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Contents The Economist May 21st 2011 [&}
To reduce the risk of terror,
the West must help defuse
tension between Pakistan
and India: leader, page 11. So
many problems flow froma
relationship founded on
fear, pages 47-50. Mixed
mid-term fortunes for India’s
Congress Party, page 41.A
timely new thriller about
Pakistan, page 87
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¥ita
Economist
Volume 399 Number 8734
First published in September 1843
to take part in "a severe contest between
intelligence, which presses forward, and
an unworthy, timid ignorance obstructing
our progress."
Editorial offices in London and also:
Atlanta, Beijing, Berlin, Brussels, Cairo,
Chicago, Hong Kong, Johannesburg, Los Angeles,
Mexico City, Moscow, New Delhi, New York, Paris,
San Francisco, Sao Paulo, Singapore, Tokyo,
Washington DC
7 The world this week
Leaders
11 India and Pakistan
The world’s most
dangerous border
12 Dominique Strauss-Kahn
Damned
15 Japan’s economy
Ona mission
15 Barack Obama and
business
Don’t bully Boeing
16 Medicine
There is no alternative
Letters
18 On Cyprus, gold, cloud
computing, LED lighting,
infrastructure, the
British monarchy
Briefing
25 Dominique Strauss-Kahn
The downfall of DSK
United States
29 The Republicans
The silence of the right
30 Mississippi floods
Raging southward
30 Tort reform
Sorry, losers
31 Military training in
Colorado
No-fly zone
32 The housing market
The darkest hour
32 Red tape in California
Beware of the yogurt
34 Banning circumcision
Against the cut
36 Lexington
Apollo plus 50
The Americas
37 Brazil’s north-east
Catching up ina hurry
38 Bribery in Mexico
Where the kickbacks kick
38 Colombian football
Red card
Asia
41 India’s state politics
Red dusk
42 China and Tibet
Go back to law school
43 Singapore’s Lee Kuan Yew
Not fade away
43 Fiji and Tonga
Island asylum
44 Myanmar’s refugees
Bordering on despair
46 Banyan
North Korea’s enormities
Briefing
47 Pakistan and India
A rivalry that threatens
the world
Middle East and Africa
51 Libya...
The colonel is squeezed
52 ...and its disputed oil
Better for the rebels
52 Syria and the region
What if Assad goes?
53 Israel and Palestine
Anew mood
54 The Gulf Co-operation
Council
A club fit for kings
56 South Africa’s elections
The ruling party dented
56 Africa’s elephants
To cosset or to cull?
Europe
57 Diverging economies
Northern lights, southern
cross
58 The euro’s problems
Tomorrow and tomorrow
58 The queen in Ireland
Most eyes are smiling
59 Elections in Italy
A blow to Berlusconi
59 Russia’s fake politics
Medvedev keeps mum
60 Strange Bremen
The price of freedom
62 Charlemagne
Decoding DSK
Dominique Strauss-Kahn
Whatever the man did, his
ideas should not be abandoned:
leader, page 12. France isin
shock and the IMF isin turmoil,
pages 25-27. Sexual politics:
Charlemagne, page 62
Republicans Social
conservatives and the tea-party
movement are losing groundin
the nominations race, page 29
British politics Squeamishness
about profitmaking is
hampering the government's
bid to reform Britain’s public
services, page 63 . Britons
should also learn how to love
Tesco: Bagehot, page 66
>> Contents continues overleaf
4 onan The Economist May 21st 2011
4 a
Walmart v Wumart Who will
conquer China, the world’s
fastest-growing retail market?
Probably no one, page 69. A
vast new casino in Macau may
signalthe end of an era, page 70
Alternative medicine
Virtually all of itis bunk but
placebos are rather interesting:
leader, page 16. The main
medical benefits from
alternative cures stem from
patients wrongly believing
they are working, page 83
Barcelona The management
secrets of the world’s best
football team: Schumpeter,
page 75
63
64
65
66
70
71
71
72
77
78
79
79
80
Britain
The profit motive
Where lucre is still filthy
Rolls-Royce and
corporate cash
Splashing out
Military strategy
The first casualty
Bagehot
A nation of shoppers
International
Responsibility to protect
The lessons of Libya
Exile for autocrats
You can run. Can you hide?
Business
Retail in China
All eyes on Chinese aisles
Chinese casinos
Why only on Macau?
The global car industry
After Japan’s quake
BP and Rosneft
The dealis not dead
Public relations
More flacks, fewer hacks
Boeing and the NLRB
A watchdog bites
Ronald McDonald
End for the clown?
Schumpeter
Hail, Barcelona
Finance and economics
Japan’s post-quake
economy
Casting about for a future
Buttonwood
The missing link
Indian stockmarkets
Barbarian near the Gate
Stock exchanges
Maple fig-leaves
Petri-dish economies
Kenya revs up
81
81
82
83
84
85
85
86
87
87
88
88
89
90
97
Gambling
Poker-faced
Banks in central Europe
A three-horse race
Economics focus
The service elevator
Science and technology
Alternative medicine
Think yourself better
Three-dimensional
printing
An image of the future
Combating addiction
Can a vaccine stop drug
abuse?
Faster helicopters
Racing rotors
Books and arts
Kissinger on China
No go
The Pak pack
A novel of espionage
Bernie Madoff
Lord of the lies
Healing power of horses
Care for a winner
Chasing Aphrodite
The Getty and its
antiquities
French Impressionism
The brothers Caillebotte
Obituary
Seve Ballesteros
Golf’s matador
Economic and financial
indicators
Statistics on 42
economies, plus closer
looks at global business
confidence and CEO
turnover
Next week
We publish a special report
on Australia. With two
decades of unbroken growth
behind it, record prices for
its minerals and an insatiable
market onits doorstep,
Australia can afford to be
carefree. Or canit, asks John
Grimond?
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The world th
s week
Politics
Atleast 14 protesters were shot
when Palestinians sought to
cross Israel’s borders with
Lebanon, Syria, the West Bank
and Gaza. The demonstrators
were marking the day of the
naqba, or catastrophe, the term
Palestinians use for Israel’s
birth in1948. Binyamin Netan-
yahu, Israel’s prime minister,
said his country’s sovereignty
had to be defended.
Libya’s oil minister, Shokri
Ghanem, was reported to have
defected, the highest-ranking
official to abandon Colonel
Muammar Qaddafi since
Moussa Koussa, his foreign
minister, fled in March. The
prosecutor for the Internation-
al Criminal Court said he was
seeking an arrest warrant for
the colonel, his son Saif, and
his chief of intelligence.
Yemen’s government and an
opposition coalition again
came close to a deal to end the
crisis that has gripped the
country for three months.
Under the plan, brokered by
the Gulf Co-operation Coun-
cil, President Ali Abdullah
Saleh would stand down
within 30 days and a unity
government be formed. But he
was holding out for last-mi-
nute concessions.
Nabil el-Araby, Egypt’s 76-year-
old foreign minister, was elect-
ed secretary-general of the
22-country Arab League,
replacing Amr Moussa, anoth-
er former foreign minister of
Egypt, who held the post for
ten years.
In local elections South Afri-
ca’s ruling African National
Congress won most seats but
faced its strongest opposition
since it came to power in1994.
The share of the vote for the
opposition Democratic Alli-
ance, led by a white woman,
Helen Zille, was expected to
rise from its previous 15%.
At aspecial UN tribunal in
Tanzania, the former head of
Rwanda’s army, Augustin
Bizimungu, was sentenced to
30 years in prison for genocide
and crimes against humanity.
He had ordered Hutu militants
to kill Tutsis during the geno-
cide of 1994, when some
800,000 Tutsis and moderate
Hutus died.
Suspect sentence
Andrei Sannikov, who ran
against Alyaksandr Luka-
shenka for the presidency of
Belarus in December, was
sentenced to five years in
prison for what a court said
was his role in organising
post-election riots. Mr Sanni-
kov called the charges “ab-
surd”. Britain and the United
States condemned the verdict.
Silvio Berlusconi’s ruling
People of Freedom party took
a drubbing in local elections in
some of Italy’s cities. The
biggest blow was the failure of
Letizia Moratti, the mayor of
Milan, Italy’s financial capital
and Mr Berlusconi’s native city,
to secure re-election.
Queen Elizabeth II began a
four-day visit to Ireland, the
first visit by a British monarch
since Irish independence in
1921. Her trip, which saw the
Irish authorities mount their
biggest ever security oper-
ation, took in anumber of
historically sensitive sites—and
the Guinness Storehouse.
Going ballistic
A uN report claims that North
Korea is violating internation-
al sanctions by exporting
ballistic-missile technology to
Iran via a third country, identi-
fied as China by diplomats.
China blocked publication of
the report, which was leaked
any way.
The Chinese blogosphere was
in uproar after officials run-
ning Beijing’s Forbidden City
admitted that they were letting
out part of it for high-paying
events.
America’s Senator John Kerry
visited Pakistan to try to
smooth ruffled feathers fol-
lowing the killing of Osama
bin Laden earlier this month.
He said relations between the
two countries were now “back
ontrack”. As if to prove it,
Pakistani authorities arrested
an al-Qaeda operative in
Karachi. India was embar-
rassed when it had to admit
that aman ona most-wanted
list of terrorist fugitives given
to Pakistan was found living
near Mumbai.
China’s most senior military
commander, General Chen
Bingde, visited the United
States to meet his counterpart,
Admiral Mike Mullen, in the
first visit by a Chinese defence
chief in seven years. But rela-
tions are still troubled. China
resents American arms sales to
Taiwan, while America wants
more transparency over Chi-
na’s rapid military build-up.
After four-and-a-half decades
in Singapore’s cabinet, Lee
Kuan Yew, the city-state’s
87-year-old founding father,
announced he was bowing
out. He may still sound off
from the backbenches.
Debt dealings
The American government
reached the federal-debt ceil-
ing of $14.3 trillion. For the
government to issue bonds
beyond this point will require
approval by Congress, where a
request for a raising of the
ceiling is bogged down in
arguments about spending
and taxes. But because of
various funds that can be
raided, there is no danger of
the government defaulting on
any of its obligations—at least
not for a couple of months.
The Economist May 21st 2011
Strong tax payments, mainly
from the rich, gave California
$6.6 billion in revenues it had
not expected. But most Califor-
nians were more interested in
the scandal surrounding their
former governor, Arnold
Schwarzenegger, who ad-
mitted fathering ason14 years
ago with his family’s maid.
The field for the Republican
nomination narrowed, as
both Donald Trump and Mike
Huckabee ruled themselves
out of contention. Newt Ging-
rich got himself into arow
with the fiscal conservative
brigade by pouring cold water
on the party’s plans for deep
cuts to Medicare,the govern-
ment health insurance scheme
for the elderly, while Mitt
Romney announced impres-
sive fund-raising figures. Jon
Huntsman, who has yet to
declare formally, set off to tour
New Hampshire.
Sweet Micky’s new powers
Michel Martelly, a singer-
turned-politician, was inaugu-
rated as Haiti’s new president.
It was the first peaceful transfer
of power from one democrati-
cally elected president to
another from a different party
in the country’s history.
The Cuban government an-
nounced it would allow all
small private businesses to
hire employees. It had previ-
ously restricted that privilege
to specific occupations.
Ecuador’s National Electoral
Council finished counting the
votes from a May 7th referen-
dum on constitutional reform.
It found that all ten of the
amendments proposed by
Rafael Correa, the country’s
president, were approved,
giving him more control of the
courts and media. >>
‘:@ The world this week The Economist May 21st 2011
Business
[ Odds of being the next IMF boss
Selected
Odds*
Christinelagarde (France) 6-4
Kemal Dervis (Turkey) 522.
Montek Singh Ahluwalia (India) 5-1.
Mark Carey Conada) 10-1.
Phitipp Hildebrand (Switzerland) 12-1.
Grenley eciea (aac!) al 16-1
Source: William Hill *As of May 19th
Dominique Strauss-Khan
stepped down as head of the
IME, following his arrest for an
alleged sexual assault ona
New York chambermaid.
Lobbying began over who
should succeed him at the
helm of the fund. Eu finance
ministers restated their belief
that any new managing direc-
tor of the mF should bea
European, as tradition dictates.
Mr Strauss-Kahn had been
expected to quit the fundin
June and return to France to
compete for the Socialist nomi-
nation for the French presiden-
cy; polls had suggested that, if
nominated, he would beat
Nicolas Sarkozy in next year’s
election.
The fund was also busy deal-
ing with Greece’s financial
problems. Greece is unlikely
to meet the terms of its bail-
out, which requires it to cut its
budget deficit to 7.6% of GDP
this year. EU ministers must
decide whether to approve a
“soft restructuring” of its debt,
by allowing it to reschedule
some repayments.
Takeda Pharmaceutical
announced a deal to buy the
Swiss firm Nycomed for €9.8
billion ($14 billion), the second-
biggest foreign acquisition by a
Japanese firm on record.
BP failed to seal a share swap
and Arctic-exploration deal
with Rosneft before a dead-
line on May 16th. The deal,
struck in January, was opposed
by Bp’s current Russian joint-
venture partners, AAR. Al-
though most of the big issues
had been resolved, including a
buy-out of AAR by Bp and
Rosneft, the three firms
couldn’t agree on all the de-
tails. Despite reports that the
deal had collapsed, talks are
likely to continue and a tie-up
between Bp and Rosneft is still
not out of the question.
Nasdaq and ICE, two stock
exchanges, withdrew an $u1-
billion hostile bid for NYSE
Euronext, after American
regulators suggested the take-
over would throw up antitrust
issues. The news leaves the
path clear for Germany’s
Deutsche Borse to pursue its
own $10-billion offer, which
NYSE accepted in February.
London calling
The London Stock Exchange,
meanwhile, is facing competi-
tion in its bid to merge with
TMx, the group which oper-
ates the Toronto exchange,
after Maple, a consortium of
Canadian banks, topped LsE’s
offer.
Britain’s Office of Fair Trading
has suggested that it might
refer the country’s “big four”
auditors, PwC, KPMG, De-
loitte and Ernst & Young, to
the Competition Commission.
Yahoo! and Alibaba, a Chi-
nese e-commerce firm, tried to
patch up their differences after
anasty public spat. Yahoo! had
complained that Alibaba, in
which it has a 43% stake, had
secretly transferred ownership
of its online payment portal to
another company controlled
by Alibaba’s chairman, Jack
Ma. Yahoo! claimed it had
found out about the deal only
in March, seven months after
the event. Alibaba responded
that the matter had been
passed by its board, which
includes a Yahoo! representa-
tive. It added that some com-
pensation had been paid
and there would be further
discussions.
Play it again
Sony began to restore its Play-
Station Network after hackers
breached its security, compro-
mising the personal infor-
mation of 100m users last
month. Howard Stringer,
Sony’s president, who has
been criticised for a lethargic
response to the issue, predict-
ed that cybercrime would
become an increasing pro-
blem, and said he couldn’t yet
say how much the episode
would cost the firm.
Despite having a cash stock-
pile of $37 billion, Google
became the latest firm to take
advantage of the low cost of
borrowing by launching a $3
billion bond offering. The
company said it will use the
money to pay off short-term
loans. Analysts also believe it
will go on an expansion drive.
It has been a busy week for
Google, which also previewed
the first laptops to run its
Chrome operating system and
was on the end of a PR attack
from Facebook, which tried to
plant nasty stories about itin
the press.
Production can begin again at
Saab after Pang Da, a Chinese
distributor, bought1,300 vehi-
cles and a24% stake in the
carmaker’s parent company,
Spyker. The deal, worth up to
€u10m ($156m), will allow Saab
to reopen its plant in Sweden,
which has lain idle for six
weeks as it has struggled to pay
suppliers. The news came after
a deal with another Chinese
firm, Hawtai, collapsed last
week.
Send out the clown
Aresolution at McDonald’s
annual shareholder meeting
called on the fast-food chain to
axe Ronald McDonald in an
effort to stop the firm market-
ing to children. The company’s
bosses were unimpressed,
though, calling the burger-
wielding clown (which it has
rebranded a “balanced, active
lifestyles ambassador”), a
“force for good”.
Other economic data and news
can be found on pages 97-98
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