tracey Camilleri, Samantha Rockey and Robin Dunbar point to the example of hunter-gatherer groups in southern Africa who use gossip to convey criticism of those who fail to share the spoils of successful hunts.

Similar behaviour is visible in the workplace. In a recent paper by Terence Dores Cruz of the University of Amsterdam and his co-authors, participants were asked whether they would share gossip about someone who was constantly slacking off and leaving others to do the work. People were more likely to pass that piece of information on to a person who was going to have to work with this good-for-nothing than to one who was not. The knowledge that reputations are partly forged through gossip can act as a deterrent to bad behaviour.

But that reputational effect is also one reason to worry about gossip. For sometimes incentives emerge to spread inaccurate information about other people. Another experiment, conducted by Kim Peters and Miguel Fonseca of the University of Exeter, found, among other things, that lies cropped up twice as frequently when gossipers were told they were in competition with each other.

A related problem is that people are drawn to negative gossip more than positive gossip. The news that Colin did a great job generating sales leads last month is not going to spread far and wide. But if they are juicy enough, even outright falsehoods will circulate. In 2021 the Ontario Superior Court in Canada awarded hefty damages to an employee at a volunteer fire department who had been fired by the local municipality on the basis of false rumours that she had engaged in inappropriate sexual behaviour with firefighters.

If gossip can cause distress to its targets, it can also be bad for the people sharing information. One of the oddities of gossip is that everyone does it and yet it is so often frowned upon. A recent paper by Maria Kakarika of Durham University Business School and her co-authors found that being seen as a gossipmonger is unlikely to help your career. Participants were given a scenario in which someone spread negative personal gossip about a colleague. They were not just disapproving; they also said they would be more likely to give the gossiper lower performance ratings and to recommend bonus reductions. If you are the Wuhan wet market of office gossip, the place where rumour reliably replicates, you may end up being treated with similar suspicion.

What then should managers make of gossip? Getting rid of it entirely would require a police state, and in any case deprive the organisation of a potentially useful form of self-regulating behaviour. However, managers can dampen demand for it.

If there is uncertainty around a big event like lay-offs or the appointment of a new boss, gossip will flourish. If people think they are being treated unfairly, then they will want to vent about it to co-workers. If workers have jobs that bore them rigid, they will alleviate the tedium with chit-chat. One cure for excess gossip is decent management. ■

Business | Schumpeter

Tesla faces an identity crisis: carmaker or tech firm?

Elon Musk’s fiendish conundrum

illustration: brett ryder

Apr 24th 2024

On the night before Elon Musk unveiled Tesla’s first-quarter results on April 23rd, your columnist brought his car to a halt, noticing a futuristic vehicle hooked up to a Tesla charging station in Los Angeles. It was a dark-purple Cybertruck. Twinkling lights glittered behind the tinted windows. It looked so wedgelike, angular and otherworldly that it could have moonlighted as an armoured personnel carrier in “Civil War”, a new apocalyptic film.

Its owner, Dennis Wang, is a Tesla devotee. Besides his four-month-old Cybertruck, he has owned Mr Musk’s original (“sexy”) quartet: the Models s, 3, x and y. He has held shares in the company since 2018. He has full faith in Mr Musk. Despite a 40% plunge in Tesla’s share price this year in the run-up to the earnings report, as well as the announcement in recent weeks of falling vehicle sales and unprecedented lay-offs, he believes the billionaire remains the best person to run the company. Even an embarrassing Cybertruck recall, caused by a stuck accelerator, was quickly fixed, he says, pointing to a new bolt in the pedal.

Yet however much Mr Wang loves Teslas, he does not think of Tesla as a car firm. He says it is a tech company. As he puts it, all electric vehicles (evs) offer a similar driving experience. What differentiates them is the software—the brains beneath the dashboard. In Tesla’s case, that is the latest version of its self-driving technology, which he calls “fantastic”. His view is shared by many Tesla loyalists. It is why the company’s shares trade at a multiple of earnings typical of a zippy software firm, not of a metal-basher.

Wall Street takes a different view. Though investors hope Tesla will one day make money from its snazzy artificial intelligence (ai), for now they want it to restore growth by selling more cars—the cheaper the better. Hence the sigh of relief when Tesla outlined plans within an otherwise dismal earnings report (revenues, profit margins and free cashflow all crashed) to start producing affordable vehicles by 2025 that would not rely on big new investments. Tesla’s share price promptly soared more than 10%. Call that a $50bn thumbs-up from the unit-economics guys.

Mr Musk has a history of trying to have it both ways. When investors were doubtful about demand for Tesla’s evs at the end of the 2010s, he promised shareholders that its so-called full self-driving (fsd) technology would put 1m robotaxis on the road by 2020. That did not happen, so during the pandemic, as Tesla’s sales rocketed, he changed his tune. He boasted that sales were growing faster than Henry Ford’s Model t, and that Tesla aspired to sell 20m evs a year by 2030.

This year it is touch and go whether Tesla will sell more than the 1.8m cars it shipped in 2023. So Mr Musk has flipped the script again. Once more he is highlighting fsd, though this time with a twist: the latest version is so good, he told analysts this week, that it is impossible to understand the company without trying it. He went so far as to say: “If someone doesn’t believe Tesla will solve autonomy, I think they should not be an investor in the company.” His competing narratives create quite the conundrum among investment types. Can Tesla be a car company as well as a tech company? The answer, broadly, is yes. But it depends on which of its markets you are talking about.

From a volume-growth perspective, no country is more important than China. It is the world’s biggest ev market, and though growth is slowing, sales are still rising much faster than in America. However, competition is fierce and a price war is shredding Tesla’s business there. Tesla has not said where the cheaper model it is planning will be sold. But if it is made available globally, it could help it fend off competition from byd, a low-cost Chinese competitor that is not just the biggest ev seller in China but also has a strong presence around the world (though not in America).

Tesla’s American home turf is different. Mr Musk’s firm is already the market leader, so its growth prospects are probably constrained, more so because of the rising popularity of hybrids. Yet it has to sell more cars to generate cash to fund the purchase of huge volumes of ai chips that it needs to run its fsd technology. That is where a cheaper car comes in. It could help Tesla cross a bridge to the future while it attempts to overcome the huge engineering and regulatory challenges necessary for cars to drive people, rather than the other way round.

There are lots of potential roadblocks ahead. First is the risk of crumbling morale. Besides the sacking of one-tenth of its workforce, Tesla has lost several highly respected executives recently (the latest announced his departure on the quarterly earnings call). Second, trust between Mr Musk and big investors is gossamer-thin. Who knows how he will react if a majority at next month’s shareholder meeting vote against the board’s efforts to reinstate his $56bn payout from 2018 that was voided by a Delaware judge. Third, the difficulty of running many businesses besides Tesla is compounded by Mr Musk’s “demon mode”—irascible outbursts that can leave rubble in their wake.

View from the Cybertruck

Like many Muskophiles, Mr Wang expects Tesla’s boss to pull through. As a carmaker, Mr Musk excels. The Cybertruck, says its driver as his corgi scampers on the back seat, is the most comfortable car he has ever owned. As a technologist, Mr Musk continues to improve. Though Mr Wang acknowledges that the latest version of fsd requires driver supervision, he says being able to “sit back and decompress” on his commute is as valuable to him as a pot of money. Above all, no one matches Mr Musk when it comes to turning engineering dreams into reality. As he puts it, “If Elon wants to put a chip in your head, you will get a chip in your head.” Just don’t expect it to be implanted until years after it is promised. And be prepared for its Svengali to melt down in the meantime. ■

Finance and economics | Buttonwood

How far could America’s stockmarket fall?

With the prospect of cheaper money receding, shares look unusually vulnerable

photograph: satoshi kambayashi

Apr 25th 2024

The sound of alarm bells is becoming harder to ignore. America’s stockmarket finished the first quarter of 2024 on an astonishing tear, with its benchmark s&p 500 index having risen in 18 out of the preceding 22 weeks. No longer: it has fallen over each of the past three. Look at individual stocks, meanwhile, and it is clear just how far investors have swung from euphoria to twitchiness. Nvidia was the poster child of the s&p 500’s winning streak, seeing its share price more than double between October and March. On April 19th it fell by a gut-churning 10% over the course of a single day, wiping more than $200bn from the company’s market value. The awful news that precipitated the plunge? There wasn’t any.

If there is a reason for this attack of the vapours, it is that the prospect of cheaper money is receding into the distance. American consumer prices rose by 3.5% in the year to March. That is far too high for the Federal Reserve to consider cutting interest rates imminently unless something calamitous happens. Thus investors have pared their bets accordingly. But something else is going on, too. As the size of the Nvidia jolt suggests, turning-points have less to do with sober-headed analysis than mob psychology. Markets have recovered a bit in recent days, suggesting plenty of uncertainty. The question now is whether the mood will continue to darken.

That will be determined by the mob. Yet as investors ponder whether or not to panic, America’s stockmarket is in an unusually precarious position. Shares have rarely been valued more highly than they are today, giving them further to fall and making them more vulnerable to changing investor sentiment. Relative to ever higher interest rates on government bonds, expected returns on stocks look especially unattractive. If a crash does loom, all the pieces are in place for it to be particularly nasty.

Take valuations first. The cyclically adjusted price-earnings (cape) ratio, which was popularised by Robert Shiller of Yale University, is now higher than it was even in the late 1920s. The ratio’s current level has been exceeded only around the turn of the millennium and in 2021. Both occasions preceded market crashes. And a high cape is more than just a bad omen. A lot of academic work has demonstrated that the earnings yield—or inverse of the price-to-earnings ratio—on stocks is a reasonably good predictor of their future returns. This makes intuitive sense, given that a company’s earnings are the ultimate source of its value.

The cape ratio is an especially useful signal because it incorporates ten years’ worth of earnings, smoothing out noise. When it is elevated, expected future returns are low—and at present, it is nearly twice as high as its long-run average. Reversion to anywhere near the mean would take an earth-shaking drop. Worse, the high cape makes such a fall more likely, by giving investors reason to dump low-yielding stocks.

Couple this with a renewed acceptance that high interest rates are here to stay, and things look shakier still. Just as the earnings yield is a proxy for stocks’ expected returns, so real yields on government bonds indicate their expected returns. The gap between the two therefore measures the additional reward investors anticipate for holding riskier shares over safer government debt. It varies over time according to the prevailing risk appetite, but has seldom been as low as its current two percentage points.

A reversion to the average, which is around four percentage points, would entail share prices dropping by 29% at current bond yields. It seems improbable, however, that investors’ risk appetites would still be average immediately after such a large drop. For much of the 2010s the yield gap hovered around six percentage points; in the traumatic years following the financial crisis of 2007-09, it was more like eight. A return to those levels would require share-price crashes of 47% and 57%, respectively.

Put all this to a Wall Street bull and the retort is straightforward: earnings will grow, possibly supercharged by artificial intelligence. It is this which will drive future returns, such that low yields based on past profits are meaningless. Yet the past few decades suggest otherwise. Low earnings yields might indeed indicate that earnings will rise, but historically they have portended poor returns instead. Perhaps this time is different—and even if that is not the case in the long run, share prices could keep rising for a while yet. Once the mood does turn, though, watch out. ■

Science and technology | Brain v body

Many mental-health conditions have bodily triggers

Psychiatrists are at long last starting to connect the dots

illustration: the economist/getty images

Apr 24th 2024

The tics started when Jessica Huitson was only 12 years old. Over time her condition worsened until she was having whole-body fits and being rushed to hospital. But her local hospital, in Durham, England, was dismissive, suggesting she had anxiety, a mental-health condition, and that she was probably spending too much time watching videos on TikTok. Her mother describes the experience as “belittling”. In fact, Jessica had an autoimmune condition brought on by a bacterial infection with Streptococcus. The condition is known as Paediatric Autoimmune-Neuropsychiatric Disorders Associated with Streptococcus (pandas). When the infection was identified and treated, her symptoms finally began to improve.

Ms Huitson is not alone in having a dysfunction in the brain mistaken for one in the mind. Evidence is accumulating that an array of infections can, in some cases, trigger conditions such as obsessive-compulsive disorder, tics, anxiety, depression and even psychosis. And infections are one small piece of the puzzle. It is increasingly clear that inflammatory disorders and metabolic conditions can also have sizeable effects on mental health, though psychiatrists rarely look for them. All this is symptomatic of large problems in psychiatry.

A revised understanding could have profound consequences for the millions of people with mental-health conditions that are currently poorly treated. For example, over 90% of patients with bipolar disorder will have recurrent illness during their lives; and in children with obsessive-compulsive disorder (ocd) over 46% do not achieve remission. Some 50-60% of patients with depression eventually respond after trying many different drugs.

For some in the profession, a deeper understanding of the biology of mental health, tied to clear biological fingerprints of the kind that might come from a laboratory test, will lead to more accurate diagnoses and better targeted treatments.

Shrinks, rapped

The field of psychiatry has historically been focused around the description and classification of symptoms, rather than on underlying causes. The Diagnostic and Statistical Manual of Mental Disorders (dsm), sometimes known as the bible of psychiatry, emerged in 1952 and contains descriptions, symptoms and diagnostic criteria. On the one hand, it has brought helpful consistency to diagnosis. But on the other, it has grouped patients into cohorts without any sense of the underlying mechanisms behind their conditions. There is so much overlap between the symptoms of depression and anxiety, for example, that some wonder if these are actually even separate categories of illness. At the same time, depression and anxiety come in many different subtypes—panic disorder with and without agoraphobia, for example, are distinct diagnoses—not all of which may be meaningfully distinct. This can lead to patient groups in drug trials being so diverse that drugs and therapies fail simply because the cohort being studied has too little in common.

Previous attempts to find causal mechanisms for mental-health conditions have run into difficulty. In 2013 the National Institute of Mental Health, an American government agency, made a heroic gamble to move away from research based on the dsm’s symptom-based categories. Money was funnelled into basic research on disease processes of the brain, hoping to directly connect genes to behaviours. Some $20bn of new research was funded but the idea failed spectacularly—most of the genes uncovered had tiny effects. Allen Frances, a professor of psychiatry at Duke University, calls the search for such biomarkers “a fascinating intellectual adventure, but a complete clinical flop”.

Genes alone are clearly not the answer. Ludger Tebartz van Elst, a professor of psychiatry and psychotherapy at the University Hospital Freiburg, in Germany, says that many different conditions such as schizophrenia, attention deficit hyperactivity disorder (adhd), anxiety and autism can be triggered by the same genetic disorder, 22q11.2, caused by the loss of a small piece of chromosome 22.

Despite this counsel of misery, a shift in psychiatry is potentially on the horizon. Some of this is coming from a revived interest in finding neurological biomarkers with ever-more sophisticated technology. In addition, there is a greater understanding that some mental-health conditions actually have triggers or roots which need to be treated as medical conditions rather than psychiatric ones.

Fundamental health

A key moment came in 2007, when work at the University of Pennsylvania showed that 100 patients with rapidly progressing psychiatric symptoms or cognitive impairments actually had an autoimmune disease. Their bodies were creating antibodies against key receptors in nerve cells known as nmda receptors. These lead to brain swelling and can trigger a range of symptoms including paranoia, hallucinations and aggression. The disease was dubbed “anti-nmda-receptor encephalitis”. Most important of all, in many cases it was treatable by removing the antibodies, or using immunotherapy drugs or steroids. Studies of patients having a first episode of psychosis have found that between 5% and 10% also have brain-attacking antibodies.

illustration: the economist/getty images

It seems likely that, in rare cases, ocd can be caused by the immune system, too. This is seen in the childhood condition pandas, with which Ms Huitson was diagnosed in 2021. But it is also sometimes found in adults. One 64-year-old man reported spending an extraordinary amount of time obsessively trimming his lawn only to look back on this behaviour the next day with feelings of regret and guilt. Researchers found these symptoms were being caused by antibodies attacking the neurons in his brain.

More recently, Belinda Lennox, head of psychiatry at the University of Oxford, has conducted tests on thousands of patients with psychosis. She has found increased rates of antibodies in the blood samples of about 6% of patients, mostly targeting the nmda receptors. She says it remains unknown how a single set of antibodies is capable of producing clinical presentations ranging from seizures to psychosis and encephalitis. Nor is it known why these antibodies are made, or if they can cross the blood-brain barrier, a membrane that controls access to the brain. She assumes, though, that they do—preferentially sticking to the hippocampus, which would explain how they affect memory and lead to delusions and hallucinations.

Dr Lennox says a shift in medical thinking is needed to appreciate the damage the immune system can do to the brain. The “million dollar question”, she says, is whether these conditions are treatable. She is now running trials to find out more. Work on patients with immune-driven psychosis suggests that a range of strategies including removing antibodies and taking immunotherapy drugs or steroids can be effective treatments.

Another important discovery is that metabolic disturbances can also affect mental health. The brain is an energy-hungry organ, and metabolic alterations related to energy pathways have been implicated in a diverse range of conditions, including schizophrenia, bipolar disorder, psychosis, eating disorders and major depressive disorder. At Stanford University there is a metabolic psychiatry clinic where patients are treated with diet and lifestyle changes, along with medication. One active area of research at the clinic is the potential benefits of the ketogenic diet, in which carbohydrate intake is limited. This diet forces the body to burn fat for energy, thereby creating chemicals known as ketones which can act as a fuel source for the brain when glucose is in limited supply.

Kirk Nylen, head of neuroscience for Baszucki Group, an American charity that funds brain research, says 13 trials are under way worldwide looking at the effects of metabolic therapies on serious mental illness. Preliminary results have shown a “large group of people responding in an incredibly meaningful way. These are people that have failed drugs, talk therapy, trans-cranial stimulation and maybe electroconvulsive-shock therapy.” He says that he keeps meeting psychiatrists who have come to the metabolic field because of patients whose low-carb diets were followed by huge improvements in mood. Results from randomised controlled trials are expected in the next year or so.

It is not only understanding of the immune and metabolic systems that is improving. Vast quantities of data are now being parsed with unprecedented speed, sometimes with the help of artificial intelligence (ai), to uncover connections previously hidden in plain sight.

Dr Jung, tear down this wall

This could at long last bring biology more centrally into the diagnosis of mental health, potentially leading to more individualised treatments, as well as better ones. In early October 2023, uk Biobank, a biomedical database, published data revealing that people with depressive episodes had significantly higher levels of inflammatory proteins, such as cytokines, in the blood. A study last year also found about a quarter of depressed patients had evidence of low-grade inflammation. This could be useful to know as other work suggests patients with inflammation respond poorly to antidepressants.

illustration: the economist/getty images

More innovation is under way. A number of researchers are exploring different ways of improving the diagnosis of adhd, for example, classifying patients into a number of different subgroups, some of which may have been previously unknown. In three separate announcements in February 2024, different groups announced the discovery of biomarkers that could predict the risks of dementia, autism and psychosis. The search for better diagnostic tools is also likely to be accelerated by the use of ai. One firm, Cognoa, is already using ai to diagnose autism in children by analysing footage of their behaviour—side-stepping the long waits for clinicians. Another outfit, the Quantitative Biosciences Institute (qbi) in California, has used ai to create an entirely new map of the protein-protein interactions (and the molecular networks) involved in autism. This will greatly facilitate further explorations of diagnostic tools and treatments.

All such developments are promising. But many of the field’s problems could be resolved by relaxing the distinctions that exist today between neurology, which studies and treats physical, structural and functional disorders of the brain, and psychiatry, which deals with mental, emotional and behavioural disorders. Dr Lennox finds it extraordinary that the treatment options differ so completely if a patient ends up on a neurology ward or a psychiatric ward. She wants antibody testing to be more routine in Britain when someone presents with a sudden post-viral mental illness that does not get better with standard treatments. Thomas Pollak, a senior clinical lecturer and consultant neuropsychiatrist at King’s College London, says mri scans should probably be used on patients after their first episode of psychosis as, in 5% to 6% of patients, it would change the way they are treated.

This rift between neurology and psychiatry is greater in Anglo-Saxon countries, says Dr Tebartz van Elst. (These are countries including America, Britain, Canada, and New Zealand.) In Germany, psychiatry and neurology are more integrated, with neurologists training in psychiatry, and psychiatrists doing a year of neurology as part of their training. That makes it easier for investigational work to be done. He says he offers most patients with first-time psychosis or other severe psychiatric syndromes an mri of the brain, an electroencephalogram, lab tests for inflammation, and a lumbar puncture to find evidence to support different treatments in some patients. The price tag, around €1,000 ($1,070), is no more than the cost of hospitalising a patient for three or four days, says Dr Tebartz van Elst, so may be good value for money.

What’s the diagnosis?

All this work will one day put psychiatry, and its patients, on a firmer footing. It is already offering validation for some of those for whom the field has failed.

Jessica Huitson is only one of them. Diagnosed and treated too late, she still struggles with her condition and her future is uncertain. Those with me/cfs, a post-infectious condition which comes with a series of cognitive problems such as attention and concentration deficits, were once dismissed as malingering or diagnosed with “yuppie flu”. New work suggests it is associated with both immune and metabolic dysfunction.

Some wonder whether these conditions are the tip of a much larger iceberg. The prize in finding out more will be better patient care and outcomes. Biology is coming, whether psychiatry is ready or not.■

Culture | Gangnam style v gulag style

Why South Korean pop culture rocks and North Korea’s does not

Dictatorship stifles creativity and joy

illustration: the economist/alamy/getty images

Apr 22nd 2024|seoul

North korea’s rulers have always had strong views on art. Kim Il Sung, the regime’s founding despot, said artists should “arouse burning hatred for the enemy through their works”. His son and successor, Kim Jong Il, was such a cinema enthusiast that he kidnapped a South Korean director and his actress ex-wife and forced them to make propaganda films, including a (surprisingly good) revolutionary Godzilla-style monster flick. Kim Jong Un, the current ruler, demands “masterpieces pulsating with the sentiment of the times”, by which he means praise for himself.

The president of South Korea probably has views on the arts, too. But because it is a democracy, its artists do not have to care what he thinks. Which helps explain why South Korean pop culture has spread joy across the world, whereas North Korean “people’s culture” has not.

chart: the economist

On YouTube “Gangnam Style”, a South Korean rap video, has been viewed 5bn times—nearly 60 times as often as “Kiss”, a popular children’s song from the North. On imdb, an online film database, the top South Korean films have hundreds of thousands of ratings; the top northern ones, hardly any. The gulf is so vast that only a logarithmic scale can illustrate it (see charts).

Cultural success translates into cash. Half of the top ten bestselling albums in the world last year were South Korean, according to the International Federation of the Phonographic Industry, a trade group. The country’s pop-culture exports were a whopping $13bn in 2022, up from just under $5bn in 2013. This sum dwarfs North Korea’s official exports of all goods and services combined.

The two Koreas share 5,000 years of history and were separated only after the second world war. So a comparison of their modern pop culture offers a useful insight into the effect of politics on creativity.

The first difference is freedom. In the South, artists are allowed to criticise, satirise and expose uncomfortable truths. “Parasite”, the first foreign film to win Best Picture at the Oscars in 2020, presents a bleak picture of inequality in South Korea (which is not especially bad by rich-country standards). “Squid Game”, a television series, offers a gory and original take on the same theme: cash-strapped contestants in an imaginary game show compete for a huge jackpot—and face death if they lose.

chart: the economist

North Koreans are free only to criticise the South. One northern newspaper called “Parasite” a “masterpiece” for its examination of working-class woes in Seoul. But any art about North Korea must glorify the regime and vilify its enemies. This makes for dreary, predictable fare.

The sole feature film North Korea has released in the past five years is “A Day and a Night”, a tiresome yarn about a humble nurse exposing counter-revolutionaries. Whereas South Korean shows depict complex protagonists facing difficult moral choices, characters in North Korean ones must simply be good (heroic workers) or bad (traitors, spies). Foreign characters are either evil (Americans, Japanese) or implausibly devoted to the Kim family.

Furthermore, all parts must be played by actors who have never displeased the regime. This applies retroactively, which can be awkward. The lead role in “The Taehongdang Party Secretary”, a television drama about a land-reclamation project to grow potatoes, was originally played by Choe Ung Chol, who later fell from grace for unclear reasons. (Rumour has it that he was associated with Kim Jong Un’s uncle, who was executed for treason in 2013 and more or less airbrushed out of history.) When the show was recently rebroadcast, Mr Choe’s face and voice had been digitally removed from every scene and replaced with those of a new actor.

Ideological conformity extends to music, too. “Leader, Just Give Us Your Order!” is a typically bombastic anthem, with a video of soldiers goose-stepping and charging into battle through sheets of fire. Few foreigners enjoy such tracks, and many North Koreans only pretend to. Choi Il-hwa, who escaped from North Korea when she was 14, recalls that she and her friends would “twist the lyrics” of state-approved songs, substituting “love” and “friends” for “glory” and the Kim dynasty, thus risking horrific punishment for a few moments of artistic freedom.

When imitation is and isn’t flattery

The second big difference concerns foreign influence. South Korean artists borrow widely. Film directors such as Park Chan-wook and Bong Joon-ho draw inspiration from Hong Kong gangster movies, Taiwanese neo-realist flicks and American classics. Blackpink, the first female k-pop group to top America’s Billboard Top 200, reimagine American hip-hop and pop in a style that is uniquely their own. On their debut song, “Whistle”, they rap in a mix of English and Korean over skittering trap-style hi-hats. South Korean music firms make 80-95% of their profit from new releases, estimates Suh Bo-kyung of Bernstein Research, so they are always after new sounds to plunder.

North Korean artists, by contrast, must pretend that good ideas come only from North Korea, and especially from the Kim family. The state ideology is juche (self-reliance). Citizens can be sent to the gulag merely for possessing foreign films or music. Kim Jong Il warned that the “corrupt pop music” of foreigners would “stimulate vulgar and unhealthy hedonism”.

Just a few trusted artists are allowed access to foreign material, and typically disguise their borrowing. Thus, many North Korean mobile games are uncredited rip-offs of Western titles like “Angry Birds” and “Bejewelled”, which are unavailable on North Korea’s walled-off internet. Its most famous original game, “Pyongyang Racer”, is an uninspired driving simulation. Its main virtue is verisimilitude: the streets are as empty as those of the capital, where only the rich own cars.

The third difference is capitalism. Pop culture in South Korea is produced by a variety of private companies. These firms are scandal-prone and notorious for micromanaging stars’ lives. But they never forget that fans have choices.

Mindful that their country has just 52m people, they have strived to please a global audience, just as South Korean industrial firms have aimed to export cars and mobile phones. k-pop groups often feature members with different styles, who speak different languages and sometimes come from different countries. Lyrics and videos tend to be less raunchy than their Western equivalents, making them palatable to censors and parents in more of the world. South Korean artists have been swift to embrace new technology. For example, the country is a pioneer of webtoons, a form of comic designed to be scrolled downwards on a phone screen. Koreans now dominate the Japanese webtoon market.

Most important, South Korean artists have grappled with universal themes. The way that television series such as “Squid Game” and “The Glory” (which deals with bullying) explore economic and social injustice resonates with global audiences, who “share similar agonies”, says Jin Dal-yong of Simon Fraser University in Vancouver, Canada.

North Korean pop culture, by contrast, is state-directed and aims to please one man. Since Kim Jong Un’s life experiences are a trifle unusual—he was brought up to be a god-king and can have anyone who annoys or ridicules him put to death—this does not always yield content to which normal people can relate.

On “Grandfather’s Old Tales”, a children’s show on North Korean television, an “imperialist” wolf rips apart a rabbit. (“Baby Shark”, a South Korean children’s song, is less bloody and far more popular.) In “A Sick and Twisted World”, a comic book series, readers are invited to look down on depraved foreign customs, such as eating contests in America.

To be fair, Mr Kim has tried to modernise some of his country’s cultural output. He personally launched Moranbong, a girl band in short skirts, in 2012, around the time when the whole world was dancing to “Gangnam Style”. Moranbong signalled a flirtation with openness: members played covers of Western songs such as “My Way” and the theme from “Rocky”. But since then the group has grown more conservative, ditching their risqué outfits for military garb, belting out songs such as “Fly High, Our Party Flag” and offering videos of nuclear missiles destroying America.

Occasionally, despite the obstacles, North Korean artists produce art that speaks to people. “Comrade Kim Goes Flying”, a film from 2012 about a coalminer who wants to be a trapeze artist, was well-received by foreign film-festival-goers, as was “A Schoolgirl’s Diary”, a coming-of-age tale about a girl struggling to accept her father’s commitment to his work.

Years after she escaped, Ms Choi and her parents were driving, and she put on some North Korean pop, including “Whistle”. Not the Blackpink song, but one with a similar love theme and an unmistakably North Korean lyric: “Today I smiled and told you I’d exceeded production goals three-fold.” Ms Choi’s father grew nostalgic. Ignore the oppressive words; the tunes helped him realise it was ok to miss the place where he was born, even if he has absolutely no desire to return.

North Korea has talent: cartoonists who can draw, composers who can create a tune. It is only their rulers who hold them back. When it comes to hard power, the two Koreas are in the same weight class, thanks to the North’s nuclear weapons. But culturally, the South is a colossus, whereas the North’s soft power is as weak as the rationale for making a communist dictatorship hereditary. ■

Obituary | Prisoner of Hizbullah

Terry Anderson was held by Islamic militants for 2,454 days

The former Marine and AP Beirut bureau chief died on April 21st, aged 76

photograph: ap

Apr 25th 2024

It was only part of his life, he insisted. He had done so much else. Before it, he had been a Marine, joining straight out of high school and seeing combat duty in Vietnam. Then, after studying journalism at Iowa State, he had signed on with the Associated Press. He reported from Japan and South Africa, and then volunteered—volunteered!—for the Beirut desk. There was a civil war in Lebanon, but he found that fascinating, the best job he ever had. There were straightforward good times, too, when he and his colleagues and Madeleine, his beautiful Lebanese fiancée, would gather on the balcony of his seaside apartment, high above the rubbled streets, smoke cigars, sip Scotch and watch the twilight come down over the sea.

Terry Anderson did plenty afterwards, too. He taught journalism at several universities, and set up a foundation to build schools in Vietnam. He became honorary chairman of the Committee to Protect Journalists, and helped homeless veterans. Other ventures didn’t go so well. He had to close two restaurants and a bar, the Blue Gator in Athens, Ohio, where he hoped to indulge his love of blues. His charter-boat business went bust, and his horse farm had to be sold. He ran for the Ohio Senate, but lost. In 2009 he declared bankruptcy. There were three marriages and three divorces. His weight ballooned. He had to admit he was sometimes a jerk. But had he always been one, or had those seven years made him one? If so, they had also made him a hero and a famous man. He tried not to think about them, but they would not go away.

On March 16th 1985 he had been enjoying an early-morning tennis game by the sea, part of his new fitness regime. (Jogging, no smoking, a low-carb diet.) His play absorbed him rather more than the green Mercedes sedan that kept cruising past the court. But as he drove home the car drew up alongside; three gunmen ran from it, pulled his door open and thrust him inside. He was to be a prisoner of these Hizbullah militants for almost seven years. Because he plied his reporter’s trade openly, they took him for a spy.

His own arrogance got him kidnapped, he said. He thought he was safe. His subsequent treatment both infuriated him and reduced him at times to despair. He did not think they would kill him; it was clear they wanted to trade him for their own captured comrades. Nor did they torture him, as they did others. But they were young, pistol-happy and with an enemy in their hands, so they did their brutal best to degrade him. He was kept chained and often blindfolded, with no idea where he was. As the war ebbed and flowed he was moved around Lebanon, strapped to the chassis of a truck or, at times, in a coffin, taped up like a corpse.

Without the blindfold he was still in the near-dark, in basements or small damp cells where he slept on thin, dirty mattresses on concrete floors. Most of the food was inedible. For perhaps a year and a half in total he was kept in solitary confinement, which he could barely endure. As a Christian he tried for hours to pray, but found just a blankness in which he was talking to himself, not God. It was all too easy to believe that the world had forgotten him. (His sister, Peggy Say, was lobbying everyone she could think of to gain his release, and the Reagan administration was embarking on an illegal scheme of selling arms to Iran, Hizbullah’s sponsor, but he knew none of that.) He marked the thousandth day of his captivity by beating his head against his cell wall until it bled.

Several things got him through in the end. One was his Marine training. Another was native stubbornness: he would simply wake up in the morning and do what he had to do, summon the energy from somewhere, day after day after day. Most ordinary people, he reflected, led their lives that way. And nothing about him and his fellow captives was particularly extraordinary.

Their company was the most important factor. His fellow prisoners—principally Brian Keenan, John McCarthy and Tom Sutherland—helped him greatly. When he was with them, they talked as much as they could about anything at all: Keenan, a Belfast boyo, about Irish affairs, Sutherland, an animal geneticist, about agriculture, until he felt ready to start a farm himself. They played poker with a deck he made out of scrap paper, and chess with pieces he crafted from the silver foil round processed cheese. He became their leader, harrying the guards for better food and decent books to read—Dickens’s novels, “Animal Farm” and “The Plague” were on his list—and for news of the world outside, which he was desperate to recover.

Twice he almost did. One day he was allowed to see the sun and eat a hamburger, but it turned out to mean nothing. In 1987 he was given a suit and taken to a carpeted apartment with Marcel Fontaine, then his cellmate. Only Fontaine was released, though he went on wearing that suit for a week, hoping. His own release was not until December 4th 1991, 2,454 days after his capture.

The ap colleagues who bear-hugged him, and his family, who brought flowers, saw a jubilant man with a fine moustache and big glasses, just as in the old days. Those days were what he meant to resume. He would forgive his captors, forget the lost years, and get on with his life. He was not a vindictive person. But he, like his fellow captives, was damaged more than he knew. He found it hard to deal with relationships, decision-making, emotions and crowds. He married Madeleine quickly, but then divorced her. Counselling helped only so far. In 1999 he sued the government of Iran for $100m in damages, and in 2002 he received $26m from frozen Iranian assets. He blew it in seven years.

Was that claim revenge? No, he said, just stating responsibility. He refused to let that part of his life define the larger, slowly improving part. Yet it kept doing so. As the years passed, he was still regularly asked whether he had forgiven his captors. He wasn’t sure. And had he got over it? You would have to ask his ex-wives, he would say ruefully. He didn’t know. He was who he was. ■