Treading waterPolarised politicsthreatensconfidence in theUS economyPage 2

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India’s factories‘must think big’How the countrycan release itseconomic potentialPage 3

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FT SPECIAL REPORT

The World 2013Wednesday January 23 2013 www.ft.com/reports | twitter.com/ftreports

In the years before the financialcrisis, boundless optimism wasthe default setting for Davos man.The World Economic Forum was acelebration of globalisation and its

possibilities. But the financial crisisput a stop to all that. The last fourDavos forums have been gloomyaffairs, dominated by a sense that glo-bal capitalism is in crisis. Delegatesworried about everything – the euro,the banks, inequality, unempIoyment.

It is possible, however, that – thisyear – the sense of crisis will lift. Thefear that the euro could crash andburn within weeks – which wasvoiced openly at last year’s forum –has dissipated, and with it so has thebiggest threat hovering over theworld economy. There will still be ear-nest, even urgent, calls for reform inEurope. But the panic has gone.

The gloom clouds have also driftedaway from the two largest economiesin the world – the US and China. TheUS economy is growing at well over2 per cent a year and unemploymentis falling. Above all, there is greatexcitement at the prospect that theshale-gas boom could lead to energyindependence for the US and a bigboost to the competitiveness of Ameri-can industry. The heads of big oil andchemical firms – such as Shell, BPand Dow – are always well repre-sented at Davos, and they will belistened to with particular attentionthis year.

The prospects for the Chinese econ-omy will be discussed just as eagerly.For much of 2012, gloomy talk pre-vailed – with much discussion of theimpact of rising wages and labourunrest in southern China. Mystery

and scandal around the leadershiptransition added to the sense of uncer-tainty. But Xi Jinping is now safelyinstalled as the new general-secretaryof the Communist party – and thelatest figures show that the Chineseeconomy is still growing strongly andthat exports are resilient.

Opinion about India has gonethrough a similar cycle. In the middle

of last year, slowing growth and polit-ical paralysis fed a mood of growingcynicism about the country’s pros-pects. But, in recent months, thereform process has restarted and ithas become clear that growth thisyear will exceed 5 per cent. The gloomwas overdone.

Even the prospects for Japan – anation that has disappointed its boost-

ers for 20 years – are exciting a bitmore interest, with a new reformistgovernment, led by Shinzo Abe, tak-ing power in Tokyo.

The balance between optimism andpessimism is also always affected bypersonal circumstances, as much asrational analysis. So the mood ofDavos man will be lifted by the fact

Continued on Page 4

Global issuessimmer asprospectsbrightenLast year’s sense of panic has gone and themood has lifted but there is still much forDavosdelegates to chew over, saysGideonRachman

2 ★ FINANCIAL TIMES WEDNESDAY JANUARY 23 2013

In the US the hiatusbetween the election of anew President and the inau-guration ceremony lasts forjust under three monthsbut in China the transitionperiod for an incomingleader can be more likethree years.

In early March, Xi Jin-ping will formally receivehis third and least impor-tant title as President of thePeople’s Republic of China,having already assumed theroles of Communist partygeneral-secretary and com-mander in chief of the mili-tary in mid-November.

Even after that it maytake him years to place hisown people into positions ofreal power, particularly andmost importantly in themilitary.

It was Mao Zedong whosaid that political powergrows out of the barrel of agun and in modern Chinathat remains just as true aswhen Mao was fighting hisguerrilla war in the 1930s.

By many people’s reckon-ing, outgoing President HuJintao never totally man-aged to consolidate hispower and so his time incharge of the world’s mostpopulous nation ended upas something of a “lost dec-ade”, devoid of any bravereforms.

That may not be entirelyfair but it is a commonrefrain heard throughoutthe Chinese bureaucracyand especially among thosein China who had hoped forreforms to the country’ssecretive authoritarianpolitical system.

Since Mr Xi gave his firstspeech in mid-November asthe new head of the party,some liberal intellectualsand government advisershave expressed hope hemay push through substan-tive political and economicreforms at an early stage inhis first five-year term.

But others point out thateven if Mr Xi is somehow acloset Gorbachev admirerhis room for manoeuvre isseverely limited by power-ful vested interests thathave become even more for-midable over the last dec-ade of Mr Hu’s tenure.

David Shambaugh, direc-tor of the China policy pro-gramme at George Wash-ington University, identifiesthe most imposing vestedinterests as the military,the bureaucracy, the bur-geoning state security appa-ratus and the state-ownedenterprise sector.

“The sheer scale of eco-nomic and social problemsin China requires policysolutions that necessitatesome significant systemicpolitical changes,” wroteProf Shambaugh in a recentessay. But “there is no cer-tainty that the incominggroup under Xi Jinping willbe able to (or wants to)change this leadership cul-ture in order to tackle thewide range of pressing eco-nomic, political, social,environmental, legal andforeign policy challengesconfronting China and cry-ing out for decisive action.”

The area where most ana-

lysts are more sanguine ison the prospects for eco-nomic reform. While thereis absolutely no consensusin Chinese policy circles onwhat needs to be done tooverhaul the political sys-tem there is at least a gen-eral recognition of the basicdirection the economyneeds to go in.

“China has an unsustain-able growth pattern and itwill have to pay a cost inthe form of slower growth,”says Yu Yongding, one ofthe country’s most promi-nent economists and aformer member of the Chi-nese central bank monetarypolicy committee.

“To make its growth sus-tainable China must shift toa new growth pattern thatrelies more on domesticrather than externaldemand and consumptioninstead of investment, espe-cially real estate invest-ment. The Chinese govern-ment understands this.”

But even with this con-sensus it is not clear thereis a very much that Mr Xiand his colleagues can doon economic reforms with-out hurting some of theinterest groups they rely onfor political support.

Where Mr Xi is likely tobe most different from hispredecessors and have themost leeway to set his owntone is on foreign policy.

The new administrationtakes over at a time whenBeijing is seen in the regionas increasingly assertive –particularly on long-sim-mering territorial disputesthat have boiled over into

outright confrontations inthe last few years.

In Japan, the portion ofthe population that feelsgoodwill towards China hasreached a four-decade lowof 18 per cent and in mostother neighbouring coun-tries the concern aboutChina’s military rise is atan all-time high.

The general angst amongregional neighbours aboutChina’s rise and ultimateintentions is reflectedamong Beijing-based diplo-mats, who have started tospeculate among them-selves about the possibilityof a regional conflict involv-ing China.

Most analysts and diplo-mats still believe it is aremote possibility but thissort of talk has not beenheard in Beijing since themid-1990s, when tensionswere high across the Tai-wan Straits.

The most persistent whis-pers talk of a brief engage-ment some time in the nexttwo years between Chinaand Vietnam, which hasoverlapping territorialclaims in the South ChinaSea and no formal defencetreaty with the US.

As the ambassador ofanother regional countryengaged in territorial dis-putes with Beijing told theFT recently: “My main jobin the next few years is tomake sure that if Chinadoes go to war that itdoesn’t do it with us.”

Old barriersin way of Xi’sbid for reformChina

Jamil Anderliniassesses the scope forchange in politicsand the economy

The area where Xiis likely to have themost leeway to sethis own tone isforeign policy

A year of feast and famineis how one global bankdescribed the fate of theMiddle East and northAfrica in 2013, as the oil-rich and largely autocraticGulf spends its petrodollarswhile emerging democra-cies wrestle with politicaltransitions and economicdownturn.

True, the Middle East hasalways moved at twospeeds, with a dramatic eco-nomic divide between oilimporters and exporters.But the gaps are now evenwider as a time of historicpolitical upheaval.

Saudi Arabia, hardlytouched by the Arab awak-ening, recently unveiled amassive budget with recordspending, and Qatar’s deal-making is as frantic as ever.North Africa, by contrast,remains blighted, evenmore than in the past, bylow growth and a lack ofjobs.

As the bank HSBC said ina recent research report, oilproducers are looking at ayear of plenty but for therest of the Arab world,“intensified political riskadds to a catalogue of head-winds that have led to weakgrowth, widening externaland fiscal imbalances andsevere financial pressures”.

The political turmoil wasalways expected to take aheavy toll on the economyof North African states.But the transitions havebeen more turbulent thanmany Arabs had predicted.Popular (though unrealis-tic) expectations of a rapidreturn to normality andeconomic have been disap-pointed.

Perhaps the image thatmost starkly illustrates thefrustrations is in Tunisia,the country where Arabrevolutions started in 2011after a young and desperatestreet vendor set himselfaflame.

In recent months, protest-ers have been taking to thestreets again (though insmaller numbers than dur-ing the uprising) demand-ing jobs that the Islamistgovernment has not beenable to provide yet.

The new Arab political

order has been defined byan ideological strugglebetween Islamist partiesthat had been brutallyrepressed by dictatorshipsand liberal groups afraid ofthe intrusion of religion ontheir societies.

Nowhere has this struggleplayed out more intensely –and with devastating eco-nomic impact – than inEgypt, the Arab world’smost populous country andits traditional trendsetter.

The first democraticallyelected president, MohamedMorsi from the MuslimBrotherhood, sent encour-aging messages of inclusive-ness and openness to theoutside world when he tookover in June.

But his handling of theconstitutional crisis at theend of last year and hisinsistence on pushing adraft opposed by non-Islam-ist segments of societythrough to a referendumexacerbated divisions inEgyptian society anderoded confidence.

Mr Morsi’s attitude alsoconfirmed the fears of theliberals who charge thatIslamists have less than agenuine commitment todemocracy.

For the past three weeks

Egypt has been trying tostem the depletion of its for-eign exchange reserves aspressures on the poundhave escalated, raising thepressure for an agreementwith the International Mon-etary Fund on a $4.8bn loanthat has been twicedelayed.

The unfolding crisis inCairo has been closelywatched by the westernworld, where governmentssee stability in Egypt as apriority given the country’sdiplomatic and political

weight in the region. It wasin no small part Egypt’sactive mediation that hadhelped secure a ceasefirebetween Israel and the Pal-estinian Hamas in Novem-ber, bringing an end to aweek-long Israeli offensivein the Gaza Strip.

Egypt’s troubles, ofcourse, pale in comparisonto the tragedy of Syria,where a popular revoltmorphed into an insurgencythat has attracted jihadisinto a new war. With morethan 60,000 people dead andBashar al-Assad, the Syrianleader, refusing to stepdown, the prospects for apolitical solution appearremote, despite a fresh dip-lomatic push by UN envoyLakhdar Brahimi.

The perception in Europeis that 2013 will bring theend of the minority Alawiteregime. But even thoughRussia, the chief interna-tional backer of Mr Assad,is beginning to share thepredictions of his demise, itis far from clear that civilwar will end even after hisdeparture.

And, despite steady gainsby rebel groups andincreased control over largeswaths of Syrian territory,Mr Assad’s forces are still

much better equipped andhis Alawite-controlledofficer corps has held firm.

The Syrian crisis, mean-while, is already contami-nating neighbouring statesand concerns over a spillover of sectarian tensionsinto Lebanon and Iraq arelikely to grow this year.

In the coming monthswestern efforts will focuson trying to bolster the abil-ities of rival rebel groups –an objective, however, thatis not easily achieved with-out direct military assist-ance.

While the UK and Franceare leaving their optionsopen, and could pushharder for a lifting of theEuropean arms embargo onSyria, diplomats expect nochange in the attitude ofthe US Obama administra-tion, which is putting greatemphasis on trying to reacha diplomatic understandingwith Russia on Syria.

Policy analysts say theadministration’s greaterfocus will be on trying toresolve the high-stakesnuclear dispute with Iran toavert what is likely to berenewed Israeli threats toattack the Islamic Repub-lic’s nuclear facilities afterIsrael’s election this month.

Political upheaval widens gaps in two-speed region

The way the US political classushered in the new yearwould scarcely give rise tohope that the country’s lead-ers can come together in

ways that can spur growth and invest-ment in the world’s largest economy.

At 30 minutes to midnight on NewYear’s eve, a tired-looking Harry Reid,the Democratic Senate majorityleader, walked with one hand on theshoulder of a security guard to guidehim through a throng of journalistsinto the Senate chamber.

Mr Reid and Senate Democrats hadjust been briefed by Joe Biden, thevice-president, on a deal over the fis-cal cliff struck with the Republicanleadership in the Senate. The compro-mise passed in the Senate in the earlyhours of January 1, and through theHouse of Representatives later in theday, avoiding or delaying a series ofautomatic tax rises and spending cutshanging over the economy.

But far from being an example ofhow the US political system mightfinally be working, the deal wasanother episode displaying its dys-function.

Ron Brownstein, of the NationalJournal, said the 11th-hour agreement“may have been the best deal the twosides could have reached withoutactually tumbling over the fiscal cliff.

“But no one should underestimatehow much of a missed opportunity itrepresents. The deal stands as therare event that could simultaneouslyset back the goals of the left, right,and centre,” he wrote.

It is no surprise the US is still feel-ing the after-effects of the devastatingfinancial crisis, which started in 2007and sent the economy momentarilyinto freefall in late 2008 and in thefirst six months of 2009. But beyondthe backwash that comes with anyfinancial downturn, the US economynow carries a permanently heightenedlevel of political risk.

The equity and bond markets nolonger react with alarm to everymoment of brinkmanship on CapitolHill. There are simply so many thatthe regular stand-offs over spendingand taxes have, in some respects,become like a shrill radio left on inthe background of US public life.

But the inability of the political sys-tem to settle big policy questions con-tinues to threaten the confidence ofboth business and consumers. Bothstill periodically spark into life – theUS economy remains more robustthan continental Europe and the UK –but the economy has never regainedits full footing in Mr Obama’s firstterm.

In the opening months of 2013, theWhite House, and Democrats, havethree more showdowns over the bud-get pencilled into the diary: over lift-ing the debt ceiling in late February;over automatic spending cuts delayeduntil March 1 under the fiscal cliffdeal; and the need for Congress to passa new budget at the end of March.

The parties to the upcoming seriesof negotiations – the White House,and the Democrats and Republicansin Congress – all enter the talks in a

sour, distrustful mood, with no good-will accruing from the fiscal cliffagreement.

Even worse, the 11th-hour dealpleased no one. The White House andthe Democrats managed to lift taxeson the wealthy, but without gainingwhat they considered to be sufficientrevenues to bring down the deficit.

The Republicans, angry at theirlack of negotiating leverage over thefiscal cliff and annoyed at beingbacked into a corner, are adamantthat any new deals contain no newtax increases at all.

The negotiations to lift the debt ceil-ing bring with them a particular set ofdangers. A similar confrontation in2011 over raising America’s statutoryborrowing limit hurt the economy andresulted in a ratings downgrade.

The economy has proved relativelyresilient since then. Adding to recentoptimism are signs at last of a recov-ery in the housing sector, which hasbeen a drag on the economy for fouryears, and employment in the con-struction sector.

But the optimists have been letdown before. In every year since theUS recovery began in 2009, commenta-tors have been waiting for a big surgein the economy, and it was alwaysdue to arrive the following year.

At the ends of 2009, 2010 and 2011there were forecasts of 3 or 4 per centgrowth in the year ahead. It neverhappened. Growth has been stuck atabout 2 per cent.

At the start of 2013, while the threatof recession has retreated, economistsstruggle to see where extra demandwill come from, especially as the gov-ernment stimulus from 2010 to 2012 isnow going into reverse.

The fiscal cliff deal raised incometaxes on the wealthy and ended atemporary 2 percentage point reduc-tion in payroll taxes, so a solid recov-ery in the private sector is neededmerely to keep the overall economyon track.

For the US, then, the economy looksto be treading water for another year.As if that were not bad enough, parti-san politics could make it worse.

Economy treadswater as partiesclose ranksover budget

US Inability of system to settle policy questionsthreatens confidence, writesRichardMcGregor

Twilight zone: theCapitol on NewYear’s Eve withboth House andSenate in session

Getty

Mohamed Morsi: tough line

If last year saw the euro-zone survive an existentialcrisis, 2013 will be the yearin which the resolve ofEurope’s leaders is tested tostick with economicreforms as millions of theirvoters endure unemploy-ment or falling wages.

Last summer’s commit-ment by Mario Draghi,European Central Bankpresident, to “do whatever

it takes” to prevent theeuro from breaking up, andthe agreement among EUleaders on a bail-out mecha-nism and closer financialintegration have soothedfinancial markets andhelped lift the sense ofimminent threat against theeuro.

“Today, those still pre-dicting a break-up of theeurozone are sadly behindthe curve,” said Olli Rehn,the EU’s monetary affairscommissioner, in a speechthis month, before adding:“We cannot afford to lowerour guard.”

What remains is a conti-nent still mired in reces-sion, suffering from recordunemployment and with lit-tle prospect this year ofanything but the most anae-

mic growth. National lead-ers will find themselvesattempting to stick to toughausterity regimes in orderto cut budget deficits andto press ahead with struc-tural reforms designedto improve competitiveness.They do this in an environ-ment where voters and oth-ers will question whethersuch harsh medicine is kill-ing the patient.

The big political setpieces are the Italian elec-tion next month and thisautumn’s German poll.

The former has the poten-tial to stall reforms in oneof the countries that saw itsbond yields rise higher lastyear on speculation of aeuro break-up. The latter,likely to return Angela Mer-kel to power, will act as a

further brake on eurozonefire-fighting for the Germanchancellor as she cam-paigns at home, where a cri-sis-fatigued electorate seesitself as footing the bill.

And as last year’s con-cern about a possibleGrexit, or Greek exit fromthe euro, has diminished, anew European politicaldebating point has emergedin the form of the Brexit, orspeculation about a Britishexit from the EU.

But the big challenge isunemployment and growth.About 26m people are out ofwork across the EU and theunemployment rate for the17-nation eurozone has hit arecord 11.8 per cent. It isforecast to rise yet furtherbefore any improvement.

Worse, the eurozone-wide

rate conceals stark country-by-country differences. Job-lessness is still near two-decade lows in Germanybut in Spain and Greeceone-in-four people are out ofwork, with the rate nearing60 per cent among thoseunder 25.

An upwards trend inunemployment in countriessuch as France and theNetherlands – that were notdirectly hit by market jit-ters over a euro break-up –also reflects how groupshave delayed investmentacross the bloc.

“That is probably the big-gest risk to the eurozone –the longer the recessiongoes on and the higher theunemployment rate, themore there is the risk thatelectorates express that all

these reforms are not worthit and say we’re not seeingthe benefit,” says MarieDiron, economic adviser toErnst & Young.

These social strains havestarted to be expressed in arekindling of smoulderingseparatist and regionalisttensions, as seen in elec-toral advances made byindependence movementsin Scotland, Catalonia and

Flanders. “Many countriesare experiencing the mostsevere economic crises inliving memory,” saysMoritz Krämer, sovereignrisk analyst at Standard &Poor’s.

“The social contractaround which a countrycoalesces may becomeincreasingly strained.”

He expects nationalistvoices to become morealluring but sees a break-upof a European state asunlikely. Indeed, MrKrämer’s forecast for theyear is that this could be awatershed – the beginningof the bloc sustainably over-coming the market volatil-ity and fragmentation ofthe last few years.

The consensus amongeconomists is that the bloc

will come out of recessionand enter low growth laterin the year.

But that very low growthis dependent on the widerglobal economy and there islittle in the way of extrastimulus waiting in thewings to support it.

The ECB, which alreadyhas its main refinancinginterest rate at a historiclow of 0.75 per cent, startedthe year with a signalthat it was not minded tocut further for the timebeing.

“Other economic policyareas will need to makefurther contributions toensure a firm stabilisationof financial markets andan improvement in theoutlook for growth,” saidMr Draghi.

Unemployment and low growth remain bloc’s big challenge

‘Many countries areexperiencing themost severeeconomic crises inliving memory’

Middle East

Popular hopes for areturn to normalityhave been frustrated,says Roula Khalaf

Eurozone

There is little scopefor extra stimulus tohelp the continentout of recession,writesMichael Steen

The World 2013

FINANCIAL TIMES WEDNESDAY JANUARY 23 2013 ★ 3

The World 2013

Sub-Saharan Africa’s voiceon the global stage has beenstrongest in the past decadeand a half when its twomost powerful players haveworked together.

When Thabo Mbeki andOlusegun Obasanjo wereheads of state in SouthAfrica and Nigeria, respec-tively, this was often thecase. The two men had ashared history dating backto when Gen Obasanjo wasmilitary head of state in thelate 1970s and Nigeria sup-ported Mr Mbeki and otherAfrican National Congressexiles from apartheid SouthAfrica.

In different ways thegruff, former general,elected as civilian leader in1999, and the prickly intel-lectual, who succeeded Nel-son Mandela as head ofstate the same year, hadclout and influence acrossthe globe. Controversial asthey both were at home,when addressing Africancrises or mapping out amore collaborativeapproach to the continent’seconomic future, they couldbe an effective duo.

The same cannot be saidof President GoodluckJonathan in Nigeria and hiscounterpart Jacob Zuma inSouth Africa, both of whomhave been struggling withdomestic crises in the pastyear – fuel subsidy protestsand an Islamist insurgencyin Nigeria, and industrialunrest and social tension inSouth Africa.

These days, Africa’sstrongest poles have oftenfound themselves apart incontinental disputes. Theyare more often rivals thanallies in projecting an Afri-can viewpoint, in advocat-ing a permanent Africanseat on the United NationsSecurity Council, and havetaken positions that havesplit the continent in recentconflagrations, such as inIvory Coast and Libya.

At one recent AfricanUnion summit, Nigerianand South African delegatesstanding outside a trilateralmeeting at which MrJonathan and Mr Zumawere at odds nearly came toblows.

Yet the two countrieshave much to offer eachother, as Nigeria’s economycontinues to take off on theback of soaring world oilprices – and an expansion

of services and agriculture– while South Africa strug-gles with rising unemploy-ment, decreasing competi-tiveness and industrialunrest.

South African businesses,from MTN, the continent’sleading telecoms company,to smaller tech companies,retailers such as Shoprite,and banks such as StandardBank, have all won animportant foothold in thecontinent’s most populousnation as they seek – as doother foreign investors – totap into the faster growth offrontier markets as the restof the world slows down.

Nigeria’s economic trajec-tory has meanwhile begunto threaten South Africa’spre-eminent position,although South Africa’s

physical and financial infra-structure is still far moredeveloped.

Economists and invest-ment banks forecast that,for all its endemic corrup-tion, structural shortcom-ings and infrastructure defi-cits, if Nigeria’s economycontinues to grow at 6 percent or more it is only amatter of years before its$255bn economy overtakesSouth Africa’s $400bn as thecontinent’s largest.

Forecast by the IMF togrow at 6.3 per cent againthis year, Nigeria couldbegin to gallop faster if con-tinuing reforms designed toliberalise the power sectordeliver on one chronicimpediment to a moredynamic business environ-ment – electricity shortages.

Partly as a result of opti-mism over power reform –and the prospect ultimatelyof this unleashing Nigeria’sindustrial potential – Stand-

ard & Poor’s, the ratingagency, upgraded the coun-try in November. Theupgrade still leaves the sov-ereign rating three notchesbelow investment grade andfar below South Africa.

But as Ngozi Okonjo-Iweala, the finance ministerand co-ordinator of eco-nomic policy, notes, it is inthe right direction, at atime when many countriesare heading the other way.

That said, compared toSouth Africa, Nigeria iscoming from far behind. Itranked 178th out of 185economies, for example, foraccess to electricity for newbusinesses in the WorldBank’s latest Doing Busi-ness report. More than halfof the 160m population hasno access to the power grid,the Bank found.

In South Africa, mean-while, after some of themost turbulent months inthe country’s post-apartheidhistory, all three maincredit rating agencies haverecently downgraded thecountry.

Mr Zuma, in an interviewlast week, cast blame forthe country’s economicwoes and social distur-bances on the global eco-nomic crisis and legacies ofapartheid.

“There’s a certainty thatthe ANC is going to be ingovernment, the ANC haspolicies that are very cer-tain and are very clear,” hetold the FT. “As an investorthose are the things I wouldlook at, I would not look atwhat people say.”

But such talk has not pre-vented some investors fromtaking fright. As one Lon-don-based private equitymanager puts it, if SouthAfrica starts to presentemerging market risks fordeveloping world returns,its relatively mature econ-omy is not an especiallycompelling prospect.

The case for fund manag-ers to leapfrog into poten-tially more lucrative Afri-can markets, such asNigeria, becomes stronger.

Continent’s twin poleson different trajectoriesAfrica

In spite of rivalry,South Africa andNigeria have muchto offer each other,saysWilliamWallis

At first glance, it looks likegood news for India: anIndian carmaker announcedthis month that it sold morevehicles than ever last year,

China overtook the UK as its biggestmarket and the company is planningto hire another 800 workers for itsfactory.

Unfortunately for India’s millions ofjobseekers, the plant is in the EnglishMidlands. The company is JaguarLand Rover, the luxury car manufac-turer owned by India’s Tata Motors.

Indian corporations do make cars athome as well, of course. But India’sfailure to adopt enough of the large-scale, labour-intensive manufacturingthat has propelled the successfuldevelopment of China and other eastAsian countries is now regarded asone of the greatest weaknesses of theIndian economy.

This shortcoming is obvious to any-one trying to shop for manufacturedgoods in one of Delhi’s “markets”,which in reality are collections of

tiny, overpriced stores that thrivebecause successive governments haveresisted the building of departmentstores and supermarkets, particularlyforeign ones.

A search for a basic householdsmoke alarm – an essential safetydevice in a land of shoddy electricalinstallations and frequent fires – ismet with blank stares from shopkeep-ers, until finally the object is locatedand ordered from a distant ware-house, arriving three days later atthree times what it would cost in Lon-don. It is – like many other electronicand electrical products sold in India –made in China.

Some Indian intellectuals were mor-tified last year when neither PresidentBarack Obama nor Mitt Romney men-tioned India in the US presidentialelection debate on foreign affairs, butthey know that India lacks inter-national clout in part because itseconomic weight is not commensuratewith the size of its population of1.2bn. Economists reckon that the

failure to accompany trade and prod-uct market liberalisation with reformof markets in the “factors of produc-tion” – particularly labour and land –is the biggest obstacle to investmentin manufacturing and the acceleratedjob creation and gross domesticproduct growth that it would bring.

“Product markets are reasonablyopen, reasonably competitive,” saysShankar Acharya, former economicadviser to the Indian government.“What’s missing in India in a hugeway is a large factory class.” Overthe past four decades, he argues,India, like China before, should havebecome a big producer and exporter of

clothing, shoes and toys. Instead,highly restrictive and old-fashionedlabour laws have undermined theadvantages of India’s low nominalwage costs and discouraged formalemployment, driving employers tohire casual labour and keep theirfirms as small as possible.

“Manufacturing units in India arediscouraged from growing beyond thevery small scale,” says Mr Acharya.“We’re not exploiting our comparativeadvantage.”

Economists Jagdish Bhagwati andArvind Panagariya make the samepoint in their book India’s Trystwith Destiny: Debunking myths that

undermine progress and addressingnew challenges (Collins Business,2012). They analyse data showing thatnearly nine in 10 jobs in the Chinesetextile industry are provided by medi-um-sized or large firms, giving theman advantage in export markets. InIndia, the proportions are reversed,with almost all workers employed bysmall enterprises.

“It is ironic that in a country withnearly 470m workers, all evidenceindicates extreme and even increasingreluctance of Indian entrepreneurs toemploy unskilled workers,” writeMessrs Bhagwati and Panagariya.Only about 10m Indians are employed

in private sector companies with 10 ormore workers, although 10m youngpeople are joining the labour forceevery year.

Labour laws are not the only prob-lem for businesses. Add in India’snotorious bureaucracy, poor transportand electricity infrastructure (lastyear the north of the country experi-enced the biggest power cut in historywhen more than 600m where withoutelectricity for the best part of twodays), and the occasional impositionof retrospective taxes and you have arecipe for driving away both Indianand foreign prospective investors.

Large companies with deep pocketsare so awed by the potential futuresize of the Indian market that theyusually persevere.

For example, MeadWestvaco, the USpackaging group, is taking a bet onthe inevitable growth of the consumergoods market in India, buying a localpackaging company and announcingplans for a total of more than $180mof investment over five years.

Walmart, the huge US supermarketsgroup, has invested in the wholesaletrade and is hoping to start in retailfollowing the easing of governmentrestrictions on foreign investment inthe sector. Indeed, the US company isbeing investigated over accusationsthat it has already secretly invested insupermarkets in contravention of theban previously in force.

Population growth, farming, govern-ment services, frantic constructionand real estate activity and the mod-ern outsourcing and IT servicessectors will ensure robust growthfor the Indian economy in the comingyears in all but the direst of politicalcrises.

Allready there are signs that GDPgrowth, which retreated steeply frommore than 8 per cent a year to lessthan 6 per cent in 2012, is starting topick up again.

That is faster than many emergingand most developed economies, butthose who study India’s economicprogress say growth would be fasterstill if the government’s reforms wereto extend to the markets for labourand land and so unleash the billionsof dollars of manufacturing invest-ment that the country needs.

Factory ownersurged to raiseambitions forexport successIndiaEconomists say labour and land reformsare key to releasing economic potential andstimulating investment, writesVictorMallet

Stitch in time: unlike many of its counterparts, this clothing factory on the outskirts of New Delhi is a big exporter AFP/Getty

Nigeria could beginto gallop faster ifcontinuing reformsaddress chronicpower shortages

At odds: Goodluck Jonathan (left) and Jacob Zuma

4 ★ FINANCIAL TIMES WEDNESDAY JANUARY 23 2013

The pressure forphilanthropy to make abigger impact on theworld’s problems hasrarely been as intense. Asgovernment budgetscontract, falling donationshit the global charityindustry and demands forthe services of non-profitscontinue to rise, thequestion for individualdonors and grant-makingorganisations is how tomake philanthropicfunding go much, muchfurther.

From a financialstandpoint, the immediateroad ahead certainly looksbumpy. In the US, overallannual giving is still down11 per cent from pre-2008levels, according to GivingUSA, and shows few signsof recovery.

The news is little betterin the UK, where overallgiving in 2011 dropped by£2.3bn to £9.3bn.Meanwhile, the combinedvalue of gifts of more than£1m fell from £1.3bn in2010 to £1.2bn the followingyear, according to anannual study by Coutts,the private bank.

This increases thepressure on the sector todo more with less. And inthe view of manyphilanthropic leaders, apriority is therefore toramp up the ability tocollaborate with otherorganisations, fromgovernment andmultilateral agencies tobusinesses andentrepreneurs.

“We can’t make a bigdent in the challengeswithout a far greaterability to join forces,” saysSally Osberg, president andchief executive of the SkollFoundation, which wasfounded by eBay billionaireJeff Skoll to invest insocial entrepreneurs.“That’s where I see all thisheading.”

In places such as the USand UK, governments haverecognised the potential ofjoining forces with theprivate sector to advancedomestic and overseasdevelopment agendas. Now,some are also turning tophilanthropists.

For example, apartnership was announcedlast year between the SkollFoundation and the USAgency for InternationalDevelopment (USAid). Theidea is to invest indevelopment innovationsthat have the potential forfar-reaching impact at afraction of the cost of suchinterventions whenexecuted throughtraditional aid models.

For grant makers –particularly the nextgeneration ofphilanthropists, many ofwhom have made theirmoney in the privatesector – partnerships withgovernment or the privatesector allow them to maketheir dollars go further.

“You’re seeing awillingness to use all thetools available in terms ofprivately financing socialgood,” says Jane Wales,president and chief

executive of the WorldAffairs Council and theGlobal PhilanthropyForum. “And newphilanthropists travel downthat road with ease.”

For continental Europe,where government welfaresystems have traditionallyborne most responsibilityfor delivering socialservices, cross-sectorapproaches are relativelynew. However, in a fiscallyconstrained environment,necessity will drivegovernments, investors andphilanthropic institutionscloser together.

“What foundations willhave to do, and arestarting to do, is to helpthe welfare state evolveinto a welfare society,”says Luc Tayart de Borms,managing director of theBelgium-based KingBaudouin Foundation.“The state can no longerdo it alone.”

But if partnership will bethe philanthropist’s mantrain the coming years, sowill accountability, aspressure to measure theimpact being made bydonor dollars increases.

Here, the sector hasmade advances since thedays when, too often, grantmakers based measurementof non-profits purely onoverhead levels – eventhough investing in IT,training or streamlinedprocurement systemsincreases operational

efficiency, leaving morecash for programmes.

Ms Osberg believes thatmany philanthropists havemoved on from thisapproach. “The sector isbecoming moresophisticated andunderstands thataccountability andlegitimacy is dependent onmeasurement and resultsthat add up,” she says.

And while measuring theeffectiveness ofprogrammes tacklingeverything from poverty towomen’s rights isnotoriously difficult, newmethodologies – such asthe Global ImpactInvesting Rating System(GIIRS) – are emerging asmainstream investors startto seek social andenvironmental returns aswell as profit.

Even so, Judith Rodin,president of the RockefellerFoundation, warns againstthe dangers ofphilanthropists putting toomuch emphasis onmeasurement at theexpense of innovation.

She believes that forphilanthropy to play abigger role in findingsolutions to globalproblems, the sector needsto treat its funding as riskcapital, in a way thatgovernments andcompanies cannot.

“Philanthropy has alwaysbeen best when it takesthat first layer of risk,”she says. “If everything wedo succeeds, we’re nottaking enough risk.”

Collaboration iskey to gettingmore from lessPhilanthropy

Sarah Murray findsthe foundations ofsuccess are changing

‘Philanthropy hasalways been bestwhen it takes thatfirst layer of risk’

Judith Rodin,Rockefeller Foundation

that the last year has seen abull run for stocks. Thismonth the S&P 500 hit afive-year high, and theFTSE All-World index isat its highest level for18 months. Even the bank-ers are liable to arrive inDavos with some of theirold swagger restored. Afterall, there have been nomajor scandals, collapses orarrests for months.

All these factors arelikely to mean that thisyear’s Davos will see theforum once again focusingas much on opportunitiesas on threats. (The ostensi-ble theme for the forum is“Resilient Dynamism”which – in the way of Davosslogans – is earnest, butuninformative.)

Nonetheless, those who

Continued from Page 1 prefer anxiety to optimismwill still have plenty to gettheir teeth into at thisyear’s forum. The big ques-tion for all the participantsis whether all these positivedevelopments are durable,or ephemeral. It will beeasy to make the case that,within weeks of the end ofDavos, the sense of crisiswill have returned.

In the west, there are twoobvious potential triggers –both of which are bound tobe discussed in Davos. Thefirst is the threat that Con-gress might refuse to raiseAmerica’s debt ceiling atthe end of February, raisingfresh questions in the mar-kets about America’s credit-worthiness – and alsoendangering the operationsof the US government.

The second risk – whichalso comes to a head at the

end of February – is thatthe Italian elections will seethe end of a period of tech-nocratic government in thatcountry, which has helpedto restore the confidence ofthe markets in the euro. Areturn to political instabil-ity and populist spendingpledges in Italy could be thetrigger for a renewal of theeuro crisis.

In recent years, Asianparticipants at Davos havesometimes given Americansand Europeans pious lec-tures on the dysfunctionalpolitics of the west. Thisyear, however, they willhave their own difficultquestions to answer. Thepast 12 months have seen asharp rise in tensionsbetween China and itsneighbours – and, in partic-ular, between China andJapan.

Serious observers arebeginning to talk about thereal, (if still remote) riskthat there will be armedconflict between China andJapan over the disputedSenkaku-Diaoyu islands.

Any such clash would prob-ably draw in the US, whichhas made it clear that theislands are covered by theUS-Japan security treaty.The stakes could hardly behigher.

In the meantime, how-ever, the world has to dealwith real conflicts in theMiddle East – in particularthe increasingly brutal civilwar in Syria, which hasnow claimed some 60,000lives. The plight of Syrianrefugees, as winter drawsin, is certain to be high-lighted, since the relevantUN agencies are alwayspresent at Davos. What ismuch less clear is whetherthe assembled world leaderswill have any fresh ideasabout how to handle theSyrian conflict.

The nomination of ChuckHagel to be the next US

defence secretary willstrengthen the impressionthat the US has very littleinterest in further militaryinterventions in the MiddleEast – since Mr Hagel hasbeen scathing in his criti-cism of both the Iraq andAfghan wars, and washighly sceptical even ofAmerican involvement inLibya.

However, just days beforethe delegates gathered inDavos, France staged anintervention in Mali –bombing Islamist rebels.Leading members of theFrench government alwayscome to the World Eco-nomic Forum, in neighbour-ing Switzerland, and theywill be questioned closelyabout the risks and strategybehind the Mali interven-tion.

It is also likely that the

dangers of climate changewill make a major reappear-ance at this year’s Davos. Inthe years before the finan-cial crisis, concern aboutthe environment and theclimate had become a bigtheme at the forum. But theeconomic crisis shoved glo-bal warming down theagenda at Davos – and else-where.

However, the waning ofeconomic anxieties over thepast few months has com-bined with a rise in fearsabout the climate – asextreme weather hasafflicted New York, Aus-tralia and elsewhere.

The WEF is actually anexcellent forum to have arounded discussion aboutthe climate, since it bringstogether many of the lead-ing scientific authorities onthe subject, alongside the

politicians who must cutthe deals and make thedecisions to deal with theproblem.

The milder critics of theWorld Economic Forumhave always argued that itis much better at describingand discussing problems,such as climate change,than dealing with them.More radical critics arguethat the forum is part of theproblem because it shapesand re-enforces an elite con-sensus that has led, directlyor indirectly, to globalfinancial crises, wideningincome inequality and envi-ronmental degradation.

It is part of the genius ofDavos, however, that suchcritics are often invited intothe warmth of the Congresshall to make their case.They are not ignored – theyare simply marginalised.

Issues on Davos agenda simmer as growth prospects brighten

Nominated: Chuck Hagel

In late September, economicweakness around the worldcaused economists at theWorld Trade Organisationin Geneva to scale backtheir forecasts. In 2012,trade would no longerexpand at a rate of 3.7 percent, as previously pre-dicted, but 2.5 per centinstead. For 2013, the prog-nosis was also reduced – toan expansion of 4.5 per centfrom 5.6 per cent.

It was the latest sign thatpersistent trouble in theglobal economy – from slowgrowth in developing coun-tries to slowdowns in someemerging economies – waslimiting the strength in therecovery of global tradeafter the dip it took duringthe 2008/09 financial crisis.

For Pascal Lamy, direc-tor-general of the WTO, itwas the latest sign thatadditional action wasrequired on a policy level torev up the engine of globaltrade. “More needs to bedone,” Mr Lamy said. “Weneed a renewed commit-ment to revitalise the multi-lateral trading systemwhich can restore economiccertainty at a time when itis badly needed.”

Mr Lamy’s term at theWTO expires at the end ofAugust, and nine candi-dates are lining up for hisreplacement – includingthree each from Asia andLatin America; two fromAfrica, and one from NewZealand.

But, regardless of MrLamy’s replacement, thenew WTO head will befacing the same, dauntingchallenge of reinvigoratingefforts to craft a multilat-eral trade deal from theashes of the decade-oldDoha round, which ran outof steam long ago.

“I think the big question

is whether the major pow-ers – China, the US, theEuropean Union, Brazil,India – really want to putsome energy into harvest-ing what can be harvestedfrom the Doha round,” saysGary Hufbauer, a former USTreasury department offi-cial who is now a seniorfellow at the Peterson Insti-tute for International Eco-nomics. “The US has beenconspicuously silent on this– but so have the others,”adds Mr Hufbauer.

Expectations have longdwindled that the full Doharound could be resurrected,certainly not before tradeministers hold their nextmajor WTO summit in Baliin December, but the morelikely scenario is that cer-tain elements of the globaltrade agenda – such as adeal on an InternationalServices Agreement – couldbe addressed on a piecemealbasis.

“We think this is going tobe a year with a lot of activ-ity, but not necessarily a lotof conclusions,” says Bill

Reinsch, president of theNational Foreign TradeCouncil, a Washington-based lobbying group fortrade liberalisation.

Amid the search for anew path forward in thenear-defunct multilateraltrade agenda, many largecountries are embarking onregional ventures to fill the

void and make someprogress towards greatermarket access.

For instance, countriesnegotiating the formation ofa Trans-Pacific Partnership– including Australia, Bru-nei Darussalam, Chile,Malaysia, New Zealand,Peru, Singapore, Vietnamand the US – cited progress

in the wake of their mostrecent talks in New Zealandin December, which for thefirst time also included Can-ada and Mexico. The 16thround of discussions will beheld in Singapore in March,and optimists hope that adeal can be inked by theend of the year, though thatmay be wishful thinking.

An even more ambitiousproject, arguably, is the cre-ation of a trade dealbetween the EU and the US,uniting the two economicpowers in a way that has sofar been elusive, and settingthe standard on measuressuch as the protection ofintellectual property rights.A working group led by EUtrade commissioner KarelDe Gucht and US trade rep-resentative Ron Kirk wasexpected this month to sug-gest the launch of formalnegotiations, though hugechallenges remain in craft-ing a deal and none will beforthcoming soon, withmany judging it virtuallyimpossible this year.

Meanwhile, China, Japan,

and South Korea are layingthe groundwork for theirown three-way trade pact,despite some geopoliticaltensions. “The big thingwhich might emerge in2013-2014 is a China/Japan/Korea agreement,” says MrHufbauer. “At the momentit seems a bit far-fetchedbut it could be big stuff ifthey decided to go forward.”

As these efforts towardsregional trade integrationproceed, the WTO, tradeofficials and experts aroundthe world, as well as busi-ness groups, are closelywatching whether countrieswill tone down some of themeasures to protect domes-tic industries that haveflourished in recent years,leading to charges of protec-tionism. Such policies haverankled trade relations andled to increasing trade ten-sions, including within theWTO’s dispute settlementmechanism.

“The last thing the worldneeds right now is thethreat of rising protection-ism,” says Mr Lamy.

Regional ventures form part of new way forwardTrade

Progress this year islikely to be on apiecemeal basis,says James Politi

As the great and the good ofthe worlds of politics,economics and financegather at the Davos WorldEconomic Forum this week,

the meeting’s theme of “resilientdynamism” might look hopelesslyoptimistic for the banks that are inattendance.

The past year has seen lenders inmany western markets continue toshrink their excessive pre-crisisbalance sheets as they are lambastedall the while by the emergence ofscandals ranging from Libor rate-rigging to Iran sanctions busting toMexican money-laundering.

At the same time policy makershave continued to draft laws to makebanking structures more secure, add-ing fresh regulations on capital andliquidity for good measure. The netresult is a banking system in much ofthe world that may be on its way tobeing more resilient, but in the mean-time is certainly not dynamic.

All the same, the more optimisticDavos delegates may choose to focuson the nascent signs of a turn in sen-timent. Since the autumn, there hasbeen a strong bull run on bank equi-ties, particularly in Europe, as inves-tors have taken heart at a calmereurozone crisis and some signs of apragmatic softening of tone by regula-tors. In particular, regulators havebacked away from tough rules onliquid asset buffers.

“European banks have been adriftin a Bermuda triangle, buffeted by thesevere forces of sovereign stress,deleveraging and financial repres-sion,” says Huw van Steenis, banksanalyst at Morgan Stanley. There arestill “high seas”, he says: “But we seethe threat receding [and] global inves-tors are looking afresh at investing inEuropean banks.”

Underpinning the theory that banksmay be returning to something akinto normality, a clutch of big-namebankers that have been absent in pre-vious years – from Goldman Sachsboss Lloyd Blankfein to FrédéricOudéa from Société Générale – are setto be at Davos this year.

Policy makers will want to capital-ise on any signs of an upbeat moodand convert it into constructive think-ing about growth, experts believe.

“The dominant theme is going to be:how do you reinvigorate Europeangrowth, and how do the banks fit intothat?” says Mr van Steenis. “Policymakers are realising that without acredit rebound, particularly for infra-structure and small and medium-sizedenterprises, it’s tough to see economicgrowth at an acceptable level.”

Many, however, still see early signsof a rebound in European sentimentas vulnerable to further shocks, whilethe economic backdrop in the US, too,is far from reassuring.

With continued low interest rates,and the tougher capital requirementsof incoming Basel III rules starting tobite, there is a new reality that lend-ers must confront, says John Drzik,chief executive of consultancy OliverWyman.

“I see banking going into a newphase of thinner margins and lowergrowth,” he says. “[As a result] therewill be a renewed focus on costand risk management. There will

be structural cuts in the bankingindustry for years to come.”

Much to investment bankers’chagrin, that is bound to extendthrough to pay levels. “The industryhas never gone as far as it might toalign pay with underlying risks or thetimeframe of realised returns,” MrDrzik says.

Underpinning that cost-based, pru-dential argument is a more pragmaticone – banks will be desperate to avoida repeat of the so-called shareholderspring, which saw investors lodge pro-test votes against directors’ re-elec-tion to boards as a proxy for the frus-tration many felt at the skewed distri-bution of the spoils between staff andshareholders.

In the clutch of US bank results lastweek, there were clear moves to cutinvestment banker pay.

Nonetheless, even pundits whobelieve a major overhaul of the indus-try’s structures is vital believe therewill be opportunities to grow – even if,for the time being at least, they arefew and far between in developedmarkets.

“For good banks there willbe chances to grow – in emerging

markets; by capitalising on rivals’weaknesses,” says Mr Drzik. “Andthere will also be opportunities fornon-bank financials that are strong,such as the insurers.”

Conversely, the hangover of crisis-related issues for western banks willopen up opportunities for emergingmarket rivals, says Michael Andrew,chairman of KPMG, the professionalservices firm. “This year will see theAsian banks – the Chinese, the Kore-ans, the Japanese, the Singaporeans –much more active in the world,” hepredicts. “Asian and Latin Americanbanks will take market share,”though he adds that established glo-bal banks “have a big head start”.

Clouding that positive agenda, how-ever, will be the continued need forbanks to reinvent their reputationsgiven the pasting that so many havetaken over the past 12 months.

“The key issue at Davos and for2013 will be how you achieve the res-toration of ethical reputations withinthe banking industry,” says MrAndrew. “It’s about regulation, it’sabout governance, it’s about culture.This is particularly the challenge forbanks in London, the US and Europe.”

Optimists mayhope for a turnof sentimentafter hard yearBankingThe twin issues of integrity and payare likely to dog the sector, in spite of signs thatgrowth is returning, reportsPatrick Jenkins

‘The last thingthe world needsright now is thethreat of risingprotectionism’

Called to account:banks will bedesperate toavoid a repeat ofthe so-calledshareholder spring

Getty

‘The industry has nevergone as far as it mightto align pay withunderlying risks’

The World 2013

FINANCIAL TIMES WEDNESDAY JANUARY 23 2013 ★ 5

The World 2013

Ask a scientist what discov-ery he or she would mostlike to see this year – andthe answer is likely to be“something completelyunpredictable”.

It could be the unambigu-ous detection of a radio sig-nal from an extraterrestrialcivilisation. Or, if that isasking too much, perhaps anew wonder material (suchas graphene in 2004) or apowerful biological tech-nique (such as the creationof human embryonic stemcells in 1998).

While scientists love dis-coveries that are not onpundits’ prediction lists, thecontinuity of researchmeans that most advancesare well signalled ahead oftheir official announce-ment. That was certainlythe case for what the jour-nal Science chose as 2012Breakthrough of the Year:the discovery of the Higgsboson.

This elusive subatomicparticle put the finishingtouch to the “standardmodel” of physics, whichexplains some but not all ofthe interactions betweenparticles and forces. TheHiggs boson – a manifesta-tion of the “Higgs field”that fills empty space andgives other particles theirmass – was created in high-energy smashes betweenatomic nuclei at the $8bn

Large Hadron Collider runby Cern, the Europeanphysics research centre out-side Geneva.

Cern will shut down theLHC next month for a two-year upgrade to enable thecollider to operate at evenhigher energies. Althoughthis will not give the LHCtime to generate muchmore data in 2013, research-ers have already stored up avast amount that they willbe analysing over this year.

For a start, physicistswant to know whether theHiggs boson is a single par-ticle, as the standard modelproposes in its simplestform, or a group of parti-cles, as more complex theo-ries suggest. The answerwill be important in thesearch for a broader under-standing of how the uni-verse works.

Physicists are hoping, too,that LHC data will providethe first signs of “supersym-metry”, the idea that thefundamental particles speci-fied by the standard modelalso have heavier partnerparticles. If so, one or moreof these super-particles or“sparticles” may accountfor the mysterious “darkmatter” that is believed topervade the universe but isundetectable with conven-tional instruments.

When it comes to observa-tions of the universe itselffrom telescopes and otherinstruments, most eagerlyawaited in 2013 is a map ofthe very early universe pro-vided by the EuropeanSpace Agency’s Planck sat-ellite.

This will give cosmolo-gists the most precisedetails so far of the cosmic

microwave background orCMB, also known as “theafterglow of the big bang”.

Although the CMB wasgenerated some 300,000years after the big bang inwhich the universe was cre-ated 13.7bn years ago, thedistribution of energywithin the radiation pro-vides clues to a much ear-lier time – perhaps towithin a tiny fraction of asecond of its birth.

Planck will build on mapsfrom Nasa’s earlier micro-wave observatories, whichreinforced the idea that aperiod of unimaginablyrapid expansion just after

the big bang, known as cos-mic inflation, can accountfor many features of theuniverse today.

A very different spacemission sure to produce fas-cinating observations thisyear is Nasa’s Curiosityrover, which made a spec-tacular descent on to Marsfrom a “sky crane” inAugust. After more prelimi-nary exploration, the car-sized rover will trundle formany miles across GaleCrater, stopping from timeto time to dig, scrape anddrill samples of soil androck, which it will analysein its robotic laboratory.

The life sciences have

fewer big set-piece eventsthan physics and space butthere are bound to be someimportant advances here,too.

Cancer research is mov-ing very fast. We can expectprogress, for example, inways to prime the immunesystem to fight tumours –an avenue being pursued byseveral academic groupsand biotechnology compa-nies. And the continuingrapid fall in the cost ofDNA sequencing will ena-ble researchers to track bet-ter the genetic evolution ofcancer within individualpatients.

New technology for DNAsequencing is also playing akey role in understandinghuman origins. Last yearscientists at the Max PlanckInstitute for EvolutionaryAnthropology in Leipzig,Germany, announced anastonishing feat of geneticsleuthing when theydecoded the genome of apreviously unknown humanspecies from DNA survivingin a 50,000-year-old frag-ment of finger bone foundin the Denisova cave inSiberia.

This year they mayobtain an equally completegenome for Neanderthals,which are far better knownbecause so many Neander-thal fossils survive butwhich have not yet yieldedsuch well preserved DNA.

A three-way comparisonof Denisovan, Neanderthaland modern humangenomes would beimmensely revealing for sci-entists seeking to under-stand the complex relation-ships between differenthominid groups.

Beyond the big bang, Martianmanoeuvres and decoding DNAScience

Clive Cookson looksat discoveries onthe wish lists ofresearchers for 2013

Gideon RachmanChief Foreign AffairsColumnistJamil AnderliniBeijing Bureau ChiefRoger BlitzLeisure Industries EditorPilita ClarkEnvironment CorrespondentClive CooksonScience Editor

Patrick JenkinsBanking EditorRoula KhalafMiddle East EditorVictor MalletSouth Asia Bureau ChiefRichard McGregorWashington Bureau ChiefChris NuttallSan Francisco TechnologyCorrespondent

James PolitiUS Economic and TradeCorrespondentMichael SteenFrankfurt Bureau ChiefWilliam WallisAfrica EditorSarah MurrayFT ContributorAndrew BaxterCommissioning Editor

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Physicists want toknow whetherthe Higgs bosonis a singleparticle or a group

Afew days after TyphoonBopha tore through the Phil-ippines in December, leav-ing hundreds dead and thou-sands homeless, a represent-

ative from the battered country beganto speak at the UN climate talks inthe Qatari capital of Doha.

Naderev Saño, the Philippine cli-mate change commissioner, brokedown as he made a plea to his fellowdelegates, in what turned into one ofthe conference’s most rivetingmoments.

“I am making an urgent appeal, notas a negotiator, not as a leader of mydelegation, but as a Filipino,” he said.

“I appeal to the leaders from allover the world to open our eyes to thestark reality that we face,” he added.“Please, no more delays, no moreexcuses. Please, let Doha be remem-bered as the place where we found thepolitical will to turn things around.”

It was a call climate activists wel-comed in a year that saw record Arc-

tic sea ice melting; the hottest year onrecord in the 48 contiguous US statesand the shocking spectacle of NewYork City being devastated by super-storm Sandy.

As it turned out, however, the Dohaconference did what almost every UNclimate conference has done sincethese events started nearly 20 yearsago. It attracted thousands of peoplefrom nearly 200 countries to spendtwo weeks talking about how to stemthe greenhouse gas emissions thatscientists say are threatening to warmthe world by a potentially dangerous2C above pre-industrial levels.

And though it made progress by UNstandards, it did little to swiftly curbthe relentless rise in emissions thatsome experts say are on track towarm the globe by as much as 4C incoming decades.

This month’s searing record heat inAustralia has already produced 2013’sfirst severe weather extreme. Buteven if more follow, it is difficult to

imagine the UN climate negotiationsspeeding up substantially in 2013, andsome fear they never will.

US academic David Victor, authorof the 2011 book, Global WarmingGridlock, has repeatedly said part ofthe problem is the sheer size of themammoth negotiations, which meansmall countries with relatively fewemissions sit at the same table as theworld’s biggest emitters.

It would be smarter, he says, to getthe relatively small number of coun-tries responsible for the lion’s share ofemissions to negotiate a deal.

But could even this work with sucha complex and multifaceted problemas climate change?

“I’m sympathetic to the view thatthe UN climate process is not up tothe job and we would get a betteroutcome, or could manage the negoti-ations better, if we had a smallernumber of countries involved,” saysJonathan Grant, director of sustaina-bility and climate change at PwC.

But some of the most crucial discus-sions at UN talks often do involve arelatively small number of countries,or small numbers of representativesspeaking for much larger groups, suchas the least developed countries, orsmall island states, says Mr Grant.And even then they fail.

“So I think this is a bit of wishfulthinking,” he says. “The reason whythere is no progress is the issuesinvolved are so intractable. Theydon’t get any easier if you have just30 countries in the room.”

The difficulty of the UN process wasmore than evident in Doha, whichwas billed as a “housekeeping” meet-ing. Its main aim was to tidy up sev-eral strands of older negotiations frompast talks so delegates could start con-centrating on something they agreedto do at the 2011 climate talks in Dur-ban: forge a legally binding globalpact to tackle climate change by 2015that would enter force from 2020.

Until then, the 1997 Kyoto protocol

will remain the world’s only bindingagreement to address climate change.This treaty obliges a dwindlingnumber of wealthy countries whoseemissions now account for just 15 percent of the global total to reduce theirgreenhouse gas pollution.

The world’s largest emitter, China,did not have to make any Kyoto com-mitments because the pact obligesonly what were deemed wealthydeveloping countries in 1997 to reducetheir emissions.

China has become the world’s sec-ond-largest economy since then, infu-riating the US, which never ratifiedKyoto in part because of a belief itwas unfair for Americans to risk theireconomic growth when their risingrivals in China did not have to.

That stand-off between the two eco-nomic superpowers is one reason theUN climate talks have proceeded atsuch a glacial pace.

The 2015 deal agreed at Durban ismeant to break the deadlock because

it is supposed to cover all countries,including China, India and the otherbig emerging powers.

Still, given the past record of thesevast and unwieldy talks, it is easy tosee why some expect more actionfrom the private sector, or individualcountries.

Google, for instance, has investednearly $1bn in renewable projects.And a report this month from Globe,the international legislators group,shows that 33 of the world’s leadingeconomies have now passed 286 piecesof climate legislation, and 31 of themhave “flagship” climate laws, that canact as a platform for climate action.

As Globe admits, these laws, andprivate sector initiatives, are notenough alone to address the chal-lenges of climate change. But as UNclimate chief, Christiana Figueres,told a Globe meeting in London ear-lier this month, “nothing is going tobe agreed internationally untilenough is legislated domestically”.

Progress at glacial pace in UN talks on emissionsClimateWith the economic superpowers deadlocked, some are looking to the private sector and individual countries for action,writesPilita Clark

Global warming: this month’s searing record heat in Australia has already produced 2013’s first severe weather extreme. The heatwave caused a number of fires across the country AAP

6 ★ FINANCIAL TIMES WEDNESDAY JANUARY 23 2013

lematic. Cycling hasbecome the case study of asport in peril, an exampleof the disastrous conse-quences of ignoring a per-sistent sore.

But cycling is not alonein failing to tackle theproblems of unethicalbehaviour among theranks of its participants.

Michael Payne, formermarketing director at theInternational OlympicCommittee, says doping

had been ons p o r t ’ sagenda for

The World 2013

Whatever one makes of hisconfession to dopingthroughout his career,former cyclist Lance Arm-strong has set the stage formorality and cheating tobecome the key issues sportmust confront in 2013.

Sport has been down thisroute many times. The cen-tral tenet of sport is theuncertainty of outcome, thesporting event shrouded indoubt until its end.

Depressingly, the 41-year-old Texan destroyed thisromantic ideal in his inter-view with Oprah Winfrey.

Was there happiness inwinning when you knewyou were taking thesebanned substances, the chatshow host asked him.“There was more happinessin the process, in the build,in the preparation,” hereplied. “The winning wasalmost phoned in.”

Doping is just one ofthe diseases that attackthe uncertainty principle.Match fixing, spot fixing,bribery and corruption arealso part of the lexicon ofsport that cannot and neverwill be eradicated.

The throwing of base-ball’s 1919 World Series,Canadian sprinter BenJohnson doping to win the100m at the 1988 SeoulOlympics, serial dopingorganised by East Ger-many’s sports administra-tors in the 1970s and 1980s,South African cricket tar-nished in the 1990s by cap-tain and match-fixer HansieCronje – these are but a fewof the notable blemishesthat stained each affectedsport. It can take years torecover the sport’s reputa-tion.

The question for allsports administrators ishow to manage the prob-lem. The public will expectto see evidence of this in2013 and beyond.

The Armstrong scandal is

According to Sean Hamilof Birkbeck College’s sportbusiness centre in London,ethics is central to sportbecause of the conse-quences for its financialhealth.

“Sports governing bodieshave to recognise the inter-connection between integ-rity and economics insport,” he says.

For another, while sportsgoverning bodies will takecomfort in the growingappetite for sport, it mustcompete for attention likenever before with otherleisure activities in an eco-nomic downturn.

For the consumer, sportcomes under that very largediscretionary spending

umbrella, and in manygeographical marketssuch spending isunder intense pres-sure.

Such a backdropwould be awkwardenough for anyproduct. But forone whose integ-rity is under scru-

several decades, and for toolong ignored in some quar-ters.

“Part of the problem wasthat American football andbaseball were very slow tothe table to engage on thedoping issue,” he says.

Fifa, football’s governingbody, for years brushed offallegations of corruption,and may have carried ondoing so but for the growthin the amount of money itgenerated and the increas-ing scrutiny that thisattracted.

Fifa will continue to edgeslowly along the path ofreform laid out by SeppBlatter, its president. Itsattention may well thisyear be swallowed up inpreparations for the 2014World Cup in Brazil.

But sooner or later, someof the big awkward ques-tions about Fifa, particu-larly the awarding of the2018 and 2022 World Cups,will have to be tackled.

The Olympic movementhas pressing issues otherthan sporting integrity tograpple with in 2013. A newpresident must be elected tosucceed Jacques Rogge anda decision made on whereto hold the 2020 summerOlympics.

The movement can reflecton a successful LondonOlympics, which did morethan most recent sportingevents to rekindle the sport-ing spirit of fair competi-tion, fan engagement andsupport and high-classachievement on the field ofplay.

But because the Interna-tional Olympic Committeelikes to portray itself as theembodiment of sportingvalues, it will be expectedto be at the forefront ofintegrity issues such asbribery and doping.

Mr Rogge said last yearhe wanted sport to wake upto the threat from thegrowth of gambling, whichcricket has found to its costwith match-fixing scandals.

The need to combatmatch fixing is the biggestthreat to sport, says MrHamil. “It is an absolutelyfundamental issue – it isnot going to go away,” hesays. Nor will any of theother threats to the integ-rity of sport.

Armstrong revelations refocusattention on playing the gameSport

Roger Blitz looks atpast scandals andwhy morality andcheating must beconfronted now ‘Sports bodies have

to recognise theinterconnectionbetween integrityand economics’

Skimming down the ski slopesof Davos this year, wearingthe latest gadgets from thismonth’s Consumer Electron-ics Show in Las Vegas, diger-

ati will be able to register their speed,altitude, position, distance, tempera-ture, heart rate and even brain activ-ity at any given second.

With point-of-view action camsattached to ski poles and helmets, thewhole experience could be captured inwide-angle Ultra HD quality andstreamed to a smartphone screen orout to watching friends on Facebook.

From internal body readings toexternal telemetry and the sharing ofthis to an outside world, technology isturning personal experiences into uni-versal ones.

Beyond the social aspects, a prolifer-ation of networked sensors attachedto ourselves, our cars and the sur-rounding environment is producinghuge amounts of data to be crunchedand interpreted to predict traffic pat-terns, retail intentions, the likelihoodof flu outbreaks and 1,001 other sce-narios. They can also identify andlead you to that one bay still vacantin a parking lot.

This “Internet of Things” – tiny,web-connected sensors communicat-ing with one another – has been longtalked about, but the network isexpected to reach a new level of matu-rity this year with improved NFC,Bluetooth and Wi-Fi wireless technol-ogies and more than 1bn smartphonesexpected to be sold, according toDeloitte research.

As well as this devolution of tasks

to smaller, smart objects, we are see-ing the beginning of consumer elec-tronics becoming electronics made orfinanced by consumers themselves,rather than the usual manufacturinggiants.

A number of devices at CES, fromsmart watches to game consoles, werecrowdfunded on sites such as Kick-starter, with users financing produc-tion runs of drawing-board designconcepts. We are also seeing moreaffordable 3D printers, costing as littleas $500, that allow consumers to cre-ate their own objects, built up layerby layer in plastic and other materi-als, in a method similar to inkjetprinters.

In the near term, though, individu-als and small companies are morelikely to outsource their needs to 3Dprint shops such as Sculpteo, runningmore sophisticated machines.

Hardware is losing its primacy, any-way, to software and services. Appleannounced this month the accelera-tion of the app economy – 40bn down-loads from its App Store in its four-year history, but with nearly 20bncoming in just the last year.

Hardware melts away if consumersare engaged by the user experienceand with ever thinner smartphones,tablets and TVs stripping awayframes and edges to just show ascreen, the disappearing act is almostcomplete. Samsung and LG have pro-duced vibrant, curved OLED big-screen TVs that are less than 5mmthick.

Wires are disappearing too. Mag-netic coils under carpeting and

counters provide wireless power tocompatible devices such as a lamp-stand or a food mixer. Wireless charg-ing is also becoming available for elec-tric vehicles – just drive your car onto a special mat to have it begin pow-ering up.

Making the technology invisible anddrawing us into what is displayed ona screen encourages natural interac-tions. Voice commands and gesturesare becoming more sophisticated andwebcams offer facial recognition andauthentication. Leap Motion willlaunch a motion sensor the size of apack of chewing gum early this yearthat can track finger movements withunprecedented precision, enablingusers to mould virtual clay on screenor play “air” piano.

In its annual forecast, IBM pre-dicted computing will soon be able toreplicate the five senses – touch-screens will allow you to feel the silki-ness of bed sheets before you order

them online, computers will be able tosee an area of diseased tissue in anMRI and hear sound frequencies thatdetect a weakness in a bridge before itcollapses.

Taste comes with computing perfectmeals by using an algorithmic recipeof favourite flavours and optimalnutrition. Sensors will soon be able to“smell” and distinguish odours, ena-bling analysis of soil conditions orsanitation systems.

But don’t write off the power of thehuman brain. Wearing a Muse head-band at CES that read my brain-waves, I was able to control a videogame by concentrating on the screen.

This was just one example in thegrowing category of wearable andembedded tech, which analysts see asthe next wave of personal computing.

Others include Google Glass,intelligent eyewear coming from thesearch company, and the Basis wrist-band, with sensors that can measure

perspiration, skin temperature andheart-rate patterns, as well as motion.

It is only a matter of time beforethis kind of monitoring is generallyavailable inside the body. Qualcomm,the leading wireless chip company, isworking with researchers on technol-ogy placed in the bloodstream thatwill send an alert to a smartphonegiving a two-week warning of a heartattack.

Qualcomm has also set a futuristic$10m challenge to revolutionisehealthcare, inviting teams of engi-neers to create the tricorder, the diag-nostic sensor-laden health tool in StarTrek.

“I totally believe this is possible andI believe this is going to revolutionisehealthcare,” says Paul Jacobs, Qual-comm chief executive. He is attendingthe forum in Davos, where he alsoplans to ski, check his sensors and hissmartphone; probably all at the sametime.

Unplugged erachanges theway we interactwith gadgetsTechnologyHardware is losing its primacy tosoftware and services as consumers engagewith the user experience, writesChris Nuttall

Wearableandembeddedtech is seenby analystsas the nextwave ofpersonalcomputing

Brainwave: theMuse brain-sensingheadband in actionat this month’sCES in Las Vegas

EPA

Coming clean:LanceArmstrongwanted to winat all costs AP

the present scourge andfeels somehow bigger thanthose of the past. Certainlythe scandal is remarkablegiven his huge importanceto cycling’s profile in theprevious decade, and thenow better understood wayin which he manipulatedthe sport to his own ruth-less ends over many years.

Cycling will continue tohog the limelight in 2013 forthe wrong reasons. Truthand reconciliation hearingswill reveal more about hownot just Mr Armstrong, butothers too, took to drugs tofuel their win-at-all-costshabit.

There are two other rea-sons why this scandal posesa greater risk to sport thanthose previous ones. Forone thing, so much moremoney is at stake today, asthe growth in the value oflive sports rights shows.

tiny that is especially prob-