Special briefing: How radical Islamists see the world

from the August 02, 2005 edition - http://www.csmonitor.com/2005/0802/p04s01-wogi.html

By Dan Murphy and Howard LaFranchi Staff writers of The Christian Science Monitor

Persistent suicide bombings in Iraq. Attacks on London subways. Explosions at an Egyptian resort.

Whether related or not, these recent incidents have heightened global concern about the spread of radical Islamist militancy. And they raise questions about the current reach of Al Qaeda and groups with similar ideology. Today and tomorrow, the Monitor examines the origins of Islamic terrorism and how it is evolving now.

What is Al Qaeda today compared to five years ago?

In some ways it is less like the Al Qaeda of 2001 than like the Al Qaeda of the mid-1990s, before it was able to build up organizationally with a base of operations in Afghanistan. It is best understood as a radical ideology loosely inspiring a disparate and very decentralized set of localized Islamist extremist organizations.

For some terrorism experts, Al Qaeda as an organization simply no longer exists. Its Afghan training and indoctrination sites are gone. Key leaders have been killed or captured, or are on the run. Yet Al Qaeda as an ideology of global confrontation and jihad, "struggle" or "holy war," still exists.

"That is why I speak of 'Al Qaedaism' as more of a factor today than Al Qaeda," says Magnus Ranstorp of the Center for the Study of Terrorism and Political Violence at the University of St. Andrews in Scotland.

Who are Al Qaeda's leaders?

Osama bin Laden, still at large, founded the organization in 1988, along with Mohammed Atef (aka Abu Hafs al-Masri), an Egyptian who was killed in a US airstrike in Afghanistan. The group has a shura, or consultative council, the composition of which is unknown. But some of the people "most wanted" for organizing operations under Al Qaeda's name or ideology, such as Abu Musab al-Zarqawi, are not believed to be part of any centralized leadership.

Are they still organizing operations?

The Al Qaeda leadership may maintain some command-and-control capability from suspected locations in or near Pakistan - despite Pakistani President Pervez Musharraf's recent declaration about a smashed Al Qaeda. One possible example: In a tape released June 17 by the Arab television network Al Jazeera, Al Qaeda No. 2 Ayman al-Zawahiri called for revenge against Britain for allying with the US. Some experts believe such tapes are directives to proceed with an operation. In any case, the London bombings soon followed.

What do the militants want?

For Islamist militants, the long-term objective is an Islamic superstate, or caliphate. Narrower objectives include the end of the state of Israel and toppling secular Middle Eastern regimes like Egypt's. It is an article of faith that the US and all secular Western states stand in their way, and weakening those states is seen as positive for all their objectives.

Who is their main enemy?

The global jihad has long named two types of targets: the "near enemy" (Israel or secular Arab regimes) and the "far enemy" - America and its allies. Zawahiri was always more interested in the "near enemy" that stood in the way of an Islamic state in his homeland, Egypt. Bin Laden was more interested in the "far enemy," because he felt success could not be achieved closer to home until US financial and military backing for these regimes was eroded. When Zawahiri merged his Egyptian Islamic Jihad with Al Qaeda in 1998, the two trends were brought together.

What Is their ideal society?

They want a society that applies the Koran literally and adheres to the social practices that prevailed at the time of the prophet Muhammad. It would not be democratic in any modern sense, though there are provisions for shura, or consultation - generally interpreted to mean the leader should take advice from trusted community members. In their interpretation of Islam, women and men have defined roles, and women generally have fewer rights.

Their views stem from the Salafi movement within Islam's Sunni sect, the religion's largest. For a Salafi adherent, interpretation of the Koran stops 1,300 years ago, with Muhammad, his companions, and the three generations that followed them.

What about Wahhabi thinking - is that behind Al Qaeda?

While many in the West use the term Wahhabi, practitioners of this Sunni school reject the notion that they belong to any particular sect. To their thinking, they are simply following the true path of Islam. They are Salafi followers of Mohammed ibn abd al-Wahhab, an 18th century Arabian preacher. Although the vast majority of Salafis are not involved in violence, almost all attacks linked to Al Qaeda have been carried out by people under the Salafi umbrella. The House of Saud helped this school become Saudi Arabia's dominant interpretation of Islam. Many Saudis refuse to view Osama bin Laden as a Wahhabi, rejecting his thirst for overthrowing the Saudi regime. Wahhabis are supremely intolerant of Shiites, seeing practices such as the veneration of historic Imams Hussein and Ali as a breach of monotheism.

What are the roots of violent jihad?

Ibn Taymiyah, a 13th century scholar, is an intellectual forerunner of the modern Salafis. He rejected Sufi and Shiite Muslims, describing the latter as apostates who deserved death. Appearing in an era when crusaders remained in the Middle East, he advocated a muscular approach to Islam that called on believers to fight infidel invaders. The modern Salafi revival is generally traced to late 19th and early 20th century opposition to colonial rule, and was particularly taken up by Egyptian thinkers, who saw in it a way to oppose Western colonialism and modernize without giving up Islamic values. The foundation of Israel was seen by most Muslims, of all strains, as a hostile act that undermined Islam. For Salafis it was a call to jihad, to regain the land and holy places they felt had been usurped. Frustration mounted with the 1967 Arab defeat by Israel, which many Muslims interpreted as a sign of God's displeasure.

But the Salafi group around bin Laden really took hold after the 1991 Gulf War. Bin Laden was a wealthy Saudi who had helped support Afghans and Arab volunteers in the jihad against the Soviet Union in the 1980s, with financial support from Pakistani intelligence and the CIA. He wanted to lead an Arab and Muslim effort to end Saddam Hussein's occupation of Kuwait. He and his followers were enraged and humiliated that a US-led coalition repelled Hussein and that US troops were then stationed in Saudi Arabia, home to Islam's holiest places. Citing this issue, bin Laden and Zawahiri announced the "World Islamic Front for Jihad Against Crusaders and Jews" in 1998.

What does the Koran say about violence against civilians?

As with most religions, it is a question of where emphasis is placed. The Koran has fairly clear injunctions against murder, including "Whoever slays a human being, unless it be for murder or for spreading corruption on earth, it shall be as though he had slain all mankind" (5:32). Suicide is warned against even more strongly: "Do not kill yourselves ... whoever does so, in transgression and wrongfully, we shall roast in a fire" (4:29). Warfare in certain circumstances is condoned, even urged, just as in the Old Testament, but there are limits. "Fight in the cause of God against those who fight against you, but do not transgress limits. God loves not transgressors" (2:190) and "let there be no hostility, except to those who practice oppression" (2:193).

In the most widespread interpretations, such verses bar both attacks on civilians and suicide attacks, while allowing Muslims to fight against those who directly attack them. But how does one define the meaning of "those who practice oppression" or "spreading corruption on earth" or even "those who fight against you?" It is here that the minority of Islamist radicals who attack civilians find their wiggle room.

An Al Qaeda timeline

1988: Osama Bin Laden establishes Al Qaeda ("the base") to channel arms and funds to the anti-Soviet Afghan resistance.

1989-1991: Bin Laden becomes involved in movements opposing the Saudi monarchy, fueled by the kingdom's acceptance of US troops after Iraq invaded Kuwait.

1996: Bin Laden joins the Taliban in Afghanistan as they seize Kabul. He now has a base for his training operations.

AUG. 7, 1998: East African attacks: Nearly simultaneous car bombings hit US embassies in Dar es Salaam, Tanzania, and Nairobi, Kenya, killing 224 on the anniversary of the Saudi King's 1991 invitation to US troops to defend his country from Iraq.

OCT. 12, 2000: Suicide bombers ram the USS Cole off Yemen, killing 17.

SEPT. 11, 2001:Al Qaeda hijackers fly jetliners into the World Trade Center and the Pentagon, while a fourth hijacked jet crashes in a Pennsylvania field. Nearly 3,000 are killed.

OCT. 12, 2002: In an attack blamed on Jemaah Islamiyah, a Southeast Asian group linked to Al Qaeda, 202 are killed bombing on the Indonesian island of Bali.

2003 through present: Iraq becomes a locus for radical Islamists, as insurgents battle the fledgling Iraqi government and the US-led forces that ousted Saddam Hussein. A key mastermind, Abu Musab al-Zarqawi, aligns himself with Al Qaeda.

MARCH 11, 2004: Bombs hit four commuter trains in Madrid, killing 191 people and injuring more than 1,600. Attacks are blamed on Islamic militants with suspected ties to Al Qaeda.

JULY 7, 2005: A group calling itself the Secret Organization of Al Qaeda in Europe claims responsibility for bus and subway bombings in London that killed 56 people. Two weeks later another coordinated London subway bombing is attempted.

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How to find forgiveness for the costliest of mistakes

from the August 02, 2005 edition - http://www.csmonitor.com/2005/0802/p14s01-bogn.html

Most families long to hear 'I'm sorry.'

By Gregory M. Lamb

Part of being human is making mistakes. But what we say and do after the mistake makes a tremendous difference.

When a mistake involves serious injury or even death, the stakes are high. A highly publicized 1999 report from the Institute of Medicine, "To Err Is Human," estimates that nearly 100,000 hospital deaths each year may be caused by preventable errors.

The report has energized efforts to reduce mistakes in a medical system that is complex and in many ways archaic. Hospitals are adopting new practices such as computerizing records and prescriptions to curtail medication errors, requiring surgeons to complete airline-style checklists before operating, and having the patients themselves mark the correct locations for their surgeries.

But what role should be played by the latter half of Alexander Pope's famous maxim: "To err is human; to forgive, divine"? What actions promote forgiveness, and how might a greater attention to seeking forgiveness improve our medical system? What part does forgiveness play in healing?

Forgiveness on the part of an injured patient, or the family if the patient has died, comes as a result of both words and actions on the part of doctors and hospitals, says Nancy Berlinger in her thoughtful and well-researched book "After Harm: Medical Error and the Ethics of Forgiveness."

Judeo-Christian principles can inform proper action, regardless of the religious backgrounds - or lack thereof - of those involved, she says.

The victims of true mistakes, unintentional harm, include the doctors or other medical workers themselves.

"Most medical harm does not result from the negligence of 'bad' doctors," she writes. "Most physicians feel genuine remorse, even anguish, when they realize that their well-intentioned actions have injured or killed a patient who was under their care."

Telling the truth about mistakes is hard and humbling for anyone, she says. But fear of lawsuits makes many doctors even more reluctant to speak candidly with patients and families.

Yet less than 2 percent of patients who are harmed in hospitals actually sue their doctors, according to The Harvard Medical Practice Study, Ms. Berlinger says.

Ironically, lawsuits are often filed because families feel their grief is being ignored. The silence suggests that - to the doctor and hospital - nothing important has happened. Mistakes can be forgiven, she says, but indifference is much harder to forgive.

Often lawsuits are undertaken, at least in part, not to win compensation, but to discover the truth. Said the mother of one victim: "[I]f we can't have Jesse back, we want to be paid in understanding, and if we can't have understanding, then we want to be paid in money."

The keys to evoking forgiveness include promptly acknowledging the error, apologizing and expressing sincere remorse, and offering compensation, Berlinger says. A number of states have passed "I'm Sorry" laws that encourage doctors to apologize by exempting the apology itself from being used in court against them.

But alone, apologies are not enough, she says. Fair compensation must be considered. Apologies that lack accompanying actions, Christian theologian Dietrich Bonhoeffer suggests, result only in "cheap grace" or "cut-rate forgiveness."

In the King James Bible's version of the Lord's Prayer, she notes, the words "Forgive us our debts" employ a financial metaphor for forgiveness.

One result - or, in a religious sense, a blessing - from apologies and compensation can be a reduction in lawsuits and costs to hospitals and insurers.

One veteran's hospital in Kentucky with an active policy of seeking forgiveness reduced the average settlement to victims of medical errors to $15,000, compared with an average of $98,000 at all veterans' hospitals.

COPIC, a medical insurer based in Denver, instituted what it called a 3R program - Recognize, Respond, and Resolve - toward patient injuries. The cost of its claims dropped from an average of $78,741 to $1,820. COPIC's guidance to doctors restates Jesus's imperative to "do unto others as you would have them do unto you."

"[W]e must treat our patients as we would want ourselves or our families to be treated," COPIC says.

Recent studies suggest that an inability to forgive, and its accompanying feelings of hostility and anger, may be harmful to one's physical health. With this in mind, hospitals and physicians who free injured patients and their families to forgive medical mistakes can be seen as advancing their own fundamental goal: healing.

• Staff writer Gregory M. Lamb covers healthcare issues for the Monitor.

After Harm: Medical Error and the Ethics of ForgivenessBy Nancy BerlingerJohns Hopkins University Press156 pp., $35

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Cities turn to humiliation to fight prostitution

from the July 21, 2005 edition - http://www.csmonitor.com/2005/0721/p03s02-ussc.html

Police are posting photos of 'Johns' on websites or billboards, but critics say the tactic ignores causes.

By Amanda Paulson Staff writer of The Christian Science Monitor

CHICAGO - Anyone who's ever wondered just who the men are who cruise this city's seedier strips looking for sex can now satisfy their curiosity.

Starting last month, the Chicago Police Department has been posting the names of "johns" arrested for engaging or soliciting prostitutes - along with their photo, address, age, and place of arrest. A recent sample included men from low-income Chicago neighborhoods and relatively well-to-do suburbs, of all ages and ethnicities.

It's part of a tactic more and more cities are using, cracking down on prostitution by focusing on demand, often using tactics of humiliation - like Chicago's website or billboards in Oakland, Calif. - to try and convince potential customers to stay home.

It's a trend that some applaud, saying the men who drive the trade have been overlooked too often while prostitutes get arrested. Others question its effectiveness, suggesting that websites and "john schools" that educate customers about the realities of prostitution accomplish little.

"The first thing you have to ask is why are people involved in prostitution - overwhelmingly it's related to economic issues," says Juhu Thukral, director of the Sex Workers Project at the Urban Justice Center in New York. Focusing on demand, Thukral says, won't reduce the amount of prostitution; rather, more resources should go toward supportive housing, job training, and legal services - "programs that teach people how to get mainstream jobs that will provide a living wage."

Still, others involved in the issue say that efforts like Chicago's are an encouraging sign that cities are both waking up to the problems around prostitution and are recognizing that customers play as important a role as the prostitutes.

In Chicago, the website has been up for only a month, but has gotten more than 497,000 hits, says David Bayless, a spokesperson for the Chicago Police Department. [Editor's note: The original version incorrectly counted the traffic to the police website.]

"If we can get them to think twice about coming here, if they think they're at risk of being arrested and having their picture online, then the website's done its job," he says. "It's an acknowledgment that customers are contributors to the problem."

In addition to getting their photo online and having their vehicle impounded, arrested men have to attend a local "john school" run by Genesis House, an organization that helps Chicago sex workers.

The men pay $500 to attend the eight-hour class, and the money goes to support Genesis House's programs. During the day, they learn about the law, the health risks of patronizing prostitutes, and the reality of what life is like for prostitutes.

"This is not a victimless crime," says Patti Buffington, director of Genesis House. "There is a victim here, and it's the women performing this. About 95 percent of these women were abused."

For the men who attend john school, the biggest impact often comes when they learn more about the women themselves, says Norma Hotaling, a former prostitute who founded The Sage Project in San Francisco and started the nation's first john school about 10 years ago.

Midway through the class, she often reveals her own background. "You see them turn to Jell-O," Ms. Hotaling says with a laugh. "They say, 'You're smart, and you have power here, but you're' " a prostitute.

She's helped numerous cities around the US, including Chicago, launch their own john schools, and says the programs are remarkably successful; in San Francisco, she only sees about two percent of the men a second time.

Hotaling also has sympathy for the men who come through her classes; most, she says, simply don't have all the facts to make good decisions. As a result, she's not a fan of humiliation tactics.
"You don't tear down their support system and humiliate them," she says. "Do you want them to be total outcasts?"

Advocates at the Sex Workers Outreach Project, a San Francisco organization that favors legalizing prostitution, have also been outspoken against the humiliation efforts, such as the new campaign in Oakland that has billboards springing up with customers' faces - blurred in early versions - saying "Don't John in Oakland." "It's not going to stop the problem," says Robyn Few, director of the Sex Workers Outreach Project. "It's just going to move the problem from one place to another."

Still, many advocates of the efforts say the crackdown on customers is just one piece of an overall effort to reduce street prostitution and help sex workers move on to other jobs. In Chicago, where police estimate the number of prostitutes at anywhere between 16,000 and 25,000, Mayor Richard Daley has jumped with vigor on the new initiative. He cites not just the harm prostitution wreaks on neighborhoods and their quality of life, but also the harm done to the prostitutes themselves - a sign that politicians are starting to look at sex workers as victims rather than simply criminals.

"Once they become prostitutes, they're subject to even more violence, abuse, and possible death from their pimps and their customers," Daley said at a press conference to announce the new Internet site. "It's a terrible life, and a caring society has a responsibility to help these women turn their lives around, and to keep other young women from entering the profession."

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Case of cruelty, or compassion?

from the July 25, 2005 edition - http://www.csmonitor.com/2005/0725/p11s02-lire.html

By Anna Levine-Gronningsater Contributor to The Christian Science Monitor

Public distaste for the practice of euthanizing unwanted dogs and cats has led many communities and shelters to adopt "no kill" policies. As a result, today almost half of such animals in the US live out their lives in adopted homes or in shelters, compared with just 12 percent 35 years ago.

But even as the trend swings toward no-kill, a debate has erupted among animal-rights groups about the merits - and possible dangers - of keeping "adoptable" animals alive at all costs.

In the middle of the controversy, not surprisingly, is PETA (People for the Ethical Treatment of Animals), a group whose in-your-face protests have sometimes flirted with illegality. Two PETA workers, employees at the group's headquarters in Norfolk, Va., were arrested last month on animal-cruelty charges, alleged to have euthanized dogs and cats they had picked up from area shelters. Police in Ahoskie, N.C. - just over the state line - say they watched the two move animals' bodies from a PETA van to a dumpster.

The case has stirred outrage among some local officials and animal-rights groups, who say they had entrusted PETA to find homes for the dogs and cats - not to euthanize them within the hour. PETA, for its part, has not commented on the June 15 arrests specifically, but it is not alone in arguing that euthanasia is more humane than conditions in overcrowded shelters.

The result is an increasingly hot war of words over animal-control policy in localities across the United States.

"One side is arguing for the ethical, philosophical concept that an animal deserves not to be euthanized just because at that particular moment it is unwanted," says Annette Rauch at the Cummings School of Veterinary Medicine at Tufts University. "But every shelter has limited space, so when they adopt no-kill, they fill up. That leads us to the next question: What happens to the animals that get turned away?"

The debate is likely to intensify as more cities designate themselves "no kill" zones. Earlier this year New York set a goal to forgo animal euthanasia by 2015. Upstate, Tompkins County, which includes Ithaca, became America's first "adoption guaranteed" community about two years ago, meaning all shelters, organizations, and public agencies work together to promote adoption for healthy animals and to find lodging and care for unwanted or unhealthy animals.

"Organizations that do euthanize do not want to do that task. They do it because they do not think they have an alternative," says Rich Avanzino of Maddie's Fund, which pledged $16 million to help New York City achieve no-kill status.

PETA argues that while animals wait for homes or safe shelters tomorrow, they are suffering today. "We can't in good conscience oppose euthanasia as a means of overpopulation control when the alternative is animals being chained, deprived of companionship and exercise," says Daphna Nachminovitch, director of PETA's domestic animals issues and abuse department.

No-kill shelters often limit admission, adds Ms. Nachminovitch, leaving people little recourse but to abandon animals or take them to traditional shelters, where overcrowding can lead to discomfort and disease and where the least adoptable animals are often euthanized.

Even the adoptable animals don't always have a chance at a better life, says Kate Pullen of the Humane Society of the United States, which shares many of PETA's positions. "Just because an animal's considered adoptable and healthy doesn't mean there's a home for it," she says.

The two PETA workers, Adria Hinkle and Andrew Cook, are charged with eight counts of illegal disposal of animals and 31 felony charges for animal cruelty. Each animal-cruelty count could cost them up to 15 months in prison. As the pair await a probable cause hearing, set for mid-August, PETA is trying to draw the public to its side of the no-kill debate. It has posted pictures on its website of the shelters from which the animals were taken and has written a newspaper article in their defense.

Local officials in North Carolina say PETA was supposed to try to find homes for the 31 animals, and to euthanize only the unadoptable ones, in Norfolk. PETA says the shelters agreed to hand over unwanted animals to PETA for euthanization by lethal injection.

Animal control officers identified the cats and dogs as the ones Ms. Hinkle and Mr. Cook had picked up from local shelters and animal hospitals earlier that day, says Det. Jeremy Roberts, the arresting officer in Ahoskie.

Veterinarian Patrick Proctor of Ahoskie Animal Hospital, who had released a cat and two kittens to the PETA workers, says Hinkle told him they would be adopted. The hospital no longer entrusts its orphaned animals to PETA representatives, he says.

Northampton and Bertie counties in North Carolina have also cut ties with PETA. The group had agreed to assess each animal and its suitability for adoption before euthanizing it, says Sue Gay, Northampton County's health director. "The question is, did that occur?" she says.

The US currently has 5,000 traditional animal-control shelters and 1,000 adoption-guaranteed shelters, estimates Mr. Avanzino. By accepting euthanasia, he argues, people are giving up on alternatives to animal overpopulation. "If we say, 'This life that we're responsible for right now can't find a home, and therefore it's all right to kill it,' that animal has no chance. It's a self-fulfilling prophesy."

He cites San Francisco's no-kill philosophy. The city now euthanizes about 2,000 dogs and cats annually, compared with 65,000 four years ago, he says.

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An asteroid, headed our way

from the July 26, 2005 edition - http://www.csmonitor.com/2005/0726/p01s04-stss.html

By Peter N. Spotts Staff writer of The Christian Science Monitor

Humans live in a vast solar system where 2,000 feet seems a razor-thin distance.

Yet it's just wide enough to trigger concerns that an asteroid due to buzz Earth on April 13, 2029 may shift its orbit enough to return and strike the planet seven years later.

The concern: Within the object's range of possible fly-by distances lie a handful of gravitational "sweet spots," areas some 2,000 feet across that are also known as keyholes.

The physics may sound complex, but the potential ramifications are plain enough. If the asteroid passes through the most probable keyhole, its new orbit would send it slamming into Earth in 2036. It's unclear to some experts whether ground-based observatories alone will be able to provide enough accurate information in time to mount a mission to divert the asteroid, if that becomes necessary.

So NASA researchers have begun considering whether the US needs to tag the asteroid, known as 99942 Apophis, with a radio beacon before 2013.

Timing is everything, astronomers say. If officials attempt to divert the asteroid before 2029, they need to nudge the space rock's position by roughly half a mile - something well within the range of existing technology. After 2029, they would need to shove the asteroid by a distance as least as large as Earth's diameter. That feat would tax humanity's current capabilities.

NASA's review of the issue was triggered by a letter from the B612 Foundation. The foundation's handful of specialists hope to demonstrate controlled asteroid-diversion techniques by 2015.

Last Wednesday, representatives from the foundation met with colleagues at NASA's Jet Propulsion Laboratory (JPL) to review the issue. The foundation's letter marks the first time specialists in the asteroid-hazard field have called for a scouting mission to assess such a threat.

"We understand the risk from this object, and while it's small, it's not zero," says David Morrison, the senior scientist at NASA's Astrobiology Institute at the Ames Research Center at Moffett Field, Calif.

The call for a reconnaissance mission also illustrates how far the field of asteroid-hazard assessment has come.

"Ten years ago, we would have been blissfully ignorant," says Donald Yeomans, who heads NASA's near-Earth object project at JPL. Today, at least five programs worldwide are hunting down near-Earth objects. NASA is well on its way toward achieving its goal of cataloging 90 percent of the near-Earth objects larger than 0.6 miles across by 2008. And it is devising ways to ensure that information about potential hazards reaches top decisionmakers throughout the government.

Based on available data, astronomers give Apophis - a 1,000-foot wide chunk of space debris - a 1-in-15,000 chance of a 2036 strike. Yet if the asteroid hits, they add, damage to infrastructure alone could exceed $400 billion. When the possibility of the asteroid passing through two other keyholes is taken into account, the combined chance of the asteroid hitting the planet shifts to 1 in 10,000, notes Clark Chapman, a senior scientist with the Southwest Research Institute in Boulder, Colo.

"A frequent flier probably would not want to board an airliner if there's a 1-in-10,000 chance it's going to crash," he says.

The asteroid in question was discovered last June. Initially, it looked as though it might strike Earth in 2029. But additional observations eliminated that possibility. Instead the asteroid will come within 22,600 miles of Earth - just inside the altitude where major communications satellites orbit. The asteroid will be visible to the naked eye in the night skies over Europe and western Africa, where it will appear a bit dimmer than the North Star.

But this estimated distance carries an uncertainty that spans several thousand miles either side of its expected path - a region of space that includes three gravitational keyholes.

JPL's analysis will look at several factors. One involves estimating whether additional ground observations will be sufficient to resolve the question of whether the asteroid will pass through one of the keyholes. The asteroid belongs to a class known as Atens, which orbit the sun in less than a year and pass through Earth's orbit. Because Atens spend so much of their time in the direction of the Sun, observations from Earth are difficult. After next year, the next opportunity to gather data on the asteroid from the ground will come in 2012-2013.

In addition, questions remain over how long a tagging mission - and if necessary a deflection mission - would take to plan and execute. If missions can be mounted in six years or less, NASA could postpone a decision to tag the asteroid until 2014. This would give astronomers time to incorporate their latest observations as they refine calculations of Apophis's orbit. But if a tagging mission took seven to eight years and a diversion mission took another 12 years, the case grows for launching the tagging mission sooner rather than later.

Dr. Yeomans, the head of the near-Earth-object program at JPL, says the next step is to examine whether additional ground-based observations are likely to solve the collision riddle in a timely fashion.

"I can't stress this enough: The overwhelming most-likely scenario is that radar and optical data this year and next or in 2012 and 2013 will completely remove the impact probabilities," he says.

"If this is the case, why are we worried now? If it's a 1-in-15,000 shot and we come up a loser," there's still time to mount a tagging and a deflection mission, he says.

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Lawyers-to-be give free help to environmental groups

from the July 26, 2005 edition - http://www.csmonitor.com/2005/0726/p14s02-legn.html

By Eliza Strickland Contributor to The Christian Science Monitor

WHITE PLAINS, N.Y. - One student negotiated a $40,000 settlement. Another faced off against a roomful of Exxon-Mobil's high-powered lawyers. A third got snapped at by a judge for failing to stand while addressing the court.

Relaxing around a broad conference table, the students of Pace University Law School's environmental law clinic share the triumphs and crises of the past year, when they received their first taste of professional practice. Even before they took the bar exam, many already had legal victories on their résumés.

Founded in 1987, the clinic at the White Plains, N.Y., school offers experience in the application of environmental law. The second- and third-year students negotiate settlements, write briefs, and appear in court.

"On the first day of class, you become a lawyer," says Pete Putignano. "Ready or not."
The budding lawyers are beneficiaries of "student practice rules" common to many states, which allow them to represent clients and argue cases under the supervision of an instructor. But clinic codirectors Karl Coplan and Robert Kennedy Jr. take a back seat, insisting that students act as lead attorneys.

Mr. Putignano was well aware that the work he did for the clinic had weightier repercussions than other coursework. His primary client - a Long Island environmental group fighting the use of a pesticide - couldn't afford the expert witness and per-hour professional fees that environmental litigation normally includes. The pro-bono services from the clinic gave the group its one shot at a day in court.

"It can be a bit scary the first few weeks," Putignano says. "It's not about getting a grade; it's about winning a case."

Pace's program is one of the most prestigious environmental law clinics, but it's far from alone. About 30 such clinics operate in law schools around the United States, almost half of them founded in the past decade.

Their proliferation points to a larger trend: the addition of real-world cases to law school classrooms, says Catherine Carpenter, who completed a survey of law school curricula for the American Bar Association earlier this year. The survey found that 85 percent of American law schools now offer at least one clinic where students work with real cases and clients.

Clinics exist in just about every legal field, from family law to securities arbitration, in keeping with the move toward specialization in legal training.

But environmental clinics grapple with conflicts that don't often arise in other fields, says Jeremy Clemans, a student at Vermont Law School and former chairman of a student committee of the National Association of Environmental Law Societies. Environmental clinics often make powerful enemies, because of "the kind of cases they take on, who they're likely to be representing, and who they're likely to be going after," Mr. Clemans says. When challenging a large corporation or a government-funded project, an environmental clinic needs "the right level of support from the administration to make it work."

Several environmental clinics have run afoul of state governments. The one at the University of Pittsburgh, founded in 2000, was nearly done in by one of the first cases it accepted, representing a citizens' group that opposed the construction of a $2 billion turnpike between Pennsylvania and West Virginia.

State legislators, angered by the opposition, passed a bill forbidding the university from using state funds on the law clinic. University faculty took up the clinic's cause in the name of academic freedom, and the school eventually agreed to fund the clinic with private money.

Pace University's clinic hasn't gotten embroiled in a controversy of that magnitude, but Mr. Coplan says the possibility of turmoil comes with the clinic's watchdog role. "We usually take the cases that government agencies aren't willing to step in and take the lead on," he says.

The Pace clinic's main client is Riverkeeper, an environmental organization that Mr. Kennedy helped found to protect the Hudson River from pollution. Inside the modest brick building that houses the clinic, its riverine focus is evident: A freshwater aquarium greets visitors in the foyer, and the conference room is decorated with detailed maps of the Hudson, from source to harbor.

According to Alex Matthiessen, Riverkeeper's executive director, the Pace clinic donates about $1 million worth of pro bono services to Riverkeeper each year.

Coplan says the clinic's work is an attempt to level the legal playing field. "We make these legal resources available to ... environmental groups, which allows them to go head-to-head with corporations that have the best staff, unlimited budgets, and armies of lawyers.... We don't quite have an army, but we have a good contingent of students, and they've got a lot of energy."

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Who will be left to govern San Diego?

from the July 20, 2005 edition - http://www.csmonitor.com/2005/0720/p02s01-uspo.html

An acting mayor has been convicted in a bribery scandal, the latest setback in a string of woes for City Hall.

By Randy Dotinga Correspondent of The Christian Science Monitor

SAN DIEGO - After scandal scuttled the Republican Party's plans to bring its national convention to San Diego in 1972, this low-profile Navy town tried to fix its reputation with a cheery slogan: "America's Finest City."

But the catchiest motto these days comes courtesy of the media: "Enron by the Sea." Considering the events of this week, just days before an election to replace a disgraced mayor, "America's Most Corrupt City" may be next.

Here, where there are more pending crises than pandas at the San Diego Zoo, a federal jury on Monday convicted two councilmen of multiple corruption charges in a case of strip-club bribery uncovered by FBI wiretaps of City Hall.

"People didn't think trust in the government could get any lower," says Thad Kousser, a political scientist at University of California at San Diego. But it has, he says.

One of the councilmen, Michael Zucchet, automatically became acting mayor on Friday after the previous mayor quit. He and fellow defendant Ralph Inzunza have now been suspended. Dick Murphy, the elected mayor, had resigned in the face of continued questions about the handling of San Diego's pension fund deficit.

It's not clear who will run the city if no one wins a majority in Tuesday's mayoral election. In that case, a runoff will be held in the fall.

The ultimate victor will inherit a pension fund deficit estimated at well over $1 billion. Amid a blizzard of accusations and indictments, courts may ultimately allocate blame for the pension debacle, which arose after city leaders guaranteed benefits to employees without paying for them. For now, the bills are coming due, and the city is making a variety of cutbacks.

So far, the impact on residents has been limited. According to news reports, pothole and streetlight repairs are taking longer, and police officers are applying for jobs elsewhere because of pay issues.

But the city expects to soon take actions that will reveal financial straits to the public. Among other things, the city may close branch libraries one weekday per week. Bankruptcy looms as a possibility.

Even the San Diego County Taxpayers Association, a watchdog group, admits that the city will have to tap the pockets of its 1.2 million residents. "You know things are bad when the taxpayers association acknowledges that a tax hike may be there sometime down the road," says president Lisa Briggs.

According to observers, the top two mayoral candidates are maverick Councilwoman Donna Frye, a Democrat, and former police chief Jerry Sanders, a Republican. Other hopefuls include a well-financed businessman, a motorcycle dealer, and a lawyer who supports municipal bankruptcy.

Normally, voters would seem likely to "throw the bums out," especially in light of the convictions of the councilmen, accused of taking bribes from strip clubs eager to lift "no touch" rules. But in this election, the sole "insider" candidate, Ms. Frye, is about as outside as you can get. "The question," Mr. Kousser says, "is who are voters going to turn to to clean house?"

The frontrunner appears to be Ms. Frye, but she may not get the required majority vote. An unabashed liberal Democrat in a city with a history of staid Republican mayors, Frye has often been a lone voice on the Democrat-dominated council, calling for more financial responsibility and openness. "She's not tainted with all the scandals of the past," says local lobbyist John Dadian.

Both adored and mocked for her trademark beach-lover style, complete with sunbleached hair and well-tanned skin, Frye won the most votes in a last-minute write-in campaign for mayor last fall. But a judge ruled that a few thousand ballots - the margin of victory - didn't count because the voters failed to fill in the proper bubbles in addition to writing in her name.

Despite her reputation among critics as a lightweight, Frye is actually a "surfer policy wonk" who's well-versed in city affairs, Kousser says.

The mild-mannered Mr. Sanders, meanwhile, has fostered a "Mr. Clean" reputation, claiming credit for turning around troubled local chapters of the Red Cross and United Way.

Another Republican candidate, healthcare company founder Steve Francis, is running on an antibankruptcy platform and threatens Sanders' expected second-place finish.

Come January, when governance over the budget and city staff will shift from away from the city manager to the mayor's office, the winner will have to focus on "damage control," Mr. Kousser says.

"The question is whether [the winner] is really going to have a chance to send the city in the direction they want to go or be constrained by the debt," he says.

Councilwoman Toni Atkins, a Democrat, is temporarily in charge of the city. But even if she stays on through a runoff election, her influence may be limited, considering that she'll leave the position before the new strong-mayor powers kick in.

Meanwhile, elections will be held to replace the two convicted councilmembers, both Democrats. Their replacements could alter the dynamics of the Democrat-dominated council.

Then again, as the taxpayer association's Ms. Briggs puts it, "none of the normal rules apply anymore. We really are in uncharted territory."

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A conservative with few hard edges

from the July 21, 2005 edition - http://www.csmonitor.com/2005/0721/p01s01-uspo.html

By Warren Richey Staff writer of The Christian Science Monitor

In nominating federal appeals-court judge John Roberts to the US Supreme Court, President Bush is laying the groundwork for a significant rightward shift at the nation's highest court.
The move seeks to establish a presidential legacy that could influence one of America's most respected institutions decades after George W. Bush has left the White House.

The Bush administration's conservative push at the high court would have been more sweeping, however, if the president had named a judicial clone of Justice Antonin Scalia or Justice Clarence Thomas, as he had promised during his campaigns. Instead, Roberts's record suggests his voting pattern would be closer to that of Chief Justice William Rehnquist, a solid member of the court's conservative wing though not as doctrinaire as his two conservative colleagues.

But the replacement of centrist swing voter Justice Sandra Day O'Connor with someone likely to vote more consistently with the court's conservative bloc means that an entire range of 5-to-4 O'Connor precedents over the past two decades may soon be in jeopardy. They include abortion-rights restrictions - such as parental notification laws and bans on so-called "partial birth" abortions. Affirmative-action programs may also be at risk.

At the same time, Roberts appears to be a reliable vote in support of the high court's revival of states' rights. And last Friday, he was a member of the three-judge appeals-court panel in Washington, D.C., that upheld the president's wartime power to conduct terrorism tribunals at the Guantanamo Bay Naval Base.

In selecting Roberts, Mr. Bush dipped into the very top of the conservative legal elite in the United States. Few candidates at age 50 have a résumé that can match Roberts's. And although he is a white male, rather than a woman or member of a racial minority, his personal story is not without compelling touches.

His background

Captain of his high school football team, he worked summers in a steel mill to help pay his way through Harvard. After graduating magna cum laude at Harvard Law School, he clerked for federal appeals-court judge Henry Friendly. The following year, he clerked at the Supreme Court for Mr. Rehnquist, then an associate justice.

Roberts served in both the Reagan and the first Bush administrations - working for three years as principal deputy solicitor general, arguing the government's side in cases before the Supreme Court. In 1993, he left government service and became one of the nation's top appellate lawyers specializing in Supreme Court cases. Overall, he has argued 39 cases at the high court.

"He is a man of extraordinary accomplishment and ability. He has a good heart," Bush said of Roberts in his speech from the White House Tuesday night. "He has the qualities Americans expect in a judge: experience, wisdom, fairness, and civility."

Roberts, who has served on the US Court of Appeals for the District of Columbia Circuit since June 2003, said in brief remarks that he has "a profound appreciation for the role of the court in our constitutional democracy and a deep regard for the court as an institution."

He added, "I always got a lump in my throat whenever I walked up those marble steps to argue a case before the court, and I don't think it was just from the nerves."

Roberts's sterling résumé and calm, friendly demeanor will make him a difficult target for liberal advocacy groups and certain Democratic senators who are poised for a confirmation battle.

Moments after the Roberts announcement, a barrage of critical statements were released questioning his position on various issues. People for the American Way distributed a 10-page report calling his record "disturbing." NARAL Pro-Choice America delivered three pages charging that Roberts is hostile to reproductive rights.

Much of the material is recycled from Roberts's first confirmation hearings to the D.C. Circuit in 2003. At that time, one of the most frequently repeated charges against him was that he helped author a legal brief filed by the Solicitor General's Office urging the Supreme Court to overturn the 1973 landmark abortion precedent, Roe v. Wade.

The government brief said in part: "We continue to believe that Roe was wrongly decided and should be overruled.... The court's conclusion in Roe that there is a fundamental right to an abortion ... finds no support in the text, structure, or history of the Constitution."

In written questions submitted to Roberts in 2003, Sen. Edward Kennedy (D) of Massachusetts asked if he still believes that Roe should be overturned.

Roberts responded that he was one of nine government lawyers working on the solicitor general's brief. "It was the position of the federal government at the time ... that Roe should be overruled," he said. "I do not believe it is proper to infer a lawyer's personal views from the position taken on behalf of a client."

Roberts added, "Roe is binding precedent and, if I were confirmed as a circuit judge, I would be bound to follow it. Nothing in my personal views would prevent me from doing so."

In the two years that he has served on the federal appeals court in Washington, Roberts has not been involved in a case dealing with the abortion issue. Most of his decisions deal with regulatory agencies and other government disputes. But some opinions offer insight into how he would behave as a justice.

Ruling on a French fry

One is the French fry case. It involved a 12-year-old girl who was arrested, searched, handcuffed, fingerprinted, and detained - all for eating a single french fry in a Washington, D.C., subway station.

At issue in the 2004 case were zero-tolerance policies that required transit-authority police to arrest and detain every minor caught violating the Metro system's no eating or drinking rule. In contrast, adults caught eating received only a citation that subjected them to a fine as high as $50. They were not detained.

The girl's mother sued the Metro system, charging that the two-tier policies that treat adults and minors differently violate the equal-protection mandate of the Fifth Amendment.

Roberts recognized the cruelty of the policies. "The child was frightened, embarrassed, and crying throughout the ordeal," Roberts wrote for the three-judge panel. "The district court described the policies that led to her arrest as 'foolish,' and indeed the policies were changed after those responsible endured the sort of publicity reserved for adults who make young girls cry."

Roberts didn't stop there. "The question before us, however, is not whether these policies were a bad idea, but whether they violated the ... Constitution."

The three-judge panel ruled that they did not. The girl and her mother lost their case and the opportunity to have her arrest record expunged. The report by People for the American Way criticizes Roberts's approach, saying he was "dismissive of the serious concerns raised by the use of police power in this case."

Roberts ruled that the juvenile detention policy was a "reasonable" effort by the city to ensure that parents of minors who violate Metro regulations are notified of the violations by having to pick up their children at the detention facility.

"We too may have thoughts on the wisdom of this policy choice - it is far from clear that the gains in certainty of notification are worth the youthful trauma and tears - but it is not our place to second-guess such legislative judgments," Roberts wrote.

To conservatives, the case illustrates the kind of judicial approach the president says he admires - that is, judges who strictly apply the Constitution and law rather than legislating from the bench.

But to liberals, the case is an example of a judge who adopted a narrow reading of the equal-protection guarantee - a guarantee designed to protect citizens, including teenage citizens, from unreasonable government actions.

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Economist.com Cities Guide: London Briefing - August 2005

News this month

Terror looms

London has suffered two waves of bomb attacks in almost as many weeks. On July 7th, suicide-bombers targeting the capital's transport network killed over 50 people and wounded 700 others. A second wave of attacks on July 21st, broadly mimicking the first, ended in failure after devices left on three Tube trains and a bus failed to explode properly. Police are seeking the would-be bombers—thought to be Islamists with links to al-Qaeda—before they strike again.

Perhaps because Londoners were expecting a terrorist attack, many seem to have taken the bombings in their stride. Buses and Tube trains remain busy—though in the latter's case seriously disrupted. The first attacks also failed to dent economic confidence: the benchmark FTSE 100 share index recovered its 4% loss the following day. But with the threat of a prolonged terror campaign now looming, tourism and London's already troubled retail sector are expected to suffer.

The hunt for the perpetrators took a turn for the worse on July 22nd, when police shot dead a Brazilian man in south London under the mistaken impression he was a suicide-bomber. Sir Ian Blair, the Metropolitan Police's chief, apologised for the killing but defended his force's “shoot to kill” policy. Meanwhile, police carried out a controlled explosion in a park in west London on a package thought to have been an exploded bomb.

Celebrations cut short

The bombings on July 7th came just one day after London won the competition to stage the 2012 Olympic Games. News of the victory prompted noisy celebrations in Trafalgar Square, where a large crowd had gathered to hear the International Olympic Committee’s decision. The prime minister, Tony Blair, hailed the win as “a great chance to develop sport in our country...and then to leave a legacy for the future”.

Already, preparations for the games have begun. On July 15th the bid organisers announced that a new operating company—the London Organising Committee for the Olympic Games—would become responsible for delivering the event. Meanwhile, a bill setting up the Olympic Delivery Authority—the body that will represent the government's and mayor's interests—began its journey through Parliament. Inevitably, the bombing attacks have shone a spotlight on security. Some £225m ($390m) is already earmarked for policing at the games, though this sum could be increased.

Scene change
Andrew Lloyd Webber, the impresario and composer behind “Cats” and “Phantom of the Opera”, announced in early July that he was selling four of his West End theatres. Lord Lloyd-Webber is London's biggest theatrical landlord, and speculation has been rife that he might sell his empire—potentially opening the door to entertainment giants such as Disney and Clear Channel Entertainment. But instead of abandoning the West End, it seems the 57-year-old composer is consolidating his holdings, at least for now.
After weeks of talks, the four theatres—the Garrick, Lyric, Apollo and Duchess, the so-called “paste jewels” in Lord Lloyd-Webber’s crown—were sold to Max Weitzenhoffer, a Broadway producer, and Nica Burns, a production director. The estimated £11.5m raised by the sale will pay for a costly refurbishment programme of the eight theatres still owned by Lord Lloyd-Webber’s Really Useful Group. The proposed revamp is a boost for the cluster of commercially owned theatres in central London, collectively known as “Theatreland”, which have been criticised for their old-fashioned facilities.

City safari

London Zoo in Regent’s Park is to become more like a safari park under an ambitious plan unveiled by the Zoological Society of London on July 18th. The first stage in the zoo’s makeover will see the creation of an “African Rainforest” area incorporating an island enclosure for its gorillas. The new attraction is expected to cost £5.3m and is set to open in 2007. Other animals will be moved to “more naturalistic environments” over the ensuing years, according to the society’s director.

Whether the plan solves the zoo’s long-standing financial problems remains to be seen. Falling attendance and the withdrawal of government funding drove London Zoo nearly to bankruptcy in the 1990s, though new attractions such as “Meet the Monkeys” have since boosted visitor numbers. Just how animal-rights activists will respond is uncertain: the new enclosures are an improvement for animals, but ploys, such as heated rocks that lure animals to viewing areas, will probably draw criticism. London's biodiversity has also been enhanced by planning approval for Biota!, a vast £80m aquarium in the East End to be owned and operated by the Zoological Society, which was granted by Newham Council earlier this year.

A clean strike

Cleaners at the Houses of Parliament downed mops and buckets on July 20th in protest against their working conditions. The strikers accused MPs of paying “poverty wages”, and called for a pay increase as well as more holiday and other benefits. A spokesperson for the Transport and General Workers Union—which backed the strike—argued that many of the cleaners needed another job to make ends meet. Complaints were also aired about the lack of sick pay and company pension scheme, and the fact the cleaners get only 12 days’ holiday a year.

Never ones to miss a photocall, particularly on their own doorstep, a gaggle of Labour MPs joined the 170 or so demonstrators outside the Houses of Parliament. Meanwhile, the cleaners revealed their most disliked task was cleaning the toilets in the House of Lords. “Some days they are really nasty,” one complained, while avoiding any scatological detail. The cleaners are employed by two agencies contracted to the Houses of Parliament; the effect of their protests remains to be seen.

Catch if you can

August 2005

“Death of a Salesman” & “Aristocrats”

Until November 5th & October 13th 2005 respectively

Two families live, love and lose their self-deceptions on the London stage this season. Though the plays span continents and decades, both force their subjects to confront unpleasant truths. The Lyric Theatre is staging Arthur Miller’s “Death of a Salesman”. Brian Dennehy won a Tony for his portrayal of Willy Loman, the tragic, broken-down salesman, in the Broadway production of this play. To the good fortune of Londoners, he is reviving this performance in the West End. Douglas Henshall as his son, Biff, can only pale in comparison, and he does, with a hammy Brooklyn accent and sophomoric kitsch. But the show remains moving and magical.

South of the Thames, the National Theatre is hosting Brian Friel’s “Aristocrats”, in which the middle-aged children of a rich, but depleted, Irish-Catholic family return to their family estate and swap reminiscences. Gradually, the little lies are peeled away and their private suffering is exposed. The combination of sharp wit and wilted dreams has a Chekhovian flavour. Expect a strong script and exceptionally good performances, particularly by Andrew Scott as Casimir.

Lyric Theatre, Shaftesbury Ave, W1. Tube: Piccadilly Circus. For tickets phone +44 (0)870 890-1107 or click here.

National Theatre, South Bank, SE1. Tube: Waterloo, Southwark, Embankment. For tickets phone +44 (0)20 7452-3000 or visit the theatre’s website.

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Economist.com Cities Guide: Berlin Briefing - July 2005

News this month

A hot topic

The legacy of the cold war was a hot subject in early July, when workers dismantled a makeshift memorial next to Checkpoint Charlie, the former east-west crossing-point. The memorial, created in 2004 by Alexandra Hildebrandt (owner of the nearby Checkpoint Charlie Museum), was dedicated to those killed trying to cross the East German border. Consisting of a field of wooden crosses and a rebuilt section of the Berlin Wall, it proved a popular attraction, with many viewing it as a needed tribute to suffering under communism.

But the memorial stood on land owned by BAG, a Hamm-based bank, which demanded that Mrs Hildebrandt either pay rent or raise the €35.6m ($43m) purchase price. So Berlin's courts ordered the demolition. About 200 protesters, many of whom had spent time in East German jails, braved a rainy morning to obstruct the process, with several chaining themselves to the crosses. All is not lost: shortly before the removal, the city-state's government voted to build a monument to the wall's victims near the Brandenburg Gate. But Berlin's bankruptcy means this is unlikely to happen in the near future.

Poor show

Berlin played host to one of the “Live8” rock concerts on July 2nd, organised to draw attention to poverty in Africa on the eve of the G8 summit in Scotland. On a sunny afternoon, some 150,000 Berliners turned out to the concert along the Strasse des 17 Juni in front of the Brandenburg Gate. But the event was marred by a row between the city-state's government and Marek Lieberberg, the concert's organiser, in the weeks leading up to it.

Mr Lieberberg claims that Berlin did little to promote the event, and that the venue resembled a “soup kitchen line”. He had originally asked that the concert be held on the grassy meadow in front of the Reichstag, the seat of Germany's federal parliament, but authorities declined, wary that the crowd would damage the lawn's sensitive sprinkler system. Germany's corporate sector also offered little support—with the exception of ARD, the television station that broadcast the concert, not a single local sponsor came forward. Even Klaus Wowereit, Berlin's fun-loving mayor, failed to attend. The unseemly dispute (which found local media backing Mr Lieberberg) had the effect of distracting attention from the concert's altruistic remit.

Looking left

Berlin is prickling with politics as parties gear up for federal elections, expected on September 18th pending approval of both Horst Köhler, Germany's president, and the Constitutional Court. Polls are predicting victory for the Christian Democratic Union and its Bavarian sister party, the Christian Social Union, over the ruling Social Democrat (SPD)-Green coalition under Gerhard Schröder, Germany's chancellor.

A new political party is also getting attention: the Democratic Left-PDS, a loose alliance between the Party of Democratic Socialism (PDS), heirs to East Germany's communists, and a west-based left-wing party. It has particular appeal in Berlin, where the city-state is now governed by a SPD-PDS coalition, and a state election is due in 2006. Some regard it as a future force in Berlin state politics, but first it will have to overcome tensions already visible between its populist national leadership and Berlin's pragmatic PDS leaders. Klaus Wowereit, Berlin's SPD mayor, has stressed that he is ruling in partnership with the PDS, not the new alliance—for now, at least. The alliance may have attracted enough support to influence the election result—one recent poll gave it 11%.

Bank on it

Berlin's banking sector is facing a shake-up. The city-state's government is preparing to auction off its publicly owned savings bank, the Berliner Sparkasse. The sale was mandated by European Union regulators as part of a 2001 bail-out package in response to the city's bankruptcy. The bank, with 1.9m customers, is a lucrative prize: in 2004, it made a profit of €60m ($72.4m). But the sale is strongly opposed by the Landesgesellschaft (the body that oversees the state-owned banking sector), which is vowing to stave off privatisation by buying the bank itself.

Private banks, such as Deutsche Bank, are also eager to acquire Sparkasse. Some hope such a move would help to put an end to the fear of privatisation harboured by many Germans. Although the deadline for the auction is not until late 2007, the debate is heating up as players jostle for position. In the meantime, state-owned banks across Germany face another blow to their status: on July 19th, they will have to give up a perk they have enjoyed for over 50 years: state guarantees on their debts.

An icon departs

After 12 years teaching at the city's University of the Arts, Vivienne Westwood, a British fashion designer, is leaving the German capital. But she is departing in style: on July 2nd she hosted a send-off party at Tempelhof Airport, attended by 1,500 people and featuring a show of her students' creations.

Ms Westwood originally made her name in London in the 1970s, designing provocative outfits for the Sex Pistols, a punk band. Her wares then included bondage gear, spiked dog collars and clothes covered in safety pins. The 64-year-old designer, who still sports bright-orange hair, moved to Berlin in 1993 and has frequently praised the city's energy and artistic scene.

Catch if you can

August 2005

Goya: Prophet of the Modern

Until October 3rd 2005

This exhibition promises to be Berlin's art event of the year. After ten years of negotiations with the Prado Museum in Madrid and various other museums and collectors around the world, this is the first show of works by Francisco de Goya (1746-1828) in the German-speaking world. Expect crowds when you view this astounding collection of 80 paintings and 60 etchings and lithographs by the Spanish artist, whom many describe as the father of modern art.

Bright, early canvases, such as “The Parasol” (pictured), and tapestry “cartoons” begin the promenade, which wends towards the gloomier works Goya created at the end of his life, when he was tormented by nightmares, pessimism and illness. Spain's war and Goya's madness infuse these later works with a still-shocking darkness.

Old National Gallery, Bodestrasse 1-3, Museuminsel, Berlin-Mitte. Tel: +49 (30) 266 3669. See the exhibition's website. Queues are long. They can be avoided by purchasing a VIP ticket for €30. Normal tickets cost €10.

More from the Berlin cultural calendar

Worse—and maybe better

Iraq

Jul 21st 2005 BAGHDAD
From The Economist print edition

Despite a recent spate of horrors, the picture is mixed

A RECENT spate of particularly lethal suicide bombs—on July 16th one blew up a petrol tanker near a mosque in the mainly Shia town of Musayib, south of Baghdad, killing at least 90 civilians—makes things look even worse than they are. Not that they are rosy. But there is no sign yet of an impending “tipping point”—either in favour of the insurgents, who seek a return to Sunni Arab dominance through a sectarian war leading to the ignominious departure of the American-led forces, or in favour of the western allies, who want to split the insurgency, beef up the new Iraqi army and police so that they can take over the main burden of security, hold another set of elections under a new federal constitution, and then beat a dignified retreat within the next few years or so.

In fact, the rate of killing in the past year has been going up and down (see charts). For sure, the overall trend, year on year, is up. But so far this year it has levelled off. The violence ebbs and flows. The week before the recent spate of car bombs was the quietest since the new government took office at the end of April. Spikes of violence tend to occur during set-piece events—for instance, the retaking of the rebel stronghold of Fallujah last November, the general election at the end of January, and the installation of a new government in late April. Then the killing rate has tended to come down again.

As parliament's constitutional committee gets close to agreeing to a new constitution and then puts it to a referendum—all being well—in October, a new spike of violence may be expected. In order not to let the insurgents gain momentum, the committee is said to be determined to meet its mid-August deadline, though the temporary constitution allows for a six-month extension. It may even produce a document ahead of time, early next month.
Most strikingly, the death rate for Iraqi civilians has gone up more steadily. Iraq Body Count, a diligent American-British monitoring group that was against the war to oust Saddam Hussein, said this week that nearly 25,000 civilians had been killed in the two years since the invasion by American forces. They, it reckons, caused 37% of those deaths, a third of them in the three weeks of the actual invasion, when bombs and missiles rained down on Baghdad. Since then, the insurgents, “unknown agents” and (most culpable of all) criminal gangs have been responsible for most of Iraqis' violent deaths.
Though foreign Islamists, such as Abu Musab al-Zarqawi, a Jordanian who proclaims a link with al-Qaeda, catch the headlines and perpetrate many (maybe most) of the grisliest acts of violence, such as beheadings and suicide-bombings, most analysts put their number at 5-10% of the insurgents, who, according to the American army, add up to about 15,000 to 20,000 fighters. It is unclear whether more Iraqis are becoming suicide-bombers.
In any event, the country's revamped security forces have been especially hard hit in the past year, partly because their number has risen dramatically, from around 30,000 in July 2004 to some 152,000 by March this year. Recruiting centres and queues have been favourite targets. But the death rate for the American forces and their allies has actually gone down sharply since the peaks of November, when 125 Americans died in action. In March, 23 were killed by insurgents; in June the tally was 70; if this month's current rate is constant, it will be around 30.
But a further, more ominous, feature of the fighting is that it is taking on a more sectarian hue. More recently, Shia gatherings—weddings, funerals and crowds milling around outside mosques—have become particularly vulnerable. In response, the killing of prominent Sunni civilians, such as their clergy, has increased. Many Shias and Sunnis living in districts where they are a minority have moved out. Some people in Baghdad say a low-level civil war has already begun.

Some Shia members of parliament, casting doubt on the effectiveness and loyalty of police and army units, have been demanding a wider call-up of neighbourhood militias. Most peace-minded Sunni Arab politicians, for their part, fiercely oppose such an idea. They also say, gloomily, that Iran is meddling more than before, egging on the government's two main Shia parties, the Supreme Council for Islamic Revolution in Iraq (SCIRI) and the Dawa (“Call”) party, to let their militias off the leash. In particular, they accuse SCIRI's militias, the Badr Brigades, of sectarian murders and of torturing Sunni detainees.

But the political mood may be improving, despite a hiccup this week due to the murder of two peace-minded Sunni Arabs: Mijbal Issa was one of 15 co-opted on to the 55-strong drafting committee; the other was one of ten Sunni Arab observers on it. Friends of both men blamed Shia militiamen, not Sunni rejectionists, for their deaths. Their Sunni Arab committee colleagues said that, in protest, they were temporarily withdrawing.

The drafters, in any case, have been beavering away. The shape of Iraq's federal structure is still at issue. So is the degree of Islam's influence over the law. Women's groups have expressed worry about some clauses leaked from the emerging draft. And several of the thorniest questions, such as where the disputed province of Kirkuk fits into the federation and how to disburse the country's oil revenue, may be addressed in generalities and, in effect, set aside. “Everything can be deferred until judgment day if we get consensus on a draft,” says Adnan al-Janabi, another Sunni Arab on the committee.

More hopefully, out of Iraq's 18 provinces, only the four including Baghdad and surrounding it are relentlessly bloody. No less hopefully, the leaders of the newly dominant Shias, who comprise some 60% of Iraqis to the Kurds and Sunni Arabs at about 20% apiece, have so far refused to be drawn by the overwhelmingly Sunni Arab insurgents into a sectarian tit-for-tat that could presage an all-out civil war. In particular, Grand Ayatollah Ali al-Sistani, Iraq's most influential Shia cleric, has restrained the angriest of the Shia militias. And even in the bloodiest provinces the mayhem is at least not worsening. “It's no more pear-shaped than it was six months ago,” says a hardened foreign observer in Baghdad. “Maybe slightly less so.”

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Together at last

India and America

Jul 21st 2005 DELHI
From The Economist print edition

America adds substance to its professions of friendship for India

FOR months, American officials have been insisting, as one put it, that “there is no higher priority” for George Bush's second term in office than “expanding and broadening our relationship with India”. If that could be achieved by pomp and ceremony, the visit this week to Washington, DC, of Manmohan Singh, India's prime minister, would have done the trick. He was showered with honours, including a 19-gun salute and the chance to make a speech to Congress. The president even stayed up late to entertain him to a White House banquet, only the fifth he has thrown in more than four years.

America's professions of friendship have of late started to ring rather hollow. It has remained committed to its strong alliance with India's nuclear-powered neighbour and rival, Pakistan. It has refused to endorse India's chief foreign-policy goal, a permanent seat on an expanded United Nations Security Council. It opposes India's cherished project to pipe gas from Iran across Pakistan. And it has withheld co-operation in military and nuclear technology because India tested nuclear weapons in 1998 and has never signed up to the international non-proliferation regime.

Of these four areas of contention, Mr Singh's visit marked a breakthrough only on the last. But this one matters so much that it has transformed the relationship. America has agreed to help India acquire “the same benefits and advantages” as other states with nuclear weapons. India is to be granted “full civil nuclear energy co-operation”—such as fuel supplies and the transfer of technology.

This is hugely important for India. One of the biggest constraints on the continuing success of its fast-growing economy is an electricity shortage. Nuclear energy, which at present accounts for only about 3% of total generation, is, in many eyes, an attractive alternative to coal and expensive imported oil and gas.

Very well then, keep your bomb

The American move is also a great symbolic victory. For decades India has faced sanctions because of its nuclear-weapons programme. Now, America is, in effect, offering to help it to become a respectable bomb-wielding citizen. In return, to the consternation of critics at home, India has promised to adopt the same responsibilities as other nuclear powers, including separating its civilian nuclear facilities from military ones, opening the former to international inspection and maintaining its moratorium on nuclear testing.

For more upbeat Indian analysts, the nuclear deal is proof that the country has achieved “dehyphenation”—a decoupling of its relations with America from the sometimes vicious America-India-Pakistan triangle. America has close relations with Pakistan, which swiftly followed India into the nuclear club in 1998, but Pakistan does not enjoy any of the new privileges the Americans are bestowing on India. Nor, these days, does America press India to make concessions over Kashmir, the core of its dispute with Pakistan.

The change in America's attitude reflects both India's emergence as an economic force to be reckoned with, and the rise of neighbouring China. India's economy is only about 40% the size of China's, but its fast growth and young population mean that its global role is increasing, not least because of its thriving information-technology and outsourcing industries. Just as the boss of any big American firm needs to tell his shareholders a China story, so he now needs an Indian strategy too. One of the outcomes of Mr Singh's visit was the launch of a new forum of Indian and American chief executives.

American and Indian officials stress that the two countries' relationship is independent of their respective relations with China. Yet America's stated ambition to help India become a great power in the 21st century cannot be detached from apprehensions about China's looming might. Although India is enjoying something of a second honeymoon with China, its own long-standing suspicions, which date to the war of 1962, have not entirely faded.

Despite the instinctive anti-Americanism of many Indian intellectuals, both India and America recognise that, as democracies, they should have common interests. These were obscured by the legacy of the cold war, during which a “non-aligned” India tilted towards the Soviet Union, and the United States played the “China card”. The much-needed rapprochement with India was pursued by President Bill Clinton, but further delayed by India's bomb tests in 1998, and then by the attacks on America on September 11th 2001, which gave Pakistan new importance in the war against terror.

That importance persists, but officials say that Mr Bush is personally committed to better relations with India. Revelations of the Pakistani connections of three of the suicide-bombers who attacked London this month were a reminder that Pakistan is also part of the terrorism problem. India, on the other hand, as Mr Bush pointed out when he introduced Mr Singh to his wife in Moscow in May, has more Muslims than any country other than Indonesia— but no known al-Qaeda recruits.

Pakistan will at least be pleased that America's new love affair with India does not extend to open support of its Security Council bid. Mr Bush went no further than to agree that international institutions should “fully reflect changes” that have taken place since the UN was set up in 1945. India agrees with that—though many Indians suspect that the only change America really wants to preserve is its own emergence as the unchallenged superpower.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Take a bow

British financial regulation

Jul 21st 2005
From The Economist print edition

The FSA listens and learns

AS CLIMB-DOWNS go, this was as graceful as you'll see. Britain's Financial Services Authority (FSA) said on July 19th that it would change the way it does business in order to give firms suspected of wrongdoing a better hearing. Sir Callum McCarthy, the FSA's chairman, accepted all the recommendations of a review commission set up five months ago in response to widespread criticism. He said that the watchdog was determined to reach a point where firms subject to its discipline could say, however grudgingly, that the process had been fair. With these reforms—give or take a few caveats—he will probably achieve his goal.

The catalyst for this first serious overhaul of enforcement in the FSA's seven-year history was an action for endowment-policy mis-selling brought by the regulator against Legal & General (L&G), a big insurer. Where many had muttered, L&G fought back. An independent review tribunal in January halved L&G's fine, from £1.1m ($1.9m), and criticised the FSA's procedures. It said that the main problem was the regulator's failure to distinguish adequately between those who investigated a case (its enforcement division) and those who decided on its merits (the quasi-independent Regulatory Decisions Committee, or RDC).

This will now be done, in several ways. All communications between the enforcement team and the RDC will be disclosed to firms being investigated. Lawyers from the enforcement division who have not taken part in an investigation will review its findings before these go forward to the RDC, as a sort of “reality check”. The RDC itself will add two lawyers to its strength so that it need not ask the enforcement division for legal help. And face-to-face meetings at which the enforcers and the firm in question make their oral pitch to the RDC will permit more flexible discussion, with no secret recourse afterwards by the in-house team to the RDC.

These are the main changes, and both financial and legal folk seem broadly pleased. L&G's chief executive, Sir David Prosser, welcomes them with no apparent hard feelings. So does Simon Orton, a partner in the law firm that represented the insurer, Freshfields Bruckhaus Deringer: “The FSA have really been listening,” he says. But a few questions remain.

The first is how it will all work in practice. Decision-making, however improved, rests on the quality of the investigation that precedes it, as the FSA knows. Margaret Cole, its new director of enforcement, will be taking a hard look at the troops at her disposal. There are plans to add a seasoned veteran of “complex forensic investigations” to the team, but one man does not a Scotland Yard make.

Then there is the decision to take settlements out of the RDC's remit and hand them over to senior FSA executives, encouraging early settlement by establishing a fixed discount from any penalty imposed. While it is right to deter frivolous contests, settlements are important, as Mr Orton points out, both because they establish a scale of penalties for future application and because they send a message about what is considered good practice. Both might benefit from an outside eye.

A final unknown is the cost of these changes. The FSA reckons that, while a smaller proportion of cases may be referred to the RDC, those that are will be slower and costlier. This is likely to add some £2.5m to the FSA's budget, about 1% of the current total, which might be recouped by raising the fees charged by the FSA to the firms it oversees.

Sir Callum insists that the FSA is determined to remain a risk-based regulator using administrative procedures to correct significant abuses rather than become an enforcer plodding laboriously through the courts. London's light touch is its contribution to the global debate on financial regulation, and one secret of the city's success as an international financial centre. With its own ungrudging acceptance of its critics' case for change, the FSA has given that regulatory model a new lease on life.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Seeking new beer drinkers in the high Andes

Jul 20th 2005
From The Economist Global Agenda

SABMiller is set to become the world’s second-largest brewer after its proposed takeover of Bavaria, a Colombian firm with strong sales across the Andean region. It is the latest in a string of deals in which big brewers have sought new beer-drinkers in emerging markets to replace those being lost in rich countries. But takeover targets are set to become rarer—and pricier

FOR seasoned beer drinkers, it is often hard to resist just one more glass. But that is just what is happening in the main markets of the world’s big brewers. Beer drinking in western Europe and America is growing negligibly or is in decline. The response of the world’s leading brewers has been to buy up firms in fast-growing new markets in a bid to boost sales and prop up profits as increasingly affluent drinkers in mature markets chose to imbibe wine and spirits instead of ales.

SABMiller, currently the world’s third-largest brewer, said on Tuesday July 19th that it would follow the footsteps of InBev, the world’s largest, into the South American market. Almost a year after InBev was created, with the purchase by Belgium’s Interbrew of Brazil’s AmBev for $11.2 billion, SABMiller said that it would acquire Colombia’s Grupo Empresarial Bavaria in a deal valuing the target firm at some $7.8 billion. Bavaria, South America’s second-largest brewer, is the dominant beer firm in Peru, Ecuador and Panama as well as in its home market and enjoyed revenues of $1.9 billion in 2004. The deal means SABMiller will overtake America’s Anheuser-Busch to become the world’s second-largest seller of beer.

It is not just in South America that brewers have expanded in an effort to combat the stagnation of growth and profits in their mature home markets: breweries in China and Eastern Europe have also been swallowed up. Last year, Anheuser-Busch, best known for its top-selling brand, Budweiser, bought Harbin, China’s fourth-largest brewery, for $720m, after outbidding SABMiller. And earlier this year the American company upped its stake in Tsingtao, another Chinese brewer, to 27%. Recently, InBev said it was buying Russia’s Tinkoff for €167m ($201m). Heineken of the Netherlands, which lost out to SABMiller in the quest to acquire Bavaria, has recently bought two Russian brewers. And consolidation is set to continue. The world’s top five brewers accounted for 17% of world beer sales 15 years ago. Now they sell 40% of the total and that figure is likely to hit 50% by 2010.

The world’s brewing giants, having been instrumental in the consolidation of brewing in Western Europe and America, can only hope to gain extra market share from rivals in these established markets through costly marketing campaigns. So acquisitions are, on the face of it, a sensible way to achieve decent growth—especially in emerging markets where the numbers with the disposable income to afford beer are rising.

By some estimates China’s beer market, now the world’s largest, is growing by 6-8% a year. Beer consumption in Latin America is set to expand at around 4% a year for the next five years, twice the global average, according to SABMiller. And in both regions, beer consumption per head is far below European and American levels, suggesting plenty of scope for more sales. Beer drinking in Eastern Europe is also burgeoning. Russia is expected to out-consume even famously beer-loving Germany, becoming the world’s third-largest consumer market, towards the end of this decade.

There is some evidence that the strategy of emerging-market takeovers is working. InBev reported that net profits for 2004 had jumped by 23% compared with the year before, to €621m. Its Latin American operations more than made up for declining sales in Britain, Germany and elsewhere. South America, like other markets that the brewers are tapping is big and, broadly speaking, increasingly stable and prosperous, with the sort of youthful populations that tend to drink beer. But it is unlike other markets. Bavaria enjoys a near monopoly in Colombia, Ecuador and Peru and is dominant in Panama. Consequently it makes decent profits.
China, despite its position as the world’s largest beer market, is the world’s least profitable. Price wars between the country’s 400-odd breweries have squeezed profits. Anheuser-Busch’s purchase of Harbin, and other forays into China by western brewing giants, have been criticised as expensive exercises in building market share in the hope of future profits when consolidation someday comes.

There are other ways that these deals can boost the coffers of the big brewers. Some scope exists for savings, through economies of scale in purchasing raw materials and by cutting administration costs. SABMiller has promised savings of $120m a year by 2010 through its takeover of Bavaria, though this is quite a modest sum in the overall context of the deal. The multinational brewers also get distribution and marketing expertise in the countries where their acquisitions operate. This means that, besides growing the local brands they have bought, they can in time introduce their more profitable, premium-priced global brands. As consumers become better-off they tend to move up the value chain from cheaper local beers to these premium products, enhancing the brewers’ margins.

SABMiller, formed by the combination of South African Breweries and America’s Miller in 2002, believes that it has the expertise to exploit emerging markets. Its pre-tax profits in its latest financial year of $2.2 billion were driven by handy growth at its South African business where consumers are switching to its premium brands such as Miller Genuine Draft and Pilsner Urquell. InBev has successfully launched Stella Artois in Brazil and Becks in Poland. And eventually more brands could travel in the other direction to enliven the jaded palates of Western European and American drinkers. This year InBev, launched Brahma, Brazil’s leading beer, in 15 countries including Britain, France and America, to compete against the premium beers offered by rivals.

The big brewers are sure to continue to eye assets in fast-growing markets. All four of the world’s top brewers were said to have considered a bid for Bavaria. And speculation has abounded that other big European brewers, such as Carlsberg or Scottish & Newcastle could also prove tempting targets for the global giants looking to get bigger still. Though there may still be a number of countries ripe for consolidation, the number of brewers with a worthwhile market share in emerging markets is finite. If the rich world’s brewers all start chasing the same assets, they will be forced to pay ever-higher prices in their efforts to keep their businesses growing—making the logic of such moves increasingly less obvious.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

How far will it go?

The revaluation of the yuan

Jul 21st 2005 HONG KONG
From The Economist print edition

China has revalued its currency, the yuan, and linked it to a basket of currencies. By itself, this will do little to slow the economy, but it may ease trade tensions

SOONER or later, it was going to happen, and on July 21st it did. China abandoned the 11-year-old peg of its currency, the yuan, at 8.28 to the dollar. From now on, the yuan will be linked to a basket of currencies, the central parities of which will be set at the end of each day. And the currency has been revalued, although by nothing like as much as America and others have been demanding: the yuan's central rate against the dollar was shifted by 2.1%, to 8.11.

As The Economist went to press, it was not clear exactly how the new system would operate. The Chinese called it a “managed floating exchange-rate regime”, which may well imply more management than floating. The fact that the Chinese have acted at all is important. But the eventual economic and political effects of the revaluation will depend on how far and how fast the yuan moves from now on.

In particular, such a slight revaluation is unlikely to do much to slow China's fast-expanding economy. The day before the currency regime changed, the country's official statisticians said that GDP in the second quarter of 2005 was 9.5% higher than a year before, more than most pundits had forecast and only a shade less than the figure for the same period of 2004 (see chart). Industrial production, ahead by 16.8% in the year to June, and investment in fixed assets, up by 25.4% in the first half, year on year, have both eased from their levels at the end of 2003, but remain strong. Inflation, as measured by the consumer-price index, is mild. It slid to 1.6% last month, down from 5%-plus a year ago.

In truth, the economy is slowing more markedly than these (highly suspect) official figures suggest. Many economists say that China has an institutionalised bias to over-reporting growth at the bottom of a cycle and under-reporting it at the top, to reduce the volatility of the numbers. Judged by physical indicators, such as electricity consumption or freight volumes, GDP growth probably peaked at over 12% in 2003 and should slow to 8% by 2006. Since China's macroeconomic growth is driven more by fixed investment than by household consumption (which dominates in the West), it is especially vulnerable to any slowing of corporate investment or public spending on infrastructure.

“In investment cycles,” says Andy Xie, Asia economist at Morgan Stanley, “the leading indicators are profit margins, product prices and property prices, which forecast corporate cash flow or ability to borrow.” These three are slowing. For the past five years, Chinese industrial firms have enjoyed record profit margins as revenue growth has outpaced the increase in wages and raw-material costs. In 2003 and 2004, industrial production and sales grew at an annual rate of nearly 30% in real terms, analysts estimate, but in 2005 the pace has slowed to around 15%. With commodity prices high, companies' margins are being squeezed: overheated industries such as cars, steel, cement and basic materials are suffering especially.

Property prices are also moderating after a period of extraordinary growth, particularly in big cities. Shanghai house prices, up by half since 1998 and by almost 10% in the first quarter of this year, have fallen back by 10-20% since mid-April. Transaction volumes in most urban centres have also dropped, because the government has imposed a property-sales tax and tightened mortgage requirements.

Overall, however, China seems to be managing the soft landing that it wants. The authorities have acted earlier and more decisively than they did in the mid-1990s, curbing growth before it gets out of hand. Policymakers have also been more sophisticated, targeting selected sectors with administrative restrictions while shifting to market-based measures, including last October's increase in interest rates, to rein in money and credit growth. A dearer yuan—but much dearer, probably, than after this week's move—would give the economy another downward nudge.

In addition, the economy is looking better balanced: there are signs that consumer spending is doing more to support the economy, alongside fixed investment and exports. Rising incomes are boosting households' spending power, lifting retail sales by 13% in the first half of the year, compared with the same period of 2004. And the countryside is finally playing a part: after six years of lacklustre growth, rural incomes rose by 12.5% in the first half.

That said, China's policymakers cannot afford to rest on their laurels. On the one hand, there is a risk that the economy will steam away again as spending for the Beijing Olympics in 2008 takes off. On the other, the vast amount of manufacturing capacity built up over the past few years means that a slightly sharper slowdown, perhaps triggered by lower growth in America, could tip the country back into deflation. Already, a staggering nine-tenths of manufactured goods in China are thought to be in oversupply.

In the short term, the biggest worry is that China becomes a victim of its own international success. Until recently China has been a powerful engine driving the world economy. If it slows, existing political and trade tensions could still worsen. Thus an unfortunate side effect of China's attempts to cool its domestic economy has been an exploding trade surplus, because import growth has softened while exports have remained robust. In June, China's exports rose by 30.6%, year-on-year, while imports grew by just 15.1%, widening the monthly trade surplus to $9.7 billion. The cumulative surplus for 2005 is now nearly $40 billion, more than for the whole of last year. This year's current-account surplus could reach 9% of GDP. “Just one year ago, China was the world's fastest-growing importer of heavy industrial products,” says Jonathan Anderson, chief Asia economist at UBS. “Today, the mainland is actually a growing net exporter, with shipments of not only textiles but also steel, other metals and chemicals accelerating visibly.”

Slowing imports (of everything but commodities) are bad news for international companies, at a time when those doing business in China are already suffering from increased competition and oversupply. And mainland firms are becoming aggressive exporters of everything from textiles and steel to electronics and even cars. Ningbo Bird, based in Zhejiang province, is flooding Asia with cheap mobile-phone handsets it cannot sell profitably at home.

Revaluing the yuan should make some of the tensions created by all this less acute. American politicians, in particular, have been demanding a step in this direction. However, they have been demanding a much bigger stride. And investment is becoming as touchy an issue as trade has been. China is no longer using its huge stock of foreign-exchange reserves—over $700 billion—merely to buy American Treasury bonds, but to snap up physical assets too. The $18.5 billion contested bid by CNOOC, a big Chinese oil company, for America's Unocal is causing an uproar in Washington, DC. China's move this week may dampen calls for trade protection and revaluation for a while. But if China's domestic economy slows and thus becomes less supportive of global growth, such calls are likely to return soon.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

China lets the yuan rise—but how far?

Jul 22nd 2005
From The Economist Global Agenda

China has revalued its currency, the yuan, and linked it to a basket of currencies—though it is not yet clear how far it will be allowed to rise. The move may ease trade tension with America, though China's slowing economy, which is boosting its trade surplus, may reignite the spat

SOONER or later, it was going to happen, and on Thursday July 21st it did. China abandoned the 11-year-old peg of its currency, the yuan, at 8.28 to the dollar. From now on, the yuan will be linked to a basket of currencies, the central parities of which will be set at the end of each day. And the currency has been revalued, although by nothing like as much as America and others have been demanding: the yuan's initial central rate against the dollar was shifted by just 2.1%, to 8.11.

So far, it is not clear exactly how the new system will operate. The Chinese called it a “managed floating exchange-rate regime”, which may well imply more management than floating. Neither the currencies in the basket used to set the level of the yuan, nor their weights, have been disclosed. The fact that the Chinese have acted at all is important. But the eventual economic and political effects of the revaluation will depend on how far and how fast the yuan moves from now on. In Friday's trading it barely budged—and in fact closed a fraction below 8.11 to the dollar, suggesting the authorities are keen to damp down market expectations of further rises.

Such a slight initial revaluation is unlikely to do much to slow China's fast-expanding economy. The day before the currency regime changed, the country's official statisticians said that GDP in the second quarter of 2005 was 9.5% higher than a year before—more than most pundits had forecast and only a shade less than the figure for the same period of 2004 (see chart below). Growth rates of industrial production, ahead by 16.8% in the year to June, and investment in fixed assets, up by 25.4% in the first half, year on year, have both eased from their levels at the end of 2003, but remain strong. Inflation, as measured by the consumer-price index, is mild. It slid to 1.6% last month, down from 5%-plus a year ago.

In truth, the economy is slowing more markedly than these (highly suspect) official figures suggest. Many economists say that China has an institutionalised bias to over-reporting growth at the bottom of a cycle and under-reporting it at the top, to reduce the volatility of the numbers. Judged by physical indicators, such as electricity consumption or freight volumes, GDP growth probably peaked at over 12% in 2003 and should slow to 8% by 2006. Since China's macroeconomic growth is driven more by fixed investment than by household consumption (which dominates in the West), it is especially vulnerable to any slowing of corporate investment or public spending on infrastructure.

“In investment cycles,” says Andy Xie, Asia economist at Morgan Stanley, “the leading indicators are profit margins, product prices and property prices, which forecast corporate cash flow or ability to borrow.” These three indicators are slowing. For the past five years, Chinese industrial firms have enjoyed record profit margins as revenue growth has outpaced the increase in wages and raw-material costs. In 2003 and 2004, industrial production and sales grew at an annual rate of nearly 30% in real terms, analysts estimate, but in 2005 the pace has slowed to around 15%. With commodity prices high, companies' margins are being squeezed: overheated industries such as cars, steel, cement and basic materials are suffering especially.

Property prices are also moderating after a period of extraordinary growth, particularly in big cities. Shanghai house prices, up by half since 1998 and by almost 10% in the first quarter of this year, have fallen back by 10-20% since mid-April. Transaction volumes in most urban centres have also dropped, because the government has imposed a property-sales tax and tightened mortgage requirements.

Overall, however, China seems to be managing the soft landing that it wants. The authorities have acted earlier and more decisively than they did in the mid-1990s, curbing growth before it gets out of hand. Policymakers have also been more sophisticated, targeting selected sectors with administrative restrictions while shifting to market-based measures, including last October's increase in interest rates, to rein in money and credit growth. A dearer yuan—but much dearer, probably, than after this week's move—would give the economy another downward nudge.

In addition, the economy is looking better balanced: there are signs that consumer spending is doing more to support the economy, alongside fixed investment and exports. Rising incomes are boosting households' spending power, lifting retail sales by 13% in the first half of the year, compared with the same period of 2004. And the countryside is finally playing a part: after six years of lacklustre growth, rural incomes rose by 12.5% in the first half.

That said, China's policymakers cannot afford to rest on their laurels. On the one hand, there is a risk that the economy will steam away again as spending for the Beijing Olympics in 2008 takes off. On the other, the vast amount of manufacturing capacity built up over the past few years means that a slightly sharper slowdown, perhaps triggered by lower growth in America, could tip the country back into deflation. Already, a staggering nine-tenths of manufactured goods in China are thought to be in oversupply.

In the short term, the biggest worry is that China becomes a victim of its own international success. Until recently China has been a powerful engine driving the world economy. If it slows, existing political and trade tensions could still worsen. Thus an unfortunate side effect of China's attempts to cool its domestic economy has been an exploding trade surplus, because import growth has softened while exports have remained robust. In June, China's exports rose by 30.6%, year-on-year, while imports grew by just 15.1%, widening the monthly trade surplus to $9.7 billion. The cumulative surplus for 2005 is now nearly $40 billion, more than for the whole of last year. This year's current-account surplus could reach 9% of GDP. “Just one year ago, China was the world's fastest-growing importer of heavy industrial products,” says Jonathan Anderson, chief Asia economist at UBS. “Today, the mainland is actually a growing net exporter, with shipments of not only textiles but also steel, other metals and chemicals accelerating visibly.”

Slowing imports (of everything but commodities) are bad news for international companies, at a time when those doing business in China are already suffering from increased competition and oversupply. And mainland firms are becoming aggressive exporters of everything from textiles and steel to electronics and even cars. Ningbo Bird, based in Zhejiang province, is flooding Asia with cheap mobile-phone handsets it cannot sell profitably at home.

Revaluing the yuan should make some of the tensions created by all this less acute. American politicians, in particular, have been demanding a step in this direction—President George Bush's spokesman welcomed the move. However, some congressmen have been demanding a much bigger stride. And investment is becoming as touchy an issue as trade has been. China is no longer using its huge stock of foreign-exchange reserves—over $700 billion—merely to buy American Treasury bonds, but to snap up physical assets too. The $18.5 billion contested bid by CNOOC, a big Chinese oil company, for America's Unocal is causing an uproar in Washington, DC. China's currency move may dampen calls for trade protection and revaluation for a while. But if its domestic economy slows and thus becomes less supportive of global growth, such calls are likely to return soon.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Hunting the London bombers, shooting an innocent man

Jul 27th 2005
From The Economist Global Agenda

London's police have admitted that the suspected suicide-bomber they gunned down on an Underground train was an innocent Brazilian man, unconnected with the latest round of bombing attacks on the city's public-transport system. Police are still urgently seeking three of four main suspects seen on security cameras at the scenes of the bombings

A FORTNIGHT after the four explosions that killed 56 people, Londoners’ reputation for “getting on with it” in spite of threats to their safety was put to the test again. At lunchtime on Thursday July 21st the city’s transport system was hit by explosions at four points—three almost simultaneous blasts on the London Underground and a fourth on a bus, the same as in the July 7th attacks. This time the explosions were small—it is believed that only the bombs’ detonators may have exploded, not their main explosive charges—and the results were far less devastating. No-one was killed and the sight of bloodied commuters emerging from Underground stations was mercifully absent.

Immediately, a huge manhunt, perhaps London's biggest ever, was launched—with the tragic outcome of police shooting dead a man that they had chased on to an Underground train at Stockwell station in south London, believing him to be a suicide-bomber. On Friday morning, the man was followed by plain-clothes detectives as he left an apartment block that had been under surveillance and boarded a bus bound for the station. He was said to be wearing an unusually thick coat for a summer's day. The police, who have reportedly been given secret new shoot-to-kill orders to prevent suicide-bombs being detonated, cornered him in a carriage of the train and, in front of terrified passengers, shot him repeatedly in the head.

However, on Saturday, they admitted it had all been an appalling mistake and that the man—a Brazilian electrician who had been living in London for several years—was not involved in the bombings. It emerged later that he may have fled from the police because his visa had expired.
What police called the “tragedy” of the wrongful shooting has overshadowed several breakthroughs in the hunt for the perpetrators of the second round of attacks (the first group, of course, were killed by their bombs). On Wednesday, police confirmed they had arrested one of four prime suspects, whose images had been captured at the scenes of the latest bombings—on trains at Oval, Warren Street and Shepherd's Bush stations, and on a bus in Bethnal Green.

The arrested man was named as Yassin Hassan Omar, a Somalian-born man sought in connection with the Warren Street attack. Several other arrests have been made, though the other three main suspects have not yet been found. A fifth bomb was found in bushes a mile or so from the scene of the Shepherd's Bush explosion, similar to those left on the bus and tube trains by the bombers. It too was packed in a plastic food container manufactured in India and sold in around 100 shops in Britain.

This time, unlike in the first round of attacks, central London’s public-transport system was not shut down, though there was considerable disruption, with Underground lines suspended (some had still not re-opened since the first round of bombings) and areas of the city cordoned off. Whereas the previous attacks came during the morning rush, the latest ones took place in the middle of the day when fewer people are using public transport.

However, the most important factor contributing to the lack of casualties this time was the small size of the explosions. The apparent failure of the devices’ main explosive charge means that only sheer good fortune, or the incompetence of the bombers, prevented further great loss of life.

If the bombers this time were members of the same group of Islamist suicide-bombers who carried out the previous attacks, the analysis of the unexploded material and any other bomb components recovered from the scenes of the blasts might help police discover more about who organised and supplied both sets of attackers. Some reports have indicated similarities between the bombs used in both sets of attacks.

More details have emerged about the four suicide-bombers who struck on July 7th, three of whom were British-born Muslims of Pakistani origin and the fourth a Muslim convert born in Jamaica—all of them leading seemingly normal lives until they blew themselves up. Some of them had visited Pakistan, where they may have had contact with Islamist militants possibly linked to al-Qaeda. This discovery has prompted the Pakistani security forces to launch crackdowns against Islamist extremists. Several hundred suspected militants have been arrested and the authorities say some will be tried under the country's terrorism law.

Since the previous attacks, there has been much discussion in Britain about how to stop the recruiting of young Muslims to carry out such attacks. Earlier last week, the prime minister invited Muslim leaders to 10 Downing St in an effort to find ways of identifying potential troublemakers before they come under the thrall of Islamist extremists and start acquiring explosives and training for attacks.

But British Muslims are increasingly isolated from their self-appointed leaders and may not heed their words anyway. In an attempt to win their co-operation, Sir Ian insisted on Friday that the police crackdown was “targeted against criminals...not against any community”. However, his officers' shooting of an apparently innocent man may undermine any hopes of improved co-operation—though things would have been far worse had he turned out to have been a Muslim.

The prime minister, after consulting with opposition leaders, has proposed a further round of anti-terror laws, on top of those passed, often in the face of strong parliamentary resistance, since the 2001 attacks in America. A new offence of “acts preparatory to terrorism” will cover those who try to get hold of explosives and other dangerous material. Showing others how to commit atrocities will also be outlawed. Another proposed law would ban indirect incitement to terrorism. And, in future, foreign clerics condoning terrorism are likely to be banned from visiting Britain. Police chiefs have called for further powers to apprehend suspects.

However, stringent measures are already in place in Britain so it is unclear how much reassurance such new laws would give the public. Worse, there is a risk that, if such laws are hastily drawn up and indiscriminately applied, they would further alienate young British Muslims. If so, they could be every bit as counterproductive as some of the measures introduced by past British governments, supposedly to prevent Irish republican terrorism, which only served as a recruiting-sergeant for the IRA.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Another tech-stocks bubble?

Buttonwood

Jul 22nd 2005
From The Economist Global Agenda

Internet firms are all the rage again. Another triumph of hope over experience?

MARKETS like these need heroes, and Google is the closest thing they’ve got. With most share prices stuck in the mud until recently, Google’s has shot up by 60% this year alone, nearly quadrupling since the firm went public last August.

Why? Investors with more dollars than sense are desperate to find something promising juicy returns. Google is too new to have burned buyers in the last dotcom downturn. And it has a plausible tale to tell. To hear the techie analysts sell it, prospects for online sales and advertising, especially the sort of paid keyword-search business that Google has perfected, are virtually limitless.

Yahoo!, Google’s rival in the search business, was the first of the big four internet firms to report second-quarter results. On Tuesday the firm announced revenues, net of commission to marketing partners, that were 44% higher than the same quarter a year earlier. Profit grew more than sixfold but most of it came from the sale of an unidentified investment (could it be Yahoo!’s shares in Google?). Investors reacted by “taking profits”—ie, dumping Yahoo! shares in after-hours trading.

The 53% increase in second-quarter profits and 40% rise in revenues reported on Wednesday by eBay, an online auction house, were better received. The figures exceeded expectations and eased worries that eBay's precipitous growth might be fizzling out.

To keep its share price above the $300 mark that it first achieved last month, Google needed to trump its two rivals when it announced its results on Thursday July 21st. On the face of it, they were pretty good: second-quarter profits more than quadrupled to $343m, on almost doubled revenues of $1.38 billion. Google's shares duly closed at a new record of just under $314 on Nasdaq. However, they then plunged below the $300 mark in after-hours trading, on worries that Google's rise may be running out of steam. The firm's chief executive, Eric Schmidt, admitted that revenue growth may not be so impressive in the current quarter.

The last of the four internet giants, Amazon, an online retailer, reveals its results next week. All have their fans. But it is Google that produces the acid burn. Now, Buttonwood likes a hero as much as the next hackette (and confesses to watching “The Last of the Mohicans”, ostensibly with her daughters, at least once every six months). She has approached the internet yarn with a fresh eye, determined to let bygone busts be bygone. And valuations are, in fact, better founded than many of them used to be.

But around 50 times next year's expected profits is still quite a leap of faith. At the levels seen in recent days, the price of Google's traded shares implies that it is the world's most valuable media company, with a market cap comfortably in excess of Time Warner's $76 billion—even though the latter had $42 billion in sales last year to Google’s $3.2 billion. True, Time Warner‘s business is increasing at a snail’s pace compared with Google’s. But putting so high a price on future growth only makes sense if all’s for the best in this best of all possible worlds. And it isn’t. There are a lot of unknowns, plus some knowable storm clouds rolling in.

The arguments for these high valuations (and Yahoo!, at around 60 times expected profits is right up there too) all boil down to one: the growth in internet firms’ business reflects a secular shift that is broadly impervious to economic cycles and has a long way to run.

More people are gaining access to the internet, and specifically to broadband, to which about a third of American households, for example, are now hooked up. They spend more time—and money—online than dial-up peons. Sales on the internet grew by almost a quarter last year, and have been doing so at a similar clip since 2001. Even so they account for only a small fraction of American retail sales.

Meanwhile, on the marketing side a big gap has opened up between the proportion of their media time that people spend online (almost 35% in America, on figures from Forrester Research, an independent firm) and the percentage of ad spending devoted to the internet (about 6%). That void cries out to be filled. Internet advertising in America grew to about $12 billion in 2004 as a bouncing economy boosted all advertising and firms warmed to the web.
Forrester expects it to increase by some 23% in 2005 and then to taper off to single-digit growth by 2010. Search-engine marketing, Google’s speciality, will see the fastest growth.

Add in abroad, where the business is growing twice as fast as in America, and the picture is rosier still. About half of the revenues of eBay and Amazon, along with two-fifths of Google’s and more than a quarter of Yahoo!’s, come from outside the United States. Mike Mahaney, an analyst at Smith Barney, reckons that if these patterns continue, and neither Google nor Yahoo! loses market share, their revenues should keep growing for quite a while at 25-30% annually. His estimate that Google’s shares will hit $360 in 12 months’ time is on the high side but it looks less outlandish all the time.

Now for the cold water. The internet’s growth is slowing markedly: most people in industrialised countries have access now, so just adding users is not the source of growth that it was. Broadband is increasing the value of the net as an advertising medium. But the growth rate of broadband connection is slowing too–not just in America but most places.

Another negative—who knows yet how important it will prove—is that a bit of a backlash against the net is setting in along with viruses and other malware, points out Fred Hickey, the editor of High-Tech Strategist, a newsletter. Independent research firms have found that people are increasingly unwilling to give their details online: Gartner found that of the roughly 30% of a survey sample who bank online, three-quarters were logging in less frequently than before, and nearly 14% of them had stopped paying bills online; Financial Insights found that 18% of internet users had stopped shopping online for fear of identity fraud; Jupiter Research found that even online dating is down, at least in America.

Then there is competition. Barriers to entry in internet businesses are low, as Amazon’s slipping market share testifies. Yahoo! is trying to improve its search system to challenge Google in paid search ads, and Microsoft has entered the game too. And as Google, sensibly, also expands from its original business, it is running into higher costs and hostility. Its move into video search, especially, has ruffled the feathers of those providers whose content it blithely skimmed without asking first.

A bigger risk to Google even than competition is that of an economic downturn. For the more internet businesses grow, increasing their share of the wider market, the more cyclical they become, and this is something that its share price fails totally to reflect. America’s economy refuses to lie down, for the moment, but there are plenty of reasons to think it will. When it does, internet business will dwindle too, and the shooting-star stocks with it. After all, it has happened before.

At the end of the day, most people buy Google less from some rational assessment of the future of the internet than because they think “they can’t not be in it. There’s nothing else out there when the price is rising so fast,” says Fred Hickey.

Paul Desmond, the president of Lowry’s Reports, has a theory about this. Lowry’s is an old investor-advisory firm that has tracked supply and demand in individual firms’ shares for almost 70 years and is big on the cyclical ebb and flow of investor sentiment. Investors move from complete abandonment of the stockmarket at a major market bottom like March 2003, then gradually through a period of increasing confidence until they get to a point where greed really sets in, he says. When they start focusing on a relatively small number of get-rich-quick stocks, it is a sign that the bull market is about to turn. There is incredible buying strength behind Google right now, according to Mr Desmond. The bull is not nearly on its knees yet, but “we’re seeing a warm-up of that with Google,” he says. You have been warned.

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Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Greenspan’s last words?

Jul 20th 2005
From The Economist Global Agenda

Alan Greenspan, the chairman of America’s Federal Reserve, has given what may be the last of his twice-yearly speeches to Congress on monetary policy before his expected retirement. Those pleading for lower interest rates—or at least an end to the rises—found that he has not gone soft in his old age

OVER the last decade, as the baby-boomers have watched retirement lurching closer, an aura of mania has hovered over the American marketplace. Telecoms were going to carry workers along the information superhighway to the land of effortless wealth, and dotcoms promised to turn the stock market into a sort of perpetual-motion money-making machine—at least until the Y2K bug brought the entire world to a crashing halt. Now those fads are regarded with (rueful) nostalgia, and Americans are ploughing their money into real estate, with expectations of recouping a modest 20% or so a year on their investment.

Despite the madness of the crowd, at least one man has remained remarkably steady: Alan Greenspan, the chairman of America’s Federal Reserve. Credited with godlike powers by the markets in the late 1990s, he has taken something of a shellacking in the press in recent years for the usual sins with which central bankers are charged: making monetary policy too easy, which causes inflation and encourages people to bury themselves in debt; or making monetary policy too tight, which throws people out of work and makes it hard for people to pay the debts they amassed when monetary policy was looser. Open a newspaper these days, and you can often find him accused of both within a few pages.

Despite entreaties from both sides, Mr Greenspan has held his ground. The Federal Reserve has been increasing interest rates at the slow, steady pace originally promised as the economy inched out of the 2000-01 recession. As he headed into his biannual testimony on monetary policy before Congress on Wednesday July 20th, all eyes were watching to see if his words would presage any wavering from this course. With Mr Greenspan expected to step down in January, two months before his 80th birthday, this may be his swan-song before the legislative body.

The dollar rose sharply ahead of Mr Greenspan’s testimony, in the expectation that he would hint at more interest-rate rises to come—as indeed he did. Even so, there are those who feel it is nearing time for Mr Greenspan to let them level off, as they approach the range which many analysts believe to be “neutral”—neither low enough to spur economic growth, nor high enough to hinder it. That level is believed to be somewhere between 3.5% and 4.5%. In recent months, the Federal Reserve has been raising interest rates in quarter-point increments, most recently to 3.25%.

Though economic growth has remained strong (especially compared with sluggish Europe), there are ample worries to fuel the case for restraint. Oil, the fuel of the world’s economy, remains expensive. And America’s job market is still surprisingly subdued considering how far the nation is into the current economic expansion. Unemployment stands at 5%, down from a high of 6.3% in June 2003, but much of the early improvement came from workers leaving the labour force, rather than job creation. Labour-force participation remains well below its 2000 peak, and payroll headcounts have only this year returned to their 2001 levels. Consumer spending remains strong, but (it is feared) increasingly dependent on housing wealth and desperate corporate measures to shake consumers loose from their hard-earned dollars—the Big Three automakers have offered their employee discounts to the entire country to move backlogs of 2005 models off the lots.

Nonetheless, even before he testified it was clear that Mr Greenspan's words would not satisfy those hoping for easier money. In a July 11th letter to Representative Jim Saxton, the chairman of Congress’s joint economic committee, the Fed chief said that the economy seemed to be coping with higher oil prices, and that the narrowing spread between short-term and long-term interest rates, which can herald a recession, should not be cause for alarm. Mr Greenspan's testimony confirmed this view. Saying that “the US economy has remained on a firm footing, and inflation continues to be well contained”, Mr Greenspan made it clear that the bank is not done yet with rate increases. Another 0.25% increase is expected in August, and rates are likely to hit 4% by the end of the year—provided the economy remains co-operatively robust.

There are worries in some quarters, however, that this is not hawkish enough. Mr Greenspan’s letter also indicated that the bank is not acting to rein in the bubble which many fear has developed in America’s housing market. Mr Greenspan has long held that interest rates are not a good tool for bursting asset-price bubbles. This position has brought him grief from critics who blame him for allowing the stock market bubble of the late 1990s to continue to inflate long after he warned of its “irrational exuberance”. There are fears that the economy has simply lurched from depending on increasing stock prices to relying on house price appreciation to fuel growth—and that the longer this goes on, the stiffer the price Americans will pay when the bubble pops.

Rational exuberance

Mr Greenspan's testimony acknowledged the fears of both sets of critics, pointing to three primary areas of uncertainty that could derail his current, favourable assessment of the economy's prospects. Unit labour costs, which have remained subdued in recent years, have turned up of late, which will put upward pressure on inflation if the trend continues. The possibility of further increases in energy prices threatens not only higher inflation but also slower economic growth, though Mr Greenspan noted that the forecast currently embedded in futures markets is for oil and gas prices to level off. And the unusual behaviour of long-term interest rates, which are currently hovering abnormally close to short-term rates, entails a current risk of excess borrowing, particularly in the housing market, and a future risk of higher rates and slower growth.

Mr Greenspan endorsed the view expressed by Ben Bernanke, the chairman of President Bush's Council of Economic Advisors, that at least part of the unusual narrowing is due to a mismatch between high levels of global savings and relatively low levels of global capital investment. With capital investment recovering in America and Japan, this problem may heal itself. But it will remain worrying until it does. As will the housing bubble: Mr Greenspan noted that, at a minimum, some local markets are distinctly frothy and a decline in prices would undoubtedly entail economic distress. However, he was careful to add that such a decline is by no means inevitable, nor sure to produce large macroeconomic effects even if it does occur.

Mr Greenspan's speech will probably reassure those who fervently hope he is steering America between the Scylla of speculation and the Charybdis of contraction. Interest rates high enough to pop a bubble could be high enough to throw the economy into a tailspin, causing more damage than they avert. Interest rates low enough to stimulate employment may also be low enough to unleash inflation, as the central bankers of the 1970s found to their dismay. So far, America seems to be muddling through. Economic growth is strong, payrolls are recovering (however slowly), and America’s monetary policy seems to be reviving the dollar from its recent lows, which should give another fillip to consumer wallets. Mr Greenspan’s powers may not be quite godlike, but many hope that he may yet have a couple miracles up his sleeve.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

A stealth nominee flies into enemy territory

Jul 20th 2005
From The Economist Global Agenda

George Bush has nominated John Roberts, a staunch conservative, to fill the Supreme Court vacancy left by the retirement of the moderate “swing voter”, Sandra Day O’Connor. Republicans want a quick confirmation but the Democrats are gearing up for a battle

SOMEONE pulled off a masterful public-relations coup. All day Tuesday, reporters and political activists buzzed with the rumour that George Bush was set to nominate Edith Clement, a pragmatic conservative who supported abortion rights, to the Supreme Court. But shortly before Mr Bush announced his choice at nine in the evening, the rumours abruptly changed—and soon the new rumours were fact: Mr Bush had chosen not Ms Clement but John Roberts, a much stauncher conservative who will give left-leaning voters reasons for hesitation.

Having spent a day digging into the past utterances and rulings of Ms Clement, reporters were quickly turned to a new question. Who is Judge John Roberts? He has been a judge for just two years, on the court of appeals for the District of Columbia. Clearly, given the concentration of institutions in the nation’s capital, this court is hugely important, ruling on all kinds of federal laws and regulations. But because he has a short career there, Mr Roberts is better known as a former lawyer for past Republican presidential administrations. It is perhaps this work, rather than his short life as a judge, that will define the battle over his nomination.

And it will be a battle. In introducing his nominee, Mr Bush stressed that he had consulted widely, including with many Democratic senators. He called for a “dignified confirmation process, conducted with fairness and civility”. His message was clear: he was not seeking a fight that would further polarise an already divided country. But Mr Bush’s short speech included several code phrases that hinted what those who know Mr Roberts already know: the nominee is a faithful conservative Republican who shares Mr Bush’s judicial philosophy, one not shared by the half of America who finds Mr Bush too conservative.

What are those values? Mr Bush said that Mr Roberts will “faithfully apply the constitution”. This sounds uncontroversial but for conservative jurists it has a quite specific meaning.
“Originalists”, like one of Mr Bush’s favorite Supreme Court judges, Antonin Scalia, argue that the constitution means just what its founders intended, nothing more. They abhor the idea, espoused by more liberal judges, that the constitution should be regarded as an organic document, shaped by the changing times, in which later judges may “find” new rights never envisioned by the framers.

And central among these contested rights are the electric social issues that most drive “blue America” (Democratic strongholds—mainly the left-leaning coastal areas) apart from “red America” (Republican areas—the more conservative mid-west, interior western states and the South). Chief among them, inevitably, is abortion. The number one goal of social conservatives is to overturn Roe v Wade, the 1973 Supreme Court decision that guaranteed women’s rights to abortion. Many scholars, both supporters and opponents of abortion rights, see it as an awkward piece of legal reasoning that finds the right to abortion in a purported constitutional right to privacy—itself never mentioned in the constitution. But social conservatives see it as an ungodly abomination that must go at once. They are delighted with the choice of Mr Roberts.

For he argued successfully on behalf of the first President Bush’s administration in Rust v Sullivan, in which the Supreme Court upheld the government’s right to withhold funding from doctors and clinics that counsel women to have abortions or who refer them to other practitioners who do so. A brief jointly written by Mr Roberts said: “We continue to believe that Roe was wrongly decided.” The women’s-rights advocates who are a bedrock of Democratic support are gearing up to present him as a threat to the availability of abortion in America. At the Senate confirmation hearing on his appointment to his current job, Mr Roberts said he would uphold Roe v Wade. But as a Supreme Court justice, he would have the power, with his colleagues, to overturn it.

However, given the current balance of the court, at least one more anti-abortion judge would be needed to overturn Roe. So, the mother of all battles can be expected if one of the pro-Roe justices, such as John Paul Stevens, who is 85, steps down during Mr Bush’s term of office.

What about Mr Roberts’s other opinions? He seems a straightforward conservative who will please Mr Bush’s base. As a deputy solicitor-general under the president’s father, he argued in the Supreme Court that religious language ought to be allowed in high-school graduation ceremonies. During his career he has also defended businesses and property owners from over-zealous interpretation of environmental rules. He has been no softy for criminal defendants.

Even so, much about the young nominee (he is just 50) remains unknown because of his short judicial tenure. Hence the efforts of both political camps to frame how his nomination process should proceed. Mr Bush wants a quick confirmation; the Democrats a long, probing examination of the nominee. Mr Bush’s call for “dignity” and “civility” in the confirmation process was carefully calibrated. He was referring to the near-nuclear fight over some of his earlier conservative nominees to lower courts, which Democrats blocked with a filibuster (the making of interminable speeches as a delaying tactic). A bipartisan deal averted a showdown in which the filibuster would have been eliminated for judicial nominees. Or perhaps it merely postponed the showdown: now, the two sides are ready to do battle. Ever since the announced retirement of Sandra Day O’Connor, the court’s moderate “swing voter” whom Mr Roberts would replace, the two sides have been raising money and taking out ads, angling for position.

Several Democrats have already spoken of Mr Roberts positively; Charles Schumer, a New York senator, said he had “outstanding legal credentials”. But Mr Schumer also noted that he had voted against Mr Roberts’s last nomination to the appeals court, unsatisfied with some of his answers to the judiciary committee. Patrick Leahy, the top Democrat on the committee, has said that when his Senate colleagues examine nominees for confirmation to the court, their job is to “examine them, not to rubber stamp them”.

Mr Roberts, the president noted, had received a letter of broad bipartisan support from legal experts when he was last nominated to a judgeship. But that is no guarantee of civility this time. The Supreme Court is a tremendous prize, and Washington is in a partisan mood. The affair of Karl Rove—whom Democrats accuse of blowing the cover of a CIA agent in revenge for her husband’s criticism of how Mr Bush made the case for the Iraq war—is still simmering.

Democrats, having seen Mr Bush’s reputation for straightforwardness drop with the Rove affair, are starting to find their feet in opposition. Mr Roberts may well be confirmed to the court. But his opponents are already promising that this will not come without a tough, and possibly painful, political fight.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

A chance for peace—but some big obstacles

Jul 20th 2005
From The Economist Global Agenda

Negotiators representing the Indonesian government and rebels in Aceh have agreed a formula to end the breakaway province’s deadly 30-year conflict. However, peace hopes have been raised and dashed before—and there are still some serious obstacles

PERHAPS as many as 12,000 people, most of them civilians, have lost their lives since the mid-1970s, when the conflict between government troops and separatist rebels in Indonesia’s westernmost province of Aceh began—or more accurately, resumed, for the Acehnese had fought Dutch colonial rule as far back as the late 19th century. An even worse disaster was visited upon the troubled province last December 26th, when a huge tsunami, caused by an undersea quake off its Indian Ocean coast, swept away perhaps 170,000 of its residents and left around 600,000 homeless, also causing death and destruction as far away as Africa.

A few weeks after the tsunami struck, a new round of peace talks began, sponsored by Finland. One of the main obstacles to a settlement was cleared early in the talks, when the rebel Free Aceh Movement (GAM) dropped its demand for full independence for the province. And, meeting in Helsinki on Sunday July 17th, representatives of the two sides announced that they had arrived at a formula for disarming the militants and reintegrating them into civil society, withdrawing non-local Indonesian troops and monitoring a ceasefire, which they intend to sign on August 15th.

Given that many of the province’s main towns are still devastated following the tsunami, and considering how quickly a previous peace accord, in 2002, fell apart, it perhaps should not be surprising that this breakthrough was met with a muted reaction in Aceh. The fighting has gone on, intermittently, since the talks began and continued this week despite the announcement of the peace deal. Will the men with guns on either side really pay heed to the fine words of the delegates in far-off Helsinki, locals wondered?

There are certainly reasons for pessimism. Though the Indonesian government has given some ground on the rebels’ demands for political representation, it appears (full details of the peace proposal are not yet known) that they will not yet be allowed to form a local political party, as they are demanding. This would mean changing an Indonesian law that forbids all regional parties. Indonesia’s vice-president Jusuf Kalla, who has been overseeing the government’s participation in the talks, has hinted that GAM might at first be allowed to set up a nationwide party under the existing law—though that would require it to set up branches in at least half of the country’s 33 provinces. In time, when the law was changed, a local Aceh party might then be permitted.

Rebel commanders in the field may take some convincing that such vague-sounding commitments are enough. The continuing unrest in Aceh has provided a handy cover for members of both the rebel group and some local army units to engage in lucrative smuggling, drug-running and extortion rackets—which means that some on each side have an interest in seeing the peace process fail, on whatever excuse.

The army’s powerful chiefs may take some convincing that a deal with the rebels—as opposed to launching another military campaign to wipe them out—is in Indonesia’s best interests. They are bound to worry that, having already “lost” East Timor (which has occupied by Indonesia until its vote for independence in 1999), the country could fall apart if too many concessions are now made to the separatists in Aceh. The sprawling Indonesian archipelago is made up of a number of formerly independent states that were colonised by the Dutch until 1945, when the Indonesian republic was formed; several provinces already have separatist movements and the generals’ fear is that concessions to GAM may encourage others.

However, there are also some grounds for optimism. Previous, unsuccessful rounds of talks mainly concentrated on achieving a ceasefire, rather than making serious progress on the difficult questions of Aceh’s final status. Besides the rebels’ abandonment (for now at least) of their independence demand and the government’s move on political representation for the rebels, there are also signs that the authorities in the Indonesian capital, Jakarta, are more committed to a settlement of the Aceh question than before. Since a mass uprising forced the authoritarian President Suharto from office in 1998, Indonesia has been transformed from a quasi-dictatorship into a multi-party democracy. Last year, Susilo Bambang Yudhoyono, a charismatic retired general, won the country’s first direct election for president. His Democrat Party lacks a majority in parliament, which will have to approve any peace deal. But it is in coalition with the largest party, Golkar, headed by Mr Kalla, which should help the prospects of approval.

The widespread international attention paid to Aceh after the tsunami may have helped to persuade the government, and indeed the rebels, to try a little harder to reach a deal. The European Union and the Association of South-East Asian Nations (ASEAN) will help monitor the proposed ceasefire (the EU’s first such venture into Asia). On Wednesday, Indonesia announced some details of the timing of the proposed demilitarisation of Aceh: army troops would pull back, while GAM rebels would hand in their weapons, in the period between mid-September and the end of December.

Apart from ending the bloodshed in Aceh, a lasting peace deal could bring broader benefits. A planned $5 billion post-tsunami reconstruction programme, largely funded by foreign donors, would be much easier to carry out if there were peace in the province. Aceh’s oil and other plentiful natural resources could be better exploited, bringing prosperity to the region. Peace in Aceh might even reduce piracy in the Malacca Strait—one of the world’s most important shipping lanes, between Indonesia and the southern tip of Malaysia—as well as diminishing an Islamist insurgency in southern Thailand, since many of the Malacca pirates, and the Thai insurgents’ arms, are said to come from Aceh. Last but not least, ending a long-running conflict by civilised means, rather than brute force, would set a wonderful example across the whole of South-East Asia and beyond.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Together at last

Jul 19th 2005
From The Economist print edition

America adds substance to its professions of friendship for India

FOR months, American officials have been insisting, as one put it, that “there is no higher priority” for George Bush’s second term in office than “expanding and broadening our relationship with India”. If that could be achieved by pomp and ceremony, the visit this week to Washington, DC, of Manmohan Singh, India’s prime minister, would have done the trick. He was showered with honours, including a 19-gun salute and the chance to make a speech to Congress. The president even stayed up late to entertain him to a White House banquet, only the fifth he has thrown in more than four years.

America’s professions of friendship have of late started to ring rather hollow. It has remained committed to its strong alliance with India’s nuclear-powered neighbour and rival, Pakistan. It has refused to endorse India’s chief foreign-policy goal, a permanent seat on an expanded United Nations Security Council. It opposes India’s cherished project to pipe gas from Iran across Pakistan. And it has withheld co-operation in military and nuclear technology because India tested nuclear weapons in 1998 and has never signed up to the international non-proliferation regime.

Of these four areas of contention, Mr Singh’s visit marked a breakthrough only on the last. But this one matters so much that it has transformed the relationship. America has agreed to help India acquire “the same benefits and advantages” as other states with nuclear weapons. India is to be granted “full civil nuclear energy co-operation”—such as fuel supplies and the transfer of technology.

This is hugely important for India. One of the biggest constraints on the continuing success of its fast-growing economy is an electricity shortage. Nuclear energy, which at present accounts for only about 3% of total generation, is, in many eyes, an attractive alternative to coal and expensive imported oil and gas.

The American move is also a great symbolic victory. For decades India has faced sanctions because of its nuclear-weapons programme. Now, America is, in effect, offering to help it to become a respectable bomb-wielding citizen. In return, to the consternation of critics at home, India has promised to adopt the same responsibilities as other nuclear powers, including separating its civilian nuclear facilities from military ones, opening the former to international inspection and maintaining its moratorium on nuclear testing.

For more upbeat Indian analysts, the nuclear deal is proof that the country has achieved “dehyphenation”—a decoupling of its relations with America from the sometimes vicious America-India-Pakistan triangle. America has close relations with Pakistan, which swiftly followed India into the nuclear club in 1998, but Pakistan does not enjoy any of the new privileges the Americans are bestowing on India. Nor, these days, does America press India to make concessions over Kashmir, the core of its dispute with Pakistan.

The change in America’s attitude reflects both India’s emergence as an economic force to be reckoned with, and the rise of neighbouring China. India’s economy is only about 40% the size of China’s, but its fast growth and young population mean that its global role is increasing, not least because of its thriving information-technology and outsourcing industries. Just as the boss of any big American firm needs to tell his shareholders a China story, so he now needs an Indian strategy too. One of the outcomes of Mr Singh’s visit was the launch of a new forum of Indian and American chief executives.

American and Indian officials stress that the two countries’ relationship is independent of their respective relations with China. Yet America’s stated ambition to help India become a great power in the 21st century cannot be detached from apprehensions about China’s looming might. Although India is enjoying something of a second honeymoon with China, its own long-standing suspicions, which date to the war of 1962, have not entirely faded.

Despite the instinctive anti-Americanism of many Indian intellectuals, both India and America recognise that, as democracies, they should have common interests. These were obscured by the legacy of the cold war, during which a “non-aligned” India tilted towards the Soviet Union, and the United States played the “China card”. The much-needed rapprochement with India was pursued by President Bill Clinton, but further delayed by India’s bomb tests in 1998, and then by the attacks on America on September 11th 2001, which gave Pakistan new importance in the war against terror.

That importance persists, but officials say that Mr Bush is personally committed to better relations with India. Revelations of the Pakistani connections of three of the suicide-bombers who attacked London this month were a reminder that Pakistan is also part of the terrorism problem. India, on the other hand, as Mr Bush pointed out when he introduced Mr Singh to his wife in Moscow in May, has more Muslims than any country other than Indonesia—but no known al-Qaeda recruits.

Pakistan will at least be pleased that America’s new love affair with India does not extend to open support of its Security Council bid. Mr Bush went no further than to agree that international institutions should “fully reflect changes” that have taken place since the UN was set up in 1945. India agrees with that—though many Indians suspect that the only change America really wants to preserve is its own emergence as the unchallenged superpower.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

The truce under severe test

Jul 19th 2005
From The Economist Global Agenda

With Israeli troops massing on Gaza’s border and Palestinian militants continuing to fire rockets, their fragile ceasefire has never looked more shaky. But it can still be rescued

THE level of trust was never very high, but now it seems to have broken down completely. The tahdiya or “lull” observed by Palestinian militant factions since Ariel Sharon and Mahmoud Abbas (Abu Mazen), the Israeli and Palestinian leaders, met at Sharm el-Sheikh in February, was only partial: there continued to be deaths on both sides, though at a much lower rate than during the five-year-long intifada. Yet after each clash, both Israeli troops and Palestinian militants had avoided an escalation.

Not this time. After a suicide-bombing in the Israeli town of Netanya last week, organised by Palestinian Islamic Jihad (PIJ), which killed five people plus the bomber, Israeli forces retaliated by arresting several PIJ militants in the West Bank and killing one. That provoked a volley of rocket attacks from the Gaza strip into Israel, one of which killed an Israeli woman. Responsibility was claimed both by Hamas, the main Islamist militant faction in the Palestinian territories, and the Al-Aqsa Martyrs Brigades, who are linked to Mr Abbas’s Fatah party, which runs the Palestinian Authority (PA).

On Friday, Israel launched a series of “targeted assassinations” of Hamas militants said to be either planning future attacks or involved in firing rockets. It had suspended that tactic after the February summit between the Israeli and Palestinian leaders and the return to it is a clear signal that Israel’s confidence in the tahdiya has vanished. That in turn provoked a further barrage of rockets out of Gaza. On Sunday, as Israeli troops and tanks massed on the border with Gaza, Israel told Mr Abbas there would be a massive incursion into the strip unless he brought things under control within 24 hours.

To try to save the truce, Mr Abbas has sent the PA's police to intercept the Palestinian militants in Gaza and stop them firing rockets at the Israelis. But this has only provoked fighting between the police and militants. On Monday, fewer rockets were fired and things seemed to be quietening down. However, on Tuesday July 19th—after two Hamas buildings and one of the group's vehicles had been set alight—fresh gunfights broke out between Mr Abbas's police and the militants. In some of the worst internecine fighting in years, two Palestinians died and more than 30 were hospitalised in the Gaza clashes.

In the West Bank on Tuesday, Israeli forces continued their attack on Palestinian militant leaders, shooting two brothers—reportedly local leaders of PIJ and/or Al Aqsa Martyrs Brigade—near Jenin. Israel told Reuters news agency that the men were “a ticking bomb”, actively preparing a suicide-attack; Mr Abbas's prime minister, Ahmed Qurie, condemned their killing as “criminal”.

The big worry now is that the renewed violence might disrupt Israel’s planned withdrawal of troops and Jewish settlers from Gaza (occupied by Israel, along with the West Bank and other areas, since a 1967 war), which is due in a matter of weeks, in mid-August. The pull-out is fiercely opposed by settlers’ groups: on Monday, 20,000 Israeli police and soldiers were deployed to stop them and their supporters defying a ban and marching across the border from Israel to Gaza’s largest settlement block. On Tuesday, as Mr Abbas's police were battling Palestinian militants, Mr Sharon's cops were scuffling with radical Israeli protesters, who vowed they would not be stopped from crossing into Gaza.

If Israel’s security forces find themselves struggling to contain Israeli anti-withdrawal protesters on the one hand, while conducting a big operation to stop Palestinian rocket attacks and suicide-bombings on the other, they might find it impossible to evacuate the Gaza settlers in safety.

The important question is why Hamas has now gotten involved. Having originally gained support among Palestinians through a mixture of social programmes and terrorist attacks on Israel, Hamas has been trying to sell itself as a real political alternative to Fatah. It did well in municipal elections earlier this year and expected similar results in legislative elections, due this month until the PA postponed them. Keenly aware that Palestinians are tired of the conflict, it has striven harder than other factions to stick to the ceasefire—indeed, on Sunday it said it would continue to hold to it, though it would still “respond” to Israeli violence. PIJ has been more provocative—some think because it believes that doing so will win it popular support, others because it is being sponsored by an outside agent interested in wrecking any peace process, such as Iran.

But Hamas’s patience has been wearing thin—not just with Israel, but with the PA. The tahdiya began as a bargain struck between Mr Abbas and 13 militant factions. They promised not to launch attacks without provocation. He promised to root out corruption in the PA (mostly personified by hangers-on from the era of the late Yasser Arafat), hold elections and keep his security forces off the militants’ backs. Yet many of the chief Arafat cronies have stayed. The legislative elections, and the third and biggest round of municipal elections, have been postponed because of Fatah infighting about how to choose candidates. And the PA security forces—reluctantly, with much prodding from Israel—have been making occasional forays against the militants.

In this they have been doubly hampered: both because Israel has kept military control over most of the West Bank (meaning that the PA forces cannot operate there) and has obstructed the supply of weapons and equipment to the PA; and because the PA does not have the people on its side. This was graphically obvious during the clashes over the last few days, when hundreds of civilians provided cover for the Hamas fighters, making it hard for the PA forces to shoot at them.

However, Hamas may now have achieved precisely what it needed: to demonstrate to all concerned that the PA is utterly ineffectual. That impression will grow stronger after the Gaza disengagement if, as seems likely, the PA security forces cannot prevent looting and land invasions of the evacuated Israeli settlements. By January, when the legislative elections are expected at last to be held, Fatah may be in such tatters that Hamas can sweep the board. Meanwhile, Egypt, which has an interest in a calm Gaza on its doorstep, has sent mediators for talks with the militants and the PA. Condoleezza Rice, the American secretary of state, is due to visit this week and is expected to counsel restraint to the Israeli side. With any luck, any further escalation can be avoided for now.

However, while Hamas is by far the most disciplined of the Palestinian factions, some of its members may not agree with continuing the tahdiya, and might launch attacks in the future, with or without the leadership’s consent. Mr Sharon will be reluctant to send troops into Gaza so soon after pulling out the settlers but if rocket attacks from Gaza on southern Israeli towns continue after the withdrawal, the domestic clamour will leave him little choice but to respond. That will drive another nail into the coffin of Mr Abbas’s authority and thus undermine hopes that the Gaza pull-out can be followed by moves towards a fuller Israeli-Palestinian peace settlement. The only winner will be Hamas.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Harry Potter and the all-too-rare windfall

Jul 18th 2005
From The Economist Global Agenda

The latest volume in the Harry Potter series is set to break all publishing records, to the delight of booksellers. The success of the Potter books has also made its author vastly wealthy and provided a windfall for its publisher. But it is an oddity in an industry that is growing slowly and rarely sees bumper profits

THERE is no doubting the magical powers possessed by Harry Potter. The sixth instalment of the boy wizard’s adventures, “Harry Potter and the Half-Blood Prince”, broke publishing records and outstripped sales of the previous record-holder—the fifth adventure featuring Harry and his chums. The numbers associated with the new volume are likely to strike publishing executives with a feeling of wonder and awe not dissimilar to that felt by its young (and not so young) readers. In America, 6.9m copies were sold in the first 24 hours after publication on Saturday July 16th. Scholastic, the book’s American publisher, has set a print run of 10.8m, almost equivalent to the total sales in the country so far for volume five. Bloomsbury, the British publisher, said 2m copies had been sold in Britain, some 13% more sales than the previous Harry Potter book registered on its publication day.

The Harry Potter series is a publishing phenomenon by any measure. All told, around 270m Harry Potter books have been sold worldwide. But this type of blockbuster is hardly the norm for publishers that generally struggle to earn decent profits in a business that offers only low growth and slender profit margins. Worse still, the “long lunches” that publishing executives famously enjoyed are on the wane. The days when the business was still regarded as a pursuit for gentlemen keen to nurture artistic achievement almost without regard for the vulgar pursuit of revenue are all but gone.

J.K. Rowling, author of the Harry Potter series, deserves praise for enticing children to read books rather than play video games or watch television all day. But despite her success and that of a few other recent bestsellers, such as Dan Brown’s “The Da Vinci Code”, the world market for books has grown only slowly in recent years. According to PricewaterhouseCoopers, a consultancy, global book sales in 2004 increased by 1.5% over the year before, to $107 billion. The slightly higher growth rate of 3.1% projected for 2005 (see chart) is in part because of the arrival of a new Harry Potter title and an expected growth in textbook sales as a result of George Bush’s “No child left behind” educational legislation.

Bloomsbury is something of an oddity in an industry that has seen many of the world’s leading publishers become part of global media conglomerates—witness Viacom’s tie-up with Simon & Schuster or News Corporation’s with HarperCollins. The company was formed nearly 20 years ago by publishing executives who saw that the industry was changing but still reckoned there was room for a small publishing house run along more traditional lines. But all publishers, big and small, have to face the fact that the real power in their industry belongs to others. Retailers have grown rapidly through mergers in recent years and now bookselling is dominated by huge chains, such as Barnes & Noble in America, Waterstones in Britain, Amazon and others online, and supermarkets selling heavily discounted bestsellers. The upshot is that the balance of power has tipped to retailers, whose demands for ever-greater discounts have squeezed publishers’ profits.

At the same time, bestselling authors and rapacious agents have demanded and got ever-larger advances for their wares. These sums are sometimes paid years before delivery of a book. The fad for celebrities from other fields penning works has worsened this trend while attracting accusations that the industry is dumbing down. Random House, an arm of Germany’s Bertelsmann, recently reached a settlement with Sean “P. Diddy” Combs, a rap musician and clothes designer whose talents clearly didn’t stretch to literature, over an advance paid in 1998 for a book that he failed to deliver. An additional oddity of the industry that hampers publishing houses is a returns policy that obliges them to take back any unsold books—some 34% of hardbacks in America in 2003, according to one estimate.

It is these threats that have driven many publishing firms into the arms of media giants with deep pockets. The era of the patrician, tweed-suited publisher has given way to one of cost-cutting and job losses in a quest for efficiency and decent profits. At the same time, the business has come to rely ever more heavily on a small number of huge-selling blockbusters. Publishers lose money on most titles they produce. In America, an astonishing 195,000 new books were published in 2004 (14% more than the previous year) but the big publishers concentrate most of their marketing resources on a few books that they hope will provide returns big enough to pay for all the failures. But gambling so heavily on a small number of titles carries the risk that too few will succeed to repay the hefty outlay. Hence publishing is unlikely ever to be a fast-growing business.

Though today’s media giants are more profit-oriented than the publishing bosses of the past, they too regard the business as one with a cachet and prestige that has a value beyond the bottom line. That said, a difficult year in 2004 at Penguin, owned by Pearson, a British media giant that also owns 50% of The Economist, led to speculation that the publishing house which invented the cheap paperback might be put up for sale. Profits were hit by a sharp decline in mass-market paperback sales in America, on which Penguin relies more heavily than its rivals. Pearson later said that it would not sell Penguin. Viacom is thought to be keen to sell Simon & Schuster if it receives a reasonable offer.

Bloomsbury, like bigger publishers, regards the cash from Harry Potter as a windfall that can finance its more risky undertakings. But the Potter tale also highlights another drawback for publishers: they do not get to share in the spin-off success of a product they may have championed from an early stage. Publishers usually do not retain the rights to lucrative TV, film or merchandising deals for their books. Bloomsbury, which took on Ms Rowling’s work only after several other publishers had turned her away, made a respectable pre-tax profit of £16m ($29m) last year. But it can only look forward to one more Potter tome to boost its coffers—the author has insisted that the story will end with the next book. Despite selling Harry Potter’s film rights cheaply to Warner Brothers in 1998, a cut of merchandising deals and the direct income from her books has made Ms Rowling vastly wealthy, with a fortune estimated at £500m. Magic for Ms Rowling, but for Bloomsbury the spell may soon be broken.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Economist.com Cities Guide: Hong Kong Briefing - July 2005

News this month

A good time for Tsang...

Donald Tsang, Hong Kong’s new chief executive, continues to enjoy high popularity ratings. A poll by Hong Kong University released in mid-July showed Mr Tsang’s popularity was at 71.4 points (out of a maximum 100). Meanwhile, the proportion of Hong Kongers giving him a vote of confidence increased to 77%.

Mr Tsang’s popularity was cited as a factor behind the poor turnout at the third-annual democracy march on July 1st, to mark the anniversary of Hong Kong’s return to Chinese rule. Police claimed this year’s march attracted only 11,000 people (down from 500,000 in both 2003 and 2004). The Tsang effect is also helping to improve his colleagues’ popularity. Rafael Hui, the chief secretary for administration, achieved a rating of 60.5, well above the notional pass mark of 50.

...and for sharks

Disney has removed shark’s fin soup from the menu at its Hong Kong theme park, to soothe what had been a patch of bad publicity before its opening in September. Irene Chan, Disney’s Asia-Pacific vice-president for public affairs, said the company had been unable to identify an environmentally sustainable fishing source.

Hong Kong buys 80% of the world’s harvested shark fins, and the soup, seen as a delicacy, is served at weddings and banquets. But conservation groups claim the fins are taken from tens of millions of sharks which are left to die in the ocean. In an earlier arrangement, Disney had agreed to keep the dish off the menu and serve it only upon request, with a pamphlet outlining the environmental issues. The decision to remove it altogether was made after local school students signed a petition, according to campaigners.

All work and no play

Reaffirming Hong Kongers’ reputation for lacklustre sex lives, a fertility service recently claimed that most of its clientele do not know how to make love. Grace Wong of the Family Planning Association said individuals concerned over how to have sex formed the bulk of the 1,578 people who attended the clinic in 2004—up from 1,047 in 2003. “Some married couples are not familiar with their body parts,” said Ms Wong in the South China Morning Post. The problem was attributed to over-protective parents and the Chinese taboo regarding talk about sex.

Hong Kong regularly ranks at the bottom of international surveys of sexual frequency. In October 2004, a 41-nation poll by Durex, a condom maker, found Hong Kongers have sex on average 79 times a year, ahead only of Japan (46 times). The French topped the survey with 137 couplings each year.

What's in a name?

Despite protests from academics and some alumni, the 118-year-old medical faculty at Hong Kong University is to be renamed in honour of Li Ka-shing, the chairman of Hutchison Whampoa, a Hong Kong-based conglomerate.

Mr Li, Asia’s richest man, has donated HK$1 billion ($128.4m) to the medical school. Mr Li said he had declined to attach his name to most projects he has funded, but chose to accept this offer after long reflection. Protesters have criticised the lack of consultation and transparency in this decision, and warn of a potential conflict of interest between the faculty and another of Mr Li’s companies, CK Life Science International Holdings.

Property problems

Hong Kong’s property sector picked up in 2004 but now faces pressure from rising interest rates, according to a report by Standard & Poor's, a ratings agency, released on July 6th. The agency said the flow of capital into the territory has cooled since lending rates rose for the fourth time in as many months. The residential sector is most vulnerable, particularly at the luxury end of the market, where buyers are becoming more cautious. Property companies are expected to respond with conservative financial profiles.

Catch if you can

August 2005

Impressions of the East: The Art of George Chinnery

Until August 29th 2005

To mark the 180th anniversary of the arrival in Macau of George Chinnery (1774-1852), a flamboyant British artist, the Hong Kong Museum of History is displaying some 180 of his works. HSBC, a giant international bank, has contributed 70 paintings by Chinnery from its extensive collection. They will join works from the Peabody Essex Museum in Massachusetts and from privately owned collections.

Chinnery died in 1862, aged 78, after a life of extravagant living, reckless borrowing and opium addiction. His work was shown at London's Royal Academy of Arts when he was 17, after which he fled to India to escape his wife. When she followed him there 15 years later, he moved to Macau, attracted by its cosmopolitan feel. Chinnery spent most of the early 19th century documenting the Portuguese colony, as well as Hong Kong and other parts of the Far East. His oils, watercolours and sketches, remarkable for their draughtsmanship, include portraits and landscapes.

Special Exhibition Gallery, Hong Kong Museum of History, 100 Chatham Rd South, Tsim Sha Tsui. Open: Mon, Wed-Sat 10am-6pm; Sun 10am-7pm. Tel (+852) 2724 9042. For more details, see the museum’s website.

More from the Hong Kong cultural calendar

Economist.com Cities Guide: Atlanta Briefing - July 2005

News this month

Don't even ask

Shirley Franklin, Atlanta’s mayor, is proposing a ban on begging downtown, in the so-called “tourist triangle”. The area runs from the future site of the Georgia Aquarium, near Centennial Olympic Park, to Georgia State University (encompassing Underground Atlanta, an indoor mall, and the Coca-Cola Museum, which is moving near the Aquarium). The bill would allow beggars to sit with a sign, but not to approach passers-by. The first draft would have also banned begging of any sort throughout the city between sunset and sunrise, but a public outcry forced the Public Safety Committee to modify the legislation. A three-time offender could receive as much as 30 days in jail or a $1,000 fine.

Some 200 critics and supporters of the bill came to City Hall on July 12th for a period of public testimony before a committee vote. The ordinance has come under fire from homeless advocacy groups and the American Civil Liberties Union of Georgia. Some have complained that the bill is racist, while others say it impinges on the freedom of speech (and is therefore unconstitutional). But downtown business-owners eagerly support the bill, explaining that the area's beggars scare away tourists.

Mistakes were made

According to a new report from a special commission, a host of security flaws at the Fulton County courthouse in downtown Atlanta led to the grisly March 11th shootings, in which Brian Nichols, on trial for rape, overpowered a guard, grabbed her gun and shot a judge, a court reporter and a deputy before escaping. Among the more glaring errors behind the murders is that deputies do not routinely pat down inmates brought into the courthouse from the jail, but “visually search” them instead. At least five deputy sheriffs lied about the events when they were first interviewed, including the official responsible for monitoring Mr Nichols's holding cell. Also, the deputies ignored warnings that the prisoner was dangerous, and failed to turn on an important security monitor.

The government of Fulton County, which contains most of Atlanta, seems to have been slack as well. Requests to fix broken locks and alarm problems at the courthouse largely went unanswered, and security cameras and an X-ray machine sat useless for lack of wiring for electricity. Mr Nichols, meanwhile, who was captured early in the morning of March 12th, faces four counts of murder (he allegedly killed another man while on the run). If convicted of any of them he would be eligible for the death penalty.

Attention, shoppers

Few stores have been so eagerly anticipated in Atlanta as Ikea, a bargain-stocked Swedish home-furnishings chain, which opened a 366,000-square foot behemoth in Atlantic Station on June 29th. Would-be patrons lined up early to win gifts and see the “traditional Swedish log-sawing ceremony,” in which Mayor Franklin gamely took part. One store employee predicted 20,000 visitors on the first day alone. The crush was so great that in addition to its much-touted 1,500-space car park, Ikea set up shuttles from MARTA stations and from other car parks within Atlantic Station.

Many of the shoppers were getting their first look at Atlantic Station, the 138-acre, $2 billion redevelopment of the former Atlantic Steel Mill site. Supporters are hailing its “mixed-use” plan of condominiums, townhouses, offices and shopping centres. So far it includes a grocery store, a film theatre and several restaurants. But sceptics warn that mixed-use developments fare better in densely populated cities, in contrast to Atlanta’s infamous sprawl. Atlantic Station’s grand opening is scheduled for October 20th.

Dennis the menace

Hurricane Dennis made landfall near Pensacola, Florida on July 10th, besieging the Atlanta area with thunderstorms over the weekend. As many as 850,000 people lost power in the south-east, and five in Florida and Georgia died as a result of the storm, including a man in Decatur, due east of Atlanta, when a large tree crashed into his bedroom. Dennis followed Tropical Storm Cindy, which caused $100m of damage in Georgia; the two made the first 11 days in July the wettest such period in Atlanta history.

All signs indicate that this year’s hurricane season will be particularly busy. Never have there been so many tropical storms this early in the year; Tropical Storm Emily, reported east of Venezuela on July 12th, is the fifth.

Will a loud pop follow?

The market for new homes is apparently rising apace. According to the Atlanta Journal-Constitution, average new home prices hit $189,000 in 2004. Every one of 16 local counties saw a growth in home sales; while new-home sales declined in DeKalb, Clayton and Rockdale Counties, Fulton County saw new-home sales grow by 28%. The growth has caused tension in some areas, including the Oak Grove neighbourhood in DeKalb, where residents afraid of rising property taxes are posting signs in front of properties: “Please do not buy this house.”

According to a report issued by Harvard University’s Joint Centre for Housing Studies, Atlanta also led every other metropolitan area in the country in the number of housing permits issued between 2000 and 2003 (which authorise residential construction). The study found that Atlanta’s minorities increasingly prefer the suburbs: the percentage living ten or more miles from the central business district downtown increased from 23.5% in 1980 to 63.9% in 2000.

Catch if you can

August 2005

Grossology: The (Impolite) Science of the Human Body

Until August 21st 2005

The often sleepy Fernbank Museum of Natural History is hosting a travelling exhibit, inspired by a book of the same name, designed to attract visitors by disgusting them. Exhibits include “Guess the Smell”, which involves matching the body odour to the bacteria that cause it; a 30-foot-long model of the digestive system; and a larger-than-life soda drinker who belches when soda is pumped into his stomach. It’s hard to say how much educational value there is in an exhibit that includes an intestinal-gas-themed pinball game, but this colourful show is ribald fun.

Fernbank Museum of Natural History, 767 Clifton Rd. Tel: +1 (404) 929-6300 (recorded information); +1 (404) 929-6400 (ticket sales). Open: Mon–Sat 10am–5pm; Sun noon–5pm. Tickets: Adults $12; children (12 and under) $10. For more information, see the museum’s website.

More from the Atlanta cultural calendar

Economist.com Cities Guide: Dubai Briefing - July 2005

News this month

Exporting luxury

Dubai’s luxury hotels have lured millions of visitors to the desert. Now one chain wants to go global. Jumeirah International, a state-run firm that owns and manages a number of iconic Dubai hotels, including the Burj Al Arab, unveiled plans in late June to manage a network of 40 local and international properties within five years.

Its current portfolio of eight properties includes six in Dubai and two in London, the Carlton Tower and the Lowndes. The firm recently pulled out of negotiations to buy the Hotel Intercontinental in Paris. But Gerald Lawless, the chief executive, says Paris is still in the company’s sights, along with New York, Sydney and Shanghai, among others. Coinciding with this ambitious expansion plan, the company is undergoing an $8m rebranding effort, to unify its corporate image better. Instead of Jumeirah International, the new corporate name will be simply Jumeirah.

A needed break

The UAE has passed a law banning labourers from working in the summer during the hottest time of day. Perhaps sensing the ire he would draw from contractors, Dr Ali bin Abdullah Al Kaabi, the country’s reformist labour minister, announced the ruling in late June, just days before the legislation took effect on July 1st. The UAE’s construction boom has lured tens of thousands of workers, most of them Asian immigrants, to Dubai. Many of them work through the mid-day heat without a break for as little as $10 per day; the new ban halts work between 12.30pm and 4.30pm.

The move drew fierce criticism from contractors, who say they are already facing bankruptcy because of soaring prices for steel and cement. Affluent suburbanites are also complaining that the rule could lead to labourers seeking shade in their gardens while passing the four-hour break. Dr Al Kaabi has dismissed critics, saying the UAE should guarantee human rights for all workers in the Emirates.

Rocket or rollercoaster?

After the blistering gains of Dubai's stockmarket in the first half of 2005, many fear the market is overheating. The Dubai Financial Market index closed at 1,079 on June 30th, up 148% since the year's start. A report by Nomura, a Japanese bank, warned that UAE stocks were “blatantly overvalued”, and recommended selling them. Bankers are sounding alarms about local and expatriate investors who have borrowed heavily to buy stocks—they could be left with billions of dirhams of bad debt when the market corrects.

The index is volatile: in the first days of July it fell 20%; rumours swept the trading floor of investors forced to sell their Porsches and BMWs to repay short-term loans. Yet there are some optimists who think the gains are justified by rising corporate profits, most conspicuously in the banking sector. First Gulf Bank saw profits up 357% in the first half of the year, and two other banking heavyweights, National Bank of Abu Dhabi and Dubai Islamic Bank, each reported triple-digit earnings growth.

Gaining rights

Women will soon be able to divorce their husbands in Sharia courts, following a landmark ruling from the UAE cabinet. The right was previously enjoyed by men only. The cabinet has approved the relevant draft Personal Status Law, securing its passage later this year. The move is part of a wider push to boost women’s rights in the UAE, which also saw the appointment of the first female cabinet minister in late 2004 when Sheikha Lubna Al Qasimi became minister of the economy.

There are some provisos in the new divorce law: women who get a divorce must repay the dowry paid by the husband, and couples must go through family counselling before filing for divorce in a Sharia court. The law also made several adjustments to rules governing marriage, such as the handling of inheritances. One new rule mandates that the mentally ill, lepers and the impotent cannot get married.

Better late than never

The UAE's lending boom has many worried about a potential bad-debt crisis. To help banks better assess the risk they carry, Dubai and Abu Dhabi have unveiled plans for the country's first credit bureau, due to launch by October.

The rise in borrowing for stockmarket speculation is becoming a cause for concern, particularly because banks have such spotty information about their customers. At present, the UAE’s 21 local and 28 foreign banks—including HSBC and Citigroup—have no way of knowing the credit history of their customers when they apply for a loan or credit card. Many bankers suspect that UAE nationals and expatriates have a string of loans and credit cards with rival banks. That has not stopped the banks from lending: some say lending increased by up to 50% in the first half of 2005, after surging last year.

Catch if you can

August 2005

Films at iBO

Until August 29th 2005

iBO, the funky, no-frills nightclub formerly known as Terminal, swaps its dance floor and tequilas for beanbags and beer every Monday night with weekly film screenings.

The Stella Artois Movie Of The Week series was launched in June and continues through August. August 1st brings “Ed Wood”, directed by Tim Burton, with Johnny Depp as the famously eccentric B-movie filmmaker, followed by “Cinema Paradiso” on the 8th. Vince Vaughn and John Favreau run amok in Las Vegas in “Swingers” (pictured) on August 15th, while Robert De Niro uncoils his fists as boxer Jake LaMotta in “Raging Bull” on the 22nd. Stanley Kubrick's “The Shining” will be screened the following week.

iBO, Millennium Airport Hotel, Garhoud. Doors open 8pm; film starts at 9pm. Members get in free. Tel: +971 (0)4 398-2206. For more information, see the club's website.

More from the Dubai cultural calendar

Economist.com Cities Guide: Mexico City Briefing - July 2005

News this month

Gridlock

More bad news for Andrés Manuel Lopéz Obrador, the popular mayor of Mexico City. On July 10th, auditors announced that about $30m was unaccounted for from funds to build an elevated highway (or “Second Floor”) above the city’s ring road. The audit of money spent in 2003 also found that many of the columns propping up the new road were not as strong as they should be.
First proposed by Mr Lopéz Obrador in 2002 to help alleviate the city's traffic problems, the highway now boasts plenty of pillars with no road on top—it is anyone's guess just when it will be finished. This follows June’s inauspicious inauguration of the Metrobus, meant to improve transit on Insurgentes, the city’s main north-south thoroughfare, which has actually made traffic worse.

Money aside, the elevated highway has other problems. The finished sections are often clogged with traffic, and its inexplicably sharp turns and narrow shoulders make it remarkably unsafe, like a video game come to life. No one knows where the $30m went, though a common assumption is that contractors skimmed off the top. While apparently not personally corrupt, the mayor clearly has been unable to keep such abuses out of his administration. This all hurts Mr Lopéz Obrador, because he seems incapable of tackling the city's transport problem. Although he remains the frontrunner, this may harm his campaign for president in 2006.

Oops, they did it again

Mexico’s law-enforcement officials have not had a good few weeks. On July 2nd, authorities acting on the advice of America’s Drug Enforcement Agency (DEA) arrested a man they said was Vicente Carrillo-Fuentes, a leader of the Juarez drug cartel. But after DNA tests, it became clear that the man was in fact Joaquin Romero Aparicio, an architect according to his relatives. Authorities countered that testimony from the DEA still linked him to the drug trade. But on July 10th, Mr Romero was quietly released, along with a friend who had been shopping with him.

This awkward blunder followed on the heels of another one in late June, when authorities arrested Amer Haykel, a British national, in the state of Baja California Sur. Only a day after the attorney general’s office crowed that Mr Haykel, who had some weeks left on his tourist visa, was a big, suspected terrorist, he was released. It seems the arrest, prompted by a list supplied by American authorities, was a mistake. While wrongful arrests are not unusual in Mexico, rarely are they trumpeted as triumphs. These mistakes hardly help the US's standing in the country.

A farewell to arms

It’s been a pretty quiet revolution. After flirting with armed struggle for fewer than ten days in 1994, the Zapatistas, a revolutionary front in the southern state of Chiapas, decided to lay down their arms (more or less) and become a lobbying group for Mexico's oppressed, especially Indians. Led by the mysterious, balaclava-clad Subcomandante Marcos, the Zapatistas moved another step closer to political legitimacy in late-June, when they announced that they were converting into a broad-based leftist political front. Mr Marcos, who seems to view himself as a modern Che Guevera, is often applauded for highlighting the plight of Mexico's indigenous population. He is also brilliant at PR, having kept the illusion of a guerrilla war going without actually having to fight.

Many have applauded this move, which comes after years of relative peace between the Zapatistas (who complain of being marginalised) and Mexico's security forces. But factions in the centre-left Party of the Democratic Revolution, which will put forward Mr Lopéz Obrador as its presidential candidate in next year’s election, remain apprehensive. It is unclear whether the Zapatistas will reinforce the left, lure away the extreme left, or simply alienate swing voters.

Racial intolerance?

President Vicente Fox seems to have a knack for offending African-Americans lately. In May, he stuck his foot in it when he said that Mexicans in the United States took jobs that “not even blacks” would. Sensitivities were further piqued on June 29th, when Mexico issued a set of postage stamps depicting Memin Pinguin, a 1940s black cartoon character. Memin is a troublemaker with exaggerated facial features.

Groups representing black Mexicans have written complaints to Mr Fox, and Scott McClellan, the White House spokesman, said, “Images such as these have no place in today’s world.” But most Mexicans see the stamps as a celebration of their popular culture. Though Mr Fox apologised for his statement in May, he is standing behind the stamps, which have already sold out. Mexico prides itself on its mestizaje, the racial intermixing of immigrants from Europe, slaves from Africa, and natives—a mix that is more prevalent here than anywhere else in the Americas.

Votes for all

There was a spot of good news for Mexico-US relations when, on the same day that the stamps were issued, the Mexican congress voted to give the roughly 10m expatriates living in the United States the right to vote in next year’s presidential elections. However, controversy still surrounds the plan, which will rely on postal ballots. Observers speculate that expatriate turnout could be quite low, because documentation requirements might scare off those who remain wary of American immigration authorities.

Catch if you can

August 2005

Francisco Gutiérrez

Until October 2nd 2005

This enormous exhibit chronicles the career of Francisco Gutiérrez (1906-1945), an artist from Oaxaca in southern Mexico. His range is impressive: there are lithographs and watercolours that could have come from Japan; a series of paintings of blue houses from the 1940s that seem to be the work of a softer, Mexican Picasso; and a lovely drawing of a young boy playing, which feels like an ode to both innocence and experience. Elsewhere, “The Lost” from 1938 looks like an industrialised Marc Chagall, while a woodcut of Sirens would make Homer regret his blindness.

Museo Nacional de Arte, Tacuba 8, Centro Historico. Tel (+52) 55 5512-1908. Open Tue-Sun 10.30am-5.30pm. Admission 30 pesos, free Tuesdays. See the museum's website.

More from the Mexico City cultural calendar

Mixed signals on the virtue of courage

from the July 20, 2005 edition - http://www.csmonitor.com/2005/0720/p15s01-lire.html

By G. Jeffrey MacDonald Correspondent of The Christian Science Monitor

When Londoners climbed back on buses July 8, just one day after bombs ripped through the city's transportation system, reports hailed the display of a virtue much esteemed in an age of terror: courage.

But cultivating courage - a willingness to take personal risk for the sake of a larger purpose - promises to be an uphill battle in the 21st century, ethicists say, whether the enemy is terrorism, local bullies, or moral decay.

The reasons are many, starting with the demands of the modern workplace. Business fosters "an environment in which there are competing values," says Daniel Terris, author of "Ethics at Work" and director of the International Center for Ethics, Justice and Public Life at Brandeis University in Waltham, Mass. "The value of loyalty to the corporation, the value of containing bad publicity, the value of maintaining a spirit of community and teamwork all work against courage in a lot of specific situations."

More than a few voices in recent years have prescribed a fresh dose of courage to treat society's current ills. Former CBS anchorman Dan Rather made courage the centerpiece of his closing comments from that post in March. In the past two years, reflections on the ancient virtue have been published by people such as US Sen. John McCain (R) of Arizona, leadership guru David Cottrell, ethicist Rushworth Kidder, and - through a posthumous reissue of his "Profiles in Courage" - the late President John F. Kennedy. And companies such as Deloitte & Touche have begun emphasizing in employee training the importance of courageous refusal when a client requests illegal or unethical services.

Yet for all its acclaim, courage might exist more as an ideal than a reality. A society geared to prize health, wealth, and social status needs much persuading, observers say, in order to put such hard-earned spoils at risk, no matter the principle.

Moral decisionmaking "becomes a problem about courage precisely when our personal interests seem to be at stake," says Paul Woodruff, an ethicist at the University of Texas. "In order to do what is right, we may have to risk our lives or our property.... Is it more important to pursue justice, or is it more important to protect your retirement account? Your retirement account is very important. But from the ethical point of view, living an ethical life is more important.... I think people get confused about this."

Similar thinking led the ancient Greek philosopher Aristotle to enshrine courage as the "handmaiden of all virtues." Plato and Thomas Aquinas built upon Aristotle's understanding, regarding courage or "fortitude" as indispensable to the moral life.

Courageous action demands awareness of the actual risks involved in a proposed course of action. But in a time of globalization and rapid advances in technology, ramifications from a local decision can be difficult to anticipate. "The pace of our society in many ways makes courage difficult," says Prof. Tom Leininger, a moral theologian at Regis University in Denver. "You can't be courageous if you don't have a clue what the risks and dangers are."

To make matters even more challenging, Mr. Terris argues, courage is "like speed in an athlete ... It can't be kind of counted on or trained in some way."

Others, however, insist courage is not only teachable but a necessary legacy to pass on to the next generation. That starts with rejecting moral relativism, says Mr. Kidder, founder and president of the Institute for Global Ethics in Camden, Maine, because "if there are no standards to stand up for, why would anybody take a moral stand?" He encourages people to tell the stories of courageous heroes, such as Vaclav Havel and Nelson Mandela, and to create situations in which children have a chance to take courageous action of their own.

"We, all of us, need to be better models of courage for the young," Kidder says. "We need to be mentoring them in that specific way. Let's find situations that have a responsible amount of safety in them but nevertheless are inherently dangerous, and ask our kids to experience those and to grow up." Examples: sports and adventures.

Others agree that courage is learned over many years, often through example. Baylor University ethicist Robert Roberts, for instance, says would-be students of courage profit most from time in a "community of wise people," such as elders who are capable of distinguishing between noble, courageous acts and foolish, risky ones.

In the end, however, some see American culture at large taking steps to make courage an unnecessary virtue. In the corporate world, for instance, Terris sees new steps to protect potential whistleblowers as efforts to "encourage a situation where the individual does not have to be out on a limb by himself or herself," because "heroism, action taken at great risk ... [is] not going to happen as often as we'd like it to."

It is a step of progress when "we don't need [courage] to negotiate our daily lives," Kidder says. Yet he says courage will always have a role to play, because human beings crave to demonstrate it in rites of passage from youth to adulthood.

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How much should precedent bind judges?

from the July 18, 2005 edition - http://www.csmonitor.com/2005/0718/p03s01-uspo.html

A Bush nominee to the Supreme Court may be probed about whether he or she would overturn earlier high-court rulings.

By Warren Richey Staff writer of The Christian Science Monitor

Whomever President Bush nominates to fill Sandra Day O'Connor's seat on the US Supreme Court will inherit enormous power immediately upon confirmation.

It is the power to assume Justice O'Connor's role of breaking deadlocks in major cases. But perhaps more important, it includes the raw judicial power to overturn many of O'Connor's decisions, should four other like-minded justices agree to take up the task.

With high-court opinions on affirmative action, school vouchers, states' rights, and so-called "partial birth" abortion hanging in the balance, questions about the importance of upholding Supreme Court precedent will play a central role in upcoming confirmation hearings, legal analysts say.

That is, in addition to dodging the usual inquiries about how he or she might rule in an abortion case, or other culture-war flash points, a Bush nominee will probably face a prolonged and intense interrogation probing a candidate's views on stare decisis.

Stare decisis is a Latin term for the judicial principle of upholding an earlier high-court decision unless special circumstances exist to overturn it. The phrase literally means to stand by things decided.

To senators intent on divining a nominee's judicial leanings, questions that explore a prospective justice's thoughts about how and under what circumstances to uphold a legal precedent (or overturn it) could offer the Judiciary Committee, and the nation, an opportunity to gauge how a particular nominee might shift the balance of power on the high court - and ultimately shape the direction of American law.

"In a situation in which you can change the balance of the court, questions of stare decisis come to the forefront," says Michael Gerhardt, a constitutional law professor at the University of North Carolina School of Law at Chapel Hill. "Most people expect President Bush to appoint someone who will take the court in a different direction, and what that means is deciding cases not just differently but overturning precedent."

Power to overrule

While each of the nine justices casts but a single vote in each case, O'Connor, a centrist swing voter, has often delivered the decisive fifth vote. Now with her announced retirement, the newest justice will inherit not only the authority to cast the fifth vote in sharply divided cases, but also to cast the deciding vote to overrule existing precedents should four other justices agree to revisit any of the landmark 5-to-4 cases decided by O'Connor.

By tradition, a new justice who did not participate in earlier rulings is less bound by precedent than the justices who voted in those decisions. But there are risks every time the court authorizes an abrupt change of course.

As Justice Potter Stewart wrote in a 1974 dissent: "A basic change in the law upon a ground no firmer than a change in our membership invites the popular misconception that this institution is little different from the two political branches of the government."

He added, "No misconception could do more lasting injury to this court."

Suzanna Sherry, a constitutional law professor at Vanderbilt University Law School in Nashville, Tenn., says it can be difficult to predict how a new justice may vote when legal precedents are on the line. The justice's personal views regarding a case may not control the final outcome, she says.

"A judge who thinks affirmative action is unconstitutional but who is also strongly influenced by principles of stare decisis might decide not to overrule the earlier case, but to limit it, and not extend it in the next case," Professor Sherry says.

Upholding precedent fosters stability and predictability in the law. And it enhances the legitimacy of the court by demonstrating to the nation that the justices themselves accept and respect the court's own opinions.

On the other hand, if the high court adhered strictly to precedent, it would be unable to correct mistakes in constitutional interpretation, and future interpretation would only perpetuate the errors. For example, Plessy v. Ferguson, the 1896 case upholding "separate but equal" racial segregation, would have continued as the law of the land had the Supreme Court not overruled it in the 1954 landmark decision Brown v. Board of Education.

Stare decisis means different things to different jurists. Some are extremely reluctant to overrule precedent, while others place a higher priority on correcting what they view as fundamental errors in constitutional interpretation by the high court. Still others seem ready to invoke stare decisis to protect rulings they favor, but not those they oppose.

Goes both ways

Doug Kmiec, a constitutional law professor at Pepperdine University School of Law in Malibu, Calif., notes that the O'Connor decisions fall on both sides of the conservative-liberal divide. While liberals will seek to invoke stare decisis to protect abortion rights and affirmative action, conservatives want to preserve school vouchers and rulings on federalism.

"If there is a notion of settled law anchored in stare decisis or principles of judicial restraint, then neither side of that ledger should be open to question," Professor Kmiec says. "I fear, however, that in the confirmation questions, the two sides will not see that they are talking past each other on these issues."

In many ways, Supreme Court confirmation hearings are a carefully orchestrated dance in which nominees engage in a form of political seduction by offering hints of how they may rule on particular hot-button cases - but never enough specifics to undermine the independence and credibility of the judiciary.

Mr. Bush's nominee will probably spend much of the summer rehearsing graceful ways to sidestep pointed questions about specific cases and issues. Such dodging is essential to avoid the appearance that a nominee is making a political pledge to rule a certain way in exchange for support from particular senators. But it can also be motivated by a desire to withhold details that might be used as ammunition against the nominee.

"Nominees always want to say as little as possible and give away as little as possible," says Professor Gerhardt. "Every nominee will avoid talking about anything they consider to be either a pending case or a case likely to come before the court."

But he says that senators may legitimately press a nominee to explain in detail the process he or she would use to decide whether to uphold or overturn legal precedents.

"The question of stare decisis is one of the most significant questions that faces any new justice," Gerhardt says. "To what extent do you want to accept what has come before? To what extent do you feel free to question it? Those questions are confronted by every nominee, and everyone answers them differently."

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A seal of approval for companies' social progress

from the July 18, 2005 edition - http://www.csmonitor.com/2005/0718/p13s03-wmgn.html

By G. Jeffrey MacDonald Correspondent of The Christian Science Monitor

As someone who hunts for ethical firms, Tim Smith pores over hundreds of company social reports about labor conditions and community involvement. But how many does he trust?

Far fewer.

"It's not credible if somebody is monitoring and reporting on themselves," says Mr. Smith, director of socially responsive investing at Walden Asset Management in Boston. "You need to do your own review, but you [also] need an independent monitor who has got integrity and is outside" the company.

Call it the "Good Housekeeping" seal of approval for ethical companies. Just as financial auditors probe whether a company's numbers can be trusted, independent social auditors aim to sniff out whether a scandal of sweatshop proportions lurks behind the many photos of happy workers in an annual report.

At this juncture, independent monitoring of social standards is far from the norm in corporate America, which is still getting used to reporting its own progress on social issues. Almost 1 in 3 of America's top 100 companies reported on their social progress this year, according to a June survey from accounting giant KPMG. That's a huge surge from the handful issuing them five years ago. But only 1 in 100 did so with verification from an independent auditor.

That puts the United States far behind Britain, where 71 percent of top companies issued social-progress reports, and more than half of those came with an independent monitor's assurance, the survey found.

Usually, investors can easily determine whether a company has allowed independent monitors to evaluate either its internal reports or its outsourced operations.

They just need to go to the company website.

Since hiring an outside auditor can cost upwards of $100,000, companies spending the money to win credibility will want the world to know, observers say. Prominently placed on its corporate social responsibility (CSR) report will be the name of the auditing organization. What's not so obvious, however, is that some audits may be more trustworthy than others.

"You've got a whole set of commercial suppliers that are out there [getting into social auditing] but it's very easy for them, frankly, to get hoodwinked by suppliers in developing countries,"
says Conrad MacKerron, director of corporate social responsibility for the As You Sow Foundation in San Francisco. Because it can be easy for factory managers to steer auditors away from problem areas, he says, the best audits might be those from organizations with a history of digging deep to bring trouble spots to light. "If they're not going the extra mile to talk to workers in a safe spot," Mr. MacKerron asks, "are they going to be able to find problems that were missed" by internal reviews?

Among the most sought-after names in social auditing are nongovernmental organizations (NGOs) with international reputations, according to Jeff Erikson, Washington director of SustainAbility, a consultancy in London that helps firms prepare CSR reports. Reviews done by advocacy groups like Amnesty International, Greenpeace, and others would carry far more weight, Erikson says, than those done by groups with close ties to industry, for instance.

When the auditor's name is not a household word, diligent inquisitors might send off an e-mail to the investor-relations department asking who accredited the independent monitors. If CSR reports are reviewed against the AA1000 standard from AccountAbility, for instance, then the benchmark is the same one used by more than 100 firms, including British Airways, Toyota, and Canon.

"The average consumer could care very little about whether a report has verification," says Maria Sillanpaa, managing director for AccountAbility. "However, an investor looking at a CSR sustainability report without verification would not place much value in the report."

Who's bias-free?

What constitutes an independent auditor remains a matter of debate. NGOs routinely decline a fee, Mr. Erikson says, while accounting firms sometimes regard social auditing as a growth area for their businesses and see no conflict of interest. Meanwhile, social audits are increasingly targeting not just CSR reports, but also far less visible supply-chain facilities overseas.

Since the late 1990s, when sweatshop conditions in Asian factories dragged down such lofty names as Nike and Kathy Lee Gifford's clothing line, monitoring supply chains has become a cottage industry. For investors, that's good news because they now have places to go for answers about ethical standards, especially in some industries. For a tobacco or oil company that's trying to establish credibility, for example, external monitoring can be especially important, Erikson says.

In textiles, the first stop for a concerned investor might be the Fair Labor Association (www.fairlabor.org). Its licensees and member companies identify those that have agreed to let accredited monitors bring International Labor Organization standards to bear on factories in their supply chain. Monitors note issues such as sanitation, child labor, and compensation rates.

In coming years, the association aims to draft standards for use in monitoring other industries, particularly agriculture, according to monitoring program coordinator Roopa Nair. In the meantime, investors concerned with crop-growing and processing conditions can look for a label increasingly familiar to upscale coffee drinkers: Fair Trade.

Investors who see the Fair Trade label on a company's products have assurance from social audits that, for instance, coffee was grown in shady conditions that bode well for the land. What's more, everyone in the supply chain actually got paid as promised, according to an audit that reviews the transactions. Those who are audited ultimately foot the bill, and they need to keep showing progress to retain the label.

"It's not good enough to just meet minimum requirements year after year, especially if you're deriving tremendous fair-trade benefits from the system," says Christopher Himes, of TransFair USA, which audits transactions for the Fair Trade label. "You then have to become more of a model producer, do more for your workers ... do more for the environment, etc."

Another auditing group, Social Accountability International, accredits monitors who then "certify" outsourced factories in toys, apparel, and other industries. Firms that work with SAI-accredited monitors get to use its seal of approval.

Shrouded details

Investors aren't likely to see exactly what auditors said since few companies post their reports. Some experts say that's fine as long as investors know the independent audits are being done.

"Ninety-nine percent of the people who see these audits won't understand what it means," says former McDonald's attorney Phillip Rudolph, now a partner in the CSR group at Foley Hoag in Washington, D.C. "It really creates an impediment to effective relationships between the customer - the Nikes of the world or the Reeboks of the world - and their suppliers to have the entire world suddenly become involved."

But others believe the world needs to know what independent auditors are saying. "Even if we ask what's going on, they'll just say, 'Well, we're taking care of it, but no, we're not going to give you the details,' " MacKerron says.

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How much should precedent bind judges?

from the July 18, 2005 edition - http://www.csmonitor.com/2005/0718/p03s01-uspo.html

A Bush nominee to the Supreme Court may be probed about whether he or she would overturn earlier high-court rulings.

By Warren Richey Staff writer of The Christian Science Monitor

Whomever President Bush nominates to fill Sandra Day O'Connor's seat on the US Supreme Court will inherit enormous power immediately upon confirmation.

It is the power to assume Justice O'Connor's role of breaking deadlocks in major cases. But perhaps more important, it includes the raw judicial power to overturn many of O'Connor's decisions, should four other like-minded justices agree to take up the task.

With high-court opinions on affirmative action, school vouchers, states' rights, and so-called "partial birth" abortion hanging in the balance, questions about the importance of upholding Supreme Court precedent will play a central role in upcoming confirmation hearings, legal analysts say.

That is, in addition to dodging the usual inquiries about how he or she might rule in an abortion case, or other culture-war flash points, a Bush nominee will probably face a prolonged and intense interrogation probing a candidate's views on stare decisis.

Stare decisis is a Latin term for the judicial principle of upholding an earlier high-court decision unless special circumstances exist to overturn it. The phrase literally means to stand by things decided.

To senators intent on divining a nominee's judicial leanings, questions that explore a prospective justice's thoughts about how and under what circumstances to uphold a legal precedent (or overturn it) could offer the Judiciary Committee, and the nation, an opportunity to gauge how a particular nominee might shift the balance of power on the high court - and ultimately shape the direction of American law.

"In a situation in which you can change the balance of the court, questions of stare decisis come to the forefront," says Michael Gerhardt, a constitutional law professor at the University of North Carolina School of Law at Chapel Hill. "Most people expect President Bush to appoint someone who will take the court in a different direction, and what that means is deciding cases not just differently but overturning precedent."Power to overrule

While each of the nine justices casts but a single vote in each case, O'Connor, a centrist swing voter, has often delivered the decisive fifth vote. Now with her announced retirement, the newest justice will inherit not only the authority to cast the fifth vote in sharply divided cases, but also to cast the deciding vote to overrule existing precedents should four other justices agree to revisit any of the landmark 5-to-4 cases decided by O'Connor.

By tradition, a new justice who did not participate in earlier rulings is less bound by precedent than the justices who voted in those decisions. But there are risks every time the court authorizes an abrupt change of course.

As Justice Potter Stewart wrote in a 1974 dissent: "A basic change in the law upon a ground no firmer than a change in our membership invites the popular misconception that this institution is little different from the two political branches of the government."

He added, "No misconception could do more lasting injury to this court."

Suzanna Sherry, a constitutional law professor at Vanderbilt University Law School in Nashville, Tenn., says it can be difficult to predict how a new justice may vote when legal precedents are on the line. The justice's personal views regarding a case may not control the final outcome, she says.

"A judge who thinks affirmative action is unconstitutional but who is also strongly influenced by principles of stare decisis might decide not to overrule the earlier case, but to limit it, and not extend it in the next case," Professor Sherry says.

Upholding precedent fosters stability and predictability in the law. And it enhances the legitimacy of the court by demonstrating to the nation that the justices themselves accept and respect the court's own opinions.

On the other hand, if the high court adhered strictly to precedent, it would be unable to correct mistakes in constitutional interpretation, and future interpretation would only perpetuate the errors. For example, Plessy v. Ferguson, the 1896 case upholding "separate but equal" racial segregation, would have continued as the law of the land had the Supreme Court not overruled it in the 1954 landmark decision Brown v. Board of Education.

Stare decisis means different things to different jurists. Some are extremely reluctant to overrule precedent, while others place a higher priority on correcting what they view as fundamental errors in constitutional interpretation by the high court. Still others seem ready to invoke stare decisis to protect rulings they favor, but not those they oppose.Goes both ways
Doug Kmiec, a constitutional law professor at Pepperdine University School of Law in Malibu, Calif., notes that the O'Connor decisions fall on both sides of the conservative-liberal divide.
While liberals will seek to invoke stare decisis to protect abortion rights and affirmative action, conservatives want to preserve school vouchers and rulings on federalism.

"If there is a notion of settled law anchored in stare decisis or principles of judicial restraint, then neither side of that ledger should be open to question," Professor Kmiec says. "I fear, however, that in the confirmation questions, the two sides will not see that they are talking past each other on these issues."

In many ways, Supreme Court confirmation hearings are a carefully orchestrated dance in which nominees engage in a form of political seduction by offering hints of how they may rule on particular hot-button cases - but never enough specifics to undermine the independence and credibility of the judiciary.

Mr. Bush's nominee will probably spend much of the summer rehearsing graceful ways to sidestep pointed questions about specific cases and issues. Such dodging is essential to avoid the appearance that a nominee is making a political pledge to rule a certain way in exchange for support from particular senators. But it can also be motivated by a desire to withhold details that might be used as ammunition against the nominee.

"Nominees always want to say as little as possible and give away as little as possible," says Professor Gerhardt. "Every nominee will avoid talking about anything they consider to be either a pending case or a case likely to come before the court."

But he says that senators may legitimately press a nominee to explain in detail the process he or she would use to decide whether to uphold or overturn legal precedents.

"The question of stare decisis is one of the most significant questions that faces any new justice," Gerhardt says. "To what extent do you want to accept what has come before? To what extent do you feel free to question it? Those questions are confronted by every nominee, and everyone answers them differently."

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Rove leak is just part of larger scandal

from the July 15, 2005 edition - http://www.csmonitor.com/2005/0715/p09s02-cods.html

By Daniel Schorr

WASHINGTON - Let me remind you that the underlying issue in the Karl Rove controversy is not a leak, but a war and how America was misled into that war.

In 2002 President Bush, having decided to invade Iraq, was casting about for a casus belli. The weapons of mass destruction theme was not yielding very much until a dubious Italian intelligence report, based partly on forged documents (it later turned out), provided reason to speculate that Iraq might be trying to buy so-called yellowcake uranium from the African country of Niger. It did not seem to matter that the CIA advised that the Italian information was "fragmentary and lacked detail."

Prodded by Vice President Dick Cheney and in the hope of getting more conclusive information, the CIA sent Joseph Wilson, an old Africa hand, to Niger to investigate. Mr. Wilson spent eight days talking to everyone in Niger possibly involved and came back to report no sign of an Iraqi bid for uranium and, anyway, Niger's uranium was committed to other countries for many years to come.

No news is bad news for an administration gearing up for war. Ignoring Wilson's report, Cheney talked on TV about Iraq's nuclear potential. And the president himself, in his 2003 State of the Union address no less, pronounced: "The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa."

Wilson declined to maintain a discreet silence. He told various people that the president was at least mistaken, at most telling an untruth. Finally Wilson directly challenged the administration with a July 6, 2003 New York Times op-ed headlined, "What I didn't find in Africa," and making clear his belief that the president deliberately manipulated intelligence in order to justify an invasion.

One can imagine the fury in the White House. We now know from the e-mail traffic of Time's correspondent Matt Cooper that five days after the op-ed appeared, he advised his bureau chief of a supersecret conversation with Karl Rove who alerted him to the fact that Wilson's wife worked for the CIA and may have recommended him for the Niger assignment. Three days later, Bob Novak's column appeared giving Wilson's wife's name, Valerie Plame, and the fact she was an undercover CIA officer. Mr. Novak has yet to say, in public, whether Mr. Rove was his source. Enough is known to surmise that the leaks of Rove, or others deputized by him, amounted to retaliation against someone who had the temerity to challenge the president of the United States when he was striving to find some plausible reason for invading Iraq.

The role of Rove and associates added up to a small incident in a very large scandal - the effort to delude America into thinking it faced a threat dire enough to justify a war.

• Daniel Schorr is the senior news analyst at National Public Radio.

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Bush loses some luster on credibility

from the July 18, 2005 edition - http://www.csmonitor.com/2005/0718/p01s01-uspo.html

With the president struggling on issues such as Iraq and Social Security, controversy over Rove adds to PR challenge.

By Linda Feldmann Staff writer of The Christian Science Monitor

WASHINGTON - When George W. Bush ran for president in 2000, he sought to contrast himself implicitly with President Clinton, promising to restore "honor and integrity" to the White House. The argument seemed to work.

Now, in the public's view, President Bush is sliding into negative territory on that score. For the first time in his presidency, more Americans give Bush a low rating (45 percent) on being "honest and straightforward" than give him a high rating (41 percent), according to a Wall Street Journal/NBC News poll.

It's not just the recent revelations about top aide Karl Rove - now known to be involved in the imbroglio over the outing of a CIA operative - that have hurt Bush. A range of issues are dampening the president's numbers, from his as-yet-unsuccessful attempt to sell partial privatization of Social Security to increasing public doubts over the decision to go to war in Iraq, says one of the pollsters who conducted the survey.

"We really didn't ask about Rove," says Peter Hart, a Democratic pollster who ran the survey with Republican pollster Bill McInturff. "It's sort of a sense that nothing's going right, and that a lot of his basic tenets that he put out for the second term are coming up a cropper."

Republican analysts don't disagree.

"From a public opinion standpoint, the administration's in a slump," says Charles Black, a Washington lawyer and GOP adviser. "Some accomplishments will help break the slump: If we can get an energy bill and get it signed, get a highway bill and get it signed, if we continue to have a good economy."

On the last point, Mr. Black adds, "it's weird, because the economy is good, but a lot of people don't think it is."

Black also sees press coverage of the outed CIA agent, Valerie Plame, dying down until the special prosecutor releases his report. The grand jury hearing testimony on the case is empaneled until October.

Focus on key adviser Rove

For now, though, intense focus on the Plame investigation - including the role of Bush's top adviser, Mr. Rove - continues to dominate political conversation. On CBS's "Face the Nation" Sunday, former Ambassador Joseph Wilson, an administration critic and Ms. Plame's husband, decried the partisan turn in public discourse. "They [Republicans] have tried to make this partisan," he said. "It is not partisan, it is an issue of national security."

Because the Plame affair is rooted in the issue of questionable intelligence leading to the US-led invasion of Iraq in 2003, the emerging details on Plame's exposure have led to renewed public focus on the runup to the war - a reminder that, in fact, no weapons of mass destruction were found in Iraq. That point goes to the heart of questions about Bush's truthfulness, say Democrats.

On NBC's "Meet the Press" Sunday, national GOP chair Ken Mehlman deflected questions about Rove by expressing confidence in the special prosecutor, Patrick Fitzgerald, and attacking the honesty of Ambassador Wilson.

Based on what is now known - that Rove spoke to reporters, including Robert Novak, the author of the original column at issue, about Wilson's wife - Bush's most valuable aide will remain under a cloud unless or until he is cleared by Mr. Fitzgerald. Rove's involvement also provides a peg for the press to review his career as a bare-knuckled political operative known to work with devastating effect.

Even now, Rovian techniques are at play: Instead of cowering before Wilson, Republicans are going after him.

For Bush, the promise to fire anyone from his administration involved in leaking the name of a covert agent now looms large. Short of an indictment of Rove, analysts expect him to stay in the White House - in part, because Bush is loyal and also because Rove is so central to this presidency, politically and on policy matters.

But keeping Rove after making that promise puts Bush in the kind of awkward, word-parsing spot that famously caught his predecessor. Just as Clinton mused aloud on the meaning of the word "is," so Bush could be caught over the meaning of "leak." If Rove was not the original leaker, but instead just confirmed classified information to a reporter, is that a leak?

Challenges ahead for Bush

And more broadly, can Bush reverse his slide in public trust?

"That's very event-dependent," says political scientist Bruce Buchanan of the University of Texas, Austin. "It's hard to predict with confidence that he can recover."

Relevant factors include whether Rove or someone else from the administration is indicted; how the Iraq war goes; whether the president is successful in getting initiatives through Congress; whether he can avoid a catfight over his forthcoming Supreme Court nomination.

One area of solace for Bush is that public approval of Congress (28 percent) is even lower than his own job approval rating of 46 percent in the new NBC/Wall Street Journal poll. But if public disgust with all of Washington continues or escalates, that could hurt his allies in Congress in the next election, making it even more difficult to make major accomplishments in the final two years of his presidency.

• Adam Karlin contributed to this report.

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'Garden party' helps revive a neighborhood

from the July 13, 2005 edition - http://www.csmonitor.com/2005/0713/p15s01-liga.html

By Betty Lowry Contributor to The Christian Science Monitor

MUNICH, GERMANY - When Munich decides to turn around a neighborhood, it sends flowers. So when the city wanted to renovate the former Munich-Riem Airport and the Bavarian capital's blighted east side, it sent approximately 2 million flower bulbs, 30,000 trees, 10,000 shrubs - and that's just for starters. Now it's giving a garden party in that refurbished space.
Four million people are expected to visit before the gates close Oct. 9.

The biennial German National Garden Festival (Bundesgartenschau, German acronym BUGA) is a summer-long ecological and cultural event with happenings as well as flower beds. Its subtitle, the National Idea Festival, lifts it above the level of tulips and pansies to what has been declared a "change of perspective."

That's especially true for those who live in the area. The new landscape park has been designed to provide the district with cleaner, cooler air as well as neighborhood recreation and a sustainable natural environment. New housing for 16,000 people is scheduled for completion within four years. To provide jobs and attract visitors, the city's Trade Fair Center has been relocated and dramatically rebuilt to cutting-edge environmental standards including total solar power.

When BUGA shuts down, the district will be left with the largest municipal park in Munich (nearly 500 acres), playing fields, perimeter paths for bicyclers and walkers, and a 35-acre lake reserved for swimming and nonmotorized boating.

But for now, the carpet of blossoms at the west entrance plunges visitors into a floral ambience. The enormous flower halls reuse rainwater in fountains to control the humidity and entrance small children.

Yet it is the Cell Garden that holds the key to the meaning of the 2005 show. In 12 separate gardens, each surrounded by gravel embankments and connected by foot bridges, landscape artists have created installations where visitors experience the world from the view of a mouse, mole, bug, bird, and the like. One of the most popular cells is an enormous nest where the message is clearly that we could still face a time when no birds sing.

For all its serious ecological intent, the National Garden Show is still directed to German citizen-gardeners. Along the parallel paths and in the container and vegetable gardens, home gardeners inspect and approve the newest varieties of 60,000 perennials and uncountable veggies.

The 106 acres of wildflower meadow has unanimous appeal. The rose garden is a predictable hit. "Germans like flowers that smell good," says spokesman Max-Joseph Kronenbitter.

Also part of the festival are playgrounds, a marketplace of Bavarian food, and special events such as a ballet cabaret in September. Live bands and electronic music - from Mozart to heavy metal - are integral to the daily scene.

BUGA-Munich is not the first time Germany has used flower shows as a means of implementing urban renewal and social responsibility. The first national garden show was held in Hanover in 1951, but in 1822 King Friedrich Wilhelm III established the Society for the Promotion of Horticulture in the Royal Prussian States, forerunner of the German Horticultural Society.

The first International Horticultural Exhibition was held in Hamburg for 10 days in 1869 with 420 exhibitors, and in 1897 it became a summer-long event.

In postwar Germany, garden shows provided the excuse for excavating and replanting bombed-out areas. Color and green spaces overcame rubble.

In Munich, it may be that getting 30,000 new trees to grow in soil that was little more than an airport runway is easier than getting across the idea of the Cell Garden, which mirrors the tissue of a plant, but never mind. "We want people to understand that natural resources are precious and perishable," says Mr. Kronenbitter. "We want them to see the technology is ready and available." He heaves a sigh. "The message of the festival is that new ways of looking result in new ways of doing."

He adds quickly, "We also want them to enjoy themselves."

• BUGA is open daily through Oct. 9. See www.buga05.de.

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At the foot of the falls, the roar of the crowd

from the July 13, 2005 edition - http://www.csmonitor.com/2005/0713/p01s04-ussc.html

By Mark Sappenfield Staff writer of The Christian Science Monitor

YOSEMITE NATIONAL PARK, CALIF. - Ever since their kids were old enough to bundle into the car, Pete and Lanny Ori have spent their summers camping in the American wilderness. Their memories click like turnstiles as they recall the stops on their travels - a Who's Who of the country's great national parks.

Yet it is only now - 35 years later - that this Chicago couple has at last come to Yosemite National Park, a granite cleft in the Sierra Nevada that photographer Ansel Adams once described as "a glitter of green and golden wonder in a vast edifice of stone and space."

Standing at the foot of Yosemite Falls, craning their necks upward to take in a cataract that begins 2,425 feet above their heads, the Oris insist that they never doubted the beauty of the place. They feared the crowds.

Without a doubt, the hordes are here. On summer afternoons, Yosemite Valley can be a riot of bumpers and brake lights - Los Angeles gridlock set against a landscape beyond imagination. Yet the place where the Oris stand is a symbol of how Yosemite - as well as the National Park System - is struggling to maintain a sense of solitude amid throngs of automobile-bound visitors.

To some, the new path and viewing area at the base of Lower Yosemite Falls is an attempt to make one of the park's most famous landmarks more accessible to a new generation of park visitors, who come not to camp or explore, but to snap a photo and move on. To others, though, it risks turning the great outdoors into a drive-through that rates convenience above conservation.

"The Park Service could set the tone" in Yosemite, says Joyce Eden, codirector of the Friends of Yosemite Valley. "It's a question of what kind of experience you want the visitor to have."

In recent years, visitors' experiences both here and in national parks across the country have changed radically. Thirty years ago, 80 percent of the people who came to Yosemite stayed overnight. Today, 80 percent spend only one day; the average visit is four hours. The same trends have shaped the south rim of the Grand Canyon, the Smoky Mountains of Tennessee, and - to a lesser degree - parks such as Yellowstone and Zion.

A 'Disneyfication' of natural wonders

At these and other parks, the National Park Service has responded by trying to herd visitors onto shuttle buses and into day parking to lessen traffic. But when the Merced River flooded Yosemite Valley in 1997, washing out campsites and roadways, the third-most visited national park in America had a unique opportunity to start afresh, deciding what to save and what to destroy.

The result was the Yosemite Valley Plan, which has come to represent the broader desires of the National Park Service - both for supporters and critics. There is, on one hand, a definite nod toward undoing the excesses of the past, when Yosemite Valley was built up almost as a resort. For example, according to the plan, 40 campsites and 100 rooms at the Yosemite Lodge will close. A dam and a bridge on the Merced River have already been removed.

"Clearly, it's a step in the right direction," says Ron Tipton of the National Parks Conservation Association in Washington. "The Park Service has grown more toward managing parks to preserve nature as its top priority."

Yet Ms. Eden looks at the new walkway to Lower Yosemite Falls and sees some of the mistakes of the past repeating themselves.

At the trailhead, there is a brand new bus stop designed by a renowned San Francisco architect. The main walkway has been paved and expanded, and its new eastern loop interferes with the braiding course of the Yosemite River during high water, she says.

"Fix it up, yes, but don't overdo it," says Eden. "Fixing it up is ruining the reason people come there in the first place."

She calls this the "Disneyfication" of the America's national parks, as the wonder of silence and discovery is lost in a rush to cater to the crowds on a four-hour whirlwind tour. Yosemite Ranger and spokesman Scott Gediman is sympathetic to her complaints, but he also knows that the people will come - 3.5 million of them a year - and that the park must be ready.

Car-free in the park 'not realistic'

There has been talk of banning cars from Yosemite - forcing visitors to take shuttle buses into the park. But with a century's worth of development in the valley - including two hotels, hundreds of cabins, and a tangle of roads - it's "not realistic," Mr. Gediman says.

To him, though, Yosemite can be both an American outback and a place for day-trippers. Some 95 percent of Yosemite is designated wilderness with more than 760 miles of hiking trails, he notes. So it's not too much to set aside a few of the park's most iconic places - like Lower Yosemite Falls - to lure tourists out of their cars and give them at least a taste of Yosemite.

The Oris tend to agree. Now that they are here, they can appreciate the challenge facing Yosemite planners, and Lanny says Yosemite has struck "a good balance." She and her husband have been here for five days, taking in everything from this most popular of tourist sites to the nether regions of the park, where the most curious onlookers can be bears.

"I'll trade off a few of [these most crowded sites]," Pete says, "as long as you keep the other ones off the beaten path."

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Economist.com Cities Guide: Milan Briefing - July 2005

News this month

Mass arrests follow London bombs

Prompted by the bombing attacks in London on July 7th, police arrested 142 people in and around Milan. As part of a security sweep, some 2,000 officers questioned over 7,000 people, but the charges were mainly for minor offences, such as theft or illegal immigration. Of those arrested, 83 were illegal immigrants, 52 of whom were issued deportation orders. No one has been charged in connection with terrorism, though a small amount of explosives was discovered at the home of one ex-convict.

The government's support of the war in Iraq has heightened fears that the country will be the next target of a terrorist strike. Silvio Berlusconi, Italy's prime minister, has supplied troops for the America-led operation, despite widespread popular opposition. He also faces a difficult re-election campaign this year, which is reminiscent of the situation in Spain that preceded the March 2004 train bombings in Madrid, which killed 191 people. As said by the daily Il Messaggero, “Now an attack in our house is more likely than ever.”

A verdict on Parmalat

A judge in Milan has convicted and sentenced 11 people connected with Parmalat, the disgraced Italian dairy group. Plea bargains secured the sentences, which range from ten months to two and a half years for market manipulation, obstruction of justice and falsifying audits. The harshest punishments were meted out to Fausto Tonna, Parmalat's former chief financial officer, and Gian Paolo Zini, a lawyer who set up offshore companies to hide Parmalat’s losses and debt. Calisto Tanzi, Parmalat's founder, faces trial on September 28th.

The convictions are a victory for prosecutors, but the guilty parties will probably be spared time in jail. Italian law suspends the sentences of first-time offenders given less than two years in jail. Mr Tanzi's health problems should ensure that he is kept out of prison, while Mr Tonna and Mr Zini are expected to perform community service. But prosecutors in Parma, where the company has its headquarters, are investigating more serious crimes—such as fraudulent bankruptcy—which could carry heftier sentences.

No camping

Milan’s city government is poised to remove all unauthorised Roma (gypsy) camps. On June 29th, police raided Capo Rizzuto, a Roma settlement sheltering illegal immigrants in the north-west part of the city. Riccardo De Corato, Milan's deputy mayor, insisted that this marked the start of a crackdown on camps that pose what he says are serious security risks. City officials rejected calls to open smaller, more manageable camps within the city’s limits, claiming the responsibility for sheltering Roma should be shared with surrounding communities. Milan has eight officially sanctioned camps, and at least ten unauthorised settlements on the city's outskirts.

First the good news

July brought some flattering news for Italy's economic capital. An annual report on the state of the city, released on July 4th, praised Milan for being a cosmopolitan and commercially competitive metropolis. The report, prepared by the city’s Ambrosianeum Foundation, also pointed to an increasing amount of green space, a rising number of urban-renewal plans and a series of high-profile architectural projects, such as the recent construction of a new ultra-modern trade fair on the outskirts of town.

But the Milano 2005 report was not all good news. The city has also become more expensive, with one in five families struggling to stretch their paycheque to the end of the month. And 14% live below the poverty threshold.

Commemorating Craxi

Milan's supervisory board has approved plans to install a plaque outside the former office of Bettino Craxi, Italy's socialist prime minister from 1983 to 1987. Craxi, who fled corruption charges in 1994, was one of Italy’s most powerful political figures of the 1980s. Born in Milan, Craxi got his political start here. The plaque has provoked protests from his critics, who say the late politician should not be glorified.

Particularly outspoken detractors include Antonio Di Pietro, a former prosecutor who was part of the so-called Mani Pulite (Clean Hands) team investigating corruption in the 1990s, and Matteo Salvini, a member of the Lega Nord party that is part of Milan’s centre-right government. But Guido Manca, a former socialist and a member of the city's supervisory board, defends the decision, and suggested that the plaque describe Craxi as a “great political personality”.

All night long

Locals turned out in droves for Milan’s second annual Notte Bianca (White Night). An estimated 1m people came to the all-night party, from the afternoon of June 18th to 6am on June 19th. Cultural initiatives, including visits to the city’s La Scala opera house, to Da Vinci’s “Last Supper”, and plenty of concerts, special museum openings and performances continued until dawn, with some shops open for business in the early hours.

“I believe that with this success, the Notte Bianca will become an institution,” said Giovanni Bozzetti, the local politician responsible for organising the event. “A new love between the city and its citizens has begun.” But while most attendees were enthusiastic about an event that attracted young and old alike, others complained about traffic jams, creaky public transport and rubbish piling up during the city’s night of revelry.

Catch if you can

July 2005

Fotografia Estate 2005

Until September 25th 2005

For the second year, Milan’s Palazzo Reale is hosting a summer display of photographs. Two exhibitions are running side by side. The first features 119 black-and-white images by Robert Doisneau, a renowned French photographer, including his famous photograph of a young Parisian couple locked in an embrace in front of the Hôtel De Ville, taken in 1950. “Double Visions”, the second show, has 112 photographs of Italy, including images of beaches, walks in Rome, tuna fishing and the country's ancient remains. Works by home-grown photographers, such as Mario Giacomelli, Gianni Berengo Gardin and others, are contrasted with images by foreign photographers such as Henri Cartier-Bresson and Paul Strand.

Palazzo Reale, 12, Piazza Duomo. Open: Tues-Sun 9.30am-8pm (Thurs until 10.30pm). Tel: +39 (02) 8846 4533. Tickets: €8.

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Economist.com Cities Guide: Sao Paulo Briefing - July 2005

News this month

Bribery trouble

A bribery scandal has damaged the reputation of Brazil’s left-leaning president, Luiz Inácio Lula da Silva, after it forced the resignation of his right-hand man, José Dirceu, and two top officials in the governing Workers’ Party (PT). In May, Veja, a weekly magazine, published videotape transcripts of a post-office official pocketing a bribe and claiming to belong to a corrupt network headed by Roberto Jefferson, then leader of the government-allied Brazilian Labour Party (PTB). Mr Jefferson responded by accusing the PT of paying a monthly allowance to certain congressmen in return for their votes. He spared Lula himself, but named Mr Dirceu and other top PT officials.

Evidence corroborating Mr Jefferson’s charges has piled up. Much attention has concentrated on Marcos Valério de Souza, the head of two advertising companies, whom Mr Jefferson accused of distributing the monthly allowances. The PT was further damaged by revelations that Mr de Souza guaranteed a loan to the party and helped repay it, contradicting the PT's claim that they had no financial connection with him. Speculation is stirring that Lula will not run for re-election in 2006.

Prison revolt

In mid-June, a group of prisoners at a jail in the far west of São Paulo state staged a grisly rebellion, beheading five inmates and taking 20 guards hostage. The revolt in the town of Presidente Venceslau seems to have been organised by the Primeiro Comando da Capital (PCC), São Paulo’s biggest criminal outfit. But the rebels made no demands and it is not clear what their motives were.

One theory is that factions within the PCC, whose members comprise the majority of the prisoners in Presidente Venceslau, were battling for control of the drug trade on the São Paulo coast. Another is that the PCC attacked ex-members who refused to make monthly payments. The rebellion ended after 30 hours when police stormed the prison and freed the remaining hostages. This was one of three such rebellions that took place across Brazil in June.

Not small beer

Federal police have arrested the owners of Schincariol, Brazil’s second-largest brewery, as part of a huge investigation into tax evasion. Two sons of Schincariol’s founder, who was murdered in 2003, were arrested, along with three other family members. They are accused of tax evasion, money laundering and bribery of public officials.

Schincariol has long been suspected of dodging taxes. Brazilian businesses complain that the country's crushing tax burden encourages evasion. Tax authorities believe the company has underpaid by at least 1 billion reais ($420m) over the past five years. Schincariol, the largest employer in Itu, a town near São Paulo city, claims the charges are inspired by jealous competitors and has accused the police of using “violent and sensational” tactics in the arrests (they threatened to use explosives to enter the home of Gilberto Schincariol, the brewer’s vice-president). After temporary detention, the Schincariols were released. Prosecutors have delayed filing formal charges in order to take account of new evidence.

Drop in murder rate

The number of murders in São Paulo dropped 40% between 1999 and 2004, according to a study unveiled by Geraldo Alckmin, the state governor. Last year 3,945 people were murdered in the city, compared with 6,638 in 1999, marking a drop from a record 64.2 murders per 100,000 people to 36.9. Mr Alckmin, who may run for Brazil’s presidency next year, compared São Paulo’s safety improvement with that of New York after its “zero tolerance” policy towards crime.

Jardim Ângela, a São Paulo favela (slum) named by UNESCO as the world’s most violent in 1996, has seen the number of murders drop by 73% between the first half of 2001 and the first half of this year. Criminologists attribute the improvement to better community policing and a partnership between police and NGOs, as locals become less tolerant of and more resistant to crime. Despite the progress, however, São Paulo’s murder rate remains nearly 20 times that of the European Union.

Farewell to Santos?

Despite the plaintive cries of fans, Robinho, the supremely talented footballer who plays for Santos Football Club, is determined to go. He has announced his intention to play for Real Madrid in Spain from next season, despite a contract with Santos that does not expire until 2008. Notwithstanding Real Madrid’s $25m offer, Santos’s president, Marcelo Teixeira, is holding out for the $50m fee stipulated in the player’s contract. Robinho, whose mother was kidnapped last year, has threatened to appeal to FIFA, football’s governing body. Santos is the former team of Pelé, a Brazilian football legend, and there has been talk of a government-financed scheme to keep Robinho in Brazil.

Catch if you can

July 2005

Campos do Jardão's 36th International Winter Festival

July 9th-31st 2005

In this small city, 184 kilometres from São Paulo, winter brings fondues, mock-Alpine ambience and a sterling classical music festival. Directed by Roberto Minczuk, this year’s festival is themed “Music from the Americas”. The big draws will be Kurt Masur, the London Philharmonic's principal conductor, the Beaux Arts Trio, and Antonio Meneses, a Brazilian cellist.

The composers featured include Copland, Gershwin, Bernstein, Heitor Villa-Lobos, Carlos Gomes, Cláudio Santoro, Francisco Mignone, Alberto Ginastera and Astor Piazzolla. The festival, which bears similarities with Tanglewood in America, has 44 concerts in three weeks including master classes, opera selections, chamber music recitals and performances by the festival youth orchestra. Events take place in Campos de Jordão's main concert hall and five other venues.
For more information see the festival's website. Tel: +55 (11) 6846-6000. Tickets: 10-70 reais, available on Ticketmaster's website.

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Ploughing on regardless

Israel's suicide-bombing

Jul 14th 2005 TEL AVIV
From The Economist print edition

Suicide-bombers try to derail the Gaza pullout

THE fragile five-month ceasefire between Israelis and Palestinians was broken again on July 12th, when a Palestinian suicide-bomber blew himself up near a shopping mall in the Israeli beach town of Netanya, killing five people and injuring about 18 others. For Israelis, who have recently been getting accustomed to a relatively quiet life, the bombing served as a bleak reminder of the four-year Palestinian intifada, as the country readies itself for the evacuation of Jewish settlements from the Gaza strip and the northern West Bank, scheduled to begin in mid-August.

That the ceasefire has held at all—deaths on both sides are down compared with the same period last year—is thanks to the forbearance of groups like Hamas, the main Islamic militant group, which calculates that Palestinians want a period of calm, and to international pressure in anticipation of the Gaza withdrawal. Responsibility for the Netanya bombing was claimed by Palestinian Islamic Jihad (PIJ), a smaller group. The PIJ often says it is retaliating for Israeli violations of the ceasefire. Some people, such as Martin Indyk, a former American ambassador to Israel, think it is trying to disrupt the ceasefire under the orders, and with the material backing, of Iran.

Whatever the cause, the bombing has once more put the leadership of Israel's prime minister, Ariel Sharon, and his Palestinian counterpart, President Mahmoud Abbas (Abu Mazen), to the test. Both have failed to engage in a meaningful dialogue since Mr Abbas replaced Yasser Arafat earlier this year. Their meeting last month was a disaster, as the two lectured each other—and their respective home audiences—rather than engaging in substantive negotiations. Pledges made to each other remain mostly unfulfilled.

Israel's response to the deaths in Netanya was, on July 13th, to send troops back into the Palestinian border town of Tulkarm, 15 kilometres (9 miles) east of Netanya, considered to be the home of the PIJ's most wanted militants. Tulkarm had been handed over to Palestinian security control only four months before. By the same afternoon, two Palestinians had been killed and several others arrested. On July 14th, Israeli soldiers killed a Palestinian militant in another West Bank town, Nablus. Israeli officials repeated their threats to resume targeted assassinations of PIJ operatives. Even Shimon Peres, Israel's doveish deputy prime minister, called for a “heavy hand” against the PIJ. But the relatively few deaths in Netanya spared Mr Sharon from political pressure to retaliate more fiercely or even put the disengagement on hold.
But Palestinian attacks are not even Mr Sharon's main concern. He is facing opposition from his former allies in the Israeli right wing, who blame him for “rewarding terror” by his planned Gaza withdrawal.

Shortly before the bombing, he had gathered together Israel's security chiefs to assess the domestic situation. They had heard reports about hundreds of protesters flowing into the Gaza settlements, aiming to reinforce their inhabitants and complicate the pull-out. Violence by settlers holed up in a beachfront hotel earlier this month shocked mainstream Israelis, but gave a taster of what the army might be up against. Consequently, on July 13th the prime minister signed a decree blocking all Israelis who do not live in the Gaza strip from entering. This caused a fury amongst the protesters, who threatened to block (not for the first time) the main Israeli highways in retaliation.

Mr Abbas, however, faces a more considerable challenge. Squeezed between Israeli pressure and Palestinian insubordination, he favours compromise and persuasion of militant groups over confrontation. The bombing once again showed that a small group like the PIJ can defy his leadership, thus reinforcing Israel's assertion that he is a hopeless weakling. Hearing the news from Netanya, Mr Abbas—a long-time critic of terror—condemned the attack as “stupid” and pledged to arrest its perpetrators. But the Palestinians' deputy prime minister, Nabil Shaath, also condemned the Israeli army's action in re-taking Tulkarm as a “new violation of all agreements”.

Once again, Mr Abbas called for a meeting of Palestinian groups, apparently hoping that the consensus among them would bring pressure on the PIJ to hold its fire at least until the Israelis leave Gaza. Few on either side, though, took his declarations seriously. Senior Israeli officials went as far as foreseeing his imminent collapse, noting that American pressure to “strengthen Abu Mazen” has dwindled recently. Claims that Mr Abbas is not doing enough against terror have followed every previous violation of the ceasefire, and have looked designed to weaken him. But the claim that he is about to fall looks rather like wishful thinking.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Cradle of war, school of jihad

Jihadists in the Middle East

Jul 14th 2005
From The Economist print edition

Al-Qaeda's allies have turned Iraq into a new Afghanistan

ON JULY 7th, as bombs were going off in London, an Islamist website released a videotape showing an Egyptian diplomat, blindfolded and handcuffed. In an accompanying statement the “Al-Qaeda Organisation for Jihad in the Land of the Two Rivers” denounced the diplomat, Ihab al-Sharif, as an “enemy of God” and declared that its holy warriors had by now killed him. It warned other Arab and Muslim countries that if they stationed diplomats in Baghdad, they would suffer the same fate.

The video did not, like earlier ones, show the actual killing. It was nevertheless the latest coup de théâtre by the group and its leader, Abu Musab al-Zarqawi. The Jordanian-born Mr Zarqawi, who swears allegiance to Osama bin Laden, is held responsible for some of the most brutal violence in Iraq. The suicide bombings, the kidnapping and beheading of hostages—all displayed on sympathetic websites—have helped turn Mr Zarqawi into a folk-hero and Iraq into the arena of choice for young Muslims who want to kill Americans. He has skilfully used the internet to amplify his exploits amongst Muslims around the world. A CIA report circulated among American government agencies in May, and summarised a few weeks later in the New York Times, spelt out what many experts had already concluded, that post-invasion Iraq is playing the role Afghanistan did in the 1980s and 1990s, as a nursery of Islamic extremism.

Only a few months ago American officials were saying Mr Zarqawi was on the run. They had killed or captured over 20 of his senior people and, potentially even more important, they had found his laptop. He was certainly wounded in an American attack. And there were even rumours, strongly denied by the man himself, that he had been forced to seek medical treatment outside the country for serious injuries.

But even if it has suffered setbacks, Mr Zarqawi's group is still able to strike with deadly effect. Its strategy is to drive wedges between Iraq and its Arab and Muslim hinterland, between Iraqi Sunni and Shia, and between the Iraqi people and the new government of Ibrahim al-Jaafari.
As well as the killing of Mr Sharif, other Arab representatives have also been targeted. On July 5th gunmen fired on top diplomats from both Bahrain and Pakistan. The attacks were designed to weaken the Jaafari government by denying it international legitimacy. Mr Sharif, had he lived, would have become the first full Arab ambassador in Iraq since the fall of Saddam Hussein. Instead he was snatched on a Baghdad street while buying a newspaper; unwisely, he had been unguarded. After his death four days later, Egypt said it would “temporarily” station its diplomats in neighbouring Jordan, as will Pakistan now.

For Mr Zarqawi there are three enemies: “Crusaders”, Jews and rawafidh (literally, rejectionists; a derogatory term for the Shia). He misses no opportunity to stir up Sunni-Shia animosity. When Sunni clerics accused the Badr Brigade (the militia of a prominent Shia party) of sending hit squads to target Sunnis, Mr Zarqawi issued an audiotape on July 5th announcing the formation of a rival force, the Omar Brigade. This would specialise in killing Shia, leaving the rest of Mr Zarqawi's forces free to fight Crusaders. Attacks on several Badr commanders followed. (The Badr Brigade, which claims unconvincingly to have turned itself into a purely political movement, has denied involvement in sectarian killings.)

Foreign fields

Mr Zarqawi's influence, though focused on Iraq, is not confined there. Some experts believe the network he developed in Europe (with Milan as its hub) to send young Muslim recruits to Iraq has recently been bringing some of them back in the other direction. One theory is that some may have been involved in the planning or execution of the Madrid bombings last year and last week's London bombings.

The “Iraq effect” is worrying Saudi Arabia, too. Hundreds of young Saudis are thought to have joined the jihadists in Iraq. This has upset the Bush administration, adding yet another item to its list of grievances with the Saudi princes in the wake of the terrorist attacks in America on September 11th 2001. No less troubling is the thought that some of these young recruits will eventually return home to fight in the insurgency being waged by the self-styled “Al-Qaeda Organisation in the Arabian Peninsula”.

Reflecting a new realism in Riyadh, the country's powerful interior minister, Prince Nayef, has made it clear the government is bracing itself for future trouble. The first generation of jihadists, groomed in Afghanistan in the 1980s, were bad enough, he said on July 10th; the new generation would be even worse.

The Saudi insurgency flared up in May 2003, shortly after American-led forces had toppled Saddam Hussein. In princely minds, the two events are linked. The aim of the Saudi insurgents is to punish America by driving its citizens (and other infidels) from Saudi soil, and to punish the House of Saud for the quiet logistical support that it gave to the Americans during the Iraq war.
The Saudi security forces have gone some way towards suppressing what they refer to as the “deviant group”. Over the past two years they have killed over 100 militants including, on July 3rd, Younis al-Hayari, a Moroccan who headed their latest “most wanted” list. But the fear is that a weakened insurgency in Saudi Arabia could revive if young, battle-hardened jihadists return from Iraq and breathe new life into it.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Imagining something much worse than London

Fighting terrorism

Jul 14th 2005 WASHINGTON, DC
From The Economist print edition

The unwieldy Department of Homeland Security has a timely reorganisation, aimed at focusing on the most dangerous threats

THE bombing of the London Underground last week prompted an outpouring of sympathy from Americans for their British allies. It also jolted many Americans into fretting about their own security. How vulnerable are they?

Optimists think the danger is overdone. No significant act of terrorism has been carried out on American soil since September 11th 2001. That assault spurred vigilance. Passengers wishing to board aircraft must now queue to remove their shoes. Tougher cockpit doors keep would-be hijackers away from the controls. Stricter immigration rules, such as the requirement that young foreign males must reveal every country they have visited in the past ten years, screen out potential terrorists before they reach American territory.

Meanwhile, thanks to American military action abroad, the terrorists have lost their base in Afghanistan and are so busy blowing people up in Iraq that they supposedly cannot find time to blow people up in America. As George Bush reiterated in a speech at the FBI academy this week: “We're fighting the enemy in Iraq and Afghanistan and across the world so we do not have to face them here at home.”

Pessimists have an alternative explanation for the lack of a domestic sequel to September 11th. Stephen Flynn of the Council on Foreign Relations notes that al-Qaeda has “made clear that it wants to carry out a more devastating attack than those on New York and Washington”.
Launching such an attack requires time. The reason the terrorists have not picked off easy targets in America, Mr Flynn told Congress in April, is the risk of being arrested before they can commit something “truly catastrophic”. After the London bombings, a poll found that 55% of Americans thought a terror attack on the United States likely in the next several weeks. Last month, only 35% thought so.

On July 13th, Michael Chertoff, Mr Bush's new homeland security secretary, announced a shake-up of his sprawling department. The Department of Homeland Security (DHS) was created in 2002. It involved the full or partial merger of 22 separate agencies, bureaus and offices to form a super-ministry with 180,000 staff to protect the homeland from terrorism and natural disasters.

Even friendly critics charge that the DHS is “weighed down with bureaucratic layers”, “rife with turf warfare” and “lack[ing] a structure for strategic thinking and policymaking,” as the pro-Bush Heritage Foundation put it last year. Mr Chertoff, who took over the DHS in February, appears to agree. “Our department must drive improvement with a sense of urgency,” he said this week. “Our enemy constantly changes and adapts, so we as a department must be nimble and decisive.”

Nimbleness would not, at first glance, be something you would associate with the new organisation he unveiled (see diagram). But bear in mind that the last organogram was even worse. And also that he has bullied through changes.

To co-ordinate the gathering and analysis of intelligence, he is creating a new post of “chief intelligence officer” for the DHS. And he is also forcing the department to focus more on the most serious risks.

Despite last week's horrors in London, preventing conventional bomb attacks on subways is only a middling priority. The system's vulnerability is so obvious that it is the butt of dark jokes: “Unreleased Harry Potter book more secure than US trains” was a recent headline in the Onion, a satirical magazine. But a conventional bomb on a train kills relatively few people and airport-style security checks on subways are impractical.

Mr Chertoff is more exercised by the threat of chemical, biological and nuclear attacks. These are hard to execute, but could have catastrophic consequences. A crude nuclear device or efficiently spread biological pathogen could kill tens of thousands. Terrorists would not necessarily need to produce their own unconventional weapons. They could, for example, blow up a chemical plant or a train carrying toxins through a city.

To help him figure out how to ward off such ghastly threats, Mr Chertoff wants to establish a new department-wide policy office. He also plans to appoint a chief medical officer, to deal with biological terror. And he plans to oversee a new (but previously announced) Domestic Nuclear Detection Office. He said he hoped Congress would stump up the money to fund new technology to thwart nuclear threats.

Concentrating on the most high-profile threats is wise, argues Clark Kent Ervin, a homeland security expert at the Aspen Institute, a think-tank. No government can protect citizens against all risks, so it makes sense to focus on the worst ones. Besides, the terrorists seem to calculate that the more spectacular an outrage they perpetrate, the greater its power to intimidate democracies and recruit more jihadis.

But Americans who live far from Washington, DC, or a nuclear power plant also want to be protected. The Senate voted this week to allocate to rural states a larger-than-planned share of the homeland security budget, on the ground that no one knows what the terrorists will do next. The senators have a point. An attack on a shopping mall in Idaho might scare more Americans than one on the White House.

This week, Mr Chertoff proposed several concrete ideas for reducing specific risks. Currently, only 5% of containers entering American ports are inspected; Mr Chertoff wants to gather more data about where exactly each cargo has come from, and to deploy more radiation detectors at ports to scan containers.

He has also proposed more “precise” screening in airports. Rather than searching millions of people randomly, the system will “automatically clear low-risk travellers” so that security personnel can “focus on a smaller and more distinct pool of passengers that might pose a threat”. However he phrases it, this is likely to mean fewer pointless searches of grandmothers and Buddhists, and an even rougher time for young men called Muhammad. That will upset civil libertarians but reassure most travellers.

The London bombings seem slightly to have increased America's willingness to trade civil liberties for security. Indeed, many Americans are baffled by Europe's laxer attitude to such things as allowing radical imams to subsist on welfare while preaching the overthrow of the states that shelter them. A poll by the Guardian last year found that 13% of British Muslims think that further terrorist attacks on America would be justified. Most have British passports and so may enter America without a visa, notes Peter Bergen, an expert on al-Qaeda at the New America Foundation. How long will that last?

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Just like the old days?

Kirgizstan

Jul 14th 2005 BISHKEK
From The Economist print edition

Now President Bakiev has to govern

ALMOST four months after Kirgizstan's “tulip revolution”, which led to the overthrow of the government of Askar Akaev, the interim leader, Kurmanbek Bakiev, won a landslide victory in the country's presidential elections on July 10th. Although he received what at first glance looks like a Soviet-style 89% of the votes in a field of six candidates, the Organisation for Security and Co-operation in Europe gave a positive assessment and declared that the vote had made “tangible progress” towards meeting OSCE and international standards for democratic elections. Mr Bakiev had teamed up with his most serious rival for the presidency, Felix Kulov, by promising him the position of prime minister, and thus secured victory.

But now that his position has been legitimised, the real problems begin. Analysts say that Mr Bakiev has only a few months, until winter, at most, to address enormous political and economic challenges, or the unrest may start again. After all, they note, it took only a few thousand people to storm the Kirgiz White House and chase out the previous leadership.

People's foremost concerns are poverty, high unemployment and corruption, which increased exponentially during the last years of Mr Akaev's 15-year rule and impeded the development of even the smallest businesses. At least 500,000 people out of a population of just over 5m have had to seek work in Russia or in neighbouring Kazakhstan.

Surprisingly, though, the macro-economy has done quite well over the past few years, with real GDP growing at 7.1% in 2004 and a stable exchange rate, according to the International Monetary Fund. Kirgizstan's external debt was reduced from 130% of GDP in 2000 to around 85% today, with the remainder likely to be paid off in the next five years, says Michael Mered, the IMF's representative in Kirgizstan.

Although the March revolution has affected production, GDP still grew by 2.4% during the first half of this year. Even so, good monetary or fiscal policy is not enough. “If you don't clean up corruption, the benefits to the people are going to continue to be limited,” says Mr Mered. The potential dangers of such unequally distributed benefits were dramatically illustrated in mid-June, when a wealthy, disqualified and therefore disgruntled presidential candidate organised an unsuccessful attempt to take over the seat of government, by paying a few dollars each to hundreds of poor people.

Mr Bakiev, of course, has vowed to create jobs and to eliminate corruption. But how he plans to do this is not clear; different people in his interim government have said different things. The same ambivalence marks his policy on the pressing question of what to do with the hundreds of Uzbek refugees who fled to Kirgizstan in May after the Andijan massacre, where Uzbek authorities shot and killed hundreds of demonstrators. The foreign ministry has said that international conventions will be observed; the acting procurator-general has said otherwise. Four asylum seekers have already been deported. The result has been to make the new president look indecisive.

Mr Bakiev's views have been slightly clearer on the presence of the American military base in Kirgizstan, set up in 2001 to support American-led coalition forces in Afghanistan; the American arrangements, he says, now ought to be reviewed. He has also pledged to reduce the extensive powers of the president, seen as the root of Kirgizstan's corruption, by shifting some functions to the prime minister. “The record is already mixed,” says Michael Hall of Crisis Group, a Brussels-based think-tank, “but there is goodwill and a desire to trust him.” Quite how long Mr Bakiev's political honeymoon lasts, though, is another question.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

The next target?

Italy and terrorism

Jul 14th 2005 ROME
From The Economist print edition

Terrorism is “knocking at Italy's door”, says the interior minister. Most Italians need no persuading

THERE is a widespread conviction among Italians that, after London's bombs, they are next. It could be felt in the Rome metro this week, where seats were free in carriages that are normally packed. It could be read in a poll for the Corriere della Sera daily, which found that 82% of Italians saw a serious risk of terrorist attacks. Sensing the mood, the government presented a raft of security measures, including new border checks—without going as far as France, which has suspended the Schengen accord on free movement.

Danes also fear an attack—75% of them, says one poll. But while Denmark has 530 troops in Iraq, Italy has 3,000, reflecting the support of Silvio Berlusconi, Italy's prime minister, for American policy. Since the departure of Spain's José María Aznar, that policy has been identified with the “three Bs”: Bush, Blair and Berlusconi. Not least among the reasons why Muslims dislike Mr Berlusconi is that, after September 11th, he lauded the “superiority” of western civilisation. A statement claiming the London bombs specified Rome as a target, calling it the seat of a “collaborating government” and “capital of the infidels”.

The government's response has been energetic, if less so than some would have liked. After a meeting lasting almost 24 hours, involving civil servants, parliamentary leaders and intelligence chiefs, Giuseppe Pisanu, the interior minister, set off for talks with the Libyans. Many migrants entering Italy illegally from the Middle East arrive via Libya, and Mr Pisanu was seeking help in blocking the movement of suspected extremists. On his return, Mr Pisanu unveiled a raft of new measures. Some can be implemented immediately; others need parliamentary approval. Police will get the right to hold terrorist suspects for 24 hours without turning them over to a magistrate, twice as long as now. The intelligence services will be given broader access to the records of telephone companies and internet service providers. Investigators will be able to offer residence permits to informers. And the authorities will get the power to sequestrate assets of firms suspected of financing terror.

Suspects already under investigation now risk expulsion. More police are to be deployed on anti-terrorist duties. Checks on mosques and Islamic centres are to be stepped up, as are patrols on public transport and surveillance of the Austrian and Slovenian frontiers. This week the police carried out some 200 raids, ratcheting up the pressure on terrorist suspects. And a judge convicted two Islamic militants on terrorism charges dating from 2002.

Mr Pisanu seems sure to get the bipartisan support he needs for his measures. The opposition feared a draconian new anti-terrorist law, but Mr Pisanu reassured them: “We cannot curb the freedom of the public to combat the enemies of freedom.” Centre-left lawmakers applauded this statement. Their unofficial leader, Romano Prodi, praised a set of “serious, targeted” measures. Mr Pisanu may have more trouble with his coalition partners. The formerly neo-fascist National Alliance would like police to be able to hold suspects for 72 hours. The Northern League called for a motion to declare Italy at war.

What many would like to have seen was a move to improve co-ordination of anti-terrorism efforts. Italy has three police forces, each with a unit responsible for anti-terrorist investigations. Individual inquiries are led by prosecutors who do not automatically share findings with each other or with the intelligence services.

The Northern League is pressing for a special ministry similar to America's Department of Homeland Security. Others believe the portfolio is best left with the Interior Ministry, but want a chief anti-terrorist prosecutor. A former president, Francesco Cossiga, plans to propose a bill to create a figure similar to Italy's chief anti-Mafia prosecutor. He or she could count on emergency legislation like Britain's.

For many Italians, the surest way to stave off a terrorist attack would be to get out of Iraq. Others fret that such a move could send a disastrous message to Muslim extremists, similar to that relayed by Spain's 2004 election, when voters dumped the pro-American People's Party government days after bombers struck Madrid. Speaking soon after the London bombings, Mr Berlusconi confirmed a plan to withdraw 300 troops in September. Poland's foreign minister, Adam Rotfeld, called this a mistake, though he later withdrew his criticism after learning that partial withdrawal had been announced earlier. Yet he was not alone in seeing the timing as unfortunate. Mr Berlusconi's first pledge, in March, was a “plan if an agreement is reached between the allies and the Iraqi government”. Many Italians assumed it had been shelved when the foreign minister, Gianfranco Fini, said two months later that Italy's troops could stay until 2006. Even Tempo, a daily which stands four-square behind the government, smelt a whiff of appeasement and accused the prime minister of “slyness”.

At the least, Mr Berlusconi must now be uncomfortable about Italy's involvement in the American-led coalition. An election is due by next spring, and the opposition is calling for a troop withdrawal. Italy risks drifting into a situation dismayingly like the one before terrorists struck at Spain, killing almost 200 people. Which may explain a quirk of the poll in Corriere della Sera. Only 16% thought that an attack was imminent; but 66% said there could be one “within several months”.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

After the bombs

London

Jul 14th 2005
From The Economist print edition

How four suicide attacks by British citizens have changed Britain

THE capital's Underground rail system has never been a comfortable place to travel. Crowded, unreliable and smelly, it is endured by Londoners rather than loved. Since three simultaneous bombs went off on three Underground trains at 8:50am last Thursday, followed just under an hour later by a bomb on a bus, the discomfort has taken on a macabre quality. Backpacks attract nervous looks. People try too hard not to catch the eyes of young men with brown skin. Much has been made of Londoners' Blitz spirit in the past week. But the comparison jars: people went down into the Tube to shelter during second-world-war air raids. Now the up escalator feels like the route to safety.

In one sense, London is almost back to its teeming normal. Passenger numbers on the Tube are only slightly down when the reduced service is taken into account. Companies had emergency plans to cope with disruptions to their businesses, an innovation since the attacks of September 11th 2001, but decided not to put them into operation. The stockmarket took just a day to recover, indicating that investors were hardly surprised that London had become the target of a successful terrorist attack—and that they thought it had come through the ordeal.

But this normality is more fragile than it looks. Identifying victims torn apart by the bombs is difficult and the process for officially confirming deaths slow. Every day has brought new newspaper photographs of the smiling faces of dead people. Pictures of the missing are still pinned to the fence outside King's Cross railway station. Grieving will not become private until they are taken down.

Britain's security services remain on their highest state of alert. The police have been worrying that the terrorists would carry out another attack, as the bombers who killed commuters on trains in Madrid in March last year were apparently planning to do. On Saturday night around 20,000 people were evacuated from the centre of Birmingham, after a suspect package was found on a bus. This turned out to be a false alarm. But a second successful attack would strike a nation that is in an anxious state of mind.

Hence one reaction to the news on Tuesday that police had identified four British men who had carried the bombs and blown themselves up: if they are dead, then they cannot kill again. But it also raised a disturbing thought: that Britain now has homegrown suicide-bombers who think the Dar al-Harb, the Abode of War, can be reached by boarding a Thameslink commuter train.
The terrorists gave no warning and the security services had not picked up any hint that an attack might take place (in fact the threat level had recently been downgraded from “severe general” to “substantial”). So the police started with no leads.

From the narrow perspective of the investigation, it was fortunate that the fourth bomb exploded on a bus rather than the Tube. Forensics experts could study the damage from a blast that had not been magnified by being confined to a tunnel.

This told them two things. First, that the bomb was no bigger than 10lb (4.5kg). That makes sense: the power of a charge grows with the volume of explosive, so to get a much larger explosion, say twice the size, the weight of explosive would have to be cubed. A really powerful device would be too heavy to carry without looking conspicuous. Second, the explosive was not a homemade cocktail of ammonium nitrate and fuel oil, but a high-grade explosive of the type used by the army or in industry. That, plus the synchronised timing, pointed towards a well-trained terror cell and inspired comparisons with the Madrid attacks, when a foreign al-Qaeda cell left timed devices on four trains carrying commuters.

But that working assumption changed on examination of CCTV film from cameras at King's Cross. This showed four young men with backpacks standing together on the station concourse before going their separate ways. It was nearly 8:30am, about 20 minutes before the Tube attacks. The bombers appeared to want recognition. At the epicentre of the blasts, police found personal documents, including credit cards and driving licences, that identified three young British Muslims from Pakistani families. One, a teenager called Hasib Mir Hussain, had been reported missing by his parents in Leeds on the day of the attacks. The fourth man, identified after a raid on a house in Aylesbury in the south of Britain, was a Jamaican-born Briton in his thirties—a strikingly different profile.

At 6:30 on Tuesday morning, police raided six addresses connected to the men in and around Leeds. They found more explosives, evacuated about 500 people from the surrounding area and made one arrest. Explosives were also found in a car that had been left in the station car park in Luton. Police now think that three men travelled down from Leeds and were joined at Luton by a fourth. The men—Mr Hussain; Shehzad Tanweer aged 22; Mohammed Sadique Khan aged 30; and a fourth as yet unnamed—then took the train from Luton to London.

A return to politics

The Madrid bombs caused political damage. The attacks took place just before an election in which the opposition argued that the Iraq war had imperilled its citizens. The government's readiness to accuse Basque terrorists contributed to a crushing electoral defeat.

Britain will be different. The main opposition party supported the Iraq war and has praised Tony Blair's statesmanship. Charles Kennedy, leader of the Liberal Democrats, the one big party against the war, has raised questions about Iraq, but has been careful not to say the bombs prove his party was right about the merits of going to war. A few marginal voices have argued that the attack was payback for Iraq, but this is unlikely to wash. An ICM poll for the BBC's Newsnight showed no increase in support for withdrawing British troops.

What will change is the politics of security. Civil liberties are a minority interest in Britain: a poll conducted over the weekend by Populus for the Times showed that 86% of those surveyed supported giving the police new powers to arrest people they suspect of planning terrorist attacks.

But the minority includes many judges, journalists and MPs and, back in March, the government had to fight to get Parliament to approve legislation to bring in control orders—a set of extra-judicial measures to deprive suspects of some of their liberties. Further restrictions on civil liberties may now prove easier to secure when MPs return to Parliament in the autumn.
Tony Blair is already talking about new laws aimed at those involved in the preparation of and incitement to terrorism. If this happens, it would be the fourth attempt to toughen anti-terror laws since 2000.

More legislation may make Britons feel safer, but it will not tell them what they most want to know: who supplied the bombers with equipment and trained them to use it? And how many more British citizens are queuing up to martyr themselves beneath the streets of London?

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Whither equities?

Buttonwood

Jul 12th 2005
From The Economist Global Agenda

Stockmarkets have more to fear from a spike in the oil price than from a terrorist attack

AFTER last Thursday’s blasts, it is business as usual in London this week—or so we are pretending. For those who lost family or friends, things will never be “usual” again. Buttonwood for once found a reason to be glad that her teenaged daughters sleep the morning away during the holidays. When the bombs went off, they had yet to put a foot out of doors.

But what is business as usual in today’s markets? After the initial skid, as investors retreated into traditional havens such as gold and Treasury bonds, share prices showed rude good health. London’s FTSE 100 index took a day to recover, as did most European shares. Wall Street stumbled and caught itself within the day. By close of play on Monday July 11th, the Dow Jones Industrial Average had gained about 350 points from its post-London low; NASDAQ hit a six-month high; and the Russell 2000, which tracks small-cap shares, closed at its highest level ever.

This resilience was unexpected only in its ebullience. Unlike Madrid, which took the hit in 2004, London knew that it would eventually be a target. And, once a terrorist event does happen, stockmarkets recover more quickly than they used to anyway. A number of academic studies suggest why.

Take, for example, the 2004 work by Andrew Chen of the Cox School of Business at Southern Methodist University and Thomas Siems of the Dallas Federal Reserve. Looking at 14 acts of terrorism or military attack, beginning with the torpedoing of the Lusitania in 1915, they found that over time fewer trading days were needed to return the Dow to its level before the event.
When Hitler invaded France, the Dow took 795 trading days to recover. After the attack on the World Trade Centre on September 11th 2001, it took just 40. For that, thank a healthy financial system, a central bank that was quick off the mark in supplying liquidity, and improved technology that had expanded the flow of information, brought more participants into the market and increased its efficiency.

But there is weirdness at work these days. However stiff the upper lip, no reminder that global terrorism is alive and kicking can be good news. Yet now the market mood seems almost euphoric, whereas before the attack it was one of muted gloom. In a year coruscating with conundrums, the direction of the economy—and corporate profits—has rarely been so disputed. Is the “soft patch” history, or are we teetering on the edge of the abyss?

The flattening yield curve, high oil prices, the string of flat or negative leading indicators from the OECD and competition from China all suggest that things will get worse for America and Europe, and it’s just a question of how much worse. Yet the slowdown is mostly concentrated in manufacturing; service sectors are reasonably upbeat. Consumer spending has slowed in Britain but not in America. Unemployment in the United States is a mere 5%. Companies have ample access to capital. Many expect American GDP growth of between 3.25% and 3.5% this year, down from 4.4% in 2004 but far from horrible.

Against this disputed background, dwindling corporate profits are the issue du jour, as the reporting of second-quarter results begins in earnest. For the past year and a half, America’s stockmarket, though soggier than many in Europe and the developing world, has been driven by surging earnings. Company profits were growing at rates of 20% and more year-on-year, but they are no longer. In the first quarter of 2005, profits increased by about 14%. Analysts reckon they will grow by only about 7.5% this quarter, says Thomson Financial. It doesn’t do to take this guidance too seriously: company bosses prefer to surprise on the upside and have been doing so in aggregate since 2003. But the go-go years would appear to be over. Does that mean that share prices are set to crash?

Not necessarily, says Richard Batty, global investment strategist at Standard Life Investment, a fund manager. Earnings and the stockmarket are moderately correlated. In America that relationship has sometimes been overridden by particular situations: the second world war, for example, and inflation from the mid-1960s to the mid-1990s. For the past ten years, however, corporate earnings have again been an important driver of the market.

To the normal ebb and flow of profits over the business cycle must be added other factors that influence earnings: most recently, oil’s sharp spike upward and the dollar’s stealthy rise against the euro, which reduces the value of American companies’ earnings in the single currency. Mr Batty models the sensitivity of operating earnings in 2005 and 2006 to an immediate 50% increase in oil prices and a 10% decrease in the dollar (old habits die hard), along with plausible monetary policy that these changes would be likely to provoke. The Japanese stockmarket takes the greatest hit from both changes in both years; Britain’s takes the smallest, because global energy firms are a big component of the FTSE. America benefits from the weaker dollar only in the first year, before the Fed raises rates to boost the currency.

Mr Batty then looks at the impact different real GDP growth rates in 2006 might have on earnings. If the American economy were to return to 4% growth, the year-on-year increase in operating earnings would fall from roughly 15% in the first quarter of 2005 to 5% by the end of 2006, thanks to slower growth this year and the lagged effect of oil prices and the dollar’s recent appreciation. If the economy grows steadily at 3%, earnings perform about the same, but for different reasons. And if GDP were actually to shrink, operating earnings would collapse.

Something to bear in mind is that investors seem to be remarkably tolerant of weak spells. Even if operating earnings grow by only 5%, well below the S&P 500’s trend of 8.3% since 1945, shares will increase in value—and by more if earnings growth is on an upward trend. Only if earnings actually fall do investors hammer the shares. With almost all European equities looking cheap relative to bonds, investors are pricing stocks for minimal earnings growth. Not so in America, where only hyper-low bond yields can make equities look a reasonable buy at current valuations.

What all this suggests is that while investors may be able to throw off risks that they have no way of quantifying (ie, that of terrorist attack), they are, in fact, reasonably clear-eyed about the likely impact of tangible things like sharply dearer oil. Where oil spikes and repeated acts of terrorism coincide, however—other than in the Middle East—is in tending to produce slower economic growth. And that is one thing that even brave London’s spirit of endurance can do nothing to fix.

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Read more Buttonwood columns at www.economist.com/buttonwood

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Business's digital black cloud

Enterprise computing

Jul 14th 2005 LOS ANGELES
From The Economist print edition

New, faster computer chips are challenging the traditional structure of the huge business-software industry

FOR the past 40 years, companies around the world have grown accustomed to a doubling in computing power every 18 months to two years—fulfilling a remarkable forecast made in 1965 by Gordon Moore, one of the founders of Intel, a semiconductor powerhouse based in Silicon Valley. As their businesses have expanded, managers have been able to sleep easy in the knowledge that next year's computers would be more than able to keep pace with their needs and probably cost no more than last year's models. Alternatively, slowpokes with steady workloads have been able to replace ageing computers with flashier models costing half as much. The declining real cost of computing has been an economic boon.

Even as millions more transistors are crammed on to slivers of silicon, Moore's law continues to deliver the goods. But the tricks chipmakers such as Intel and AMD are exploiting to achieve this miracle are changing the whole approach to enterprise computing. In the process they are unleashing powerful disruptive forces. New chip architecture is allowing them to roll out ever more heavy-duty hardware at competitive prices.

The real losers in the pending upheaval could well be software suppliers. Firms such as Oracle, SAP and IBM, whose industrial-strength programs are the bedrock of business, could be badly bruised in the process. But inevitably, end-users—companies big and small that depend on enterprise software to do their various business transactions—are going to be feeling pressure as well. Over the coming year, they will have to keep their wits about them if they are to prevent their licensing costs from escalating out of control.

For many, the choice could come down starkly to accepting costlier new ways of being billed for the corporate software they depend upon for their livelihoods, or biting the bullet and switching to “open source” programs that may be free to license but have plenty of hidden costs.

The current brouhaha over software licensing has been set off by the arrival this month of large quantities of chips containing two central-processing brains (or “cores”) on the same device. Chipmakers have known for some time that merely cranking up the internal speed of their computational engines was delivering diminishing returns.

Today, the co-ordinating internal clocks on some of the fastest chips beat at four billion times a second (4GHz in geek-speak). This furious internal activity gobbles up electrical power. In turn, that makes the chips scorching hot. Cooling them down so they can do their job properly has become a costly nightmare, especially when such chips are used in cheap, but poorly ventilated, “blade” computers (so-called because they are wafer-thin and plugged together in racks like packs of disposable razor blades).

The answer has been to put two or more smaller cores on a single chip. By sharing the workload, the separate cores produce less heat. But being on the same tiny piece of silicon, they still have the speed advantages that come from having all the core's ancillary components within easy reach on the same device.

Actually, dual-core processing is nothing new. IBM and Sun Microsystems have been supplying processors with two or more cores built into them for several years. But these have been thoroughbred chips for powerful Unix workstations used by scientists and engineers for cutting-edge research.

The difference today is that the dual-core approach is now being applied to the workaday processors that run the vast majority of Microsoft Windows, Linux and other popular programs designed to exploit the internal instructions used by Intel's ubiquitous Pentium processor. Such chips power not only hundreds of millions of personal computers, but also the tens of thousands of back-office servers that dish out data over computer networks to employees throughout an enterprise. It is the latter that are the mainstay of companies' IT departments everywhere.

In April, Intel and AMD announced separately that they would be delivering dual-core versions of their high-end processors later this year. AMD has been the first to ramp up production of its new device and has now started delivering its dual-core Opteron processor in commercial quantities for $2,650 apiece. Intel is expected to start shipping dual-core versions of its Xeon and Itanium server chips in volume later this year. Meanwhile, the leading server manufacturers, including Hewlett-Packard, Sun Microsystems and IBM, have begun taking orders for their new dual-core computer systems.

With the wholesale switch to dual-core processing, some software firms feel they are about to be short-changed. If two cores on a single chip can do twice the work of a single processor, they argue, then customers paying licence fees based on the number of processors running their software (one of the most common forms of software licensing) will be getting a free ride on half the new cores being deployed. Actually, because of internal losses and design restrictions, dual-core chips tend to do the work of anything from 1.3-1.8 comparable single-core processors, depending on the applications they are running. But the free-ride argument still stands.

The core of the matter

As the dominant supplier of database software, Oracle has expressed its concern about the shift to multicore processing and is adamant: customers will be charged by the core rather than the processor. The firm actually uses two different forms of software licence. One is based on named users and is for customers with a more or less fixed number of defined users. The other is for firms with populations of users that are hard to define, and is based on the number of processors within an enterprise that are running Oracle software. Customers can choose one or the other.

Behind the scenes, however, Oracle is actually more flexible than the image it presents. In the past it has used other means to price its software—concurrent user, named user on a single server, named user on multiple servers, processor, you name it. Some years ago, when Oracle based its pricing on the performance of the underlying hardware, licensing fees leapt in line with soaring chip speed. Faced with a customer rebellion, Oracle dropped its power-based metric in favour of a simple processor-based policy. “We've found that our customers are more satisfied when they can easily identify and predict what their licensing fees will be,” says Jacqueline Woods, vice-president of global pricing and licensing strategy.

That is the official line. But when customers complain to Oracle's sales representatives about the firm's aggressive pricing, they are quietly advised to talk directly to customer support. The company does not admit to any backdoor deals, saying only that it is “committed to providing customers with simple, flexible and transparent pricing.”

IBM has been even more circumspect, announcing that its software licences for computers running single-core or dual-core versions of the Opteron or Xeon processors will cost the same. But IBM has yet to announce what its licensing policy will be for running its big software suites, such as DB2 and WebSphere, on computers powered by Intel's more advanced Itanium multicore processor. Even so, the announcement on Opteron and Xeon licensing was a big turnaround for the firm: it has charged customers on a per-core basis for running its software on the powerful dual-core Power5 processor it makes in house.

IBM says the boost in power that customers will get from the new dual-core chips from AMD and Intel will be only incremental. Its own dual-core Power5 is a third-generation processor for top-of-the-range servers, which deliver double the value in the highly tuned applications they are bought for. But insiders suspect that IBM's change of heart—at least where the more popular dual-core processors from AMD and Intel are concerned—was a ploy to cast Oracle in an unfavourable light, and try to steal market share.

Another software firm that is seeking to capitalise on the computer industry's current turmoil is Microsoft. When the licensing issue was first broached publicly last October, Microsoft came out uncharacteristically on the side of customers. In a move calculated to win users over, the Redmond-based company announced that it would be licensing its server software on a per-processor basis. That meant only one Microsoft licence would be needed for any dual-core Opteron or Xeon server. The same would apply to Itanium systems when they arrived, too.

Altruism played no part in Microsoft's commitment to processor-based licensing. By ensuring that customers using its Windows Server family of products (such as Microsoft SQL and Microsoft BizTalk) would not have to pay any more when they upgraded to multicore processors, Microsoft very effectively seized at least the low ground in ongoing debates about total cost of ownership (TCO) and return on investment (ROI) of computer purchases. (These abbreviations have become standard parlance among IT managers since the bursting of the dotcom bubble.)

By addressing these concerns with a cheap and easy route to multicore computing, Microsoft is positioning itself to grab more of the lucrative market for enterprise software, where, unlike the desktop market, it has faced tough competitors with beefier products and well-entrenched positions in customers' premises. But if they do not respond in kind, Oracle, SAP, IBM, BEA, Siebel and Veritas could find themselves losing out to Microsoft's budding family of server software and its processor-based licensing. On top of that, users will not be amused by software suppliers that raise licensing fees for applications that run on top of a Windows server, especially when Microsoft has not changed the licence for the underlying platform.

Hard to be soft

Users have lots of other grouses. With some justification, they argue that software suppliers—at least the vast majority that license their products on a user or processor basis—did not raise prices during the megahertz race when computers became faster and more efficient. Likewise, they say, dual-core architecture is just another way for the hardware-makers to boost the speed of their machines, and should thus be treated the same as raising clock speed.

In short, users feel it is grossly unfair for software firms to charge more for improvements that stem entirely from buying better hardware. It is not as though IBM, Oracle and others have had to rewrite their big database or transaction programs so they can run on the new processors. In fact, the software will not even notice the difference. Some customers have likened Oracle's insistence on core-based licensing to a form of double taxation.

But users admit that change is probably inevitable. Dual-core Opterons and Xeons are only the beginning. Computers with processors that use four or more Pentium-like cores will start arriving in 2006. And industry watchers expect the trend to ever greater numbers of cores to accelerate. For instance, the New York office of Ogilvy & Mather, an advertising agency, is currently testing a computer appliance built by a small computer-maker called Azul Systems that uses 24 cores per chip.

Complicating matters even further, servers these days tend to have more than one processor inside them. The wholesale endorsement of Linux, the open-source operating system for Pentium-style processors, by the world's leading hardware and software firms (with the exception of Microsoft) has turned it into a formidable platform for enterprise servers capable of ganging dozens, even hundreds, of internal processors together into a giant “symmetric multiprocessing” unit that behaves as a single entity. Add multicores to multiprocessors, and today's software licensing policies quickly become untenable.

The software industry's licensing dilemma does not even end there. There are two other developments in computer design that could cause licensing anarchy. One is known as “partitioning and virtualisation”. Broadly, this involves using a single computer to create the illusion of having multiple computers, each with its own operating system such as Unix, Linux, NetWare or Windows; and each acting as if it had exclusive access to all the real computer's resources (eg, memory, drives, network adapters, communications ports, etc), without regard for all the other operating systems installed that think likewise.

Slice and dice

Virtualisation is actually an old computer trick, stemming from IBM's mainframe computers of the 1970s. It resurfaced in the late 1990s thanks to some nifty software developed by a company called VMware that lets users slice up a Pentium-style computer as if it were many different machines running different operating systems and software. That started off as being a handy way for IT managers to test new software configurations before installing them company-wide. By 2002, however, customers had began to realise that a lot of the servers they had hurriedly acquired during the great Y2K panic at the turn of the millennium “were running with no more than 5% to 10% utilisation,” says Raghu Raghuram, senior director for strategy and market development at VMware.

Today, VMware's ESX and GSX servers and Microsoft's Virtual Server are being used to get more out of users' hardware investments, by allowing existing machines to run best-of-breed software, no matter what operating system it was designed for. While virtualisation may be great for hardware ROI, it wreaks havoc on software licensing policies.

Then there is the industry-wide trend to “rapid provisioning”. This is a way of providing capacity-on-demand, explains Amy Konary, director of software pricing and licensing at IDC, a computer consultancy. The idea is to make whole computers, parts of hard-drives (ie, partitions) or even individual cores instantly available, along with an operating system and entire stack of software applications, for a particular task that has cropped up and needs urgent attention.

Hewlett-Packard and IBM have developed new types of licences that allow some software to be used in such an intermittent manner. But the rest of the industry is still agonising over how to license rapidly provisioned machines. One thing is for sure, says Ms Konary: users are unlikely to accept any requirement that makes them pay for a full software licence for such momentary use.

Clearly, the days of licensing software on a simple one licence per installation or on a straight per-user or per-processor basis are ending. A recent survey* conducted by a handful of software firms and trade associations in Silicon Valley found that while software suppliers were pushing for licensing models based on annual subscriptions, companies overwhelmingly preferred single, one-time payment methods, be they on a per-user or per-processor basis (see chart). This was surprising because users have been decrying the high up-front cost of software and have been urging suppliers to provide much better value for money.

But given all the imponderables, it has become extremely hard, if not impossible, to quantify what the value of any given piece of software is. What is known is that negotiating licences is not a trivial exercise. John Fowler, executive vice-president of Sun's network systems group, finds that companies spend typically between eight and 12 weeks planning and discussing software licences with their suppliers. In its bid to answer the value conundrum, Mr Fowler's firm has adopted the simplest of financial metrics. It charges firms a straight $140 times the number of employees on the customer's payroll for using its proprietary software. Why $140? Because it seems to correlate with the price that the company and its customers think is good value for having no hassles. The simple subscription gives customers the unrestricted right to run Sun's software on as many computers, by as many people, and as often, as they like.

Others think that a better way of delivering value is to adopt some kind of utility model for software pricing—allowing users to pay only for what they use. Macrovision likens computer upgrades to a city upgrading its water supply system (hardware) to allow residents to use more water (software). The question, then, is should residents who do not want to use more water pay more for at least having the opportunity to do so? Opinion is divided.

The maintenance model

But if Margaret Lewis, AMD's senior software strategist, is right, software pricing could be in for some radical rethinking. In her view, the open-source model of software licensing looks like being surprisingly attractive. This involves software firms licensing their products for nothing, while earning their keep from maintenance and support. Software firms such as Red Hat, Novell, Mandriva and a host of other Linux distributors already make their living that way.

Indeed, more and more suppliers of proprietary software are beginning to think along similar lines. Sun has recently made its flagship product, the rock-solid Solaris operating system, available with a form of open-source licence that permits it to be downloaded free of charge. Meanwhile, IBM has re-invented itself as a successful service company thanks to the way it has embraced open-source Linux and J2EE (Java 2 Enterprise Edition).

The clincher is that if software firms continue to think they can cash in on every new increase in computer performance, they will only encourage more and more customers to defect. And today, unlike a decade ago, open-source software has become just too good to be ignored. MySQL or PostgreSQL, two powerful open-source databases running on Linux, have become attractive alternatives to commercial products such as Oracle 9 or DB2 running on some proprietary flavour of Unix from Hewlett-Packard, Sun or IBM. The same goes for open-source servers such as Apache, JBoss and Samba.

Today, customers have a plethora of alternatives that should give enterprise-software firms pause for thought. Finally, of course, there is Microsoft. No one in the enterprise-software business should underestimate its determination to own their market as well as the desktop business it already dominates.

* “Key trends in software pricing and licensing”, available from SoftSummit (www.softsummit.com).

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Haughty indifference, or masterly inactivity?

The European Central Bank

Jul 14th 2005
From The Economist print edition

Monetary policy in the euro area has been looser than critics think

TWICE a month the governing council of the European Central Bank (ECB) meets on the 36th floor of the Eurotower in Frankfurt. The lifts must be permanently out of order, leaving members so out of breath by the time they reach the boardroom that they can no longer think straight. What other explanation can there be for why the bank has left interest rates stuck at 2% for no less than 25 months?

The bank's many critics claim that the euro area's economies are being choked by an excessively tight monetary policy, and that the case for lower interest rates is overwhelming. It has become conventional wisdom that the ECB is peopled by inflation nutters who couldn't care less about economic growth. Yet a look at the facts reveals that by most measures the ECB's policy has not been overly tight.

It is true that in 2001-03, after stockmarkets slumped, the ECB cut interest rates by less than America's Federal Reserve did (see left-hand chart), but that was partly because American rates started off at a much higher level, and America's inflation rate fell more sharply. Real interest rates in the euro area have been negative or near zero for most of the past two years, their lowest for more than 25 years.

This suggests that policy is fairly loose, as does the growth in the M3 measure of money supply, which has exceeded the ECB's desired range for four years running. The Fed may think that money no longer matters, but the ECB worries that this overhang of liquidity will eventually stimulate inflation or asset-price bubbles. The ECB's critics like to make fun of the prominence it gives to this measure, but, as the Bank for International Settlements argued recently, keeping an eye on money and credit provides a useful check against the build-up of financial excesses.

A widely used test of the tightness of monetary policy is the Taylor rule, which calculates the “correct” interest rate according to the amount of spare capacity in the economy and the deviation of inflation from its desired target. What does it say about interest rates in the euro area? Calculations by David Mackie, of J.P. Morgan, show that virtually throughout the past six years, interest rates in the euro area have been lower than a Taylor rule would have prescribed (see right-hand chart), refuting the popular wisdom that the ECB cares less about growth than does the Fed.

But even if the ECB has not, on average, been as tight as many people think, it has changed interest rates less often than the Fed has, giving the impression of paralysis. One reason why the ECB is less active is that estimates of the output gap in the euro area—the amount of slack in the economy—are subject to much bigger revisions than in America. In late 2000, the OECD reckoned that GDP in the euro area was 0.3% below potential in that year. Now it thinks GDP was 1.6% above potential.

The correct interest rate depends partly on the inflation target; thus another common criticism of the ECB is that its target of “below, but close to, 2%” is too low. Some say that if, like the Bank of England, the ECB had a symmetrical inflation target centred on 2%, it would have been able to loosen the monetary reins. Some go on to argue that the ECB's inflation target should be higher than the Bank of England's, to take account of divergences in inflation rates among the euro area's 12 members and so guard against the risk of deflation in an individual country.
Although the ECB's inflation target would be better expressed as a range of 1-3%, in practice it might not make much difference. The ECB has behaved as if 2% were the midpoint not the ceiling: during the past five years inflation has been below 2% in only nine months.

Furthermore, the euro area's official inflation rate may well understate inflation, because the harmonised index of consumer prices, which the ECB tracks, excludes the housing costs of owner-occupiers, a large slice of the cost of living. Calculations by the OECD suggest that if such costs were added in, average inflation in the euro area last year would have been 2.7%, not the published 2.1%.

Monetary conditions in any economy depend not only on short-term interest rates, but also on the exchange rate and long-term bond yields. The ECB probably made a mistake in not cutting interest rates last year to offset the impact of the rising euro, which caused monetary conditions to tighten just as growth stumbled. However, the euro's trade-weighted value has fallen by 5% since the start of this year, taking it below its value when the single currency was launched in 1999.

Bond yields probably have a bigger effect on economic activity in the euro area than short-term interest rates. Over the past year, ten-year government bond yields have also fallen, from 4.3% to 3.2%. Julian Callow, an economist at Barclays Capital, reckons that the combined fall in the euro and long-term bond yields since the start of this year are equivalent (in terms of their impact on GDP) to a cut in short-term interest rates of around one percentage point.

Less compelling

The recent slide in the euro and bond yields may explain why the OECD, which argued that the case for a half-point interest-rate cut was “compelling” in its Economic Outlook in May, now seems more relaxed. In its annual survey of the euro area it appears relatively content if rates are held at 2%. But if the euro strengthens and economies remain weak, then the case for a rate cut will gain ground again.

The OECD admits that the ECB's task is made trickier by two obstacles. The first is the stickiness of inflation in the euro area as a result of a lack of competition, especially in services. Inflation falls more slowly in a downturn than in America, reducing the scope for the ECB to cut rates to support the economy. Structural reforms to strengthen competition and reduce price inertia would make monetary policy more effective.

The second obstacle is that monetary policy tends to be a less potent weapon in the euro area than in America or Britain. The transmission mechanism from interest rates to consumer spending is weaker, largely because of less developed and less competitive mortgage markets.
In the euro area, it is much harder to turn capital gains into cash by borrowing more as home prices rise or to benefit from falling interest rates by refinancing fixed-rate mortgages, both of which have given a big boost to American household spending. Even though house prices in France, Italy and Spain have risen by more than in the United States, the wealth effect on consumer spending has been smaller. The solution lies not in cutting interest rates further, but in shaking up the over-regulated mortgage market.

The blame for the euro area's feeble growth rate lies mainly with an over-tight fiscal policy and structural rigidities. Adjusting for the economic cycle, fiscal policy has been much tighter in the euro area than in America or Britain, thanks to the stability and growth pact, which forced governments to raise taxes even during a downturn. Many countries are slowly trying to make their labour markets more flexible. The snag is that in the short run reforms that reduce job protection are more likely to depress consumer spending.

So could the ECB not cut interest rates further to cushion economies as reforms are carried out? With inflationary expectations now well anchored just below 2% and the core rate of inflation at 1.6%, there seems little danger of inflation surging out of control. However, the ECB argues that if the lowest real interest rates for a quarter of a century have failed to spur demand, then another half-point cut is unlikely to do the trick. In the next breath officials then add that lower interest rates would risk stoking up household-credit growth, which is already running alarmingly fast. The ECB cannot claim both that interest-rate cuts won't work and that they risk fuelling excessive borrowing.

Here lies the real vulnerability of the ECB: its public communication. Even if monetary policy is not stifling growth, the bank's language constantly gives the impression that policy needs to be tight to guard against the ever-present threat of inflation. If you keep telling people there is nothing you can do to boost growth, it is no wonder that they spend cautiously. It may not be interest rates that the bank urgently needs to change, but its tone.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Harry Potter and the all-too-rare windfall

Jul 18th 2005
From The Economist Global Agenda

The latest volume in the Harry Potter series is set to break all publishing records, to the delight of booksellers. The success of the Potter books has also made its author vastly wealthy and provided a windfall for its publisher. But it is an oddity in an industry that is growing slowly and rarely sees bumper profits

THERE is no doubting the magical powers possessed by Harry Potter. The sixth instalment of the boy wizard’s adventures, “Harry Potter and the Half-Blood Prince”, broke publishing records and outstripped sales of the previous record-holder—the fifth adventure featuring Harry and his chums. The numbers associated with the new volume are likely to strike publishing executives with a feeling of wonder and awe not dissimilar to that felt by its young (and not so young) readers. In America, 6.9m copies were sold in the first 24 hours after publication on Saturday July 16th. Scholastic, the book’s American publisher, has set a print run of 10.8m, almost equivalent to the total sales in the country so far for volume five. Bloomsbury, the British publisher, said 2m copies had been sold in Britain, some 13% more sales than the previous Harry Potter book registered on its publication day.

The Harry Potter series is a publishing phenomenon by any measure. All told, around 270m Harry Potter books have been sold worldwide. But this type of blockbuster is hardly the norm for publishers that generally struggle to earn decent profits in a business that offers only low growth and slender profit margins. Worse still, the “long lunches” that publishing executives famously enjoyed are on the wane. The days when the business was still regarded as a pursuit for gentlemen keen to nurture artistic achievement almost without regard for the vulgar pursuit of revenue are all but gone.

J.K. Rowling, author of the Harry Potter series, deserves praise for enticing children to read books rather than play video games or watch television all day. But despite her success and that of a few other recent bestsellers, such as Dan Brown’s “The Da Vinci Code”, the world market for books has grown only slowly in recent years. According to PricewaterhouseCoopers, a consultancy, global book sales in 2004 increased by 1.5% over the year before, to $107 billion. The slightly higher growth rate of 3.1% projected for 2005 (see chart) is in part because of the arrival of a new Harry Potter title and an expected growth in textbook sales as a result of George Bush’s “No child left behind” educational legislation.

Bloomsbury is something of an oddity in an industry that has seen many of the world’s leading publishers become part of global media conglomerates—witness Viacom’s tie-up with Simon & Schuster or News Corporation’s with HarperCollins. The company was formed nearly 20 years ago by publishing executives who saw that the industry was changing but still reckoned there was room for a small publishing house run along more traditional lines. But all publishers, big and small, have to face the fact that the real power in their industry belongs to others. Retailers have grown rapidly through mergers in recent years and now bookselling is dominated by huge chains, such as Barnes & Noble in America, Waterstones in Britain, Amazon and others online, and supermarkets selling heavily discounted bestsellers. The upshot is that the balance of power has tipped to retailers, whose demands for ever-greater discounts have squeezed publishers’ profits.

At the same time, bestselling authors and rapacious agents have demanded and got ever-larger advances for their wares. These sums are sometimes paid years before delivery of a book. The fad for celebrities from other fields penning works has worsened this trend while attracting accusations that the industry is dumbing down. Random House, an arm of Germany’s Bertelsmann, recently reached a settlement with Sean “P. Diddy” Combs, a rap musician and clothes designer whose talents clearly didn’t stretch to literature, over an advance paid in 1998 for a book that he failed to deliver. An additional oddity of the industry that hampers publishing houses is a returns policy that obliges them to take back any unsold books—some 34% of hardbacks in America in 2003, according to one estimate.

It is these threats that have driven many publishing firms into the arms of media giants with deep pockets. The era of the patrician, tweed-suited publisher has given way to one of cost-cutting and job losses in a quest for efficiency and decent profits. At the same time, the business has come to rely ever more heavily on a small number of huge-selling blockbusters. Publishers lose money on most titles they produce. In America, an astonishing 195,000 new books were published in 2004 (14% more than the previous year) but the big publishers concentrate most of their marketing resources on a few books that they hope will provide returns big enough to pay for all the failures. But gambling so heavily on a small number of titles carries the risk that too few will succeed to repay the hefty outlay. Hence publishing is unlikely ever to be a fast-growing business.

Though today’s media giants are more profit-oriented than the publishing bosses of the past, they too regard the business as one with a cachet and prestige that has a value beyond the bottom line. That said, a difficult year in 2004 at Penguin, owned by Pearson, a British media giant that also owns 50% of The Economist, led to speculation that the publishing house which invented the cheap paperback might be put up for sale. Profits were hit by a sharp decline in mass-market paperback sales in America, on which Penguin relies more heavily than its rivals. Pearson later said that it would not sell Penguin. Viacom is thought to be keen to sell Simon & Schuster if it receives a reasonable offer.

Bloomsbury, like bigger publishers, regards the cash from Harry Potter as a windfall that can finance its more risky undertakings. But the Potter tale also highlights another drawback for publishers: they do not get to share in the spin-off success of a product they may have championed from an early stage. Publishers usually do not retain the rights to lucrative TV, film or merchandising deals for their books. Bloomsbury, which took on Ms Rowling’s work only after several other publishers had turned her away, made a respectable pre-tax profit of £16m ($29m) last year. But it can only look forward to one more Potter tome to boost its coffers—the author has insisted that the story will end with the next book. Despite selling Harry Potter’s film rights cheaply to Warner Brothers in 1998, a cut of merchandising deals and the direct income from her books has made Ms Rowling vastly wealthy, with a fortune estimated at £500m.
Magic for Ms Rowling, but for Bloomsbury the spell may soon be broken.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

The enemy within

Jul 14th 2005
From The Economist print edition

What turns a man into a terrorist, and what can be done about it?

THE residents, both white and Asian, of certain quiet suburbs of Leeds, in northern England, were understandably confused by the news that their neighbours had caught a train to London and brought mayhem to the capital. Some described the bombers as ordinary young men whose interests did not go much beyond football and cricket. But one suspect was said by a neighbour to have found another solution to suburban boredom—a long trip to Pakistan and Afghanistan, and a chance to be trained in the arts of terror.

Two related questions haunt Britain, and Europe, in the wake of the London attacks. First, what is it that prompts a small minority of the continent’s Muslims to shift from discontent or personal frustration to active terror? And second, was the attack on London indeed an act of home-grown terror, or an atrocity initiated by people in some distant war zone who had a grudge against Britain? The Leeds arrests, while impressively swift and a credit to the police, have proved there is no easy answer to these questions. In an age of globalised ideologies, globalised communications and porous borders, there is no real distinction between domestic and foreign threats.

Even if everyone involved in terrorising London turns out to have been British-born, it is clear that the bombers had access to sophisticated explosives, not easily available in suburban Yorkshire; and, more important, that they were influenced by ideas, images and interpretations of Islam that would continue to circulate electronically, even if every extremist who tried to enter Britain were intercepted. So the best that terrorist-hunters in Britain and elsewhere in Europe can do is to trace how disaffected people from their own tranquil suburbs form connections with ideological mentors, and ultimately terrorist sponsors, who live overseas, and how those godfathers find recruits in western countries.

An example of such sponsorship is the recent report that Abu Musab al-Zarqawi, the mastermind of terror in Iraq, has built up a network of supporters and volunteers in Spain. For a case of mentoring, consider the trial that began in Amsterdam this week of Mohammed Bouyeri, who has confessed to killing Theo van Gogh, a Dutch film director who had enraged Muslims with his fiery attacks on Islam.

Mr Bouyeri, who refused at his trial to recognise the Dutch legal system and came to court clutching the Koran, is linked to the Hofstad group of Dutch youngsters, some 15 of whom are on trial separately. They began as a group of second- or third-generation Dutch Muslims, mostly male and in their late teens or early 20s, who became discontented with their country and surfed the internet for ideas. At least at first, this and other groups of disaffected Dutch Muslims were pathetically unsophisticated. One was caught in 2003 trying to make a bomb—drawing on tips from a website, but using the wrong fertiliser. At some point, however, the group found a mentor who was more sinister and sophisticated: a Syrian jihadist-recruiter who came to the Netherlands and coached them in doctrine.

In Britain, too, security services have concluded that these days, connections between local youths and foreign godfathers are usually formed at the youths’ behest. To a surprising extent, the onus is on individual zealots (or groups of them) to find mentors. Al-Qaeda does not actively seek recruits for the jihadist cause, partly because that would attract the attention of the security services and partly because, ever since the destruction of its bases in Afghanistan, it has—in the view of well-placed British observers—been too loosely organised to recruit systematically.

This highlights one of the main difficulties of the “war on terror”. In 2001, when America and its allies responded to the attacks on New York and Washington by declaring war on the al-Qaeda network, it seemed an identifiable adversary, with bases, financial structures and a leadership that could be singled out and struck. Since then, it has become something much looser: not even a “franchise”, as it is commonly labelled, but more an ideological community, held together above all by electronic connections, which seeks inspiration from a common source.

Radicalism-by-internet

What prompts young British, French or Dutch Muslims to look for such mentors? Senior British insiders say that, although paths to extremism vary widely, they tend to follow certain social and psychological patterns. Frequently, a young Muslim man falls out of mainstream society, becoming alienated both from his parents and from the “stuffy” Islamic culture in which he was brought up. He may become more devout, but the reverse is more likely. He turns to drink, drugs and petty crime before seeing a “solution” to his problems—and the world’s—in radical Islam.

Olivier Roy, a French writer on global Islam, has described “neo-fundamentalism” (which may or may not be violent) as a broad reaction by Muslims in western countries against their families and background, as well as against their host societies. As Mr Roy portrays them, such Muslims have abandoned the food, music and customs of the “old country” but still feel repelled by the ethos and values of the “new country”. Adrift from both, they are attracted by a simple, electronically disseminated version of the faith which can readily be propagated among people of all cultures, including white Europeans.

Another French “Islamologue”, Antoine Sfeir, has identified relations between the sexes as a big factor in the re-Islamisation of second-generation Muslims in Europe. Because young Muslim women often do better than men at adapting to the host society (they tend to do better at school, for example), old patriarchal structures are upset and young men acquire a strong incentive to reassert the old order.

In many cases, say British specialists, groups of young, disaffected Muslims goad one another down the path to extremism. People who may be bound together by ethnicity, worship or criminal activity develop a common interest in the suffering of Muslims across the globe. Websites and satellite television channels then supply visual images and incendiary rhetoric from any place where Muslims are fighting non-Muslims. The favourite war used to be Chechnya; now it is Iraq.

As an incipient extremist group grows more obsessive, and its weaker brethren fall away, hard-core members often withdraw from the mosques. Indeed, a big recent trend in European Islam, says Mr Roy, is the mass withdrawal by militants from mosques that are under surveillance. This has made extremism even more elusive, and the internet’s influence even greater. To a large extent, “the internet has replaced Afghanistan” as a source of training and inspiration for militant Muslims, says Stephen Ulph, a scholar working for the Jamestown Foundation, an American think-tank.

Through the web, even dead al-Qaeda fighters live on, says Mr Ulph. On one website that ceased operations last year (but has several imitators), it was possible to read the writings of senior, recently slain al-Qaeda men on everything from physical training to guerrilla tactics.

A group of young Muslims will often travel quite a long way down the road to violent jihad before meeting anybody with terrorist expertise. Some never find the contacts they seek, and resort to their own devices; only occasionally does this have deadly results for anybody besides themselves. One example of such amateurism is that of two Moroccan men from the Dutch city of Eindhoven, Ahmed el-Bakiouli and Khalid el-Hassnaoui, who tried to enter Afghanistan in December 2001 in the hope of fighting some Americans. Having failed, they went to Kashmir, where they were swiftly killed by Indian security forces. In Britain, several terrorist plots uncovered since 2001 have been striking for their incompetence and lack of outside expertise.

Things become far more dangerous, of course, when committed radicals come into contact with veterans of wars in Chechnya and Bosnia, or of the Afghan training camps where several hundred Britons are believed to have been schooled. These veterans either have the know-how to plan an atrocity, or can find somebody who does, and it is under their influence that hopeless missions can turn deadly. Whether this happens or not is often a matter of chance. Take the Egyptian Mohammed Atta and other members of the “Hamburg cell” that plotted the September 11th attacks. They were drawn into mega-terror after meeting someone who introduced them first to an al-Qaeda operative in Germany, and then to masterminds in Afghanistan. If this had not happened, the Hamburg group might have ended up as cannon-fodder in Chechnya.

Profiling the would-bes

These patterns of self-recruitment and self-radicalisation are a headache for security services, who have no easy way to infiltrate close-knit, local groups that operate at first without foreign help. But in the Netherlands the intelligence services reckon they have identified three broad categories of people from which actual and would-be terrorists are drawn: recent arrivals, second-generation members of immigrant communities, and converts.

Recent arrivals are often intensely involved in—and in a few cases, protagonists of—bitter ideological and ethnic conflicts in their home countries. During the 1990s, Algeria’s internal bloodbath—which pitted a secular, military regime against its armed Islamist opponents—was exported to France, culminating in bomb attacks on the Paris metro. (Some of these Islamists, to French disgust, later found refuge in London.) Among recent Muslim immigrants to Britain, many are deeply embroiled in the internal conflicts of south Asia—including intra-Muslim squabbles like that which divides the Barelvi form of Islam, followed by most Pakistanis, from the more purist Deobandi tendency which gave rise to the Taliban movement.

While most followers of the Deobandi line, which stresses the brotherhood of all Muslims over national or civic ties, are perfectly peaceful, their doctrine can inspire extremism. In the same way, violent extremists from the Arab world often share ideological roots with Saudi conservatives, or opposition-minded Egyptians, who are far from being exponents of generalised violence against soft western targets. Whether they like it or not, European security services are having to learn these fine distinctions.

The vast majority of “white” converts to Islam adhere to forms of the faith that eschew violence. But some of them turn to violent Islam in a spirit of alienation from society, or personal bitterness. Some are “rescued” from a life of petty crime; quite a few, like the shoe-bomber Richard Reid, are touched in prison. Lacking any sense of Islamic tradition, and perhaps eager to prove themselves to their new peers, they are susceptible to extremism.

On the other hand, because the path to extremism so often involves the renunciation of everything in one’s own background, material comfort and a liberal upbringing seem to be no bar to the development of a terrorist. Ahmed Omar Saeed Sheikh, a young Briton of Pakistani origin who is believed to have masterminded the kidnapping and murder in Pakistan of an American journalist, Daniel Pearl, was privately educated and studied at the London School of Economics. At least one of the London bombers identified this week seems to have come from a middle-class background. Whatever motivated the two Britons who became suicide-bombers in Israel in 2003, it was not material want.

Nor does the story of the Dutch Islamist, Mr Bouyeri, suggest any easy correlation between suffering and the impulse to crime. The killer had suffered setbacks at university, and had been unsuccessfully involved in trying to set up a youth club. In 2002 his mother died, his father remarrying soon afterwards. But as one specialist on the Netherlands points out, if such problems were enough to turn a youngster into an assassin, most young Dutch Muslims would be loading their guns.

On the evidence of most European countries, adequate material and social conditions do not always stop people becoming terrorists. But the reverse may hold good: if people are economically deprived or socially excluded, the pool of potential killers and bombers will grow.

In the highest levels of the British government, the dominant thinking is that economics does matter. If this is right, Europe’s problem is obvious. Even in Britain, where anti-discrimination laws are relatively stringent, Muslims tend to be poor. Of all religious groups, they are the least likely to own their own homes. They are also the least likely to hold professional jobs and the most likely to be out of work. Just 48% of British Muslims reported that they were economically active in 2001, compared with 65% of Christians, 67% of Hindus and 75% of those who professed no religion.

Lack of jobs in the areas where Muslims have settled is part of the problem, but another reason is that women are less likely to do paid work. Four out of ten look after home and family, compared with little more than one in ten women in Britain as a whole. In a sense, the Muslim household is resilient—many fewer children are brought up in one-parent families than is the case among non-Muslims—but there is, literally, a price to be paid.

Britain’s approach to tackling domestic extremism has sought to mix vigilance with openness, on the principle that militants are least dangerous in places where they and their followers can be closely watched. The domestic intelligence service, MI5, has expanded and moved its lens away from Irish terrorism; these days, about half its attention is directed at Islamist activities. But nobody, not even the spooks, believes wiretaps and infiltrators alone are enough to defeat Islamist extremism. To achieve that end, Muslims must learn to police themselves.

The perils of co-operating

An official outreach campaign accelerated in 2001, a year that saw not only attacks on America but also riots involving South Asian Muslims in northern English towns. After a tentative start, meetings between mosque committees and local police officers have become routine. Muslims do not like to admit it, but an implicit quid pro quo is involved: heightened protection in return for information and good publicity. The trade-off was illustrated on July 7th, the day of the London bombings, when the Metropolitan Police deployed scarce officers to defend mosques.
Police in Leeds, who had to close a mosque on July 12th as they combed the bombers’ neighbourhood, helped people find alternative arrangements for worship.

Muslim clerics did their part by denouncing the London bombings, and by reminding co-religionists of prohibitions against the taking of innocent lives and of the importance of co-operating with the police. The point, according to Mohamed Naseem, chairman of Birmingham Central Mosque, was to inform misguided members of the Muslim community of the correct religious teaching. As for those who choose to ignore it, says Mr Naseem, “they are on their own.”

That is, of course, the problem with expecting mosques to police Muslims. Extremists may be denounced from the pulpits, but that does not prevent them meeting like-minded folk in living rooms. Similar problems dog the British government’s outreach efforts. It has chosen to deal mostly with the Muslim Council of Britain (MCB), an umbrella-group with which most significant Muslim organisations—including some radical ones—are affiliated. The government has allowed the MCB to influence, or at least comment upon, policies both domestic and foreign.
Consequently, however, the MCB looks to some like a toady of the government.

The authorities in Paris have, if anything, gone even further than those in London in trying to co-opt and co-operate with the mainstream of their country’s Muslim community. At the risk of compromising France’s secular traditions, the government has groomed the French Council of the Muslim Faith (CFCM), elected via mosques rather than by ordinary Muslims, as a privileged interlocutor.

As both Britain and France have found, such tactics can involve hard trade-offs. As liberal French Muslims see things, their government, in its haste to find Muslim friends, has needlessly given some crypto-fundamentalists a bigger say in the nation’s affairs than their numbers warrant. In Britain, too, the government has found that offering sops to the MCB ties them to policies (such as the bill to outlaw religious hatred that is going through Parliament) to which other citizens object.

But these days, European governments have few higher priorities than draining the waters in which incorrigible Muslim extremists can so easily swim. If wooing moderate European Muslims and, in the process, offending others is the necessary price, they will gladly pay it.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Rove in the spotlight

Jul 18th 2005
From The Economist Global Agenda

A scandal over the unmasking of a CIA agent, which has already seen a journalist sent to jail for refusing to reveal her source, is now putting an uncomfortable spotlight on Karl Rove, George Bush’s chief political adviser

UNTIL recently, the questions were largely theoretical. How far does a journalist’s right to protect sources extend? Is the free flow of information more important than a criminal investigation? Judith Miller, a New York Times reporter, has gone to jail for refusing to say who revealed the identity of a CIA agent to her, unleashing a flurry of articles on these academic questions. But new revelations in the scandal have dragged the spotlight from journalists back to politicians—and in particular to Karl Rove, President George Bush’s chief political guru.

In 2002, before the Iraq war, a former American ambassador, Joseph Wilson, went to Niger for the CIA to investigate claims that Saddam Hussein had sought uranium there. Mr Wilson found the claims bogus but Mr Bush included the Niger story in his case for going to war nonetheless. In 2003, after the war, Mr Wilson wrote an article denouncing Mr Bush’s use of the Niger claim. Soon after, a conservative columnist, Robert Novak, revealed that Mr Wilson’s wife, Valerie Plame, was a covert CIA operative.

Mr Novak’s column was meant to undercut Mr Wilson’s article—he suggested that Mr Wilson’s Niger trip came at his wife’s behest, making it seem as though he would not otherwise have been sent. But in disclosing Ms Plame’s identity, Mr Novak moved the story away from Niger and uranium and towards the “senior administration officials” who had told him she was a spy. Someone, perhaps one of Mr Novak's sources, also told several other journalists including Ms Miller. The result was that Ms Plame’s covert career was ruined, seemingly in revenge against her husband. It looked, at the very least, to be an unusually shameful bit of political street-fighting.

And, potentially, a crime. The Intelligence Identities Protection Act of 1982 makes it illegal to expose undercover spooks. This put pressure on Mr Bush to appoint a special prosecutor, Patrick Fitzgerald, to find the leaker. Early speculation centred on several senior aides, but attention was before long firmly focused on Mr Rove. This delighted Democrats, who would dearly love to bring him down. The man known to Mr Bush as “Boy Genius” and “Turdblossom” was the architect of the president’s two election wins, and is credited by friends and enemies alike with almost supernatural powers of political cunning.

How, then, did the trickle of rumours surrounding Mr Rove become a stream and then a flood over the course of the investigation? In his efforts to get to the bottom of things, Mr Fitzgerald sought to have the New York Times’s Ms Miller and Matthew Cooper, a reporter for Time magazine, jailed for refusing to co-operate. Time caved in, releasing Mr Cooper’s e-mails and notes related to the story. These confirmed that he had spoken to Mr Rove. And on July 10th, Newsweek magazine published excerpts from one such e-mail from Mr Cooper to his editor, confirming that Mr Rove told the reporter that Ms Plame worked for “the agency”.

The case is, however, not yet closed, at least not the criminal case. To have violated the Intelligence Identities Protection Act, the exposer must be authorised to see classified information, must know the officer is undercover and must know that the CIA is taking “affirmative measures” to conceal the operative’s identity. Mr Cooper, in the most recent issue of Time magazine, confirms the basic story: Mr Rove was the first to tell him Ms Plame worked for the CIA. But Mr Rove did not say that she was covert and has since testified that he did not know. This has become the crucial detail in prosecuting him under the Intelligence Identities Protection Act. Now, the prosecutor may be trying to nail him (and possibly others) for perjury or obstruction of justice instead.

Certainly, damage was done. The CIA was indeed taking “affirmative measures” to protect her identity. The agency has since kept her from publishing an article clarifying what happened, saying it could damage their work. Her front company was exposed. So regardless of whether anyone will be convicted of a crime, the affair has the potential to become highly embarrassing for the Bush administration. Mr Novak spoke of not one but two senior administration sources who told him about Ms Plame.

Last week saw the first signs that the administration is getting rattled. All week, the usually compliant White House press pool battered the president's press secretary, Scott McClellan, with hostile questions. He responded repeatedly that the administration would not comment on an ongoing investigation. This struck the journalists as particularly fishy, given that Mr McClellan had previously been happy to discuss the affair, categorically denying the involvement of Mr Rove and other advisers. Mr Bush too intoned the “ongoing investigation” mantra, when asked about the affair on Wednesday. Why the sudden silence?

The administration may be hoping that the less said now, the greater the chance that it will all blow over. If Mr Rove is cleared of breaking the law by the special prosecutor—perhaps because it cannot be proved that he knew Ms Plame was undercover—Mr Bush may keep him. On Monday, he raised the bar for dismissal by saying he would sack anyone who committed a crime (rather than anyone who leaked classified information, as he had said earlier). If Mr Rove then stays, the administration that prides itself on its discipline would then look weaselly. But that might seem a better option than admitting any wrongdoing with a sacking, especially of someone as important as Mr Rove. After all, no further investigation into the matter is likely to come from a Republican-dominated Congress. The battle over Mr Bush’s first Supreme Court nominee—following the retirement of Sandra Day O’Connor—has far more long-term political importance than Mr Rove’s fate and may divert Democrats’ attention from the Plame affair.

On the other hand, with the Supreme Court fight looming, Democrats may see the Plame affair as an opportunity to weaken Mr Bush at a crucial moment. A Wall Street Journal/NBC News poll from July 14th showed his approval ratings in negative territory, and for the first time more respondents rated him negatively than positively on “being honest and straightforward”. While he might like to stonewall until this passes, he may not be able to. The press corps is in high dudgeon, feeling misled by the administration while one of their own is in a prison jumpsuit for protecting an administration source. They are unlikely to let the matter drop.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Solving Britain's first suicide-bombing

Jul 14th 2005
From The Economist Global Agenda

Police investigating the London terrorist attack have identified the four men suspected of planting the bombs and think they may all have died in the attack, making it Britain's first suicide-bombing. It appears that three of the bombers were British-born Muslims of Pakistani descent

LONDONERS, and tourists visiting the British capital, made a point of going about their business and leisure as normal—or as near normal as possible—this week, following last Thursday's devastating terrorist attacks, which killed at least 53 people and injured around 700. For the first four days after the attacks, there had been few signs of progress in the hunt for the bombers. It was feared that they could strike again, as happened in devastating terrorist attacks in Madrid last year and Istanbul in 2003. Meanwhile, with every hour that passed, the trail leading to them seemed to be getting colder.

However, on Tuesday July 12th the police announced dramatic developments: they had identified four men—three from the area around Leeds in northern England and one whose home area was not specified—who they suspected had planted the four bombs, three on board London Underground trains and one on a bus. The four were recorded on security cameras arriving together at King's Cross railway station, carrying rucksacks, shortly before the explosions.

There are strong indications that all four men died in the explosions. Documents bearing the names of three of them had been found at the scenes of three of the explosions. In one case—that of the blast on an Underground train near Aldgate station—there was strong forensic evidence that one of the bombers died there. It now appears that three of the four were British-born Muslims of Pakistani descent from the Leeds area while the fourth is believed to have been a Jamaican-born Briton. Neighbours and friends of the three Leeds men have expressed astonishment that such apparently ordinary young men had suddenly turned mass killers.

If the four bombers were “lilywhites”, as terrorists with no previously known militant connections were called in the days of the IRA's bombing campaign, this would make it extremely hard to have detected them in advance of the attacks—and would have disturbing implications for the chances of intercepting any future bombers. Britain's interior minister, Charles Clarke, has vehemently denied a claim by his French counterpart, Nicolas Sarkozy, that Mr Clarke had told a European Union ministerial meeting on Wednesday that some of the bombers had been arrested last year but freed to see if they led police to a wider terror network. However, police sources have told the BBC that one of the bombers' names had come up in a previous terrorism investigation but he had been eliminated from the inquiry.

Whether or not any was already known to have links to militants, what does now seem almost certain is that the four men carried out the first ever suicide-bombing on British soil. London suffered devastating bombing by German warplanes in the second world war, and many people were killed and injured in the IRA's bombing campaign of the 1970s-1990s. But, if confirmed, an attack by people who have no fears for their own safety represents an unprecedented threat for a British city.

The worry now—especially given that the bombs were thought to be quite sophisticated and contained high-grade explosives—is that the four attackers were the mere “foot soldiers”, as Mr Clarke put it, of a “master bomber” who is still at large and may have at least one other group of bombers preparing to strike. Police have been searching homes in the Leeds area, including those of the bombers, and have found a car containing suspected explosives, at Luton railway station, north of London. On Thursday July 14th—a week after the bombings—as Londoners and others across Europe observed two minutes' silence in memory of the victims, police evacuated a district in Leeds near the home of one of the bombers and were searching another house in Aylesbury, not far from Luton.

Whether or not any of their relatives and friends knew, it now seems almost certain that the attackers were Islamist extremists, possibly linked to al-Qaeda, and that the bombings were timed to coincide with Britain’s hosting of the Group of Eight summit at Gleneagles in Scotland last week. Though al-Qaeda’s top leadership structure is believed to have been disrupted since the American-led invasion of Afghanistan in late 2001, it is possible that any number of sympathetic groups worldwide are seeking to stage attacks, with or without assistance from the central organisation. Shortly after the London attacks, a group claiming links to al-Qaeda posted an internet statement saying that “mujahideen” (holy warriors) had carried them out in retaliation for Britain's military involvement in Iraq and Afghanistan—though such statements have sometimes proved unreliable in the past.

As might be expected in the wake of such devastating attacks, a poll for Tuesday's London Times by Populus shows strong support for new anti-terrorism measures: 89% of those polled supported increased security and baggage checks on public transport, while 70% backed extra police powers to stop and search people on the streets. Less predictably, support for such measures seemed stronger outside London than in the capital itself.

However, Tony Blair, the prime minister, must know that public support for such measures might soon dissipate if they caused constant inconvenience and delays for passengers. Worse, relations between ethnic and religious communities in London and elsewhere might quickly be strained if police appeared to be singling out people for “looking Muslim”.

Parliament, which resisted several of the measures in the anti-terrorism law Mr Blair struggled to pass in March, would not necessarily wave through any new proposals. The law passed in March was needed because Britain’s highest court, the Law Lords, had struck down part of an earlier terrorism law, passed in the wake of the September 11th 2001 attacks in America, that had allowed the government to detain foreign terrorism suspects indefinitely. In the new bill, Mr Blair had sought powers for the government to impose “control orders”, including house arrest, on suspects not charged with any offence. But resistance in Parliament forced him to back down and agree to let judges supervise the imposition of such restraints on suspects’ liberties.

At their meeting on Wednesday, the EU's interior and justice ministers agreed to speed up the implementation of proposed anti-terrorism measures, including the approval by December of a new “European evidence warrant” to accelerate the cross-border exchange of evidence in terrorism investigations; and agreement by October on measures to require telecommunications providers to keep records of phone and internet usage, perhaps for a year or more, to help trace terrorists' messages. Europe's finance ministers also met on Wednesday and agreed new controls on cash transfers, to constrain terrorists' finances.

The London attacks have also prompted America and other allies to reconsider their own anti-terrorism laws. On Monday, President George Bush urged Congress to make permanent those parts of the Patriot Act that are soon to expire. Among other things, the law, which was passed in the aftermath of the September 11th attacks, increased the security forces’ powers to track and detain terrorism suspects. A number of these provisions will lapse at the end of this year. Even within Mr Bush's Republican Party there are divisions over whether to make them permanent or just renew them for a further period.

Italy, which has sent troops to Iraq alongside America’s and Britain’s, fears it could be next in line for a terrorist attack. This week its government announced new anti-terrorism legislation, including a proposed increase in the length of time that suspects can be held. Though it seems highly sensible for those countries that risk being attacked to re-assess whether there are any gaps in their armoury of legal and other weapons against terrorism, no one should be under any illusions that protecting such vulnerable targets as public-transport systems will be easy.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Holier-than-thou no more

Jul 12th 2005
From The Economist Global Agenda

The corruption scandal surrounding Brazil’s governing Workers’ Party has deepened, forcing the resignation of a string of top officials. According to one poll, many Brazilians suspect that President Lula da Silva—Latin America’s leading political figure—knew about the alleged bribery of congressmen, casting doubt over his chances of re-election

HAVING portrayed itself for so long as owning a monopoly on virtue in political life, the fall from grace of Brazil’s governing, left-wing Workers’ Party (PT) has been spectacular. In the past month, amid mounting allegations of corruption, President Luiz Inácio Lula da Silva has lost a string of his top aides. The latest to step down, on Saturday July 9th, was José Genoino, the PT’s national president. Mr Genoino quit the day after police arrested an aide to his brother (who is also a PT official) at São Paulo’s domestic airport with $100,000 in American dollars stuffed down his underpants and a further 200,000 reais ($85,000) in a suitcase.

Suspicions were raised that the money might be connected to an alleged vote-buying scheme, in which the PT leadership is accused of raiding state-owned companies to bribe congressmen from smaller parties belonging to the governing coalition. Like all those facing allegations, the arrested aide protests his innocence—apparently he gave the police the curious explanation that he had earned the cash selling vegetables. (In a probably unrelated incident, a congressman from an opposition party, who is also an evangelical bishop, was briefly held at Brasília airport on Sunday night after being found with 10m reais in cash in seven suitcases—he said they were donations from his congregation.)

Earlier scandals had already begun to tarnish the PT’s holier-than-thou image. But things got serious last month when Roberto Jefferson, a disgruntled government ally who runs the smallish Brazilian Labour Party (PTB), began spilling the beans on a supposed 30,000 reais monthly “allowance” that he claims the PT has been doling out to some congressmen to secure their votes. The PTB, he claimed, declined the allowance but instead accepted a campaign contribution of 4m reais, stuffed in two huge suitcases. “Everyone knows where the money comes from,” Mr Jefferson told a congressional panel: state firms, their boards packed with political hacks, sign overly generous contracts with companies run by their cronies, who then distribute the loot as directed by the politicians. Mr Jefferson accused Marcos Valério de Souza, the owner of two advertising agencies that have big contracts with state firms, of being the scheme’s main bagman.

Evidence quickly emerged that seemingly supported the accusations. Mr de Souza’s agencies were found to have made large withdrawals from banks at times and places where politicians suspected of taking the bribes (or their aides) were also present. Veja magazine uncovered even more damaging documents, showing that Mr de Souza had acted as guarantor of a bank loan of 2.4m reais to the PT and even repaid an instalment of 350,000 reais—implying that money milked from state firms was used to fill the PT’s own coffers as well as bribing other parties’ politicians. Lula’s chief of staff, José Dirceu, resigned in the wake of Mr Jefferson’s explosive testimony and, last week, the PT’s treasurer and secretary-general took “leave of absence”.
Since Mr Genoino’s signature was on the loan document, his departure was already looking likely. The arrest of his brother’s aide was the final straw.

More sleaze may yet emerge, and more heads may roll. Questions are being asked about the remarkable growth of a company jointly founded by Luiz Gushiken, the president’s communications chief. On Tuesday the president demoted Mr Gushiken from his cabinet, though he will continue being responsible for big government advertising contracts. Lula’s opponents, and the Brazilian press, are also sniffing around a small company in which one of the president’s children is a partner, which received a 5m reais investment from a privatised phone company. Again, all involved deny wrongdoing.

Allegations of vote-buying in the Brazilian Congress are no novelty. There were claims, investigated inconclusively so far, that lawmakers were bribed to pass a constitutional amendment to let Lula’s predecessor, Fernando Henrique Cardoso, stand for re-election in 1998. But the emergence of what looks like a money trail leading to the top of the ruling party has made this the country’s worst political crisis since 1992, when the then president, Fernando Collor, was forced to resign.

So far there has been no serious talk of Lula himself being forced out of office. However, an Ipsos poll for last weekend’s Veja suggested that 55% of Brazilians now think Lula knew personally about the alleged vote-buying scheme. Only 36% think the PT an honest party, though 55% still think Lula himself honest. Lula's approval ratings—sky-high when he became president in early 2003—have slipped. But on Tuesday there was some cheer for the Brazilian president in a new poll from Sensus, which showed his approval ratings recovering to 60%, from 57% in the firm's last poll in May.

Until recently it was almost universally assumed that Lula would easily win re-election next year. Now this seems uncertain. The president is hoping that the departures of those officials linked to the scandal, combined with a limited cabinet reshuffle, will help to put the crisis behind him. The PT is said to be encouraging the creation of a plethora of congressional inquiries into the various allegations—as opposed to a single inquiry into everything—in the hope that congressmen and the media will get so bogged down that the investigations make little headway.

Don’t panic…yet

How the government's troubles might affect the running of South America’s largest economy and the management of its enormous public debt is hard to predict. So far there has been little sign of panic on the financial markets, though this might change if the scandals begin to touch Lula’s finance minister, Antônio Palocci, who has impressed investors with his firm control of the public finances. If Lula is so weakened that he decides against seeking re-election, the markets’ reaction will depend greatly on whom the PT puts up in his place: a unreconstructed statist from the party’s left wing? Or the market-friendly Mr Palocci, who would be a strong contender?

Brazil has not done so badly since Lula came to power. Fears of an Argentine-style economic meltdown and debt default have not been realised; inflation has stayed low; and growth, especially in the past year or so, has been respectable. But the PT’s articulation in Congress has been poor—if it did bribe lawmakers, it didn’t get much in return—and it has made ever slower progress on the economic reforms that are needed if Brazil is ever to enjoy an East Asian-style surge in prosperity. Its troubled South American neighbours sorely need the region’s giant to keep on pulling them upwards. Brazil’s scandal, if it ends up triggering a financial crash, risks dragging it, and them, down.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

Economist.com Cities Guide: New York Briefing - July 2005

News this month

Olympic failure

New York's Olympic dream ended abruptly on July 6th, when the International Olympic Committee (IOC) awarded the 2012 Games to London. Some 250 politicians and delegates—including Mayor Michael Bloomberg, Senator Hillary Clinton and Muhammad Ali, a boxing legend—had lobbied hard for New York at the IOC's meeting in Singapore. But the city's bid was damaged beyond repair in June, when an obscure state panel rejected the proposed Olympic Stadium on Manhattan's West Side. Mr Bloomberg failed to salvage the bid with a “Plan B” stadium in Queens.

Unlike the other bids, New York's did not have a base of national support. President George Bush's absence from the presentation did not help (London's contingent included a very prominent Tony Blair, and Paris's enjoyed support from President Jacques Chirac). And the bid failed to galvanise New Yorkers: according to a poll in March just 60% of them supported hosting the Games, compared with 85% of Parisians and 91% of Madrileños. The bid's failure marks a personal defeat for Mr Bloomberg, but is unlikely to affect his re-election chances.

Subterranean blues

New York's 4.8m subway riders have not been happy with their subway system lately. Straphangers have had to deal with fare increases, token-booth closures, fewer train conductors, service disruptions, track fires and broken Metro Card machines. Now the Metropolitan Transportation Authority (MTA) may ban coffee. The MTA is considering new rules that would, among other things, ban drinking out of open containers in subway cars (milk bottles would be allowed). Movement between cars, wearing roller skates, and resting one's feet or packages on the seats may also be prohibited. In response to critics, the MTA postponed its vote on the new regulations until August, despite having had over a year to consider them. The rules were originally slated to take effect in October. A proposal to ban photography throughout the subway system in the name of public safety was rescinded last year.

But after the London transport bombings on July 7th, New Yorkers are more preoccupied with subway security. Since September 11th, the MTA has talked about spending hundreds of millions of dollars to improve the safety of the transportation network, but only a fraction of this—about $30m as of March, according to the New York Times—has been spent, mostly on studies. MTA officials claim they will have a plan to spend more than $300m in state and federal funds by the end of the year. In the meantime, the city has done little to improve subway security.

Bright lights of Brooklyn

Manhattan’s skyscraping skyline is inseparable from New York's identity. The same cannot be said of Brooklyn, a large borough across the East River. But Bruce Ratner, a real estate developer, and Frank Gehry, a renowned architect, could change all that. They have put forward a $3.5 billion plan to redesign 21 acres of downtown Brooklyn, with 17 new buildings, including six skyscrapers. The tallest would be about 60 storeys high. The vast project surrounds the site of a proposed arena for the New York Nets basketball team, which could be ready for the 2008-09 season. The rest of the project is scheduled to be completed by 2011.

Mr Ratner and Mr Gehry still have several hurdles to overcome. They must get the Metropolitan Transportation Authority's approval to buy and develop the site, which is occupied by rail yards. They will need $100m in subsidies from both City Hall and the state, and a favourable environmental-impact review. And they must persuade “Develop Don't Destroy Brooklyn”, a local residents’ group that wants to stop the project.

Hybrid taxis

New York's city council has unanimously passed a bill to allow hybrid taxis on the streets. Hybrids run on a mixture of petrol and electricity, covering more miles to the gallon and producing less pollution than traditional cars. Under the terms of the bill, the Taxi and Limousine Commission (TLC), which regulates cabs, has been given 90 days to approve at least one hybrid for use.

The TLC is concerned that hybrids won't have the same leg room or luggage space as the current 13,000-strong fleet. Still, the TLC is said to be close to picking a model for a trial run, and has already received bids for 27 licences for the taxis. New York is not the first city with environmentally friendly cabs—green San Francisco already has 15—and over 10% of New York’s 4,300 buses are hybrids.

Chew on this

Takeru “Tsunami” Kobayashi of Japan wolfed down 49 hotdogs in just 12 minutes to win the 90th annual Nathan's Famous hotdog-eating contest in Brooklyn's Coney Island on July 4th. Using his now legendary “Solomon technique” (he breaks sausages in two and dips buns in water), Mr Kobayashi won his fifth consecutive title, sponsored by Nathan’s Famous, a hotdog company. His nearest rival was Sonya “the Black Widow” Thomas, who stuffed down a gut-busting 37 “dogs”, breaking the American record. Mr Kobayashi, who weighs only ten stone, says he would have retired if he had broken his record of 53½, but now seems likely to return next year.

Catch if you can

July 2005

Dinosaurs: Ancient Fossils, New Discoveries

Until January 8th 2006

This splashy yet scholarly tour of dinosaur science is worth elbowing your way into. There are plenty of remarkable bones, skulls, media displays and dioramas—including one featuring Beipiaosaurus (pictured), a rather dapper feathered dinosaur found in China. But the real meat of the show is the work of scientists, with an emphasis on new, surprising discoveries. Each display gives a fairly sophisticated look at the process for reconstructing what these creatures must have been like.

For example, ferocity among dinosaurs may have just been a show for the ladies. Triceratops' brutal horns were too brittle for a fight, but just long enough to lure females. And the tails of various sauropods—which could taper from the diameter of a rubbish bin to that of a pencil tip—may have actually worked as a whip, cracked when the mood was right. Meanwhile, interactive graphics show how computer models were used to reckon how Tyrannosaurus ran. How fast? About ten miles per hour—perhaps slow enough for your correspondent to outrun it, after a good breakfast. Reinforcing this theory, the displays include a delightful robot of a T-rex strolling at a dignified pace.

American Museum of Natural History, Central Park West (at 79th St). Tel: +1 (212) 769-5100. Visit the museum’s website.

More from the New York cultural calendar

Economist.com Cities Guide: Washington, DC Briefing - July 2005

News this month

Staying prepared

Security remains a top concern in the capital. This was reinforced on July 4th, when the city used its fireworks celebration to test emergency evacuation procedures. As the hundreds of thousands of holiday revellers left the event on the National Mall, police funnelled them through seven downtown exits to simulate a mass exodus after a terrorist attack. The test got mixed reactions. Anti-terrorism experts noted that while the crowds were bigger than those of a typical Washington workday, the exercise could not recreate the urgency—and perhaps the more panicked behaviour—of a real evacuation. Some civilians complained of logjams and unnervingly long waits.

At the same time, a recent gaffe has led the Federal Aviation Administration to consider more flight-path restrictions in the Washington area. A small Cessna aeroplane crossed into restricted airspace over Camp David, the presidential retreat, over the holiday weekend—one of three such violations in three days. Across the country, there have been more than 2,000 airspace violations since the September 11th terrorist attacks, according to the Washington Post.

A career in arm-twisting

The business of Washington is politics—sometimes quite literally. The Washington Post reports that the number of registered lobbyists in the city has more than doubled since 2000, from 16,342 to 34,785 in 2005. The money spent on lobbying by corporations and interest groups has also shot up, from $1.6 billion in 2000 to $2.1 billion in 2004.

The fees some top lobbyists charge have nearly doubled in that period—some former Capitol Hill staffers command a $300,000 starting salary. The figures reflect a few trends, including a rise in federal spending (from $1.79 trillion in 2000 to $2.29 trillion in 2004, which lobbyists vie for), and a more business-friendly Congress, which has the effect of encouraging companies to hire more lobbyists. According to a study by Public Citizen's Congress Watch, an NGO, nearly half of all departing members of Congress become lobbyists.

Where are the fans?

Washington’s new baseball team, the Nationals, may be enjoying a winning streak, but fewer than expected seem to care enough to see it for themselves. The team sold an impressive 1.2m tickets for its first 36 home games, and is expected to make a pre-tax profit of $20m this season. But in its first 33 home games, almost 250,000 of these tickets went unused. This 23% no-show rate at RFK Stadium surpasses the typical rate in professional sport of 15-20%. The city's projected revenues were based on expectations of greater attendances. The District of Columbia receives a 10% tax on tickets sold, 12% on parking and 10% on concessions. But team officials are optimistic, predicting more fans in the stands as the season heats up.

Perhaps more fans will come to games because few can watch them on television, thanks to a protracted and bitter battle over broadcast rights. The dispute stems from the agreement that salved the ire of Peter Angelos, owner of the Baltimore Orioles baseball team, which stipulated that Nationals games would be aired on a new Mid-Atlantic Sports Network, in which he would have a majority stake. But Comcast, the country's largest cable company, has refused to carry the new network, as it competes with its own local sport networks. It has filed a lawsuit, claiming it was unfairly shut out of bidding for Nationals TV rights. The Orioles have responded by filing a complaint against Comcast with the Federal Communications Commission. For now, fans are suffering: only those with DirecTV, a satellite-TV service, or who get RCN cable, a small local outfit, can watch all Nationals games.

Play ball

George Soros, a billionaire financier and philanthropist, spent more than $20m trying to defeat George Bush in last year’s presidential election. This year, his aim is lower: he has joined a group that is trying to buy the Washington Nationals baseball team. His bid is one of eight being screened by Major League Baseball, which bought the team in 2002 (when they were the Montreal Expos). But his interest in this American pastime has started a political furore, with Republicans in Congress threatening Major League Baseball with retribution if Mr Soros's bid wins. Describing him as “polarising”, they even hinted at ending baseball's anti-trust exemption, which allows teams to work in concert. They have since backed off from this threat.

Among the other bids under consideration by Major League Baseball is one by a group that includes Colin Powell, the former secretary of state, and one with Peter Fitzgerald, a former GOP Senator of Illinois. The offering prices are believed to range from $300m to over $400m.

Expensive tattle-tales

Neighbours tattling on neighbours are fuelling a crack-down on illegal construction in the District. The city government issued more than 1,400 stop-work orders during a recent 17-month period, collecting almost $1m in fines, according to the Washington Post. In contrast, nearby Montgomery County in Maryland and Fairfax County in Virginia each issue fewer than 50 stop-work orders each year, while Prince George’s County in Maryland issued 135 such orders in 2004.

According to the Post, the continuing boom in real-estate prices is prompting most of the new construction. Homeowners are now investing in their houses because they cannot afford to move, and some savvy buyers are simply looking to refurbish decrepit properties for a lucrative resell. Most violations are brought to light by neighbours and community activists who call in tips to the city government. Inspectors fine builders between $500 and $4,000 for repeat violations.

Catch if you can

July 2005

“Lady Windermere’s Fan”

Until July 31st 2005

“Lady Windermere’s Fan”, Oscar Wilde’s first produced play, is a trademark riff on the absurdities of high society in 19th-century England. Driven by a fundamental misunderstanding, in which Lady Windermere believes her husband is being unfaithful, the play's wit and nuance made it an instant hit when it was first brought to a London stage. The Shakespeare Theatre has put on a lavish production, full of beautiful and intricate sets and period costumes. But the heart of any Wilde work is the writing, brought to life here by an excellent cast. Dixie Carter (pictured), an actress best known for her television work, particularly shines, prowling the stage as Mrs Erlynne. Though some of the conventions Wilde skewers feel reassuringly outdated, the play is powered by timeless themes: love, betrayal and the bonds of marriage.

The Shakespeare Theatre, 450 7th St. Tel: +1 (202) 547-1122. Performances: Sun, Tues, Wed 7.30pm; Thur-Sat 8pm; matinees Sat, Sun 2pm. For more information, see the theatre’s website.

More from the Washington, DC cultural calendar

Economist.com Cities Guide: Paris Briefing - July 2005

News this month

A talent for headlines

Nicolas Sarkozy, head of the ruling UMP party, has become even more prominent after France's no vote on the European Union constitution. Not only is he the Interior Minister, but also a government reshuffle put him in the number-two spot. “Sarko” is clearly relishing the moment. First he railed against EU enlargement. Then he intervened in the election of the French Council for the Muslim Religion, to head off a split in France's most powerful Islamic body. He also weighed in on a matter of the courts, saying that a judge should “pay for his mistake” for releasing a known killer who is now suspected of murder.

All this populist rhetoric prompted President Jacques Chirac—Sarko's boss, nominally—to call for reforms that make it harder to release serial killers, while carefully reaffirming the independence of the judiciary. Mr Sarkozy would not be humbled: “I wanted it to act, the government decided to act.” Still, many believe that he will hew closer to the centre as the 2007 presidential election approaches.

Rough welcome

Dominique de Villepin, a former Foreign and Interior Minister, made famous by his fiery speech at the UN against the Iraq war, is now prime minister. Almost immediately after assuming office, he began working to restore jobs and confidence. He decried unemployment as “the true French disease”, and promised results within 100 days, in keeping with his hero, Napoleon. His efforts to push through labour reforms kept him so busy that he even missed seeing his father, Xavier, a former senator, get the Légion d'Honneur.

But his real bugbear is Nicolas Sarkozy. A cartoon accompanying a full-page editorial in Le Monde depicted the pair shaking hands—with guns at the ready behind their backs. They need each other, but only until January 2007, when the ruling party picks its presidential candidate. They crossed paths recently when Mr de Villepin’s plan to consult opposition parties about a response to the EU referendum ended with the Socialists refusing to attend. They were angry at Mr Sarkozy’s conservative rhetoric, and at the invitation extended to the far-right National Front (FN). The FN, meanwhile, were pleased to be invited back to Matignon—their last visit was in 1993.

Waiting breathlessly

The Brits think it is between Paris and London. The Spanish think it is between Paris and Madrid. Regardless, Paris seems to be a favourite. The host city of the 2012 Olympic Games will be announced in Singapore on July 6th. President Jacques Chirac will be there to support Paris's bid in front of the 115-member panel of the International Olympic Committee (IOC). The Paris campaign slogan—“L'amour des jeux” (Love of the Games)—capitalises on the city's reputation for romance. It has a nice ring to it, particularly when compared with London's rather plain “Back the Bid”.

An IOC report in the run-up to the vote gave Paris top ratings. It emerged as the only city without areas of weakness. If Paris does win, celebrations will kick off with bursts of confetti from two fountains in front of the Hôtel de Ville. If the bid is defeated, the “Paris 2012” signs plastered all over the capital will still be swiftly changed to read: “Merci!” In the run-up to the announcement, the Paris bid did lose some of its lustre, owing to the resignation of Guy Drut, France's former Sport Minister, because of involvement in a corruption case.

Some like it hot

The world’s first nuclear fusion site has been awarded to France. The International Thermonuclear Experimental Reactor (ITER) will be based in Cadarache in southern France, 60 kilometres inland from Marseille. President Chirac said it was “a big success for France” and went to the site to make his celebratory “cocorico” (cock-a-doodle-do). France won the bid after it agreed that a large portion of the project's research would be done in Japan, which had also been vying for the project.

Some Greens groaned: Dominique Voynet, a former Environment Minister, said ITER was “costly, dangerous, and anti-ecological”. But supporters say a successful ITER will produce far less nuclear waste than existing fission reactors, and its fuel can be derived from water. Costing around €10 billion ($12 billion, to be split among several nations), ITER should come into operation in 2015. If it succeeds, it will generate temperatures above 100mºC—several times hotter than the sun's centre. The announcement came as the EU approved the development of the Galileo satellite navigation system, to rival the America's Global Positioning System—good news for leading French technology firms like EADS, Thales and Alcatel.

The heat is on

June's heat wave has many fearing a repeat of August 2003, when torrid weather killed 14,802 house-bound elderly people without suitable air conditioning. “Heat wave: the first deaths”, bellowed a June 28th headline in Le Parisien, the city paper. There is now an emergency number to call at the Health and Solidarity Ministry; many seem to be worried that the heat has come early this year.

Legislation introduced in September 2004 obliges town halls to create lists of elderly people liable to risk from heat waves (in August 2003, 55% of those who died were living alone). Certain elderly residents will get regular phone calls to ensure they are okay. Xavier Bertrand, the Health Minister, says retirement homes are encouraged to take on extra help, with new subsidies for hiring people.

Catch if you can

July 2005

Poussin, Watteau, Chardin, David: French Painting in German Collections, 17th and 18th Centuries

Until July 31st 2005

The 180 paintings that make up this show have been gathered from 30 German museums by Pierre Rosenberg, former director of the Louvre. After 20 years of consideration, it took him three years to organise. There are a number of extraordinary works here, such as “Girl With Her Puppy”, a rather startling painting by Jean-Honoré Fragonard, in which the subject plays with a dog on her bed. There is something awkwardly intimate about the girl's position, carelessly on her back, with her bare legs raised. Other French masters on display here include Boucher, Greuze, Largilliere, Valentin.

Alas, the exhibit has a downside: few seats, low lighting and hard-to-read caption. Perhaps these quirks will be resolved when the exhibition travels to Munich's Haus der Kunst, from October 5th to January 8th.

Grand Palais National Gallery, Square Jean Perrin entrance, 3 avenue du Général-Eisenhower, 8th arrondissement. Tel: + 33 (0)1 44 13 17 17. Métro: Champs-Elysées-Clemenceau or Franklin Roosevelt. Open: Wed-Mon, 10am-8pm (until 10pm Wednesdays). Entry: €10.3 before 1pm with reservation, €9 after 1pm (no reservation needed). For more information visit the museum's website.

More from the Paris cultural calendar

Economist.com Cities Guide: Moscow Briefing - July 2005

News this month

Train attack

Thanks, perhaps, to Moscow's omnipresent security during May’s Victory Day celebrations, the day passed without a terrorist attack. But Russia Day on June 12th was marred by the bombing of a train heading to Moscow from Grozny, the capital of Chechnya. The Federal Security Service said the bomb contained the equivalent of five kilograms of TNT. The passenger train derailed 150km south of Moscow, injuring more than 30 of the 304 people on board.

The attack was possibly the work of Chechen rebels, but, unusually, no group has claimed responsibility. Igor Levitin, Russia’s transport minister, claimed that an assistant train engineer had noticed two men running away from the explosion into the surrounding woods. The bombing is now the subject of an investigation, and security on all trains and railway stations has supposedly increased.

The Bolshoi touches up

The Bolshoi Theatre, home to two of Russia’s leading opera and ballet companies, has closed for a three-year renovation that could cost up to £400m. The 180-year-old building has suffered from various maladies in recent years. Acoustics have been problematic since the orchestra pit was renovated in the 1950s; the area beneath the stage needs enlarging; and there are other problems caused by faulty electrics, ageing materials and noisy machinery.

The case for renovation was first made in the 1980s, but it was only after Vladimir Putin, Russia's president, guaranteed government involvement last March that the project began. While the main theatre is closed, performances will continue at the newly built “small stage” next door.

Olympic dreams fade

Moscow’s chances of hosting the Olympics in 2012 seem to be getting slimmer. On June 6th, the International Olympic Committee (IOC) released a report that further confirmed the city’s status as an outside bet. The report, which will be circulated to the 114 voting members of the IOC before the vote in Singapore on July 6th, highlights the somewhat vague nature of Moscow's bid plans. Although the report mentions the city’s experience in hosting large-scale sporting events, and does not dwell on security risks, the attempted assassination of a Russian businessman while the IOC mission was in town cannot have helped.

At a press conference, the city’s deputy mayor played down the criticism, and officials insisted that Moscow was still very much in the running. But Paris and London remain the bookies’ favourites—both were praised in the report for the “very high quality” of their bids.

Getting (slightly) cheaper

Good news for visitors to Moscow: it is now only the fourth most-expensive city in the world (down from third in 2004). According to the results of an annual survey of 144 cities by Mercer Human Resource Consulting, only Tokyo, Osaka and London are pricier; New York is 13th.

The survey ranks the cities based on the cost of housing, transport, food, entertainment, clothing and other items (a “basket” of more than 200 goods altogether). Moscow earns opprobrium for the high price of its coffee (at over $5, the most expensive cup in the world) and CDs ($23 for a shop-bought disc, though much cheaper if bought from a market, as most Muscovites do). But it wins plaudits for its cheap public transport. Critics of the survey’s method claim that those conducting it had an unnecessarily expensive “expatriate” experience, pointing out that for many Muscovites life in the city is less expensive than the survey suggests.

Central rental

While international chains are frantically trying to build more hotels to cash in on Moscow’s mini tourist boom, companies offering serviced flats are filling the gap. Many Muscovites who have lived in the city centre for generations have realised that for the price of a quick paint job they can retire to the country and make a comfortable income out of renting to foreigners.

These small-scale entrepreneurs often lease their apartments to agencies such as Intermark, Pulford or Beatrix, who in turn sublet to visitors. For business travellers who are willing to eschew the convenience of hotel living, a serviced apartment can offer real savings plus the benefits of a central location. A comfortable one-bedroom off Tverskaya, the main drag, costs $100 to $200 per night.

Summer snow

After a series of false starts, summer conclusively arrived in Moscow in June, and with it a disconcerting phenomenon: pukh, or “summer snow”. In a triumph of Soviet planning, Moscow (and many other cities in former Soviet countries) was crammed with Balsam Poplar trees in the mid-20th century. Planting these trees created a great deal of greenery fairly quickly, but city gardeners failed to predict that these trees would shed a white fluffy seed for several weeks a year in summer. The seeds are everywhere, tenaciously clinging to hair, gathering in puddles, flying through windows and eluding street cleaners. They are also terrible for people with allergies, irritating eyes and throats. Not even the thunderstorms that struck in early June have banished the seeds. Pruning the trees supposedly helps, but city authorities say this is far too expensive to do regularly.

Catch if you can

July 2005

Sam Taylor-Wood

Until July 25th 2005

Brit-art arrived in Moscow with a show of photographs and video installations by Sam Taylor-Wood, one of the original Young British Artists (or “YBAs”, along with others such as Damien Hirst and Tracey Emin), and a former nominee for the illustrious Turner Prize.

In this mixed-media exhibition, three series of photographs dominate large rooms at the Moscow Museum of Contemporary Art. “Crying Men”—a wall of uncompromising portraits of celebrities in various state of distress—juxtaposes the viewer’s discomfort at observing male sorrow with society’s voyeuristic fascination for anyone in the limelight. “Hysteria”, the best of four video installations, silently portrays a woman veering wildly between laughter and sobs, and leaves the viewer unsure of which is which.

Moscow Museum of Contemporary Art (in collaboration with the British Council), Ermolaevsky Pereulok, 17. Tel: +7 (095) 200-2890.

More from the Moscow cultural calendar

Why socially responsible funds are behind this month

from the July 11, 2005 edition - http://www.csmonitor.com/2005/0711/p17s01-wmgn.html

IF I'm investing in good companies, why is my social portfolio lagging the market?

Ethical investors usually do about as well as traditional investors, research shows. But that's not the case this year. The Domini Social 400, the best-known index of socially responsible firms, has fallen about 2 percent, much more than the Standard & Poor's 500 Index, which is virtually even for the year. There's a reason, says Eric Packer, Boston-based investment adviser with Progressive Asset Management, the socially responsible division of Financial West Group. Here are excerpts of his comments:

Q: Why was June a down month?

Mr. Packer: We're looking at some really major problems in the economy. We're looking at the shock of oil prices. We're looking at consumers who've been concerned about a lot of the prices for their food, their energy. And also there's a little bit of concern about not knowing where interest rates are going.

Q: Why is the Domini 400 down for 2005 while the S&P 500 is at break-even?

EP: One of the problems is that the energy area is underrepresented in the Domini. And it's also not in tobacco. There was a recent change in the [federal government's] tobacco litigation, where it was originally [asking] $130 billion. It looks like they may be settling for $14 billion. So it's been a very good last few months for tobacco.

Q: Is the lag temporary?

EP: If you take a look at the longer-term performance of the Domini, a three-year and a five-year period, you're looking at pretty much parity. In fact, there are certain periods of time where the Domini has slightly outperformed the S&P 500. We believe if you have that long-term perspective ... we feel they're going to have further parity.

Q: Why are some ethical mutual funds moving into areas they previously shunned?

EP: That's a fairly new phenomenon. Historically in social funds, you had something called avoidance. There were problematic areas - it could be energy, it could be defense contractors, it could be consumer products. But what we're finding now is that there are certain areas, particularly energy, where some social fund [managers] feel they can use a best-of-class approach.

Q: Best of class? Who wouldn't want that?

EP: It's somewhat gray. Here's a way you can include a problematic area in your portfolio but feel you're investing in a best-of-class company [that's not in a great industry but at least operates more responsibly than its competitors].

Q: We also are seeing new niche funds.

EP: Sometimes, we'll have clients who say 'I want to really feel the companies I'm investing in are making a difference. Avoidance isn't enough. I want my companies to be more proactive.' One fund particularly that we think is exciting is New Alternatives.

Q: What do they invest in?

EP: Smaller [energy] companies, companies on the cutting edge [that] are looking at wind power, solar, geothermal. They're looking at how energy can be transmitted more efficiently. They might even be investing in some of the technology for hybrid cars, which is a very exciting story now.

Q: Because New Alternatives is investing in such a small niche, does that mean it's going to be volatile?

EP: Absolutely. A fund like New Alternatives is designed to be a small part of your portfolio. A general guideline, for my more growth- oriented clients: Up to maybe 10 percent could be appropriate. For some of my more conservative clients, we could say maybe 5 to 8 percent.

Q: We've also seen more international ethical funds. Which ones stand out?

EP: The one I'm very partial to comes from Calvert, which is the largest family of socially responsible funds. Their fund is the oldest one in that arena. What they've been able to do is take a look at certain companies particularly within Europe, where a lot of social investing has been centered; Japan, to a lesser degree, Canada. We feel that they're very good at picking companies within those areas that have been performing well but also role models for what we call good, solid corporate governance.

Q: What's the fund called?

EP: Calvert World Values.

Q: And how have they done?

EP: Over the last year, they were up about 9.8 percent. But let's stand back a little bit. Over the last three years, they're up over 9 percent per year.

Q: Are there enough ethical funds to build a diversified portfolio?

EP: I've been in the business 12 years. When I first started, it was a much more limited universe. At that point, we had probably 10 to 12 funds. We now have over 50 different funds. So it means you can have that diversification.

Q: What about ethical bond or money-market funds?

EP: There's a new fund [CRA Qualified Investment Fund] that's been doing community investing. They're investing in community development groups and banks that are taking the money and lending it back to the community. So it's a way that you can have that conservative, fixed-income part of a portfolio, but you're making a difference where the money goes.

Q: What's your summer forecast?

EP: I think we're going to be looking at a difficult, challenging summer. We're probably going to be seeing $60 [a barrel] oil before we see $40 oil. Interest rates continue to weigh on the markets. And the other thing we're going to be concerned about is going to be the earnings of companies coming up. There's some uncertainty in that area. You want to be careful.

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'It's all good, boss!'

from the July 06, 2005 edition - http://www.csmonitor.com/2005/0706/p15s01-lire.html

Ethical lapses in high places stem in part from lack of honest feedback.

By G. Jeffrey MacDonald Correspondent of The Christian Science Monitor

At Enron, as at a host of other firms with recently tarnished reputations, those individuals most disgraced in scandal have been the ones once regarded as the smartest in the room.

Surprising? Not for experts in ethics.

Though everyone struggles to recognize his or her own ethical lapses, the task of catching one's own errors in judgment becomes especially challenging for high achievers, whether they run major companies or head up a small household. Reasons are several, but one looms largest: People in authority tend to lack the honest input that everyone needs to maintain a moral life.

"It's not so much a matter of one being intoxicated by the power. It's [a matter of] one being sheltered from the feedback," says Doug Lennick, an organizational consultant and coauthor of "Moral Intelligence" with Fred Kiel (Wharton, 2005).

In observing the past decade's rash of scandals, ethicists see a pattern of self-delusion among smart people in a range of roles. Former Chicago Tribune columnist and commentator Armstrong Williams lost his job last year after taking $240,000 from the Department of Education to promote particular policies. Former WorldCom CEO Bernard Ebbers is to be sentenced this month after his conviction in an $11 million fraud case. He could spend the rest of his life in prison. Earlier this year, defrocked priest Paul Shanley, once esteemed as a gifted youth-outreach worker, was sentenced to at least 12 years in prison for child rape. The list goes on.

People at all levels tend to see their own behavior as moral, says Michael Josephson, founder of the Joseph and Edna Josephson Institute of Ethics in Los Angeles. But the successful have a particular stake in maintaining a positive self-image, so they often evade two potentially humbling questions: "Is what I'm doing deceptive?" and "Am I resolving dilemmas in a self-interested way?"

Reading about frequent episodes of ruin, however, may not encourage many individuals to examine their own destructive habits because most don't want to face them, according to Sydney Finkelstein, author of "Why Smart Executives Fail." Yet the wise one, he says, will cultivate a network of frank talking sources as well as a personal capacity to hear and respond to criticism.

"Acknowledging to the world that you're not quite as successful as you thought, and as everyone else thought, is unacceptable" for too many successful people, says Finkelstein, professor of leadership and strategy at Dartmouth College's Tuck School of Business. "That's when the fudging of numbers begins."

Having judicious confidants around to serve as sounding boards for moral dilemmas is essential, sources agree, especially for the most accomplished of individuals. But not everyone agrees on the best way to use such a network.

One school of thought regards moral decisionmaking as tricky ground where all conclusions should be subject to rethinking, and the search for moral direction is enhanced by multiple voices. In this camp, "all cats are gray, and it's a sign of maturity to recognize that," according to the Rev. Steven Shussett, associate for spiritual formation at the Presbyterian Church (USA). In his view, sin tempts all, and therefore decisions involving the fate of others should always include a measure of caution and self-doubt. After all, he says, sinners run the risk of being wrong and not knowing it.

"When people are sure they know the answer [to a moral dilemma], you can be certain they don't," Mr. Shussett says. What's more, admitting some doubt might actually enhance a leader's credibility. "People respect someone who can say, 'Given the information we have, this is the decision we have made. Should other information come along, we are prepared to think it through differently.' "

Others dispute the notion that certitude is a sure sign of self-delusion or probable waywardness from a moral path. Dallas Willard, a Christian philosopher at the University of Southern California, says smart people get blinded to their own immoral actions because "an unsatisfied desire is the time bomb that ticks away in a person."

Over time, he says, high achievers with considerable autonomy find the forces staving off their desires for money, sex, or power "begin to fall away."

To keep at bay such festering passions, Willard says, people need firm resolve to pursue "the good that flows from their function" in life, such as providing a worthy service to the public through a business enterprise. Such resolve, he says, depends on a deep certainty about what is right and wrong.

"One of the things that's come up over and over about George Bush is that he is too certain," Willard says. "We all know that that's a possibility, but usually people don't look at the other side in terms of what uncertainty does.... If you can make up stories for The New York Times [as former reporter Jayson Blair did] and get by with it, why not? That sort of behavior is not a reflection of too much moral certainty. That's the result of something very different."

It stems instead, Willard suggests, from a worldview that sees no moral absolutes.
In Willard's view, a single confidant rather than an entire network can be sufficient to keep a successful person morally grounded, especially when coupled with a regular, private journaling habit.

He urges those in authority to write daily on two questions: "When have I served the good of my function [as a family member or professional, for instance]? And when have I served myself?"

Others also see value in reflecting regularly on certain questions. Lennick urges leaders to "play the freeze game," which involves stopping often to ask, "Is this right? What was I doing when I made the decision? What was I feeling?"

Josephson says decisionmakers can help defend against moral blindness by asking if a particular decision would advance trust, respect, responsibility, fairness, caring, and lawfulness among various stakeholders.

Whether the early 21st century's scandals will ultimately increase awareness of human capacities for self-aggrandizement and self-delusion remains to be seen. In the meantime, those offering equipment for self-improvement in the moral realm intend to keep making it available.

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