The Economist Articles for Sep. 1st week : Sep. 1st(Interpretation)

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Leaders | Personality and policy

Kamala Harris can beat Donald Trump. But how would she govern?

Being a politician is about more than campaigning. More policy detail is needed

Aug 22nd 2024

Afew weeks ago the Democratic convention looked as if it would be a wake. Instead it has been a love-in. Delegates’ ebullience has been spiced with relief that their nominee has saved the party from almost-certain defeat.

Kamala Harris has accomplished this less because of who she is than who she is not. For a start she is not Joe Biden, who showed in a valedictory speech in Chicago that age has turned him into a scold. And neither is she Donald Trump. Now that President Biden is out of the race, the Republican nominee is the old man on the ballot, and he drives voters away with his petty insults and his dark obsessions.

However, Ms Harris needs more. Our forecast model has the race tied. In a bid to make her someone people actually want to vote for, the convention was all about her character and her life-story. Americans now know she worked at McDonald’s and that every year she teases her husband by playing the rambling voicemail he left asking her for a first date.

Unfortunately, how that would translate into a Harris presidency remains disconcertingly vague. She has reasons for building her campaign around personality: policy can be a liability, Mr Trump is no wonk and, with him as an opponent, character matters. Yet, worryingly, her tactics may also signal something more fundamental.

Politically, Ms Harris is still an unknown quantity—and she is partly responsible for keeping it that way. In the Biden administration she was overshadowed, as vice-presidents usually are. She became the nominee without being tested in a primary. Since Mr Biden’s withdrawal, she has not given interviews and she has taken few questions from reporters. Her policy platform was mostly inherited from her boss, and it is even sparser than Mr Trump’s. When she takes positions—such as vowing to deal with corporate price-gouging—they may not be expressions of her political beliefs so much as campaign manoeuvres designed to placate voters worried about the cost of living.

Our briefing this week sets out to make sense of all this—and Ms Harris’s record in the Senate and as a politician in California. She is not one of those whose career reveals a set of deep convictions or an inner core of beliefs. Instead, like Mr Biden, she positions herself slightly to the left of centre of her party and adjusts as it evolves. Worse than him, her policies on the economy and in foreign affairs seem to be unanchored.

Pragmatism has its virtues in a politician. Mr Trump may call Ms Harris a communist, but she is no ideologue. Her positions as a primary candidate in 2019 included single-payer health care, outlawing fracking and decriminalising crossing the border illegally. Yet the way Ms Harris has abandoned all that in 2024 suggests it was never serious. Her recent anti-price-gouging proposal would be hard to enact. She is probably not about to launch a crusade against corporate America. Pragmatism also means that Ms Harris is open to other people’s ideas. There is every reason to think that in foreign policy and the environment she will set out to create continuity.

But when pragmatism signals a lack of thought-through principles, it can spell danger. Every day the president has to handle politically charged problems that have no simple solution. In this Ms Harris’s weakness for bad ideas and political gimmicks threatens to be a liability. The claim of price-gouging is simply not supported by the evidence, but it nonetheless erodes the faith in open markets that makes America prosperous. Promising $25,000 grants is supposed to help first-time homebuyers afford a property. Yet unless she also succeeds in her plan to increase the supply of housing—a tall order—subsidies will raise house prices instead. Her proposals to increase child tax credits, to $6,000 during the first year from $2,000 now, would indeed reduce child poverty. But when America’s budget deficit is 7% of gdp, her failure to finance it through taxes would be rash and inflationary (we would choose it only as an alternative to Mr Trump’s even wilder profligacy).

Likewise, without strong fundamental beliefs and a set of guiding priorities, a president can easily be blown off-course by events. When presidents are reactive or indecisive, they may be challenged abroad. If Ms Harris struggles to knit together her biography, her principles and her policies, she will also struggle in a president’s crucial role: explaining to the nation how it should meet adversity.

It may seem unfair to criticise Ms Harris for being sparing about her policies. Her overriding task is to defeat Mr Trump, and it is a vital one in which guile and cunning are permitted. For good or ill, political campaigning is often about finding wedge issues to stir up your base. If wonkery and reams of policy papers were the secret to electoral success, Hillary Clinton would not have lost in 2016.

But there are reasons to press Ms Harris for more. One is that to do so could soon be in her political interest. Should personality lose its power to propel her campaign forward, policy could be one way to revive it. Imagine if her whole platform were like her position on women’s reproductive rights, where her policy is clearly derived from principles drawn out of her own experience. When, in the debate due on September 10th, Mr Trump attacks her for being too weak to stand up to Russia and China, or too much of a radical socialist to deal with immigration or create a healthy economy, she will need more than platitudes to rebut him. If it is the first time she tries to unspool a single thread running through her life, her principles and her policies, she is unlikely to do her best.

The other, more important reason to press Ms Harris is that being a politician is about more than campaigning. Governing matters, too. And, for a party that wants to strengthen democracy, governing is better if its winning mandate contains a programme. You can be desperate for Ms Harris to defeat Mr Trump and still wonder how good she will be in office. As the vice-president in a one-term administration, she might be tempted to govern with victory in 2028 as a focus. Unless she is clearer about what she wants to do with power, her term will be dominated by campaigning—with all its vices. ■

Leaders | Good policy, not good luck

Why inflation fell without a recession

High interest rates, not the passage of time, have restored price stability

illustration: satoshi kambayashi

Aug 28th 2024

At their annual retreat in Jackson Hole, central bankers celebrated the fall of inflation. But do they deserve the credit? In the rich world, annual price rises in the median country are down from a peak of about 10% in early 2022 to below 3% today. Remarkably, this has been achieved without deep recessions (see Finance & economics section). The Federal Reserve will probably soon join central banks in Europe in cutting interest rates, bond yields have fallen sharply since the summer and stockmarkets have shrugged off a growth scare that struck at the beginning of August. America’s economy was in fact bigger in the second quarter of 2024 than had been forecast before the covid-19 pandemic struck.

Monetary tightening is supposed to slow growth, and in the 1980s it quelled inflation only after deep downturns. The apparent lack of damage today has led to the revival of a dangerous myth: that inflation would have gone away by itself. Paul Krugman of the New York Times has even claimed that Jerome Powell, the Fed’s chair, used his speech at Jackson Hole to attribute inflation “largely to transitory pandemic effects”, resurrecting an old narrative that central bankers dumped in 2021.

That view is a misinterpretation both of the economy and the speech. Mr Powell said that high inflation “was not transitory”. Papers presented at Jackson Hole showed the crushing effect that rate hikes had on mortgage credit, and how the Fed risked losing its credibility as inflation took off (see Free exchange). Even forecasters who expected inflation to persist thought the Fed would not act—meaning they had lost faith in central bankers’ commitment to price stability. The expectation that rate rises would not come risked worsening inflation by pushing down the real, inflation-adjusted rate of interest.

Monetary policy does not need to cause a slump to bring down price growth: it must only force the economy to grow more slowly than it otherwise could. This has been hard to spot in America, where growth has been fast in part because of a surge in immigration, and where a budget deficit of about 7% of gdp has counteracted higher interest rates. Yet the cooling of the labour market is clear from an enormous drop in job vacancies and a small rise in the unemployment rate. Europe, meanwhile, has suffered so many blows, including the war in Ukraine, that it is hard to judge what has caused what. But rate rises will have had a similar underlying effect.

chart: the economist

Some have argued that monetary tightening simply restored an intangible sense of credibility, and that the actual level of interest rates has not mattered. Yet rules of thumb suggested that America’s rates would need to rise to about today’s level, as The Economist noted in 2022. It is true that energy and food prices pushed up headline inflation, only to fall back. But in America, the euro zone and Britain, interest-rate rises have been fairly well-calibrated to the rise in core inflation, which excludes these volatile prices.

It is vital that policymakers draw the right lessons from the pandemic, given the danger that they will face more episodes like it. Many central banks have, over the long term, more or less hit the inflation targets that were adopted around the world in the 1990s. But that was an era in which supply shocks were rare and rich-world governments were, on the whole, fiscally prudent. Today trade wars, the green transition, further pandemics and vast public debts all threaten to create inflationary disruptions with which central banks will have to grapple. How they achieved today’s victory over high inflation therefore matters. It was not just a stroke of luck. ■

Finance & economics | Free exchange

Vast government debts are riskier than they appear

A provocative new paper gets central bankers talking at Jackson Hole

illustration: alberto miranda

Aug 27th 2024

At the annual gathering of central bankers in Jackson Hole, Wyoming, attendees enjoy r&r: research and recreation. The latter usually involves a pleasant hike by the lake, but last year a rainstorm soaked the assembled economists. When they returned on August 23rd a remarkably accurate weather forecast helped them dodge a shower and enjoy some sun. This was apt. A year ago inflation was still too high and investors were placing bets that interest rates would have to stay “higher for longer”, the economic equivalent of a drenching. This year inflation looks all but subdued and central bankers—whose optimistic prognostications have also come to pass—have started cutting interest rates.

And so they took something close to a victory lap. Jerome Powell, chair of the Federal Reserve, used his speech to say that America’s labour market was no longer overheated and that the Fed would probably soon join the rate-cutting club. “You’re not supposed to say that in public,” joked Andrew Bailey, governor of the Bank of England, when Kristin Forbes of the Massachusetts Institute of Technology suggested the decline of inflation had been a great success. One paper, presented by Carolin Pflueger of the University of Chicago, showed how, contrary to the claims of some commentators, the Fed’s rate rises had been crucial to keeping inflation expectations under control. Before inflation took off, even forecasters going against the grain and expecting prices to surge thought the Fed would fail to react—an expectation that could have caused the inflation problem to become entrenched.

Attendees liked the idea. It is, after all, evidence that central bankers helped the sun break through the clouds. Yet the paper that stirred the most debate at the get-together told a more circumspect story. Hanno Lustig of Stanford University presented evidence that during the covid-19 pandemic American Treasuries, which are supposed to be the world’s safest asset, had become risky. The public has been vexed by the 18% rise in consumer prices since 2020 and the interest-rate rises that were later required. But at least real wages have risen. Consider, by contrast, the plight of bondholders. Between January 2020 and October 2023 the mix of higher inflation and higher rates, which depress bond prices, caused the real value of outstanding Treasuries to fall by 26%.

This, Mr Lustig argued, was indicative of a “risky debt regime”. At the onset of the pandemic, the Treasury market was struck by extreme volatility. Analysis of the turmoil usually emphasises blocked plumbing in financial markets: the dealers who intermediate markets ran out of space on their balance-sheets. Mr Lustig, though, presented evidence that investors were in fact reacting to fiscal developments, selling more on days when news broke that the American government would be throwing cash at the crisis. Moreover, investors who sold Treasuries did better than those who did not—the opposite of what you might expect if plumbing problems were forcing them to offload securities at fire-sale prices.

Things look better in bond markets today. Thirty-year Treasuries yield only an annual 4.1%, with little sign of a risk premium. But even if America’s “risky debt regime” was temporary, it might be included alongside the panic that struck British gilt markets when the short-lived government of Liz Truss announced unfunded tax cuts in late 2022, and the sell-off in French markets when investors feared that the hard right would gain power.

Such events should be disquieting to central banks for several reasons. One is that they cast quantitative easing (qe), the buying of bonds using freshly created money, in a new light. It is textbook central banking to stop a panic by buying bonds, so as to unblock the plumbing. Buying government debt because investors fear fiscal profligacy is much dicier territory. And qe has a fiscal consequence: some of the losses that bondholders might have borne were shifted to central banks, and hence back to the taxpayer. Mr Bailey seemed burned by the experience: “I’m not saying we’d never do it, but I think it’s tarnished,” he said of using qe in future, while also complaining that no journalist had written about the fiscal consequences of qe when it was profitable. (His copies of The Economist must have been lost in the post.)

A more profound reason that central bankers might worry about a risky debt regime is that—although they do not like to talk about tax and spending—they are able to control inflation only if politicians keep debts under control. It is possible that amid a fiscal blowout there is no interest rate which central bankers can set to prevent inflation. High interest rates can induce still-bigger deficits as governments borrow more to pay the debt-interest bills. Brazil is familiar with this problem, and the country’s central-bank governor warned on stage that other rate-setters might be forced to pay greater attention to fiscal policy. If America continues on its current trajectory, running a deficit of 7% of gdp even while not in recession, that seems certain.

Rain forecast

Therefore today’s bond-market optimism, as indicated by pricing, is a little curious. As Mr Lustig notes, the experience of recent years was not unique. Bondholders often take soakings after wars and crises, which usually create a surge in inflation. Deflation of a comparable magnitude is rarer—even the slump after the global financial crisis of 2007-09 did not produce it. Covid will not be the last virus to cause a pandemic; fraught geopolitics could bring about more wars, or worsen existing ones. Governments these days seem more likely to respond with big stimulus to reflate the economy than they were a generation ago.

Central bankers cannot do much about these risks, and deserve a moment of celebration. Bondholders who live for the long run, though, should consider the chance that history will repeat itself, and that they will once again be caught in a storm. ■

United States | Stuck in low-Earth orbit

NASA insists that two astronauts are not “stranded” in space

The Starliner mishap is another embarrassment for Boeing

A weightless waitphotograph: getty images

Aug 22nd 2024|new york

What a treat to glimpse the cosmos up close. Which is not to deny the inconveniences of space travel. There are bodily troubles. “The toilet—I literally sit on it like a witch on a broom,” wrote Valentin Lebedev, a cosmonaut, in his diary. “It won’t forgive your mistakes.” Suffice to say that relieving oneself in zero gravity involves leg restraints, gloves, disinfectant and a device like a vacuum cleaner.

And then there is anxiety of an altogether different order: when will I get back? Such is the plight of Butch Wilmore and Suni Williams, two astronauts who have been stranded on the International Space Station (iss) since docking there on June 6th. Except nasa does not like that word. As one official insisted: “I want to make it very clear that Butch and Suni are not stranded in space.”

Mr Wilmore and Ms Williams arrived at the iss aboard the first crewed flight of Boeing’s Starliner. What was meant to be an eight-day stay is approaching the three-month mark after their capsule leaked helium and five of its 28 thrusters malfunctioned. That has delayed their return, possibly until February 2025. Precisely what happens now depends on whether nasa thinks a descent on Starliner is safe—tests are ongoing—or whether they are better off hitching a ride home on a flight operated by Boeing’s competitor, SpaceX. A decision should come soon.

The next SpaceX Dragon capsule is due to dock at the iss in September and return to Earth next year. If it is to make room for Mr Wilmore and Ms Williams, it will go up with two crew members instead of its usual four. That would require Starliner to descend from the iss uncrewed. Boeing says this is not currently possible owing to software issues, even though the capsule has made such trips before.

Concentrating everyone’s mind will be the worst-case scenario: authorising Starliner to return the crew to Earth, only for it to fail. That would destroy what little confidence is left in a company with a once-storied history manufacturing for nasa. It would also be disastrous for the agency and add another fatal tragedy to those that have already befallen its space missions. A total of 14 astronauts died in the Challenger and Columbia disasters.

As it is, the engineering cock-up is a humiliation for Boeing, whose commercial-aircraft division is in its own tailspin. It is also a financial drag. The commercial-crew contracts marked a new way of doing things at nasa in that they were “fixed-price” rather than “cost-plus”, meaning that firms cannot bill the government more than the agreed sum and instead must eat overruns. Starliner has lost Boeing more than $1.5bn since 2016.

If crewed Starliner flights are unworkable, that will put paid to nasa’s ambition for redundancy and competition in the task of ferrying astronauts to the space station and back to Earth. nasa got out of that business years ago, partly to focus on missions to the Moon and beyond. Now SpaceX looks like the only American game in town capable of getting to and from the iss. Since 2020 it has logged 12 crewed flights there and won more contracts amid Starliner mishaps and delays. It dominates the rocket-launch business too, and is the $210bn gorilla of the industry.

For their part the Starliner duo are putting on a good face. They had probably imagined delaying their descent by only up to a week in the event of bad weather. But both have already completed long spells aboard the iss; this trip is the third for each astronaut. During her first one Ms Williams ran a marathon while strapped to a treadmill. This time she and Mr Wilmore have busied themselves with experiments and fixed a pump linked to a filtration system that turns the nine iss crew members’ urine into drinking water. Her husband has said that space is her “happy place”.

Having a mission prolonged unexpectedly, which sometimes happens, means missing out on changes big and small. Sergei Krikalev spent five extra months on the Mir space station when earthlings got distracted by the dissolution of the Soviet Union. He came back to a whole new world in 1992. ■

United States | More deaths, less outrage

Police are killing more Americans than ever. Where’s the outrage?

The scarcity of protests is striking

photograph: reuters

Aug 22nd 2024|chicago

The day before Sonya Massey, a 36-year-old black woman in Springfield, Illinois, was killed by a police officer, her mother phoned 911. “The mental people told me to call 911,” she told the dispatcher, reporting that her daughter was having a breakdown. “She thinks everybody’s after her,” she explained, adding: “Please don’t send no combative policemen that are prejudiced, please...They’re scary.” The next day, Ms Massey called 911 herself to report that she was scared of intruders. Her mother’s fears were proved to be entirely founded. Within minutes of their arrival, one of the two responding officers, Sean Grayson, was threatening to “shoot her in the fucking face” unless she dropped a pot of boiling water she was moving off the stove. Then he did exactly that.

The killing on July 6th, recorded in full on body cameras, is a particularly egregious example of a police officer shooting an unarmed black woman. Mr Grayson has been arrested and charged with murder. His boss, the sheriff of Sangamon County, has resigned, after being told to do so by J.B. Pritzker, the governor of Illinois. Kamala Harris, now the Democratic nominee, called Ms Massey’s family, and urged Congress to pass a long-stalled police-reform bill. Donald Trump, when asked about it at a convention of black journalists, backed away somewhat from his previous promise to give police officers immunity from prosecution.

Yet it is also striking what has not happened. Only a few protesters have marched to decry the killing. Nobody has rioted. “My sense is that people aren’t reacting as vehemently,” says Sharon Fairley, of the University of Chicago.

chart: the economist

Ms Massey’s case is just one of nearly 850 police killings this year. In 2020, after the murder of George Floyd by a Minneapolis police officer, politicians of all stripes promised reform and accountability. Yet the number of police killings has continued to rise. According to databases maintained by the Washington Post and by Mapping Police Violence, an ngo, 2024 is on track to be the most deadly year for police shootings in at least a decade (see chart). The previous record was set last year. And yet, according to polling by Gallup, trust in police has risen this year—sharply so among racial minorities. Why?

There is some reason to think that the reforms after Floyd’s murder in 2020 have had an effect, suggests Ms Fairley. “Many police departments…are really working to enhance their community engagement,” she says. In many cities some unpopular sorts of policing—such as mass traffic stops to search for guns—have been scaled back. That may have helped blunt distrust of the police, she suggests.

One reason for the rise in police shootings could be that police officers face more threats. According to fbi data, more police officers were murdered in the line of duty in the three years to 2023 than in any three-year period in the past 20 years. Gun sales have surged, so criminals are better armed.

The data suggest that is not the whole story, though. Samuel Sinyangwe of Mapping Police Violence points to a notable change. The share of fatal shootings happening in big cities has fallen. The rise has come from county-sheriff offices, which tend to cover rural areas. Sheriffs now account for a third of police killings, up from around a fifth a decade ago.

chart: the economist

After police killings that resulted in riots in Ferguson, Missouri, and Baltimore in 2014 and 2015, many police departments adopted better practices, such as sending mental-health specialists on calls with police officers. “That was strongly concentrated in big cities that were a bit more politically progressive,” Mr Sinyangwe says. The result was fewer killings. Smaller police departments, often with elected sheriffs, did not adopt such changes. And when they realised how unpopular left-wing ideas about “defunding” the police were, even “progressive” leaders cooled on further police reforms. The police seem more trusted because politicians are reluctant to criticise them, argues Mr Sinyangwe.

The shooting of Ms Massey shows that police departments still urgently need change. One positive development is that Mr Grayson, the killer, was arrested and charged quickly. Yet accountability for thuggish policing remains in general rare, says Philip Stinson, a professor at Bowling Green State University in Ohio who has maintained a database of police officers convicted of crimes for the past 20 years. The number charged with homicide has remained fairly consistent for all that time, he says—around 20 a year.

Staff shortages may have led to worse hires. With fewer people keen to go into policing, some departments may be lowering recruiting standards, says Neil Gross of Colby College, in Maine. Mr Grayson had been convicted of driving drunk, but was still hired by Sangamon County.

In no other rich country do police officers shoot as many people as in America. In Britain the number of fatal police shootings rarely exceeds two or three a year. In America, guns are far more common, which makes police twitchier. But according to the Washington Post’s database of nearly 10,000 killings since 2015, only six in ten victims were armed with a gun. As the call from Ms Massey’s mother demonstrates, police officers still need to work harder to build trust—which is what actually prevents crime. ■

The Americas | Military Mileise

Javier Milei is splurging on the army

Many Argentines are asking why

photograph: getty images

Aug 22nd 2024

Self-proclaimed anarcho-capitalists ought to be sceptical of large standing armies. President Javier Milei of Argentina seems to relish them. Even as he tightens the government purse, he has committed to raising defence spending from 0.5% of gdp to 2% over the next eight years. He vows to “restore the prestige” of the army and transform it into a hi-tech force.

According to the Stockholm International Peace Research Institute, a think-tank, Argentina spends less on defence as a share of gdp than any other country in South America. Almost 90% of the armed forces’ budget is used to pay salaries and pensions for its 72,000 members. Little money is left over to maintain clapped-out ships, aircraft and vehicles.

Mr Milei is increasing spending in part to deepen ties with the United States. Since taking over from a left-wing government in December, he has shunned China and Russia. In April he scrapped a deal to purchase Chinese-made fighter jets and instead agreed to buy 24 used f-16 jets from Denmark for $300m (the United States contributed $40m to support the purchase). Argentina has also asked to become a “global partner” of nato, which would grant it better access to co-operation and training with Western armed forces.

But Mr Milei’s moves are fraught. Lavishing funds on the army is no easy sell as health and education budgets are cut. The bigger problem is that Argentines do not know what the point of their army is anymore. Mr Milei shows no desire to fight Britain over the Falkland Islands and Argentina is on good terms with its neighbours, despite occasional diplomatic spats.

Mr Milei has suggested using the armed forces against internal threats, such as gangs. Yet the idea is unpopular in a country which was ruled by a bloody military dictatorship from 1976 to 1983. The president and his allies regularly downplay the horrors of that period. In June six legislators from his coalition visited former soldiers in jail for committing crimes against humanity during the junta. While boosting military spending, Mr Milei should not forget the lessons of the past. ■

The Americas | Mexico’s incoming president (1)

Investors panicked after Mexico’s election. Were they right?

Claudia Sheinbaum takes over power on October 1st

photograph: getty images

Aug 22nd 2024|mexico city

The optimism is striking in Arcos Bosques, a posh mall-cum-office-complex in Mexico City. “I receive foreign investors every week that want to do more in Mexico,” beams Lorenzo Berho of Vesta, an industrial property company, from his shiny offices on the 28th floor.

In other postcodes fear, not optimism, is palpable. Pedro (not his real name) was tidying his cake shop on the outskirts of Mexico City last year when gunmen burst in. Pressing a pistol to his head, they told him to pay 50,000 pesos ($2,600) every month or they would kill his children. “They had their names,” he recalls with horror. He quickly closed the shop. “It won’t change with Claudia,” he sighs, referring to Claudia Sheinbaum, who will become Mexico’s president on October 1st.

These contrasting stories illustrate the vexed legacy that Ms Sheinbaum will inherit from her mentor, the outgoing president Andrés Manuel López Obrador. Mr López Obrador, who is known as amlo, came to power in 2018, shortly after the trade war between the United States and China started. The spat has led thousands of companies to consider opening factories in Mexico, a process known as nearshoring. Yet not only did amlo largely squander the opportunity to attract more investment, but his other damaging policies will prove difficult to reverse. He took a hands-off approach to crime, splurged on welfare and the army, and has undermined the judiciary and regulatory bodies. Many of his policies have put off investors. It is unclear whether Ms Sheinbaum, who won partly thanks to amlo’s handouts, is willing or able to change course.

amlo became president after campaigning with the motto “For the good of all, first the poor”. Owing to its brutal colonial history and more recent mismanagement, Mexico has the world’s most unequal distribution of income before taxes. amlo sought to change this. He sharply increased cash transfers to students, farmers, the disabled and the unemployed, and doubled the minimum wage. He raised pensions for public servants and expanded eligibility to people who previously did not qualify, such as workers who received another pension from their former employer. All this pulled some 5m Mexicans out of poverty and pushed up earnings for many workers, even the wealthy.

Yet annual gdp growth under amlo has been about 0.8% on average, well below other countries in the region. Mexican income per head is now the equivalent of $22,360, lower than when amlo took office. Without strong growth his welfare policies are increasingly unaffordable. Ms Sheinbaum will inherit a fiscal deficit of over 5% of gdp, the largest since the 1980s. She says she will halve it by next year but has not explained how, and has seemingly ruled out a big tax reform. Meanwhile, she has pledged to expand welfare. Markets panicked in June when her party won a near-supermajority in Congress. The stockmarket lost 6% of its value overnight.

The odds that Ms Sheinbaum will boost growth are slim. The biggest reason for optimism remains nearshoring. Janet Yellen, the us treasury secretary, talks of “tremendous potential benefits” for Latin America. Mexico is in pole position. It borders the United States, boasts a sweeping free-trade agreement with the United States and Canada, and ships 80% of its exports to its northern neighbour.

Reasons not to be cheerful

Ms Sheinbaum says she wants to attract businesses and boost clean energy, a steady supply of which is crucial for companies wishing to move. Almost 80% of Mexico’s electricity comes from fossil fuels. Blackouts are common. Alberto de la Fuente, the head of Mexico’s international business council, is optimistic that Ms Sheinbaum, a former climate scientist, will expand renewables. Yet her initial plans appear unconvincing.

Nearshoring already falls short of the hype and may continue to do so. Daniel Chiquiar of itam, a university in Mexico City, and Martin Tobal of the central bank reckon that nearshoring increased Mexico’s total gdp by 1 percentage point between 2018 and 2022 and will push it up by another 0.9% by 2027. That is useful but hardly transforming. Worse, foreign investment in Mexico as a share of gdp fell to an 11-year low last year, and most of that consisted of reinvested earnings rather than new commitments (see chart).

chart: the economist

Investors have ample reason to be jumpy. Ms Sheinbaum is backing a package of constitutional reforms that amlo is trying to push through before he steps down. It would let Mexicans elect judges rather than have them appointed based on merit, and would scrap many independent agencies like the energy regulator and antitrust body. A looming renegotiation of the usmca, the trade deal with the United States and Canada, adds uncertainty. The government is also strong-arming companies to invest in Mexico’s under-developed south, when most industry is in the north.

Rampant insecurity also deters investors and strangles small businesses. It is “without a doubt” the biggest challenge to growth, says Jonathan Heath, a deputy governor at Mexico’s central bank. The Mexican employers’ federation catalogued 31 reported cases of extortion every day in the first four months of this year, more than one an hour. The real number is almost certainly higher. Mr Heath says businesses raising prices to cover extortion payments is one reason why the central bank is struggling to bring down annual inflation, which is 5.6% and rising.

High levels of crime would be challenging even for an economy in robust health. Mexico’s is not. Labour productivity has been stagnant since 1990. Dragging it down is a vast informal sector. Nearly 60% of workers operate off the books, partly because of perverse tax and social-security incentives. Another problem is Mexico’s sluggish banks. The stock of domestic loans to private companies is only 39% of gdp, far below Brazil’s 70% and Chile’s 124%. Bank lending is so badly targeted that the most productive firms are less likely to receive loans. This is partly because the banking system, like many other sectors, is uncompetitive. Just three banks own more than half the assets.

Ms Sheinbaum will need to be bold if she wants to kick-start growth. Yet rather than talking about issues like competition, finance and the grey economy, she has emphasised further increases in the minimum wage. Though she promises better policing, governments of all stripes have failed to rein in the gangs. Her intermittent sweet-talk to investors is unconvincing. “She does not believe in the invisible hand,” grumbles one prominent businessman. Neither does her party. By continuing to downplay these issues, Ms Sheinbaum risks not being able to afford the very policies that helped bring her to power. ■

Asia | Banyan

If a China and America war went nuclear, who would win?

After 45 days of conventional fighting nukes would be tempting, wargamers suggest

illustration: lan truong

Aug 22nd 2024

It is bad enough to contemplate a war in Asia. It is grimmer still to think through a nuclear one. But somebody has to. And so Andrew Metrick, Philip Sheers and Stacie Pettyjohn, all of the Centre for a New American Security (cnas), a think-tank in Washington, recently gathered a group of experts to play a tabletop exercise—a type of wargame—to explore how a Sino-American nuclear war could break out. The results were not encouraging.

In the exercise scenario, it is 2032 and a war over Taiwan has been raging for 45 days. China uses “theatre” nuclear weapons—with a shorter range and smaller yield than the city-busting “strategic” missiles—to shorten the war by coercing America into submission. The targets include Guam and Kwajalein Atoll—a pair of islands vital to America’s military position in the Pacific—as well as an American aircraft-carrier strike group.

That is distressingly plausible. One reason is the geography of the Asian battlefield. During the cold war America and the Soviet Union both planned to use lots of tactical nuclear weapons to destroy large and dispersed troop formations, often in the vicinity of towns and cities. “Today in the Pacific”, notes the study, “naval vessels at sea and military airbases on small islands are a vastly different target.” Fewer nukes would be required and there would be less civilian harm than in cold-war strikes.

That is related to a second reason: the evolution of weaponry. Most people, not unreasonably, think of conventional weapons as being less escalatory and thus more usable than nuclear ones. But today’s low-yield nukes—20 kilotonnes of explosive power, roughly Hiroshima-size—can be delivered with extreme precision and less collateral damage. “The line between low-yield tactical nuclear weapons and precision-guided conventional weapons in terms of both their operational effects and perceived impact is blurring,” says cnas.

The third factor is the effect of a long war. Weeks into a conflict, both sides would run short of conventional weapons. Theatre nuclear weapons would become more attractive. “On a per-weapon basis”, note the authors, “nuclear arms are more efficient at destroying large-area targets.” Their immense power means that they would also continue to work even if weeks of war had degraded the command, control and intelligence systems that conventional munitions rely on.

The result of all this, in the wargame, was a strange sort of nuclear war: China was incentivised to use nuclear weapons first, despite its formal “No First Use” pledge, but once it did so, and in contrast with expectations for how a us-Soviet war would have played out in Europe, things did not necessarily spiral into an apocalyptic exchange of strategic nuclear weapons. In the world of nuclear strategists, that is what counts as good news.

The exercises suggested China had more reason for cheer. The experts and officials playing as China had a wide range of military targets—Asia is chock-full of American facilities and naval assets. (Though there is little evidence that China possesses low-yield nukes right now.) The American team, by contrast, struggled with the fact that many of the most attractive targets for retaliation were on the Chinese mainland. Striking those with tactical nuclear weapons would carry a much higher risk of escalation to general nuclear war.

Moreover, the players found that America did not have the weapons needed to hit the “very small number” of lower-risk targets—mostly warships and Chinese bases on disputed reefs in the South China Sea. Its most advanced non-nuclear missiles would have run out by day 45. America, unlike Russia, no longer has a nuclear-tipped anti-ship missile. A new submarine-launched nuclear cruise missile is slated for the 2030s. But it could not be used for signalling to deter Chinese nuclear use before the fact without giving away where it was. It would also tie up scarce attack subs in the middle of a naval war.

Nuclear strategy has its own macabre grammar, steeped in the assumptions and experience of the cold war and reshaped by the march of military technology. It boils down to politics, though. Faced with the nuclear annihilation of 5,000 American sailors on a carrier or nuclear attack on American territory such as Guam, would an American president respond with nuclear force, reach for what would be a shrinking quiver of conventional weapons—or fold? That, concede the authors, is “the fundamental, unknowable component”.■

China | Chaguan

In China’s “median city” people are surprisingly risk-averse

Our columnist travels there to ask ordinary people two mega-questions

illustration: chloe cushman

Aug 22nd 2024

Over recent decades, individual Chinese dreams reshaped the world. The largest manufacturing power on Earth emerged, in part, because hundreds of millions of rural men and women left behind families and villages to toil in coastal boomtowns. Behind dry graphs showing steep growth rates lurked stories of the human heart. Generations raised amid Maoist conformity reinvented themselves as entrepreneurs and risk-takers.

If Chinese optimism is now fading, the world needs to know. Certainly the economy is slowing. Consumers and businesses are in a funk. The Communist Party devotes large resources to tracking the public mood, but keeps its findings to itself. So Chaguan duly attempted his own straw poll, flying to a city with a claim to being China’s most typical.

About 5m people live in the urban core and rural counties of Yichun, which is known for its lithium mines. It is a third-tier city in the mountains of Jiangxi, a south-eastern province of middling wealth and size. At 34,600 yuan ($4,850) Yichun’s per-person disposable income matches the national median level almost perfectly. Yichun has the same proportion of old people as China does overall, and the same birth rate. Like many inland cities Yichun has modernised rapidly, gaining new parks, an airport, a high-speed train station and some shiny skyscrapers in just a few years.

In any political system, governments should want citizens to answer “yes” to two questions: is the country on the right track, and will your children’s lives be better than yours? Your columnist recently put those queries to dozens of Yichun residents. Their answers helped him see China in new ways.

Most revealing, those graphs showing national wealth growing swiftly and smoothly, year after year, do not match the experiences of the folks in Yichun. Instead, they described lives transformed by good luck, or blighted by bad timing. They talked of generational inequalities, created as opportunities emerged and vanished over recent decades.

When recalling life-changing moments—such as buying a home just before property prices soar—Chinese sometimes talk of shang che, or boarding a train. In conversation, Yichun locals could often identify a precise year in which their fortunes turned.

A couple in their 60s—but both looking much older than that—invited Chaguan to slices of watermelon in their three-room home, hidden in a maze of tumbledown brick shacks. The wife recalled the demolition of her rural village in 1979, a stroke of fate that saw her freed from communal farm work and assigned to an urban work unit. Her husband remembered 1991, when both were laid off by the same collective electronics factory, at the start of a China-wide wave of industrial restructuring. Fearful about how to feed their young twin sons, they opened a meat stall. The 1990s were good years to open a business, he mused, and life was soon “comfortable”. The couple sold meat for 22 years.

Their twins are 38 now and work in the southern megacity of Guangzhou. “Their lives are not as good as mine,” lamented their father, who frets about his sons’ low-paid jobs, though they went to university. “Society deceives people,” said their mother, noting how graduates across China struggle to find good jobs. Only one boy has married. They handed 400,000 yuan, much of their life’s savings, to his wife’s family as a bride price.

Just across town, but a world away, the owner of a deserted hair salon sighed that “business is a mess”. Two years after the covid-19 pandemic, customers are still tightening belts. He is calmer about the long-term prospects of his children—two boys of 11 and seven, who loped past in football shirts. He bought an apartment in 2011 and another in 2016. Today the flats are worth twice what he paid for them, though their value has slipped from a peak in 2022. He fears his sons will enjoy fewer opportunities than he did. Still, he said, those apartments will help them find wives.

A 23-year-old shop assistant described a gulf between youngsters whose parents bought urban apartments years ago, and those who did not. Others have money because their family homes were demolished as Yichun modernised, earning their parents compensation payments. Her own rural family is “not as well-off”.

After decades of growth, the Communist Party enjoys reserves of political capital. In a Buddhist temple, Chaguan met a middle-aged man in the hard-hit construction sector. He had come to pray for his “peace of mind”, he said. He blames himself, not the party, if life is difficult. “I need to work harder,” he said.

A local pawnbroker served tea while her colleague inspected a diamond ring being sold by an embarrassed young man. A divorced mother in her late 30s, she believes people are becoming more risk-averse. Many of her contemporaries used to work in big cities. Increasingly, she sees them returning to Yichun, where with even a mediocre job “you won’t starve.” More and more youngsters dream of safe jobs in the civil service, she noted.

The appeal of the slow train

In tough times, the state is called a haven. The collapse of several big property developers has shaken buyers across China. Tellingly, a salesman at a half-built luxury-apartment complex in Yichun’s newest district emphasised that the developer is backed by a central-government ministry, and has ample funds to complete the project. The salesman considered starting his own business to make more money, but doubts he will take the risk. “Probably, I will go for stability right now,” he admitted.

Yichun is not in despair. A few locals accuse party leaders of mismanaging the pandemic and the economy. Others marvel at their city’s rapid development. Several wonder if their country’s old growth model is ending. Shang che was the dream. Today’s China has fewer trains to board. ■

Middle East & Africa | Iran’s new government

The threat of war is empowering the Islamic republic’s hardliners

As a result, Iran’s new president is off to a disappointing start

Zarif’s regretphotograph: getty images

Aug 22nd 2024

“Ishouldn’t have voted,” says one unveiled Iranian woman. After a burst of enthusiastic voting in the second round of Iran’s recent presidential election, popular disillusionment has returned. Despondency is back at the top, too. Javad Zarif (pictured), Iran’s former foreign minister and its new vice-president, resigned on August 11th. He ran Masoud Pezeshkian’s campaign and helped revive hopes of a more representative government. The announcement of the new cabinet on August 21st showed how those hopes have been dashed.

Mr Pezeshkian has appointed Western-orientated and -educated men to negotiate with the West and try to ease sanctions, but he has retained hardliners to run internal affairs. His interior minister is a former Islamic Revolutionary Guard Corps commander who has suppressed protests against the regime. He has kept his hardline predecessor’s intelligence minister despite the numerous breaches under his watch, most recently the assassination of Hamas’s leader, Ismail Haniyeh, in Tehran. The vice-president and head of Iran’s atomic agency also keeps his job.

Mr Pezeshkian has abandoned promises to promote women and Iran’s ethnic and religious minorities whose votes helped him to victory. There is only one female minister, the second in the Islamic Republic’s history. She is in charge of roads. Again, there are no Sunnis or Kurds.

Apologists insist that without appeasing hardliners, who control parliament, mps would have blocked the appointments. Instead they approved them all. To make any progress Mr Pezeshkian also needs to keep Iran’s supreme leader, Ayatollah Ali Khamenei, on side. He said Mr Khamenei had signed off on the cabinet.

But Iranians expected better. Mr Pezeshkian asked Mr Zarif to suggest cabinet members based on merit but then rejected all but three of his proposals. His public opposition to the use of force to impose the veil has vanished. The police and judiciary continue to detain women for failing to wear it and to jail female activists. Iranians who promoted a boycott of the election feel vindicated. “The gap between the people and the regime briefly narrowed but is now gaping again,” says another female voter. “Pezeshkian’s just a yes-man.”

The powers of Iran’s presidents have always been circumscribed. The threat of regional escalation after Haniyeh’s assassination and the presence of American vessels close to Iranian waters have prompted the regime to quash any hints of reform.

For now, repression will keep the regime’s critics in check. But it still needs the West to solve its biggest problem—economic isolation. Mr Khamenei has tried looking to China and Russia, and failed. Under Mr Pezeshkian’s predecessor inflation was, on average, over 15 points higher than under any other Iranian president. A coffee in Tehran costs almost as much as in London. Mr Zarif has gone, but an ally, his British-educated former deputy, Abbas Araqchi, is slated to be foreign minister. And while Mr Khamenei damns Western perfidy, Mr Pezeshkian is the first president who has been permitted to take calls from Western leaders in three years. ■

Europe | The Russian economy

The mysterious middlemen helping Russia’s war machine

Sanctions are as watertight as a sieve

photograph: getty images

Aug 19th 2024

Russia is planning for decades of Western sanctions, a senior foreign-ministry official, Dmitry Birichevsky, said last week. The evidence suggests that might not be too much of a problem. The economy is growing smartly, at an annualised rate of 4% in the second quarter, after a whopping 5.4% the quarter before, despite one of the toughest regimes ever imposed. Trade continues to flourish. How come?

For a clue, look at Kazakhstan. Last year, the Central Asian republic’s tech industry appeared to pull off a triumph. Since the war in Ukraine began, European firms have been banned from selling most tech products in Russia; they were previously the country’s biggest tech suppliers. But Kazakhstan’s tiny tech industry, some 50 firms with a production capacity of $100m in 2021, seems to have filled the gap. Its exports to Russia rose from $40m in 2021 to $298m in 2023. Of course, all was not as it seemed. Electronic imports from Europe also increased, from €250m ($273m) to €709m. Did Kazakh firms magically expand, or have Russian firms found a roundabout route to their old European suppliers? You be the judge.

Kazakhstan is one of several countries where trade with Russia and Europe has been mysteriously booming since Ukraine’s invasion. Others include Armenia, Azerbaijan, Georgia, Turkey and the other four countries of Central Asia. Exports from the European Union to these countries increased by €46bn in 2023, up 50% from 2021. That was equivalent to three-quarters of the drop in Europe’s exports to Russia from 2021 to 2023.

Along with military aid, sanctions are the West’s main contribution to Ukraine’s war effort, but unlike long-range rockets, they have so far failed to deal much of a blow. Two and a half years in, Russia’s economy is holding up well. It is hard to tell which European firms are simply adjusting well to the new restrictions and which are circumventing sanctions. But as it happens the biggest boosts in trade flowing through third countries have been among products that are now heavily restricted. European policymakers are desperate to close the leaks, but that means getting tough on the governments of some of Europe’s most prickly neighbours.

Three strands lie behind the boom in intermediated trade. The first is trade in banned goods, which clearly flouts sanctions. The eu has adopted 14 packages of sanctions, most recently on June 24th. They ban firms making anything that could be used on a battlefield from exporting to Russia. That includes semiconductors and drones, but also ball-bearings and microwave ovens. Even so, more than half of the battlefield equipment that Russia acquired between February and August 2022 contains components made in Europe or America, according to the Royal United Services Institute, a think-tank in London.

chart: the economist

For example, the most rapid growth in exports from the eu to Kazakhstan and Armenia has been in chemicals, electronics and machinery, all product groups under heavy sanctions. Machinery exports to Kazakhstan from the eu doubled from 2021 to 2022, and then rose another 23% in 2023 to reach €6.4bn. Armenia imported twice the chemicals, five times the IT hardware and four times the electronics from Europe in 2023 as it did in 2021. Then there are the goods that are smuggled across borders, which fall outside the official trade statistics.

Shipments can pass through several middlemen on their way to Russia. Some exporters in Turkey and Central Asia genuinely have no idea where the goods they are shipping came from. But others know very well. Last year America imposed sanctions on a network of European firms organised by Mayak, a Russian conglomerate, to transport forbidden equipment through Uzbekistan and Armenia. In June, it uncovered two different networks of European toolmakers shipping to Russia, one via Turkey for Ostec, a Russian state-owned company, and one via Kyrgyzstan for Newton-itm, a Russian aerospace firm.

The second reason for rising indirect trade is that Russia has barred lorries from entering directly from the eu since 2022. The eu allows the export of some products to Russia, such as agricultural goods, but they must now take circuitous routes. The eu is not too worried about this: it makes transport more costly, which discourages trade with Russia but lets firms that heavily depend on it survive. Agricultural products flowing from Europe into Kazakhstan doubled from 2021 to 2023, official numbers show.

The third trend is the hardest for Europe to stop. It comes from a manufacturing boom in third countries. Third-country firms import some materials and parts from Europe, which does not necessarily break the rules. Sanctioneers have yet to touch some exports, such as textiles, raw iron and raw steel.

But even where trade is allowed, getting paid without breaking financial sanctions is a problem. Almost every transaction with a state-owned Russian firm is banned. European banks are barred from interacting with most Russian ones. Major Russian banks are locked out of SWIFT, the network that banks use to communicate with one another. Firms must avoid doing business with 2,200 firms and financiers who are blacklisted by the eu.

Turkey was one of the biggest suppliers of household appliances to Europe before the war started. America reckons Turkish firms are now making drones and microelectronics for Russia. Metals for some munitions may be smelted in Europe, according to a Turkish foreign-ministry official. Kazakhstan’s imports of office machinery from Europe tripled to almost $1bn from 2021 to 2023. That was probably partly due to a surge of new offices and factories. Investment in Kazakhstan rose by 11% in 2023, buoyed by Russian firms.

The economies of Central Asia and the Caucasus seem to be benefiting from the war. Collectively, the economies of the five Central Asian republics grew by 6% in 2023, up from 4% in 2022, while Armenia’s economy expanded by 8%, up from 5% in 2022. A booming logistics sector has cropped up overnight, and cargo is growing by 20% each year.

For Europe’s policymakers, this is all bad news. “We expected some leakage,” says one official, “but not on the scale we now know about.” In December, the eu’s 12th round of restrictions targeted firms in Armenia and Uzbekistan for the first time. Bureaucrats have since threatened more sanctions on third countries and Europeans exporting to them, but have taken action only against a few firms. For each firm added to the blacklist, another is registered elsewhere.

A real solution would require enlisting the help of the governments of the Caucasus and Central Asia. That is a tall order. Regional politicians value their closeness to Russia and often profit personally from rule-breaking. Still, the Europeans could offer them goodies. Armenia recently started to shut down firms trading with Russia, after the eu awarded it €270m in aid, loans and contracts.

Alternatively, Europe could use sticks rather than carrots. It could extend export bans to third countries or restrict their banks. That could jeopardise Europe’s remaining sources of gas in Azerbaijan and hurt European firms. The question is whether the eu thinks that the benefit to Ukraine of a tighter sanctions regime is worth it. Its current approach suggests it doesn’t. ■

Business | Bartleby

What to do about pets in the office

Dogs can bring both joy and chaos

illustration: paul blow

Aug 22nd 2024

Theodore roosevelt’s bull terrier once chased the French ambassador up a tree. Commander, President Joe Biden’s German shepherd, had to be rusticated after repeatedly biting Secret Service officers. Sir Gavin Williamson, a British politician, refused to remove a tarantula he kept in a glass tank from the office. He defended the presence of Cronus by insisting the “clean, ruthless killer” was “part of the team”.

Pets, more commonly dogs than spiders, have long been a feature of all sorts of workplaces. Google’s code of conduct states that “Affection for our canine friends is an integral facet of our corporate culture.” Ben & Jerry’s, an ice-cream company, dishes out treats to pooches at its reception desk. Over the decades dogs have wandered around The Economist’s head office in London and snoozed on the carpet.

Pets have become an even bigger part of work life since the covid-19 pandemic. Searches for pet-friendly offices on job platforms have rocketed. One in five American families acquired a pet during lockdowns; two-thirds of households now have at least one. For those working from home, a pet dog is a trusty companion between (or during) Zoom calls and an excuse to go for walks. Those who want to go into the office may find that their pets cannot be left alone and that doggy day-care is frightfully expensive. That leaves managers under increasing pressure to let them in. How welcoming should they be?

Apart from, perhaps, in operating theatres or sausage factories, there are obvious benefits to a permissive approach. Welcoming pets can act as a recruitment or retention tool; a few especially fond owners admit online that they have left their full-time jobs in order to spend more time with their furry friends. Letting people bring their pets in can also be a way to entice workers to spend more time at the office.

Dogs in the workplace can boost morale and productivity, and not only those of their owners. Marc Benioff, the boss of Salesforce, named Koa, his now-deceased golden retriever, the company’s “chief love officer”. Petting colleagues’ pooches can also lead to serendipitous conversations, and reduce feelings of isolation. Experiments suggest that employees are more likely to perceive those in a team as friendly if there’s a dog in the vicinity than if there isn’t. That can be a route to fruitful collaboration across the organisation.

The problem for managers, though, is that some people hate dogs, even if they keep their loathing to themselves. They might be allergic to them, or especially sensitive to canine smells and sounds; a few might even prefer cats, for some unfathomable reason. Not all dogs are trained in office etiquette: those that are left unsupervised may roam freely, chew on co-workers’ belongings or make a mess on the carpet. Some owners could do with a bit of training, too: many infuriate their colleagues by bumbling away in baby talk to their pets.

What should managers do? Unfettered openness can make the dog-phobic uncomfortable and unhappy. At the other end of the scale, a few big companies like pwc and hsbc have instituted no-pooch policies in recent years. That may ensure there is no barking havoc in the office, but forgoes the benefits of welcoming pets.

The ideal is to seek middle ground. Google, for instance, bans dog-owning staff (“Dooglers”) from bringing in noisy pets and limits furry incursions if other employees are allergic. Beyond a few company-wide rules, such as banning dangerous breeds and ensuring dogs are vaccinated and office-trained, individual departments could be left to decide their own policies in consultation with their teams. Some areas could be designated as pooch-free zones. A dog roster could be agreed among staff.

This approach works only if people feel free to pipe up when they are uncomfortable, in the knowledge that their managers will act accordingly. As it turns out, such autonomy matters as much for dog-owners as it does for their colleagues. A survey of owners done in 2021 by Elisa Wagner and Miguel Pina e Cunha, then both of the Nova School of Business and Economics in Portugal, suggests that taking a pet into the office can become a burden if employees lack the freedom to decide when they can take breaks from their work.

Opening up the office to dogs might seem like an easy way to make the workplace seem more flexible. In fact, it takes a flexible workplace to make a dog-friendly approach succeed. ■

Business | Schumpeter

Why America’s tech giants have got bigger and stronger

Whatever happened to creative destruction?

illustration: brett ryder

Aug 22nd 2024

When your columnist first started writing Schumpeter in early 2019, he had a romantic idea of travelling the world and sending “postcards” back from faraway places that chronicled trends in business, big and small. In his first few weeks, he reported from China, where a company was using automation to make fancy white shirts; Germany, where forest-dwellers were protesting against a coal mine; and Japan, where a female activist was making a ninja-like assault on corporate governance. All fun, but small-bore stuff. Readers, his editors advised him, turn to this column not for its generous travel budget but for its take on the main business stories of the day. So he pivoted, adopting what he called the Linda Evangelista approach. From then on, he declared, he would not get out of bed for companies worth less than $100bn.

This is his final column and, as he looks back, that benchmark seems quaint. At the time, the dominant tech giants were already well above it. Microsoft was America’s biggest company, worth $780bn, closely followed by its big-tech rivals: Apple, Amazon, Alphabet and Meta. Their total value back then was $3.4trn. Today the iPhone-maker alone exceeds that.

Since early 2019 the combined worth of the tech giants has more than tripled, to $11.8trn. Add in Nvidia, the only other American firm valued in the trillions, thanks to its pivotal role in generative artificial intelligence (ai), and they fetch more than one and a half times the value of America’s next 25 firms put together. That includes big oil (ExxonMobil and Chevron), big pharma (Eli Lilly and Johnson & Johnson), big finance (Berkshire Hathaway and JPMorgan Chase) and big retail (Walmart). In other words, while the tech illuminati have grown bigger and more powerful, the rest lag ever further behind.

It is tempting to view this as an aberration. This column is named after Joseph Schumpeter, the late Austrian-American economist who made famous the concept of creative destruction—the relentless tide of disruptive innovation toppling old orders and creating new ones. Surely these tech firms, founded decades ago in dorms, garages and dingy offices, should be vulnerable to the same Schumpeterian forces that they once unleashed on their industrial forebears.

But creative destruction, at least as framed by the original Schumpeter, is more complicated than that. To be sure, he revered entrepreneurs. He considered them, as we do today, the cult heroes of business, driving the economy forward with new products and ways of doing things. But late in life, after he had witnessed decades of dominance by big American corporations, he changed his tune. He decided that large firms, even monopolies, were the big drivers of innovation. They had the money to invest in new technology, they attracted the best brains—and they had most to lose if they did not stay alert. That may disappoint those who see business as a David v Goliath struggle of maverick upstarts against managerial apparatchiks. But it was prescient. It helps explain why today’s tech Goliaths vastly outspend, buy up and outflank startups before they get the chance to sling a stone.

The figures bearing out this Schumpeterian hypothesis are striking. Since 2019 the five tech giants and Nvidia have doubled their capital expenditures, to $169bn last year. Tot up the 25 next firms’ capex and it was just $135bn—up only 35%. As for brain power, over the same period, the big six added 1m jobs, doubling their headcount. No one can accuse them of resting on their laurels. They have invested in ai startups, ploughed fortunes into building large language models and, in Meta’s case, created open-source offerings that almost anyone can use. This year they are doubling down on their ai spending if only to protect their flanks.

You could argue that startups are better incentivised to devise revolutionary ideas, that venture capitalists bankroll entrepreneurs, and that much of big tech’s spending is wasteful and aimed mostly at erecting walls around their fiefs. All that is true. But do not over-romanticise the little guys. They can be as full of hot air (think WeWork, the delusional hot-desk firm, and ftx, the crypto scam) as business bureaucracies are of flab. Moreover, advancing the frontiers of technology is hard. It takes decades of incessant innovation to create products like Apple’s iPhones. Amazon pioneered not just online shopping but cloud-computing. Such inspired thinking creates genuine defences.

The perennial gale

No doubt their walls will one day be breached—either by strong-armed governments or by new forms of competition. The possibility that America’s Department of Justice could pursue a break-up of Google after this month’s monopoly conviction suggests trustbusters are out for blood. Then there are the threats that Schumpeter, in his 1942 book, “Capitalism, Socialism and Democracy”, said keep the capitalist engine in motion: new products, new ways of making and transporting things, and new forms of business organisation. Eventually the tech conglomerates will tear themselves—or be torn—apart.

In the five and a half years of your columnist’s tenure, some of America’s once-mighty industrial behemoths—in 2019 worth far more than $100bn—have suffered such a fate. ge, brought down by overreach and mismanagement, was broken up this year. Dow and Dupont, two chemicals firms that merged in 2017, have been split into unrecognisable reconfigurations. Boeing cannot manage its civil-aviation business, let alone space and defence.

Simultaneously, new corporate titans are emerging. The biggest is Nvidia, maker of ai accelerator chips and software, which proves that even veteran businesses can be insurrectionary. At the start of 2019, its value was below the $100bn cut. Now it is above $3trn. That surely is worth getting out of bed for. ■

Finance & economics | Buttonwood

Investors should avoid a new generation of rip-off ETFs

Some proposals may even be a risk to financial stability

illustration: satoshi kambayashi

Aug 22nd 2024

John bogle, founder of the Vanguard Group and pioneer of index funds, may have saved investors more money than anyone else in history. By some estimates, his crusade to drive down fees has, over the past five decades, left them with more than $1trn that would otherwise have gone to fund managers. Index funds, through which speculators can invest in the stockmarket as a whole, cut out the middlemen. In doing so, they have transformed the world of investing.

But when it came to exchange-traded funds, the investment vehicle through which people commonly invest in index funds, Bogle was sceptical. The first etfs were launched in 1990, a decade-and-a-half after Bogle’s first passive mutual fund. They came with the ability to buy and sell shares instantaneously. To the godfather of passive investing, minute-by-minute trading made them a “wolf in sheep’s clothing”. He believed they would become a vehicle for speculation and chasing market fads, rather than long-term investment.

Bogle was wrong about etfs in general, which transpired to be a perfect pairing with his long-term ideals. Yet several new types of etf suggest he may not have been entirely wrong to worry that they would be used poorly. Some are what Peter Atwater of Financial Insyghts, a consultancy, calls “financial turduckens”: vehicles created more because it is possible than because it is wise. Most important to the firms that provide them, the complicated new vehicles produce a stream of fees and are proving popular. Inflows into actively managed etfs have risen from less than $5bn in 2019 to over $100bn last year.

The first “defined-outcome fund”, or buffer etf, was launched six years ago. Such funds offer investors an enviable-sounding opportunity: hold stocks, with protection against falling prices. All they must do is forgo annual returns above a certain level, often 10% or so. Inflows have soared this year as investors seek protection from a potential market slump and inflation, leaving such funds with $44bn under management. Over the long term, however, they are a terrible deal for investors. Much of the compounding effect of stock ownership comes from rallies. Since 1980 the s&p 500 index has yielded annual returns exceeding 10% in 27 years. It has dropped by 10% or more only four times. An investor with returns capped at 10% and protected from losses would have made a real return of 403% over the period, a fraction of the 3,155% return offered by just buying and holding the s&p 500.

Another new type of etf is the “semi-transparent” vehicle, which fund providers have promoted since American regulators permitted them in 2019. These allow managers to disclose assets once a quarter, as with mutual funds, instead of every day. According to advocates, this prevents them from being front-run by competitors. The difficulty is that regularly updated knowledge of what is inside an etf allows buyers and sellers to price its shares. Semi-transparent etfs rely instead on a labyrinth of intermediaries given special access, or proxy releases that disclose a limited amount of information—all but defeating the point of an etf wrapper. So far, investors have been duly sceptical. Only one fund holds assets worth more than $1bn.

Worse may yet be to come, however. Private-market etfs would bundle unlisted assets—whether private equity, debt or property—into tradable etfs. BlackRock, an asset manager, last month announced its intention to buy Preqin, a private-markets-data provider, in part to build private-market indices and, in time, etfs to match. But private assets are not just an unusual complement for an etf wrapper; they may prove to be a dangerous one. Putting illiquid assets in a tradable wrapper defies the main mechanism by which the funds operate. When investors buy and sell shares in the etf, it is impossible for the provider to buy and sell the holdings to match. At scale, the funds might pose a risk to financial stability. Liquidity could vanish in a crisis, as investors dump etf shares, while providers are unable to sell assets.

The original pairing of the etf and the passive-investment revolution was a triumph, combining the ability to buy and sell at ease with lower fees. Many of the new forms of etf lack one or even both of these advantages. Their issuers are the overwhelming beneficiaries, extracting fees from investors who end up overpaying for volatility protection, for opacity they hardly need or even for a concerning mismatch in liquidity. As such, the new generation of funds is turning Bogle’s fears into a reality. ■

Finance & economics | Free exchange

Artificial intelligence is losing hype

For some, that is proof the tech will in time succeed. Are they right?

illustration: alberto miranda

Aug 19th 2024

Silicon valley’s tech bros are having a difficult few weeks. A growing number of investors worry that artificial intelligence (ai) will not deliver the vast profits they seek. Since peaking last month the share prices of Western firms driving the ai revolution have dropped by 10%. A growing number of observers now question the limitations of large language models, which power services such as Chatgpt. Big tech firms have spent tens of billions of dollars on ai models, with even more extravagant promises of future outlays. Yet according to the latest data from the Census Bureau, only 5.1% of American companies use ai to produce goods and services, down from a high of 5.4% early this year. Roughly the same share intend to do so in the coming months.

Gently raise these issues with a technologist and they will look at you with a mixture of disappointment and pity. Haven’t you heard of the “hype cycle”? This is a term popularised by Gartner, a research firm—and one that is common knowledge in the Valley. After an initial period of irrational euphoria and overinvestment, hot new technologies enter the “trough of disillusionment”, the argument goes, where sentiment sours. Everyone starts to worry that adoption of the technology is proceeding too slowly, and profits are hard to come by. However, as night follows day, the tech makes a comeback. Investment that had accompanied the wave of euphoria enables a huge build-out of infrastructure, in turn pushing the technology towards mainstream adoption. Is the hype cycle a useful guide to the world’s ai future?

It is certainly helpful in explaining the evolution of some older technologies. Trains are a classic example. Railway fever gripped 19th-century Britain. Hoping for healthy returns, everyone from Charles Darwin to John Stuart Mill ploughed money into railway stocks, creating a stockmarket bubble. A crash followed. Then the railway companies, using the capital they had raised during the mania, built the track out, connecting Britain from top to bottom and transforming the economy. The hype cycle was complete. More recently, the internet followed a similar evolution. There was euphoria over the technology in the 1990s, with futurologists predicting that within a couple of years everyone would do all their shopping online. In 2000 the market crashed, prompting the failure of 135 big dotcom companies, from garden.com to pets.com. The more important outcome, though, was that by then telecoms firms had invested billions in fibre-optic cables, which would go on to become the infrastructure for today’s internet.

Although ai has not experienced a bust on anywhere near the same scale as the railways or dotcom, the current anxiety is, according to some, nevertheless evidence of its coming global domination. “The future of ai is just going to be like every other technology. There’ll be a giant expensive build-out of infrastructure, followed by a huge bust when people realise they don’t really know how to use ai productively, followed by a slow revival as they figure it out,” says Noah Smith, an economics commentator.

Is this right? Perhaps not. For starters, versions of ai itself have for decades experienced periods of hype and despair, with an accompanying waxing and waning of academic engagement and investment, but without moving to the final stage of the hype cycle. There was lots of excitement over ai in the 1960s, including over eliza, an early chatbot. This was followed by ai winters in the 1970s and 1990s. As late as 2020 research interest in ai was declining, before zooming up again once generative ai came along.

It is also easy to think of many other influential technologies that have bucked the hype cycle. Cloud computing went from zero to hero in a pretty straight line, with no euphoria and no bust. Solar power seems to be behaving in much the same way. Social media, too. Individual companies, such as Myspace, fell by the wayside, and there were concerns early on about whether it would make money, but consumer adoption increased monotonically. On the flip side, there are plenty of technologies for which the vibes went from euphoria to panic, but which have not (or at least not yet) come back in any meaningful sense. Remember Web3? For a time, people speculated that everyone would have a 3d printer at home. Carbon nanotubes also had a moment.

Anecdotes get you only so far. Unfortunately, it is not easy to test whether a hype cycle is an empirical regularity. “Since it is vibe-based data, it is hard to say much about it definitively,” notes Ethan Mollick of the University of Pennsylvania. But we have had a go at saying something definitive, extending work that Michael Mullany, an investor, conducted in 2016. The Economist collected data from Gartner, which for decades has placed dozens of hot technologies where it believes they belong on the hype cycle. We then supplemented it with our own number-crunching.

Over the hill

We find, in short, that the cycle is a rarity. Tracing breakthrough technologies over time, only a small share—maybe a fifth—move from innovation to excitement to despondency to widespread adoption. Lots of tech becomes widely used without such a rollercoaster ride. Others go from boom to bust, but do not come back. We estimate that of all the forms of tech which fall into the trough of disillusionment, six in ten do not rise again. Our conclusion is similar to that of Mr Mullany: “An alarming number of technology trends are flashes in the pan.”

ai could still revolutionise the world. One of the big tech firms might make a breakthrough. Businesses could wake up to the benefits that the technology offers them. But for now the challenge for big tech is to prove that ai has something to offer the real economy. There is no guarantee of success. If you must turn to the history of technology for a sense of ai’s future, the hype cycle is an imperfect guide. A better one is “easy come, easy go”. ■

Science & technology | Red planet

Wildfires are getting more frequent and more devastating

Climate change is accelerating the blaze

photograph: getty images

Aug 22nd 2024

Humanity has lived and played with fire for at least 300,000 years. The oldest hearth, discovered at Qesem Cave in Israel and thick with wood ash, is as old as Homo sapiens. Burning never subsequently went out of fashion. Millennia later, the large-scale combustion of coal, oil and natural gas unlocked energy on a scale far beyond the hearth—and in so doing set in train profound changes to the planet’s climate. Humankind, activists are fond of saying, set fossil fuels alight and the world with it. They brandish placards with images of a burning blue marble.

They have a point. Wildfires are more than a powerful visual metaphor for climate change. Data show they are increasingly fuelled by the extreme conditions resulting from greenhouse-gas emissions. What is more, some researchers believe that they are helping drive climate change themselves, powering feedback loops with destructive consequences for human health and ecological stability.

The past five years have been marked by a sequence of particularly extreme wildfires. In late 2019 and early 2020 the “Black Summer” bushfires burned through 23% of south-eastern Australia’s temperate forests. While New South Wales burned, Siberia smouldered, as fires from the previous summer simmered beneath the snow, re-emerging to lay waste to an area bigger than Britain. In 2021 a persistent heat dome over North America’s Pacific north-west produced perfect conditions for widespread burns which would have taxed firefighters even if they had not been synchronised. The day after temperatures in the Canadian town of Lytton soared to a record-breaking 49.6°C, Lytton was no more. In 2022 more of the European Union went up in flames than in any year since 2000, bar one. The next year, more than 950 square kilometres burned near the Greek city of Alexandroupoli in the eu’s largest single wildfire since the 1980s.

The most remarkable blazes of the century, though, engulfed much of Canada between March and October 2023. Thousands of individual fires, many of them out of control for weeks or months at a time, set records for both their size and the speed at which they spread. No region was spared, from the Atlantic coast to the Pacific and from the southern border to the Arctic’s Beaufort Sea. The fires burned more than 180,000 square kilometres, nearly seven times the average burn area in recent years; 232,000 people were evacuated. Cumulatively, they produced almost 1,800m tonnes of carbon dioxide: three times Canada’s industrial greenhouse-gas emissions that year.

chart: the economist

According to a study of extreme fire events published in June in the journal Nature Ecology & Evolution, the years since 2018 have been six of the seven worst since 2003. Over the same time-span the total amount of heat given off by the 20 worst fires of any given year has more than doubled. Noting that global warming was long claimed to be leading to more extreme fires, the authors say there is now evidence to show that this trend is real (see chart).

“Attribution” studies look for the links between these events and global warming that common sense suggests must be there. They use climate models to determine whether specific events were made worse or more likely by climate change. The conclusions are stark. Australia’s Black Summer fires were made at least 30% more likely. The record-breaking spring heatwave that revived the Siberian fires of 2020 would have been “almost impossible” in a world without climate change, according to World Weather Attribution, an international modelling collaboration. As for the Canadian heat of June 2023, an international team of academics concluded in August that its occurrence was about three times more likely under global warming than it would otherwise have been.

Once burned, twice burned

Drier periods and hotter weather often combine to create the ideal conditions for large, destructive fires: tinder-dry vegetation ready to burn, and a paucity of fire-dousing rain. (That said, in some regions some rains can do damage by overabundance—providing more plant mass for dry seasons to turn to fuel.) Climate change means “fire weather” is not only becoming more frequent but also more geographically widespread.

Globally, fire seasons lengthened by 14 days (or 27%) between 1979 and 2019, according to research published in 2022 in Reviews of Geophysics, a journal. The number of days when the most extreme fire conditions prevailed increased by 54%, or ten additional days, over the same period. The Mediterranean, the Amazon and the Pacific forests of North America are among the regions to have seen the greatest increases.

More fire weather does not in itself mean more fires. Roughly 70% of the land surface that burns each year is in Africa, most of it savannahs that are deliberately set alight to regenerate grazing lands and make way for agriculture. These burns are decreasing, in part because people are setting fewer of them and in part because climate change is moistening some savannahs. These changes are leading to a lower total burn area, to the delight of climate sceptics. Remove this vast area from the data, though, and a very different trend emerges: forest fires are on the rise, particularly in the boreal regions that encircle the Arctic. In boreal North America, for example, the burned area doubled between the 1960s and the 1990s.

The pattern is ongoing and global, says Matthew Jones, a researcher at Britain’s Tyndall Centre for Climate Change Research, who has published a new paper in Earth System Science Data, a journal, showing a clear increasing trend in forest wildfires globally. His collaborator Stefan Doerr, the director of the Centre for Wildfire Research at Swansea University, calls it “basically beyond question”. The distinction between savannah fires and forest fires matters: grasslands regenerate within a few years. Forests, particularly old-growth ones, take decades to grow again.

map: the economist

The study shows that the increase is particularly marked in the boreal forests that encircle the Arctic. Last year’s megafires in Canada fall into this category, as do the Siberian blazes of 2020. This has implications for future warming. In tropical savannahs, new plant growth fairly quickly absorbs carbon dioxide—that which was emitted in last year’s fires is soon reabsorbed. When mature forests go up in flames, reabsorption can take many decades or even centuries. Thus boreal fires significantly raise carbon dioxide levels.

The picture may not be as bleak as it seems. In some boreal regions, like parts of North America, burned conifer forests are being replaced by deciduous trees, which grow—and therefore suck carbon out of the atmosphere—faster. This could help mitigate warming rather than amplify it, says Dr Doerr, but it is most probably a minor buffer. (Elsewhere, the dynamics are different: deforestation of the Amazon threatens to turn that ecosystem into a carbon-poor grassland, a process that is accelerated and sustained by wildfires.)

There is another complicating factor. In the winter, boreal forests look dark from above, because the season’s snow sits below the canopy of leaves. Clear the forest and the snow is revealed to the sky; and reflecting sunlight, rather than absorbing it in a leafy canopy, cools the planet. Though boreal-forest fires heat things up immediately, by spreading ash and depriving forests of the cooling effect of transpiration (the evaporation of water from the leaves of trees), over the decades that follow boreal-forest fires increase the amount of snow bared to the sky. That cooling effect is widely taken to outweigh the warming driven by the fires’ direct emissions.

This effect is on the wane. For one thing, snow cover is decreasing as the world warms. That means the strongest cooling effects are becoming restricted to more and more northerly forests. For another, as fires get more intense, their emissions, which may already be underestimated, could significantly increase.

The unfrozen North

Another huge unknown in the spread of fires to the boreal regions is peat. Peat is a type of soil formed over thousands of years that is exceptionally rich in carbon. The carbon emissions produced when peatlands burn may be well nigh irreversible. Worryingly, most of the world’s peat is found on the fringes of the Arctic, precisely where wildfires are on the rise. Though peatlands are often waterlogged and, at high latitudes, frozen, heat and drought could overcome these fire protections.

Too hot to handlephotograph: panos pictures/ matthew abbott

Peat burning in boreal regions is probably one of the biggest sources of uncertainty about future fire emissions, says Dr Doerr. Though the Arctic is now warming nearly four times faster than the global average, how much of the boreal peat will burn—and when—is impossible to predict. The likelihood of such fires starting, though, looks set to increase. Most fires in boreal regions are ignited by a bolt of lightning (unlike fires elsewhere, which are often started by humans). And forests in temperate and boreal regions could see an 11-31% increase in lightning strikes for every degree of warming, according to a study published last year.

The climate impact of blazes that burn peat, among other things, has led some to propose the active suppression of such fires as a way to mitigate emissions. This is a departure from the norm: most countries try to conserve resources by tackling only the blazes that directly threaten human safety or property. (It also runs against the “let burn” firefighting orthodoxy, which favours leaving fires alone in order to reduce the available fuel.)

It would not be cheap. Modelling published in 2022 by researchers from America’s Union of Concerned Scientists and the Woodwell Climate Research Centre in Massachusetts predicted that keeping Alaska’s boreal-wildfire emissions close to the historical average would cost almost $700m a year until 2030, more than five times the state’s current firefighting budget. But, they concluded, per ton of carbon dioxide saved it might well be cheaper than several alternatives currently funded by the American government.

Some have been inspired. As of 2023, the Yukon National Wildlife Refuge—an area of eastern Alaska roughly the size of Denmark—is testing a scheme based on this research. Alaskan firefighters can now be sent to try to contain some types of fires in a specific part of the refuge with the oldest and most carbon-rich permafrost. Jimmy Fox, who manages the refuge for the government, reckons it will mean a couple of big fires are suppressed each year.

Elsewhere, fires continue to go unchecked. After the blazes in Siberia and Russia’s Far East in 2019, the government declared that it would suppress fires across much greater areas. But such promises are useless without the resources to back them up. According to Greenpeace Russia, which monitors wildfires in the country, Russia’s firefighting budget has risen by less than inflation in recent years.

Regardless of the long-term effects of boreal fires on greenhouse-gas levels, some kinds of emissions from combustion have particular economic importance: those from trees that are being credited with locking away carbon in some sort of carbon-credit scheme.

In recent years forestry projects have emerged as a popular source of carbon credits, the idea being that planting new trees—or stopping the destruction of existing ones—can help offset emissions elsewhere. Obviously, those credits are worthless if the vegetation involved goes up in flames, or if the forests’ carbon stock is otherwise depleted (by disease, say, or pests). Consequently, offset schemes rely on “buffer pools” as built-in insurance mechanisms, with any damage compensated for by retiring an equivalent amount of carbon stock from the buffer pool.

Increasingly devastating fires threaten the integrity of these schemes. Take, as an example, California’s state-run carbon offsets programme, which was supposed to guarantee carbon storage for 100 years. An analysis of the programme published in the journal Frontiers in Forests and Global Change in 2022 found that 95% of the buffer pool set aside to mitigate wildfire risk was used up in the first ten years of the scheme’s operation.

Up in smoke

It is not only carbon markets that are at risk. Many national and regional strategies to mitigate greenhouse-gas emissions include plans to reduce emissions by boosting land-based carbon sinks through forestry and agricultural programmes. Fire adds to the reasons for rethinking this.

Such problems will get only worse. Modelling studies suggest that the length of fire seasons will continue to increase as temperatures rise. If the planet warms by no more than the 1.5-2°C temperature range agreed in the un Paris agreement, the number of extreme-fire-risk days is projected to more than double. Between 3°C and 4°C, they might quadruple. Existing climate policies are currently predicted to stabilise global warming somewhere between 2.2°C and 3.4°C.

With that level of warming, a great many forests, from Alaska to Indonesia and south-east Australia, will experience fire seasons of unprecedented ferocity and duration. Homo sapiens may not have started the fire, but will need to find ways of living with it. And fast. ■

Culture | Lights, camera, Pentagon!

Hollywood has a behind-the-scenes helper you might not expect

The Department of Defence sees films as a way to boost recruitment and burnish its image

Quite the propphotograph: lmk media

Aug 22nd 2024|new york

Aplucky marketer (Scarlett Johansson) tries to sell the lunar landing to the American people. She makes astronauts Neil Armstrong, Buzz Aldrin and Michael Collins “bigger than the Beatles” and falls in love with the launch director (Channing Tatum). Movie-goers will find “Fly Me to the Moon” a bit soppy. What they will miss, unless they watch to the end of the credits, is that it was made with help from the Department of Defence (dod).

For more than a century American film-makers have called in the army for help. The dod works with around 140 films and television programmes each year; most are reality series, game shows and documentaries. They supply props and expertise on the condition that they get some say over the script. In 2023 the Pentagon helped Jimmy Kimmel, a comedian, appear to parachute into the Academy Awards from a fighter jet in a nod to “Top Gun: Maverick”, one of many macho blockbusters the dod has helped make. Instalments of the Marvel, “Transformers” and “Fast and Furious” franchises also worked with the dod. It is a long-running tradition. The first film to win an Oscar for best picture, “Wings” (1927), was made with help from the dod’s predecessor, the Department of War.

photograph: capital pictures

Film-makers looking for the dod’s help can send a script to its entertainment bureau. The air force, army, navy, Marine Corps and Space Force have boots on the ground in California (ie, 13 people working for units dedicated to show business). If the Pentagon approves of a film’s message and tone, an attack helicopter or an aircraft-carrier can be made available. Film-makers foot the bill, not taxpayers. Renting an f/a-18f Super Hornet fighter jet from the navy costs around $23,000 an hour. That is a bargain, since it costs $56m to buy one.

The army advises on wardrobe, arranges soldiers as background actors and provides stock footage, too. Scenes shot on actual ships look better than those captured with green screens. A production can save money by filming on a real army base, instead of building a set to look like one. As a result, film studios are reluctant to greenlight certain films without the dod’s approval. “‘Top Gun: Maverick’ probably could not have been made without Pentagon support,” says Richard Klein, a consultant and former State Department employee. Some equipment, such as the f-22 jets used in “Iron Man” and “Transformers”, can be borrowed only from the American government. (America does not sell that aircraft model to foreign governments.)

The dod gets more people into uniform—and not just on set. Data are scant, but Glen Roberts, the Pentagon’s chief Hollywood liaison, says recruitment is a “great by-product” of the dod’s film-making work. Mr Roberts himself was inspired to join the armed forces by “Top Gun”. (Recruiters waited outside cinemas screening the film in 1986 and its sequel in 2022.)

The dod’s other motivation is creative control. Directors who borrow its equipment must follow script notes. Some of the edits are innocuous; a fictional sailor should look and speak like a real one. But the Pentagon’s suggested tweaks can sometimes stifle unflattering depictions of America. “If you want the Pentagon’s help, you can’t portray the us military as corrupt, ineffective or inhumane,” says Mr Klein. The Pentagon is unlikely to support a film in which America’s top brass are the baddies or where the Chinese or Russians infiltrate the White House.

Concerns about China’s rise have added to the Pentagon’s stipulations. An amendment to the National Defence Authorisation Act of 2023 forbids the Pentagon to help films that agree to changes from Chinese censors. The idea was to dissuade studios from “bowing to Beijing”. But, perversely, it may encourage them to make early cuts of their films more likely to pass muster without the need for later edits, thereby inflicting China’s restrictions on global audiences.

The marriage between Hollywood and “Govwood” is not always picture perfect. Joseph Nye, a political scientist who coined the term “soft power”, argues that entertainment loses its credibility when a government fiddles with it. “The best propaganda is not propaganda,” he contends. Film-makers who accept the Pentagon’s help sometimes whinge about it. Scheduling with the dod can be a “nightmare”, says Christopher Silber, who worked on “ncis”, a crime-solving drama. All sorts of commanders, captains and officers must sign off for a ship to become a tv set. And the boat’s routines do not stop just because shooting begins; film and ship crews jostle for space. The show must go on, but so must fire drills and mock battles.

Luckily for directors, they have other options. Some of America’s allies are becoming rivals in film-making. Countries including France, Jordan, and the United Arab Emirates offer film-makers cheaper military kit and attach fewer conditions.

As computer-generated imagery becomes cheaper and more realistic, big-budget films may replace the Pentagon’s toys with digital stand-ins more often. That could help ballooning costs. “Fly Me to the Moon”, made by Apple, had a galactic budget of more than $100m (it has grossed a mere $40m worldwide to date). But as the make-up of Hollywood changes, with tech companies like Apple and Amazon piling into film-making, it is unclear how often they will want to ask the American government for help anyway. They may, quite predictably, see technology as a welcome change of the usual script. ■

Culture | World in a dish

In praise of mangoes

South Asia’s mangoes deserve a wider audience

photograph: reuters

Aug 22nd 2024

“Hindustan is a country of few charms,” observed Zahiruddin Muhammad Babur, after conquering India in the 16th century. The founder of the Mughal empire was unimpressed by the handicrafts, horses, markets, people—and especially the fruit. He complained constantly about the lack of decent melons. But even grumpy Babur could not deny the pleasures of mangoes, which “when good, are very good”. The mango, he concluded, is “the best fruit of Hindustan”.

The people of the subcontinent would go further, declaring it the finest in the world. It is the national fruit of both India and Pakistan. Every region has a favourite variety, from the sublime Alphonso of western India to the sophisticated Dasheri of the north, sparking interminable arguments about which is best. (There is no wrong answer.)

Mango is used as an ingredient in chutney, daal, ice-cream, juice, sherbets and more. But mostly it is eaten alone: ripe, golden, with its juices trickling down the arms. The mango is a gift of love, a lubricant for dealmaking, a plausibly deniable bribe, a reward, an indulgence and a necessity. It is part of the very essence of being Indian—or Pakistani.

That makes it a potent tool of diplomacy. Indian leaders have presented crates to American presidents, Pakistanis to Chairman Mao and the Indian prime minister. Sheikh Hasina, who was recently driven from power in Bangladesh, once sent India 2,600kg of mangoes as a “memento of friendship”. Although trade between India and Pakistan is paltry, mangoes are permitted to cross the border.

However, most of South Asia’s mangoes stay at home. India is the world’s biggest mango producer, with volumes greater than the next nine growers combined, according to Tridge, a data firm. Yet its share of the global export market by value is a meagre 7%. Mexico, which produces a tenth as much as India, accounts for a quarter. The reasons are many, writes Sopan Joshi in “Mangifera Indica”, a new book about mangoes. Chief among them are the delicate nature of the fruit, poor growing practices in India and strict standards in Western markets. No one is sure how many mango varieties exist, but India probably has around 1,000.

This is the West’s loss. If Americans and Europeans are not besotted by mangoes, it is because they have tasted only the more mediocre produce of Mexico and Brazil. That may be starting to change: the volume of India’s official mango shipments to America in 2023 was up a fifth on the previous year, to over 2,000 tonnes. America is also providing grading and sorting machines to Pakistan to boost exports. The mango, as every South Asian knows, is as much about social bonds as about flavour. A fruit this fine demands to be shared. ■

Obituary | Sweet stardom

Wally Amos built, and lost, a delicious empire

The showbiz promoter of Famous Amos cookies died on August 13th, aged 88

photograph: ap

Aug 22nd 2024

In his last years as a talent agent, Wally Amos got tired of massaging egos. He also got weary of clients who threw fits, or didn’t show up, or wouldn’t pay his commission. What he needed was stars who were dependable, fun, and brought in money. As it happened, they were right beside him.

They were very small, not much bigger than a quarter. He made them himself, carefully mixing a lot of good natural ingredients together. They came in three varieties: one choc chip with peanut butter, one choc chip with pecans, and one with butterscotch chips and pecans. On the baking tray, as on a stage, they lined up in perfect rows. Each one was an individual, you could see: extra choc chips here, a centred pecan there, some better endowed than others, but all ready to go. And into the glow they went.

Since these were egos he didn’t mind massaging, he leaned close to the oven door. “Now guys, bake nice,” he told them. “You’re going to go out into the world. You’re going to make people happy. So I want you to get nice and brown and just beautiful.” He was sure his little stars heard him and rejoiced. If he sensed any reluctance, any lagging in the baking, he blew a few cheery notes on his kazoo. They would really hurry up then.

For some time, making cookies had been his healing therapy for evenings at home. It conjured up the kitchen of his Aunt Della’s place in Harlem, where he lived from the age of 12 after his parents had divorced: the wonderful scent of baking, the warm cookie in his hand. Then he decided to take that comfort further. In 1975, buoyed up by a $25,000 loan from top-tier Hollywood friends, he opened up a venue for his new stars on Sunset Boulevard in Hollywood. It was called Famous Amos, in blue and white, and he was already painted on the shop-front in the Panama hat and embroidered shirt he almost always wore. But he was eclipsed by the huge cookie he was admiring. Inside, the kitchen door was adorned with a star. That was where the true artists were.

They were rapidly famous, too. That first store, where they were sold for $3 a pound-bag by little Shawn Amos standing on a milk-crate, made $300,000 in its first year. By 1981 the enterprise had grown into dozens of outlets, all across the country and abroad. The cookies were bringing in $12m a year, and their yellow boxes were piled both in the fancy halls of Bloomingdale’s and Nieman Marcus and in the snack-aisles of supermarkets. Their selling point was simply that they tasted home-made: rich, crisp, flavoursome and altogether wonderful.

The recipe, of course, was secret. That was part of their fascination. All he revealed was that he used real butter, vanilla extract and semi-sweet chocolate chips. Fans from as far as Malaysia claimed to have cracked it by adding malted-milk powder. Some proposed blackstrap molasses. Just as important, though, was what he left out: colouring, chemicals and preservatives.

He was just their manager now, though one with huge experience. You could easily pick him out in a crowd, not just by the hat, the shirt and the salt-and-pepper beard but because he was always smiling. He had built up a fan-base for years, taking his little clients to meetings and recordings, and enclosing them in plastic bags inside the proposals sent to possible investors. He organised a head-shot of “The Cookie” with an a&m logo to show it had a record deal. There were posters, bumper-stickers and lapel pins. For each new outlet he held a proper opening night, persuading city fathers to close whole blocks and inviting a host of non-edible stars. He hadn’t toiled for years in the talent industry for nothing.

In fact, he had done well to enter it at all. In 1967, when he joined the William Morris Agency in New York as a mailroom clerk, there were only a handful of black agents in the country. He had never finished high school, and his job experience before then was as an apprentice chef in a hotel kitchen (where he was regularly passed over for promotion) and in the storeroom at Saks Fifth Avenue. Yet he was sharp enough at William Morris to work his way up to signing Marvin Gaye, the Temptations and Simon and Garfunkel, huge acts. When he signed the South African trumpeter Hugh Masekela he broke away to LA to start his own agency, but Masekela fired him. After that, he struggled.

He struggled eventually with the cookies, too. In the mid-1980s they lost their cachet, and revenues began to fall. Because he was Famous Amos, he thought he needed no advice on how to run a business. He tried to revive it, selling off equity until, in 1988, he handed over the whole company for $3m. For a decade he also lost the right to use his Famous Amos name. When he went into gourmet muffins (cookies now saddening him, to the point where he stopped making them and shaved off his beard), they had to be “Noname’s” or “Uncle Wally’s” instead. In 1999 the Keebler company, the brand’s fifth owner, invited him back as Famous Amos their promoter, but he agreed only if the cookies were presented exactly in his style. Somewhere along the way they had been coloured caramel and dosed with low-quality vanilla. It wouldn’t do.

He ended much as he had begun, contentedly, with his own small handmade cookie outlet in Kailua in Hawaii. But there was one significant difference. Beside the shop was a little room full of donated books, where children were invited to come and read. On Saturdays, sitting in a rocking chair, he would read to them for hours. He became a national spokesman for literacy, and made it his chief cause. After all, he had come to reading late himself; and his mother, a house-cleaner, had never learned.

Between cookies and reading there was an obvious link, he thought. Both were about passing on joy to others. Reading to them, like baking for them, was an act of nourishing and love. That was the secret ingredient in Famous Amos chocolate chip cookies: he murmured love to them, they spread love around. And if he sensed any reluctance, it was out with the kazoo. ■