The_Economist_15_12_2018_watermark

vk.com/id446425943

Leaders

Leaders 13

Think of the upper echelons of the money-management business, and the image that springs to mind is of fusty private banks in Geneva or London’s Mayfair, with marble lobbies and fake country-house meeting-rooms designed to make their super-rich clients feel at home. But that picture is out of date. A more accurate one would feature hundreds of glassy private offices in California and Singapore that invest in Canadian bonds, European property and Chinese startups—and whose gilded pa-

trons are sleepwalking into a political storm.

Global finance is being transformed as billionaires get richer and cut out the middlemen by creating their own “family offices”, personal investment firms that roam global markets looking for opportunities. Largely unnoticed, family o ces have become a force in investing, with up to $4trn of assets—more than hedge funds and equivalent to 6% of the value of the world’s stockmarkets. As they grow even bigger in an era of populism, family o ces are destined to face uncomfortable questions about how they concentrate power and feed inequality.

The concept is hardly new; John D. Rockefeller set up his family o ce in 1882. But the number has exploded this century. Somewhere between 5,000 and 10,000 are based in America and Europe and in Asian hubs such as Singapore and Hong Kong. Though their main task is to manage financial assets, the biggest o ces, some with hundreds of sta , undertake

all sorts of other chores, from tax and legal work to acting as high-powered butlers who book jets and pamper pets.

The costs of bringing such expertise in-man- sion means that they generally make sense only for those worth over $100m, the top 0.001% of the global pile. Asian tycoons such as Jack Ma of Alibaba have created their own fiefs. The largest

Western family o ces, such as the one set up by George Soros, an investor and philanthropist, oversee tens of billions and are as muscular as Wall Street firms, competing with banks and priv- ate-equity groups to buy whole companies.

Every investment boom reflects the society that spawned it. The humble mutual fund came of age in the 1970s after two decades of middle-class prosperity in America. The rise of family o ces reflects soaring inequality. Since 1980 the share of the world’s wealth owned by the top 0.01% has risen from 3% to 8%. As the founders of family firms receive dividends or the proceeds of initial public o erings, they usually redeploy the cash. But since the financial crisis there has been a loss of faith in external money managers. Rich clients have taken a closer look at private banks’ high fees and murky incentives, and balked.

These trends are unlikely to fade, as our Briefing explains. The number of billionaires is still growing—199 newbies made the grade last year. In the emerging world older entrepreneurs who created firms in the boom years after 1990 are preparing to cash out, while in America and China younger tech entrepreneurs may soon float their companies, releasing a new wave of cash to reinvest. Family o ces’ weight in the financial system, therefore, looks likely to rise further. As it does, the objections to them will rise exponentially. The most obvious of these is the

least convincing—that family o ces have created inequality. They are a consequence, not its cause. Nonetheless, there are concerns—and one in particular that is worth worrying about.

The first is that family o ces could endanger the stability of the financial system. Combining very rich people, opacity and markets can be explosive. ltcm, a $100bn hedge fund backed by the super-rich, blew up in 1998, almost bringing down Wall Street. Scores of wealthy people fell for a Ponzi scheme run by Bernie Mado that collapsed in 2008. Still, as things stand family o ces do not look like the next disaster waiting to happen. They have debt equivalent to 17% of their assets, making them among the least leveraged participants in global markets. On balance, they may even be a stabilising influence. Their funds are usually deployed for decades, making them far less vulnerable to panics than banks and many hedge funds.

The second worry is that family o ces could magnify the power of the wealthy over the economy. This is possible: were Bill Gates to invest exclusively in Turkey, he would own 65% of its stockmarket. But the aim is usually to diversify risk, not concentrate power, by taking capital from the original family business and putting it into a widely spread portfolio. The family-of- fice industry is less concentrated than mainstream asset management, which a few firms such as BlackRock dominate.

Compared with most fund managers, family offices have welcome habits, including a longerterm horizon and an appetite for startups.

It is the third danger that has most bite: that family o ces might have privileged access to information, deals and tax schemes, allowing them to outperform ordinary investors. So far there is little evidence for this. The average family o ce returned 16% in 2017 and 7% in 2016,

according to Campden Wealth, a research firm, slightly lagging behind world stockmarkets. Nonetheless, tycoons are well connected. Family o ces are becoming more complex—a third have at least two branches—making tax wheezes easier. Hungry brokers and banks are rolling out the red carpet and pitching deals with unlisted firms that are not available to ordinary investors. If all this did lead to an entrenched, unfair advantage, the e ect, when compounded over decades, would make wealth inequality disastrously worse.

The rich discover do-it-yourself

The answer is vigilance and light. Most regulators, treasuries and tax authorities are beginners when it comes to dealing with family o ces, but they need to ensure that rules on insider trading, the equal servicing of clients by dealers and parity of tax treatment are observed. And they should prod family o ces with assets of over, say, $10bn to publish accounts detailing their workings. In a world that is suspicious of privilege, big family o ces have an interest in boosting transparency. In return, they should be free to operate unmolested. They may even have something to teach hordes of flailing asset managers who serve ordinary investors, many of whom may look at their monthly fees and wish that they, too, could ditch the middlemen. 7

Desperate, no-holds-barred scrapping has become Britain’s day-to-day mode of government. On December 10th a landmark vote on Theresa May’s Brexit deal was cancelled at the last minute, ambushing ministers who were giving live-broad- cast interviews confirming that it would definitely go ahead. The next day Mrs May began a tour of Europe, promising to get better terms on the deal, only to be politely rebu ed in every capital she visited. The prime minister came home to find her own Conservative Party planning a vote of no confidence in its leader. She won, but only after promising that she would step down before the next election. Even then,117 of 317 Tory mps voted against her. It is a grim spectacle, but the upshot of the latest bruising episode is that Mrs May staggers away bloodied to fight another round. Under the Tory party’s rules, having seen o the attempted coup, she is immune from further internal challenges for a year. The hardline Brexit bullies in her party have been shown up for the reckless obsessives they are. But the more abiding truth for Mrs May is the scale of the rebellion, which has demonstrated that she has no realistic hope of getting her plan for Brexit through Parliament. And it is not just her plan: none of the pos-

sible Brexits commands a majority of mps.

Mrs May needs to recognise that she and the country have only one way out of this impasse. That is to go over the heads of mps and ask the people directly.

This week’s coup attempt was Westminster’s worst-kept secret. mps from the European Research Group of Tory Eurosceptics had been trying to gather the 48 signatures needed to trigger a no-confidence vote in Mrs May ever since it became clear that she wants a “softer” exit from the eu than the radical separation they demand.

Her deal, which the eu has already signed o

but which Parliament must still approve, would keep the entire United Kingdom in a customs union and extensive regulatory alignment until both sides had settled on a comprehensive new relationship, which might take years. During that time, Britain would be subject to European rules and unable to sign its own trade deals. Hard-Brexiteers say this compromise amounts to vassalage, but they have failed to come up with any alternative plan able to win over their colleagues in Parliament.

With the failure of their rebellion, Britain dodged a blow to the head. Had Mrs May lost, the Tories’ 124,000 party members would have chosen a new leader—and thus a new prime minis- ter—to see Brexit through. They may well have picked the more Eurosceptic of the shortlisted candidates, increasing the chance of a bad-tempered, chaotic and ruinous no-deal exit.

It is also welcome that, in order to pick up enough votes, Mrs May had to promise to quit before the next election, due in 2022. She has proved a poor prime minister and a disastrous campaigner. Her planned departure, along with the defeat of the Brexit monomaniacs, ought to accelerate the promotion of the promising next generation of Tory mps, to replace the duds who have served the country so ineptly.

All this means that Mrs May’s premiership now has but one purpose—and it is a monumental one: to steer a split party and a

minority government through the most complex and divisive peacetime transition in modern British history.

The danger is that Mrs May, a serial postponer, will try to run down the clock to within a couple of months of Brexit day on March 29th. She might calculate that Parliament will then have little choice but to back her deal, because the alternative will be leaving with a calamitous no-deal.

Such a gun-to-the-head Brexit would guarantee rancour and unhappiness across Britain for years to come. Fortunately Mrs May is unlikely to be able to bring it about. For almost two years she put o spelling out the compromises that Brexit necessarily involves, in the hope that the extremists in her party would cool o . They didn’t. This week’s confidence vote makes it clearer than ever that waiting another month or two will not magically create a majority in favour of her agreement.

Dogged and persistent as she is, she must recognise that the parliamentary arithmetic is hopeless. Labour and other opposition parties are set against her blueprint, as are more than 100 of her own Tory mps—Brexiteers and Remainers alike. Mrs May’s European travels this week have confirmed that she has little prospect of winning enough changes to satisfy the rebels. The deal is no more alive than it was when the government postponed the vote in a panic on Monday.

If Mrs May wants her agreement to prevail, she must call a second referendum. The block in Parliament is caused by the conflicting claims to democratic legitimacy of elected mps and the referendum of 2016. The prime minister insists that her compromise is the only workable way to respect the will of the people, as expressed in that vote two and a half years ago. mps, elected by those same people only last year, counter that

her plan bears too little resemblance to the campaign on which the referendum was fought—either because a “real” Brexit should be harder, or because the entire prospectus has been shown up as hollow. Rather than try to square this circle with pointless political street-fighting, Parliament should accept that the only way to know what the people want is to ask them.

Many Conservative mps are dead against a second referendum (though a lot of them voted for Mrs May in 2016 only to demand the chance to think again this week). Now that they have used up their one shot at deposing Mrs May, she can call a parliamentary vote on her deal without the risk of being brought down by her own side. Heavy defeat could still provoke a no-confi- dence motion by the Labour Party. But few if any Tory mps, or those of the allied Democratic Unionist Party, want to see a Labour government, let alone one led by the far-left Jeremy Corbyn.

When that parliamentary vote fails, she will be justified in proposing a new plebiscite. Many in Labour would back her. If Mrs May truly believes that her deal is what the country voted for, a fresh referendum should hold no fear for her. Now that getting out of the eu has a definition, it is manifestly in the interests of the country to have a say on whether it still wants to leave. This week, more than ever, the chaos in Westminster points to the need to go back to the people. 7

What sort of leader surrenders to the crowd? Any French president of the modern era, you might reply. On December10th a queasy-looking Emmanuel Macron joined the long list

of presidents who have been thrown o course by street protests. Hoping to placate the mob, he promised to increase the takehome pay of minimum-wage earners by 8%, to let workers get overtime pay and Christmas bonuses tax-free and to revoke higher social charges on modest pensions. That was his second u-turn in less than a week. On December 6th the government had cancelled the rise in fuel duty that had provoked the gilets jaunes (yellow jacket) protests. The direct cost of Mr Macron’s climbdown is about €10bn ($11bn), or around 0.4% of gdp a year. This threatens to send the French budget deficit crashing through the Maastricht limit of 3%, further setting back

French hopes for deepening the euro zone. Mr Macron’s finance minister has vowed to find cuts to o set the extra spending.

To many, Mr Macron now looks like a president who can be cowed by flying bricks and sagging polls. His ability to bring about further reform is seriously, perhaps fatally, compromised. The gilets jaunes, having scented weakness, will

surely press for more. A fifth successive Saturday of protest is now promised for December15th. In a televised address Mr Macron admitted that he had been slow to acknowledge the hardships faced by ordinary people. He might have been more persuasive had he not recorded his speech in the grandest room in the Elysée palace, sitting behind a gilded desk.

And yet, in important ways, Mr Macron held firm. He insisted that he will not reverse an early decision to scrap France’s wealth tax. This infuriates many of the protesters, who call him the “president of the rich”. But it was right. Although Mr Macron never managed to convince voters of this, taxes on the rich had been raised to ludicrous levels by his Socialist predecessor, François Hollande. The wealth tax was routinely dodged and raised little

money, but it helped scare o mobile wealth-creators. Just as scrapping the tax signalled that France was open for business, a u-turn would have suggested it had once again shut its doors.

Even more important, Mr Macron gave no hint that he would delay or ditch any of his crucial labour-market overhaul (see Europe section). Although this is not perfect, it has stripped away some of the rules that cosset workers who already have jobs but deter companies from hiring new sta . The reform caps the size of unfair-dismissal awards and curbs the power of labour unions to impose industry-wide agreements on hours, pay and overtime. Already, these changes seem to be boosting employment. If Mr Macron had backtracked, investors would have concluded that France was as unreformable as Italy.

To have a chance of enacting the rest of his agenda, Mr Macron must persuade voters that this week’s shifts in policy were not a surrender but a tactical retreat. Much of the €10bn he is giving the left-behind is in the form of a wage subsidy for low-paid workers, which boosts their incomes without eroding the incentive to work. This is a good idea; indeed, he should have done it at the start of his presidency.

Other changes will be less popular, but they are just as necessary. Mr Macron wants to simplify and curb the growth of France’s unsustainable pension system. Inevitably that will require workers to toil longer or receive smaller pensions than they had been expecting. Faster economic growth would ease the pain, and would be easier if the French state was smaller. The government spends 56% of gdp each year, one of the world’s highest shares. It also owns stakes in almost 100 firms, most of which ought to be fully privatised.

None of these reforms can be sold from behind a gilded desk. Mr Macron needs to roll up his sleeves and explain to people in plain, un-haughty terms why his plans will make France better o . If he cannot manage that, he will fail. 7

vk.com/id446425943

The Economist December 15th 2018

2 a new phase in the economic cycle.

The Powell doctrine should be centred on humility. The Fed’s rate-setters have for years justified rate rises with predictions that America’s jobs boom would soon turn inflationary. Yet even with unemployment at just 3.7%, core inflation—the measure that matters most—is slightly below target and falling. Headline inflation is on target, but may soon be dragged down by a falling

plained away traders’ apparent pessimism using arguments that have started to crop up again today. In reality, markets were ahead of policymakers, as they probably will be the next time trouble strikes. Economists typically fail to predict downturns until they are imminent (see Graphic detail).

The Fed’s poor forecasting record has implications for monetary policy. Rate-setters should rely less on predictive models

Leaders 17

and more on realised economic and financial data. They should also abandon their insistence that unemployment is already unsustainably low, a claim that is at odds with the evidence and which will lead the central bank to hit the brakes too hard. And the Fed should state that it expects to hold rates steady in 2019 unless circumstances change materially.

Mr Powell may well worry about overreacting to bad news. Growth will surely slow as fiscal stimulus wears o , so softening economic data, in the housing

2

market say, do not justify panic. Mr Powell may also need to signal that he will not kowtow to Mr

1Trump. (Though the president would struggle to remove the Fed chairman over policy disagree-

0ments, it may be possible.) Central banks do not

exist to prop up stockmarkets—which can fall for reasons, such as waning euphoria, that are

mostly unrelated to the objectives of monetary policy.

The right balance can be found by raising rates now while signalling a change of course for 2019. The American economy can cope with another rate rise. But if the central bank continues to tighten monetary policy at the current pace, it is likely to make a costly mistakebefore long. To avoid that fate, Mr Powell must develop his own doctrine for the Fed. 7

Congo has many problems, but paying the pensions of expresidents has never been one of them. Since independence in 1960 all its leaders have either died horribly in o ce or soon

after being overthrown. Patrice Lumumba, its first prime minister, was murdered after less than a year in power. Mobutu Sese Seko, who ruled larcenously from 1965 to 1997, died of cancer shortly after being driven from his sumptuous palaces. Laurent Kabila, the Rwandan-backed rebel who toppled him, was shot by a bodyguard in 2001. His son Joseph has ruled ever since. But on December 23rd an election is due to be held, and Mr Kabila fils is not standing. It will be the first time that Congolese voters have peacefully replaced their head of government.

You might expect them to celebrate. Though less ghastly than Mobutu or indeed his own father, Mr Kabila has been a dismal president. His regime is filthier than the untreated water that most Congolese drink. It barely governs the east of the country. It has failed to keep the peace in the centre, where 4.5m people have fled their homes to avoid men with guns and machetes. Mr Kabila tried to change the constitution to allow himself to remain in o ce. But unlike the presidents of neighbouring Rwanda, Uganda, Burundi and Congo-Brazzaville, he failed. Surely his departure is cause for cheer, even if it comes two years after he was legally supposed to have stepped down?

Alas, it is not so simple. The election will be unfair, perhaps farcical. The main opposition candidate, Moïse Katumbi, a former governor of Katanga province, was barred from entering the country to register his candidacy. Without him, the opposition has fragmented. In parts of the country a icted by fighting, Ebola or both, many voters will be too scared to turn out. Most Western observers have been banned. Mr Kabila’s handpicked

successor, Emmanuel Ramazani Shadary, is likely to win.

Little about Mr Shadary inspires optimism. When he was interior minister, protests were crushed with such brutality that he is now under European Union sanctions. He lacks a personal power base. Mr Kabila is thought to have picked him in the hope that he will be like Dmitry Medvedev, Vladimir Putin’s sidekick, who kept Russia’s throne warm for a few years until the big man was constitutionally allowed to come back. In an interview with The Economist, Mr Kabila refused to rule out running again in 2023 (see Middle East and Africa section).

Still, puppets sometimes cut their strings, as Rwanda found out with Mr Kabila’s father, and as Angola’s ruling family found out when José Eduardo dos Santos, who had misruled since1979, handed the presidency to João Lourenço in 2017. Mr dos Santos and his children have now been sidelined; Mr Lourenço has vowed to uproot the old regime’s staggering corruption.

Congo will not improve until its leaders allow it to. There is only so much that outsiders can do, but the first task is to help make the election less ridiculous. Observers from the region should be intrusive. The 19,000 un peacekeepers in Congo are barred from helping with the election’s logistics, but they could widen the areas where people feel safe enough to vote. The fact that the ballot is happening at all is thanks to pressure from other African countries, which did not want to see Congo implode under a dictator-for-life. Western sanctions have helped, too. If Mr Shadary wins, the pressure should stay until it is clear that he wants change. Donors should not shell out unless a new regime proves serious about reform, starting with cleaning up Gécamines, the abysmal state-controlled mining giant, which pays the bills. That is a remote hope, but hope is all Congo has. 7

vk.com/id446425943

ADVERTISEMENT

( ]PZP[VY L_WLYPLUJLZ PU[LYHJ[P]L LU[LY[HPUTLU[ [LJOUVSVN` IHZLK VU MHJPHS YLJVNUP[PVU H[ [OL *OPUH 5H[PVUHS *VTW\[LY *VUNYLZZ OLSK PU /HUNaOV\ AOLQPHUN 7YV]PUJL VU 6J[VILY

?05/<(

0UP[PH[LK H KLJHKL HNV [OL .YV\W VM . Z\TTP[Z OH]L WSH`LK HU PTWVY[HU[ YVSL PU YLZWVUZL [V [OL PU[LYUH[PVUHS ÄUHUJPHS JYPZPZ *\YYLU[S` [OL NSVIHS LJVUVT` PZ H[ H JY\JPHS Q\UJ[\YL HZ YLNPVUHS LJVUVTPJ PU[LNYH[PVU HUK NSVIHSPaH[PVU [\YU PU[V HU PYYL]LYZPISL [YLUK YLJVNUPaLK I` TVZ[ JV\U[YPLZ HYV\UK [OL ^VYSK

+LZWP[L ZVTL HK]LYZL LɈLJ[Z LJVUVTPJ NSVIHSPaH[PVU OHZ NH[OLYLK THU` JV\U[YPLZ \UKLY P[Z MYHTL^VYR ^OLYL [OL` OH]L ILJVTL PU[LYYLSH[LK HUK PU[LYKLWLUKLU[

0U OPZ ZWLLJO H[ [OL . )\LUVZ (PYLZ :\TTP[ 7YLZPKLU[ ?P 1PUWPUN ZHPK ¸;OL [YLUK [V^HYK VWLUULZZ HUK PU[LNYH[PVU HTVUN JV\U[YPLZ PZ \UZ[VWWHISL KLZWP[L [OL \WZ HUK KV^UZ VM [OL NSVIHS LJVUVT`¹ ;V HKHW[ [V [OL [YLUK HU VWLU NSVIHS LJVUVT` ZOV\SK IL M\Y[OLY W\YZ\LK

Win-win outcomes

(KOLYPUN [V [OL WYPUJPWSL VM ^PU ^PU JVVWLYH[PVU *OPUH OHZ ILLU JHSSPUN MVY T\[\HSS` ILULÄJPHS THJYVLJVUVTPJ WVSPJPLZ 0U OPZ . ZWLLJO ?P \UKLYSPULK [OL PTWVY[HUJL VM NYLH[LY JVVYKPUH[PVU HUK JVTWSLTLU[HYP[` HTVUN JV\U[YPLZ (SS JV\U[YPLZ ULLK [V ^VYR [VNL[OLY [V LUZ\YL Z[YVUN IHSHUJLK Z\Z[HPUHISL HUK PUJS\ZP]L NYV^[O VM [OL NSVIHS LJVUVT` ¸*V\U[YPLZ HYL PUJYLHZPUNS` ILJVTPUN H JVTT\UP[` ^P[O ZOHYLK PU[LYLZ[Z ZOHYLK YLZWVUZPIPSP[PLZ HUK H ZOHYLK M\[\YL >PU ^PU JVVWLYH[PVU PZ [OL VUS` JOVPJL MVY \Z ¹ ?P Z[H[LK

(NHPUZ[ [OL IHJRKYVW VM LJVUVTPJ NSVIHSPaH[PVU UV JV\U[Y` JHU JVWL ^P[O NSVIHS PZZ\LZ VY SLHK [VKH`»Z JVTWSPJH[LK ^VYSK HSVUL ,JVUVTPJ WVSPJPLZ VM THQVY JV\U[YPLZ TH` L_LY[ ULNH[P]L ZWPSSV]LY LɈLJ[Z VU [OL NSVIHS LJVUVT` KPYLJ[S` VY PUKPYLJ[S` ;OLYLMVYL P[ PZ JY\JPHS MVY THQVY JV\U[YPLZ [V JVVWLYH[P]LS` WYVTV[L WVSPJPLZ VU NSVIHS NV]LYUHUJL VY JYPZPZ WYL]LU[PVU HUK JVU[YVS ;V [OPZ LUK T\S[PSH[LYHSPZT [OH[ ]HS\LZ PU[LYUH[PVUHS JVVWLYH[PVU PZ HU PUL]P[HISL JOVPJL PU [OL KP]LYZPÄLK ^VYSK

*OPUH ^PSS JVU[PU\L [V Z\WWVY[ [OL >VYSK ;YHKL 6YNHUPaH[PVU

>;6 PU SH\UJOPUN LZZLU[PHS YLMVYTZ ?P ZHPK ¸*OPUH Z\WWVY[Z ULJLZZHY` YLMVYT VM [OL >;6 HUK ILSPL]LZ [OH[ P[ PZ JYP[PJHS [V \WOVSK [OL >;6»Z JVYL ]HS\LZ HUK M\UKHTLU[HS WYPUJPWSLZ Z\JO HZ VWLUULZZ PUJS\ZP]LULZZ HUK UVU KPZJYPTPUH[PVU HUK LUZ\YL [OL KL]LSVWTLU[ PU[LYLZ[Z HUK WVSPJ` ZWHJL VM KL]LSVWPUN JV\U[YPLZ ¹

;OL >;6 HZ H T\S[PSH[LYHS VYNHUPaH[PVU THPU[HPUPUN PU[LYUH[PVUHS [YHKL VYKLY JVUMVYTZ [V [OL PU[LYLZ[Z HUK KLTHUKZ VM TVZ[ JV\U[YPLZ [V ZVTL L_[LU[ /V^L]LY P[ ZOV\SK IL UV[LK [OH[ J\YYLU[ >;6 TLJOHUPZTZ HYL UV[ WLYMVYTPUN ^LSS LZWLJPHSS` YLNHYKPUN LɉJPLU[ ZL[[SLTLU[ VM PU[LYUH[PVUHS [YHKL KPZW\[LZ *OPUH PZ YLHK` [V ^VYR ^P[O V[OLY JV\U[YPLZ [V Z\WWVY[ HUK WHY[PJPWH[L PU [OL YLMVYT VM [OL >;6 *OPUH HSZV Z[YLZZLZ [OH[ [OL YLMVYT ZOV\SK [HRL [OL PU[LYLZ[Z VM TVZ[ VM P[Z TLTILYZ LZWLJPHSS` VM KL]LSVWPUN JV\U[YPLZ PU[V JVUZPKLYH[PVU HUK MVJ\Z VU WYVTV[PUN [OL Z[HISL VWLYH[PVU VM [OL >;6 [OYV\NO [OL

KPZW\[L ZL[[SLTLU[ TLJOHUPZT W\ZOPUN HOLHK ^P[O L_[LUZP]L consultation.

Digital opportunities

;OL KPNP[HS LJVUVT` PZ H RL` ÄLSK VM PUUV]H[PVU VYPLU[LK KL]LSVWTLU[ HUK H UL^ KYP]PUN MVYJL WYVWLSSPUN [OL . JV\U[YPLZ [V SH\UJO LJVUVTPJ YLZ[Y\J[\YPUN HUK HJOPL]L [YHUZMVYTH[PVU HUK \WNYHKPUN (SZV K\IILK [OL 0U[LYUL[ IHZLK LJVUVT` [OL KPNP[HS LJVUVT` PZ JSVZLS` YLSH[LK [V [OL KL]LSVWTLU[ VM 0U[LYUL[ [LJOUVSVNPLZ (Z HU PTWVY[HU[ KYP]PUN MVYJL MVY VW[PTPaPUN [OL LJVUVTPJ Z[Y\J[\YL P[ JHU HJJLSLYH[L [OL [YHUZMVYTH[PVU HUK \WNYHKPUN VM [YHKP[PVUHS PUK\Z[YPLZ [OYV\NO PU[LNYH[PVU ^P[O [OL YLHS LJVUVT`

>P[O [OL WYVNYLZZ VM PUMVYTH[PVU JVTT\UPJH[PVU HUK 0U[LYUL[ [LJOUVSVNPLZ THU` UL^ PUK\Z[YPLZ I\ZPULZZ MVYTZ HUK TVKLZ ^PSS IL NLULYH[LK ;OL KPNP[HS LJVUVT` ^PSS PUQLJ[ UL^ ]P[HSP[` PU[V LJVUVTPJ HUK ZVJPHS KL]LSVWTLU[ 9V\NOS` WLYJLU[ VM [OL NSVIHS .+7 PZ JSVZLS` YLSH[LK [V [OL KPNP[HS LJVUVT` -VY THQVY LJVUVTPLZ HUK YLNPVUZ PU [OL ^VYSK KL]LSVWPUN [OL

KPNP[HS LJVUVT` OHZ ILJVTL H JVTTVU JOVPJL [V LUOHUJL [OLPY LJVUVTPJ JVTWL[P[P]LULZZ

0U YLJLU[ `LHYZ . TLTILY Z[H[LZ OH]L THKL NYLH[ WYVNYLZZ PU RL` ÄLSKZ Z\JO HZ [OL PUUV]H[PVU VM PUMVYTH[PVU HUK JVTT\UPJH[PVU [LJOUVSVN` 0*; 0U[LYUL[ PUMYHZ[Y\J[\YL PU[LYJVUULJ[P]P[` KH[H ZLJ\YP[` WYP]HJ` WYV[LJ[PVU 0*; IHZLK LU[YLWYLUL\YZOPW HUK JYVZZ IVYKLY L JVTTLYJL 0UJYLHZPUN JVVWLYH[PVU PU [OLZL ÄLSKZ OHZ HSZV PUM\ZLK UL^ SPML PU[V [OLPY KL]LSVWTLU[ (TPK NSVIHS LJVUVTPJ YLZ[Y\J[\YPUN [OL KPNP[HS LJVUVT` OHZ ILJVTL H UL^ KYP]PUN MVYJL MVY [OL LJVUVTPJ NYV^[O VM . Z[H[LZ

;OL . /HUNaOV\ :\TTP[ HWWYV]LK [OL . +PNP[HS ,JVUVT` +L]LSVWTLU[ HUK *VVWLYH[PVU 0UP[PH[P]L ([ [OPZ `LHY»Z Z\TTP[ QVPU[ LɈVY[Z HUK [OL W\YZ\P[ VM T\[\HS [Y\Z[ HUK ILULÄ[Z ^LYL WYVTV[LK *V\U[YPLZ ULLK [V JHYY` V\[ TVYL IPSH[LYHS HUK T\S[PSH[LYHS KPNP[HS LJVUVTPJ JVVWLYH[PVU WYVQLJ[Z WVVS ]HYPV\Z YLZV\YJLZ JVTWSLTLU[ VUL HUV[OLY ^P[O T\[\HS HK]HU[HNLZ HUK VW[PTPaL [OL ZWH[PHS SH`V\[ VM [OL KPNP[HS PUK\Z[YPHS JOHPU ;OL . TLTILY Z[H[LZ ZOV\SK L_[LUK [OL PU[LYJVUULJ[P]P[` VM PUMYHZ[Y\J[\YL PTWYV]L PU[LYUH[PVUHS Y\SLZ HUK Z[HUKHYKZ PU ÄLSKZ Z\JO HZ JYVZZ IVYKLY L JVTTLYJL HUK KH[H ÅV^ HUK VW[PTPaL PU[LYUH[PVUHS [H_ WVSPJPLZ PU SPUL ^P[O [OL KL]LSVWTLU[ VM [OL KPNP[HS LJVUVT` .\PKLSPULZ WVSPJPLZ HUK VWLYH[PVUHS WYVJLK\YLZ [OH[ JHU JYLH[L YLMLYLUJLZ MVY M\Y[OLY WYHJ[PJLZ ULLK [V IL MVYT\SH[LK ;OPZ JHU IL KVUL I` Z\TTHYPaPUN [OL Z\JJLZZM\S L_WLYPLUJLZ VM JVVYKPUH[LK KL]LSVWTLU[ VM [OL KPNP[HS LJVUVT` PU TLTILY JV\U[YPLZ

Mounting challenges

*\YYLU[S` \UPSH[LYHSPZT PZ WYL]HPSPUN PU [OL <UP[LK :[H[LZ HUK [YHKL WYV[LJ[PVUPZT PZ SVVTPUN HZ 7YLZPKLU[ +VUHSK ;Y\TW [V\[Z ¸(TLYPJH -PYZ[ ¹ ^OPJO OHZ WVZLK [OL NYLH[LZ[ JOHSSLUNL L]LY [V [OL NSVIHS LJVUVT` >PLSKPUN [OL [YHKL WYV[LJ[PVUPZT Z[PJR [OL <UP[LK :[H[LZ OHZ PTWVZLK OPNO [HYPɈZ VU *OPUH HZ ^LSS HZ [OL ,\YVWLHU <UPVU ,< HUK *HUHKH < : \UPSH[LYHSPZT OHZ MVYJLK *OPUH [V [HRL JV\U[LYTLHZ\YLZ HUK V[OLY JV\U[YPLZ PUJS\KPUN ,< TLTILYZ 1HWHU HUK 0UKPH [V Z\L [OL <UP[LK :[H[LZ H[ [OL >;6 ;OL <UP[LK :[H[LZ OHZ HSZV ÅV\[LK [OL J\YYLU[ NSVIHS VYKLY I` \WOVSKPUN ¸(TLYPJH -PYZ[¹ HUK ^P[OKYH^PUN MYVT [OL ;YHUZ 7HJPÄJ 7HY[ULYZOPW HNYLLTLU[ [OL 7HYPZ JSPTH[L JOHUNL HNYLLTLU[ <5,:*6 [OL .SVIHS *VTWHJ[ MVY :HML 6YKLYS` HUK 9LN\SHY 4PNYH[PVU HUK [OL 0YHU U\JSLHY KLHS MYHTL^VYR :\JO L_[YLTL < : WYHJ[PJLZ YHYL PU [OL OPZ[VY` VM PU[LYUH[PVUHS YLSH[PVUZ OH]L [YPNNLYLK JVUJLYUZ PU [OL PU[LYUH[PVUHS JVTT\UP[`

< : \UPSH[LYHS HJ[PVUZ OH]L JH\ZLK HK]LYZL JVUZLX\LUJLZ ^VYSK^PKL -PYZ[ [OL NSVIHS LJVUVT` ^P[O H ^LHR YLJV]LY` TVTLU[\T PZ HNHPU ILHYPUN [OL IY\U[ HZ < : TLHZ\YLZ KLHS H OLH]` ISV^ [V NSVIHS ]HS\L HUK Z\WWS` JOHPUZ HUK PUJYLHZL [OL \UJLY[HPU[PLZ VM LJVUVTPJ NYV^[O HUK KV^U^HYK YPZRZ :LJVUK [OL < : TV]L OHZ ZL]LYLS` PTWHPYLK [OL MYLL HUK VWLU PU[LYUH[PVUHS [YHKL Z`Z[LT ^P[O [OL >;6 H[ P[Z JLU[LY ;OPYK [OL <UP[LK :[H[LZ OHZ JOVZLU UV[ [V Z[YLUN[OLU JVVWLYH[PVU ^P[O V[OLY LJVUVTPLZ I\[ YH[OLY [V IYLHR ^P[O [OLT PUJS\KPUN P[Z HSSPLZ HTPK NYLH[ JOHUNLZ HUK [YHUZMVYTH[PVU HZ ^LSS HZ TV\U[PUN \UJLY[HPU[PLZ HYV\UK [OL ^VYSK )` UV[ \UP[PUN ^P[O V[OLY JV\U[YPLZ [V ZVS]L NSVIHS PZZ\LZ HUK LUZ\YL Z\Z[HPUHISL NYV^[O [OL <UP[LK :[H[LZ OHZ SVZ[ JYLKPIPSP[` PU [OL PU[LYUH[PVUHS JVTT\UP[`

6U +LJLTILY VU [OL ZPKLSPULZ VM [OL . :\TTP[ ?P HUK ;Y\TW YLHJOLK JVTTVU NYV\UK VU UV[ HKKPUN UL^ [HYPɈZ HUK \YNPUN LJVUVTPJ [LHTZ [V HJJLSLYH[L JVUZ\S[H[PVU HUK YLHJO H

concrete agreement. The outcome of the meeting has shown

[OH[ *OPUH»Z LɈVY[Z [V KLLWLU YLMVYT HUK VWLUPUN \W OH]L ILLU YLJVNUPaLK I` [OL <UP[LK :[H[LZ

;OL ;Y\TW HKTPUPZ[YH[PVU OHZ YLJVNUPaLK [OL HK]LYZL LɈLJ[Z [OL :PUV < : [YHKL MYPJ[PVU PZ OH]PUN VU [OL < : LJVUVT` -VY *OPUH HJJLSLYH[PUN YLMVYT HUK VWLUPUN \W PZ ULLKLK [V IVVZ[ P[Z LJVUVT` TLL[ WLVWSL»Z PUJYLHZPUN KLTHUKZ MVY H IL[[LY SPML HUK WHY[PJPWH[L PU H UL^ YV\UK VM PU[LYUH[PVUHS VYKLY JVUZ[Y\J[PVU HUK [OL LZ[HISPZOTLU[ VM NSVIHS Y\SLZ /V^L]LY LɈVY[Z I` LP[OLY WHY[` HSVUL JHUUV[ YLZVS]L [OL [YHKL PTIHSHUJL IL[^LLU *OPUH HUK [OL <UP[LK :[H[LZ )HZLK VU [OL JVUZLUZ\Z YLHJOLK I` [OL [^V SLHKLYZ *OPUH HUK [OL <UP[LK :[H[LZ HYL [V W\ZO HOLHK ^P[O QVPU[ LɈVY[Z [V PTWYV]L [OL ^LSS ILPUN VM WLVWSL PU IV[O JV\U[YPLZ HUK IVVZ[ [OL NSVIHS LJVUVT`

;OL KP]LYNLUJL VU \UPSH[LYHSPZT HUK T\S[PSH[LYHSPZT HUK [OL [\ZZSL IL[^LLU [YHKL WYV[LJ[PVUPZT HUK MYLL [YHKL HTVUN KPɈLYLU[ JV\U[YPLZ OH]L HNHPU W\[ [OL NSVIHS LJVUVT` H[ H JYVZZYVHKZ (Z H MVY\T ZLLRPUN [V PTWYV]L KPHSVN\L IL[^LLU KL]LSVWLK HUK LTLYNPUN LJVUVTPLZ [OL . ZOV\SK SH\UJO M\SS ULNV[PH[PVUZ HTVUN P[Z TLTILY Z[H[LZ [V WYVWVZL KL]LSVWTLU[ VYPLU[LK ZVS\[PVUZ [V LUZ\YL Z\Z[HPUHISL NYV^[O VM [OL NSVIHS

LJVUVT`

:JHU 89 JVKL [V ]PZP[ Beijing Review»Z ^LIZP[L

*VTTLU[Z [V KPUN`PUN'IQYL]PL^JVT

;OL H\[OVY PZ +PYLJ[VY VM [OL 0UZ[P[\[L VM >VYSK ,JVUVTPJZ H[ [OL *OPUH 0UZ[P[\[L VM 0U[LYUH[PVUHS :[\KPLZ

Monopoly games

Your fears about emerging monopolies are overblown (Special report on competition, November17th). Monopolies have been as ephemeral as classical economics would predict. That is unless they benefit from a government scheme to keep out competition, such as the championing of at&t during the 20th century. Once state support for at&t’s monopoly status was removed, the phone market became cut-throat.

One of the last acts of Lyndon Johnson’s administration was to file an antitrust suit against ibm. Described by Robert Bork as the antitrust division’s Vietnam, the suit was dismissed in1982 during the Reagan administration. A few years after the launch of the Apple II computer, ibm was no longer feared as a monopolist. People used to worry that Microsoft’s Internet Explorer had a stranglehold on the browser market. Who thinks that today? In both cases, time and technological innovation played their roles.

Today some worry about Google and Facebook monopolising their spheres of the online world. But their days on the top will end. Consumers’ preferences will change, or some unimagined technology will displace them. Consumers and capitalism would be better served if governments followed The Economist’s recommendations to lower barriers to enter markets and to eliminate incumbentsupporting rents. That is what causes monopolies.

andrew terhune

Philadelphia

The kind of antitrust regulation that sought to control national monopolies has given way to transnationally linked intangibles, multinational corporations and complex supply chains that cannot be properly regulated except by e ective global processes. Yet here we are in a world where such processes are increasingly constrained not only by economic and technological

changes, which reward oligopoly and rent-seeking, but by a hollowing out of the state’s regulatory capacity in ways not seen since the medieval era.

All of this has been supported by the hegemony of neoliberal ideology. Where the necessary paradigm shift is going to come from is unclear. A severe shock that is worse than the financial crisis may be increasingly necessary. philip cerny

Professor emeritus of politics, University of Manchester

Build, build, build!

Free exchange (November 24th) argued that there is more to high house prices in Britain than constrained supply. Well, yes, and no. The underlying cause of housing una ordability is constrained supply. Real house prices may have increased by161% since1996 but that year was a low point of the cycle. In Greater London they have roughly doubled in real terms in every decade since the green belt was imposed in1955. If we had built in England between1991and 2016 at the rate we built between1966 and 1991we would have 2.2m more houses, an additional 63%.

Nor is it just too few houses. It is a critical lack of supply where people want to live and would be most productive. In 2017,1,130 houses were built in Barnsley. In Oxford, surrounded by a green belt, only 130 houses could be built.

Since constraints on house building, coupled with rising real incomes, have generated such powerful upward pressure on prices, people have been conditioned to expect future price growth, both absolutely and relative to other assets. Houses became even more of an attractive investment after the financial crash, especially to small investors (the median landlord holds just one property). Rents are the price of “housing services”. The demand for these responds mainly to real incomes which have not risen since the crash. No wonder rents have fallen relative to prices: yields have adjusted.

It is the alchemy of British policy, a failure of supply and strategy over 40 years, which has turned houses into gold. professor paul cheshire

London School of Economics

How the IMO works

Contrary to your leader (“Agency problems”, November 24th), voting rights at the International Maritime Organisation are strictly one country, one vote. No country has greater weight in voting power. The imo Council consists of 40 members elected by the Assembly of174 member states. There is no “automatic” right to a council seat. Indeed, some of the largest contributors to the budget are not currently members of the council.

Moreover, which individuals represent member states is a sovereign matter for the countries themselves. And media reporting has been authorised and encouraged for the plenary sessions of private meetings of the imo’s technical bodies since 2004. Assembly meetings are public. Significant reforms to transparency were approved by the council last July.

In addition, the imo’s adoption in April of an initial green- house-gas strategy which pledges to halve annual emissions from ships by 2050 (compared with 2008 levels) is proof that we are serious about ensuring safe, environmentally friendly shipping. frederick kenney

Director

Legal a airs and external relations

International Maritime Organisation

London

Politics in Bangladesh

The imprisonment of Khaleda Zia, a former prime minister of Bangladesh, has nothing to do with her political status (“Electoral troll”, November10th), but rather her involvement in an embezzlement of funds that were meant for an orphanage. Nor is it true that the current prime minister, Sheikh Hasina, pushed for the trial and execu-

tion of “old men” just because they fought against her father, Sheikh Mujibur Rahman, the founder of Bangladesh. Those “old men” were criminals convicted for their participation in genocide and crimes against humanity committed during Bangladesh’s liberation war in1971. Do you oppose hunting down war criminals elsewhere just because they became “old men”?

The eu in its 2014 resolution strongly condemned the violence committed by the bnp-Jamaat, and the Federal Court of Canada declared bnp a terrorist organisation. You also ignored this fact.

Mischaracterising justice as mere political retribution is o ensive to the memories of the 3m people who sacrificed their lives and 200,000 women who lost their honour for the freedom of Bangladesh. The trials were conducted under the complimentary principle of the Rome Statute, and followed the standards for any international war crimes and crimes against humanity. muhammad zulqar nain

Minister (Press) High Commission for Bangladesh

London

Scene stealers

It is true that Sacha Baron Cohen “set” a movie in Grimsby (Charlemagne, November 24th). But it was not filmed there. Most of the English scenes meant to represent Grimsby were filmed in Tilbury. The people of Grimsby were not thrilled with his depiction of their town, although presumably Mr Cohen need not fear for his safety as much as he did when filming “Borat”. The scenes depicting Kazakhstan in that film were wisely shot in Romania. suhail suleman

Cape Town

Letters are welcome and should be addressed to the Editor at

The Economist, The Adelphi Building, 1-11 John Adam Street, London WC2N 6HT Email: letters@economist.com

More letters are available at:

Economist.com/letters