the economist - after the storm; how to make the best of recovery (october3-9, 2009)

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Print edition October 3rd 2009

The world this week Politics this week Business this week KAL's cartoon Leaders

A “new normal” for the world economy

After the storm

The People's Republic at 60

China's place in the world

Iran, the world and the bomb

China's other face

The red and the black United States

Reviving America's schools

Ready, set, go

Barack Obama and Guantánamo

Better safe than sorry

Foiling terrorist attacks

Home-grown bombers

Manufacturing's future

Wanted: new customers

Regulating greenhouse gases

Enter the EPA

The Nevada Senate race

Forgetting his roots?

Lexington

Blanche Lincoln's balance The Americas

Mexico's troubled oil industry

How many Mexicans does it take to drill an oil well?

Ecuador's president

Correa and the golden ponchos

Education in Uruguay

Laptops for all

Honduras's power struggle

Cracks within and without Asia

Pakistan's Swat valley

The law in whose hands?

Sri Lanka's internally displaced

A view framed by barbed wire

America and Myanmar

Re-engagement rings

Natural disasters

A season of calamity

China's National Day

Party like it's '49

Banyan

After the storm

The new economic landscape will be grim unless policymakers act to foster growth: leader

A special report on the world economy The long climb

From Ozzie to Ricky The hamster-wheel

A fine balance Separation anxiety Rolling the hoop Gandhian banking Market fatigue Industrial design

A dull, heavy calm Sources and acknowledgments Offer for readers

Business

Corporate finance

Thawing out

JAL asks for another bail-out

Flights in the ointment

EDF gets a new boss

Energetic manoeuvres

Russia's sickly car market

Feast and famine

The boom in smart-phones

Cleverly simple

Xerox buys ACS

Copycats

Drug firms buy vaccine-makers

Shot in the dark

Schumpeter

Thriving on adversity Briefing

Private equity in Asia

Back on the catwalk

American bank bosses

Clearing out the corner office

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Politics this week

Oct 1st 2009

From The Economist print edition

An earthquake of magnitude 7.6, centred off the coast of the Indonesian island

of Sumatra, caused widespread damage in the city of Padang Hundreds died

and thousands were trapped under rubble as scores of buildings, including

hospitals, collapsed A second huge tremor in the area hampered rescue efforts

A strong earthquake in the South Pacific triggered a tsunami that killed more

than 115 people on several islands, notably Samoa and American Samoa, where

Barack Obama declared a disaster

Flooding in Manila, the capital of the Philippines, and surrounding areas left

nearly 300 people dead or missing The government was criticised for not

preparing for the arrival of Typhoon Ketsana, which brought the biggest deluge

for more than 40 years, submerging the capital and affecting some 2m people See article

China marked the 60th anniversary of the founding of the People’s Republic with an imposing military

parade through Tiananmen Square in Beijing, showing off missiles and other new weaponry See articleKurt Campbell, an American assistant secretary of state, held a meeting in New York with U Thaung,

Myanmar’s science minister It was the first such high-level contact between the countries in a decade,

and followed an announcement by Hillary Clinton, the secretary of state, that America would respond to overtures from the Burmese junta seeking engagement See article

A new agenda

The G20 ended its summit in Pittsburgh by agreeing to implement a global “framework” to rebalance

members’ economies and co-ordinate efforts at regulating finance The G20 also said it will take on the role hitherto played by the G8 of holding big economic summits (the G8 will concentrate on security) See article

A smattering of Democrats joined Republicans on the Senate Finance Committee to vote down the “public

option” of a government–run health-insurance plan But Democrats defeated a Republican amendment

restricting federal funds for abortion

The Obama administration upped the ante on negotiations in Congress over a bill to lower

greenhouse-gas emissions when it said it would use the “power and authority” of the Clean Air Act to impose such

reductions on the worst-polluting facilities See article

Testing patience

In the run-up to a meeting in Geneva on October 1st between Iran and a group

of six countries (the United States, Britain, France, Germany, China and Russia)

to discuss the Islamic Republic’s nuclear programme, pressure mounted after a

new uranium-processing facility was discovered near the city of Qom Iran also

conducted two days of missile tests See article

At least 157 people were killed by the security forces in Guinea’s capital,

Conakry, according to a local human-rights group, after thousands of people

gathered in a stadium to protest against continuing military rule See article

AFP

AFP

expired for Kenya’s own government to set up a tribunal Kenya’s anti-corruption chief, Aaron Ringera, resigned only weeks after being reappointed by President Mwai Kibaki

Outside the law

The de facto government of Honduras reacted to the return of Manuel Zelaya, the ousted president, by

suspending constitutional freedoms It closed a television channel and a radio station and expelled a delegation from the Organisation of American States Mr Zelaya is holed up in the Brazilian embassy in Tegucigalpa, the capital See article

American officials confirmed that during a six-day visit to Havana in September a senior American

diplomat held talks with Cuba’s deputy foreign minister The administration of Barack Obama has said it

wants to talk to Cuba about practical matters, such as immigration

Some three years after it was first mooted by Hugo Chávez, the Bank of the South got some promises of

cash Argentina, Brazil and Venezuela each offered $2 billion Mr Chávez hopes it will be an alternative to the World Bank Four other South American countries will be members, but Chile, Colombia and Peru are not joining

A court in Ecuador named a new judge to hear a case in which $27 billion in damages is being sought

against Chevron, an American oil company, for alleged pollution by Texaco, which it bought in 2001 The court accepted the previous judge’s request to stand down after Chevron released secretly taped images which, it claimed, implicated him in a bribery scheme

Magic Merkel

The German election produced a convincing victory for the centre-right The

Christian Democrats’ leader, Angela Merkel, will remain as chancellor, but will

form a new coalition with the liberal Free Democrats The centre-left Social

Democrats saw their share of the vote slump to 23%, the lowest since 1932 See

article

Portugal’s election was won by José Sócrates, the Socialist incumbent, but his

party lost its absolute majority See article

Romania’s government lost its majority after the Socialist party pulled out of

the ruling coalition in protest against the sacking of the interior minister, Dan

Nica

On the eve of Ireland’s second referendum on the European Union’s Lisbon treaty, a group of Czech

senators asked the constitutional court to rule (again) on the text This may further delay ratification even

if Irish voters say yes

Both sides claimed vindication from a report by a group of European experts into the causes of last year’s

war between Russia and Georgia It found that the Georgians fired the first shots, but had been

provoked by the Russians See article

Britain’s Gordon Brown made his last speech to the Labour Party conference before an election due by

June next year See article

The justices on Britain’s new Supreme Court were sworn in, replacing the law lords in the House of Lords

as the highest court of appeal in most cases and marking the first break of the judiciary from Parliament

in centuries See article

AP

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Business this week

Oct 1st 2009

From The Economist print edition

Ken Lewis said he would step down as chief executive of Bank of America by the end of the year Mr

Lewis has had a rough time ever since BofA took over Merrill Lynch amid the financial maelstrom in September 2008 The deal was welcomed at first, but BofA had to ask the government for an extra $20 billion in funding to help smooth its acquisition Mr Lewis also became a lightning rod for general criticismsover bank bonuses when huge rewards were paid to Merrill executives after the merger These are now the subject of multiple investigations

America’s Federal Deposit Insurance Corporation proposed a novel solution for rebuilding its

deposit-insurance fund, depleted after a spate of seizures Banks will pay three years’-worth of premiums, or $45 billion, upfront But they will be able to record this on balance-sheets over time This should enable the FDIC to avoid having to borrow from the Treasury, for now

The European Central Bank’s second tender of unlimited one-year funds at 1% interest attracted much

less demand than its first offer In June the ECB provided a record €442 billion ($620 billion) to banks, butthe take-up this time was only €75 billion

Sortie

BNP Paribas unveiled a €4.3 billion ($6.3 billion) rights issue, the proceeds of which it will use to help

pay back the €5.1 billion it received in a bail-out from the French government Meanwhile, UniCredit and

Intesa Sanpaolo, Italy’s two biggest banks, declined offers of state aid in favour of raising cash from

investors instead See article

Xerox announced that it would buy Affiliated Computer Services for $6.4 billion, the latest example of

a company that makes technology hardware adding data services to its business As with Dell’s recent proposal to buy Perot Systems, Xerox should obtain a more stable revenue stream from ACS, which gets around 40% of its income from government-related contracts See article

Cisco Systems made a $3 billion offer for Tandberg, a Norwegian company specialising in

videoconferencing Cisco hopes the acquisition will help it extend its reach in videoconferencing to smaller companies and consumers

Can’t make a connection

India’s Bharti Airtel and South Africa’s MTN called off their merger talks shortly before a conclusive

deadline It is the second time in two years that the telecoms companies have failed to combine and create what would be a mobile-phone behemoth stretching across Africa, South Asia and the Middle East The South African government had insisted that MTN retain a large element of control over the business

In the biggest deal among several acquisitions in the drugs industry this week, Abbott Laboratories agreed to pay $6.6 billion for the pharmaceutical business of Belgium’s Solvay, a conglomerate Abbott

gains a range of Solvay’s medicines, such as its treatment for high cholesterol, and also its flu vaccines, the worldwide market for which is expected to rise significantly over the next few years

Britain’s Serious Fraud Office sought the attorney-general’s consent to prosecute BAE Systems in a

politically contentious case, which centres on allegations that the defence company bribed several

governments to win contracts See article

General Motors said it would phase out its Saturn range of cars after a rescue deal put together by

housing market (with the S&P/Case-Shiller index of home prices in 20

cities rising for a third consecutive month in July) data from the Treasury

for the second quarter showed that the number of homes at some stage of

being foreclosed had reached almost 1m; completed foreclosures now

exceed 130,000

A learning curve

The yen advanced to an eight-month high against the dollar, fuelling fears

that a stronger Japanese currency will hurt Japan’s exports and hamper its

recovery Hirohisa Fujii, the new finance minister, gave mixed policy

signals, saying there was nothing “abnormal” about the currency’s upward

trend of recent weeks, but adding that he has never said he would not intervene if the yen became too strong See article

HSBC decided that from February its chief executive will be based in Hong Kong The bank will keep its

global headquarters in London It explained Michael Geoghegan’s move to Hong Kong, where it was founded in 1865, as part of its strategy to ready the group “for the shift in the world’s centre of economic gravity from west to east”

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

A “new normal” for the world economy

After the storm

Oct 1st 2009

From The Economist print edition

The new economic landscape will be grim unless policymakers act to foster growth

IN THE political dictionary he first published in 1968, William Safire, who died on September 27th, devoted

an entry to the word “normalcy” The term was made popular by Warren Harding, campaigning for

America’s presidency in the wake of the first world war It was inescapable after the terrorist attacks of September 11th 2001 Normalcy is what people call normality when they no longer take it for granted No surprise, then, that the word reappeared in the communiqué released by the leaders of the G20 group of big economies after their Pittsburgh summit on September 24th-25th After the wrenching economic crisis

of the past year, people crave stability and predictability—in short, normalcy But how far off is it? And what will a “normal” world economy look like after the biggest financial bust since the Depression?

The new normal

Glance at share prices or short-term growth forecasts and you might feel comforted Output has stopped shrinking in all the world’s big economies In its latest forecasts the IMF reckons global GDP will expand by3.1% next year, 1.2 percentage points faster than it forecast in April Global stockmarkets have rallied by 64% since their trough Corporate finance, once frozen, is thawing fast (see article) Bearish analysts are once again having to justify their pessimism (see article)

Yet closer inspection suggests caution Despite a welcome return to growth, the world economy is far fromreturning to “normal” activity Unemployment is still rising and much manufacturing capacity remains idle.Many of the sources of today’s growth are temporary and precarious The rebuilding of inventories will not boost firms’ output for long Across the globe spending is being driven by government largesse, not animal spirits Massive fiscal and monetary stimulus is cushioning the damage to households’ and banks’ balance-sheets, but the underlying problems remain In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital That suggests consumer spending will be lower and the cost of capital higher than before the crunch The world economy may see

a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened

That realisation alone should temper some of the optimism buoying financial markets But the prospect of

a “new normal” (a phrase popularised by Mohamed El-Erian, the boss of Pimco, a fund manager) still spans at least two distinct possibilities One is that the world economy returns roughly to its pre-crisis rate

of growth, without regaining the ground lost That, the IMF points out, is what happens after most

financial crises The second, more depressing possibility is that growth stays at a permanently lower rate, with investment, employment and productivity growth all feebler than before

Illustration by Jon Berkley

The difference between these outcomes is huge, as our special report on the world economy points out Persistent damage to economies’ growth potential would result in a darker future of sluggish income gainsand diminished expectations That, above all, is what policymakers must avoid To do so, they must pull off several tricky manoeuvres: shoring up demand now without wrecking the public finances; containing unemployment without inhibiting the shift of workers from old industries to new ones; and, more than anything else, fostering innovation and trade, the ultimate engines of growth.

Shoring up demand is the most urgent task It is no secret that global spending must be rebalanced: indebted American consumers must cut back, while thrifty countries should spend more and save less In China this means a stronger currency, bigger social safety-nets and an overhaul of subsidies to increase the share of national income going to workers Germany and Japan need structural reforms to boost spending, especially in services What has long been lacking is the political will—and here the G20 seemed

to make progress The Pittsburgh communiqué promised to subject members’ economic policies to “peer review” These reviews may prove toothless, but the commitment to them is a step forward

Private spending in surplus economies will not soar overnight The world economy will rely more on governments for longer than anyone would like Premature fiscal repairs could jeopardise the recovery, as America learned in 1937 and Japan rediscovered 60 years later Governments must eventually fix their balance-sheets, but only when the private sector is strong enough—and it must be done in a way that boosts economies’ growth potential The bulk of the adjustment should come from spending cuts Where revenues must rise, taxes on consumption or carbon are better than those on wages or profits

Out with the old

Governments must also combat joblessness without ossifying their labour markets High unemployment can do lasting damage, as people lose their skills or their ties to the world of work This danger justifies efforts to slow lay-offs or encourage hiring But not all such remedies are equal Some of the most popular

of today’s schemes—such as paying employers to cut hours rather than jobs, as in Germany—try to preserve the labour force in aspic Economies must be free to reinvent themselves and allow thriving industries to replace ailing ones

The path of productivity growth will determine the nature of the new normal more than anything else In the rich world, innovation sets the pace Elsewhere, trade is often more important Both are now under threat Cash-strapped companies are skimping on research and development Emerging economies are having to rethink their reliance on exports for growth Both rich and poor governments will be tempted to intervene They should avoid cosseting specific industries with subsidies or protection Allowing market signals to work will do more to boost productivity than cack-handed industrial policy

Add all this up and the difficulties are formidable “A sense of normalcy should not lead to complacency,” the G20 communiqué says, with both rhyme and reason The storm has passed But policymakers have a lot to do—and a lot of mistakes to avoid—if they are to make the best of the recovery

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

The People's Republic at 60

China's place in the world

Oct 1st 2009

From The Economist print edition

The world has accepted that China is emerging as a great power; it is a pity that it still does not always act as one

FOR a country that prides itself on its “peaceful rise”, it was an odd way to celebrate a birthday The People’s Republic of China marked its diamond jubilee on October 1st with a staggering display of military muscle-flexing (see article) Goose-stepping soldiers, tanks and intercontinental ballistic missiles filed through Tiananmen Square, past the eponymous Gate of Heavenly Peace, where, 60 years ago, as every Chinese schoolchild is taught (wrongly, it now seems), Mao Zedong declared that the Chinese people had

“stood up”

For many Chinese, daily life remains a grim struggle, and their government rapacious, arbitrary and corrupt (see article) But on the world stage, they have never stood taller than today China’s growing military, political and economic clout has given the country an influence of which Mao could only have dreamed Yet Chinese officials still habitually complain that the world has not accepted China’s

emergence, and wants to thwart its ambitions and “contain” it America and others are trapped, lament these ascendant peaceniks, in a “cold-war mentality” Sometimes, they have a point But a bigger

problem is that China’s own world view has failed to keep pace with its growing weight It is a big power with a medium-power mindset, and a small-power chip on its shoulder

Seventy-six trombones and better nukes

Take that spectacular parade What message was it meant to convey to an awestruck world? China is a huge, newly emerging force on the world scene And it is unapologetically authoritarian, as were Japan and Prussia, whose rises in the late 19th century were hardly trouble-free Nor is China a status quo power There is the unfinished business of Taiwan, eventual “reunification” with which remains an article

of faith for China, and towards which it has pointed some 1,000 missiles There is the big, lolling tongue ofits maritime claim in the South China Sea, which unnerves its South-East Asian neighbours And China keeps giving reminders of its unresolved wrangle with India over what is now the Indian state of

Arunachal Pradesh, which it briefly overran in 1962 Nor has it reached agreement with Japan over disputed islands

China’s intentions may be entirely peaceful, but its plans to build aircraft-carriers are shrouded in secrecy and it is modernising its nuclear arsenal A modicum of anxiety about its ambitions is more than just cold-war paranoia And those prey to it will have been reassured neither by the October 1st parade nor by the massive military build-up and the increasingly sophisticated home-grown weapons technology it flaunted

Illustration by Jon Berkley

None of this is to deny that China is playing a constructive—and vital—role on a number of international fronts A year ago there was much scepticism about whether the huge fiscal boost it announced for its economy was genuine Its insistence that its main role in responding to the crisis would be to keep China’seconomy growing smacked of an excuse for inaction The stimulus, however, did prove real and effective (though it was imposed without debate) Also, China has been a helpful part of the global recovery effort

At last month’s G20 summit in Pittsburgh it even signed a communiqué committing itself to a process of economic co-operation and IMF-assisted mutual assessment How far China’s decision-making, opaque even to its own officials, will be submitted to outside scrutiny is questionable But for a government so fiercely insistent on the inviolability of its own sovereignty, this was a big step

It has also softened this same principle as applied to some of its nastier diplomatic friends, such as

Myanmar and Sudan Flouting its hallowed doctrine of “non-interference”, it has nudged them into slightly less hostile stances towards the West North Korea would probably not be a nuclear power today if China had been prepared to exert more pressure on it in the past But at least China now plays host to the six-party process aimed at getting it to ditch its nukes, and is trying to bring it back to the negotiating table Wen Jiabao, the prime minister, is off to Pyongyang on October 4th Elsewhere, China has forsaken belligerence for courtship Despite those missiles, it at present seems more intent on winning Taiwan by sending tourists to buy it than soldiers to conquer it And it has agreed with Japan on the joint exploration

of some disputed gasfields

Yet as a constructive international partner in multilateral diplomacy, China still seems to dabble—to pick and choose the issues where it is willing to help It will find expectations running ahead of it: the more it proves it can contribute, the more will be demanded of it There is no shortage of issues, from climate change to virus-containment, where its role is crucial But the image that it would like to cultivate, as a responsible, unthreatening, emergent superpower, is constantly being undercut by two of its leaders’ habits

One is the knee-jerk resort to hysterical propaganda and reprisals when a foreign country displeases it by criticising its appalling treatment of political dissidents, or accepts a visit from the Dalai Lama or other objects of the Communist Party’s venom The other is its readiness to put its perceived economic self-interest ahead of strategic common sense That is the message from its reluctance to contemplate

sanctions against Iran Much as it would abhor a nuclear-armed Iran, China does not want to jeopardise important supplies of oil and gas And this is merely one among many countries, especially in Africa, where China may be suppressing its global political influence for the mirage of energy security

Were you watching, Mrs Wang?

China’s leaders rightly point out that theirs is still a poor country which will naturally give priority to lifting its economic development And this in one sense answers the question about the message conveyed by the National Day parade: its main audience was not the outside world, but China’s own people With no popular mandate, the government’s legitimacy relies on its record in making China richer and stronger The display of strength, showing how well it has done in this, hints at its own lack of confidence For thoseworried about where China’s rise might lead, that the government is so insecure is not a comforting thought

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Iran, the world and the bomb

At the tipping-point

Oct 1st 2009

From The Economist print edition

Testing the big powers’ anti-proliferation promises

DID the UN Security Council’s 15 members mean a word of their unanimous promise during the recent General Assembly meetings to protect the peace and security of all nations from the spread of the bomb? The discovery of a plant for making potentially weapons-usable uranium, dug secretly into a mountain on

a military compound near the city of Qom, means that the test of their sincerity is Iran

The talks between Iran and six countries—America, Britain, France, Germany, Russia and China—that got under way this week in Geneva define a tipping-point If Iran can be enticed or, more likely, prodded out

of its serial nuclear deceit, the world will indeed be safer But if Russia and China go on blocking efforts to squeeze Iran hard enough to get it to mend its ways, the dangers (and probably nuclear weapons

themselves) are likely to proliferate alarmingly

The Iranian nuclear challenge becomes clearer with each piece of damning intelligence The latest

revelation shows an accelerating effort that also includes work to produce plutonium, another potential bomb ingredient (see article) And with the Qom discovery, the timeline has shortened for Iran to be able

to build a bomb secretly or—just as alarming to its neighbours, suddenly interested in nuclear skills themselves—to achieve the capacity to assemble one at speed The window for a negotiated restraint on Iran’s nuclear activities in which others could have confidence is closing fast

Iran and the six face fateful choices So far Iran has evaded or strung out talks, as its uranium-enrichmentmachines have spun on Yet the discovery near Qom gives Iran a chance to change tack—though it has forgone several such chances in the past This week’s talks open the first formal, direct negotiations between America and Iran in 30 years On the table, despite the violent clampdown after Iran’s stolen election which kept Mahmoud Ahmadinejad as president, is an offer from the six not just of diplomatic andtrading ties, and talks on regional security that would acknowledge Iran’s growing clout If Iran tells inspectors the truth and curbs its most dangerous nuclear activities, there would also be co-operation in other advanced nuclear technologies, including the civilian power-generation that it claims to be its sole aim

Iran has so far shrugged off the offer, calculating that it can eventually win much of this anyway, and keep a foot in the nuclear door Nuclear-armed India, it notes, was once a pariah and is now courted by America with offers of nuclear help Everyone knows a military strike against its nuclear sites would be fraught with danger, not least that Iran would soon be back in the nuclear business with bigger scores to

Reuters

settle

Cover price

And sanctions? Curbs on some Iranian banks and businesses have inconvenienced the regime But Russia and China have vetoed anything—a ban on oil and gas investment, closing ports to Iranian ships, cutting off lots more of its banks—that would hurt enough to force it to choose between its own future and its nuclear plans Russia is wary of Iran causing trouble in the combustible Caucasus China has greedily scooped up oil and gas contracts that others have declined Both have been happy to see Iran tweak America’s nose

But Qom shows why business-as-usual is dangerous The Security Council’s anti-nuclear promise was meant to launch a big diplomatic effort to shore up the battered Nuclear Non-Proliferation Treaty Unlike India, Iran has signed up to the treaty’s non-nuclear rule Persistently letting it cheat will cripple global anti-proliferation If Russia and China continue to give Iran cover, that is the price the world will pay

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Germany's election

Merkel's moment

Oct 1st 2009

From The Economist print edition

Angela Merkel has got the centre-right coalition she wanted Now she should use it

IT WAS a good result, for both Germany and Europe After the September 27th election, Chancellor Angela Merkel will escape from the cage of the “grand coalition” between her Christian Democrats (CDU) and the Social Democrats (SPD) by forming a new centre-right coalition with Guido Westerwelle’s Free Democrats (FDP) The sclerotic and unwieldy grand coalition found it hard to discuss, let alone implement, many of the reforms that Germany needs, including to its tax and welfare systems, and to health care andthe labour market Now Ms Merkel has been set free to push for change

The big worry is that she may be too timid (see article) She was badly burned four years ago when her brief embrace of reform led to a sharp fall in her party’s ratings This time the CDU did even worse than in

2005, winning its lowest share of the vote in 60 years But the exceptionally good result for the market, liberal FDP should strengthen Mr Westerwelle’s bargaining power in a new coalition He will insist

pro-on tax simplificatipro-on, and ideally also pro-on tax cuts Yet Ms Merkel has already hinted that she does not favour more labour-market reforms and will stick to the outgoing government’s planned minimum wage With Germany just emerging from recession and unemployment likely to rise, her innate caution and fondness for consensus will put her off more radical change

She can afford to be bolder The opposition SPD is in disarray after winning its lowest share of the vote in almost 80 years and seeing the Left Party, with which it refuses to work, creep close to 12% The centre-right has a majority not only in the Bundestag, the lower house, but also in the Bundesrat, the upper house made up of state representatives, which it will retain so long as it keeps control of North Rhine-Westphalia next May And the case for change in Germany is urgent Although the economy is reviving, the banks (especially state-owned Landesbanks) are troubled and growth will remain sluggish Further ahead, Germany has to cope with a shrinking and ageing population, a fast-growing public debt and the need to switch from dependence on exports towards more consumption This agenda is sure to need morereforms

Reform is hard for any government, but the FDP’s ideas for lower taxes and further liberalisation are promising Lower taxes should stimulate growth And the wisest response to high unemployment is to deregulate labour markets and eschew minimum wages German experience of limited reform six years ago and the evidence from other countries like Denmark both demonstrate that the best way to encourageemployers to hire is to make it easier for them to fire

EPA

A centre-right coalition may pursue a more sensible energy policy as well Both parties favour extending the life of Germany’s nuclear-power stations, so the new government should overturn the 2000 decision tophase out all of them by 2022 With Ms Merkel in the chancellery, and with Mr Westerwelle likely to be foreign minister in place of the SPD’s Frank-Walter Steinmeier, there is also more chance of the

government responding to Germany’s growing dependence on Russian gas not by pandering to the Russians but by helping to liberalise the energy market in the European Union

Better abroad, too

Mr Westerwelle is somewhat more pro-American and may be less likely than his predecessor to urge early withdrawal of German troops from Afghanistan (see article) By being tougher on Russia, he will at a stroke improve German relations with central and eastern Europe One foreign-policy blot on the new coalition’s copybook is that it may be even warier of Turkish membership of the EU—but neither Mr Westerwelle nor Ms Merkel is likely to torpedo Turkey’s accession talks, which are anyway proceeding at a snail’s pace In short, with a bit more zeal for reform, the new black-yellow government could be just what Germany needs

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Please do feed the bears

Oct 1st 2009

From The Economist print edition

The financial world needs its pessimists

NOBODY loves a party-pooper When asset prices are going up, most people are inclined to celebrate The bears who argue that asset prices are about to fall tend to get dismissed as out of touch (dotcom sceptics supposedly “just didn’t get it”) or are likened to stopped clocks: occasionally right, but mostly wrong If they dare to make money out of their beliefs by selling short (betting on falling prices) when a crisis hits, bears are decried as economic vandals and politicians call for their activities to be banned

The word “bear” brings to mind an irrational, angry creature that lashes out at anything in its path Of course, like their animal counterparts, some bears can be very wild indeed The most excitable bears are not so much polar as bipolar They dabble in conspiracy theories and talk of the collapse of civilisation and the need for investors to sell all paper assets, buy gold and retreat to Idaho But bulls can be

overenthusiastic too, talking of new eras in which asset prices will reach undreamed-of heights (rememberthe book “Dow 36,000”?) Over the past 20 years it has been the repeated interventions of central banks

to rescue bulls, not bears, that have contributed to the current mess by encouraging too much risk-taking.Those interventions, by shoring up stockmarkets with cheap money, have made life even more difficult forthe bears Historically, the odds have been against them Share prices have tended, over the long run, to

go up If bears predict a crash and are proved wrong, they look like fools; if they are proved right, they suffer with everyone else when the economy dips Those pessimists who work for investment banks come under pressure to change their views; banks are in the business of selling securities Fund managers who turn bearish too early can lose their jobs or their clients The safest places for bears are the worlds of academia, journalism and consultancy, where people are expected to hold strong opinions

Smarter than the average bull

But the world needs to nourish its bears They were right about most things in the past ten years:

dotcoms and American houses were indeed overvalued, and rapid credit growth did make America’s financial system and the global economy vulnerable It was bears who asked awkward questions of Enron,

a failed energy-trading company, and who were most sceptical about the structured-credit products that now clog up banks’ balance-sheets This decade, investors have lost more money listening to the bulls than to the bears

So when the bears say, as they do now (see article), that the stockmarket rally is built on sand, they are worth listening to On historical measures, Wall Street looked cheap only briefly, earlier this year, and nowlooks expensive again The rally has once more been driven by interest-rate cuts That rich-world central

Alamy

banks feel the need to keep rates close to zero shows how many economic problems remain.

Legend has it that Roman generals, when making their triumphal marches, were followed by a slave whispering “Remember, you are mortal.” The bears play that role for investors Their arguments should becountered with reason, not ridicule And the right to sell short should not be restricted arbitrarily If regulators want to prevent future bubbles, they need to let the bears roam as freely as possible

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

On the Goldstone report, Singapore, free trade, aircraft air, BRICs

Oct 1st 2009

From The Economist print edition

Israel and Gaza

SIR – I thought that your criticism of the UN Goldstone report on the conflict in Gaza was flawed

(“Opportunity missed”, September 19th) First, Richard Goldstone’s charge that Israel implemented a deliberate and systematic policy to inflict suffering on civilians in Gaza is not, as you said, the “central organising premise” of his report Rather it is the conclusion of the report, arrived at after a serious examination of the evidence, and despite Israel’s refusal to co-operate You said that “if Israel really had wanted to make Palestinian civilians suffer, the toll could have been vastly higher.” But this hypothesis, which equates some restraint with legally mandated restraint, ignores the weight of dozens of punitive Israeli attacks that the report documents, including the destruction of food factories, farms and water wells

Second, it is wrong to suggest that Israel is being held to higher standards in Gaza than those to which American and European forces have been held in Kosovo, Iraq and Afghanistan: if the laws of war are violated those forces are exposed by NGOs and the UN There has been no evidence in those conflicts of a deliberate infliction of suffering on civilians by American or European forces, as there was in Gaza by Israeli forces

Third, while the initial Human Rights Council mandate calling for an inquiry into the Gaza fighting was biased, the superseding mandate under which the UN inquiry was undertaken was not The Goldstone report is fiercely critical of Hamas’s behaviour, as it is of Israel’s, and rightly so It calls on both sides to conduct genuine and credible investigations of war crimes and possible crimes against humanity, and to hold to account forces found to have violated the laws of war

Finally, you concluded that the Goldstone report has made the job of peacemakers in the Middle East more difficult In fact, impunity for past violations of the laws of war is one important reason for the polarisation and lack of trust that has hampered peace negotiations for decades The “opportunity missed”

is not the Goldstone report, but its unjustified rejection by Israel and The Economist.

themselves, and punish soldiers and commanders who violated the law

We join with Israeli human-rights organisations including Soldiers Breaking the Silence and Rabbis for Human Rights, in calling on Israel to launch an independent investigation that will honestly examine its conduct during the war and to take steps to remedy the behaviour of those in the Gaza operation who went too far

Rabbi Brian Walt

West Tisbury, Massachusetts

Rabbi Brant Rosen

Evanston, Illinois

Co-founders

Ta’anit Tzedek-Jewish Fast for Gaza

* SIR – You insisted that Israel attempted to “direct civilians out of danger zones.” The entire Gaza Strip was a danger zone, and Israel refused to allow civilians to leave, excepting only those who held passports from other states As most Gazans are stateless, virtually all of the population was helpless in the face of

this ruthless policy Israel maintains its illegal blockade today

Marshall Carter-Tripp

El Paso, Texas

* SIR – Your rubric, “eyeless in Gaza”, would be better used to describe the lack of media access during the Gaza war last winter The Israel Defence Forces banned media crew from accessing Gaza, and the only television reporting was by an Al Jazeera team who were in place before the war started Their reporting was shown on PBS in America and on Channel 10 in Israel

Martin Hird

New York

* SIR – It is disappointing to read that Shimon Peres, a Nobel peace-prize winner, believes that every country in Israel’s situation would have done the same (“Israel in the dock”, September 19th) Israel argues that as it is under the constant threat of attack there is nothing wrong with smashing its

neighbour The same line of thought is used by those arguing that Hamas’s firing of rockets into Israel can

be forgiven, as they see themselves still engaged in a struggle to regain what they once lost and have suffered many years of desolation

With his words, Mr Peres excuses Israel He lowers himself to the same simplistic, revenge-driven

rationale that has been fuelling this conflict for so many years Each sees the other as aggressor

Moreover, one wonders what Mr Peres would consider to be “legitimate” if an attack on Israel amounted tothe same destruction and death than the one brought upon Gaza A nuclear strike perhaps?

Emmanuel Steins

Istanbul

Singapore’s media laws

SIR – Banyan’s column wrongly stated that “not for the first time” the Far Eastern Economic Review “is

banned in Singapore” (September 26th) The journal has never been banned in Singapore At one time its circulation was restricted, but copies with the advertisements blanked out were circulated freely This

ensured the free flow of information, but prevented the Review from profiting commercially from engaging

in our domestic politics

Under our laws, offshore newspapers wishing to circulate in Singapore must post a security bond and

appoint a local representative for service of legal process The weekly Review had complied with these rules, as The Economist currently does itself Unfortunately, in 2006 the monthly Review declined to

comply and voluntarily discontinued circulating in Singapore

Michael Eng Cheng Teo

High commissioner for Singapore

London

SIR – Your assessment of the demise of the Review neglected another remarkable change that contributed

to its ending: the development of a free press in Asia When I arrived as a Review correspondent in Seoul

in June 1987, Chun Doo-hwan was the supreme leader and Kim Dae-jung was under house arrest To the south, Taiwan was in the waning days of martial law The Philippines had only recently had its democratic revolution Indonesia’s would be many years later The story was much the same from Ulan Bator to Kuala

Lumpur The Review exploited a growing thirst for knowledge about Asia at a time when government

control of the region’s domestic press gave it something close to a monopoly The explosion of news that came with democracy and the rise of the internet were the blows that felled an increasingly outmoded style of journalism

Mark Clifford

Executive director

Asia Business Council

Hong Kong

SIR – It is not clear to me how a single set of tariffs by America on a solitary set of products—cheap Chinese tyres—defines Barack Obama’s central point of view on trade (“Economic vandalism”, September 19th) It is illogical that a country like America, with a persistent $600 billion trade deficit, could be viewed as anything but a champion of free trade Rather, we may want to consider why America’s trading partners, many with persistent trade surpluses, would consider it good business to have any tariffs on anything coming from their leading trading partner How can China, with a $200 billion trade surplus with the United States, justify any tariffs on American products? It is so lopsided as to make it easy for true enemies of free trade to have their way

Christopher Pontrelli

Principal

Ernst & Young

New York

* SIR – You missed an important factor when discussing America’s protectionist measures While from

1950 to 1985 Japan was the leading eliminator of American industries, in the past 20 years China has emerged as the economic destroyer for American manufacturers China continues to keep its domestic market largely closed to foreign suppliers It copies, reverse-engineers and acquires technology or pays trivial sums in royalties for highly valuable know-how The Chinese people do work very hard to derive benefits from international trade but the China-United States relationship is at best $1 to America for each

$5 to China

China’s surplus from its trade with the United States is nearly as great as its 10% annual GDP growth Its accumulation of dollars from trade borders on the miraculous If China doesn’t want to spend the money, then it has little choice but to store the hoardings in American securities Instead of complaining about

minor protectionist measures, China, and The Economist, should demand a dramatic reduction in imports

by this most heavily indebted and financially irresponsible nation

SIR – Fallacies about the air quality on aircraft simply will not go away (“Breathing more easily”,

September 19th) You said that “typically an airline will strike a balance by using a 50:50 mixture of fresh and recirculated cabin air” and that “pilots can reduce the amount of fresh air to save fuel Some are thought to cut it back to only 20%.” This contains oily overtones of conspiracy, an insinuation that is offensive to those of us who fly aeroplanes for a living

Pilots cannot tinker with a jet’s air-conditioning system to change the ratio of fresh to recirculated air as this is predetermined by the jet’s manufacturer It is neither arbitrary nor adjustable from the cockpit On virtually all modern aircraft, the rate and volume of airflow is pretty much automatic On the Boeings that

I fly we have direct control over temperature, but only indirect control over flow When both engines are turning and everything is operating normally, the flow is perfectly adequate Only when there’s a

malfunction are the settings changed

Airbus aircraft do provide a way for pilots to vary airflow, but not in the way you describe The controllers have three positions, labelled “hi”, “norm” and “lo” The norm position is used the majority of the time, the hi position is activated when a rapid change in cabin temperature is needed The lo position can be used when a plane is less than half full and it provides minor fuel savings From a passenger’s perspective the change is barely noticeable

Patrick Smith

Boston

A new BRIC block

SIR – It is about time we got rid of the term “the BRIC economies” (Brazil, Russia, India and China) in which Russia was always the odd man out (“A good war”, September 19th) I hereby coin a more useful

acronym: CHIBI—China, India, Brazil and Indonesia It’s still a somewhat eclectic mix, but the

constituents’ roles in international events are much more likely to be correlated over the next century Unfortunately, CHIBI means “dwarf” in Japanese, but it is probably the best of the permutations.Frank Sheeran

Tokyo

* Letter appears online only

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

China's other face

The red and the black

Oct 1st 2009 | CHONGQING

From The Economist print edition

As the People’s Republic celebrates its 60th birthday, the gangsterism the communists boasted

of vanquishing has staged a comeback

SHORTLY before the 60th anniversary of communist China’s founding on October 1st, police in the western city of Chongqing opened an unusual exhibition On display, to invited guests only, were 65 luxury cars formerly owned by the bosses of the city’s crime gangs as well as an assortment of jewellery, guns and drugs Chongqing, the wartime capital of China, had been a hub of organised crime in pre-communist days Now the gangs are back, with roots in the party that almost wiped them out six decades ago

south-In Beijing the huge military parade on October 1st, China’s first in ten years, was intended to show off a modern, powerful face The country’s leaders had reason to flaunt their stuff this year Not only has China made enormous economic and technological strides since 1999, but it has also weathered the global financial crisis with remarkable resilience Officials had worried that widespread lay-offs in export

businesses could lead to social unrest But, apart from bloody rioting in the far-western region of Xinjiang

in July, fuelled mainly by ethnic rivalry, the past few months have seen no obvious increase in the number

or scale of protests

As is evident in Chongqing, however, China has another face Although central authority appears strong,

at the local level public anger is boiling Double-digit economic growth for much of this decade has

highlighted how corrupt and dysfunctional local government has become The campaign against organised crime launched by Chongqing in June demonstrated just how prone China remains, after all those years of Communist rule, to the age-old scourge of collusion between bureaucrats and gangland bosses For many Chinese, life is vastly more affluent now than it was when the Communists came to power Decent health care and education are far easier to get But confidence in local government is threadbare

Corruption, some Chinese officials argue, is an inevitable by-product of rapid economic growth But the cumbersome structure of local government in China also helps it flourish For centuries Chinese rulers have pondered how to extend power across such a vast country In recent years many have debated whether part of the problem lies with there being too many tiers of government—China has five,

compared with three in America Some advocate cutting one or two layers This adds to a sense that, after

60 years of rule, the party is still unsure how best to govern

It has tried in the past decade to make local legislatures more representative by admitting members of

Getty Images

the newly emerging business elite But its half-baked moves—involving the same old system of patronage rather than anything resembling democracy—are now widely blamed for encouraging the spread of organised crime Chongqing has become a celebrated, but by no means unique, example

At village level, a cautious experiment with democracy in the 1990s led to frequent local power-grabs by gangsters or by party officials in collusion with them This has been democracy only in name Criticising the party is still never tolerated The job of local governments is not made easier by a flawed mechanism for sharing tax revenues between the centre and sub-national governments This leaves many local authorities with huge responsibilities for providing public services, but without the wherewithal to carry them out In poorer parts of China, they often find it hard even to pay their own staff Yet, in the absence

of any proper public oversight, bureaucracies keep growing

Chongqing’s mafia problems have come to light only thanks to the local government’s decision to give its crackdown on gangs a publicity splurge (Details of the recent exhibition, however, are known only

because a Chinese reporter sneaked in and spread the news in Time-Weekly, a newspaper published in

the southern province of Guangdong.) But gangsterism is ubiquitous Especially in the past decade, local governments have staged frequent anti-mafia campaigns Thousands of gangsters are rounded up every year The southern island-province of Hainan, for example, launched a year-long round-up in February Streets there are festooned with slogans calling for gangs to be smashed and guns to be handed over.Chongqing’s latest campaign, however, has aroused particular attention

because it has been directed, unusually, at the kind of people who count:

the wealthy businessmen and powerful officials who control the gangs and

enable them to flourish Of some 2,000 people detained so far, several are

senior officials, including Wen Qiang (pictured), the head of Chongqing’s

justice bureau Dozens are police officers Some are prominent

businessmen who served in legislative or advisory bodies Press reports

say that the campaign will be extended after the National Day holiday into

Chongqing’s county towns, around the reservoir stretching 660km (410

miles) behind the Three Gorges Dam Chongqing, though called a

municipality, is in effect a province with a population of 30m covering an

area the size of Scotland Its capital is also named Chongqing

The man behind Chongqing’s ambitious drive against the mafia is its party chief, Bo Xilai, who appears to enjoy enormous political confidence Mr Bo, who sits on China’s ruling Politburo, is a charismatic member

of a new generation of leaders who are due to assume power in Beijing in 2012 Without his clout, many residents believe that Chongqing would have found it far more difficult to wage war on the mob Mr Bo took up the post two years ago, having previously served as China’s commerce minister and before that

as the governor of the north-eastern province of Liaoning Many wonder whether his clean-government drive is intended to burnish his credentials in a looming struggle for power He is the son of Bo Yibo, one

of China’s late revolutionary founders—hardly a handicap to his ambitions

According to reports in state-controlled newspapers, Chongqing’s gangsters operated in a wide variety of businesses, from the wholesale seafood trade to nightclubs and moneylending They controlled a private bus network, now taken over by the government, which in recent years had become a popular alternative

to state-run transport Then there is the usual fare of drugs and prostitution These have been bad weeks for the city’s entertainment industry and night-shift taxi-drivers

The crackdown has exposed how wealthy businessmen used their positions in local legislative and advisorybodies—people’s congresses and political consultative committees, as they are known—to boost their prestige and gain access to officials A few years ago China’s entrepreneurial class was far more politically marginalised Only in this decade have its members even been allowed to join the Communist Party Chongqing is the biggest example to come to light of what is sometimes dubbed “red-black” (ie,

communist-mafia) collusion since a huge round-up in 2000 of gangsters in Shenyang in the north-east That resulted in the executions of a former legislator and businessman and of a deputy mayor The city’s mayor, who was also implicated, is now serving a commuted death sentence

But experts say much has changed since then A recent book on organised crime, produced by a affiliated publishing house in Beijing, says that in the past decade underworld gangs have been evolving at

police-an accelerating pace, with some beginning to operate internationally The author, He Bingsong, writes thatthey have fuelled an “unprecedented” rate of growth in criminal activity in China since the turn of the

Imaginechina

Justice being seen to be done

Quis custodiet?

China’s press usually reports crime stories only when the police are ready to provide details, which is rarely until suspects are caught Crime statistics are too vague to rely on But anecdotal evidence lends weight to Mr He’s assertions Journalists reporting in rural areas frequently find their attempts to

investigate stories blocked by thugs, apparently acting on the orders of local officials In the past few years reports of clashes between citizens and government-hired goons have been ever more frequent Grumbling about “black society” has become part of everyday conversation

Outside Chongqing’s lavish new police headquarters a dozen angry citizens crowded around your

correspondent, showing him pictures of faces bloodied by people they alleged were gangsters hired by officials to force them from their homes to make way for a building project The victims also showed the pictures to a policewoman in a reception room at the compound entrance, where Chongqing citizens have been invited to submit any complaints about gang activity She told the petitioners to report the case to their local police station, ignoring their objection that the local police were themselves in cahoots with the criminals

Mr He writes that gangs are infiltrating government at ever-higher levels, even into the senior reaches of provincial governments and central ministries An obvious difference between modern gangsterism and its pre-revolutionary counterpart is that few gangs today are known by names—unlike the famous Green Gang, a powerful force in pre-communist Shanghai, or Chongqing’s Robed Brothers, who controlled the city’s opium trade and gambling China before 1949 was a chaotic mix of competing political, military and criminal forces In the far more monolithic political culture of today, home-grown gangs usually prefer not

to give themselves names to avoid provoking the party Named groups with their headquarters in Hong Kong and Taiwan, however, such as the Sun Yee On triad and the United Bamboo gang, also operate in China

Throughout Chinese history, movements that have toppled dynasties have sometimes started as gangs and secret societies So far, however, for Beijing, the “mafia-isation” of local government has not yet become a pressing nationwide problem As long as it remains, in the public mind at least, a local issue, it does not feel threatened Indeed it has benefited in recent years from a widespread perception among ordinary Chinese that the central party leadership is a benign force, and its valiant efforts to make China ajust society are being subverted by local officials

Fiscal reform in the countryside, culminating in the abolition of a centuries-old agricultural tax in 2006, helped boost the central government’s standing even as it drained the coffers of many local governments The centre has also made political hay from the rapid rolling-out of a new, if far from perfect, rural health-insurance scheme since 2003, and the abolition of rural school fees in 2006 and 2007

The centre is not afraid to push any problems back out to the provinces An obvious one is the stream of petitioners who head to Beijing to visit government offices to seek redress for abuses of power in their hometowns, an imperial tradition that the Communist Party has, through gritted teeth, maintained Very few justice-seekers get more than a cursory hearing Many are rounded up in Beijing by police despatchedfrom their hometowns, sometimes tipped off by central-government officials They are often held for a fewdays in unofficial detention in guesthouses known as “black jails”, then sent back to their provinces The centre appears to lose little by such high-handedness Outside Beijing a bizarre belief persists: if only victims of official abuse can make their grievances known at the very highest level of the leadership, justice will prevail

In the past couple of years central-government tolerance of whingers from the provinces has been

strained almost to breaking point by its fears of instability during huge public events: the Olympic games

in August 2008 and this year’s National Day celebrations In the build-up to both, petitioners have been summarily packed off home

In August the central government said it would send legal experts to the provinces to help sort out

petitioners’ problems on their home turf This is unlikely to help There are already considerable incentivesfor local officials to keep them away from Beijing Trends in the numbers of petitioners heading to the capital from a particular locality are used to judge the suitability of that place’s leaders for promotion But this has not stemmed a growing tide One of the disgruntled Chongqing citizens outside the city’s police headquarters was not afraid to shout that she would take her grievance to Beijing

Hopes among some Chinese scholars and officials that an infusion of grassroots democracy might ease such tensions have largely been dashed Li Fan of the World and China Institute, a private consultancy in Beijing, says that the experiment with village elections has “died” and the party’s talk of expanding

democracy within its own ranks, a big agenda item for an annual meeting of its central committee in September, is “empty words” The party, he says, now believes that eruptions of local discontent are best solved by a combination of force paying off demonstrators

But some scholars see room for improvement at the local level, even without yet tackling the question of universal suffrage With more resources and greater autonomy, some argue, China’s 2,800-odd counties, mafia hotbeds though some of them are, could play a much better role in defusing local anger

This year the central government launched a new reform that requires provincial governments to take direct responsibility for financing county governments instead of leaving the job to the tier in-between, theprefecture In the past prefectural administrations have often siphoned off money destined for their subordinate counties They also enjoyed a veto over large-scale county investment projects

Counties are now supposed to enjoy greater power to decide for themselves But again these reforms have been criticised as half-baked County chiefs remain at the mercy of their prefectural-level superiors, who retain a critical say in county appointments Without oversight, giving counties greater autonomy could spread corruption further

Yu Jianrong of the Chinese Academy of Social Sciences says some political reform at the county level could be carried out without the need to change the national constitution, which allows only the indirect election of county leaders County legislatures, for example, could be turned into full-time bodies, rather than convened, as at present, for occasional rubber-stamp duties Legislators themselves could be chosen more democratically, instead of being installed by the ceremonial “election” of a party-selected list If gangsters end up getting elected because of their vote-buying power, say some scholars, so be it At least they will have to keep their electorate happy in order to hang on to their seats

Getting it off your chest

The central leadership is not entirely deaf to public opinion In response to growing complaints about corruption, the party this year launched a new rating system to gauge public satisfaction with official appointments The first results, based on a survey of 80,000 people conducted by the National Bureau of Statistics, were made public in May On a 100-point satisfaction scale, the party’s Organisation

Department, which handles senior appointments, scored 66.84 points for tackling corruption and other wrongdoing in the appointments procedure, and 67.04 points for the people it chose

According to the head of the Organisation Department, Li Yuanchao, these

two numbers were the result of a year’s work personally supervised by

President Hu Jintao and Vice-President Xi Jinping They are about as close

as the party has come to announcing how popular it is in a statistical

fashion Officials say that the ratings must be “conspicuously” improved by

2012, when Mr Hu is due to step down Many believe Mr Xi is due to take

over from him, though the September central-committee meeting ended

without awarding him the new military title he was expected to collect on

his climb to the top Behind closed doors, some officials have expressed

worries about the satisfaction ratings, fearing that the party could find

itself embarrassed should the numbers drop Mr Li has told Organisation

Department officials, however, that without such pressure “it would be

easy to get satisfied and lazy.”

As it is, though, party leaders show little interest in exposing even

county-level leaders to the pressure of a vote, let alone themselves One of the

very few places where a flicker of political reform can still be detected is in

Wenling, a city in the coastal province of Zhejiang There officials have

been experimenting with more open budgets, a departure from the normal

practice of keeping these secret, with only bare outlines shown to

legislators at the last minute before they are approved But Wenling has

been at it for several years now, with little sign of its boldness catching on

elsewhere At its annual meeting in March the national legislature did not even vote on the central

government’s massive economic stimulus, announced the previous November

Reuters

Whose party is it anyway?

hillside above the city delight in seeing slogans on the wall that recall the harangues of the party today They suggest that hectoring sceptical citizens is part of a long tradition

Earlier this year a lawyer in the southern city of Guangzhou was detained for several hours for sporting a T-shirt in public printed with the words “One-party rule is a disaster” He had a good defence The slogan came from the headline of a newspaper run by the Communist Party itself three years before it

established the People’s Republic After a mere three hours in custody and a warning that he had “made

up rumours and disturbed social order”, Mr Liu was on his way home—in a police car, lest members of the public read the writing on the shirt

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Reviving America's schools

Ready, set, go

Oct 1st 2009 | CHICAGO

From The Economist print edition

Barack Obama’s schools chief tries to incite dramatic reform that will last

BETWEEN classes at Fenger High School, on the far South Side of Chicago, hundreds of students churn through the halls Elizabeth Dozier, the new principal, keeps a watchful eye “Let’s go, gentlemen!” she shouts “Let’s go to class!” Ms Dozier wears a two-way radio to deal with problems the minute they arise One is small: the girls’ toilets have no paper towels One is bigger: there’s a brawl upstairs It’s not to be ignored: on September 24th an honour-roll student was beaten to death near Fenger, swept up in

senseless violence

For an idea of the task confronting Arne Duncan, Barack Obama’s education secretary, Fenger is a good place to start The school lies closer to Indiana’s mills than Chicago’s Magnificent Mile From 2006 to 2008 fewer than 3% of pupils met Illinois’s meagre standards of achievement But this year everything is supposed to change The Chicago school district chose Fenger as a “turnaround” Old teachers have been sacked and new programmes put in place Fenger faces formidable odds But if Mr Duncan has his way, the school’s transformation will be the start of a larger shift

Mr Duncan, the former chief of Chicago’s schools, finds himself in an unprecedented position No

education secretary has ever had so much money to drive reform Thanks largely to the federal stimulus,

he has more than $10 billion, including $3.5 billion to turn around schools More than $4 billion will go to states that pursue specific initiatives: final guidelines for applications will be issued this autumn, and states are scurrying to prepare Mr Duncan calls the money a “moon shot”—for his department and for thecountry

There is appetite for reform Almost three-quarters of Americans think that the problems facing education

are at least as grave as those facing health care, according to a poll conducted for The Economist by

YouGov (see chart) George Bush’s education law, No Child Left Behind (NCLB), attempted to set

standards and hold schools accountable for meeting them But 61% think that NCLB has had no effect or has actually hurt America’s schools The act is overdue for reauthorisation, and on September 24th Mr Duncan described possible changes to it In the meantime, however, he and Mr Obama are using stimulus

Sandra Steinbrecher

Mr Duncan has described his department as a “compliance

machine” Most of the stimulus’s $100 billion for education has

gone simply to fill budget gaps and prevent lay-offs But with his

$10 billion Mr Duncan says he wants to “fundamentally change the

business the department of education is in.” Joe Williams of

Democrats for Education Reform, an advocacy group, calls him a

“venture philanthropist”

The education department has divided the cash into several

programmes, including a $650m “Investing in Innovation” fund

that will award grants not only to school districts but to private

groups that run schools The biggest pot of money is the $4.4

billion Race to the Top, which will reward states for reform in four

areas First, it will support internationally benchmarked standards

and tests, an effort to reverse the tendency of states to weaken

standards under NCLB Second, Race to the Top will streamline the

collection of pupil data and use it to improve teaching Third, the

fund will encourage states to use performance to determine

training and, controversially, pay and promotion Fourth, the fund

will support efforts to help struggling schools A state may not

apply if it forbids the use of pupil data to evaluate teachers States

will be at a disadvantage if they place limits on charter schools

(publicly funded schools that operate without traditional

regulations) Mr Duncan is especially interested in proposals to

lengthen the school day and year

Even more ambitious, Mr Duncan is directing $3.5 billion to turn

around the country’s 5,000 worst schools within five years NCLB

was supposed to help bad schools improve, but most states

pursued superficial reform Now Mr Duncan is offering four

stringent options: replace the principal and at least half the staff;

reopen the school under the management of a private group; close

the school and enroll students elsewhere; or make sweeping

changes such as extending the school day and giving principals more autonomy

“The goals are terrific,” says Randi Weingarten, leader of the American Federation of Teachers But she quickly adds that reform by “administrative fiat” is doomed—not least because her huge union may often obstruct it “This has nothing to do with my authority,” Mr Duncan insists “This is all to do with the opportunity that states have.”

Indeed, much depends on how states—and unions, superintendents and teachers—respond Some states have rushed to qualify for Race to the Top by raising caps on charter schools California’s governor, ArnoldSchwarzenegger, wants the legislature to pass sweeping reforms to make his state a better candidate for federal grants

But despite Mr Duncan’s bully pulpit, some may refuse to be

bullied Ten states still ban charter schools Mr Duncan’s

department must live up to its own standards, awarding grants

only to states with impressive applications Even then, Andy

Smarick of the Thomas B Fordham Institute, a conservative

think-tank, worries that states may promise ambitious reform, then

implement it lazily Ms Weingarten says that unless Race to the

Top becomes less prescriptive, there will be fights at local level

Some of Mr Duncan’s initiatives would require changing union

contracts That means trouble

Most daunting, however, is the task of turning around failing

schools It may be difficult to find sufficient manpower to do this

Charter groups usually prefer to start new schools, rather than improve existing ones burdened by bad habits and union rules Talented teachers are hard to recruit and keep Fenger provides tragic proof that violence can slow progress, though Ms Dozier is charging ahead with her reforms And despite some success stories, there is still debate on which changes work In most places, including Mr Duncan’s

Chicago, results are mixed or reforms are too new to judge their success, explains Tim Knowles, director

of the Urban Education Institute at the University of Chicago

“Implementation…is where reform dies,” warns Ms Weingarten As Fenger began the school year, it was still decked with banners advertising a previous, failed programme Mr Duncan says that this time, changewill be different—more comprehensive and more enduring “The goal is to drive the kind of reform over the next couple of years that will last for the next couple of decades.” He has dangled the carrot It is up

to the country to bite

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Barack Obama and Guantánamo

Better safe than sorry

Oct 1st 2009 | WASHINGTON, DC

From The Economist print edition

Civil-libertarians are falling out of love with the president

“WE REJECT as false the choice between our safety and our ideals.” So Barack Obama declaimed in his presidential inaugural in January On his second full day in the White House he said he would close the Guantánamo prison in Cuba within a year and stop any American from using torture or mistreatment to extract information from suspected terrorists Civil-libertarians were thrilled Eight months on, however, they are less so

Michael Macleod-Ball of the American Civil Liberties Union (ACLU) admits that Mr Obama started “with a bang” On torture, Mr Obama has been absolute: no American is now allowed to torture or mistreat a detainee He has shut down America’s secret detention centres overseas and allowed the Red Cross to visit the non-secret ones He still intends to close Guantánamo, though the one-year deadline is in danger

of slipping The great disappointment for the liberties lobbyists is that when Mr Obama promised to close Guantánamo he did not mean that America would stop detaining and holding suspected terrorists without trial

Of the 200 or so remaining Guantánamo inmates, the administration considers a few score too dangerous

to release It also thinks they are impossible to try successfully in regular federal courts, either because the evidence against them (sometimes extracted by torture) is unreliable or inadmissible, or because a trial could expose intelligence sources Like George Bush, Mr Obama intends to keep such people locked up—just not in Guantánamo In May, however, he said he would work with Congress to find an

“appropriate” legal regime to hold suspected terrorists in ways “consistent with our values and our

constitution”

It emerged last week with rather less fanfare that Mr Obama has now changed his mind He will not ask Congress to write a new law after all Instead, he will continue to detain suspects indefinitely by relying onthe broad authorisation to use military force that Congress gave President Bush after the September 2001 attacks

The latest flip-flop has divided the president’s critics On one side are the civil-liberties groups, such as theACLU and Human Rights Watch (HRW), for whom no system of prolonged detention without trial could ever be consistent with America’s values or constitution They were aghast at the prospect of Congress enshrining such a system in law, and mildly relieved that Mr Obama has reversed himself Kenneth Roth, HRW’s executive director (and a former prosecutor), argues that many of the detainees in question could indeed be tried successfully in a proper court As for the few that can’t be, America’s moral credibility and ultimate success against terrorism would be best served by letting them go

To many experts on counter-terrorism law, however, this sounds like a counsel of impossible perfection The difficult issue, they say, is not whether such detentions should continue—they should—but what the

AP

rules should be and what rights the detainees should enjoy And these, argues Benjamin Wittes, a senior fellow at the Brookings Institution in Washington, are the sort of complex questions that the legislative branch has a duty to settle.

Mr Wittes believes that Mr Obama was right first time, when he invited Congress to help frame a clear

law Without one, the judges hearing these habeas corpus cases have had to make up the rules as they go

along In the end, says Mr Wittes, the Supreme Court will have to adjudicate, and the final say will in practice fall on one unelected individual—Anthony Kennedy, the court’s swing judge

But Congress itself has shown little appetite for serious lawmaking on this subject Members who care mostly want to ensure that none of its inmates will be moved to their own district That is one big reason why Mr Obama’s plan to close the camp is running late And now his guiding instinct, too, appears to be safety first

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Foiling terrorist attacks

Home-grown bombers

Oct 1st 2009 | NEW YORK AND ST LOUIS

From The Economist print edition

The latest plots involve malcontents who have lived for some time in America

WITHIN a week, at least five men have been charged with plotting terror

attacks in America On September 29th Najibullah Zazi, a 24-year-old

Afghan immigrant, pleaded not guilty to conspiracy to use weapons of

mass destruction in New York On September 23rd Michael Finton was

charged with trying to blow up the federal building in Springfield, Illinois A

Jordanian was charged last week with attempting to destroy a Dallas

skyscraper, and on the same day new charges were brought against three

men in North Carolina for planning to attack a Marine base

The New York case was by far the most serious Investigators found on Mr

Zazi’s laptop specifications for triacetone triperoxide (TATP), the explosive

used in the 2005 bombings on the London Underground According to court

documents, over the summer he and unidentified associates purchased

“unusual quantities of hydrogen peroxide and acetone products”, and

attempted to make the explosives in a Colorado hotel

Mr Zazi lived in New York for a decade before moving earlier this year to

Denver, where he drove an airport bus On September 9th he drove from

Colorado to New York City Prosecutors suspect he was planning to plant a bomb on the September 11th anniversary But he quickly returned to Denver when a Queens imam, who was a police informant, alertedhim that he was being tracked

Mr Zazi is a legal resident, who came to America with his family in his early teens Mr Finton, a part-time fry cook, is a full citizen, who converted to Islam in prison and then went to Saudi Arabia Along the way,

he devised plans to kidnap and murder a congressman In the end, however, he packed a ton of

explosives into a truck and parked it by the Springfield federal building, a few blocks from Abraham Lincoln’s house, on September 23rd FBI agents, who had him under surveillance, arrested him after he had twice tried to detonate the bomb with his mobile phone

Since the 2001 attacks more than 23 publicly known terrorist plots have been foiled, according to the Heritage Foundation, a conservative think-tank In part, this is thanks to niftier anti-terrorism tactics and better co-operation between government agencies New York’s police department, for instance, has sent officers overseas The city spent $300m last year on counter-terrorism, almost all “on our dime”, says RayKelly, New York’s top cop

According to the most recent data from New York University’s Centre on Law and Security, 693 terror suspects have been prosecuted Of these, about a third were actually charged with terrorism And

shockingly, about a third of the suspects, like Mr Finton, were citizens

AP

Zazi, bus driver turned suspect

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Manufacturing's future

Wanted: new customers

Oct 1st 2009 | WASHINGTON, DC

From The Economist print edition

Pummelled by recession, manufacturers face an uncertain future

AFTER the worst slump in modern memory, American factories are showing signs of life Manufacturing

production rose in August for the second straight month, and a survey of purchasing managers says new orders are rising briskly

Yet manufacturers remain gloomy Both output and employment are down 15% from the start of the recession in December 2007, far more than overall GDP and employment Shipments collapsed when the near-paralysis of the financial system a year ago caused businesses worldwide to cancel orders and run down their stocks On September 15th Dan DiMicco, head of Nucor, a steel company, said operating rates would be higher in the third quarter than the second, but only because of inventory replenishment “Real demand is in for a long, slow recovery,” he said Bad as this year has been, John Engler, president of the National Association of Manufacturers, a trade group, says many of his members “think next year will be worse”

Manufacturers were hammered in the recession of the early 2000s

in large part because they were at the centre of the preceding

boom in capital spending They seemed far removed from the

housing and finance bacchanalia that spurred the latest recession

Indeed, employment never recovered from its previous collapse

(see chart) But much of America’s manufacturing output is

destined for new homes and buildings, from bricks to bulldozers,

and a lot also goes into cars When sales of both collapsed,

manufacturers were clobbered

Consumers, indebted and hobbled by tight credit, cannot help

much Rather, a balanced expansion should require America to

narrow its trade deficit: manufacturers will have to export a lot

more, seize domestic market share from imports, or both

Macroeconomic trends should help After a crisis-related

interruption the dollar has resumed the slide that began in 2002,

and emerging economies are likely to grow faster than America for

years to come

Yet making a substantial dent in the deficit will be difficult The share of domestic manufacturing

consumption taken by imports has risen from 31% in 1998 to 37% in 2008, according to Dan Meckstroth

of the Manufacturers’ Alliance, a trade group Certain manufacturers such as GE, Emerson and NCR have said they will bring some outsourced production back to America, but that will do little to close the gap MrMeckstroth notes that America no longer makes many of the things it uses, such as consumer electronics

It is a formidable exporter of aerospace machinery, capital equipment and medical technology

Nonetheless, data from Mr Engler’s outfit show that American manufacturers are the least geared towards exports of the 15 large manufacturing economies

Manufacturers are increasingly looking to the federal government for help They enthusiastically backed the federal cash-for-clunkers car trade-in scheme Now they want an extension of the first-time

homebuyer credit, and more federal spending on infrastructure such as air-traffic control Barack Obama, who hopes to nudge the economy away from consumption and towards exports, nods sympathetically On September 7th he appointed Ron Bloom, who oversaw the government’s investments in bankrupt General Motors and Chrysler, to the additional role of “manufacturing tsar” to advise on helping the sector Mr Obama has directed stimulus money to domestic manufacturers of renewable-energy technology,

All fine and good, but the risk is that this enthusiasm for promoting industry slides into protectionism On September 11th Mr Obama slapped tariffs on Chinese tyre imports, and China threatened the same on American chicken and car parts The dispute simmered as Mr Obama met leaders of the G20 in Pittsburgh.They promised to rebalance their economies (in effect, requiring America to reduce its trade deficit and China to reduce its surplus) and to avoid protectionism But if the first commitment fails, so may the second As leaders met, three American companies and a union, no doubt encouraged by the tyre tariffs, accused Chinese and Indonesian companies of “dumping” paper (selling below cost or below home market price), and Nucor accused Chinese and Taiwanese exporters of bolts, screws and other fastenings of illegalsubsidies as well as dumping “To keep manufacturing, and manufacturing jobs, in the country, it is essential that the US government vigorously enforce our trade laws, especially during hard economic times like we are experiencing now,” said Nucor’s lawyer

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Regulating greenhouse gases

Enter the EPA

Oct 1st 2009 | NEW YORK

From The Economist print edition

If Congress won’t legislate…

OVER the past few days, America has moved towards a federal system for regulating its carbon emissions in three ways First, several big companies have broken with trade associations that oppose the cap-and-trade bill now in the Senate Second, the bill has moved a stage further towards becoming law Third, and most important, the Environmental Protection Agency (EPA) has announced that if Congress won’t legislate to cut greenhouse gases, it will regulate anyway.

America’s powerful trade associations, who lobby politicians on their members’ behalf, are split as never before over the Waxman-Markey bill to cap greenhouse-gas emissions Some of their members take the traditional view that all regulation is bad Others reckon that capping carbon emissions is essential (They tend to be companies which are not heavy emitters—either power utilities with more nuclear and gas than coal-fired plants, or service

or light-manufacturing companies.)

Three big energy utilities—PG&E, PNM and Exelon—have bolted from the us Chamber of Commerce, which lobbies for American businesses and has opposed cap-and-trade Nike, a big sportswear company, has resigned from the Chamber of Commerce board With the bill struggling to pass the Senate, the support of influential companies will give it a boost.

In a second step towards carbon controls, the Senate has published its own version of Waxman-Markey The Kerry-Boxer bill is more ambitious, requiring a 20% reduction in greenhouse-gas emissions by 2020 over 2005, rather than the 17% proposed in the House bill But plenty of detail remains to be filled in as to how this might

be achieved Suggestions and contributions will not be lacking: six Senate committees have an interest in the bill With most Republicans and many Democrats from coal and heavy-industry states hostile to it, and those Republicans who have previously supported caps sitting on the fence, the bill will have a tough passage.

The third step towards emissions cuts came from the EPA A Supreme Court decision earlier this year required the agency, once it had established that carbon dioxide was a pollutant, to start regulating emissions from vehicles Now the administration has authorised the EPA to start regulating gases from stationary sources too— power stations and industry, the origin of most emissions and the backbone of the American economy

The proposed rules, which would take effect in 2011, will focus on the country’s biggest power stations and require them to prove that they have employed the best available technologies, or face penalties for not doing

so According to Lisa Jackson, the EPA’s head, “We have the tools and the technology to move forward today, and we are using them.” The EPA will start with facilities emitting more than 25,000 tonnes of carbon dioxide a year Ms Jackson maintains that she is not, as her critics claim, going to regulate “every cow and Dunkin’

Donuts”.

The administration has been holding the threat of EPA regulation over Congress: if you don’t legislate, the message goes, we regulate Businesses by and large prefer the thought of a cap-and-trade system to the idea of government regulators nosing around their plants and telling them which technologies to use The Chamber of Commerce and the National Association of Manufacturers have threatened to sue the EPA if it goes down this route But the administration hopes matters will not get to that point, and that the EPA’s announcement will help push the Senate into passing a bill.

The announcement has another purpose, too The administration was concerned that, if a bill were not passed before the climate conference in Copenhagen in December, America would look bad and the chances of getting a global agreement on cutting carbon emissions would be much reduced The administration can take the EPA’s intervention, along with other measures such as new subsidies for renewable energy and tighter car fuel-

efficiency standards, and argue that they add up to a substantial package of cuts In short, America will now not have to go naked into the conference chamber

The Nevada Senate race

Forgetting his roots?

Oct 1st 2009 | LOS ANGELES

From The Economist print edition

Harry Reid is finding that power in Washington, DC, may not help in Nevada

AFTER President Barack Obama and the House speaker, Nancy Pelosi, Harry Reid is the

next-most-powerful Democrat in America As Senate majority leader, the fate of health-care reform lies largely in his hands But Mr Reid possibly has a more pressing concern His rise to national power has coincided with increasing weakness at home in Nevada, where “Anybody but Reid” bumper-stickers are adorning a surprising number of cars After 22 years in the Senate and four as leader of its Democrats, Mr Reid may,

in 2010, face the fight of his career to stay there

The precedent haunting Mr Reid is that of Tom Daschle, his predecessor as leader of the Senate

Democrats Mr Daschle, who hailed from South Dakota, another empty western state with an individualist streak, lost a re-election bid after 18 years in the Senate in 2004 If a recent poll is right, Mr Reid, who joined the Senate with Mr Daschle in 1987, has the approval of only about one in three Nevadans

The Republican message is that Mr Reid “has become a liberal Nancy Pelosi Washingtonian and he’s forgotten who he represents,” as Sue Lowden, one of his apparent Republican challengers, puts it

According to this narrative, Mr Reid, who used to be a typically Nevadan—ie, moderate—Democrat, took a sharp turn left when he became the Senate’s party leader in 2005 and now represents liberal excesses.That line appeals to voters in a state full of recent arrivals who may not remember Mr Reid from the old days A Mormon with five children who was born in Searchlight, a desert hamlet south of Las Vegas, Mr Reid has been sceptical about abortion and gun control and tough on flag-burning In state politics, he hasbacked Nevada’s miners against environmentalists and railed against Yucca Mountain, a hated nuclear-waste repository But as Senate leader during the Great Recession he has of necessity become Mr

Obama’s colleague in one bail-out after another, and now takes his side in the health-care battle

Even so, Mr Reid has some advantages, says David Damore, a professor at the University of Nevada, Las Vegas Chief of those is that Republicans in Nevada have a tendency to self-destruct The two most prominent, Governor Jim Gibbons and the junior senator, John Ensign, have recently had soap-opera entanglements with women other than their wives This is bad for up-and-coming Republicans, says Mr Damore: “Who are you going to have stump for you?”

The state Republican Party, moreover, has been in chaos, producing no clear challenger “The problem is that everyone wants to run against Reid,” says Robert Uithoven, a Republican strategist in Las Vegas, so that many Republicans will battle one another in fund-raising and the media before ever attacking Mr Reid

AP

No welcome for liberals in Searchlight

In that group is Ms Lowden, who has stepped down as chairman of the Nevada Republican Party to prepare her campaign A former Miss New Jersey and a contender for Miss America, then a television reporter and a casino owner, Ms Lowden became a state senator in the 1990s but has been on no ballot since

She will face Danny Tarkanian, who is well known because his father Jerry, also known as “Tark the Shark”, was a legendary university-basketball coach So far, Mr Tarkanian has not translated this name recognition into political success—he lost a race for the state Senate in 2004—but he has access to basketball stars and money

There are other contenders, such as Sharron Angle, formerly in the state assembly and an anti-tax crusader Some party elders are hoping to draft Dean Heller, a Mormon and former stockbroker His father, “Blackjack”, was a stock-car driver who is not quite as famous as Tark the Shark, but he has a personal record of electoral success This began when he beat Ms Angle and Dawn Gibbons, the wife of the current governor, in the 2006 primaries for the House of Representatives, where he is now But Mr Heller may prefer the safety of the House to a risky run for the upper chamber

Mr Reid, by contrast, has spent decades building up his fund-raising and influence networks in Nevada A former boxer with a habitual snarl, he may be uncharismatic but he is shrewd Over the years, he has kept some strong potential rivals at bay He will spend lots of money, and try to remind voters that it’s good to have a Nevadan as majority leader in the Senate

Copyright © 2009 The Economist Newspaper and The Economist Group All rights reserved

Blanche Lincoln's balance

Oct 1st 2009

From The Economist print edition

Why a few unpredictable senators are vital to the president's hopes

HER husband’s grandmother died recently, two weeks shy of her 112th birthday “I [told] my husband I hoped his second wife [would be] tall, skinny and gorgeous, because I do know he’s gonna outlive me with those genes,” chuckles Senator Blanche Lincoln That’s a sample of the earthy charm that has made her such an effective campaigner in her native Arkansas She first won a seat in the House of

Representatives in 1992, when she was only 32, after ousting a sitting congressman in a Democratic primary He had 487 overdrafts at the House bank She campaigned on the promise that “I can sure enough balance my chequebook.” Pregnant with twins, she chose not to seek re-election in 1996 Two years later, she ran for the Senate as a duck-hunting farmer’s daughter with “rock-solid Arkansas values”.She became the youngest woman ever elected to the Senate A decade later, she wields more influence than almost any other politician you’ve never heard of

To break a Republican filibuster in the Senate, the Democrats need 60 votes They have exactly 60 senators, if you count two independents, so every vote matters Any senator who sits on the fence is thus extraordinarily powerful The best known of these is Olympia Snowe, a Republican from Maine Since she

is the only Republican senator who might plausibly back Barack Obama’s health reform, she gets flatteringphone calls from the president and a huge say over the final draft But health care is not the only big issuefacing Congress, and Ms Snowe is not the only swing vote The Democrats’ plans for energy and labour depend a lot on whether Mrs Lincoln sides with her own party; and she has a habit of bucking it

For example, she is one of only a couple of Democrats to oppose the Employee Free Choice Act, a bill the party’s union allies crave more than anything else They want the power to unionise firms without a secretballot, simply by persuading a majority of workers to sign a card Employers fear that union heavies wouldvisit workers at home and pressure them into signing Arlen Specter, a senator who recently defected to the Democrats, has floated a compromise which would preserve the secret ballot He thought this would win over Mrs Lincoln, but it didn’t The bill still says that, if a union and an employer fail quickly to agree

on a contract, a government-appointed arbitrator can impose terms That would be “unbelievably difficult for small businesses”, says Mrs Lincoln She hears from hospitals in Arkansas worried that, if they have 40nurses and 21 opt to form a union, they would have only a few weeks to agree on a new contract, despite having no idea what the health-care system will look like next year

Illustration by KAL