Trump and Iran: what next? Argentina in trouble again The plasma trade, a bloody mess Rules of the robo-road MAY12TH–18TH2018 The $100 billion bet How Masayoshi Son is shaking up Silicon Valley Contents TheEconomistMay12th2018 5 33 SocialpolicyinPoland 8 Theworldthisweek Zlotysfortots 33 Spain Leaders Thehistoryofterror 11 Techinvesting 34 WolvesinGermany The$100bnbet Huffingandpuffing 12 ThewoesofArgentina 35 Charlemagne Tangotantrum WhatdoEuropeanswant? 12 Plasma Bloodmoney UnitedStates 14 IranandAmerica 36 Publicpolicy IranDonaldTrump’s Anewdeal? Makeworkcan’twork withdrawalfromtheIran 16 Malaysia’selections nuclearagreementisunlikely 37 GinaHaspel Whatthedoctorordered TheCIA’snextboss todoanyoneanygood:leader, Onthecover page14.Tensionsurgesacross 37 Primaryelections Succeedorfail,Masayoshi Letters Thecentremostlyholds theMiddleEastasAmerica Sonischangingtheworldof turnstougheronIran,page45. technologyinvesting:leader, 18 Onjuries,economics, 38 MichaelCohen RenewedAmericansanctions page11.Theimpactofhis EnochPowell,Guatemala, Truthandconsequences willmakeithardtorevivethe robots $100bnVisionFundwillbe 39 Childmentalhealth deal,page46 profound,page21 Attentiondeficit Briefing 40 Rentcontrol 21 SoftBank’sVisionFund Thewrongremedy TheEconomistonline TheSonkingdom 41 Lexington Dailyanalysisandopinionto 23 Ridehailing DiamondandSilk supplementtheprintedition,plus Steeringgroup audioandvideo,andadailychart TheAmericas Economist.com Britain 42 CentralAmerica E-mail:newslettersand 25 ThepoliticsofBrexit Abriefprosecutorial mobileedition Cabinetsplits,partytwists goldenage Economist.com/email 26 London’sgangs 43 Canada Printedition:availableonlineby Exitthematrix Rethinkingasylum 7pmLondontimeeachThursday ArgentinaAplummeting Economist.com/printedition 26 MajorLeagueBaseball 43 Venezuela currencypromptsthe Audioedition:availableonline PitchingtotheBrits Caracasrunsdry governmenttoseekacredit todownloadeachFriday 28 Independenteducation 44 Bello linefromtheIMF,page63.The Economist.com/audioedition The£52-per-weekschool PovertyinPeru economyhasmuchincommon withyesterday’semerging 28 Housingsupply markets,butlittleincommon Anewstorey MiddleEastandAfrica withtoday’s:leader,page12 29 TheLiberalDemocrats 45 DitchingtheIrandeal Happycockroaches Nuclearfallout Volume427Number9091 30 Bagehot 46 SanctionsonIran Thedegree-lessclass Thehighestlevel PublishedsinceSeptember1843 46 ElectionsinIraq totakepartin"aseverecontestbetween intelligence,whichpressesforward,and Europe Seekingavisionary anunworthy,timidignoranceobstructing ourprogress." 31 VladimirPutin 47 Africa’seconomies Sixmoreyears Don’texpectmiracles EditorialofficesinLondonandalso: Beijing,Berlin,Brussels,Cairo,Chicago,Madrid, 32 Eurovision 48 Mozambique MexicoCity,Moscow,Mumbai,Nairobi,NewDelhi, NewYork,Paris,SanFrancisco,SãoPaulo,Seoul, Warblegames Deathofarebel Shanghai,Singapore,Tokyo,WashingtonDC 32 Estonia 48 Madagascar ToRussophoneswithlove Ravalomananamañana Blood plasmaMany countries ban payment for it. This is mistaken: leader, page 12. Prejudice and misconception leave the global market for life-saving products dangerously reliant on America, page 55 1Contents continues overleaf 6 Contents The EconomistMay12th2018 65 Studentaccommodation Asia Higherearning 49 Malaysianpolitics 66 IslamicbanksinIndonesia Um,no Actoffaith 50 MediainCambodia 67 Bondissuance Launderandpress Fintechunbounded 50 Australia’sbudget 67 Tariffs Bankingontaxcuts Steelingforbattle 51 Kashmir 68 Buttonwood India’spyrrhicvictories Timetravel Radical ideasWhat liberal AutonomousvehiclesHowdo 52 IBnadnoynaensia’spresident 69 Freeexchange democracy needs is a bigger youdefine“safedriving”in Diversityineconomics role for the market, page 74. Visit our online debate on the termsthatamachinecan understand?Page70 China state of the global trading Scienceandtechnology system 53 TheSouthChinaSea 70 Autonomousvehicles Economist.com/openfuture Makingmischief Roboticrulesoftheroad 54 TheWenchuanearthquake 71 Evolutionarypsychology Ajolttocivilsociety Facingreality Subscription service For our full range of subscription offers, 72 Oceanography including digital only or print and digital International Smallisbeautiful combined visit 55 Payingforblood(1) 72 Butterflies EYocoun coamn iaslts.oc osumb/socfrifbeers by mail or telephone at Thickerthanwater Ablindalley the details provided below: 56 Payingforblood(2) Telephone: +44 (0) 845 120 0983 Americanexceptionalism Web: Economist.com/offers Booksandarts Post: The Economist 74 Marketsandsociety SubscriptionCentre, Malaysia’selection Business Saleofthecentury P.O. Box 471, Haywards Heath, Astunningwinforafresh-faced 57 Americanshale 75 Impeachingapresident RH16 3GY 92-year-old,Mahathir Inthelight,sweetspot Highcrimes UK Mohamad:leader,page16. 58 WalmartbuysFlipkart 76 Experimentalfiction Subscription for 1 year (51 issues) Controlofthecountrywill BentonvilleandBangalore Thetalkingcure Print only UK – £145 switchforthefirsttime,page49 59 Xiaomitogopublic 76 Thesecretlifeoffish Littlerice,lotsofdough Asalmon’slament Principal commercial offices: 60 DrugpricinginAmerica 77 SlaveryinAmerica The Adelphi Building, 1-11John Adam Street, Thepayers’revolt Noearsforcryin’ London WC2N 6HT Tel: +44 (0) 20 7830 7000 60 AirFrance-KLM 78 Johnson Rue de l’Athénée 32 Struckdown Outofthemouthsofbabes 1206 Geneva, Switzerland 61 Videogames Tel: +4122 566 2470 Ahardday’sFortnite 750 3rd Avenue, 5th Floor, New York, NY 10017 80 Economicandfinancial Tel: +1212 5410500 62 Thecoachindustry indicators 1301Cityplaza Four, FiftyshadesofGreyhound Statisticson42economies, 12 Taikoo Wan Road, Taikoo Shing, Hong Kong plusourmonthlypollof Tel: +852 2585 3888 Financeandeconomics forecasters Other commercial offices: FinancialtimetravelThe Chicago, Dubai, Frankfurt, Los Angeles, momenthascomeforour 63 Argentina’seconomicwoes Paris, San Francisco and Singapore ThecrisisofMacrinomics Obituary columnisttoregenerate: Buttonwood,page68 64 India’seconomy 82 Bassam Ghraoui Thegreattrade-off Of war and chocolate 65 China’sstockmarket IT,phonehome PEFC certified This copy of The Economist is printed on paper sourced from sustainably managed forests certified by PEFC PEFC/16-33-582 www.pefc.org Registeredasanewspaper.©2018TheEconomistNewspaperLimited.Allrightsreserved.Neitherthispublicationnoranypartofitmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans,electronic,mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. Published every week, except for a year-end double issue, by The Economist Newspaper Limited. The Economist is a registered trademark of The Economist Newspaper Limited. Printed by Wyndeham Peterborough Limited. 8 The world this week The EconomistMay12th2018 Politics ashortageofforeigncurrency, AMalaysianinvestorwhose manipulated byalliesofthe isnowatriskofsuffering an firm hasdone public-relations Guatemalan president, Jimmy acute liquiditycrisisin its workfortheCambodian Morales. alcohol market. Delta, itsbig- governmentboughtthe gestbrewer, isrunningout of Phnom Penh Post, the lastdaily Not too Trumpy, please ingredientsbecause itcannot newspaperin Cambodia that Anumberofpartyprimaries getdollarsto payforimports; it regularlycriticisesthe govern- were held acrossAmerica. The mayhave to cutbeersupplies. ment. Manyofitsjournalists mostcloselywatched result resigned in a rowaboutits wasforthe Republican Senate Afriendly start coverage ofthe acquisition. candidate in WestVirginia. The leaderofthe protests Don Blankenship, a former againstArmenia’sgovern- Pakistan’sinteriorminister, coal baron and jailbird who ment, Nikol Pashinian, was Ahsan Iqbal, survived an campaigned on a message of elected asprime ministerby assassination attemptafter being“Trumpierthan Trump”, parliament. The Russian presi- beingshotin the shoulder. Mr lostto PatrickMorrisey, who PresidentDonald Trump dent, VladimirPutin, congratu- Iqbal’soutspoken defence of had the supportofthe party pulled America outofthe deal lated him. MrPashinian has minoritieshasearned him the hierarchy, includingDonald brokered byworld powersin promised thathe will not enmityofMuslim radicals. Trump. 2015 to roll backIran’snuclear- breakwith the Kremlin. weaponsprogramme, sayingit North Koreareleased three was“rotten”. He reimposed all MrPutin wasre-inaugurated Americansspeciouslyaccused sanctionsand gave foreign asRussia’spresident, after ofespionage and “hostile firmsup to sixmonthsto stop winninga landslide election acts”. Mike Pompeo, the secre- doingbusinesswith the coun- victoryin March. Hisfourth taryofstate, returned to try. Othersignatories—Britain, term lastssixyears; itis sup- America with the three after France and Germany—said posed to be hislast. Protests visitingNorth Korea to discuss theywould continue to hon- againsthim were violently arrangementsfora summit ourthe agreement, to which broken up. between Donald Trump and Iran seemed to be adhering. “If Kim JongUn, the North’s we achieve the deal’sgoalsin Italyremained withouta dictator. MrKim wentto China co-operation with othermem- government; butthe oddsfor fora second meetingwith bersofthe deal, itwill remain one led bya technocratap- PresidentXi Jinping. He was The Senate held a hearingon in place,” said President pointed bythe presidentreced- the firstNorth Korean leader to whetherto confirm Gina Hassan Rouhani ofIran. ed. Acoalition between the go abroad byplane in 32 years. Haspel asthe nextdirector of radical Five StarMovement the CIA. She wasasked about Binyamin Netanyahu, Israel’s and the right-wingNorthern Sun Zhengcai, a formermem- herrole overseeinga secret site prime minister, applauded Mr League seemed to be backon berofChina’srulingPolitburo, where prisonerswere tortured Trump’s“bold decision”. the cards. wassentenced to life in prison and ruled outanyreturn to a Twentyrocketswere fired from afterbeingfound guiltyof similarprogramme. MsHaspel Syriainto the Israeli-con- Anight to remember takingbribesworth $27m. offered to withdrawfrom trolled side ofthe Golan consideration daysbefore the Heights. Israel blamed Iran The place they called home hearing, an offerthatwas and struckbackatdozensof The Trump administration rejected byMrTrump. targetsin Syria. Itwasthe said itwasendinga “tempo- biggestexchange offire across raryprotected status” pro- EricSchneiderman resigned as the bordersince 1974. gramme for57,000 Hondu- the attorney-general ofNew ranslivingin America. They Yorkstate, afterwomen with Hizbullah and itsalliesgained will have to leave by2020. The whom he had been romanti- seatsin Lebanon’sparliament, governmentgave the statusto callyinvolved claimed he had accordingto preliminary Honduransaftera hurricane slapped them in the face and election results. The Iranian- strucktheircountryin 1998. choked them. MrSchneider- backed militia-cum-political The administration also an- man wasa prominentbacker partyincreased itsshare of Malaysia’sopposition won a nounced plansto separate ofthe #MeToo movement. He poweratthe expense ofthe stunningupsetvictoryatthe children and parentscaught deniesthe allegations, and country’sprime minister, Saad polls, pavingthe wayforthe enteringthe countryillegally. sayshe has“neverengaged in Hariri, whose partysustained country’sfirsteverchange of non-consensual sex”. heavylosses. government. The rulingparty Marco Rubio, a senatorfrom used all mannerofdirtytricks Florida, suspended American An unholyrowin the House of An outbreakofEbolakilled at to pervertthe vote, butstill fundingfora UN-backed anti- Representativesoverthe sack- least17 people in the Demo- lost. Najib Razak, the prime corruption commission in ingofitschaplaincame to a craticRepublicofCongo. This minister, whom American Guatemalaknown asCICIG. miraculousend when Paul isthe ninth outbreakofthe officialshad accused ofembez- MrRubio said the longsen- Ryan, the Speaker, decided to disease in the countrysince its zlingnearly$700m, isout. tencesgiven to a Russian fam- allowhim to stayin the job. Mr discoveryin the 1970s. MahathirMohamad, a spright- ilyconvicted ofbuyingfalse Ryan had asked FatherPatrick ly92-year-old formerprime passportssuggested thatthe Conroyto resign, reportedly Zimbabwe, which hassuf- ministerwho had quitthe Kremlin influenced the com- forprayingthatthe benefits of fered a cripplingliquidity crisis rulingpartyin disgust, will mission. SupportersofCICIG the recenttaxreform should be in financial marketsbecause of replace him. sayMrRubio isthe one being “shared byall Americans”. 1 The EconomistMay12th2018 Theworldthisweek 9 Business sale and underwritingof would not“mop up the losses India’sleadingonline retailer. residential mortgage-backed ofAirFrance” bybailingitout. The country’se-commerce securitiesin 2005-07. Because sectorisexpandingrapidly; Argentinacalledin the IMF, $3.5bn ofthe $4.9bn fine is Underpressure to showthat Flipkart’snetsalesgrewby aftera run on the peso covered byprovisionsalready theyare doingmore to police more than 50% in the year prompted the central bankto made, RBS—ofwhich the Brit- theirplatforms, Google endingMarch 31st. Thatmay raise itsbenchmarkinterest ish governmentstill owns banned all political advertise- be one reason whyAmazon rate to 40% and spend $5bn of more than 70%—should avoid mentsaboutIreland’sforth- wassaid to be interested in reservesin an effortto prop up slidinginto a lossthisyear. comingreferendum on abor- biddingforFlipkart, onlyto be the currency. PresidentMaur- tion from itswebsites, a day thwarted byitsarch-rival. icio Macri wenton television Takeoffandlanding afterFacebooksaid itwould to explain thathe had turned blockadsaboutthe referen- One ofthose sellingitsstake in to the IMFto avoid the type of Air France-KLM dum from non-Irish sources. FlipkartwasSoftBank, which economiccrisesthathave Share price, € made an investmentthrough besetArgentina in the past. Mr In China, Wu Xiaohui, who itsVision Fund and earned a 15 Macri hasbeen praised forhis transformed Anbangfrom a tidyreturn on itstrade. The reformingzeal, butcallingon small insurerinto a global Japanese tech giantreported 10 the fund, which iswidely conglomerate, wassentenced an operatingprofitof¥155bn blamed in Argentina forthe 5 to 18 yearsin prison forfraud ($1.4bn) forthe latestquarter. country’sfinancial crisisin and abuse ofpower. The Thatwasup by60% from the 2001, ispoliticallyrisky. 0 governmenttookcontrol of same period in 2017, in large 2017 2018 Anbangearlierthisyear, say- partbecause ofincome from The multimedia revolution Source: Thomson Reuters ingitsrapid expansion was a the fund. Sprint, an American In anothersign ofthe ThesharepriceofAirFrance- threatto financial stability. wirelessoperatorowned by convergence between the KLMtumbled by10%, afterits SoftBank, made itsfirstannual wirelessand cable industries, chiefexecutive quitamid a Glencoreand the Qatar netprofitin 11years. Vodafoneoffered to buya protracted paydispute with InvestmentAuthority chunkofthe assetsin Europe unions. The companywas scrapped a plan to sell their Ashot in the arm held byLibertyGlobal. The formed bythe mergerin 2004 jointstake in Rosneft, Russia’s Nestléstrucka $7.2bn deal for transaction, valued at€18.4bn ofthe French and Dutch na- stateoil company, to CEFC, a the rightsto sell packaged ($21.8bn), seesVodafone taking tional carriers. Pilotsand staff private Chinese conglomerate coffee and otherproducts overUnitymedia in Germany, atAirFrance have carried out a whose bosshasapparently underthe Starbuckslabel. aswell asLiberty’sholdingsin seriesofstrikes; theyhave fallen foul ofthe authorities. Productslike packaged coffee the Czech Republic, Hungary rejected the latestproposal on The pairdissolved theirven- beansand podsaccountfor and Romania. wages. The French govern- ture. QIAnowholdsan equity just8% ofsalesatStarbucks. It ment, the biggestshareholder stake of18.9% in Rosneft; intendsto use the proceeds Afterseveral weeksof in AirFrance-KLM, criticised Glencore retains0.6%. from the deal to accelerate its courtship, Shireaccepted the unions, pointingoutthat sharebuy-backprogramme. Takeda’stakeoverbid of KLMismore competitive. In itsbiggestacquisition so far, £46bn ($62bn). Ifapproved by Bruno Le Maire, the finance Walmartagreed to pay$16bn For other economic data and shareholdersthe deal will minister, warned thatthe state fora 77% stake in Flipkart, news see Indicators section create one ofthe world’s biggestdrugcompanies. It would also representthe largestforeign takeoverby a Japanese company. Volkswagen’sboard was reportedlyconsideringwheth- erto seekdamagesfrom Mar- tin Winterkorn in relation to the emissions-cheatingscan- dal thatsurfaced in 2015. Mr Winterkorn resigned asCEO when the scandal broke. He wascharged recentlybyAmer- ica’sJustice Departmentwith conspiracy, which maymuddy the carmaker’sargumentthat seniormanagementknew nothingaboutthe tampering. MrWinterkorn hasrepeatedly denied anywrongdoing. Royal BankofScotlandsaid thatithad reached a settle- mentin principle with the Justice Departmentoverthe Leaders The EconomistMay12th2018 11 The $100 billion bet Succeed orfail, Masayoshi Son is changing the world oftechnologyinvesting TWO years ago, if you had startupsthewherewithal to outgun worse-funded rivals. Mr asked expertsto identify the Son’sbetsdo nothave to payoffforhim to affectthe race. mostinfluential person in tech- MrSon’ssecond impactwill be on the venture-capital in- nology, you would have heard dustry. To compete with the Vision Fund’spotofmoolah, and some familiarnames: JeffBezos with the forays of other unconventional investors, incum- ofAmazon, Alibaba’sJackMa or bentsare havingto bulkup. Sequoia Capital, one ofSilicon Val- Facebook’sMarkZuckerberg. To- ley’smostfamousnames, israisingitsbiggest-everfund in re- day there is a new contender: sponse. MrSon isalso bringingcapital to placeswhere itisstill Masayoshi Son. The founderofSoftBank, a Japanese telecoms in fairlyshortsupply—to India, to South-EastAsia and to sever- and internetfirm, hasputtogetheran enormousinvestment al European countries. When the Vision Fund invested close to fund thatisbusygobblingup stakesin the world’smostexcit- $500m in Improbable, a British virtual-realityfirm, it broke a ingyoungcompanies. The Vision Fund isdisruptingboth the fundingrecord, and its€460m ($565m) in Auto1, a German on- industriesin which itinvestsand othersuppliersof capital. line cardealer, wasone ofthe country’sbiggestsuch invest- The fund isthe resultofa peculiaralliance forged in 2016 be- mentsin several years. Ratherthan waitforfounders to make tween MrSon and Muhammad bin Salman. Saudi Arabia’s the trip to California, investorsare undergreaterpressure to thrustingcrown prince handed MrSon $45bn aspartofhis at- seekoutentrepreneurs. temptto diversifythe kingdom’seconomy. Thatgreatdollop of The Vision Fund’s unprecedented span, across countries capital attracted more investors—from AbuDhabi, Apple and and industries, leadsto itsthird impact. MrSon says he wants others. Add in SoftBank’sown $28bn ofequity, and MrSon has to create a “virtual Silicon Valleyin SoftBank”, meaninga plat- awarchestof$100bn. Thatfarexceedsthe $64bn thatall ven- form on which unicornscan offereach othercontactsand ad- ture capital (VC) fundsraised globallyin 2016; itisfourtimes vice, buygoodsand servicesfrom each other, and even join the size ofthe biggestprivate-equityfund everraised (see Brief- forces. The conceptofportfolio companiescollaborating isfa- ing). One VCgrandee callsVision Fund “the mostpowerful in- miliarfrom private equity, butthe fund’ssheerbreadth marks vestorin ourworld”. itout. MrSon is, forexample, tryingto orchestrate hisvarious ride-hailinginvestmentsso thattheydo notburn through so Masastroke... much cash by competing with each other. He encouraged Powerdoesnotnecessarilymean success. Scepticsabout the Uberto sell itsSouth-EastAsian businessto Grab earlier this Vision Fund have lotsofammunition. Aftera longbull market, yearand isurgingitto make a deal in India with Ola. the valuationsoftech firmsare stretched. MrSon personally The Vision Fund model isdisruptive, then. Butisit good for makes most of the investing decisions. He has notched up innovation and consumers? MrSon’sprojectcertainlyhas its some triumphsin hiscareer, includingan earlybeton Alibaba. attractions. Itisshakingup the cosyworld ofSilicon Valley Buthisdotcom-era investmentsmean he isalso the person to venture capital. And itmaynurture competition against the have lostmore moneythan anyone else in history. Hispursuit tech giants. The fund offersfoundersofstartupsan alternative ofthe “singularity”, the pointatwhich computerintelligence to cashingoutto the likesofGoogle, Facebookand Amazon; its exceedsthe human kind, mightmake him a visionary—or just massive chequebookalso givesthose entrepreneursa better an eccentric. The moneyisbeingshovelled outalmost asfast shotatcompetingwith the titans. The fund mayperform a asitwastaken in. The fund hasalreadyspent$30bn, nearlyas similarfunction in China, where nearlyhalfofall unicorns are much asthe $33bn raised bythe entire American VCindustry bynowbacked byone ofthe country’sfourtech giants, Baidu, in 2017. And because abouthalfofitscapital isin the form of Alibaba, TencentorJD.com. debt, itisunderpressure to make interestpayments. Thiscom- bination of gargantuanism, grandiosity and guaranteed ...orMasachism? payoutsmayend up in financial disaster. Indeed, the Vision Yetitsdisadvantagesextend beyond the riskoflosses. Itssheer Fund could markthe giddytop ofthe tech boom. size risks raisingthe cost ofrunninga startup foreveryone. Buteven ifthe fund endsup flopping, itwill have several Youngfirmsthatreceive itscash often spend iton sales and lastingeffectson technologyinvesting. The firstis thatthe de- marketing, which putspressure on everyothercompany in the ploymentofso much cash nowwill help shape the industries industryto spend aslavishlyin orderto acquire customers. ofthe future. MrSon ispumpingmoneyinto “frontiertechnol- Companiesthatreceive hundredsofmillionsofdollars ofcap- ogies” from roboticsto the internetofthings. He already owns ital in one go are elevated farabove theircompetitors. That stakes in ride-hailing firms such as Uber; in WeWork, a co- handsa single individual kingmakingpowers, while keeping workingcompany; and in Flipkart, an Indian e-commerce firm youngfirmsoutofthe clarifyingglare ofthe public marketsfor thatwasthisweeksold to Walmart(see Businesssection). In even longer. Attempts to carve up markets amongportfolio five years’ time the fund plansto have invested in 70-100 tech- firmsmayin time raise a differentsetofcompetition concerns. nology unicorns, privately held startups valued at $1bn or Aproperverdicton the Vision Fund will notbe possible for more. Itsmoney, often handed to entrepreneursin multiples of years. Butthe fate ofmanystartupsand the choicesconsumers the amountstheyinitiallydemand and accompanied bythe enjoyin the future will be guided bythe betsMrSon ismaking threatthatthe cash will go to the competition ifthey balk, gives today. Fortune’sbiggestwheel isspinning. 7 12 Leaders TheEconomistMay12th2018 ThewoesofArgentina Tango tantrum Argentinahasmuchincommonwithyesterday’semergingmarkets,butlittle in common with today’s YAWNINGdeficits,stubborn deficitswiththerestoftheworld. Argentinepesoper$ inflation, a plungingcurren- Andalthough manyemergingmarketshave heavydebts, Invertedscale cy, spiking interest rates, dwin- theydonotshare Argentina’sold-fashioned need to borrow in 18 dling reserves and a humbling othercountries’ currencies. Almost64% ofArgentina’scom- 20 turn to the IMF. Argentina binedgovernmentand corporate debtisdenominated in dol- 22 seemstobegoingthroughaclas- larsandotherforeign monies, accordingto the Institute ofIn- 24 Jan Feb Mar Apr May sic emerging-market crisis, cul- ternational Finance. Amongthe bigemergingmarkets, only 2018 minating in the government’s Turkeycompares, with 56%. The equivalentfigure forThailand decision this week to seek a precautionary loan from the is17%,forBrazil only16%. fund—aninstitutionthatfearsArgentinaalmostasmuchasAr- gentinafearsit. Letitgo Thecountryisnotquiterepeatingitsowncrisis-riddenhis- Lowinflation,modestcurrent-accountdeficitsand limited for- tory.Argentinatodayhasareformistgovernmentlargelyin- eign-currencydebtthusdistinguish manyoftoday’semerging tentondoingtherightthing,ratherthanthepopulistadminis- marketsfromthe peso—and from theirown past. These attri- trationsthatblighteditsrecentpast(seeFinancesection).But butesdonotrenderthem immune from the global financial itstroublesarereal.Manywonderiftheywillspreadtoother forces that have rocked the peso. All emerging economies, emergingmarkets.Severaleconomiesshareoneortwoofits eventhebiggest, muststill watch the Federal Reserve, rising vulnerabilities.Mercifullyfewshareallofthem. Americanbond yieldsand the strengtheningdollarwith trepi- Argentina’srateofinflation,whichexceeds25%,seemsto dation.Inmanycasestheirlong-term interestratesseem as belong to a lost world. Only in Egypt, Nigeria and Turkey sensitivetoAmerica’scentral bankasto theirown. (amongnotableeconomies;Venezuelaisonadifferentplanet) But theirnew virtues do give emergingeconomies more isinflationevenindoubledigits.Itisnowcomfortablybelow roomformanoeuvre. Theycan ease theirown interestrates if the government’s target in Brazil, China and Russia (among borrowingcostsrise too much. And ifcapital fleesthey can al- otherplaces)anduncomfortablybelowitinThailand.These lowtheircurrenciesto fall withoutthe economyfaltering. That countries’monetaryauthoritieshavealreadywonthebattle isbecausetheyneed notworrythata one-offrise in import forpricestabilitythatArgentinaisstillwaging. priceswilltranslate into ongoinginflation orthata weakerex- Inseveralemergingeconomies,includingBrazil,Egyptand changeratewill renderdollardebtsimpossible to service. India,thegovernmentfinancesare,ifanything,worsethanin Thedistinctionsbetween Argentina and the broadergroup Argentina.Brazil’sfiscaldeficitisprojectedtoexceed8%ofGDP ofemerging markets have not gone unnoticed. In 2009 the thisyear,accordingtotheIMF,comparedwithanoveralldef- countrywaseven reclassified asa “frontier” marketbyMSCI, icitof5.5% forArgentina. Buteven asthese othercountries’ anindexprovider. Butin itsstruggleswith inflation, deficits, governmentslivefarbeyondtheirmeans,theirprivatesectors dollardebtand depreciation, Argentina’seconomyresembles arelivingwellwithinthem.Forthatreason,theirlargefiscal aclassicemergingmarketmore faithfullythan manyecono- deficitshavenottranslatedintoequallylargecurrent-account miesthatstillcarrythe label.7 Compensatingblooddonors Blood money Manycountries ban paymentforblood plasma. This is mistaken THIS year marks the 200th transfusion,demand forwhich isfallingasmedical techniques anniversary ofthe first suc- improve, butofplasma (see International section). Most ofthis cessful human-to-human blood comes from plasma-collection centres, where it is extracted transfusion, conducted by from whole blood and the plateletsand blood-cellsare trans- James Blundell, an English ob- fused backinto the donor. Plasma isused to make drugs such stetrician working just across asfactorVIII, which helpshaemophiliacs’ blood to clot, and the Thames from The Econ- vaccinesforrabies, tetanusand Rhesusdisease. Almost 50m li- omist’s offices. Today blood is tresofitwere used in 2015, enough to fill 20 Olympicswim- bigbusiness—with global exportsworth more, in 2016, than mingpools. America, the OPECofplasma, produces15 ofthose global exportsofaeroplanes. Butthattrade isdistorted bythe swimming-pool equivalents. Forget steel and cars: plasma refusal ofmostgovernmentsto allowpaymentto people who makesup 1.6% ofAmerica’stotal goodsexports. give plasma, blood’syellowish liquid component. The secretofthissuccessissimple: America letscompanies The blood trade today consists mostly not of blood for paypeople fortheirplasma. So do the fewothercountries that1 14 Leaders The EconomistMay12th2018 2aregoodatcollectingthestuff,includingGermanyandHunga- ma,fewerwillvolunteerto donate whole blood fortransfu- ry.Othersdon’t.BigimporterssuchasAustralia,Franceand sions.(Payingforwhole blood would be unwise, since itcan- Belgiumhavebannedpayment.InCanada,wheretheissueis notbesterilisedasplasma can.) Butthere isno evidence that alivedebate,thelonecompanytryingtocollectpaidplasma payingforplasmadiminishesthe supplyofdonated blood. hasrecentlybeenbannedintwoprovincesandrisksthesame Thatiswhy,inCanada,more than 30 economistsand philoso- inathird. pherswroteanopenletterarguingagainstbanson paid plas- ma.Americansvoluntarilydonate asmuch blood perperson Bloodandtreasure asdoCanadians. Theaversiontopaidplasmarestsonthreereasonable-sound- A third argument is that paying for plasma preys on the ingbutlargelygroundlesspropositions.Thefirstisthatitisun- poor.Itispossiblethatthose sellingplasma need the money safe.Paymentmightencouragedonorstoconcealdangerous andthereforemightgive too often. In America plasma donors behaviour—such as intravenous drug use. In the 1980s and cangivetwiceaweek;those in Europe can give justonce a 1990s,taintedbloodproductsinfectedhalftheworld’shaemo- week.Thereisnoevidence ofharm to theirhealth in either philiacswithHIV,alongwithtensofthousandsofplasmado- case,butmorelong-term studywould be prudent. norsinChina.Butmodernplasmaproductsdonotcarrysuch Thoseagainstallowingpaymentsuggestusingvoluntary risks.Theyareheat-treatedandbathedinchemicalstosanitise donorsinstead.Yeteverycountrythatdoesnotpayends up them (an impossibility for blood for transfusion). Since the importingplasma.Andthe factthatAmerica isbyfar the dom- adoptionofthesetechniquestherehasnotbeenasinglecase inantsuppliercarriesrisksofitsown. The dependence on a oftransmissionofHIVorhepatitisviaplasmaproducts.Doc- singlesourceleavestherestofthe world vulnerable to an in- torsagreethatplasmaproductsfrompaiddonorsarejustas terruptionofsupply.To protecttheirpeople, therefore, other safeasthosefromunpaidones. governmentsneedtodiversifytheirsuppliesofplasma. Pay- Asecondargumentisthat,ifpeoplearepaidfortheirplas- ingforitwouldmakeabigdifference. 7 IranandAmerica A new deal? Donald Trump’s withdrawal from the Iran deal is unlikelyto do anyone anygood BY PULLING out of the Iran riseupagainsttheiroppressors. nuclear deal, President Do- Atitsheart, MrTrump’splan isbased on a hunch about nald Trump iscountingon rene- sanctions. Firstitassumesthat, with heaviersanctions, Iran’s gotiation orregime change. He is economywill be lessable to finance warfare in Iraq, Syria, Leb- more likelyto end up with war. anon and Yemen. YetIran’sbelligerence isnotthe outcome ofa On May 8th Mr Trump did book-keepingexercise. Notwithstandinglastyear’sstreetprot- notcutAmerica’stieswith the ests, which called formore spendingathome, Iran finances Iran deal so much astake an axe troops, militiasand terroristsbecause itcravesinfluence and it to it. The JointComprehensive Plan ofAction, asitis known, perceives threats. Mr Trump set out to intimidate Iran this curtailsIran’snuclearprogramme fora numberofyearsand week: he mayhave leftitmore determined. permanentlysubjectsitto intrusive inspections, in exchange Second, MrTrump assumesthateconomicpain from new forthe liftingofsanctions. MrTrump’swithdrawal from the sanctions could force Iran to the negotiating table, as it did “decayingand rotten” agreementhonoured a campaign pro- North Korea. Heavysanctionscan indeed lead regimesto ne- mise. However, the presidentwasunexpectedlyharsh in vow- gotiate, asIran showed in the deal thatMrTrump has nowre- ingto extend sanctions, notjustrestore them, and to punish jected. ButMrTrump displayslittle sense ofhowthe verylead- anyfirm doingbusinesswith Iran whereveritisbased. ers he has just welched on can surrender wholesale to his Since the UNsaysthatIran washonouringthe agreement, demandsand survive. aseven itscriticsallow, MrTrump hasstrengthened the argu- Perhapsthatisthe point, and hisreal betisthat sanctions mentsoffoesthatAmerica cannotbe trusted and that the glo- will bringabouteconomicagoniesthattopple the regime. The bal rulesitclaimsto uphold are made to be broken. The ques- mullahswill notrule Iran forever. Butthe Castrosin Cuba tion forthe otherpartiesto the deal (Russia, China, Germany, have withstood sanctionsfordecades. Iran’stheocratshave Britain, France and the European Union) is: what next? The proved perfectlywillingto keep orderbyforce. question forthe world asa whole, especiallythe Middle East, Thisnewspaperwould welcome an end to Iranian belliger- is: whatdoesthismean forIran’sabilityto getthe bomb? ence and to the regime itself, buta wish based on a hunch is not a policy. Instead, faced with the probable failure ofMr Firsttragedy, then Farsi Trump’sscheme, the partiesto the deal should strive to keep it In Tuesday’s announcement MrTrump offered his own an- alive foraslongastheycan. One aim isto demonstrate to Mr swers. He said thathe is“ready, willingand able” to negotiate a Trump and hissupportersthatglobal rulesdo matter. The EU newdeal thatlimitsIran’sregional aggression aswell asits nu- should, for instance, continue to meet Iranian officials and clear weapons, though he offered no plan for bringing that protestto the World Trade Organisation aboutAmerican sanc- about. He also issued a veiled appeal to the Iranian people, tionson itscompanies, asitdid 20 yearsago when America ap- who he said are beingheld “hostage” bytheirgovernment, to plied secondarysanctionsoverCuba. The otheraim is to hold 1 16 Leaders TheEconomistMay12th2018 2Iranbackfromrestartingitsnuclear-weaponsprogramme. underground—literally and figuratively—there may not be Realistically,however,ChinaandRussiamaynotwantto enoughintelligencetoassessthethreat.Moreover, with sanc- digMrTrumpoutoftheholehehasmadeforhimself,andthe tionsalreadyratcheteduphigh,MrTrumpandhissuccessors EUcannotsavethedealonitsown.Thedollarisstilldominant willhavelimiteddiplomaticscopetogetIrantostop. Instead, (thoughMrTrumphassurelybroughtforwardthedaywhen theywillhavetoresorttomilitaryaction. China clears global payments in yuan). Companies with a YoudonotgotowarwithIranlightly—would MrTrump choicebetweenoperatinginAmericaorIranwillinevitably fightover,say,someextracentrifuges?Iranwould be able to choosethebiggermarket. creeptowardsthenuclearthreshold.And,unlike the Iraqi and SothegainsfromapartialdealwillbenegligibleandIran Syrianprogrammes,whichweredestroyedinone mission by maywellsoonerorlaterrestartitsnuclearprogramme.The theIsraeliairforce,Iran’sknow-howandindustrial capacity Irandealguardedagainstthat,byprovidinganearlywarning cannotbebombedoutofexistence.IfIranisdetermined to get and the option to reimpose sanctions. Without it, Iran may aweapon,AmericaorIsraelwillhavetobomb itevery few seektoreturntotheoldlimitedinspectionsregime,tobuild years.Howwouldtheyjustifythat?Itishardto think ofany new centrifuges, to enrich uranium to near weapons-grade previous American president tossing aside an international andtominiaturisewarheads.IftheIranianprogrammegoes agreementforsuchpooroddsandatsuchaheavycost. 7 Malaysia’selections What the doctor ordered Astunning win forthe fresh-faced, 92-year-old MahathirMohamad offers Malaysia a chance to clean up ELECTIONS in Malaysia are edtokeepMalayvotersloyaltoUMNO.Whatismore, Pakatan normallypredictable. In fact, Harapan, asthe victoriouscoalition isknown, resorted to pop- the United MalaysNational Or- ulism to counter UMNO’s election-rigging, promising to roll ganisation (UMNO) and various backan unpopularbutnecessarygoods-and-servicestax and allieshad won all ofthem since to reinstate subsidieson petrol thatMrNajib had scaled back. 1955, until this week. Over the The newgovernment’smajorityalso restson an unwieldy yearsUMNOhasresorted to ev- coalition ofotherdefectorsfrom UMNOand veteran opposi- eryconceivable trickto remain tion politicians with relatively little experience of govern- in power: stirringcommunal tensionsamongMalaysia’seth- ment. In particular, there isbad blood between DrMahathir, nicgroups, lockingup critics,riggingthe electoral system in its who is 92 years old, and Anwar Ibrahim, a former deputy favour, bribingvoterswith populisthandoutsand threatening prime ministerwhom DrMahathirfirsttreated asa protégé chaosifitlost. In the run-up to the election on May 9th itdid all and laterhad jailed on spurioussodomycharges. MrAnwar is ofthat. Itwastestimonyto the awfulnessofthe government of nowthe leaderofone ofPakatan Harapan’scomponentpar- Najib Razakthatthe opposition waseven in contention. And it ties, and would have been itsprime ministerial candidate had istestimonyto the good sense ofMalaysian votersthat the op- MrNajib nothad him jailed again. Although DrMahathir and position won, convincingly, pavingthe wayforMalaysia’sfirst MrAnwarclaim to be reconciled, itisnotclearhowthey will everchange ofgovernment. geton afterMrAnwarisreleased from prison nextmonth. For a country where politics has always been run along Nonetheless, itishard to imagine thatUMNO’slosswill not communal lines, the shockingupsetholdsoutthe prospect of change Malaysia forthe better. Forone thing, itisin the new amore meritocraticform ofgovernment. Forthe region, where lot’sinterestto make the electoral system fairerand to promote rulerswith authoritarian instinctshave been steadily curbing afreerpress. Betteryet, the resultssuggestthatcentrism has political freedoms, it is a heartening victory for democracy. more electoral appeal than both UMNO’sMalaychauvinism And forMrNajib, who wasaccused byAmerica’sDepartment and the IslamiczealotryofPAS, an opposition partythatde- ofJustice ofpersonallypocketing$681m looted from a Malay- clined to join Pakatan Harapan. Manyofthe newMPs, having sian governmentagency, itisa welcome comeuppance. experienced variousformsofofficial biaswhen UMNOwasin power, will have a natural desire to make the bureaucracy Living up to its image more impartial. Doingawaywith preferencesforMalays was Malaysia isoften putforward asa rare example oftolerance alwaysgoingto be a tall order, given the cloutofMalay voters. and democracy among countries with a Muslim majority. Butatthe veryleastPakatan Harapan islikelyto reform some Both claimshad been lookingshakyasUMNOresorted to ever ofthe handouts, to make them lessofa gravytrain for UMNO more unfair tactics, and ever more strident appeals to the cronies. Itspledge to investigate MrNajib’salleged corruption country’sMalayMuslim majority, to remain in power. How should also help clean up politics. much thischangesdependson the good faith and efficiency of Perhaps the new government will succumb to infighting the newgovernment. and fail to getmuch done. Butitsveryexistence isa potentre- Scepticsnote thatitisled byMahathirMohamad, a former minderto Malaysiansand theirneighboursthatgovernments five-term UMNOprime ministerwho pioneered manyofthe can and should, from time to time, change peacefully. With underhand tacticsto which MrNajib resorted in hisfailed bid luck, Cambodians, Singaporeans, Thais and Vietnamese, to remain in power. DrMahathirwasalso a champion of Ma- among others, will begin to wonder if something similar laysia’sodioussystem ofracial preferences, which he expand- mightone dayhappen to them. 7 18 Letters The EconomistMay12th2018 hardlytouchedupontherich ofblood”speech (“Fiftyyears Reachingaverdict Assemblyinstructions bodyofresearchandfindings down-river”, April 21st)? IreadwithinterestJohnson’s abouteconomicgrowththat Powell’sanecdotal middle- Itistrue thatartificial intelli- columnonthebafflinglegalese aresomewhatoutsidemain- aged constituentmusthave gence struggleswith physical containedininstructionsgiven streamwriting.Thereis,for been one ofmanywho found tasksthatappearsimple to tojuries(April14th).Mycol- example,significantresearch theirneighbourhood trans- humans(“The Kamprad test”, leaguesandIhavepublisheda exploringthecharacteristicsof formed overnightbystrangers. April 21st). There isa straight- numberofexperimentsabout thesocialandculturalenviron- Neitherquickenough nor forward explanation forthis howlaypeopledo,andcom- mentsthatfostergrowth. wealthyenough to have fled observation. AIsystemsexcel monlydonot,understandthe Extensivestudieshavebeen elsewhere, theyfelttrapped whenevertheycan learn from categoriesofmentalstatesthat writtenoninstitutionsin- and abandoned. In contrast, an immense numberofex- thedefendantcanbesaidtobe volvedineconomicgrowth those livingin leafysuburbs amples. In the case ofchess or inatthetimeofthecrime.To andhowtheyhavechanged were cushioned from the avideo game, theycan practise giveasenseofthemagnitude overtime.Thishasbeenillu- realitiesofmassimmigration. byplayingmillionsofmatches ofconsequencesthatcan minatedbymanyeconomists, YUGO KOVACH in shorttime periods. When followwhenajurormisun- notablyDouglassNorth.There Winterborne Houghton, Dorset attemptingto learn a physical derstandscriminalmental- isalsoasubstantialempirical task, however, theyare con- states,thedifferencebetween literatureonhowtechnologi- strained byphysical laws. Guatemala and Belize beingconvictedofa“know- caladvances,theprimary Watchingwhetheran ing”homicideanda“reckless” driverofeconomicgrowth, Itisnottrue thatGuatemala assembled chairfallsoveror homicidefortheverysameact comeaboutandthekeyin- claimshalfofBelize’sterritory staysuprighttakestime. canbeasmuchas14yearsin stitutionssupportingthem. (“HalfofBelize, please”, April MORITZ GROSSE-WENTRUP prison,inthefirstcase,and Moregenerally,thepast40 21st). Belize hasa rightto self- Professor of data science probationwithoutprisontime yearshaveseenthedevel- determination. Butwe are in Ludwig Maximilian University of inthelattercase.Itistypically opmentofempiricaland disagreementabouta treaty Munich juries,notjudges,whodecide theoreticalresearchthatviews from 1859. Belize wasnota whichofthesetwomental growthasanevolutionary partyto thattreaty, which still statesthedefendantwasin. process,takingupthemes damagesGuatemala. That Theexperimentswere introducedbyJoseph cannotbe forgotten. However, motivatedbythesensethat Schumpeter. Guatemala’sclaim isto its thelawhadtoocomfortably Theconcernsthathaveled territorial, insularand mari- assumedthatjurorsunder- tothisletterareinpartabout time rights, which are based on standhowtoapplythemen- thatparticularFreeexchange international lawand univer- tal-statecategoriesthatthelaw column,butaremoregeneral sal legal principles. Both Gua- created.Whentheycan’t, thanthat.Wealsobelieveitis temala and Belize wantto lay justiceislikelytomiscarry. importantthatTheEconomist outtheirargumentsatthe OWEND.JONES isawareofhowtheknowl- International CourtofJustice, Director edgeofeconomistswhowork alegal processthatdoesnot MacArthurFoundationResearch outsidethemainstreamtext- referto damages. The Kamprad test, which tasks NetworkonLawand booksandjournalsisevolving. The referendum held in robotswith the seemingly Neuroscience GIOVANNIDOSI Guatemala on April 15th was impossible job ofassembling Nashville,Tennessee ScuolaSuperioreSant’Annain notan actofprovocation. And an IKEAchair, appearsde- Pisa regardingthe notion thatthe signed to comfortusmere CONSTANCEHELFAT referendum was“irrelevant”, mortalsthatwe will notbe Economists respond DartmouthCollege turnout, at26%, wasthe high- easilyreplaced byAI. Instead, RegardingyourFree exchange FRANCOMALERBA estin all ofthe popularconsul- itevokesa dystopian future column purportingto review BocconiUniversity tationsheld in Guatemala so where artificiallyintelligent howeconomistsunderstand JOELMOKYR far; 96% ofthose voterssup- computersserve asthe world’s growth (April 14th), we also NorthwesternUniversity ported the agreement. Belize thoughtleadersand problem- share seriousmisgivingsabout RICHARDNELSON will hold an identical consul- solverswhile theirhuman the adequacyofthe analysis ColumbiaUniversity tation atthe end ofthisyear or serfstoil awayin physical ofeconomicgrowth thatone ANDREASPYKA nextyearand I trustBelize’s tasks. PerhapsI should learn to seesin the standard textbooks UniversityofHohenheim authoritieswill have the same welcome ournewcomputer and in much ofthe current PIERPAOLOSAVIOTTI supportoftheirpeople. overlords, because being literature. Grantingthe legiti- UtrechtUniversity Guatemala and Belize want relieved ofstressful cognitive macyofthattarget, however, F.M.SCHERER peace and prosperity, which is taskswill leave me more time we found thatyoufell short KennedySchool,Harvard whywe both decided to bring to enjoyThe Economist. when describinghowthe University ourdifferencesto the ICJ. I ANDREW WHITEHAIR limitationsofthe earlyneo- SIDNEYWINTER wantto emphasise thatthe Cleveland7 classical growth modelswere WhartonSchool,Universityof damagessuffered byGuatema- recognised, leadingto newer Pennsylvania la asa consequence ofthe models, and in discussingthe non-compliance with the Letters are welcome and should be range ofempirical understand- treatyof1859 isnotan object of addressed to the Editor at An infamous speech The Economist, The Adelphi Building, ingsthatgrowth accounting Guatemala’slegal claim 1-11John Adam Street, and otherquantitative meth- Since when hasitbeen wrong againstBelize. London WC2N 6HT odsused bythe profession foran MPto empathise with ACISCLO VALLADARES MOLINA E-mail: [email protected] have broughtto light. the plightofa constituent, as Ambassador of Guatemala More letters are available at: More importantly, you Enoch Powell did in his“rivers London Economist.com/letters