The Economist - Can anyone stop Narendra Modi? Part 7

Rwanda has far overstepped this mark. It is an autocracy, though one run by often reasonable Tutsis with an understandable fear of the genocidaires regaining power. At the last presidential election Paul Kagame, who led the rebel forces that defeated the Interahamwe 20 years ago, received 93% of the vote. He has turned out to be an impressive technocrat-but one who brands his opponents, including some former allies, enemies of the state. South Africa has accused him of sending a.s.sa.s.sins to kill dissidents living in exile in Johannesburg. Independent parties and media are cowed by the security forces.

For now, this illiberalism coexists with social peace. Kigali, Rwanda's capital, is one of Africa's safest cities. But it risks sowing the seeds of a new conflict, either among the Hutu extremists who still populate the forests of Congo across the border to the west, or within the Tutsi camp, once known for its cohesion and discipline but now increasingly divided.

Where a post-conflict country remains intact, so that former mortal enemies are forced to live together, new leaders must choose between justice and reconciliation. South Africa opted for organised leniency; perpetrators who gave accounts of their actions to the Truth and Reconciliation Commission were eligible to apply for an amnesty. Much goodwill flowed from the proceedings. But many bloodied societies reject the very idea. The UN noted in a report that "in Kosovo, the very word 'reconciliation' is so charged for the Albanian community that it is simply not used."

Rwanda initially sought ma.s.s prosecutions. At one point 120,000 alleged genocidaires were locked up awaiting trial. The worst villains were judged at an international tribunal, held in Tanzania, but most were eventually sent to home-grown lay tribunals when the national courts could not cope. Punishments were doled out unevenly. By now, many killers have returned home and the government wants to move on, though most Rwandans struggle with the notions of forgiveness and repentance.

See our graphic of the 100 deadliest civil wars and armed conflicts since the second world war Which path to take depends on the nature of the conflict. Rwanda's genocide was planned by a relatively small group, who then hid or fled, even if others helped carry it out. Blame was easier to apportion than in South Africa, where the pro-apartheid National Party won election after election.

The worst choice is to duck the question. The initial reluctance of elites in former Yugoslav states to send war criminals to international courts left victims fearful that the butchers might return to power. The presence of unrepentant former warlords in Liberia hinders compromise and fans old grievances. The multi-ethnic government that came to power after South Sudan won independence in 2011 promoted neither reconciliation nor atonement. Barring those who failed to admit to the blood on their hands would have signalled the cost of violence. In recent months, as South Sudan's leaders have fallen out, the sad old fight has resumed.

Illiterate voters Making their mark Teaching those who cannot read how to vote makes for cleaner, fairer elections Apr 5th 2014 | MUMBAI | From the print edition SUVARNA PADEKAR cannot read. "It hurts," she says, but she manages to get by as a cook in Mumbai. Each morning her employers let her know what food to prepare by leaving pictures of vegetables, rice and so on stuck to the fridge. Soon Mrs Padekar will pick her favourite from similar images-at the voting booth. Almost 815m people will be eligible to vote in India's general elections, which start on April 7th (see article). About a quarter are illiterate and will identify their choices by party symbols such as a hand, lotus, or elephant.

Illiterates are a big share of the electorate in several other countries going to the polls this year, including Afghanistan (on April 5th), Brazil, Iraq, Malawi and Mozambique. Compared with their compatriots who can read, they will be less likely to cast a vote at all, and more likely to spoil their vote if they do. Illiteracy rates are higher among marginalised ethnic minorities and the poor: 5-35% for Roma (gypsies) in European countries, for example. Far more women than men are illiterate in Africa, much of Asia and the Middle East.

Illiterates are also more likely to be persuaded to sell their votes, or tricked or intimidated into voting for crooks and thugs. Mrs Padekar admits to voting for a generous candidate in the most recent local elections: she and her friends got a taxi ride to the polling station, cash, saris, prayer utensils and a free trip to a famous temple. ("Ask G.o.d to elect me," he told them.) Politicians in eastern and central Europe sometimes pay loan sharks to buy the votes of Roma who owe them money, says Zeljko Jovanovic of Open Society Foundations, a group that campaigns for Roma inclusion. A 2011 paper by Toke Aidt, Miriam Golden, and Devesh Tiwari found that India's political parties are more likely to field candidates who face criminal allegations in districts where illiteracy rates are higher, and such candidates depress turnout. This they attribute to shady politicians preferring to stand where it is easier to intimidate opponents' supporters away from voting.

Simplifying voting procedures is the first step to ensuring that illiterates can cast informed and valid votes. India pioneered voting with symbols in 1952. (New parties must now choose from an unappealing list of still-available symbols, including the toothbrush and the nail-clipper.) Many African countries put photos as well as names on the ballot paper; Gambians vote by dropping marbles in drums blazoned with candidates' faces. The marble strikes a bell inside to ensure only one vote is cast; to avoid confusion, bicycles are banned near to polling stations on election day.

Electronic voting machines can help, but only Bhutan, Brazil, France, India and Venezuela use them nationwide. Until the late 1990s Brazilian voters had to write their candidate's name or electoral number on the ballot. Nowadays, they need only type a candidate's number on a voting machine the size of a cash register, and confirm their choice after seeing a photograph. The machines' introduction cut the share of spoilt votes from 23% to 11%.

Voter-education campaigns matter, too. Kenya has an automated helpline explaining how to vote. Face-to-face methods include lessons using picture guides, street theatre and election-day simulations. A door-to-door campaign in a rural area of Pakistan where less than 20% of women had been to school saw more women voting and fewer picking the same candidates as their male relatives. But voter education is weak in most places, says David Carroll of the Carter Centre in Atlanta, which monitors elections worldwide.

Thomas Fujiwara of Princeton University used the phased introduction of voting machines in Brazil to study their effects on health-care spending: regions where they were being used spent more than those yet to make the switch. He concluded that by making the votes of poor, illiterate voters more likely to count, the machines encouraged politicians to cater to their concerns. Screening debates between candidates at polling stations in Sierra Leone boosted the showing of better-qualified politicians. In Benin, where campaign rallies are all about distributing cash and promises of patronage, holding town-hall meetings instead cut clientelism among voters. The very steps that elicit informed votes from those who cannot read seem to make for better election outcomes all around.

Business.

Petrobras: Two heads are worse than one General Motors' woes: What do you recall?

Health care in America: The geek guide to insurance Mobile phones: The rise of the cheap smartphone German companies and China: Mittelstand and Middle Kingdom Italy's state-controlled companies: Letting go, slowly Crowdsourcing "Monopoly": The Mayfair shuffle Schumpeter: Flower power.

Petrobras.

Two heads are worse than one.

Brazil's state-controlled energy giant, under Maria das Gracas Foster, is paying dearly for meddling by Dilma Rousseff's government Apr 5th 2014 | RIO DE JANEIRO | From the print edition "UNIQUE." That is how Credit Suisse, a bank, sums up Petrobras. It has a point. Most companies' stocks would sag on the sort of news Brazil's oil giant has faced in the past three weeks. A federal investigation was opened, into alleged backhanders paid to its employees by a Dutch company in exchange for oil-platform and drilling contracts. (Both companies deny the allegations.) A parliamentary inquiry is imminent, into the purchase in 2006 of a refinery in Texas which cost $1.2 billion but is now worth no more than $180m. A former director has been arrested in a money-laundering probe. If that were not enough, on March 24th Standard & Poor's, a ratings agency, downgraded its corporate debt. Yet Petrobras's shares have risen by 30%.

The reason for this seemingly irrational exuberance is that investors consider Petrobras's prospects to be inversely linked to those of Brazil's government, led by the president, Dilma Rousseff. The rally began with rumours (later proved premature) that Ms Rousseff's poll lead over her likeliest challengers in a presidential election this October was dwindling. The government owns a majority stake in the company and makes most of the strategic decisions over the head of Maria das Gracas Foster, the chief executive.

These, the market feels, have been disastrous. The company is required by law to hire and buy parts from an inchoate local oil-services sector, leading to delays and cost overruns. It was told to build unviable refineries in the poor north-east to promote regional development. It is also the only princ.i.p.al operator allowed in vast, ultra-deep pre-sal (beneath the salt) fields discovered in 2006 off Brazil's coast. This monopoly is a curse as well as a blessing: Petrobras is obliged to devote resources to the pre-sal that might be better employed elsewhere. Despite debt-fuelled investment of roughly $40 billion a year, production has flatlined at around 2m barrels a day (b/d) in the past three years.

Most damaging, says Adriano Pires, an energy consultant in Rio de Janeiro, "Petrobras is being misused as a tool of macroeconomic as well as industrial policy." Since 2006 the government has capped petrol prices to curb inflation. Unable to meet rising domestic demand with what it produces, the company has to import petrol and diesel, which it must then sell at a loss. This has cost it an estimated 48 billion reais ($21 billion) in the past three years alone-and makes Ms Foster possibly the only oil boss in the world praying for lower petrol prices.

All this has left Petrobras overstretched and underperforming. It is the least profitable of the world's big oil firms, reckons Credit Suisse. Its market value has fallen by almost half, from 405 billion reais shortly after a public share issue in 2010 to 209 billion reais today (see chart).

Hopes that Ms Foster, a career engineer and chum of Ms Rousseff's, would turn the company around have proved forlorn. Widely regarded as clever and honest, she has done plenty of things right since taking the helm two years ago. The recent scandals pertain to events that predate her tenure. She replaced a management team dominated by political appointees with abler experts and returned some resources to maintaining mature fields, whose output suffered as attention turned to the pre-sal. She has also trimmed costs.

But Ms Foster's "rough and authoritarian" manner has alienated the ranks and stifled critical thinking, says a former executive who used to work with her. With little room for cost-cutting in the heavily unionised, 86,000-strong workforce, she has tightened the screw on suppliers. "She is killing the supply chain," laments the boss of a struggling medium-sized firm. Even small contractual claims can now take up to a year to resolve. That not only chokes suppliers but undermines Petrobras's own operations, which rely on their products. It also contradicts the government's loud support for local industry, remarks this boss.

Ms Foster's main failure, however, was that she did not convince Ms Rousseff to let domestic petrol prices rise, says Wagner Freire, an oil expert and a retired director of Petrobras. Investors at first gave the untested Ms Foster the benefit of the doubt because they believed she had the president's ear. Last October she seemed close, announcing that a transparent new price formula would be put in place. But she had to backtrack after herself getting an earful from Ms Rousseff.

Still, Joo Castro Neves of Eurasia Group, a risk consultant, thinks that the situation has reached a critical juncture. Domestic petrol prices will have to go up, regardless of who wins the election, he says, "as a matter of necessity, if not conviction". Congress is rumoured to be considering the easing of local-content and lead-operator requirements in the pre-sal. If this happens foreign oil companies are likely to pile in, boosting the domestic industry which will cater to them. Mr Castro Neves believes the auction last year for the right to tap the Libra pre-sal field, which raked in $15 billion from a consortium of European and Chinese firms, was the last big concession deal on the old, stingier terms.

Petrobras has a lot going for it. It boasts reserves equivalent to 17 billion barrels, not counting the potential pre-sal riches which could be the world's biggest. Last year it managed to install nine platforms at sea, a remarkable achievement, says Cristian Silva of Gaia Partners, an oil-services firm. Its pre-sal wells now pump 400,000 b/d, up from 70,000 b/d two years ago. In finding oil and getting it out of the ground, Petrobras is the second-most-lucrative among the oil giants, according to Credit Suisse. Investors still harbour hopes that it can reach its goal of doubling production to 4.2m b/d by 2020 (the company expects a 7.5% rise this year). An $8 billion debt issue in March was three times oversubscribed. Despite the ratings stumble, Petrobras retains investment grade.

Petrobras is unlikely ever to be a normal company. But with less political meddling it could be profitably unusual-perhaps even unusually profitable.

General Motors' woes What do you recall?

GM is forced to confront its faults Apr 5th 2014 | DETROIT | From the print edition Barra's embarra.s.sment WHEN Mary Barra took the wheel at General Motors in January she inherited a company in good shape. Five years after bankruptcy, its profits were exceeding expectations and its share price was rising. But the new boss's to-do list was long: fixing GM's loss-making European arm, keeping up momentum in China amid signs of a slowdown and rejuvenating the product line. Ms Barra's predecessor, Dan Akerson, warned her that she would also face "curve b.a.l.l.s". The first has arrived sooner than she might have expected.

What appeared to be a routine recall in mid-February of about 800,000 older models, linked to a faulty ignition switch, has turned out to be anything but. The number of cars recalled has leapt to more than 2.6m. The company's inept handling of a safety problem that first became apparent a decade ago is now linked to the deaths of at least 13 motorists. Called before Congress on April 1st to answer for GM's failings Ms Barra said she was "deeply sorry" but insisted that the post-bankruptcy "new GM" was not like the "old GM", which had failed to deal with the ignition switches for years. Politicians and the public alike want to know how such a problem could have remained unaddressed for so long.

Cars are becoming ever more complex machines, with thousands of mechanical and electronic parts. Recalls are not uncommon. Last year it happened to 22m vehicles in America, compared with 18m in 2012. In fact, GM was one of only three brands that recalled fewer vehicles than it sold. Niggling problems, like squeaks or rattles, that do not affect safety are more common still. They may be fixed at a routine service; the owner may never know.

The growing number of recalls is testament to an improving system for picking up faults. But it is very complicated. Dealers must record replacements of parts under warranty. The carmaker needs to spot the trend, recognise it as a problem and then determine whether or not it is a design fault that requires wholesale replacement. It relies on accurate recording of every warranty replacement in every region, says Andrew Bergbaum of AlixPartners, a firm of consultants.

This system appears to have broken down at "old GM". Ms Barra needs to find out why. At the heart of the matter is a widely used ignition switch that has a tendency to slip from the "on" position to "off" if a driver uses a heavy keychain or bounces down a rough road. A modification was made in 2008 to prevent the problem, which can lead to the engine shutting off, disabling the airbags. But despite a growing list of crashes and deaths, GM failed to order a recall for a component that would have cost a few dollars at most.

This is odd. Most carmakers want to identify and fix problems speedily despite having to bear the cost of buying and fitting a new component. A small part can do great harm, if bad publicity leads to reputational corrosion, lost sales and litigation, which in America can include hefty punitive damages. Appearing to put profits before safety is also liable to batter a firm's shares, as GM has discovered.

So far Ms Barra has handled the situation well. She seems to have acted as soon as she found out something was awry. And she has borrowed strategies from Toyota, which was forced into recalling more than 10m vehicles in 2009 and 2010 after worrying instances of "unintended acceleration". Akio Toyoda, Toyota's boss, also appeared before Congress, contrite and apologetic. GM, like Toyota, has appointed a worldwide safety tsar to cut through the bureaucracy that may have delayed action on the faulty switch. And in a frenzy of housecleaning, GM has recalled another 2m vehicles in America alone.

GM looks set to accept moral, if not legal, responsibility. The terms of its exit from bankruptcy give immunity to lawsuits for injuries arising beforehand. But GM is likely to compensate survivors and victims' families anyway.

Toyota had a terrible year after its big recalls, battered by mounting costs and falling sales. But it has since regained the lost ground. It is not yet clear how much of a hammering GM will take. But hours before Ms Barra's meeting with Congress, the Insurance Inst.i.tute for Highway Safety issued a coveted "Top Safety Pick" endors.e.m.e.nt for the new Chevrolet Malibu, one of a growing number of well-received cars from GM. That suggests it is at least on the road to redemption.

Health care in America The geek guide to insurance An attempt to change America's most arcane industry for the better Apr 5th 2014 | From the print edition We prescribe technology MOST Americans view health insurers only slightly more favourably than they do thieves. But a new insurance company, Oscar, wants to be an ally. "We didn't start this company because we love health insurance," explains an advertis.e.m.e.nt on the New York subway. "Quite the opposite, in fact."

Oscar is the brainchild of three young men, Joshua Kushner, Kevin Nazemi and Mario Schlosser, who love technology instead. Six months ago it began selling insurance in New York City and nearby counties. Under the rules of the Affordable Care Act, better known as Obamacare, Americans had until April 1st to choose insurance for 2014. Oscar's founders hope New Yorkers chose them. Their goal is simple-some say naive: to transform American health care.

It surely needs transforming. America spends 17% of its GDP on health, yet its people are not particularly healthy. A sick patient, trying to understand his insurance, is likely to need further care after banging his head against the wall. All this would suggest an industry ripe for disruption, in the argot of Harvard Business School, where Oscar's founders were trained.

Obamacare has pushed things along. The law created "exchanges" where insurers can sell directly to consumers. McKinsey, a firm of consultants, counts 80 companies that have entered this market. Many, however, are either hospitals that have begun selling insurance or firms that already managed coverage for Medicaid, the health programme for the poor. Oscar is a rare private, independent insurer.

Mr Kushner, a venture capitalist who backed Instagram, a photo-sharing app bought by Facebook in 2012, decided to start an insurer after he opened a confusing health bill. He and his co-founders chose New York, a notoriously complex market, because they live there. But they have a sweeping vision. "A lot of the problems that we think exist in the health-insurance world can be solved with technology," Mr Kushner believes.

This ambition abuts the unfortunate reality that being an insurer is a pain. Oscar hired lawyers to gather the thousands of pages needed to apply for an insurance licence. It set aside $29m to meet New York's requirements for capital reserves. To meet strict standards for the number and location of doctors where an insurer must pay for care, it is paying another company for access to its network of clinics and hospitals. Obamacare requires companies to cover certain benefits. It also sets tight rules for the share of health costs that an insurer must pay. On top of this, companies cannot charge a sick person more than a healthy one. And in New York, they cannot vary price by a person's age, either.

Despite all these rules, Oscar hopes to differentiate itself by making good care easier to find. A patient can log on to Oscar's website and see his recent doctor's visits and drug purchases, in the same way he can see his timeline on Facebook. Enter a symptom such as "my tummy hurts" into Oscar's search engine, and the engine presents possible conditions, as well as a list of clinics and doctors, with the average price beside each option.

To encourage patients to take care of themselves, Oscar offers free generic drugs and a few free visits to general pract.i.tioners each year. Virtual doctor's appointments, or televisits, are available all day. Over time, says Mr Schlosser, "we're going to recommend care in smart ways, in the way that Amazon recommends books." This might seem creepy to some; to others, it will be helpful. And Oscar plans to do more. Its staff includes former leaders at Foursquare and Tumblr, two celebrated startups. In January it raised $30m, on top of a previous $45m, to expand its team.

All this is new and exciting. Unfortunately, insurers' success rests on two old-fas.h.i.+oned factors: who buys your product and whether your price covers your costs. Oscar accounted for just 2% of New York's early sign-ups. Its premiums are low, about 50-60% below those of UnitedHealth, America's biggest carrier. Mr Schlosser says that Oscar's innovations, such as televisits, will reduce costs. Mr Kushner seems unworried by bigger, older companies. "Hopefully," he says, "the rest of our compet.i.tors can copy us, because we think that's what will raise the standard of care for America."

Mobile phones The rise of the cheap smartphone As smartphones reach the ma.s.ses, a host of vendors are eager to serve them Apr 5th 2014 | From the print edition NEXT month Britons will have yet more smartphones to choose from, when devices from Wiko, a two-year-old French company, go on sale. Wiko will be hoping that its phones, which in France start at around 70 ($96), prove as popular across the Channel as at home. In 2013 nearly 7% of French first-time smartphone-buyers plumped for a Wiko, says Carolina Milanesi of Kantar Worldpanel, a research firm. In early 2014 the firm claims to have been the second-biggest vendor in France.

Wiko is not alone. In both rich countries and poor ones, cheaper smartphone brands are making inroads. Demand for pricey phones, mainly in developed economies, is slowing, but that for less expensive devices is booming. People buying their first smartphones today, perhaps to replace a basic handset, care less about the brand and more about price than the richer, keener types of a few years ago.

They are likely to pay less for a nice new smartphone than they did for their shabby old device, because the cost of making smartphones has tumbled. Vendors can buy standardised processors which chip designers such as America's Qualcomm, the market leader, and compet.i.tors such as Taiwan's MediaTek or China's Spreadtrum are sc.r.a.pping furiously to provide in ever-rising quality at ever-lower prices. They choose cameras, screens and so forth to wrap around the innards, and have phones churned out in Chinese factories. Last year, says Francisco Jeronimo of IDC, another research firm, s.h.i.+pments of smartphones priced below $80 more than quintupled. Devices at under $100 made up one-sixth of the total (see chart).

At a global level, the market has fragmented: in 2013, says IDC, the share of smartphone s.h.i.+pments by vendors outside the top five was 40%, twice as much as in 2009. In national markets, local names unfamiliar elsewhere, like Wiko, are prominent. Micromax and Karbonn rank second and third in India, according to IDC. Symphony is thought to have more than half the market in Bangladesh; and Walton, an electronics firm, has branched successfully into smartphones, notes Holger Hussmann of Telenor, a Norwegian mobile operator with interests in Asia and eastern Europe.

The declining cost of making phones means that buyers are getting more for their money. In 2012, says Mr Jeronimo, 42% of phones priced at less than $80 had a processor faster than 1 gigahertz; by last year 87% did. The proportion of cheap phones with screens more than four inches across went up from less than 8% to 38%. Two years ago the median price of a smartphone was $325. Last year it was $250. This year it may be $200.

The cheapest phones will become cheaper still. At Mobile World Congress, an industry jamboree in Barcelona at the end of February, Mozilla, a non-profit company best known for Firefox, its web browser, announced that smartphones running its operating system, Firefox OS, on Spreadtrum chips would go on sale with a target price of only $25. Mr Hussmann reports that the bill of materials is less than that. (Telenor is among the operators backing the new phone.) It is not only at the bottom that compet.i.tion is intensifying. In China, points out C.K. Lu of Gartner, another research company, OPPO and Vivo, two local brands, both increased their market shares last year despite focusing on phones priced at 2,000 yuan ($320) or more. Fancy phones can also polish a brand. Huawei, another Chinese company, has been trying just that; Wiko's top-of-the-range smartphone costs 349.

All this is great for smartphone-buyers everywhere. It is less good news for the market leaders, Apple and Samsung-the only vendors making much money. Apple may be insulated by its operating system and apparently impregnable brand, although it has lately been selling cheaper (if scarcely cheap) iPhones. Samsung, which dominates the market for phones running on Google's Android operating system, may be more vulnerable.

The South Korean company suffered a decline in profits late last year. Granted, it makes cheaper devices as well as dearer ones, and it can afford some slimming of its margins. People in poor countries also covet global brands: it has taken share from locals in India. But its problem, Mr Jeronimo says, is that it carries lots of costs, in research and development and in marketing, that cheaper rivals do not. "They are able to provide much better devices, in terms of specs, for a much lower price," he says. "And this is particularly worrying in developed markets."

Samsung is doubtless wise to this. Hence its attempt to push beyond the smartphone, into smart watches and wristbands, connected domestic appliances and the business market. Mobile-phone brands have been brittle before: ask Ericsson, HTC, Motorola and Nokia. Samsung has spent bucketloads building its name. It will not want to be usurped by the Wikos of the world.

German companies and China Mittelstand and Middle Kingdom Chinese companies' German shopping spree is benefiting both sides Apr 5th 2014 | BERLIN | From the print edition FOR students of geopolitics, the visit by Xi Jinping, China's president, to Berlin was a highlight of the week. Students of economics may have been more taken with Mr Xi's stop in the industrial western state of North-Rhine Westphalia (NRW), to toasts, cheers and favourable press coverage. His visit points up a rising trend: Chinese purchases of Germany's prized, medium-sized and high-tech Mittelstand companies.

A study published in January by EY, a firm of consultants, found that companies from China or Hong Kong had bought 25 German firms in 2013, thrice the rate of just a few years earlier. Only Britain was as popular, but if the trend continues German companies will soon stand alone in Chinese estimation. After America, China is the biggest non-European investor in Germany. Another study, by Prognos, a research firm, expects Chinese investment there to quadruple between 2011 and 2020, to $2 billion.

Unlike Chinese purchases in America, the shopping spree in Germany causes little alarm. Germans are proud that "Made in Germany" is a mark of quality not only for products but also for companies. Their economics ministry believes that the country has over 1,300 "hidden champions", world leaders in specialised products, more by far than anywhere else. China's purchases have included Putzmeister, a Swabian maker of concrete pumps, and Kiekert, from NRW, which makes car-door latches.

Some German bosses have naturally worried that the Chinese buyers were just looking to strip out technical knowledge, while workers worried for their jobs. But to the target companies' pleasant surprise, Chinese buyers have mostly been content to leave the companies to run much as they had before.

The Chinese are attracted by the Germans' att.i.tudes as much as by their know-how. The buyers know that "Made in China" still stands, in many minds, for cheap stuff a.s.sembled in the Middle Kingdom but designed elsewhere. German companies excel at incremental but constant innovation. They have continued to grind out productivity gains during Germany's decade-long recovery from stagnation.

Chinese managers, by contrast, are mostly used to pursuing growth, says Nils Stieglitz of the Frankfurt School of Finance and Management. He expects the Chinese investors to spend a good bit of time watching and learning from their German acquisitions.

Besides fresh capital, what do the Germans get from the deal? Ingeborg Neumann, vice-president of the Federation of German Industry (and founder of a medium-sized textile company), thinks the Chinese may be the answer to the succession problem facing many Mittelstand companies: if the founders' children do not want to take over, as increasingly seems the case, the Chinese can do so instead. China may solve another kind of succession problem, says EY's Yi Sun, by buying former state-owned firms privatised after the fall of communism in East Germany, The Chinese may be too optimistic about their German purchases. Transferring a management style, after all, is a lot harder than transferring technical know-how. Language and cultures differ: Ms Sun tells of a Chinese buyer who was surprised not to be able to get his German managers on the phone 24 hours a day.

But in some ways the cultures may suit each other well. German efficiency and incremental innovation was honed by ten years of slow growth and testing compet.i.tion. As their economy slows, their companies mature and compet.i.tion gets stiffer, the Chinese may be glad to have those Germans on the payroll.

Italy's state-controlled companies Letting go, slowly The government promises sales but shows little taste for ceding control Apr 5th 2014 | MILAN | From the print edition MATTEO RENZI, Italy's new prime minister, is keen to show off his pro-market zeal. His government has promised to speed up and extend the privatisation programme unveiled in November by his predecessor, Enrico Letta. Last month it endorsed plans by Finmeccanica, a conglomerate in which the state holds a controlling 30.2% stake, to sell its rail a.s.sets; the firm wants to focus on aeros.p.a.ce and defence. But a proper shake-up of Italy's state-controlled companies is a long way off.

Mr Renzi is pressing ahead with Mr Letta's scheme, which aims to raise 8 billion-10 billion ($11 billion-13.7 billion) towards reducing Italy's public debt, now 132% of GDP. The treasury intends to float 40% of Poste Italiane, which runs the postal service and BancoPosta, a retail bank, and 49% of Enav, which runs air-traffic control. The Ca.s.sa Depositi e Prest.i.ti, a state-owned investment vehicle, will list 50% of Fincantieri, Europe's biggest s.h.i.+pbuilder, and 60% of Sace, Italy's export-credit agency. Private investors are being sought for CDP Reti, which controls the gas and electricity networks, and Grande Stazioni, which is owned by Ferrovie dello Stato, the national rail company, and manages the 13 biggest railway stations. To this Mr Renzi's government may add Ferrovie itself. Because market conditions have improved, it may move faster than previously planned to sell 3% of Eni, an oil-and-gas giant, in which it will keep its controlling share.

The sales of Fincantieri, Poste Italiane and Enav are most firmly on track. Fincantieri could go by the summer. But selling part of Poste, which is Italy's biggest employer with 140,000 staff, will be a sterner test. A share scheme for postal workers is being devised and further tranches could be sold later (as at Eni and Enel, the electricity company, in the 1990s), but the government will keep a controlling stake.

Francesco Giavazzi, an economics professor at Bocconi University in Milan, dismisses the programme as focused too much on filling the state's coffers and not enough on improving compet.i.tiveness. The possibly imminent rescue of Alitalia, the former state-owned airline, by Etihad, of Abu Dhabi, is a reminder of the pitfalls of botched privatisations. But Fabrizio Pagani, economic adviser to both Mr Letta's and Mr Renzi's governments, says the administration is mindful of past mistakes.

Before any sales go ahead, nominations are due for hundreds of management posts in state-controlled firms. These jobs have long been the subject of political horse-trading. That is unlikely to change. However, a directive introduced last year would ban people under investigation for financial crimes from directors.h.i.+ps at state-controlled companies.

One boss is in hot water anyway. On March 31st Paolo Scaroni, the chief executive of Eni, was sentenced to three years in prison: environmental standards fell short at a power station when he was running Enel several years ago. He has said he will appeal. Mr Scaroni is also being investigated for alleged corruption relating to contracts with Saipem, Eni's oil-services company, in Algeria. He denies wrongdoing.

A further proposal, to cut the salaries of senior public managers by 25%, has caused both anger and mirth. The head of Ferrovie dello Stato, Mauro Moretti, threatened to quit if his pay was docked. Diego Della Valle, the chief executive of Tod's, a posh shoemaker, a supporter of Mr Renzi's and a shareholder in Italo, a rival train company, responded that millions of Italians would be only too happy to show Mr Moretti the way home. A privatisation of sorts may be around the corner, but in Italy business and politics remain closely intertwined.

Crowdsourcing "Monopoly"

The Mayfair shuffle One of the world's largest toymakers tests the wisdom of crowds Apr 5th 2014 | ATLANTA | From the print edition IN 1904 a young American named Elizabeth Magie received a patent for a board game in which players used tokens to move around a four-sided board buying properties, avoiding taxes and jail, and collecting $100 every time they pa.s.sed the board's starting-point. Three decades later Charles Darrow, a struggling salesman in Pennsylvania, patented a tweaked version of the game as "Monopoly". Now owned by Hasbro, a big toymaker, it has become one of the world's most popular board games, available in dozens of languages and innumerable variations.

Magie was a devotee of Henry George, an economist who believed in common owners.h.i.+p of land; her game was designed to be a "practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences." And so it has become, though players s.n.a.t.c.h properties more in zeal than sadness. In "Monopoly" as in life, it is better to be rich than poor, children gleefully bankrupt their parents and n.o.body uses a flat iron any more.

Board-game makers have had to find their footing in a digital age. Hasbro's game-and-puzzle sales fell by 4% in 2010-the year the iPad came to market-and 10% in 2011. Since then, however, its game-and-puzzle sales have rebounded, rising by 2% in 2012 and 10% in 2013. Stephanie Wissink, a youth-market a.n.a.lyst with Piper Jaffray, an investment bank, says that Hasbro has learned to become "co-creative...They're infusing more social-generated content into their marketing and product development."

Some of that content comes from Facebook. Last year, "Monopoly" fans voted on Hasbro's Facebook page to jettison the poor old flat iron in favour of a new cat token. "Scrabble" players are voting on which word to add to the new dictionary (at press time, 16 remain, including "booyah", "adorbs" and "cosplay"). "Monopoly" fans, meanwhile, are voting on which of ten house rules-among them collecting $400 rather than $200 for landing on "Go", requiring players to make a full circuit of the board before buying property and "Mom always gets out of jail free. Always. No questions asked"-to make official.

The Economist has also asked its readers for new rules, through our website and Facebook page. However, we wanted ours to reflect modern business realities. Several readers proposed a more active role for the bank, inevitably leading to bail-outs by other players when things went south. One suggested that property prices in the London version of the game rise by 25% per turn. Building in inequality featured in several suggestions, the best being that some pieces begin far ahead of the others, with more money: these effects could be mitigated with cards such as "Art School" and "Finding Myself" that let other players catch up.

Schumpeter Flower power The forces reshaping one of Africa's most successful industries Apr 5th 2014 | From the print edition LONGONOT FARM is a giant factory for ma.s.s-producing roses: a model of efficiency in a country whose natural condition seems to be chaos. The roses are housed in enormous plastic greenhouses-49 in all, some covering a hectare and a half-and planted in long troughs. Workers in neat uniforms bearing the legend "Growing in Harmony" harvest the flowers and deliver them to an on-site packaging facility. There they are graded and sorted, stripped of their thorns and leaves, packed, labelled "Marks & Spencer" or "Sainsbury's", loaded onto lorries, sent to the airport and delivered to Europe by the next day. The farm produces 72m stems a year.

A couple of dozen farms like Longonot line the sh.o.r.e of Lake Naivasha, a 139-square-kilometre (54-square-mile) expanse of freshwater in the Rift Valley, north-west of Nairobi. These farms are in turn part of a Kenyan horticultural industry that produces fruit and vegetables as well as flowers.

Central Kenya is perfect for growing things, being blessed not only with 12 hours of tropical sunlight a day but also with a more temperate climate at higher elevations. The Rift Valley is full of lakes, and their water and surrounding volcanoes provide soil rich in nutrients. Nairobi airport has lots of flights to Europe every day. And the industry is thriving: it turned over $3.2 billion in 2012, up from $2.3 billion in 2011; it is one of Kenya's largest sources of foreign reserves; it employs 4.5m people directly, and they support many millions more. But it is nevertheless being reshaped by three powerful forces-two applied by the West and a third by local conditions.

Western consumers are demanding two contradictory things from Kenyan producers: more value for money and more corporate social responsibility (CSR). Many shoppers' incomes have been stagnant since the financial crisis. But at the same time Westerners worry increasingly about labour conditions in poor countries and environmental degradation. Britain's supermarkets are particularly powerful conveyors of these messages: the four biggest, which control about 70% of the grocery market, are relentless in imposing their will on their suppliers. They are caught up in a fierce price war: even the posh ones, such as Waitrose, promise to match compet.i.tors' prices. They are also caught up in a CSR race to show they are model employers: a wallchart in an office in Longonot is jam-packed with the dates of inspections by NGOs and industry groups.

Local pressures add to these difficulties. Land and labour are becoming dearer. And the bleeding-heart Westerners are right, in that the industry's growth is straining the environment: Lake Naivasha almost ran out of water a few years ago and local towns are buckling under the weight of migrant labourers looking for jobs.

These three forces are producing a wave of consolidation and vertical integration, as economies of scale and close ties to retailers become more important. Large companies such as the VP Group (which owns Longonot Farm), Swire and Finlays are expanding while smaller family farms are going out of business. The big firms are creating production chains that stretch from seeds to cellophane and sp.a.w.ning subsidiaries to handle transport and marketing. They are also forming tight relations.h.i.+ps with European retailers. The people who once dominated Kenyan horticulture-independent farmers, many of them white, and sharp-eyed middlemen, many of them Indians-are being displaced by company men who speak of scale economies and integrated supply chains.

The big companies are also moving into produce with higher margins, from vegetables to flowers, and into labour-intensive niches such as prepared meals: the VP Group has a two-hectare complex near Nairobi airport where 2,000 s.h.i.+ft-workers wash, chop, sort and pack vegetables every hour of every day. The firms' tendrils extend into skilful activities such as breeding new varieties of rose. Longonot Farm has large sections devoted to promising strains that are identified first by a mere number and then, when more advanced, by names such as Moody Blue.

The seeds of innovation All this restructuring is releasing another powerful force: innovation. Big companies are rethinking every link in their production chains, both to squeeze costs and to hit their CSR targets. Planting roses in troughs rather than the ground allows them to enrich the soil with volcanic ash, pumice and coconut fibre while wasting less water. Unleas.h.i.+ng hostile insects (miticides) on pests like red spiders allows them to cut their use of pesticides. The VP Group wants to use agricultural waste to produce energy, so it can power its own operations and sell the surplus to the grid. It is also mitigating risks and lowering costs by establis.h.i.+ng farms in Ethiopia, Namibia and Tanzania (including Zanzibar), where land and labour are cheaper, and selling more to Africa's emerging middle cla.s.s.

The Kenyan horticultural industry has provoked a predictable debate. Critics say it is folly to transport flowers, fruit and vegetables halfway across the world. Defenders retort that growing roses in Kenya, where it is hot and light all year round, produces fewer carbon-dioxide emissions than growing them in dank, dark Britain or the Netherlands. Critics complain that poor Kenyans are labouring long hours to produce salads for lazy Europeans. Defenders reply that horticulture is creating jobs in parts of Kenya where they are in short supply. But the most interesting thing about the industry is the way that it is shaking up ideological certainties. The West's demand that companies be good citizens is confounding many on the left by consolidating more power in the hands of giant agribusinesses. At the same time it is confounding many on the right: far from choking enterprise, it is encouraging firms to become more productive and innovative.

Economist.com/blogs/schumpeter.

Finance and economics.

Frontier markets: Wedge beyond the edge.

b.u.t.tonwood: Now you see them.

j.a.pan's economy: Out of the zone.

Banks and fraud: Hacking back Cash and crime: Less coin to purloin Reforming the audit profession: The cost of cosiness The euro-zone economy: Frost in spring Free exchange: Financial indulgence Frontier markets Wedge beyond the edge Money is leaving emerging markets for riskier bets at the investment frontier Apr 5th 2014 | JOHANNESBURG | From the print edition MANY of Africa's roads are scarred with potholes, so the fresh tarmac on the drive between Ndola and Kitwe, two cities in Zambia's copper belt, is something of a treat. The country's roadbuilding is financed by a $750m Eurobond (as dollar bonds issued outside America are known) issued in September 2012. The timing was perfect. The Federal Reserve had an open-ended commitment to buy Treasuries to keep yields low. Investors in America and Europe were hungry to buy dollar-denominated debt offering juicy yields. Zambia drew $12 billion of orders for a ten-year bond paying only 5.4%. Spain could not borrow as cheaply at the time.

Zambia's debut Eurobond showed how rich-world funds were looking beyond their home territory, past even emerging markets to "frontier markets" at the farthest edge of the investment universe. Even as the prospect of the end of the Fed's bond-buying caused wobbles in emerging markets last year, African nations were able to tap funds. Nigeria and Ghana sold Eurobonds in July. Mozambique raised $850m in September. Gabon issued a second Eurobond in December.