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Contents

• Iran, 40 years after the revolution The Islamic theocracy has failed its people, but Donald Trump’s sanctions could prolong its life: leader, page 12 . Four decades after its revolution, Iran is still stuck in the past, page 36

•China’s embrace of intellectual property Believe it or not, Chinese firms are not all serial thieves of intellectual property: Schumpeter, page 58

•On the economics of species

Conservationists are rethinking how to preserve nature on a

The Economist February 9th 2019 3

United States

19After the INF treaty

20Missiles and mistrust

21Virginia and shoe polish

21Union shenanigans

22Botox bars

23Elizabeth Warren’s ideas

24Lexington Donald Trump and conservatism

The Americas

25Canada in the global jungle

26Jair Bolsonaro’s congressional win

28Bello The Venezuelan dinosaur

Asia

29India’s Congress party

30Avoiding military service in South Korea

31Turmoil in Thai politics

31Facial fashions in Pakistan

32Banyan Japan’s lost islands

China

33Cultural diplomacy

34Pets proliferate

35Chaguan Understanding Taiwan

Middle East & Africa

36Iran’s revolution turns 40

38Iran and its neighbours

39Bibi’s favourite word

39East African rifts

40Elections in Nigeria

vk.com/id446425943

4Contents

Europe

41No gilets jaunes in Germany

42Macron’s great debate

43Phantom fake medicines

44Wish upon Five Stars

44A treadmill for Hungarian dogs

46Charlemagne Vestager’s progress

Britain

47Asians, the new Europeans

48Irish boom and bust

49Bagehot Learning from John Ruskin

International

50Electricity for the poor

51What light reveals

Business

53America’s manufacturing revival

54Intel’s new boss

55Bartleby McDonald’s and sustainability

56UNIQLO abroad

56Norwegian’s descent

57Food pricing in France

58Schumpeter China and intellectual property

Volume 430 Number 9129

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:

Amsterdam, Beijing , Berlin, Brussels, Cairo,

Chicago, Johannesburg , Madrid, Mexico City,

Moscow, Mumbai, New Delhi, New York, Paris,

San Francisco, São Paulo, Seoul, Shanghai,

Singapore, Tokyo, Washington DC

6 The world this week

Donald Trump gave his state- of-the-union speech to Congress, delayed by a week because of wrangling over government spending. He again called for tougher curbs on illegal immigration, calling it a “moral duty”. He also said that any new trade deal with China “must include real, structural change to end unfair trade practices…and protect American jobs”. In a rare cordial moment, Mr Trump welcomed the record number of women in work, drawing whoops and cheers from Democratic congresswomen, who had dressed in white for the occasion.

Virginia’s state government seemed unable to find anyone to run the place who has not either applied boot polish to his face while at college or been accused of sexual assault. Ralph Northam, a Democrat who was initially unsure whether he was one of those depicted in a photo of a man in blackface and another in Ku Klux Klan robes, remains the state’s governor.

Cory Booker joined the race to become the Democrats’ presidential nominee in 2020. The first black senator to represent New Jersey, Mr Booker is the fourth heavy-hitter to enter the campaign.

A friend indeed

French warplanes bombed a convoy carrying rebels who had crossed into fromChad Libya. The air strikes in support of Chadian troops are a sign of the willingness of France to use force to prop up the government of Idriss Déby, one of its more important regional allies in the fight against jihadists.

The Economist February 9th 2019

capacity in Europe. In a nod to shareholder discontent, the airline is replacing its chairman, who has been in the job for over 20 years. It is also moving to set up a group struc-

Sony’s share price tumbled after it reported a big drop in quarterly profit for its gaming division. Rumours that the Japanese electronics giant might release PlayStation 5 next year, its first update to the gaming console in six years, did little to lift its stock.

Internet companies are removing 72% of content flagged as racist or xenophobic in Europe within 24 hours. That is up from 28% in 2016, when Facebook, Microsoft, Twitter and YouTube presented a voluntary code of conduct on hate speech, which in e ect stopped the fromeu imposing its own restrictions.

Gross mistakes

Bill Gross announced his retirement from the investment industry. One of the founders of Pimco, Mr Gross was once known as the Bond King for managing the world’s largest bond fund, which had almost $300bn in assets at its peak. He left Pimco in 2014 after falling out with the firm and has struggled to repeat his success. His current fund manages only $1bn in assets. Summing up the industry in 2010, Mr Gross said “My clients don’t pay me to feel sorry, they pay me to bring them money.”

Leaders

Leaders 9

The world is used to a thriving German economy. A decade ago, during the financial crisis, it shed relatively few jobs, as unemployment soared elsewhere. Since then it has been an anchor of fiscal stability while much of the euro zone has struggled with debt and deficits. Its public debt is below the target of 60% of gdp set by eu treaties—and falling. Thanks to labour-market reforms introduced during the 2000s, Germans enjoy levels of employment that beat job-friendly Britain, even as inequality is barely higher than in France. Its geographically dispersed manufacturing industries, made up of about 200,000 small and medi- um-sized firms, have mitigated the regional disparities that have

fuelled populism across the West (see Europe section).

Yet the German economy suddenly looks vulnerable. In the short term it faces a slowdown. It only narrowly

avoided a recession at the end of 2018. Temporary factors, such as tighter emissions standards for cars, explain some of the weakness, but there is little sign of a bounceback. Manufacturing output probably fell in January. Businesses are

losing confidence. Both the imf and the finance 2015 16 ministry have slashed growth forecasts for 2019

(see Finance section). In the longer term, chang-

ing patterns of trade and technology are moving against Germany’s world-beating manufacturers. In response, on February 15th Peter Altmaier, the economy minister, laid out plans to block unwanted foreign takeovers and to promote national and European champions.

Germany is getting both the short and the long term wrong. Start with the business cycle. Many policymakers think the economy is close to overheating, pointing to accelerating wages and forecasts of higher inflation. In their view, slower growth was expected, necessary even. That is complacent. Even before the slowdown, the imf predicted that in 2023 core inflation will be only 2.5%—hardly a sign of runaway prices. In any case, higher German inflation would be welcome, as a way to resolve im-

balances in competitiveness within the euro zone that would elsewhere adjust through exchange rates. The risk is not of overheating but of Europe slipping into a low-growth trap as countries that need to gain competitiveness face an inflation ceiling set too low by Germany.

The slowdown also portends deeper problems for Germany’s globalised economic model. Weakness in part reflects the fallout from the trade war between China and America, two of Germany’s biggest trading partners. Both are increasingly keen on bringing supply chains home. America is due soon to decide whether to raise tari s on European cars. Trade is already becoming more regionalised as uncertainty grows. If global commerce splits into separate trading and regulatory blocs, Germany

will find it harder to sell its goods to customers around the world.

Reform has made Germany’s labour market strong, but it will soon face new challenges. Industrial jobs look particularly vulnerable to

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automation, yet lifelong learning and retraining are relatively rare in Germany. The workforce is ageing. Neither the government nor business is much digitised and neither invests

enough. If technological change demands that its economy embraces digital services, Germany will struggle.

The government is not blind to these problems, but Mr Altmaier’s protectionism is the wrong medicine. The left, meanwhile, wants to roll back labour-market reforms. Better to expand a recent boost to infrastructure spending and press ahead, at scale, with tax incentives for private investment. Both should help growth today and boost the economy’s long-term prospects. Significantly lower taxes on households would encourage a rebalancing away from exports and towards consumption. A dose of competition could invigorate coddled service industries. The German economy has had an impressive run, but cracks are appearing. It is time to worry. 7