Financial Times Europe - 19.08.2019

18 ★ FINANCIAL TIMES Monday 19 August 2019

Every £1 Drake brought

home became £100,

To reinforce a point made by Alex

Pollock (Letters, August 15) on the

“golden 2 per cent”: it could be recalled

that in his essay “Economic

possibilities for our grandchildren”,

written in 1930, John Maynard Keynes

illustrated the power of compound

interest with reference to the long-term

economic returns from the treasure

brought back to England by Sir Francis

Drake in The Golden Hind in 1580.

In Keynes’s version Queen Elizabeth

I, a major shareholder in this voyage,

used her share to pay off the whole

national foreign debt and balance the

budget. The £40,000 remaining she

invested in the Levant Company, from

the profits of which the East India

Company was founded.

Keynes pointed out that the original

£40,000, accumulating at 3.5 per cent

compound interest, would be

equivalent to the actual total volume of

the country’s foreign investments at

the time of his writing: “Every £

which Drake brought home in 1580 has

now become £100,000. Such is the

power of compound interest.” Golden

indeed!

James Winpenny

Chipping Norton, Oxon, UK

Rwanda’s progress is real

and open to scrutiny

The IMF Article IV Consultation dated

July 3 2019 concludes that “Rwanda

has made considerable progress in

sustaining high and inclusive growth

and reducing poverty’. This is

consistent with what we know, as well

as the findings of all international

organisations.

The same IMF report states that “the

quality of the national accounts data in

Rwanda is one of the highest in Sub-

Saharan Africa”. Indeed, the only

reason this debate can take place,

whether in good faith or bad, is

because of Rwanda’s robust and

publicly accessible data systems.

I was therefore profoundly surprised

by your Big Read article “Even poverty

data must toe Kagame’s line” (August

14). The National Institute of Statistics

of Rwanda responded fully to the

Financial Times’s questions, but the

author ignored those responses, as well

as data from global institutions,

including the World Bank, IMF, S&P,

the United Nations, and the World

Economic Forum.

More seriously, the alacrity with

which your reporters dragged the

president’s name into a debate

ostensibly about statistical

methodology is astonishing, to say the

least. Your readers have not been

exposed to an honest debate on

poverty data, but rather to a series of

anonymous and baseless claims.

Beyond statistics, Rwanda’s progress

is plain for anyone to see. Rwanda is

open to scrutiny and conversation with

all who are interested in our journey of

socio-economic transformation.

Uzziel Ndagijimana

Minister of Finance and Economic

Planning, Rwanda

PM Johnson faces a far

more difficult problem

The opening paragraph of the letter

from DR Myddelton (August 15) and

its reference to an “unelected prime

minister” surely contains a

misunderstanding of the point in the

last paragraph of your editorial. None

of the prime ministers he mentions was

confronted by such a devastatingly

awful and difficult problem as that

which now confronts Boris Johnson

(except Churchill, who was faced with

a totally different task), and which

currently risks not being solved in

accordance with the wishes of the

electorate, and of not “giving the public

a second chance to weigh the multiple

benefits of remaining in the 28-nation

bloc on the UK’s existing, highly

advantageous terms”.

Malcolm Spence

London WC1, UK

The university application

process is compromised

Your editorial “University offers should

be based on real results” (August 15)

raises some concerns about fairness

and the university application process.

You could have gone further.

First, personal statements play an

important part in university

applications and better-off pupils

receive a disproportionate amount of

external support with these to the

extent that at times one would require

a microscope to detect the applicant’s

own input.

Second, pupils (especially in the

more “consumer-led” private schools),

often with parental support, twist

teachers’ arms to provide the

predictions they seek. Undertakings to

work harder are promised, including to

get a tutor over the holidays, along with

a commitment to spend less time on

video games. Teachers confronted with

such determined “good intentions” are

inclined, often against their better

judgment, to give way. This is an

asymmetric tussle between teachers

and families where the pushy rather

than the brightest usually get their way.

Third, many independent schools

are increasingly relying on donations to

help develop their facilities. For

reasons that should be obvious, such

donations can be compromising and

pose an issue where predicted grades

are concerned.

Thomas F Maher

Director,

British Home Tutors,

London SW6, UK

In his overview of the impact of real

time payment and settlement

technology John Gapper has, as always,

unearthed the core issues (“Apple Card

is an expensive way to pay”, August

15). I wish to expand on one of his

themes.

The US Federal Reserve has stated

its intention that the proposed FedNow

service “will require participating

banks to make the funds associated

with individual payments available to

their end-user customers immediately

after receiving notification of

settlement from the service”. This

will have a revolutionary impact on

the banking industry and monetary

policy.

When depositors are able to move

funds costlessly and instantaneously

between accounts, it will become

feasible to arbitrage between banks in

real time. The resultant intensification

of retail competition between banks

will erode profits. For example, since

2014 the spread the interest banks earn

on their reserve assets compared with

their jumbo deposit liabilities has

increased from 0.2 per cent to 2.2 per

cent. That widening of profit margin

would be arbitraged away if FedNow

were currently operative.

It is impossible to know how banks

will react to FedNow. Some may

develop profitable new services that

build on the base of a fast payment

infrastructure. Some may engage in

riskier lending to try and offset the

competition for deposits and some

(perhaps many) will be forced out of

business by rivals — including non-

bank technology companies — who

successfully adapt to the new

environment.

Monetary policy will also be

affected. The evaporation of sticky

“core” deposits will make the financial

system less stable; a bank rumoured to

have problems could lose most of its

non-insured deposit base in seconds.

On the other hand, the arbitraging of

deposits means that changes in the Fed

Funds rate or interest paid on reserves

will be reflected in deposit rates and

thereby transmitted to the economy

much faster and more powerfully than

is currently the case.

The only certainty is that a

revolution in financial services and

monetary policy is at hand.

Daniel Aronoff

PhD Candidate in Economics,

Massachusetts Institute of Technology, US

A financial revolution is almost upon us

Letters

MONDAY 19 AUGUST 2019

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When looking for unvarnished

analysis of Chinese policy, it helps to

ask: what do the Maoists think?

In June, days after millions shut

down central Hong Kong to protest

against an extradition bill that would

allow residents to be tried in mainland

China, Maoist website Utopia saw in

the demonstrations a “political

struggle” against forces backed by the

US. “We must recognise the

seriousness of the situation. Must see

that we are on the verge of a ‘colour

revolution’ erupting in Hong Kong,”

one commenter wrote, referring to

uprisings in the former Soviet Union

in the early 2000s. By early August,

the same language had been adopted

by Chinese officials and state media,

which claimed foreign “black hands”

were guiding the protests.

For Jude Blanchette, the Freeman

chair in China studies at the Center for

Strategic and International Studies, a

think-tank in Washington, Maoists, a

loose coalition of cantankerous

bloggers and academics on China’s

conservative left, are a true political

movement, not dissimilar to the Tea

Party in the US, whose rise shows the

lasting sway of Mao Zedong’s legacy

over modern Chinese politics.

Few now doubt the illiberal turn

China has taken under President Xi

Jinping. The severity of the

authoritarian shift was, however, a

surprise to many who assumed that a

rapidly modernising China, embedded

in the global economic system, would

naturally become politically liberal, if

not ever fully democratic.

Such hopes failed to grasp how

China’s leaders, from Deng Xiaoping

through to Mr Xi, have used socialist

ideology and revolutionary history,

including Mao’s legacy, to bolster

Communist party rule, an approach

the leadership still considers critical

today, Blanchette argues. The party

never abandoned Mao after he died in

1976. Unlike Nikita Khrushchev’s 1956
      speech denouncing Joseph Stalin,
      Deng ringfenced Mao from the
      harshest criticism by declaring that
      his “grave errors” were outweighed by
      “his contributions to the revolution”.
      For China’s left, that statement
      sealed their distaste for Deng and his
      policies of reform and opening. In the
      decades since, various groups of
      conservatives — Leftists, statists, neo-
      authoritarians and Maoists — have
      pushed back against every suggestion
      of liberal economic, legal or political
      reforms in China. Many of these are
      tub-thumping nationalists, who pedal
      paranoia about “hostile forces” —
      often the US — seeking to overthrow
      the Communist party. But their
      strident speeches regularly strike a
      chord with disaffected sections of
      Chinese society who remember fondly
      the early days of the People’s Republic.
      Today, “neo-Maoists”, the latest
      bannermen of conservative ideals,
      take an active interest in China’s major
      policy debates, from relations with
      North Korea and the US to reform of
      property laws and state-owned
      enterprises. These writers have found
      common cause with Mr Xi.
      Mr Xi has rolled back a number of

Deng’s signature policy initiatives and

has joined the Maoists in efforts to

enforce “correct” interpretations of

revolutionary history. The authorities

have stifled think-tanks that promote

liberal economic policy, historians

who attempt to revise party accounts

and young Marxist activists who

promote workers rights.

Blanchette’s work lacks a precise

estimate of the Maoists’ scale and

political backing, raising the question

of just how much influence the group

actually has. It leaves open the

question of whether neo-Maoism is

more a reaction to developments in

China than a cause. The relationship

between the Maoists and China’s

political elite has at times been

antagonistic. Many Maoist websites

are selectively blocked by China’s

censors and the movement’s one-time

hero, former Chongqing party chief Bo

Xilai, is serving a life sentence for

corruption.

To make his case, Blanchette offers a

string of lively anecdotes that piece

together the party’s unwillingness to

abandon Mao’s talismanic influence in

the 1980s with today’s surprising

overlap between Mr Xi’s policies and

the bugbears of the Maoists. For many

Maoists, these signs of apparent

support from the top leadership have

instilled a sense of victory.

“We won,” one neo-Maoist writer

told Blanchette. “Maybe I didn’t win

personally, but our ideas won.”

The reviewer is the FT’s Beijing

correspondent

A lively account

of the rise of

the neo-Maoists

Book review

Christian Shepherd

China’s New Red Guards:

The Return of Radicalism

and the Rebirth of Mao

Zedong

by Jude Blanchette

Oxford University Press, £18.

Clarification

cDeepBlueTechnologyhasclarified

thatitsdealtosupplyself-drivingbuses

toBangkok,reportedinanarticleon

August15,isworthaninitial$10m.It

saysthefigureof$566mstatedinthe

articlewastheestimatedpotentiallong-

termvalueofsupplyingthecomplete

Bangkokbusfleet.

OPINION ON FT.COM

Nick Butler

Falling prices have a silver lining for the

big oil companies

http://www.ft.com/nick-butler

A leaked Cabinet Office report has laid

out in chilling detail the likely conse-

quences of a no-deal Brexit. Fuel and

medicineshortages.Monthsofchaosat

ports. A return to a hard border with

Ireland. Clashes between British and

EU fishing boats. Civil servants are

clear this is not a repeat of what Leave

supporters in 2016 dismissed as

“Project Fear”; these are government

planning assumptions of a realistic, not

even a worst-case, scenario. The docu-

ment highlights the hardships that

prime minister Boris Johnson is ready

to inflict on Britain in pursuit of an

extreme option favoured by a minority

and unsupported by an electoral man-

date. This is folly on a monumental

scale.

The assumptions in the so-called

Project Yellowhammer report, pre-

sented to cabinet earlier this month,

are not surprising. What is new is that

the public now has an opportunity to

read a detailed Whitehall document

reflecting the no-deal alarms that min-

istershavebeenprivatelyhearingfrom

civilservants.

Disruption at ports may last three

months before traffic flows recover 50

percentto70percentofcurrentlevels.

Shortages of fresh produce and vital

drugs could result, hitting the poorest

and most vulnerable. Government

plans to set petrol import tariffs at zero

could mean two of Britain’s six main

refineries would close, with 2,000 job

losses. Plans to avoid border checks in

Northern Ireland are probably unsus-

tainable, leading to reimposition of a

hard border and resulting protests.

Contrary to assertions by Tory hard

Brexiters that EU states would do bilat-

eral deals with Britain to mitigate no-

deal damage, none has been concluded

baroneonsocialsecuritywithDublin.

Downing Street has blamed a dis-

gruntled ex-minister for leaking what

it says is an outdated document. Plan-

ning and funding for a no-deal exit has

since been ramped up. Mr Johnson

insists his hardball stance will force the

EU to improve the UK’s withdrawal

agreement. Yet even more than his

predecessor Theresa May, when she

brieflyflirtedwithano-dealexitearlier

this year, the prime minister is playing

chicken,riskingthenation’sfuture.

The EU has said it will not blink. No

amount of Johnsonian boosterism and

invocations of the Blitz spirit will miti-

gate the consequences of a no-deal

Brexit. While even Winston Churchill

made some disastrously poor deci-

sions, the great wartime leader on

whom Mr Johnson has the temerity to

style himself would surely not have

inflicted such a senseless act of self-

harmonhiscountry.

Rather than setting undeliverable

preconditions, Mr Johnson should

seek, in meetings with France’s

Emmanuel Macron and Germany’s

Angela Merkel this week, modifica-

tions to the withdrawal agreement that

could make it acceptable to a parlia-

mentary majority. If he is not prepared

to do so, parliament must force his gov-

ernment to act responsibly. Anti-no

deal parties seem unable to unite

around a no-confidence vote, due to

justified mistrust of Labour’s Jeremy

Corbyn as even a caretaker prime min-

ister. The first priority for MPs should

therefore be to pass a law obliging the

prime minister to seek another Brexit

extensionfromOctober31.

Since Mr Johnson is hinting he may

ride roughshod over parliamentary

democracy, there can, sadly, be no

guarantee MPs will be able to block a

no-deal. Companies must therefore

prepare for the worst. As a recent CBI

report underlined, they are not taking

the threat seriously enough. A hard

Brexit is undesirable. But it is fool-

hardy to ignore that it might become

realityinlittleover10weeksfromnow.

Business needs to prepare for the real possibility of a no-deal exit

Leaked Brexit report

should focus MPs’ minds

WeWork, which published its listing

document last week, has taken some

justifiable flak for its mission to “ele-

vate the world’s consciousness”. It is an

exaggerated claim for a provider of

officespace,nomatterhowfunky.

WeWork has, however, already

raised awareness of the dangers of

dependency on one individual. Adam

Neumann,co-founderandchiefexecu-

tive, is — in the words of the document

— a “unique leader who has proven he

can simultaneously wear the hats of

visionary, operator and innovator,

while thriving as a community and cul-

ture creator”. WeWork’s “future suc-

cess depends in large part on [his] con-

tinuedservice”.

But while his devotion cannot be

“ensured or guaranteed”, if Mr Neu-

mann stays faithful to his creation, he

will be hard to evict. Supervoting

shares, carrying 20 times the votes of

ordinary stock, and a far from inde-

pendent board help secure control. Mr

Neumann will choose who inherits his

super stock. If he dies or is perma-

nentlydisabledinthenext10years,his

wife and “strategic thought partner”

Rebekahwillhelpdecidesuccession.

We wish Mr Neumann a long and

happy life and rewards consistent with

the risks he has taken. Investors’ cur-

rent willingness to sacrifice voting

rightsforastakeinfast-growing,newly

listed companies will help him realise

these goals. Lyft and P interest

enshrined supervoting shares for their

founders in their initial public offering.

Mark Zuckerberg retains control of

Facebook with super shares, though in

2 017 the company dropped a contro-

versialplanfornewnon-votingshares.

What neither WeWork’s outside

shareholders nor its founder can pre-

dict is how long Mr Neumann will sus-

tain his valuable visionary, operational

andinnovativepower.

Entrenched founders are hard to dig

out if their genius fades or the market

moves against them. Plenty of entre-

preneurs with a long record of success

— Steve Jobs, Larry Ellison and Bill

Gates among them — saw no need to

ringfence control of the companies

they created, let alone lay a dead hand

onfuturestrategy.

Everything has its price, of course. If

investors decide to impose a corporate

governance discount on WeWork’s

shares, so be it. Corporate reformer

Colin Mayer and others have argued

that the UK’s reluctance to tolerate

dual-classstocksopenedfamily-owned

companiestodilutionofcontroland,in

many cases, takeover. Shielded by sup-

ervoting stock, among other devices,

US counterparts were “better able to

protect idiosyncratic value” over the

sameperiod.

US-listed companies with multiple

classes of shares do outperform in the

three years after their IPO. But that

advantage fades six to nine years after

listing, underlining the case for safe-

guardingoutsideinvestors’rights.

One such protection is an independ-

ent board, with the admittedly unenvi-

able task of judging when to dispense

with the founder’s services. A second is

a constraint on voting rights: founders

now habitually demand 20 votes per

super share, double the recent norm

(Snap, the disappearing-message app,

granted no votes at all to ordinary

shareholders). A final necessity is a

sunset clause that scraps controlling

mechanisms — or at least puts them to

avote—afterasetperiod.

WeWork’s structure falls short in all

these aspects. True, the succession

plan that Rebekah Neumann will help

shape if her husband dies has a 10-year

limit. But within three years of the IPO,

a new plan needs to be framed for what

happens after that. Who does WeWork

designate to make that proposal? The

multi-hattedMrNeumann,ofcourse.

WeWork offers little protection for investors if its CEO’s genius fades

Beware the dead hand of

the controlling founder

Queen Elizabeth I was a major shareholder in the Golden Hind’s voyage

Erdogan’s huge gamble

has indeed ‘paid off

handsomely’ — for Putin

Your Big Read article “Erdogan

gambles on Russia pivot” (August 15)

quotes Asli Aydintasbas, a senior policy

fellow at the European Council on

Foreign Relations, stating that Recep

Tayyip Erdogan “took a huge gamble

and it paid off — for now”.

Paid off? The loss is immense.

Turkey lost its F-35 jets and Turkish

companies developing and/or

producing the F-35/F-135 are kicked

out of the F-35 programme. Turkey

paid $2.5bn to Russia for a weapons

system that cannot be integrated into

the Turkish Nato-compliant radar

work, and lost $12bn in export business

from its immensely valuable,

prestigious role in the maintenance

and production chain of the F-35.

Vladimir Putin’s gamble, however,

paid off handsomely. Moscow won big,

both militarily and economically, by

preventing its powerful immediate

neighbour from acquiring a state of the

art weapon, successfully exporting the

S-400 in exchange for hard currency,

and by driving a wedge into Nato.

The S-400 vs F-35 crisis reminds me

what John le Carré wrote in the Karla

trilogy: “There are moments which are

made up of too much stuff for them to

be lived at the time they occur.”

Yoruk Isik

Istanbul, Turkey

Overuse dulls the

impact of a vigorous

figure of speech

In 1976 the UK requested a loan from

the IMF. Ever since, this event has been

universally described by journalists as

the UK “going cap in hand” to the

International Monetary Fund. Perhaps

this was once an arresting metaphor.

But it soon became a drearily

predictable cliché, reduced to a string

of meaningless syllables. Thus does

journalistic laziness impoverish our

public conversation.

Something similar is now happening

with writing about a no-deal Brexit.

Nobody seems able to describe this

possibility without writing about

Britain “crashing out of the EU”.

Repetition serves only to dull the effect

of this originally vigorous figure of

speech. Philip Stephens is just the

latest to use it (“The post-Brexit price

of a special relationship”, August 16).

I would also request that the FT curb

the metaphorical use of “weaponise”,

another expression that has lost any

impact through overuse.

Dr Simon Taylor

Judge Business School,

University of Cambridge, UK

AUGUST 19 2019 Section:Features Time: 18/8/2019 - 18: 00 User: nicola.davison Page Name: LEADER USA, Part,Page,Edition: USA, 18, 1

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