The Economist January 21st, 2012 issue 8768

118 Pages·2012·23.61 MB·English

by  The Economist Group (Publishers)

3

7 The world this week

Leaders
1 1 Emerging-market
multinationals

38 Justice in Turkey

N ot fo r some

38 Justice in Spain

Investigati ng the

i nvestigator

40 Charlemagne

The rise of state capitalism

G e r m a ny's d o m i n a nce

12 The euro crisis returns

Salve Italia

13 Taxing the rich in America

The politics of p lutocracy

13 Nuclear Iran

N ot q uite too late

14 Corporate anonymity

On the cover
The spread of state
capitalism in the emerging
world will cause increasing
problems: leader, page 11.
The West's economic woes
have coindded with the rise
of a new breed of company in
China and other rising powers:
see our spedal report after
page 48. American fears of
Asian innovators, page 64

The Economist online

Dai ly a n a lysis and opinion from

our 19 blogs, plus a u dio a n d video

Light a n d wrong

16

Letters
On the City, productivity,
sin taxes, Kolkata,
euphemisms

Briefing
23 Booming Mongolia

Mi ne, all mine

United States
41 Income inequality

W h o are t h e 1 %? The euro If Germa ny's Ang ela
42 Optimal tax rates M erkel wants to save it, s h e
Soak or swim m ust h elp Italy's Mario M onti:

43 Online piracy leader, page 12. A decent
Stoppi n g SOPA p r i m e m i nister has restored
44 Mexico's drug war Italy's good n a m e, page 3 5 .

France's downgra de, page 37.

Germany now stands alone. But

44 Red-light cameras its power may wea ken the e u ro
You're on film zon e: C h a rle magne, page 40.
45 Bankrupt schools America is recoveri n g from the
Studyi n g on a s h oestri ng debt bust faster than Europe:
45 Executive clemency Free exchange, page 75

The pardoner's tale

46 Lexington

South Caroli na's p ri m a ry

Britain
27 Town-centre retailing

Nation of s h o p critics

28 John Lewis capitalism

content, debates a n d a daily chart The feeli n g is m utual
Economist.comfblogs 28 Extradition
E-mail: n ewsletters a n d The ties that bi n d
mobile edition 29 Schools in Wales
Economist.comfemail Down in the va lleys
Print edition: available onli n e by 30 Labour's fiscal rethink
7pm London time each Thursday Plan B
Economist.comfprint 30 The Leveson inquiry

Audio edition: available o n line

to download each Friday

Economist.comfaudioedition

The p ress responds

47

The Americas
Mexico's legislature

The siesta congress

48 Guatemala's president

Quick m a rch

48 Oil in Canada

What goes a ro u n d

The high street Britons do n't

Spedal report: State
capitalism
The visible hand

After page 48

31 Exports and the economy

Made in B ritain

31 David Hockney

The bea uty of t h e bori n g

32 Bagehot

Alex Salmond, Little

Volume 402 Number 8768

First published in September1843

to toke port in "a severe contestbetween
intelligence, which pressesforward, and
an unworthy, timid ignorance obstructing
ourprogress. "

Editorial offices in London and also:

Atlanta, Beijing, Berlin, Brussels, Cairo,
Chicago, Hong Kong, Johannesburg, Los Angeles,
Mexico City, Moscow, New Delhi, New York, Pans,
San Francisco, Sao Paulo, Singapore, Tokyo,
Washington DC

N ot so fast

Engla n d e r

Europe
35 Italy's prime minister

A good p rofessor i n Rome

36 The cruise-ship tragedy

Wrecked

36 Russian protests

Puti n 's people

37 French politics

wa nt it to decay, but n eith er

d o they li ke to shop i n it. Those

desires a re h a rd to reconcile,

page 27 . The J o h n Lewis way,

page 28

Middle East and Africa
49 Sanctions and Iran

B e leagu ered but un bowed

50 Persian isolation

A sad o ld city

5 1 Shia Islam

A sense of loneli n ess

51 Israel and Palestine

Tod d li n g to talks

52 Israel and Azerbaijan

Odd but useful friends

Mongolia The country that is

53 Education in South Africa li kely to grow faster than a ny
Sti ll dysfun cti o n a l other i n t h e n ext decade, a n d
53 Protests in Nigeria h o w i t is changing, for better
Let them have fuel or worse, pages 23-25

Down a n otch

37 Riots in Romania

Anger management

� � Contents continues overleaf
4 Contents

54

Asia
Taiwan's elections

The Economist Ja n ua ry 2 1st 2012

Finance and economics

71 American banks

It's alrig ht, Ma Losi ng a ltitude

55 Satire in South Korea 72 Buttonwood
La mpooning the pols Corporate irrati o n a lity
55 Urbanising China 73 Greece's debt-holders
A nati o n of city slickers Volu nteers wa nted
56 Parental abduction in
Japan 73 Austrian banks

Vie n n a 2.0

Child-snatchers

74 China's economy

Israel Even i n the start-up 57 Reform in Myanmar Two twists in the d ragon's Mr No is no more O u r obituary
nati o n , it is h a rd to tu rn young Follow my lead tai l of Ra uf D e n ktas h, leader of
companies into adults, page 61. 58 Banyan 74 Trade statistics the Turkish-Cypriots, page 94

The n eed for m o re Israelis w h o

work, p a g e 6 2 . Ta lks with t h e

Pakista n 's ga m e of chicken

Pa lesti nians have beg un

agai n , page 51

International
59 Corporate anonymity

U lti mate p rivilege

60 Demography

Cutti n g carbon emissions

i Padded

750 3rd Avenue, 5th Floor, New York, NY 10017

75 Free exchange Principal commercial offices:
A progress report o n 25 StJames's Street, London SW1A IHG
deleveragi ng Tel: [phone]
Science and technology
78 Exercise and Longevity Boulevard des Tranchees 16
1206 Geneva, Switzerland
Tel: [phone]

A Rotary engi ne

60 Dissent about prohibition Worth a ll the sweat Tel: [phone] osoo
In na reo veritas 79 Polio 60/F Central Plaza
18 Harbour Road, Wanchai, Hong Kong
Tel: [phone]

Business
6 1 Israeli technology

What n ext for the start-u p

79 Forensic science Other commerdal offices:
Ig norance is b liss Chicago, Dubai, Frankfurt, Los Angeles,
80 Solar energy Paris, San Francisco and Singapore

nation?

Indian energy Power i s

essenti a l for t h e country's 62 Demography and
business in Israel
lon g-term growth, a n d that The promised la n d n eeds
means coal. B ut electricity i s people
u n like ly t o flow fast enough, 64 Confidence in America
pages 68-70 G lass h a lf em pty

81

Flower power

Books and arts
The Obamas

Pa rty of two

82 Philip Larkin

Poetry book

64 Asian technology

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65 Aircraft Leasing

Don't fear it 82 In praise of French
parents
65 Flat-panel screens N o n , n o n a n d n o n
Cracki n g up 83 Alexander Macleod's
short stories

If it flies, rent it

Of m oose a n d m e n

66 Opening a business in
Brazil 83 Ralph Fiennes's
"Coriolanus"
Why m a ke it si m p le? The world at war
66 Tequila in Mexico 84 "Travelling Light"
Storm in a s h ot glass The part of a lifeti m e

Pity the boss Chief executives

a re m uch less powerful than

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An Economist Group business

67 Schumpeter

The s h ackled boss

they used to be: Sch u m peter,

page 67

Briefing
68 Energy in India

The future is black

92 Economic and financial
indicators

Statistics on 42

economies, plus a closer

look at our

com mo dity-price i n dex

Obituary
94 Rauf Denktash

M r No, No a n d No

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7

Politics

lion is missing from its accounts. Officials admitted a
discrepancy, but said this was
due to poor record-keeping,
not corruption.

A reward for good behaviour

In an effort to press Iran harder
to make it halt its nuclear
programme, the European
Union agreed in principle to
block imports of Iranian oil.
Iran urged Arab countries not
to increase their production in
response to the sanctions.
America is also seeking the
support for the measure from
other big importers of Iranian
oil, notably China. America restored full
diplomatic relations with
Myanmar after the militarycontrolled civilian government released scores of political prisoners and announced a
ceasefire with a rebel group.
Meanwhile, Aung San Suu Kyi,
leader of the country's democracy movement, declared that
she would stand for a byelection seat in parliament.
Syria's president, Bashar
Assad, announced an amnesty
for all crimes committed since
the beginning of the tenmonth uprising against him. It
would apply to protesters and
army deserters who turn
themselves in by the end of
January. Mr Assad has offered
amnesties before but almost
no one responded. Russia said
it would veto any moves in the
UN Security Council to impose
sanctions on Syria or authorise
the use of force. Ma Ying-j eou was re-elected as
Taiwan's president, defeating
Tsai Ing-wen, the country's
first female presidential candidate, in a closely fought election. Mr Ma has worked to
improve Taiwan's relationship
with China and used his first
term to strengthen the countries' economic ties. His party,
the Kuomintang, also retained
its control of the legislature.
Strikes brought Nigeria to a
halt after the government
removed the country's fuelsubsidy regime, causing petrol
prices to soar. Under pressure
from trade unions, President
Goodluck }onathan agreed to
lower prices again but said the
subsidies would eventually be
phased out entirely. Pakistan's Supreme Court
summoned Yousaf Raza Gilani, the prime minister, to
appear on charges of contempt. Mr Gilani is accused of
ignoring instructions to open a
corruption case against the
president, Asif Ali Zardari. Mr
Gil ani insists the president has
immunity. His government is
determined to hang on,
although the army's patience
is wearing thin.

At least 51 people, mostly
women and children, were
killed in clashes in South
Sudan's]onglei state, which
lies near the border with the
north. The violence is part of a
deadly cycle of cattle raids and
revenge attacks between some
of the country's ethnic groups.

In response to concerns raised
by the IMF, the Angolan government denied that $32 bil-

An impeachment trial began
in the Philippines of the Supreme Court chief justice,
Renato Corona. The televised
trial is part of President Benigno Aquino's campaign
against corruption. Mr Corona
was appointed by Mr Aquino's
predecessor, Gloria Maca-

pagal-Arroyo, who was arrested late last year on charges of
corruption and electoral fraud.

Punching through

Otto Perez Molina, a former
general, was sworn in as
president of Guatemala. He
has promised an "iron fist"
against crime in the country,
which is one of the world's
most violent.

Venezuela announced that it
would withdraw from the
International Centre for Settlement of Investment Disputes,
a tribunal run by the World
Bank that serves as the arbitrator for foreign-investment
contracts. In a recent judgment
in another tribunal the country was ordered to hand over
$908m to Exxon Mobil.

Ruffled feathers

The European Commission
said it would begin legal proceedings against the Hungarian government over a centralbank law, the forced early
retirement of judges and the
treatment of its data-protection ombudsman. Viktor
Orban, Hungary's prime minister, delivered a conciliatory
speech to the European Parliament and pledged to work
with the commission.

A spat between Romania's
president and a popular official in the health ministry
triggered protests across the
country. Amid violent scenes
in Bucharest, the capital, the
government backtracked on a
controversial health-care
reform but failed to stamp out
the demonstrations.

A Turkish court convicted and
jailed three men involved in
the 2007 murder of Hrant
Dink, an outspoken TurkishArmenian journalist. But Mr

Dink's family and others maintain that state officials were
involved in the killing, and are
continuing to press for a full
investigation.

The British government
scrapped an inquiry by a
former judge into the alleged
participation of MIS and MI6
in the rendition and torture of
terror suspects, after new
claims emerged that intelligence officers had helped to
send two Libyans back to the
Qaddafi regime in 2004. The
government promised to hold
a new inquiry once the police
complete their inve stigation
into the Libyans' allegations.

An XL headache

The Obama administration
rejected the proposed route for
the controversial Keystone XL
pipeline that would stretch
from Canada to the Gulf coast,
but said the companies behind
the project could reapply. The
White House wants to delay a
final decision on the issue,
which has pitted environmentalists against those who
say it will create thousands of
jobs, until after November's
election.

Wikipedia and other websites
shut down their operations for
24 hours to protest against an
online piracy bill in Congress
that they argue will curtail
internet freedoms and give big
media companies the power
to have sites closed down that
infringe copyright.

]on Huntsman withdrew
from the race to be the
Republicans' presidential
candidate. A moderate, Mr
Huntsman had failed to attract
much support from Republican primary voters. In his
withdrawal speech he called
for an end to party bickering
and endorsed Mitt Romney,
whom he described last
October as a "perfectly lubricated weather vane" on
important issues.

Sarah Palin did Mr Romney's
longer-term presidential ambitions no harm by endorsing
Newt Gingrich in the South
Carolina primary, which is
being held on January 21st.

��
8 The world this week

Business

Standard & Poor's downgraded its credit rating for the European Financial Stability Facility, the euro zone's bail-out
fund, cutting it by one notch to
AA+. The move was triggered

an alleged insider-trading
scheme at several hedge
funds. The scheme is said to
have included trades in Dell.

reliability of official Chinese
growth statistics. Meanwhile,
China's stock of foreigncurrency reserves fell at the
end of the year for the first
time since 2003, albeit by only
$40 billion, to stand at a new
total of $3.18 trillion.

The Economist Jan ua ry 2 1st 2012

year in a row in which the
European aerospace company
has bested its American rival
on both measures. Boeing,
however, took more orders for
bigger jets, thereby closing the
gap in terms of revenue.

Top of the heap
American banks
I Market capitalisation, $bn
Jerry Yang resigned from the
January 18th 2012
by s&P's decision a few days
board at Yahoo!, which he
International Energy
Or4080 120 160 TheAgency reported that the helped to found in 1995 and led
earlier to strip France and
Wells Fargo
demand for oil fell in the final
as chief executive for two
Austria of their AAA status
J PMorgan Chase
and further reduce the ratings
quarter of 2011 for the first time
years until]anuary 2009. Once
Citigroup
a shining star in the internet
since the depths of the fiof seven other countries in the
Bank of America
currency block. s&P had given nancial crisis. The agency also
firmament, the TaiwaneseUS Bancorp
noted the potential risk to oil
ample warning that the euro
born Mr Yang had become a
Goldman Sachs
supplies if new tensions with
target of investor criticism at
zone would receive a mass
Source: Bloomberg
downgrade, but politicians
the troubled company. In 2008
Iran lead to disruption to trade
reacted angrily, saying that it
The worsening investment through the Strait of Hormuz.
his opposition to a $48 billion
undermined their efforts to
environment at the end of 2011 takeover bid from Microsoft
resolve the crisis.
took its toll on the fourthbrought him a heap of opproRoyal Bank of Scotland sold
brium; Yahoo! is now worth
quarter earnings of America's
Aviation Capital, its aircraft$20 billion.
As a result of s&P's downbanks.JPMorgan Chase and
leasing business, to Japan's
Citigroup did worse than
Sumitomo Mitsui Financial
grade, Portugal j oined Greece
as the second euro-zone counexp ected, posting declines in
Group for $7.3 billion. The sale
Turn around?
net profit of 23% and 11% reEastman Kodak filed for
try to be accorded "junk" will help RBS to reduce its
non-core assets as it works to
status by all rating agencies.
spectively, compared with the
bankruptcy protection; the
once-dominant photographic
same period in 2010. Goldman
rectify its balance-sheet. AviaSachs said its net profit was
The outlook brightened sometion Capital attracted several company has been struggling
what for UniCredit's rights
down by 58%. But Wells Fargo,
bids. With a fleet soon to reach
in the digital market. Kodak
produced the first camera for
which has a smaller investissue when it emerged that a 300, it is one of the world's
fund in Abu Dhabi was inbiggest lessors of aircraft.
ment-banking business than
consumers in the 188os and in
1976 held 90% of the market for
creasing its stake in the Italian
its rivals, saw net income jump
bank to 6.5%. UniCredit's share Airbus said that 2011 had been
by 21%, to $4.1 billion.
film. It listed $6.8 billion in
liabilities in its bankruptcy,
its most successful year yet, as
offering is a crucial test of the
markets' willingness to invest
from which it hopes to emerge
China's economy grew by
it delivered 534 aircraft to
9.2% last year, which was next year after selling off some
airlines and booked 1,419 net
in the euro zone's banks as
somewhat slower than the orders (new minus cancelled).
they work to meet higher
of its patents.
10-4% it chalked up in 2010. The
capital requirements by June. That compares with Boeing's
news came with the usual delivery of 477 planes and 8os
Other economic data and news
can be found on Pages 9 2- 93
net orders, making it the fourth
Help is on the way
health warnings about the
The IMF discussed ways to
raise more funds from its member countries in response to
the euro crisis. The fund is
n £11.er&9 oi'J
seeking an extra $sao billion
lwpependeNte .!
on a voluntary basis to help
meet the anticipated demand
for bail-out loans.
The World Bank cited the
threat from the rich world's
debt woes and consequential
slowdown in capital flows to
emerging markets in its latest
assessment of the global
economy. The bank now
thinks GDP in the developed
world will grow by 1-4% this
year (down from a previous
estimate of 2.7%) and by 5-4% in
developing countries (down
from 6.2%).
Federal authorities in America
arrested seven people in New
York, California and Massachusetts in connection with