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Leaders | Cash for kids

Why paying women to have more babies won’t work

Economies must adapt to baby busts instead

May 23rd 2024

As birth rates plunge, many politicians want to pour money into policies that might lead women to have more babies. Donald Trump has vowed to dish out bonuses if he returns to the White House. In France, where the state already spends 3.5-4% of gdp on family policies each year, Emmanuel Macron wants to “demographically rearm” his country. South Korea is contemplating handouts worth a staggering $70,000 for each baby. Yet all these attempts are likely to fail, because they are built on a misapprehension.

Governments’ concern is understandable. Fertility rates are falling nearly everywhere and the rich world faces a severe shortage of babies. At prevailing birth rates, the average woman in a high-income country today will have just 1.6 children over her lifetime. Every rich country except Israel has a fertility rate beneath the replacement level of 2.1, at which a population is stable without immigration. The decline over the past decade has been faster than demographers expected.

Doomsayers such as Elon Musk warn that these shifts threaten civilisation itself. That is ridiculous, but they will bring profound social and economic changes. A fertility rate of 1.6 means that, without immigration, each generation will be a quarter smaller than the one before it. In 2000 rich countries had 26 over-65-year-olds for every 100 people aged 25-64. By 2050 that is likely to have doubled. The worst-affected places will see even more dramatic change. In South Korea, where the fertility rate is 0.7, the population is projected to fall by 60% by the end of the century.

The decision to have children is a personal one and should stay that way. But governments need to pay heed to rapid demographic shifts. Ageing and shrinking societies will probably lose dynamism and military might. They will certainly face a budgetary nightmare, as taxpayers struggle to finance the pensions and health care of legions of oldies.

Many pro-natalist policies come with effects that are valuable in themselves. Handouts for poor parents reduce child poverty, for instance, and mothers who can afford child care are more likely to work. However, governments are wrong to think it is within their power to boost fertility rates. For one thing, such policies are founded on a false diagnosis of what has so far caused demographic decline. For another, they could cost more than the problems they are designed to solve.

One common assumption is that falling fertility rates stem from professional women putting off having children. The notion that they run out of time to have as many babies as they wish before their childbearing years draw to a close explains why policies tend to focus on offering tax breaks and subsidised child care. That way, it is argued, women do not have to choose between their family and their career.

That is not the main story. University-educated women are indeed having children later in life, but only a little. In America their average age at the birth of their first child has risen from 28 in 2000 to 30 now. These women are having roughly the same number of children as their peers did a generation ago. This is a little below what they say is their ideal family size, but the gap is no different from what it used to be.

Instead, the bulk of the decline in the fertility rate in rich countries is among younger, poorer women who are delaying when they start to have children, and who therefore have fewer overall. More than half the drop in America’s total fertility rate since 1990 is caused by a collapse in births among women under 19. That is partly because more of them are going to college. But even those who leave education after high school are having children later. In 1994 the average age of a first-time mother without a university degree was 20. Today, about two-thirds of women without degrees in their 20s are yet to have their first child.

Some politicians may seize on this to aim baby-boosting policies at very young women. They may be tempted, too, by evidence that poorer women respond more to financial incentives. But focusing on young and poor women as a group would be bad for them and for society. Teenage pregnancies are linked to poverty and ill health for both mother and child. Targeted incentives would roll back decades of efforts to curb unwanted teenage pregnancy and encourage women into study and work. Those efforts, along with programmes to enhance gender equality, rank among the greatest public-policy triumphs of the postwar era.

Some illiberal governments, such as those of Hungary and Russia, may choose to ignore this progress. Yet they face a practical problem, because government incentives do not seem to bring lots of extra babies even as spending mounts. Sweden offers an extraordinarily generous child-care programme, but its total fertility rate is still only 1.7. Vast amounts of money are needed to encourage each extra baby. And handouts tend to go to all babies, including those who would have been born anyway. As a result, schemes in Poland and France cost $1m-2m per extra birth. Only a tiny number of citizens are productive enough to generate fiscal benefits to offset that kind of money. Due to low social mobility only 8% of American children born to parents without bachelor’s degrees end up getting such a degree themselves.

Older, but wiser

What, then, can governments do? High-skilled immigration can plug fiscal gaps, but not indefinitely, given that fertility is falling globally. Most economies will therefore have to adapt to social change, and it falls to governments to smooth the way. Welfare states will need rethinking: older people will have to work later in life, for instance, to cut the burden on the public purse. The invention and adoption of new technologies will need to be encouraged. These could make the demographic transition easier by unleashing economy-wide productivity growth or helping care for the old. New household technologies may help parents, rather as dishwashers and washing machines did in the mid-20th century. Baby-boosting policies, by comparison, are a costly and socially retrograde mistake. ■

Asia | Bangsamoro’s moment

In the Philippines a decades-long conflict nears its endgame

Peace in Mindanao matters for regional security

photograph: xyza cruz bacani/redux/eyevine

May 23rd 2024|cotabato and manila

Ahod “al haj murad” ebrahim spent most of his life waging war against the Philippine government in the jungles of Mindanao, in the country’s south. These days the septuagenarian rebel is behind a desk in Cotabato, capital of the fledgling Bangsamoro Autonomous Region in Muslim Mindanao (barmm). “As revolutionaries we dreamed of having our own government, and now we have it,” he marvels.

The guerrilla war between Muslim separatists and the Philippine government is one of Asia’s most protracted conflicts. Its resolution is entering a final, fraught phase. In 2014 the Philippine government signed a peace agreement with Mr Ebrahim’s Moro Islamic Liberation Front (milf), then the main rebel group, ending fighting that had killed at least 120,000 people since 1970. The accord mandated the creation of the barmm as an autonomous region of the Philippines. Its first parliamentary elections are due in 2025.

Lasting calm in Bangsamoro is needed if its nearly 5m residents—and the Philippines as a whole—are to thrive. But it also matters for the wider region. The conflict, along with a separate struggle against communist insurgents, has long forced the Philippines’ armed forces (afp) to focus on security threats from within the country. Nearly 40% of afp brigades are in or near Mindanao, reckons Georgi Engelbrecht of the International Crisis Group, a think-tank with headquarters in Brussels. Ground troops have had priority, at the expense of the navy and air force.

Stability in Mindanao would free the afp to focus more on Chinese maritime pressure around disputed shoals in the South China Sea, which the current president, Ferdinand “Bongbong” Marcos, sees as his country’s biggest challenge. Peaceful conditions in the barmm would mean that the afp “can be redeployed to focus on external threats”, says David Diciano, of the government agency overseeing the peace process. In the short term, that may mean shifting maritime and surveillance assets from Mindanao to the South China Sea. In the long run, it could hasten the switch to modern, less ground-heavy armed forces.

map: the economist

The conflict had also been an irritant in relations with the Muslim world, in particular neighbours such as Malaysia and Indonesia. The ceasefire has already helped improve ties. Investors from the Gulf have begun looking more closely at the Philippines; a free-trade deal with the United Arab Emirates is nearing completion.

The roots of Bangsamoro’s strife stretch back centuries. The region is home to the Moro, a Muslim people who have chafed at outside rule. Mindanao was integrated into the newly independent Philippines after the second world war, but in the 1960s the government of the dictator Ferdinand Marcos (father of the current president) encouraged Catholic settlement, spurring Islamist revolutionaries to take up arms for independence.

As the seminal vote in Bangsamoro approaches, there is much to be celebrated, not least that the ceasefire with the milf still holds. Life in Bangsamoro has improved markedly as a result. The poverty rate in the region fell by 20 percentage points between 2018 and 2023.

A new barmm government has been created. Mr Ebrahim lists new laws and regulations drafted and passed, including codes for the civil service, elections, education and local governance. Japan, which helped broker the peace agreement, has played a vital role in building up the barmm. At a seminar hosted in Tokyo last year by the Japan International Co-operation Agency (jica), Japan’s overseas-development body, officials from Bangsamoro quizzed Japanese academics on the mechanics of voting, lawmaking and political financing in parliamentary democracies.

A generation of civilian leaders is on the rise. The mayor of Cotabato, Mohammad “Bruce” Matabalao, the son of a rebel fighter, is an international-development specialist. His style is technocratic—trim grey suit, Apple watch and frameless glasses—and he speaks of bringing citizens free Wi-Fi and app-based public services.

This is a big change from a decade ago, when security was dire and electricity intermittent, even in the capital. “No one was on the streets after 6pm,” notes Ochiai Naoyuki, a jica official with long experience in the region. Nowadays the city is bustling after dark. “We want to help build the community in a modern way, to show that conflict is in Bangsamoro’s past,” says Yusop “Yed” Dimaporo, an entrepreneur with several cafés in Cotabato.

In rural milf strongholds, former fighters seek new lives. Some have joined the security forces: last month Mr Marcos watched the graduation of the first class of former insurgents in the Philippine police. At Camp Darapanan, a milf jungle base south of Cotabato, others have taken up farming. “Before we thought about how to win battles, now we think about how to develop our economy,” says a former commander. His brigade commanders now run co-operative farms.

Yet the peace process is incomplete, leading some politicians and civil-society groups to suggest delaying elections and extending the term of the transitional government again (the covid-19 pandemic caused the first delay). The disarmament and reintegration of milf fighters into civilian life lags behind schedule: only 26,000 of 40,000 combatants have completed the “normalisation” process. The central government wants the final tranche disarmed before the elections, whereas the milf wants the government first to fulfil promises of economic aid. The milf also looks warily at other local clans, many of which have amassed large private armies. “What will happen to us if we give up our arms but they don’t?” says Akmad “Toks” Brahim, a senior milf leader.

For those who have given up the gun, reintegration into civilian life can be hard. “The jungle is easy: you just have to use this,” Mr Brahim quips, miming a gun with his thumb and index finger. “But in the office you have to use this,” he adds, tapping his head. Bangsamoro remains the poorest region in the Philippines. The Philippine police have welcomed just a handful of milf men into their ranks. Cash assistance to former fighters is meagre and vocational training is often divorced from local realities. One foreign aid worker recalls a former fighter who was assigned to a course in baking, given an electric oven and sent home to a village without electricity.

Large-scale clashes between the milf and the government have ceased and are unlikely to restart, but a different kind of violence is surging. Private firearms are widespread. Power struggles between local clans are spilling into shootings and armed stand-offs. Radical jihadist groups that reject the peace deal are much weakened, but remain active and have sought to exploit the moment: in December a group affiliated with Islamic State bombed a church in Marawi, a city that militants took over for five months in 2017, killing four and injuring dozens more.

No wonder, then, that the afp does not feel confident enough to leave Bangsamoro’s security in the hands of the police and local forces alone. “At this stage it’s premature to leave, but the problem is that tensions outside are also rising,” Mr Engelbrecht notes. Parallel crises in the South China Sea and Mindanao would be the Philippines’ biggest nightmare. ■

China | A tale of two Chinas

Even Xi Jinping is struggling to fix regional inequality

Will China’s vast hinterland ever catch up with its wealthy coast?

photograph: panos

May 21st 2024|tongwei, gansu province

To understand what China’s leaders care about, look at where they travel. Earlier this month Li Qiang, the prime minister, spent three days in Xinjiang, a poor area in western China where he ordered local authorities to boost incomes and employment. At the same time Mr Li’s deputy, Ding Xuexiang, went to Shenyang, a city in China’s north-eastern rustbelt. Mr Ding called for the region’s “revitalisation”. Two weeks before all that, the supreme leader, Xi Jinping, presided over a symposium in the city of Chongqing where he heralded a “new chapter” in the development of China’s western region.

China’s leaders are trying to fix a problem that has dogged the country for decades: how to spread wealth more evenly. gdp per person in the west and north-east, which make up most of China’s land mass and hold a third of its population, is 70,870 yuan ($9,800) and 60,400 yuan, respectively. Along the coast it is 124,800 yuan. China’s richest provincial-level unit, Beijing, is four times wealthier than its poorest, Gansu (see map). And the richest areas are pulling further ahead.

China is hardly the only country struggling with regional inequality. India’s economy is driven by its relatively rich southern and western regions, which leave parts of the north and east in the dust. British politicians talk of “levelling up” neglected areas. China’s leaders, though, have unique concerns. They worry about the security and stability of the hinterland, which contains most of China’s natural resources. And they are embarrassed that such gaping inequality exists in their socialist country. Mr Xi, after all, has promised to create a more egalitarian society under the banner of “common prosperity”.

Today’s uneven picture dates back to the reforms of Deng Xiaoping in the late 1970s. China’s former leader set up special economic zones along the coast that were free to experiment with market activity. The policy was a resounding success and expanded to other parts of the coast. “Let some people and some regions get rich first,” said Deng. He promised that the rest of China would catch up eventually.

As the years went on, the coast became prosperous by making cheap goods and shipping them abroad. But China’s hinterland remained poor. Some worried that the growing disparity could lead to unrest. One influential scholar, Hu Angang, wrote that China might go the way of Yugoslavia, a socialist country that had broken up in the early 1990s. So in 2000 China launched the “go west” strategy to help its western provinces. In 2003 a similar plan was unveiled to revitalise the north-east.

At the heart of the campaigns were big infrastructure projects. Since the go-west strategy was introduced, some 40,000km of railways have been laid in western China, more than the total length of track in Japan. Officials also built roads, bridges and airports. Many of these efforts were tied to the Belt and Road Initiative, an ambitious attempt to recreate the ancient Silk Road trade route that linked China with Central Asia and Europe.

Officials have given inland areas cash as well as concrete. Whereas coastal provinces largely rely on taxes they raise themselves, those in the west and north-east are showered with funds from the central government. Last year they received 5trn yuan, making up over half of the budget in some provinces. Wealthy cities have been paired with poor inland ones and told to assist them directly. For example, some food-processing companies in Shanghai are pressed to buy agricultural goods from Zunyi, 1,700km to the west.

For a time these policies helped to bridge the gap between regions. In the 15 years after the go-west plan was put in place, gdp per person in western provinces rose from just 35% of coastal levels to 54%. In the north-east, it rose from 62% to 71%. Abject poverty is now rare in the hinterlands. But in the past ten years regional inequality has remained sticky—or got worse. Today residents of western provinces earn about 57% as much as those on the coast. North-easterners earn 48% as much. Many locals seem to have given up on the north-east. Its population shrank by 10% between 2010 and 2020 because of low birth rates and emigration.

Provinces in the landlocked interior cannot trade their way to riches as easily as those on the coast did. China’s poor neighbours—such as Mongolia, Kazakhstan and Kyrgyzstan—have relatively little demand for its goods. For all the talk of reviving the Silk Road, it is still cheaper to send products to Europe by container ship than by train. So most exporters would rather invest in factories near ports.

The situation inside China does not help. Tongwei, a dusty county in Gansu province, has had a high-speed railway station linking it to the coast since 2017. But the railway does not bring in new business, explains Li Hongwei, who sells refrigerators and televisions in the county seat. Instead, he says, young people use it to travel to find jobs in eastern cities. A study from 2020 backs him up. Researchers at the Nanjing University of Finance and Economics and the University of Cambridge looked at 285 cities with high-speed rail connections in China. It found that, while big cities benefited because the railways brought in more workers, small cities saw “insignificant” economic effects.

That is not to say that China’s spending on infrastructure has been a complete waste. The country’s inland areas were in need of public investment when the go-west policy was introduced. But the government has also ignored market signals, squandering money on vanity projects. Some 200km north-west of Tongwei, city planners have spent over a decade constructing Lanzhou New Area. Its skyscrapers and factories are built on bulldozed hills and supplied with water from three reservoirs dug for the purpose. It features a replica of the Parthenon. Officials insist people are flocking to the city. But many flats are still empty, say locals.

Put your Han up

All this worries China’s leaders, who—like over 90% of the population—belong to the Han ethnic group. Most members of ethnic-minority groups live in the country’s hinterland. Officials doubt their loyalty and fear they may try to secede. Economic development, the officials reckon, will keep them happy and bind them to Beijing. But the government’s cultural and security policies often alienate minority groups. And even its development efforts risk generating more anger than gratitude. For example, nomads on the Tibetan plateau have been forcibly settled in villages. Mongols have been turfed off northern grasslands to make way for mines. And the government has encouraged Han citizens to migrate to the interior. That’s good for development, but one suspected aim is to dilute minority populations.

A clear goal is to make China’s 22,000km of land borders more secure. To this end the government has encouraged people to settle in areas around the borders, which are generally poor. Many of the families living in these places were exempted from the “one-child policy” (which was rolled back in 2016) and given cash subsidies. Border towns have been ordered to build more industrial parks, tourist attractions and libraries.

China’s inland areas are important not just because of the risks they pose, but because of the riches they hold. Most of the country’s rare-earth elements are dug up in the north-east. Oil and coal is found in the west. Parts of that region also offer strong winds, dependable sunlight and swift rivers that can generate power. China has built the world’s biggest network of ultra-high-voltage energy lines to transport electricity from the west to the east.

But all this natural wealth may actually be holding inland regions back. Some places are suffering from a kind of “resource curse”, says Andrew Batson of Gavekal Dragonomics, a research firm. Their economies have become so dependent on digging things up that too little capital and labour have flowed to higher-value sectors, such as manufacturing or services. Part of the problem is that the state-owned firms leading the development push tend to focus on resource-intensive industries.

Experts suggest doing more to tempt private firms to invest in the west and north-east: not always easy, because local governments there tend to be more bureaucratic and corrupt than those on the coast. China could also focus less on hard infrastructure and more on the softer sort. Government spending per high-school student in the west is just 60% of that in the east. Of China’s top 100 universities, only 16 are in the west. The predictable result is less dynamism. China’s eastern provinces and cities have five times as many high-tech firms as the hinterland.

The risk to Mr Xi and the Communist Party is that as economic growth slows, poor areas will be hit hardest and regional inequality will rise even faster. So the government has continued to pour resources into western and north-eastern provinces. Two decades ago such efforts were compared to “making water flow uphill”, according to the memoir of a former official. That has not discouraged party leaders, says David Goodman of the University of Sydney. “Communist parties thrive on the belief they can change nature.” ■

United States | The FAFSA foul-up

Time is running out to fix America’s student-aid mess

The risk of a sharp drop in college enrolment is rising

photograph: getty images

May 21st 2024

By early may, people heading to college in America have usually settled on an institution and sent the first of several large cheques. This year, a government cock-up has left admissions in a mess. For months youngsters have been struggling to apply for student loans, Pell grants and other financial aid—the result of a botched effort to revamp the system through which these are doled out. The question is no longer whether this will drive down the number of people starting degree courses this autumn, but how sharp the drop will be.

At the heart of the problem lie changes to the Free Application for Federal Student Aid, or fafsa—the web form that must be completed to qualify for most federal, state and institutional assistance. No tears were shed when, in 2020, Congress blessed plans to simplify it. Its 100 or so questions have long put off low-income students in two minds about higher education, and exasperated everyone else. Yet the new version did not limp online until months after this year’s college-application season had started. And it was riddled with bugs.

Colleges have continued to hand out places. But applicants have faced long delays in finding out if they will receive enough aid to afford their courses. Institutions that would usually require applicants to accept offers by May 1st have had to push their deadlines back. The bigger worry is that, frustrated by flaws in fafsa, many youngsters are abandoning plans for college. By May 10th the number of high-school seniors who had completed an application for aid was 17% lower than at the same point last year.

First-year enrolments could end up anywhere between 2% and 10% lower than would have been the case without the screw-up, reckons Katharine Meyer of the Brookings Institution, a think-tank. Her “reasonable worst-case scenario” would see a fall as bad as the slump in the first year of the pandemic, which separated high-school seniors from college counsellors just as it threw their study plans into chaos. MorraLee Keller of the National College Attainment Network, an ngo, notes that fafsa hassles could also push up dropouts among existing students, who must fill out a form each year that they wish to take out a loan or bank a grant.

chart: the economist

College-going rates in America were already moving backwards: between 2018 and 2021 the share of high-schoolers proceeding straight into higher education fell by seven percentage points (see chart). The fafsa foul-up has marred one of the last years in which demographic trends are in colleges’ favour. The total number of 18-year-olds in America will soon start to decline. Missing enrolment targets could be perilous for small private colleges, the least famous of which operate close to the wire. Past experience suggests that community colleges will see the biggest falls.

Months of fiddles have improved the new fafsa system. But the window for warding off bad outcomes is closing: once America’s schools shut for the summer it gets harder to nudge those who are on the fence about higher education to fill out the form. Ashley Logan of I Know I Can, which promotes college access in Ohio, reels off activities her outfit hopes will push up the number of local youngsters who apply for aid—some of this funded with extra cash from the government. But she is “braced” for many to fall through the cracks. ■

Middle East and Africa | The battle for control of Iran

The death of the president changes the power dynamic in Iran

The supreme leader’s son may be the beneficiary

photograph: ap

May 21st 2024

Had the supreme leader, Ayatollah Ali Khamenei, looked a touch less steely when delivering his eulogy, more Iranians might have believed the demise of his president was just an accident. Even Mr Khamenei’s officials contrasted his perfunctory manner towards the deaths of Ebrahim Raisi and Hossein Amir-Abdollahian, Iran’s foreign minister, in a helicopter crash on May 19th with the supreme leader’s uncontrollable sobbing after the assassination of his top commander, Qassem Suleimani, four years ago.

The rescue efforts compounded Iranians’ suspicions. First responders in the Red Crescent were stunned that rescue workers had to proceed on foot. Nor could they believe the delays they faced reaching the site. Strange, too, thought many in Iran, that the two helicopters escorting the president returned safely to Tabriz. The initial reports spoke of fog and “a hard landing”. But the helicopter, according to the rescue team, had exploded. Mr Raisi’s chief of staff, who was part of the convoy, claimed that the skies had been clear.

Mr Khamenei has every interest in downplaying this crisis. He is old and obsessed with who will succeed him. Iran’s population of almost 90m is exhausted by the many and ever more frequent shocks that disrupt their country. To prove his left hand is still steady at the wheel (his right was paralysed in an assassination attempt in the 1980s), Mr Khamenei swiftly named a caretaker president and a new foreign minister. Shops stayed open. The currency briefly tumbled but then recovered. “They’re showing it’s business as usual,” says a university lecturer in Tehran.

Mr Khamenei has a history of falling out with his presidents, so conspiracy theories of an inside job were inevitable. Even so, the thinly disguised relief of some around him has surprised Iranians. Of all Mr Khamenei’s five presidents, Mr Raisi was considered the most loyal. Many had tipped him to be the next supreme leader.

For decades Mr Khamenei had groomed him as the yes-man at the heart of his deep state. He was an obedient politician, cleric and sayyid, or descendant of the Prophet. Critically, he had no son to set up a rival dynasty. And his lack of charisma and nous seemed to lessen any threat to the power of Mr Khamenei and his son, Mojtaba, who manages his father’s powerful bayt, or household. “When you went to see [Mr Raisi], he’d talk just about whether you’d had lunch,” says an exiled Iranian who knew him. The Khameneis helped Mr Raisi rise through the ranks of the judiciary and the rich clerical foundations. In 2021 they engineered the presidential election to ensure he would win.

It did not go to plan. To Mojtaba, another contender for the succession, it seemed as if Mr Raisi was getting ahead of himself. He called himself ayatollah, one of the requirements for becoming supreme leader, though he lacked the qualifications. (Mr Khamenei pointedly dropped the title in his eulogy.) He enjoyed the backing of his father-in-law, the most powerful cleric in eastern Iran. And he even began acquiring an international profile. Such was his confidence, he had a public spat with Mohammed Bagher Qalibaf, the long-standing speaker of parliament and a close relative of Mr Khamenei with business ties to the bayt. As they say of someone rising in stature in Persian, “He had grown a tail.”

Some who know Mojtaba say he began to worry that Mr Raisi could be building a camp of malcontents within the establishment. Clerics muttered against the Khameneis for plotting to turn a revolution against a monarchy into another dynasty. Nationalist generals in the Islamic Revolutionary Guard Corps complained of wasting their energy enforcing the wearing of the veil. And powerful families like the Rafsanjanis, who had lost power struggles with Mr Khamenei but retained much of their wealth, harboured dreams of revenge. “The winner from Raisi’s death is Mojtaba,” says a former presidential adviser.

Mr Raisi’s departure makes it easier to nudge things in Mojtaba’s favour. On May 21st Mr Khamenei reshuffled the Assembly of Experts, the body that selects the supreme leader where Mr Raisi had played a prominent role. In line with the constitution, the regime has also set the date for a new presidential election on June 28th. Once again, Mr Khamenei will look to the Guardian Council, the body that vets electoral candidates, to weed out undesirables. Possible candidates include the new caretaker president, Mohammad Mokhber, a loyal bureaucrat who has managed the bayt’s huge business empires, or Saeed Jalili, a hardline conservative and former presidential hopeful. If their economic mismanagement and zealotry, respectively, reduce the turnout, so much the better. For Mr Khamenei, the elected institutions should be subject to the theocratic power of his wilayat al-faqih, or rule of the jurist.

Harder to secure will be any popular mandate for Mojtaba’s assumption of power. Such is the disaffection with the regime that many Iranians cheered their president’s demise. “Exit pursued by bear,” a wag with a knowledge of Shakespeare posted online, hoping wild animals would find him before the emergency teams did.

Perhaps the most obvious trajectory for Iran now is that a new president is installed who is loyal to the military hardliners who underwrite the regime, and that Mojtaba Khamenei succeeds his father as the supreme leader. Without popular support or a powerful internal constituency of his own, Mojtaba would be beholden to those hardliners. Isolated from global markets, the regime and the economy it controls would continue to decay. Mounting popular dissatisfaction and internal struggles for power could make Iran more repressive and belligerent, with alarming consequences for its citizens and neighbours.

There is, however, another path. Perhaps Mojtaba could set Iran’s modernisation in motion. The 55-year-old scion, says a former official who knows him well, is captivated by the model of Muhammad bin Salman, the Saudi crown prince. Like him, he might relax Iran’s religious rules, release political prisoners and seek a new relationship with America and perhaps even Israel. Were this their reward, he says, most Iranians would accept his succession.

It is an alluring idea, but, unlike Saudi Arabia, Iran has experienced over a century of struggle against dictatorship. As the shah, an earlier secular modernising autocrat, learnt to his peril in 1979, absolute rule of a country as complex as Iran can be any supreme leader’s undoing. ■

Europe | European Parliament elections

Le Pen’s hard right looks set to crush Macron’s centrists

The vote in France spells trouble for the president

photograph: ap

May 22nd 2024|flixecourt

Market day, and more people are queuing to buy lottery tickets at the Café du Centre than freshly dug carrots and spinach at the farm stall. “People here watch their budgets,” says a fresh-produce seller: “They prefer to shop at the discount store.” Once, this red-brick northern town of some 3,000 people thrived on the back of a big jute-weaving and textiles factory, opened in 1857. Today, Flixecourt has a poverty rate of 19%, nearly five points above the national average. Squeezed finances and disillusion are pushing voters to the extremes. On a recent weekend, ahead of elections on June 9th to the European Parliament, the only two candidates whose posters were visible in the town were Jordan Bardella and Marion Maréchal, rivals from the nationalist hard right.

If France is a test case for whether Europe’s political centre can hold against the forces of nationalism and populism, Flixecourt captures the dynamics shaping that choice. For over half a century voters there have entrusted their town hall to the Communist Party. These days Flixecourt is under strain, but not deserted. Traffic on its main street rumbles past two boulangeries and a Turkish kebab joint. Net curtains hang neatly in the windows of its rows of little terraced houses. The town boasts an indoor synthetic ice rink, charging €2 ($2.17) a session, and organised a recent rally for baton-twirling majorettes. A huge modern logistics warehouse by the motorway just outside the town has jobs to fill. “Unemployment is less of a problem than it used to be,” says Patrick Gaillard, the town’s Communist mayor. “Those who really want a job can find one.”

Yet next month, says the mayor, the town is likely to vote overwhelmingly for the populist right. Already, at the presidential election in 2022, Marine Le Pen of the National Rally (rn) topped first-round voting in Flixecourt; 65% of voters backed her in the run-off round against Emmanuel Macron, the centrist president. Last year his government spent over €22bn to cap energy prices and limit inflation. Locals, however, think that Mr Macron “doesn’t look after their daily concerns”, says the mayor. The vote, he says, is a chance to protest by backing the far right: “Voters are never disappointed, because the party has never been in power.”

National polls suggest the French will vote in line with Flixecourt. Mr Bardella, the 28-year-old head of Ms Le Pen’s party list, enjoys a poll average of a remarkable 33%, twice that of Mr Macron’s candidate, Valérie Hayer. An official from the president’s alliance, Ensemble, says it would do well if it scores in the high teens, a miserably low ambition. Ms Hayer has tried to campaign on matters European, exposing the nationalists’ inconsistencies. The clean-shaven and unflappable Mr Bardella, though, is turning the vote into a referendum on an unpopular president, whom he accuses of “immigrationism”, weak policing and disdain. He plunders the populist playbook. There is “no corner” of the country, claims Mr Bardella, “where the French are sheltered from violence”. Mr Macron, he says, “weakens everything he touches”.

chart: the economist

Flixecourt suggests, though, that this vote may be about more than protest. Mr Bardella has become a household name, embodying the rn’s detoxification. This week it said it would no longer sit in the European Parliament with its German counterpart, the Alternative for Germany, now considered too extreme. An astonishing 43% of 18-24-year-olds say they will vote for Mr Bardella in June. His TikTok videos, in which he eats hot-dogs or takes selfies, regularly get over 1m views. “He looks like a nice guy,” says a Flixecourt voter. “People here are no longer ashamed of saying that they will vote for Bardella or Le Pen,” says another.

In the longer run, the normalisation of the rn poses serious questions about the political centre’s ability to resist its ascent. Mr Macron cannot run for a third consecutive term, in 2027, and no clear successor is in sight. In the short run, a crushing result for Ensemble will put a fresh spring in the opposition’s step. This goes for Ms Le Pen’s rn, but also for the Socialists, whose candidate, Raphaël Glucksmann, is hard on Mr Macron’s heels from the left.

Mr Macron will try to rise above a humiliating result. Although Mr Bardella will doubtless call for fresh legislative elections, there is no constitutional reason for the president to oblige. His party would lose seats if he dissolved the National Assembly, and Ms Le Pen’s would be set to gain them. Nor should a poor European result necessarily affect the running of national affairs. In January Mr Macron appointed a young new prime minister, Gabriel Attal, who has an agenda of reforms planned for the rest of the year.

Yet Mr Macron’s fundamental problem remains: he presides over a minority government. It has periodically been obliged to make use of a special constitutional provision, known as Article 49.3, to force through its legislation, including raising the pension age last year. Each time, however, the use of this expedient puts the government’s survival on the line, since opposition parties can then table a no-confidence motion. Since 2022, when Mr Macron was re-elected, his government has survived 28 such motions, thanks to a fragmented opposition. But in one of them, over the pension reform, the margin was only nine votes, in a chamber of 577.

Mr Macron does not have many good options. He may hope to continue muddling through, and risk more no-confidence votes if the government uses Article 49.3, for instance to pass its next budget. Were he to lose one, he might re-appoint Mr Attal anyway, which he is constitutionally entitled to do, and hope for the best. Or Mr Macron may try again to forge a coalition with the centre-right Republicans, though the party has resisted such attempts in the past. In short, if the European result is as bad as the polls suggest, Mr Macron may seek to brush it off as a mid-term bump. But the new political dynamics would put his minority government under unprecedented pressure. ■

Business | Bartleby

The Economist’s agony uncle returns

Pets, drugs and schedule send: another postbag for Max Flannel

illustration: paul blow

May 23rd 2024

Dear max, My employer has a policy of allowing dogs in the office. Almost everyone there seems to think this is tremendous but I don’t like the things. (To be honest, I don’t like people either but I accept that they should be allowed to come to the workplace.) Is there anything I can do, or do I have to grin and bear it?

You are not alone: I probably get more letters about this topic than any other. It’s very hard to admit to disliking dogs, so lots of people end up suffering them in silence. You could talk to hr about ending the policy, but would risk being known to all your colleagues as the psychopath who hates puppies. It’s much better to try to subvert the system. My advice is to say that you need to bring another type of much less acceptable animal to the office. If pressed, use the word “wellness” and hint at discrimination if they do not seem keen. With luck they will reach the conclusion that it is best simply to ban all pets.

My boss is very enthusiastic about the idea of using psychedelics in the workplace. She claims it is a way of unlocking creativity and bringing people together. She wants our team to go on a group ketamine retreat and keeps sending emails with subject lines like “Let’s ket it on!” Should I go?

No. There is very little evidence that the use of drugs in the workplace genuinely increases creativity—and lots of experience to suggest that they make you do things you later greatly regret. If you want to ingest psychedelics, my advice is to do it at home. If you want to be more creative in your thinking, go for a long walk. And if you want to bond with your colleagues, do great work together. Tell her you are on other medication and cannot participate.

I have noticed that about five minutes before the end of one of my regular weekly meetings, the person chairing it will say, “I’m conscious of time”. Aren’t we all?

I doubt it’s meant as a boast. Even if it is, try to be generous-minded. Your meetings are probably more likely to end when they should.

A colleague of mine has started bringing a skunk to work. She claims that it is her comfort skunk. I asked hr whether this was really allowed and they started muttering some twaddle about dogs and discrimination; they also said that the skunk’s scent glands had been removed. I don’t mind having animals in the office but this is ridiculous. Lots of my colleagues agree. What can I do?

This is ringing a bell. My advice would be to go back to hr and see if they would be prepared to ban all pets. If that doesn’t work, you and your colleagues could try bringing in other animals. By the time the office resembles that scene in “Ace Ventura”, they will have to see sense.

My manager often says that “we need to go to the balcony”. Everyone else nods, but then they don’t actually go anywhere. As far as I can see our office doesn’t even have a balcony. In a meeting the other week one person said “this is a two-finger point” and the person running the meeting replied “let’s double-click on that later”. I have no idea what is going on half the time. What can I do to keep up?

Just hang in there. Incomprehension is an enormous part of office life. You will eventually develop a sense of what phrases like this mean. In fact, you will eventually start saying this kind of rubbish yourself and someone else will write to me about you.

In order not to interrupt people’s weekends and evenings, the managers at our company are encouraged to schedule non-urgent emails to arrive during work hours. The result is that at 9am on a Monday, I get bombarded by 50 messages that all have to be answered quickly. Now my weekends are being totally ruined by the thought of all the emails that are being lined up for me. Can you help?

“Schedule send” is a good thing but it moves work around rather than reducing it. So unless people stop working at the weekends altogether, their efforts will eventually affect you. Your only real option is to tell people what time you want the assault to begin.

I wrote to you before about my boss’s plans to have a ketamine retreat. For the past few weeks I have been having the weirdest hallucinations. I regularly imagine there is a skunk in the lift. Yesterday I could swear a man came to our staff meeting with a grim expression‎ and a Vietnamese pot-bellied pig. Is it possible that she is drugging us without our permission?

I have good reason to believe that you are not hallucinating and that something else explains what you are seeing. Please try not to worry about it. And if anyone from a different office ever has problems they want to share with me, do feel free to write. Till later in the year. MF

Business | Schumpeter

Can anyone save the world’s most important diamond company?

De Beers is in peril

illustration: brett ryder

May 22nd 2024

In february 1908 Joseph Asscher, a master cutter of diamonds, cleaved the Cullinan at his workshop in Amsterdam. So tough was the South African diamond, the largest ever found, that Mr Asscher’s first attempt split his blade instead. The diamond industry is once again gripped by a nail-biting separation. This time, its most important company is facing the chop.

After rejecting a takeover proposal from bhp, the world’s biggest miner, Anglo American announced a radical restructuring of its business on May 14th. As well as selling its coal, nickel and platinum operations, the British mining firm will shed its 85% stake in De Beers (Botswana, where its richest diamond mines are located, owns the rest). bhp has until May 29th to make a new offer for Anglo. Whatever happens, De Beers’s change of ownership will mark the end of one of its most enduring relationships—Ernest Oppenheimer, Anglo American’s founder, joined the company’s board in 1926. For the industry, it signals the biggest shake-up since 2000, when De Beers abandoned its policy of trying to control diamond prices by managing supply.

Anglo could hardly have chosen a worse time to sell its diamond operation. De Beers’s revenue fell by a third last year and Anglo marked down the value of its investment by $1.6bn, to $7.6bn. Sales at its April “sight”—an event where De Beers offloads its rough diamonds—were $445m, down 18% year on year. The company blames weak consumer demand in America and China. More worrying still is the threat from man-made diamonds. Lab-grown stones, made using a hot, gassy process called “chemical vapour deposition”, are essentially identical to the ones De Beers pulls from the ground—but cost around a fifth as much.

These brilliant creations are now bulldozing parts of the diamond business. According to Paul Zimnisky, an industry analyst, they will account for a fifth of the value of diamond jewellery sales globally this year. Consumers who many in the industry expected to remain loyal to the mystique of a billion-year-old diamond are increasingly turning to the lab-grown variety. Edahn Golan, another analyst, says that in America nearly half of the diamond engagement rings sold this year contain a lab-grown stone. Pandora, a big Danish jeweller, saw sales of lab-grown sparklers soar by 87%, year on year, during the first quarter.

How scared should potential buyers of De Beers be? It is tempting to see the firm as a relic, soon to be crushed in an avalanche of innovative man-made rocks. Lightbox, the lab-grown operation it launched in 2018, has done little to dull the threat. Pessimists, however, risk applying an excess of rationality to the irrational business of selling engagement rings to loved-up blokes. To save itself De Beers must convince them to distinguish between two indistinguishable diamonds. That may prove even harder than persuading them to hand over thousands of dollars for a stone in the first place. But it is not impossible.

A growing wedge in price between natural and lab-grown stones will do some of the work. That gap will probably widen further as Chinese and Indian newcomers compete to produce a potentially unlimited supply of lab-grown diamonds. The cheaper these man-made rocks become relative to the original, the less attractive they could prove to buyers who regard the price of a ring as a gauge of their affection, or see the jewels as heirlooms to be passed from generation to generation.

De Beers must also rediscover its flair for marketing. During the 20th century the firm spent lavishly on ads that extolled diamonds—and not just those sold by De Beers (though that used to be most of them). Faced with protests against blood diamonds, it deftly promoted itself as a supplier of the conflict-free variety. Yet its marketing muscle has atrophied. The Natural Diamond Council, a coalition of firms formed in 2015 to pool hawking resources, has lost the help of Alrosa, a big Russian miner under sanctions.

“A diamond from the mine is for ever” would be a less catchy slogan than the 1947 original. Some of De Beers’s actual attempts have been even worse. When launching Lightbox, it promised something that “may not be for ever, but is perfect for right now”. Such a brutally unromantic sentiment may succeed in turning would-be grooms off a lab-grown stone. But the company must still convince them to pay up for the original. The dripped-out rapper conjured by the company’s boast that diamonds are “Nature’s mic drop” does little to sell the permanence of their bling.

Get De Beers in, lad

Whoever buys the firm, then, must be capable of marketing miracles, as well as running a mine. Such hard-hatted admen are rare, if they exist at all. If bhp ends up buying Anglo, it would do so primarily for its copper business, and might well divest De Beers (it shed its own diamond operation a decade ago). Few other miners are likely to be interested as they, too, focus on the green-metals boom. Some also speculate that the government of Botswana, which, in addition to its stake in the company, owns some mines jointly with De Beers, might decide to play a bigger role, though a buyout by the government looks unlikely.

That leaves two other sorts of buyers, if De Beers is to avoid going it alone on the public markets. Among financial investors, sovereign wealth funds from the Middle East are the favourites. Their coffers are deep and Dubai is fast emerging as a hub for the diamond trade owing to its proximity to India and lax regulations. Another option would be for De Beers to become integrated into a luxury giant. The chairman of Richemont, owner of Cartier, has already ruled out making an offer. lvmh could conceivably combine De Beers with Tiffany, the jewellery business it bought in 2021. There, at least, is an outfit familiar with glittery goods—and the gaudy prices that come with them. ■

Finance and economics | Buttonwood

Boaz v BlackRock: Whoever wins, closed-end funds lose

Farewell to a financial mystery

illustration: satoshi kambayashi

May 23rd 2024

As one of the leaders of the passive-investing revolution, BlackRock is usually a disruptive force in the financial world. But the asset-management giant’s battle with Saba Capital, an activist fund, has cast it in an unfamiliar role: as besieged incumbent. Ten of BlackRock’s investment vehicles, known as closed-end funds, are in Saba’s sights.

The funds—worth nearly $10bn based on current share prices—run at a steep discount to the value of the assets in their portfolios. Like publicly listed firms, closed-end funds sell shares in an initial public offering and trade on secondary markets. Since they do not offer new shares to incoming investors, as mutual and exchange-traded funds do, their share prices are able to drift far from the value of their assets. Boaz Weinstein, Saba’s founder, wants BlackRock’s funds to offer to buy back shares from investors, pointing to a history of poor returns. He argues that if investors could exit at the full value of their assets, some $1.4bn in value would be unlocked. Saba is also promoting a slate of nominees to the funds’ boards at shareholder meetings scheduled across the second half of June. These representatives will, it says, negotiate for lower fees.

In this sense, the battle is typical of those between activists and their targets. But in another sense, it represents a bigger struggle. The markdown that has activist investors licking their lips has long preoccupied some of finance’s best-known researchers. Closed-end funds, known as investment trusts in Britain, tend to trade at a large discount to their net asset value (nav) over long periods. At the end of last year closed-end equity funds were 10% cheaper than their underlying assets. On average they have been 7% cheaper since 1995.

Persistent discounts violate one of the fundamental assumptions of efficient financial markets: the law of one price. This holds that two identical assets should converge in price, and that long-term differences must reflect intervention or friction. Behavioural economists, such as Richard Thaler, a Nobel prizewinner, hold that the long-standing nature of closed-end-fund discounts is an argument against the rationality of markets. As far back as 1949, Benjamin Graham, an author and investor, called the discount “an expensive monument erected to the inertia and stupidity of stockholders”.

BlackRock has pushed back against the activists, arguing that the interests of the funds’ shareholders risk being trampled by people looking for a quick buck, who will harm the funds’ investment strategies. But whoever wins the battle, closed-end funds seem likely to lose eventually. They have found themselves under increasing pressure in recent years. Other specialist activists, including Bulldog Investors and Karpus Investment Management, have deployed Saba-like strategies against a range of closed-end funds. This year Elliott Investment Management, a larger activist fund, successfully pursued a British investment trust.

Advocates for closed-end funds, including the funds themselves and industry bodies, say that this relentless activism is deterring new fund launches. Indeed, no new ones were established last year, and their overall number has declined every year over the past decade. But there are other important factors at play. In recent years, for instance, higher interest rates have lowered returns on closed-end funds, which often take on leverage to magnify returns.

More straightforwardly, critics are also winning the argument about the value offered by such investment vehicles. In the early 1950s, just after Graham penned his attack, closed-end funds held assets worth almost 70% of those in mutual funds. As late as the mid-1970s, the ratio was 25%. Now closed-end funds are outgunned not just by mutual funds but by exchange-traded ones, too. Among the three categories, they hold just 1% of total assets. Even before adjusting for inflation, their assets have not increased in value in 19 years.

For academics interested in solving the puzzle of closed-end funds, their dwindling size is a slightly unsatisfying conclusion. Although it has taken longer than half a century, the steady decline in the assets held in such funds indicates that the market has become a little more rational than suggested by Graham’s peppery analysis in the 1940s. With no sign that the discounts are fading, investors have instead voted with their feet. Whether Saba or BlackRock ultimately triumphs, closed-end funds and the puzzle concerning them have become a marginal part of finance.■

Finance and economics | Free exchange

Shrinking populations mean a poorer, more fractious world

Politicians must act now to avert the worst

illustration: álvaro bernis

May 23rd 2024

If current forecasts are accurate, 2064 will be the first year in centuries when fewer babies are born than people die. Birth rates in India will fall to below the level seen in America last year. Even with immigration and successful pro-natal policies, America’s population will only have a little bit of growth left. By 2100 there will be many fewer migrants left to attract. The world’s fertility rate will hit 1.7. Just two Pacific islands and four African countries will manage to reproduce above replacement level.

Sooner or later, therefore, every big economy will collide with a demographic wall. The bill from pensions and hospitals will pile on fiscal pressure. Sapped of workers and ideas, economic growth could collapse while public debt balloons. Just how catastrophic the situation becomes depends on whether policymakers maintain budgetary discipline, withstand pressure from angry older voters and, crucially, are willing to inflict pain on populations now in order to save future generations from more later on.

America and Europe at least have longer to prepare than East Asia, which is already starting to feel the strain. South Korea has been ageing for a while, but only in the past four years has its population started to decline. It will now continue to fall for decades, as larger generations die off. By 2036 twice as many Koreans will be over the age of 65 as under 18. China will reach a similar point by 2040. America will take until 2100 to catch up.

Still, rich countries will need to spend 21% of gdp a year on old folk by 2050, up from 16% in 2015, according to the imf. A quarter of that will go on pensions. The rest will be required for health- and social-care provision. It is possible that artificial intelligence and pharmaceutical advances will cut the budget. But recent history suggests that such advances are more likely to raise it.

The exact size of the demographic hit does not just depend on how quickly populations age, but also on what they expect from the state. In this regard, South Korea has a somewhat bleak advantage. The imf reckons that its debt-to-gdp ratio, a modest 55%, is unsustainable in the long run and the government is still struggling to get its deficit below a 3% target. Yet few of its elderly were promised state pensions. Instead, nearly 40% of them are in poverty, the highest rate in the oecd club of mostly rich countries.

China is more likely to buckle under the pressure. By 2050 the country’s leaders will have 100m pensioners on their hands—all of whom have been promised a basic state pension. Already, one-third of local pension providers are running deficits. Economists reckon that the central government’s state-pension fund will run dry by 2035, unless officials take action. Europe’s generous pensions, and America’s growing social provision, mean that the West risks a similar fate, albeit at a slightly later date.

The size of the hit will also depend on how economies adapt to a decrepit world. Take government borrowing. Its sustainability reflects the gap between interest rates that prevail when inflation is stable—the so-called neutral rate—and economic growth, which boosts tax receipts. Ageing populations bring gloomy prospects for growth. Research shows that older workers tend to be less mentally agile, and therefore less productive. Shrinking populations could be even worse for growth, which economists believe requires the constant generation of new ideas. Charles Jones of Stanford University has modelled what happens in a world where there are ever fewer people to dream up innovations. The total stock of ideas, he finds, will grow more and more slowly. Economic growth will come to halt; living standards will stall.

What is less clear is whether interest rates will be low enough to keep a lid on debt-to-gdp ratios. Perhaps the neutral rate, which incentivises an equal amount of savings as investment in an economy, will track economic growth, as many expect. A proliferation of old folk means more people saving for retirement. And a paucity of investments from young entrepreneurs means that these savers will have little choice but to accept lower rates. Yet Charles Goodhart of the London School of Economics and Manoj Pradhan of Talking Head Macroeconomics, a research firm, disagree that this is the most likely outcome. They think a spending spree by grey consumers, fuelled by government handouts to the old, could drive up the neutral rate of interest. Because governments would then struggle to repay even their existing debts, they will resort to inflating them away.

Over the hill

There are steps Western governments could take to soften the blow. Credible monetary policy, which reassures investors that central bankers will quash spending binges prompted by ageing populations, would help. If governments were to rein in deficits in anticipation of future danger, that would make an even bigger difference. Pensions will have to be cut back as public finances adjust to longer lifespans. The imf reckons that rich-world governments will need to raise the retirement age by five years by the end of the century, even as increases in life expectancy slow.

These reforms would be unpopular now. Who wants to be the politician to inform millions of retired bureaucrats, soldiers and teachers that their pensions are being slashed in order to look after future generations? But in years to come, when the grey vote carries even more sway, they will become just about impossible—making it all the more important for politicians to act sooner rather than later. Although assessing the impact of shrinking populations can sometimes feel like peering into a distant future, the threat is already playing on the mind of leaders such as Emmanuel Macron, France’s president. Last year he risked his position by proposing reform of the country’s pension system, and faced protests that were widespread even by French standards. Other politicians will have taken note. ■

Science and technology | Cyber security

It is dangerously easy to hack the world’s phones

A system at the heart of global telecommunications is woefully insecure

illustration: ben hickey

May 17th 2024

For years experts have warned that a technology at the centre of global communications is dangerously exposed. Now there is more evidence that it has been used to snoop on people in America.

Kevin Briggs, an official at America’s Cybersecurity and Infrastructure Security Agency, told the Federal Communications Commission (fcc), a regulator, earlier this year that there had been “numerous incidents of successful, unauthorised attempts” not only to steal location data and monitor voice and text messages in America, but also to deliver spyware (software that can take over a phone) and influence voters from abroad via text messages. The comments were first reported by 404 Media, a technology news website. America’s big mobile operators have erected better defences in recent years. But much of the world remains vulnerable.

The hacks were related to an obscure protocol known as Signalling System 7 (ss7) as well as a newer one called Diameter. Developed in the 1970s to allow telecoms firms to exchange data to set up and manage calls, nowadays ss7 has more users than the internet. Security was not a big issue when ss7 was first introduced because only a few fixed-line operators could get access to the system. That changed in the mobile age. ss7 became crucial for a wide range of tasks, including roaming. According to the us Department of Homeland Security, ss7 is a particular risk because there are “tens of thousands of entry points worldwide, many of which are controlled by states that support terrorism or espionage”.

Security experts have known for more than 15 years that the protocol was vulnerable in several ways. In 2008 Tobias Engel, a security researcher, showed that ss7 could be used to identify a user’s location. In 2014 German researchers went further, demonstrating that it could also be exploited to listen to calls or record and store voice and text data. Attackers could forward data to themselves or, if they were close to the phone, hoover it up and tell the system to give them the decryption key. Surveillance companies and spy agencies had known about the issue for a lot longer. Many were taking advantage of it.

In April 2014 Russian hackers exploited ss7 to locate and spy on Ukrainian political figures. In 2017 a German telecoms firm acknowledged that attackers had stolen money from customers by intercepting sms authentication codes sent from banks. In 2018 an Israeli surveillance company used a mobile operator in the Channel Islands, a British territory, to get access to ss7 and thus users around the world.

That route is thought to have been used to track an Emirati princess who was abducted and returned to the United Arab Emirates in 2018. And in 2022 Cathal McDaid of enea, a Swedish telecoms and cyber-security company, assessed that Russian hackers had long been tracking and eavesdropping on Russian dissidents based abroad by the same means.

Beginning in 2014 Chinese hackers stole huge amounts of data from the Office of Personnel Management, the government agency that manages America’s federal civil service. The most sensitive data were security-clearance records, which contain highly personal details. But phone numbers were also stolen. According to semi-redacted slides published by the us Department of Homeland Security, American officials noticed “ss7 anomalous traffic” that summer which they believed was related to the breach.

On my main phone

Mr Briggs’s comments to the fcc bring the scope of the ss7 problem into sharper focus. “Overall”, he said, the incidents he reported were “just the tip of the proverbial iceberg of ss7- and Diameter-based location and monitoring exploits that have been used successfully.” American mobile operators are sensibly stripping out ss7 from their networks, but, to varying degrees, all still have roaming connections with the rest of the world, where the protocol remains ubiquitous. Moreover, although the newer Diameter protocol is an improvement in several respects, it nonetheless “has many of the same vulnerabilities” as ss7, argues Mr McDaid, “and is worse in some ways.”

One reason that telecoms firms have neglected to address the issue is that most attackers have political rather than commercial motives. Surveillance tends to be focused on a very small number of high-value targets. “The attackers generally don’t aim to damage the workings of the mobile network,” notes Mr McDaid. Because the impact is on the individual rather than the company, he says, “Sometimes, the incentives to put in protection are not fully aligned.” Mobile operators need to monitor their networks, update software and conduct regular “penetration tests”, drills in which they subject their own networks to simulated attack, he says.

Phone users can protect themselves against ss7-based eavesdropping (but not location tracking) by using end-to-end encrypted apps such as WhatsApp, Signal or iMessage. But these, too, can be circumvented by spyware that takes over a device, recording keystrokes and the screen. In April Apple warned users in 92 countries that they had been targeted by a “mercenary spyware attack”. On May 1st Amnesty International published a report showing how “a murky ecosystem of surveillance suppliers, brokers and resellers” from Israel, Greece, Singapore and Malaysia had put powerful spyware into the hands of several state agencies in Indonesia. That, too, is the tip of an iceberg. ■

Culture | Heavenly hosts

The controversial cult of the host club in Japan

Why women pay men in make-up to flatter them

When being nice pays offphotograph: getty images

May 21st 2024|tokyo

In kabukicho, a red-light district in Tokyo, four young men surround your female correspondent. Hiragi Saren, a 25-year-old with bleached hair, a black tank top and a silver necklace, sits closest. He chatters warmly and glances seductively, his pink eyeshadow glimmering under the chandeliers. His three assistants keep filling your correspondent’s shochu glass and shower her with compliments about her appearance. She doubts their sincerity, but is strangely pleased. After an hour and a half, the bill is ¥30,000 ($200).

Host clubs are booming in Japan. Some 21,000 hosts—well-dressed young men, often wearing make-up like k-pop stars—work at 900 such establishments. They pamper and flatter their female clients. Sex is not part of the bargain but could happen, somewhere else. Clients usually seek psychological rather than physical intimacy and a break from reality. Hosts refer to them as hime (princess), and never ask how old they are or what they do for a living.

To understand the cult of the host, start with two statistics. More than 60% of Japanese women in their late 20s are unmarried, double the rate in the mid-1980s. A recent survey found that more than a third of unmarried adults aged 20-49 had never dated. Many single women visit host clubs because they are lonely. They get a thrill from meeting “the kind of men they don’t meet in everyday life”, Mr Hiragi says.

The first host club opened in the mid-1960s, mostly serving as a dance hall for rich matrons and widows. Early hosts described themselves as “male geishas”, says Hojo Yuichi, who runs Ai Honten, the oldest active host club. At first, the clubs were seen as a fringe, sleazy business. But that stigma has faded.

Successful hosts are now celebrities. In the 2000s they started appearing on tv shows. Today many have a big social-media following. Billboards and trucks display pictures of the highest earners. Hosts feature as characters in manga and anime, too. They have become “an archetype within Japanese popular culture”, says Thomas Baudinette, an anthropologist at Macquarie University. Mr Hiragi moved to Tokyo from a rural area with dreams of becoming a famous host. “I wanted to be part of a world that’s glamorous,” he says.

Glamorous, yet controversial. Feminist groups accuse host clubs of exploitation: overcharging for drinks and manipulating clients into racking up huge tabs. Hosts praise those who spend the most, calling them “ace”. Some customers end up in debt after paying millions of yen for a single visit. Takahashi Ichika, a client, recalls that her favourite host would ignore her and fiddle with his phone when she refused to order champagne. “I would spend more money because I didn’t want him to dislike me. I wanted his attention,” she says.

Some women go to extraordinary lengths to feed their host habit. A survey last year showed that among women arrested for selling sex around Okubo Park, a popular pickup spot, over 40% were trying to earn enough money to go to host clubs. Politicians have started discussing ways to regulate the industry, for example by cracking down on opaque pricing. Host-club owners hope to pre-empt this with better self-regulation.

Some see a link between the cult of the host and obsessive fan culture. In a survey in 2023, 72% of Japanese women in their 20s said they indulged in oshikatsu (avidly supporting a celebrity, for example by buying several copies of each new hit). The objects of their adoration were often pop idols. But some are switching their allegiance to hosts, to whom they can get much closer. Ms Takahashi says she used to spend a lot on boy bands, but when concerts stopped during covid, she started to splurge on hosts instead.

Many other Japanese businesses, such as cuddle cafés, offer intimate services, usually to men. Mr Baudinette worries, though, that for many Japanese people, “Intimacy can only be accessed through commoditised forms.”

Yamada Kurumi, a client, works at a brothel to earn enough money to visit the clubs, which she does about once a week. She had boyfriends in the past but finds hosts more exciting. She is unsure whether to seek an office job after graduating from college or to carry on with sex work, which pays better. “A lot of people start losing touch with friends once they get addicted to host clubs,” says Ms Yamada. “My host is already part of my everyday life…If I get a normal job, I probably won’t be able to see him any more. That scares me.” ■

The Economist explains

What does it mean to recognise Palestinian statehood?

Ireland, Norway and Spain will be the latest to do so

photograph: getty images

May 22nd 2024

It is a step to “bring peace to the Middle East”, according to Simon Harris, Ireland’s prime minister. On May 22nd his country, along with Norway and Spain, said that it would formally recognise Palestine as a state. Israel recalled its ambassadors from all three countries in response; its foreign minister condemned the trio’s decision as a “distorted step” and said it was evidence, in the wake of Hamas’s attack on Israel on October 7th, that “terrorism pays”. Ireland, Norway and Spain are joining the majority of countries: almost three-quarters of members of the un recognise Palestine. What exactly does that mean—and who are the holdouts?

There are no binding rules about when one country should recognise another, but international law provides some guidelines. The Montevideo Convention on the rights and duties of states, signed by 20 countries in North and South America in 1933, sets out four criteria: a state should have a permanent population; a government; defined borders; and the capacity to enter into relations with other states. But many places recognised as states do not meet those requirements—for instance those with two governments, such as Libya. (Recognising a state usually implies recognising its government, but in such cases countries may choose to endorse whichever government that they consider legitimate.) Some states emerge after national movements declare independence and seek international recognition.

Obituary | Morality and butchery

Ebrahim Raisi was obsessed with the security of the people

The hardline president of Iran died in a helicopter crash on May 19th, aged 63

photograph: getty images

May 22nd 2024

As the helicopter rose through the misting clouds, Ebrahim Raisi stared sombrely out of the window. The view, of the rugged mountains of north-west Iran, should have been magnificent. Today, there was not so much to see. And in any case he was not given to smiling. It did not suit the black turban he wore, a token of his descent from the Prophet, or his usual black clerical robes, or his thin glasses. He preferred to appear as what he was, an unbending expert on sharia law, for whom chopping off the hands of thieves was “one of our greatest honours”.

Yet he had done an unusual amount of smiling that day, as he inaugurated, with President Ilham Aliyev of Azerbaijan, the giant Qiz Qalasi dam on the Aras river. It marked a rapprochement between their countries. They had had their ups and downs, but today he had called Mr Aliyev a brother and a friend. Their co-operation, he said, would make their enemies despair.

Enemies inevitably preyed on his mind. They began with America, a country he loathed beyond any other except the false Zionist regime of Israel. But Israel, especially after the Hamas attacks of October 7th, could be made to disappear. America was the immovable Great Satan whose sanctions weighed Iran down, cramping its oil exports, tyrannising its innocent people and scuppering his attempts to improve the economy. He had often talked of restoring the nuclear deal of 2015 which Donald Trump had rescinded. But he did not mean it much. When he appeared on “60 Minutes” in 2022, infuriatingly interviewed by Lesley Stahl with her hastily thrown-on headscarf and pitiful expression‎, he said he could not talk to the Americans. There was no trust. A meeting with Biden would be pointless. He did not deny that Iran was enriching uranium to a very high grade, but that was for industrial use, agriculture, medicine. A nuclear weapon? Baseless. It had no place in their doctrine.

Alongside the foreign demons lurked enemies of the state: anyone opposed to the revolution of 1979, when the Shah was toppled and Ayatollah Ruhollah Khomeini established his theocracy. He had been swept up in it as a young student at the seminary, where he was taught for a while by Khomeini’s brother and the supreme leader’s successor, Ali Khamenei. Thanks to Khamenei he got his first prosecutor’s job at the age of 20, and at 25 was deputy prosecutor in Tehran. It was there in 1988 that thousands of enemies of the state were massacred by a “Death Committee” that re-tried leftists in the jails and, if they would not recant, hanged them from cranes by the half-dozen. Westerners said he was on that committee; they called him the Butcher of Tehran. He repeatedly denied it. But he was sure it had been the right thing to do. Khomeini had decreed a fatwa against those miscreants for waging war on God. And when a prosecutor defended the security of the people, he should be praised.

Disorder appalled him. Acts of chaos were unacceptable. In 2009 he enthusiastically backed a clamp-down on the Green Movement, which was rioting against a disputed election. Hundreds were arrested to uproot this sedition. In 2022 it was the women’s turn, objecting to his hijab and chastity law with displays of what amounted to nudity and indecency. So, when they objected, he made the law tighter. For showing any part of the body higher than the ankles or forearms, or lower than the neck, they would now get not five years in prison, but ten. He sometimes admitted that women had talents, and rights, too; at home he had two daughters, and his wife, Jamileh Alamolhoda, taught at a university. But in public she knew her place. Sitting beside him, swathed in black, she would say “We want women to remain women! Why should we be like men?”

National morality he could police as hard as he liked. Other powers were more limited. Khamenei had the final word on everything. Foreign policy was mostly made by commanders of the Islamic Revolutionary Guard Corps, despite the fact that at meetings with them they would sit meekly cross-legged at his feet. It was also made by those invaluable proxy groups—Hamas in Gaza, Hizbullah in Lebanon, the Houthis in Yemen—which, in his view, safeguarded a region where Israel was the disrupter.

His own brief was to run the country, and he did so as a jurist, since all his previous jobs—prosecutor-general, attorney-general, head of the judiciary—had to do with the law. When he first ran for president in 2017, it surprised people. He knew nothing of economics, indeed had little standard education; after a few years of school, it was into the seminary in Qom. The Koran, and sharia, were his first recourse: his idea of rooting out graft and corruption was to prosecute his foes with big, showy trials. He had entered politics because it was his revolutionary and religious responsibility to do so. If Westerners carped on about human rights, he retorted that these meant security. Freedom was not included.

He did not win, that first time. He got only 38%. In 2021 he changed his tactics, touring the country to talk to the poor. His closeness to Khamenei and the juduciary also paid off; 600 rival candidates, some of them even conservatives, were reduced to a handful by the clerical authorities. He won a landslide then, and fellow conservatives controlled every branch of power.

Rumours had been swirling that he was first in line for supreme leader. Yet it was never proclaimed. Besides, though he stated otherwise, he was not an ayatollah, or sign of God. He was merely a hojat-ol-eslam, or authority on Islam. When Khamenei declared him president, he mentioned this fact. He also called him popular; but that wholesale rejection of candidates had not gone down well. Turnout in 2021 had been Iran’s lowest-ever.

There was much to ponder on that flight home. The foreign minister, sitting opposite, was fidgety; others dozed. But the president stared out of the window, unsmiling, as the fog closed in. ■