8 ★ FINANCIAL TIMES Friday26 July 2019Parallels to the 1930s
extend beyond populism
The lessons from the thirties are not
confined to resisting authoritarian
populism (“Donald Trump, Boris
Johnson and lessons from the 1930s”,
July 22). Anyone who has read Tim
Bouverie’s recent studyAppeasing
Hitler: Chamberlain, Churchill and the
Road to Warwill see some parallels
between appeasement and Brexit.
Appeasement was based on a
catastrophic misjudgment: that Hitler
could be bought off with territorial
concessions. Worse, the policy
persisted even after there was clear
evidence that it was failing. Those who
spoke against it were treated as pariahs
by their party colleagues and
denounced as traitors by many of the
same newspapers — led by the pro-
Hitler Daily Mail — who are pro-Brexit.
The Foreign Office, and other sources
of independent expert advice, was
condemned in the same way as it has
been recently by those same sources.
Moreover, there are some striking
parallels between the two leaders. Both
Chamberlain and Theresa May were
personally austere and “unclubbable”.
Both were poor tacticians. Both
preferred to work with a small number
of loyalists.Both could be very
inflexible. Both had a supreme
confidence, amounting in
Chamberlain’s case to arrogance, in
their own judgments. Both had little
experience of foreign affairs before
becoming prime minister. Above all,
both preferred to indulge their own
and others’ fantasies, rather than try to
educate people as to the realities of
their situation.
We do not know how the
self-inflicted agony of Brexit will
end, but we can draw some lessons
from the failure of appeasement.
Roger Brown
Southampton, UKAn ‘activist’ in name only
I was surprised to read in the FT that
Boris Johnson secured two-thirds of the
votes cast by Tory activists (July 23).
Johnson was elected by Conservative
party members. As a party member I
pay my subscription. I turn up
occasionally to hear someone speak. I
bin dozens of emails from Conservative
party HQ telling me how bright the
future will be under the Conservatives
and asking for money. And that’s it. My
MP is a sensible man, well able to make
up his own mind, and I do not pester
him with my views on the Brexit
buffoonery, or politics at large.
There are many party members like
me. Please, we are not “activists”!
Peter Knapton
Borough Green, Kent, UKUS patent reform is good
for health and innovation
In response to “US reform plan for
patents raises innovation concerns”
(July 9): yes, more inventions could
qualify for US patent protection if a
reform bill under discussion in the
Senate becomes law. Contrary to what
you would have readers believe, this is
great for American healthcare and
innovation.
That article reaches a number of
mistaken conclusions that threaten
the introduction ofmyriad
life-saving/enhancing technologies.
A first critical error is the
misidentification of the key threat to
US innovators. It is not inability to
access science and technology building
blocks — those continue to be freely
available. Instead, as recently
recognised by our federal patent
appeals court in Athena Diagnostics,
the existential threat is court decisions
that prevent worthy inventions from
obtaining patent protection, leaving
them unattractive for investment.
The article also concludes reform is
unnecessary because today’s strict
patent eligibility rules are needed to
prevent patenting of overbroad and
abstract ideas. But this ignores 200-
plus years of court and congressional
effort honing other parts of the patent
laws to prevent just such offending
patents. Our eligibility rules are
broad-brush, specifically not designed
to make the fine-grained distinctions
the article attributes to them.
Some other errors:- The proposed reforms won’t
increase the disconnect between US
and EU patent eligibility rules; they
will decrease it, as Europe’s (and
China’s) laws permit innovations now
unpatentable in the US. - Increasing the strength of patent
rights doesn’t stifle innovation; it
engenders increased investment in
innovation.- There is clear consensus that US
patent eligibility law badly needs
reform, despite a few participants in
the recent Senate hearings stating
otherwise. Having testified at the
hearings myself, I noted the large
majority of participants applauding the
Senate’s reform efforts. - There is a split among large
software companies, some concerned
about patent eligibility, others
supporting the current state of play. It’s
inaccurate to say large software
companies generally support the
current state of play. - The proposed reformswillhelp
small software innovators. Ask Nick
Dupont, CEO of Cyborg, a small NYC-
based software company, who testified
during the recent Senate hearings.
US patent eligibility is broken. Until
the mistaken conclusions reached in
the article are constructively
countered, it will remain that way.
David J Kappos
Partner, Cravath Swaine & Moore LLP
Former Under Secretary of Commerce and
Director of the United States Patent and
Trademark Office
Trump’s unsolicited
steer on Kashmir
This is in response to your article
“Trump offers to mediate between
India and Pakistan over Kashmir”
(July 22): Donald Trump stated in a
press conference with Imran Khan that
he was ready to “mediate or arbitrate”
on Kashmir, and that Narendra Modi
had asked him to consider doing so
about two weeks ago. This was followed
by categorical denials from the Indian
foreign ministry.
It’s quite possible that Mr Trump
may have dressed up his conversation
with Mr Modi. This would have made
sense, since Mr Trump is clearly aware
of Pakistan’s Kashmir obsession, and
the possibility of helping Pakistan
bring India around on resolving
Kashmir to Pakistan’s satisfaction is a
powerful incentive for Pakistan to fulfil
President Trump’s bidding on
Afghanistan and the Taliban.
Extricating itself from Afghanistan
remains a top priority for Mr Trump,
so that he can go into the 2020
presidential campaign with a solid
claim of having bested both Barack
Obama and George W Bush on
Afghanistan. Perhaps the Indian
government should have played along,
despite thedomestic outcry, so that
Pakistanis don’t apprehend insincerity
in Mr Trump. But there is no particular
upside for India, unless the Kashmir
issue is resolved to India’s satisfaction.
Vijay Ganapati
Hyderabad, IndiaMethane’s outsize role
in climate change
Simon Herring’s letter (July 24)
regarding the behaviour of CO 2 and
methane is one of several letters that
have questioned the impact of methane
on global warming. It is true that the
lifetime of methane in the atmosphere
is relatively short, with estimates of 9.
years. However, due to its molecular
structure it has a much higher global
warming potential (104 times greater
than CO 2 over a 20-year period). The
concentration of methane in the earth’s
atmosphere has increased from 722
parts per billion in 1750 to 1,803 ppb by
2011, at which time it was calculated to
contribute approximately 17 per cent
of the Earth’s total radiative forcing.
Methane is no minor greenhouse gas.
The problem is worse, however. The
mechanism of methane breakdown in
the atmosphere is via interaction with
hydroxyl radicals. The end result is CO 2
and water. So essentially methane is
broken down to a less potent but more
persistent GHG in the form of CO 2
(H 2 O is also a GHG).
The concentration of methane in the
stratosphere is also increasing (a 13.
per centrise between 1978 and 2003).
In the stratosphere the production of
water due to methane breakdown is
more concerning as water and ice
clouds in the cold lower stratosphere
are very efficient at enhancing
atmospheric greenhouse effects.
So to question the effect of methane
on global warming just by looking at its
lifetime in the atmosphere is
misleading and simplistic. The science
is complex and there are many still
unanswered questions, but we must
not be lulled into a false sense of
security by ignoring the science.
Written on the UK’s hottest day of
the year so far and possibly the hottest
day ever in the UK.
Dr David Lythall
London W6, UKCustomers are better
off going to lossmakers
Izabella Kaminska reports that
according to a fintech executive
“profitability isn’t a ‘core metric’” for
today’s innovative companies (July 23).
Extending this logic and applying
common sense, if I purchase a product
or service from an innovative company
that is profitable, I must be overpaying.
Therefore, as a consumer, it is better to
buy from a competitor company
reporting losses, and the higher the
losses, the better. If this is confusing,
remember we are also living in a world
of negative interest rates.
Ira Sohn
Professor of Economics and Finance,
Montclair State University, NJ, USLiving in San Francisco can insulate
you from some of the world’s
problems. Climate change is not one of
them. Over the past two years,
residents have been advised to stay
indoors on some days because of
smoke from nearby wildfires. Another
burning season is about to start in
earnest. California’s state government
says climate change “has created a
new wildfire reality”.
In the long term, many Silicon
Valley offices could be flooded if — or
when — sea levels rise by two metres.
Protecting the Bay Area against floods
and storms would costan estimated
$450bn. Water shortages are also
expected to worsen.
Yet few of Silicon Valley’s amazing
achievements have had a bearing on
climate change. The world’s most
innovative place lacks answers to the
world’s existential problem. The
contrast is striking, given that many
tech employeesworry about the issue.
The biggest companies act as if
climate change is tangential. Although
Googleand Facebookpower some or
all of their data centres with
renewable electricity, they rarely
engage more broadly with their role in
increasing global energy use.
Perhaps it’s a clever ruse by Big
Tech to demonstrate it is not as
powerful as politicians think: like a
modern King Canute, it can’t control
the waves. More plausibly, it points to
an underlying failure of the Valley.
Peter Thiel, a founder ofPayPal,
liked to say, “We wanted flying cars,
instead we got 140 characters.”Actually we wanted clean energy; we
got cryptocurrencies that use as much
electricity asArgentina. We wanted
sustainable transport, instead we got
millions of car-hire drivers.
Where are the tech products that
help us slow global warming, and
adapt to a warmer world? At this rate,
parts of the world will gain access to
multiple food-delivery apps just as
they lose access to clean water. Alexa,
tell me why it’s 100 degrees outside.
One problem is that Silicon Valley’s
model of venture capital — which
works so well on some problems —
cannot easily address climate change.
It excels in developing software for the
US market and then spreads globally.
Clean technologies require much
more capital and engineering, and
often the low-hanging fruit — such as
retrofitting dirty factories — lies
outside of the US. The best green tech
start-ups are not concentrated in
California, undermining the network
effect on which the Valley is built.
After Al Gore’s 2006 filmAn
Inconvenient Truth, one major venture
capital fund,Kleiner Perkins, did bet
heavily on clean tech — and fell from
grace partly as a result. It didn’t help
that the US government failed to
accelerate environmental regulation.
For years, this disengagement with
climate change had one high-profile
exception:Tesla’sElon Musk. Like
Tom Cruise’s character inTop Gun, the
electric car pioneer was a mixed
blessing. You could replace fossil fuels
— but only if you were as unique and
as rich as he was.There are a couple more examples
now:Impossible Foodsand Los
Angeles-basedBeyond Meathave
started selling meat alternatives with
lower carbon footprints. But Kleiner’s
John Doerrsays much of the
investment in environmental
technology still comes from family
offices, rather than conventional
venture firms. A lot is riding on
Breakthrough Energy Ventures, the
$1bn clean tech fund led byBill Gates.
The first generation of Valley
entrepreneurs — William Hewlett,
David Packard and Intel’s Gordon
Moore — spawned foundations with a
strong environmental bent; the
current generation has directed its
giving elsewhere.
Of course the hard choices involved
in stopping global warming don’t fit
well within the tech industry’s usual
optimistic, convenience-focused
rhetoric. Facebook’sMark Zuckerberg
and Google’sSundar Pichaihardly
mention climate change in speeches.
Apple has hired a former head of the
Environmental Protection Agency,
Lisa Jackson, to head its efforts, which
include making suppliers use
renewable energy. But the focus is still
on mitigating the company’s impact,
rather than broader change.
Silicon Valley promises to tackle the
world’s biggest problems. When
historians look back at our era, they
may ask why the people with the most
ambition, capital and appetite for risk
failed to aim a little higher.[email protected]Silicon Valley
falls short on
climate change
California
Notebook
by Henry Mance
Letters
FRIDAY26 JULY 2019Email:[email protected]
Include daytime telephone number and full address
Corrections:[email protected]
If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: [email protected]‘He’s filled with positive thinking
and vitamin D’Emerging market economies are falter-
ing. The IMF’s latest downgrade to glo-
bal growth projections for this year —
the fourth consecutive cut — was
entirely driven by a lowering of expec-
tations across emerging Asia, Latin
America and the Middle East. Emerg-
ing markets are still growing around
twice as fast as advanced economies.
Yet the expected gap with advanced
economies in gross domestic product
growth is now almost a full percentage
point lower than a year ago, with GDP
growth inEMs projected to be thelow-
est for a decadethis year. Several major
economies, notably Brazil, Russia and
Mexico, are growing more slowly than
advanced economies.
ManyEM central banks have tried to
prop up growth by pre-empting the US
Federal Reserve in lowering interest
rates during recent months. South
Korea, Indonesiaand South Africa are
among the most recent. This is wel-
come, but is unlikely to be enough to
reinvigorate output. Weak productiv-
ity, lack of productive capacity and the
slow pace of domestic reforms must
also be addressed.
The US-China trade spat has exposed
the vulnerabilities of export-orientated
economies in manyEMs. Global trade
growth slumped to a seven-year low of
just 0.5 per cent in the first quarter of
this year; expectations for 2019 are
now less than half the pace recorded
two years ago. China’s economy grew at
itsslowest pacein almost 30 years in
the second quarter, while Singapore
reported its worst quarterly contrac-
tion in GDP since 2012. South Korea has
downgraded its growth projections
thanks to weakness in global trade
combined with its own tradefriction
with Japan.
Thestructural shift in China to a
more consumption-orientated econ-
omy has also disrupted supply chains
across Asia and inEM commodityexporters. A handful of lower-income
countries have gained market share
from China, but not by enough to offset
overall losses.
The slow pace of domestic reform is
another constraint, particularly in
Latin America. The region saw the larg-
est forecast downgrades from the IMF
with growth set to remain anaemic in
Mexico and Brazil this year, while
Argentina is expected to recover only
slowly from last year’s crisis.
Brazil’s economic agenda of deregu-
lation and privatisation under Presi-
dent Jair Bolsonaro has yet to produce
concrete results. The country’s long-
awaited pensions reform bill recently
passed its first readingbut three
more votes remain before it can take
effect. Weakness in investment and
sentiment has constrained growth
across the region, as has poor produc-
tivity growth.
The expected reversal in US interest
rates will offer some relief. EM central
banks should continue easing domestic
policy where space permits, supporting
consumption and investment. Paki-
stan and Argentina are the exception.
Their high inflation levels and vulnera-
bility to currency depreciation has
forced them to maintain tight mone-
tary policies.
While growth inEMs may be at a dec-
ade low,the external vulnerabilities
are not on the same scale as10 years
ago. The number of countries running
fiscal and current account deficits is
now much lower, foreign exchange
reserves are higher and foreign curren-
cy-denominated debt is on a downward
trend. But pressure points remain, not
least the failure to invest in productive
growth capacity — which would help to
insulate domestic economies from
future external shocks. Easier mone-
tary policy globally provides an oppor-
tunity to do this. EM economies should
not squander it.Weak productivity and slow reforms are constraining output
Emerging markets must
invest in growth capacity
Vanquishing political foes often
requires adopting some of their poli-
cies. The strategy of Britain’s new pre-
mier Boris Johnson goes further: to
turn the Tories into the Brexit party.
Hiscabinet purgewas no mere reshuf-
fle, but the formation of a hardline pro-
Leave government. Its goal is to deliver
Brexit by October 31with a deal or
without, or — if parliament blocks the
latter — to be ready to fight a snap elec-
tion. The Johnson camp is rattled by
the threat posed by Nigel Farage’s latest
political vehicle. Yet in trying to secure
the long-term survival of his party and
his premiership, Mr Johnson is taking a
punt on the future of his country.
The incoming prime minister has
adopted from the start the language of
the gambler. “People who bet against
Britain,” he proclaims, “will lose their
shirts.” He has not backed away from
the hardline Brexit stance of his leader-
ship campaign but doubled down. He
will not rework Theresa May’s with-
drawal agreement but do a “new deal”.
The “anti-democratic” backstop —
designed to avoid a hard border in Ire-
land — cannot be tweaked butmust go.
This is not a man ready to fold.
The verbal bravado is backed with
actions designed to display intent. His
new cabinet, while alarmingly low-cali-
bre, projects a unity of purpose and ide-
ological purity. Appointing Dominic
Cummings as an adviser brings in an
abrasive freethinker ready to knock
heads together to accelerate no-deal
preparations. It means, too, that the
mastermind of the deviously disingen-
uous Leave campaign in 2016 is on
hand to prepare for an election that
might partially re-fight that campaign.
There is yet the sliver of a chance that
the Johnson plan A — leaving with a
deal — may work. Boris-style bon-
homie and bluster might yet persuade
the EU to shift a few more inches than it
did for Mrs May — perhaps offering anextended transition period that could
detoxify the Irish border issue, or even
some form of a time limit on the back-
stop. His roguish charisma and robust
party backing might enable Mr John-
son to “sell” even cosmetic changes to
MPs in a way Mrs May could not.
His gamble is still fraught with risk.
Surrounding yourself with ministerial
doormats and excluding those ready to
make opposing arguments is not sound
politics. Strong actions, moreover, pro-
voke strong reactions. Mr Johnson’s
bloody reshuffle and determined dash
for the EU exit have swelled the num-
bers of Tories ready to bring down his
government if Brussels proves imper-
vious to his charms and Britain heads
for Johnson plan B: a no-deal Brexit.
In that case, however, the prime min-
ister is hinting at a plan C. He can go to
the country on a no-deal ticket. He will
then be Brexiter number one — sup-
planting Mr Farage, as in the 2016 ref-
erendum — standing up to a pigheaded
EU and pro-Remain parliament.
Here lie the biggest risks of all. A no-
deal election campaign could unite not
just opposition parties but pro-Remain
and even soft-Leave Tories against him.
Making the Conservatives the party of
a hard Brexit delivered either before or
after an election risks reducing it to an
English nationalist rump. Even if the
economic damage can be partly miti-
gated by accelerated planning — highly
questionable — the long-term harm to
Britain’s reputation and security would
be immense. So, too, would be the
impact on Remain-backing Scotland
and Northern Ireland of being dragged
over the no-deal cliff against their will.
After the comprehensive failure of
Mrs May’s muddled approach, and
with Mr Farage breathing down his
neck, Mr Johnson may feel he has cho-
sen the only path available. The prime
minister, and the country, should have
no illusions about where it may lead.New UK prime minister is turning the Tories into the no-deal party
Johnson’s Brexit gamble
puts the country at risk
The July 24 Opinion piece “Multi-firm
audits can break the Big Four’s
oligopoly” by Joseph Smith rightly
points out that effective and
independent auditors are essential
to the health of capital markets and
public trust in corporations.
The stranglehold the Big Four have
on the corporate tax planning market
also threatens to undermine that trust.
Unfortunately, public trust has already
been steadily eroded, following news
that major corporations such as
Amazon have been found to pay zerodollars in taxes on $11bn in profits.
Profit shifting and tax competition
is a particularly acute problem for
developing countries, as they are highly
dependent on tax revenue to fund
much-needed development initiatives.
On Tuesday, the International
Consortium of Investigative Journalists
published a new cache of documents
dubbed the “Mauritius Leaks”,
detailing a complex tax avoidance
system that has been bleeding some
of Africa’s poorest nations dry of
critical revenue for years.Additionally, the IMF estimated
in March that profit shifting by
multinationals to low-tax locations
costs developing countries $200bn
a year, revenue that is desperately
needed if they hope to achieve
the UN’s 2030 Sustainable
Development Goals.
Indeed, to quote the IMF, “the
international corporate tax system is
under unprecedented stress” because
of profit shifting and tax competition,
with developing nations bearing the
brunt. Mr. Smith’s idea to open upauditing of corporations to firms
outside the Big Four should be
extended to tax planning as well as
an alternative to the corrosive system
currently in use.
Whether the networking of firms
or some other idea is taken up, reform
is clearly needed. Nothing less than
the health and wealth of nations
depends on it.
Tom Cardamone
President & CEO,
Global Financial Integrity,
Washington DC, USBig Four’s stranglehold on corporate tax planning must end
РЕ
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