India’s one-man band Elizabeth Warren’s dangerous appeal Saudi: new leader of the Arab world Taming Scotland’s Bravehearts Samsung’s softly-softly succession MAY 23RD–29TH 2015 Economist.com Home-brewed heroin
The Economist May 23rd 2015 3 Daily analysis and opinion to supplement the print edition, plus audio and video, and a daily chart Economist.com E-mail: newsletters and mobile edition Economist.com/email Print edition: available online by 7pm London time each Thursday Economist.com/print Audio edition: available online to download each Friday Economist.com/audioedition The Economist online Volume 415 Number 8939 Published since September 1843 to take part in "a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress." Editorial offices in London and also: Atlanta, Beijing, Berlin, Brussels, Cairo, Chicago, Hong Kong, Johannesburg, Lima, Los Angeles, Mexico City, Moscow, New Delhi, New York, Paris, San Francisco, São Paulo, Singapore, Tokyo, Washington DC Contents continues overleaf Contents 1 Saudi Arabia Chaos in the Middle East casts the kingdom as the Arab world’s main power: leader, page 12. The new rulers want to increase Saudi Arabia’s clout. They face a hard task, pages 17-20. The fall of Ramadi and Palmyra shows how dangerous Islamic State remains, page 37 On the cover India has a golden opportunity to transform itself. Narendra Modi risks missing it: leader, page 9. The prime minister has grand ambitions for his country, and self-confidence to match. But he has yet to show how he will bring about change, says our special report after page 40 6 The world this week Leaders 9 Modi’s rule India’s one-man band 10 Scottish nationalism How to scotch it 10 Ukraine The other battleground 12 Geopolitics in the Gulf The new Saudis 13 Financial crimes Unfair cop Letters 14 On drugs policy, Scotland, Amtrak, leadership, shoes Briefing 17 Saudi Arabia The challenged kingdom United States 21 The Patriot Act Reviewing the surveillance state 22 Philadelphia’s next mayor Hard graft endangered 22 ADX Florence The terrorists’ prison 23 The biker brawl in Waco Rotarians with chains on 23 Chicago’s gun violence What’s in a name? 24 American families Having it all, and then some 25 Hope, Arkansas Something in the water 26 Lexington What Elizabeth Warren wants The Americas 27 Separatism in Quebec No, we shouldn’t 28 Guyana’s election A time to heal 28 Sexual harassment Criminalising catcallers 29 Bello The Chinese chequebook Asia 31 South Korea’s orphans Flawed legislation 32 Taiwan and China Historic pipeline 33 Rohingya boat people Myanmar’s shame 34 Banyan The politics of people-trafficking China 35 Human rights Jailing grassroots lawyers 36 Propaganda A film starring Deng 36 Conservation Old trees, new technology Middle East and Africa 37 Islamic State The caliphate strikes back 38 Egyptian football Red card for the ultras 38 Israel’s foreign relations Netanyahu contra mundum 39 Refugees in Lebanon Outstaying their welcome 40 Burundi Good coup, bad coup 40 The African Development Bank Risk on Special report: India Modi’s many tasks After page 40 Europe 41 Europe’s Green parties Verdant pastures 42 Eurosceptics in Europe Rift on the right 42 Ukraine’s front line Longing for silence 43 Mediterranean migrants A splash of bravado 44 Schools in Italy A class divided 44 France and global sports Ellipsoid beats sphere 45 Charlemagne And then there were four Scotland Giving it fiscal autonomy would improve governance—and could also weaken demands to break away from Britain: leader, page 10. Riding high, Scottish nationalists ponder when next to push for independence, page 46. Note to Scotland, from Quebec: support for nationalism can fall, too, page 27 Elizabeth WarrenWhat does she want? It’s not the presidency, and for good reason: Lexington, page 26. She is wrong about many things, but on financial crime she has a point: leader, page 13
© 2015 The Economist Newspaper Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Newspaper Limited. The Economist(ISSN 0013-0613) is published every week, except for a year-end double issue, by The Economist Newspaper Limited, 750 3rd Avenue, 5th Floor, New York, N Y 10017. The Economist is a registered trademark of The Economist Newspaper Limited. Periodicals postage paid at New York, NY and additional mailing offices. Postmaster: Send address changes to The Economist, P.O. Box 46978, St. Louis , MO. 63146-6978, USA. Canada Post publications mail (Canadian distribution) sales agreement no. 40012331. Return undeliverable Canadian addresses to The Economist, PO Box 7258 STN A, Toronto, ON M5W 1X9. GST R123236267. Printed by Quad/Graphics, Saratoga Springs, NY 12866 PEFC certified This copy of The Economist is printed on paper sourced from sustainably managed forests certified to PEFC PEFC/29-31-58 www.pefc.org Subscription service For our latest subscription offers, visit Economist.com/offers For subscription service, please contact by telephone, fax, web or mail at the details provided below: Subscription for 1 year (51 issues) United States US$160 Canada CN$165 Latin America US$338 Telephone: 1 800 456 6086 (from outside the US and Canada, 1 636 449 5702) Facsimile: 1 866 856 8075 (from outside the US and Canada, 1 636 449 5703) Web: Economistsubs.com E-mail: customerhelp@economist.com Post: The Economist Subscription Services, P.O. Box 46978, St. Louis, MO 63146-6978, USA Principal commercial offices: 25 St James’s Street, London sw1a 1hg Tel: 020 7830 7000 Rue de l’Athénée 32 1206 Geneva, Switzerland Tel: 41 22 566 2470 750 3rd Avenue, 5th Floor, New York, NY 10017 Tel: 1 212 541 0500 60/F Central Plaza 18 Harbour Road, Wanchai, Hong Kong Tel: 852 2585 3888 Other commercial offices: Chicago, Dubai, Frankfurt, Los Angeles, Paris, San Francisco and Singapore 4 Contents The Economist May 23rd 2015 Samsung As he slowly takes charge of South Korea’s largest conglomerate, Lee Jae-yong will have a tougher job than his father did nearly 30 years ago, page 51. A tumble in exports from Asia need not spell gloom for the world, page 60 Ukraine The West should do much more to help Ukraine’s economy: leader, page 10. Ukraine’s government is making some progress, but not enough page 58. Diplomacy fails the folk on the edge, in Donetsk, page 42 Home-brewed heroin Amateurs will soon be able to make opiates from nothing more than a spoonful of yeast and a bag of sugar, page 67 Waterloo Appallingly bloody, yet decisive, the battle of Waterloo in June 1815 is the subject of a fusillade of books 200 years later. It fully deserves the attention, page 71 Britain 46 Scotland The view from the north 47 Death in Surrey See no evil 47 Back to deflation A 55-year rollercoaster 48 Bagehot The trials of Nigel Farage International 49 Development aid It’s not what you spend 50 Philanthropy Doing good by doing well Business 51 Samsung The soft succession 53 Hanergy’s share price Burned 53 France’s nuclear industry Arevaderci 54 Construction in Brazil Repair job 55 Gambling in Macau Doubling down 55 Bombardier Turbulence 56 Technology firms Kiwis as guinea pigs 57 Schumpeter Managing in an age of partnerships Finance and economics 58 Ukraine’s economy War-torn reform 59 Buttonwood Bond markets reverse 60 Rigging the stockmarket Avon falling 60 Asian exports A faulty gauge 61 Financial crime Unsettling settlements 61 Energy subsidies Waste not, harm not 62 Tackling tax evasion America the not so brave 64 Free exchange A “basic income“ for all? Science and technology 67 Synthetic biology Home-brewed heroin 68 Democratising medicine The crowd will see you now 68 The world’s oldest tool Early man 68 Graphene supercapacitors Sheet lightning 69 Exorcising photographic ghosts Double take 70 Epidemics and artificial intelligence Reservoir rats Books and arts 71 Battle of Waterloo A near-run thing 72 Laszlo Krasznahorkai Transcendental meditation 73 Self-regard You are not special 73 Mediterranean history Coasts and coalitions 74 Faulkner on stage Signifying something 76 Economic and financial indicators Statistics on 42 economies, plus a closer look at poverty rates Obituary 78 Ann Barr Who Sloanes Wins
With Central Bank stimulus, wise to put your focus on Europe? 1. European Central Bank, as of 1/22/15. Bond-buying program expected to exceed $1.1T. 2. Bloomberg, as of 3/20/15; as measured in size and contribution to eurozone GDP. 3. Based on $4.774T in AUM as of 3/31/15. Visit www.iShares.com or www.BlackRock.com to view a prospectus, which includes investment objectives, risks, fees, expenses and other information that you should read and consider carefully before investing. Risk includes principal loss. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. Q These risks often are heightened for investments in concentrations of single countries. Q The Fund’s use of derivatives may reduce returns and/or increase volatility and subject the Fund to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. The Fund could suffer losses related to its derivative positions because of a possible lack of liquidity in the secondary market and as a result of unanticipated market movements. Such losses are potentially unlimited. There can be no assurance that the Fund’s hedging transactions will be effective. Q This material represents an assessment of the market environment as of 5/13/15 and is not intended to be a forecast of future events or a guarantee of future results. Q This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular. Funds distributed by BlackRock Investments, LLC (BRIL). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this company make any representation regarding the advisability of investing in the Funds. BRIL is not affiliated with MSCI Inc.©2015 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. iS-15213-0515 BlackRock is trusted to manage more money than any other investment firm in the world.3 Put BlackRock insights to work with iShares funds. Insight into action. iShares.com/iThinking HEZU iShares Currency Hedged MSCI EMU Fund HEWG iShares Currency Hedged MSCI Germany Fund Insight: European stocks may benefit from the European Central Bank’s stimulus and a currency tailwind. Q The ECB’s massive bond-buying may continue to encourage bond investors to move into stocks.1 Q A weaker euro is expected to help boost dollar-based earnings for the region’s exporters. Q Germany’s strong, export-oriented economy may be well-positioned to benefit from these trends.2 Action: Consider hedged exposure to German stocks as an entryway to potential European momentum
6 The Economist May 23rd 2015 1 The fall ofRamadi, the capital ofIraq’s largest province, prompted fears thatIslamic State (IS) was again menacing Baghdad. The Iraqi government, whose plans to retake the province have suffered a serious setback, are massing for a counter-attack, relying heavily on Shia militia groups collectively known as “Popular Mobilisation”. Meanwhile, IS fighters captured the oasis city ofPalmyra in Syria, one ofthe world’s great archaeological sites. Egypt’s former president, Mohammed Morsi, was sentenced to death by a court in Cairo. Last month he had been sentenced to 20 years in prison in a separate case. Lengthy appeals are expected. A report from the Paris-based International Federation for Human Rights accused Egypt’s security forces ofthe systematic use ofsexual violence against both male and female prisoners. A five-day humanitarian truce in Yemen, where Saudi Arabia has been carrying out air strikes against the Houthi rebels, who have displaced the government, came to an end. Bombing and fighting resumed unabated. Binyamin Netanyahu, the Israeli prime minister, ordered a halt to a pilot programme that in effect would have prevented Palestinian workers from returning to the West Bankon Israeli public buses, after critics said the plan was intended to separate Jews from Arabs and smacked ofapartheid. The defence ministry said it had introduced the directive as a security measure. Forces loyal to the president of Burundi quashed a coup attempt by several generals. The plotters appeared to be acting in support ofprotesters who had taken to the streets when President Pierre Nkurunziza made efforts to change the constitution to stand for a third term. Boko Haram, a jihadist group that originated in northern Nigeria, retooka border town that had been liberated by the Nigerian army. It’s no joke for Joko Indonesia’s president, Joko Widodo, received a political setbackfollowing a court ruling which makes it unlikely that the opposition Golkar party could join the ruling coalition. Golkar’s membership ofthe coalition would give it a majority in parliament and thus help the passage of economic reforms. Malaysia and Indonesia agreed to give temporary shelter to thousands ofRohingya migrants, mainly from Myanmar, who have been kept adrift at sea because ofthe refusal ofcountries in the region to let them dock. Thailand’s military-backed government postponed general elections for six months beyond the planned date of February 2016. It says this is to allow time for a referendum to be held on a draft constitution that critics say will ensure the armed forces will be able to retain political influence. Thailand’s former prime minister, YingluckShinawatra (pictured), who was ousted by the army last year, pleaded not guilty at the start ofa trial on charges ofcriminal negligence. With a CNN crew filming on board, America flew a surveillance aircraft over China’s land reclamation project on disputed islands in the South China Sea. The Chinese had warned the Americans to stay away from the area, which it considers to be its sovereign territory. During his first visit to China as India’s prime minister, Narendra Modi and his Chinese counterpart agreed to work“proactively” to settle a long-standing border dispute. Mr Modi said the two nations should be more sensitive to each other’s interests. A new era for Guyana David Granger, the former chiefofGuyana’s army, was sworn in as the country’s president, ending 23 years of rule by the People’s Progressive Party. The election was fought largely on racial lines. The outgoing party is supported mainly by Guyanese of Indian origin. Mr Granger, who is Afro-Guyanese, promises to narrow the racial divide. Meanwhile, Exxon Mobil announced a “significant” oil find offthe coast ofGuyana. Thousands ofpeople in Guatemala demonstrated against corruption in the capital, Guatemala City. The vice-president, Roxana Baldetti, had already resigned following allegations that her private secretary tookbribes in exchange for reducing customs duties. Prosecutors have not accused Ms Baldetti ofany wrongdoing. After the street protests the head ofthe country’s central bankwas arrested over separate bribery charges. At least 78 people died in landslides triggered by heavy rains in north-western Colombia. Bad omens in the Balkans Large pro- and anti-government demonstrations were held in Skopje, the capital of Macedonia, each attended by tens ofthousands ofpeople. The prime minister, Nikola Gruevski, has been accused of corruption and ofordering 20,000 wiretaps to be placed on public figures. The political turmoil comes soon after clashes between police and an ethnic-Albanian group near the border with Kosovo that left 22 people dead. In another gesture aimed at reconciling a troubled past, Britain’s Prince Charles shook hands with Gerry Adams, a senior Irish nationalist, at a meeting in Ireland. The prince then visited Mullaghmore, where his great-uncle, Louis Mountbatten, was murdered by an IRAbomb in 1979. Sons of anarchy A brawl involving guns and knives between warring motorcycle gangs in Texas, the Bandidos and the Cossacks, resulted in the deaths ofnine bikers and the arrest of170 others. The clash started at the Twin Peaks restaurant in Waco, where gangs had gathered to discuss bikers’ rights. A jury handed down a death sentence to Dzhokhar Tsarnaev for his role in the bombing ofthe Boston marathon in 2013, in which three people were killed and many more maimed. His appeal process against the sentence is likely to take years. The council in Los Angeles voted to increase the city’s minimum wage rate from $9 an hour to $15 by 2020. Around halfthe city’s workforce currently earns less than $15. Several cities across America have increased their minimum wages in response to a campaign to lift the federal minimum wage from its current rate of$7.25. Politics The world this week
The Economist May 23rd 2015 The world this week 7 Other economic data and news can be found on pages 76-77 An investigation into the rigging of foreign-exchange rates concluded with more whopping fines for banks. Barclays, Citigroup, JPMorgan Chase and Royal Bankof Scotland agreed to pay more than $5 billion in combined penalties to settle with American and British authorities and pleaded guilty to criminal charges. BankofAmerica paid a $205m fine but was not criminally charged. Neither was UBS, but it was given a $342m fine. Its immunity from prosecution over LIBOR was also rescinded and it was handed a penalty of$203m for that episode. The traders who manipulated the forex rates communicated via a chat room, sending each other comically self-incriminating messages such as “Ifyou ain’t cheating, you ain’t trying”. A German exit? Deutsche Bank said it had created a working group to consider relocating parts of its operations in Britain elsewhere should the country vote to leave the European Union in a referendum promised by the Conservatives at the recent election. The German bank employs 9,000 people in Britain. Business leaders this weekcalled on the government to bring the referendum forward from 2017 to lessen the period ofuncertainty. Trading in shares ofHanergy Thin Film, a solar-panel company, were suspended on the Hong Kong stockmarket after their price fell by 47% within 25 minutes. The next day shares in two units ofGoldin, a Hong Kong finance and property group, also fell dramatically. Both companies insisted that their businesses were operating normally, and it was unclear as we went to press if there was any linkbetween the falls in their shares. Japan’s economy grew in the first quarter by a better-thanforecast 2.4% at an annualised rate. Exports, private consumption and investment increased at a healthy pace, but the main factor behind the robust GDP figure was a build-up in inventories. This could spell trouble ifconsumer demand does not match the supply ofgoods piling up in warehouses. Still, the news helped to drive the Nikkei stockmarket index to its highest close since April 2000. Grab your bargains Britain dipped into deflation in April—consumer prices were 0.1% lower than in the same month last year. The BankofEngland’s inflation target is 2%. Like other countries, Britain has been flirting with deflation for months because oflower oil prices. But the government is pointing out the benefits to households of what it insists will be a temporary fall in prices, drawing a distinction with the longer periods ofdamaging deflation that have occurred elsewhere, such as Japan. After a few months in the doldrums, America’shousebuilding industry celebrated as the number ofhomes on which construction started rose in April by 20.2% compared with March, the biggest such increase since February 1991. Busier construction workers were probably one factor behind Home Depot, America’s biggest DIY chain, ratcheting up a quarterly net profit of$1.6 billion, a 14% increase on the same period last year. Having shaken up the telecoms industry in his native France, PatrickDrahi entered the American market for the first time when his Altice group bought a 70% stake in Suddenlink, a cable operator, in a deal valued at $9.1billion. Mr Drahi’s ambitions don’t stop there. He is also rumoured to be interested in making a bid for Time Warner Cable, which recently saw its agreed takeover by Comcast fall apart over antitrust concerns. Takata, a Japanese company which makes spare parts for cars, doubled its recall in America ofvehicles with its airbags installed to 34m, making it the biggest safety recall to date in the American car industry. The deaths ofsix people worldwide have been linked to metal shards being hurled from Takata’s airbags when they inflate. South32, a company spun off by BHP Billiton to house some ofits poorer-performing mining assets, such as aluminium, made a lacklustre debut on the Australian stockmarket (it did better in secondary listings in London and Johannesburg). Named after the line oflatitude along which BHP’s main assets are located in Australia and South Africa, South32 ended its first day oftrading valued at A$11billion ($9 billion), towards the lower end of analysts’ expectations. Rational consumers Walmart’s earnings for the first quarter disappointed investors, sending its share price down by 4.4% in a day, the most for three years. A stronger dollar caused revenue to remain flat at $115 billion compared with the same period last year. But the retailer’s chiefexecutive, Doug McMillon, reckons American shoppers just aren’t spending the way they used to and putting any extra money they gain towards paying down debt or boosting savings. Business Britain’s consumer prices Source: ONS *Bank of England target % change on a year earlier 2004 06 08 10 12 15 0 + – 1 1 2 3 4 5 6 UPPER LIMIT LOWER LIMIT TARGET*
The Economist May 23rd 2015 9 AYEAR ago Narendra Modi came to office promising to bring India “good times”, by which he meant jobs, prosperity and international renown. His progress has been frustratingly slow. The problem is hardly a lack of opportunity. Voters gave hisBharatiya Janata Party(BJP) the biggestparliamentary mandate for change in 30 years. Mr Modi has concentrated more power in his own hands than any prime minister in recent memory. The problem is that India needs a transformation— and the taskis too much for a one-man band. The Modi blues There is no doubting Mr Modi’s conviction that India is about to achieve greatness, and he may well be right. Within a generation, it will become the planet’s most populous nation. It could be one of the world’s three largest economies. And it could wield more influence in international relations than at any time in its history. But, in his heart, the prime minister believes that only one man is destined to lead India down this path: Narendra Damodardas Modi. Much has gone well, though serendipity shares the credit. Helped by oil prices, Mr Modi has presided over an improving economy. Inflation is down, interest rates are dropping, the rupee is stable, and fiscal and current-account deficits have shrunk. Official statisticians claim that India’s growth, at 7.5%, outpaces China’s—meaning the country has the world’s fastest-expanding large economy. Foreign direct investment is up. So are the prime minister’s visits abroad, where he cuts an impressive figure. This newspaper chose not to back Mr Modi in lastyear’selectionsbecause ofhisrecord on handling religious strife. Though he fails to control the Hindu-extremist bullies who backhim, we are happy that ourfears ofgrave communal violence have so far not been realised. But when it comes to reform, Mr Modi’s record is underwhelming—as our special report in this issue explains. The pastyearsawauctionsofcoal deposits. The pastfew dayshave brought the tiniest of baby steps towards privatisation: eight state-run hotels may be sold off. Mr Modi points out that foreigners may now invest more in railways, insurance and defence. He is cutting red tape to create a friendlier business climate. Poorer Indians will increasingly get cash welfare, not cheap rations in kind: since April the world’s biggest cashtransfer scheme has replaced artificially cheap canisters of cooking gas. Massive subsidies on diesel have been scrapped; whopping ones on paraffin should follow. And by encouraging people to open 150m new bank accounts, linked to a biometricdatabase of850m people so far, the governmentiscreating a structure to provide better poverty relief. As welcome as this is, it sells India short. MrModi is making two mistakes. The first is to think that time is on his side and that big unpopular decisions can wait, perhaps until he has control of the upper house as well as the lower one. That rests on a delusion among Indian leaders that they must consolidate power first and reform later. In fact a brief period exists in which to get change going, early in the parliamentary term. Mr Modi already faces twinges ofpopular discontent. Surly voters drummed his party out in state elections in Delhi. Some dislike his attention to diplomacy overseas. This week he wrapped up a trip to China, Mongolia and South Korea, completing52 daysabroad in 18 countriesoverthe pastyear. Others are put off by his narcissism, embarrassed that he met America’s president, Barack Obama, wearing a dark suit with all 22 letters of his name stitched over and over into its golden pinstripe. As he cracks down on groups like Greenpeace, some complain ofhis authoritarian streak. The second mistake is for Mr Modi to think that he alone can bring about change. On the contrary, the only way for him to realise his aims is to draft in help. And it could come from three main sources—India’s states, other national politicians and the power ofthe market. He has made a start by devolving some power to states. The idea is to create a manufacturing boom (though that would, at a minimum, also require wider changes to the way land is bought, labour hired and roads built). As they compete in setting priorities for policy and spending, the go-getting states will become models forthe rest. Good policy will be rewarded thanks to a national goods-and-services tax that creates a common market—and hence competition—across India. Mr Modi sayshe wantsthe taxbynextApril, aspromised, though parliament has just delayed it. The sooner, the better. Unfortunately, national politics is a long way behind the states. Mr Modi cannot blithely assume his power will grow. The prime minister’s office cannot expand to do everything. It is time to relaunch his government by bringing in outside talent. Like the previous government, he should get in bright people from the private sector—especially as the BJP is short of capable leaders—to strengthen, say, the finance ministry and the corporate-affairs ministry. In parliament Mr Modi could sometimes compromise with the opposition Congress party, to rush through the sales tax, say, or make buying land simpler. All together now Lastly, he needs to use markets as agents of change. Mr Modi should lead a national campaign to ease the world’s worst labour laws. Perverse restrictions on domestic trade in farm produce should go. Private companies could compete to make the railways more efficient. Infrastructure must be built faster, which requires a betterlaw on acquiringland. State-run banks should no longer be subject to political meddling, but recapitalised and put in independent, ideally private, hands. Foreign investors could raise standards in Indian universities. Across the woefully bad education system a focus is needed on excellence in teaching and standards—easing the way for more private providers. Mr Modi acts as if a lot of small improvements add up to transformative gains. They don’t. He is still thinking like the chief minister of Gujarat, not a national leader on a mission to make India rich and strong. If he is to transform his country, India’s one-man band needs a new tune. 7 India’s one-man band The country has a golden opportunity to transform itself. Narendra Modi risks missing it Leaders
10 Leaders The Economist May 23rd 2015 1 OVER three centuries the union between Scotland and England has survived skirmishes, rivalries and, last year, a nail-biting referendum. But increasingly, Scotland is its own country. It will soon decide its own income-tax levels and bands, control half the receipts from the VAT sales tax and set some welfare payments. The vote may be extended in Scottish elections to 16-year-olds (in England the voting age remains 18). Afterits near-clean sweep ofScotland on May 7th, the emboldened Scottish National Party is out for more. The SNP, which runs Scotland’s devolved government and now holds all but three of the Scottish seats in Westminster, has confronted David Cameron, the prime minister of the shaky union, with demands to set business taxes, the minimum wage and more aspects of welfare policy. Scotland, already semi-detached, would become an even more distant neighbour (see page 46). Ye’ll take the high tax and I’ll take the low tax For those, including this newspaper, who believe that Scots and their fellow Britons are better off together, it is tempting to resist such demands. Granting concessions to a party bent on leadingits country into what looks like a less prosperous, more vulnerable future is risky. Some fear that further devolution would put Scotland on a one-way road to severance. For Mr Cameron, recently returned with a thin majority, it is an unappealing time to give ground to political rivals. Yet he should grant Scotland the freedoms the SNP’s leader, Nicola Sturgeon, demands—and more. Greater autonomy would lead to better, fairer government. It might even scotch demands for divorce. Not all who voted for the SNP want independence, and its support is flattered by the first-past-the-post system, which awarded the party 95% of Scotland’s seats for its 50% of the vote. It will not achieve such a wipeout in elections next year to the Scottish Parliament, which uses a proportional system (and which the rest of Britain could learn from). Even so, the Nats’ crushing victory is a mandate for radical change. And change would be welcome. Britain is suffocatingly centralised, and drainingpowerfrom Westminsterwould do it good. There is no reason why the minimum wage should be the same in Lothian as in London, or why Scottish businesses should pay the same rates as those in England. Scots see themselves as more left-wing than the English; if they want a more generous welfare state they should be able to establish one. But they should also have the responsibility to pay for it. That is why MrCameron should go furtherthan Ms Sturgeon’s immediate demands, which combine autonomy with continued subsidy. A better solution would be to press ahead to full fiscal autonomy. It could cost Scotland around £8 billion ($12 billion) a year. But it would be fairer than the existing “Barnett formula”, a crude mechanism which lavishes English subsidy on Scotland while shortchanging poorer Wales. And it would force upon Scotland more grown-up politics. Decrying austerity, as the SNP has done so rousingly, is easier when the books are balanced in another country. Canada’s Parti Québécois shows how the appeal of populist separatist parties can fade once they win real power (see page 27). There are three other reasons for straightening out Scotland’s relations with the union. They are called England, Wales and Northern Ireland, which are ever more fed up with their cobbled-together, inconsistent constitutional settlements. The English, in particular, resent the fact that all MPs vote on matters that affect only England, which lacks a parliament of its own. If it is to survive, the United Kingdom will have to look more like a federation. Giving Scotland real freedom—and with itreal responsibility—should be the first step. 7 Scottish nationalism How to scotch it Giving Scotland fiscal autonomy would improve governance and weaken demands forindependence I N THE early 1990s, as the collapse of the Soviet Union remade eastern Europe, two economies stood out for their size and potential. One was Poland, with 38m people; the other Ukraine, a country of 52m. It was not clear then which was destined forgreaterthings: Poland’sGDPperperson wasno bigger than Ukraine’s, and its heavily indebted economy was shrinking fast. Today the comparison seems ludicrous. Ukraine’s economy shrivelled by almost 18% year on year in the first quarter. Poles are three times richer than Ukrainians. Some of this divergence is the bitter result of geopolitics. Russia reconciled itself to Poland entering the West’s orbit; when Ukraine tried to shift towards the European Union last year, Russia seized Crimea—and itstill meddlesin Donetsk (see page 42). Europe could dangle the incentive ofjoining the EUin front of Poland; full membership for Ukraine is remote at best. But reformist policy also mattered. The West helped turn Poland into an economicsuccessstory. Ifitnowwantsto give succour to Ukraine—and to counter Russia’s wrecking tactics—it needs to learn from that earlier rescue. One lesson from Poland is the need to restructure debts. Thanks to a cut in Poland’s debt-to-GDP ratio, from 83% in 1990 to 56% in 1993, debt-service obligations did not cripple the Ukraine The other battleground GDP per person, $’000 Purchasing-power parity 0 5 10 15 20 25 1990 95 2000 05 10 13 Ukraine Poland The West should do much more to help Ukraine’s economy