Beijing Cuts Itself Down to Size

Transcription

P2HW287000-0-A00100-1--------AL
Duterte Makes the Right
Moves on Tax Reform
ARTS | A9
OPINION | A10
ISTOCK
SAYING GOODBYE
TO MUSICAL GODS
THURSDAY, OCTOBER 13, 2016 ~ VOL. XLI NO. 31
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What’s
News
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S
amsung slashed its profit
forecast due to its Galaxy
Note 7 recall, reflecting the
widening impact of the crisis
on the tech giant. A1, A2
 Thai stocks and the baht
dropped after royal authorities said the ailing king’s
condition was unstable. B1
 China proposed
strengthening its policies
on internet safety for children, which could force tech
firms to make changes to
meet the requirements. B2
 Japan’s Kirin Holdings
agreed to take a minority
stake in Brooklyn Brewery. B2
 Toyota is in talks with
Suzuki over an alliance to
share the burden of developing self-driving cars and
low-cost vehicles. B2
World-Wide
 Trump plans to renew
his nationalist themes and
amplify his attacks on Clinton to try to depress Democratic voter turnout, as
he faces opposition inside
and outside his party. A1
 Clinton’s staff sought to
contain fallout from her use
of a private email server,
hacked emails show. A7
 Singapore urged China to
engage “constructively” with
regional players and the U.S.
to ease tension in the disputed South China Sea. A3
 Pakistan’s high court is
set to hear the appeal of a
Pakistani Christian whose
death sentence for blasphemy sparked an international outcry. A3
 Hong Kong’s new pro-democracy lawmakers mangled
their oaths in a show of defiance against China during a
swearing-in ceremony. A3
 China’s stimulus measures appear to have stabilized the economy, but the
government now faces a
resulting housing bubble. A3
 The two lawyers representing Salah Abdeslam,
the main suspect in the
Paris terror attacks,
stepped down in protest at
his detention conditions. A4
 Texas, once a star, is now
a sore spot for the U.S. economy after over two years of
slumping oil prices. A7
CONTENTS
Arts & Ent............... A9
Business & Fin.. B1-3
Capital Account.... A2
Crossword.............. A12
Finance & Mkts.. B5-8
Heard on Street.... B8
Markets Digest..... B6
Opinion.............. A10-11
Personal Journal.. A12
Technology............... B3
U.S. News.................. A7
Weather................... A12
World News....... A2-6
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RUNGROJ YONGRIT/EUROPEAN PRESSPHOTO AGENCY
 Mitsubishi Heavy plans to
shrink its shipbuilding business after a dramatic fall in
orders and a heavy loss from
its cruise-ship operations. B1
BY JONATHAN CHENG
AND EUN-YOUNG JEONG
HOPE: People in Bangkok wished 88-year-old King Bhumibol Adulyadej well Wednesday. Thai markets sank after news of his ill health. B1
Trump’s New Attack Plan
Republican candidate’s
approach involves
nationalist themes,
criticism of Clinton
BY MONICA LANGLEY
Donald Trump, faced with
opposition inside and outside
his party, plans to renew the
nationalist themes that built
Boycott Roils
Hong Kong
his base and amplify his noholds-barred attacks against
Hillary Clinton to try to depress Democratic voter turnout, his advisers said.
Following the release of a recording of his lewd comments
about women, and several highprofile Republican defections
over the weekend, Mr. Trump
has effectively given up the
conventional wisdom of trying
to reach voters far outside his
core of support, one high-level
Republican supporter said.
The new strategy emerged
Tuesday on Mr. Trump’s Twitter account when he sent out
messages attacking Republican
House Speaker Paul Ryan as a
weak leader after Mr. Ryan
said he wouldn’t appear with
the nominee.
“It’s so nice that the shackles
have been taken off me and I can
now fight for America the way I
want to,” Mr. Trump wrote.
Later, in an interview with
Bill O’Reilly of Fox News, Mr.
Trump seemed to suggest that
if he wins the election Mr.
Ryan should be removed, saying the speaker “maybe
wouldn’t be there, maybe he’ll
be in a different position.”
Mr. Trump is trying to use
his break with many party
leaders as a lever to ramp up
Please see PLAN page A7
DOWNSIDE OF U.S. TECH
BOOM: TOO FEW JOBS
Dashed employment promises of the late 1990s fuel discontent
crosoft Corp., even though
their combined stock-market
value is twice as big. Photosharing service Instagram
The technology revolution
A Wall Street Journal series
had 13 employees when it
has delivered Google
examining the economic roots
was acquired for $1 billion
searches, Facebook friends,
of America’s populist discontent
by Facebook in 2012.
iPhone apps, Twitter rants
Hiring in the computer and
and shopping for almost anychip sectors dove after comthing on Amazon, all in the
panies shifted hardware production outside
past decade and a half.
the U.S., and the newest tech giants needed
What it hasn’t delivered are many jobs.
relatively few workers. The number of technolGoogle’s Alphabet Inc. and Facebook Inc.
ogy startups fizzled. Growth in productivity
had at the end of last year a total of 74,505
Please see TECH page A8
employees, about one-third fewer than MiBY JON HILSENRATH
AND BOB DAVIS
BOBBY YIP/REUTERS
 Ericsson’s shares tumbled after the company issued a profit warning, citing a 19% sales decline in
its mobile-network equipment business. B1
DLR ¥104.43 À 0.89%
Samsung
Slashes
Its Profit
Forecast
A Prayer for Thailand’s Ailing Leader
Business & Finance
 Big U.S. banks are creating structures that
would allow critical parts
to keep functioning, even
if the parent company has
to file for bankruptcy. A1
ASIA EDITION
WSJ.com
FRACAS: Pro-democracy
lawmakers tear ballots in the vote
for Legislative Council chair. A3
U.S.’s Giant
Banks Try
Self-Help
For Crises
BY JOHN CARNEY
Regulators want to prevent
taxpayers from having to ever
again bail out big banks. Their
latest idea: make the banks
bail themselves out.
Previously, banks had struggled to persuade regulators
they had a plan—called a “living will”—that would allow
them to be dismantled and
shut down if they got into
trouble without taxpayers taking a hit. Now, banks are creating new structures that
would allow their most important parts to keep functioning,
even if the parent company
had to file for bankruptcy. The
aim is to avoid the kind of
market chaos that could cause
economic harm.
To this end, there was a
small structural change in the
public portions of living wills
Please see BAILOUT page A2
THE GREAT
UNRAVELING
McDonald’s Graffiti Problem:
Artists and Their Lawyers
i
i
i
Burger chain is accused of stealing
‘taggers’ work to decorate restaurants
What McDonald’s may not
have anticipated is that the
When McDonald’s Corp. re- street is undergoing its own
cently introduced a grungy, branding revolution. Artists
graffiti-themed décor to res- who view the urban landscape
taurants across its European as a giant canvas are no longer
market, the company hailed outlaws in the dusk, but are
the new design as “exciting increasingly showcased in museums and gallerand fresh.”
ies and pursued by
Graffiti artists
deep-pocketed art
have a different
buyers. The emdescription for the
brace of graffiti
burger
chain’s
has made artists
faux-graffiti plasDash Snow’s tag
more possessive of
tered walls: copytheir designs, more
right infringement.
The design scheme, offi- sensitive to their reputation
cially titled “Extreme” in and, along with the higher
McDonald’s brochures, is stakes, more inclined to sue.
McDonald’s is the defendant
meant to target youthful consumers by using “graffiti-like in the latest of a growing
visual language on the walls to handful of graffiti copyright
remind people that McDonald’s clashes. In one recent case, the
is a brand of the streets,” as plaintiff is the former girlthe company’s former chief friend of the late rebel artist
Please see SNOW page A8
brand strategist explained.
SEOUL—Samsung Electronics Co. cut its preliminary
third-quarter earnings guidance
figures on Wednesday, a day after announcing it would permanently discontinue its troubled
Galaxy Note 7 smartphone.
In a reflection of the widening financial impact of its product-safety crisis, the South Korean technology giant lowered
its operating profit estimate
for the three months ended
Sept. 30 to 5.2 trillion Korean
won ($4.6 billion) from an initial estimate of 7.8 trillion won.
It also lowered its expected
revenue for the quarter to 47
trillion won from an original
estimate of 49 trillion won.
Ericsson Shares
Plunge on Warning
Sweden’s networking giant
said third-quarter earnings
would evaporate, sending its
stock down 20%. B1
Last week, Samsung said its
preliminary third-quarter earnings guidance figures took into
account the Galaxy Note 7 recall. The new numbers factor in
the increased likelihood that
customers will seek a refund for
their Galaxy Note 7 rather than
an exchange for a Samsung
phone, leading to lower anticipated earnings for the quarter.
“The expected direct cost of
the discontinuation of the Galaxy Note 7 has been reflected,”
a company spokeswoman said.
The full impact of the crisis
involving phones that are at
risk of catching fire is expected to play out over several
months. On Tuesday, most analysts pegged the cost of the
Galaxy Note 7 debacle at about
$4 billion, including recall expenses and lost sales.
Lee Seung-woo, an analyst
at IBK Securities in Seoul, said
he is expecting the company
to report a small operating
loss in the third quarter for
Samsung’s mobile division. If
that occurs, it would mark the
unit’s first quarterly loss since
before its first Note series
phone was released in 2011.
For the last three months of
the year, Mr. Lee is projecting a
mobile-operating profit between 1.5 trillion to 2 trillion
won.
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Copyright © 2016, Oracle and/or its affiliates. All rights reserved.
P2HW287000-0-A00200-1--------AL
THE WALL STREET JOURNAL.
A2 | Thursday, October 13, 2016
WORLD NEWS
Squeeze on Bank Profits Poses Wider Risks
S
even years since the
global financial crisis,
banks don’t look like a
source of trouble. They’re
making money and have
thickened their buffers
against bad loans, while extensive new rules have excised much of the risk from
their operations.
The stock market, though,
tells a darker story. It thinks
banks are barely able to earn
more than
what investors
charge them
for funds. The
reasons are
complex but
CAPITAL
boil down to
ACCOUNT
this: rock-botGREG IP
tom or negative interest
rates, tougher
regulation and weak economic growth have severely
squeezed bank profitability.
An industry that can’t
earn more than its cost of
capital is an industry destined to shrink. This matters
to more than just the banks
and their shareholders.
When central banks ease the
supply of credit, they rely on
banks to transmit the benefits to the broader economy
by making loans, handling
trades and moving money
between people, companies
and countries. Shrinking, unprofitable banks hobble that
transmission channel.
No politician wins votes
by feeling sorry for banks.
Quite the opposite: Democratic presidential nominee
BAILOUT
Continued from page A1
released last week by the biggest U.S. banks. This involved
the creation of a holding company to sit between the shareholder-owned parent company
and its subsidiaries.
The new companies will
house resources meant to support banking and brokerage
units in times of crisis. J.P.
Morgan Chase & Co. said it
had created a new entity to fill
this role, while Bank of America Corp. is using an existing
subsidiary. Citigroup Inc. said
it has similar plans.
The new entities will be a
sort of emergency backup
bank within the bank, a vehicle for internal bailouts.
The Federal Reserve and
Federal Deposit Insurance
Corp., the two agencies that
must sign off on living wills,
pushed the banks to pursue
the new type of holding com-
Hillary Clinton would make
it easier to punish miscreant
bankers while charging
banks a new “risk” fee.
Some finance officials,
however, are starting to
worry.
“We don’t have a banking
crisis, we have a profitability crisis,” Hans Jörg Schelling, Austria’s finance minister, said recently. Central
banks in Europe and Japan
are skittish about cutting
interest rates even further
for fear of undermining
their banks.
The point is illustrated
well by a recent study by
Natasha Sarin and former
Treasury Secretary Larry
Summers, both of Harvard
University, and presented at
the Brookings Institution.
They decided to assess the
stability of banks not as regulators do, which usually
means looking at capital
(such as shareholders’ equity), but as markets do.
They examined the behavior
of common shares, preferred
shares, options, credit default swaps and various valuation yardsticks.
They discovered that
markets think banks are
much more likely to lose half
their market value than before the crisis. They interpret this as a “decline in the
franchise value of major financial institutions, caused
at least in part by new regulations.” The counterintuitive
implication: Rules designed
to make banking safer may,
pany in April guidance, according to people familiar
with the matter. The suggestion came from an eight-word
phrase in a 23-page memo
that received little attention
outside of banks, they said.
The Fed and FDIC declined to
comment.
The change could cause unease among regulators outside
the U.S. It potentially could
lead banks to keep less capital
at overseas subsidiaries and
make it less likely they would
support all their global operations in times of trouble.
The upshot could be a push
by non-U.S. regulators to require banks to provide additional support locally for subsidiaries. That would mirror
the approach U.S. regulators
have taken toward the subsidiaries of foreign banks.
“The best and most transparent way to deal with this
would be an international
agreement among regulators,”
said Karen Petrou of research
Market Discount
Investors are assigning much lower values to banks than they did a
decade ago, often less than those banks’ book value.
Average ratio of bank market value to book value
Large U.S. banks:
Precrisis average*
Postcrisis average†
Wells Fargo
2.77
1.44
Goldman Sachs
1.04
J.P. Morgan Chase
1.42
0.98
Morgan Stanley
2.14
1.84
0.83
Citigroup
2.31
0.70
Bank of America
2.15
0.63
Other U.S. banks:
Midsize institutions (avg.)
2.25
1.25
Non-U.S. banks:
Canada
1.89
U.K.
0.91
Japan
0.59
Italy
0.57
Germany
0.48
2.16
1.77
0.72
France
2.43
1.44
1.55
1.14
*Usually 2002–07 †Usually 2010–15
Source: Natasha Sarin and Larry Summers, Harvard University & Brookings Institution
by endangering their longterm viability, ultimately
achieve the opposite.
One telling data point is
the decline in the ratio of
banks’ market value to the
value their books say they
are worth. For example,
Bank of America Corp. and
Citigroup Inc., which traded
at about double their book
value before the crisis, have
since traded below, as have
banks in France, Germany,
Japan and Italy.
That means investors
think that banks will be
earning negative returns on
their assets, after costs. And
indeed, the Institute for International Finance, which
represents global banks,
and advisory firm Federal Financial Analytics. “But those
efforts have failed. Regulators
can’t agree. Each, quite reasonably, wants to protect the
interests and financial systems
of their home country.”
Critics of the new approach
said the creation of new entities is a move in the wrong direction. “They try to fight
complexity with more complexity,” said Cornelius Hurley,
director of the Boston University Center for Finance, Law &
Policy.
Moreover, the undertaking
to some drifts far from the
original idea for living wills,
created by the Dodd-Frank financial-overhaul law. “We’re
just lurching from one idea to
the next, creating a jerry-built
system of financial regulation,” Ms. Petrou said.
The wills were originally
envisioned in the wake of the
financial crisis as a way to
make it possible for a big bank
to fail without a taxpayer-
funded bailout.
The latest wills were
drafted in response to faults
cited by the Fed and FDIC in
banks’ 2015 plans. The stakes
are high. The wills’ process
gives the regulators enormous
power; in an extreme case, the
Fed and FDIC could order the
breakup of a big bank even before it runs into any trouble.
What is being
created is a ‘jerrybuilt system of
financial regulation.’
The wills now revolve
around a scenario in which the
parent holding company of a
failing firm enters into bankruptcy. Meanwhile, its subsidiaries—commercial banks, broker-dealers, merchant banks—
survive and are protected.
This is done by moving capital and funds to the subsidiar-
finds that since 2010, European, Japanese and U.S.
banks have on average been
earning less than their cost
of capital.
Regulation is part of the
reason. To better buffer loan
losses, banks must now hold
more capital such as shareholders’ equity, which
spreads profits across more
shares. To deal with sudden
outflows of funds, they must
hold more highly liquid
short-term assets, such as
Treasury bills, which earn
less than loans.
T
his has been compounded by the sluggish economy, which
has held back loan growth,
and by monetary policy.
Banks profit from the spread
between the interest they
charge on loans and pay to
depositors. But loan rates
have been pulled down as
central banks hold shortterm rates at or below zero
and buy bonds, and banks
are reluctant to pass that on
to depositors by charging to
hold their money. Moreover,
when central banks buy
bonds, they pay with newly
created cash that sits on
banks’ balance sheets earning nothing, or less.
This can explain a lot of
the problems in Europe’s
banks, including Deutsche
Bank, which is facing a potential multibillion dollar
U.S. penalty over crisis-era
mortgage activity. The German powerhouse has nearly
ies, even as the parent holding
company fails. That protects
creditors and counterparties
of the subsidiaries, a move it
is hoped that prevents the
kind of turmoil that followed
the bankruptcy of Lehman
Brothers Holdings Inc.
Regulators support that
general idea, but have been
critical of how it would work
in practice. Moving capital and
funds between subsidiaries in
a time of stress can be tricky.
When the parent runs into
trouble, creditors and regulators may seek to prevent resources from being moved between a firm’s various arms,
regulators have warned banks.
This is particularly problematic for global banks; foreign
regulators or local creditors
may attempt to protect resources to shield subsidiaries
or branches in their home
country.
Regulators in their April
guidance told banks to keep
sufficient resources in subsid-
BY JONATHAN CHENG
SEOUL—A worsening crisis
over faulty Samsung Electronics Co. smartphones has thrust
the conglomerate’s heir apparent, Lee Jae-yong, into his
first critical leadership test.
In a series of phone calls on
Tuesday with Samsung’s mobile chief, D.J. Koh, and other
executives, Mr. Lee decided to
pull the plug on the Galaxy
Note 7, a highly regarded
smartphone that Samsung had
hoped would outflank Apple
Inc.’s new iPhone, according to
a person briefed on Mr. Lee’s
conversations.
Instead, it had become an
albatross as the company
struggled to cope with a string
of reports about the device
catching fire. On Tuesday,
Samsung told Galaxy Note 7
users world-wide to immediately switch off their devices.
Mr. Lee’s decision, which
came more than a month after
Samsung first issued a global
recall of 2.5 million smartphones, is an attempt to ringfence once and for all a reputational crisis that looked
poised to spread far beyond
the Galaxy Note 7, the person
familiar with the matter said.
Samsung declined to make
Mr. Lee available for an interview, or to comment about his
role in the Galaxy Note 7 crisis.
“Samsung needs to act
swiftly and move on to protect
their brand image,” Mark Newman, an equity analyst for
Sanford C. Bernstein & Co. in
Hong Kong, said Tuesday. He
argued that Samsung should
even consider ditching the
Galaxy Note series altogether.
Analysts argued that the company has its flagship Galaxy S
series to fall back on, which
outsells the Galaxy Note at a
rate of roughly three to one.
The Note 7’s woes came just
as Samsung was getting back
on track after two years of
falling profit. Consumers had
flocked back to its phones,
helping push Samsung’s stock
price toward all-time highs
and reaffirming the company’s
place as the world’s dominant
manufacturer of smartphones
by revenue.
Samsung’s shares tumbled
8% on Tuesday—the company’s biggest one-day decline
in eight years. Its move to discontinue the Galaxy Note 7 is
likely to lift the holiday sales
of rivals, including China’s
Huawei Technologies Co. and
Apple.
Alphabet
Inc.’s
Google—the maker of Android,
which powers most Samsung
devices—is making a renewed
push into smartphones.
Adding to the raft of challenges that Mr. Lee faces, U.S.
hedge fund Elliott Management Corp. last week launched
a campaign to split Samsung
Electronics in two ahead of a
shareholder vote later this
month, where Mr. Lee is expected to win a board seat for
the first time.
Since his father was incapacitated by a heart attack
more than two years ago, Mr.
Lee, a 48-year-old Samsung
Group vice chairman and the
third-generation scion of South
Korea’s biggest business empire, has been thrust into the
limelight, overseeing a sprawling conglomerate whose businesses span the gamut from
shipbuilding to life insurance,
refrigerators to biologic drugs.
Mr. Lee remains distant
from day-to-day decision-making, largely delegating the
handling of the Note 7 fiasco,
ANDY RAIN/EUROPEAN PRESSPHOTO AGENCY; AHN YOUNG-JOON/ASSOCIATED PRESS (TOP)
Phone Crisis Tests Samsung Heir Apparent
Top, company heir apparent Lee
Jae-yong. Samsung is ceasing
Galaxy Note 7 production.
for instance, to executives like
Mr. Koh, the mobile chief.
Mr. Lee’s low-key approach
stands in contrast to his father, Samsung Chairman Lee
Kun-hee, a restless manager
who would occasionally insert
himself into key decisions.
In one mid-1990s incident
that has now become Samsung
lore, the elder Mr. Lee, angered by the shoddy crafts-
manship of his company’s
products, had 2,000 employees
watch as a heap of 150,000
phones was set aflame, with
bulldozers dispatched to crush
the remains.
His son has maintained his
focus on the conglomerate’s
broader direction. This includes a long-term campaign
to divest Samsung of unwanted parts like its defense
and chemicals arms, while reshaping the conglomerate’s
hidebound culture. Mr. Lee has
promoted maternity leaves
and sabbaticals, pushed his executives to spend more time in
the U.S. and made proficiency
in English a bigger factor in
determining which executives
get promotions.
One key trait he shares with
his father: a sense of paranoia
about Samsung’s recent ascendance, according to a person
familiar with his thinking. The
younger Mr. Lee, in conversations, has described the consumer-electronics business,
and smartphones in particular,
as a cutthroat world where
fortunes can turn on a dime
and where Samsung is fighting
less for dominance than for
“survival,” according to the
person.
Mr. Lee pushed for a recall
of Galaxy Notes 7s in early
September in hopes of quickly
stemming potential damage
to the brand, according to the
person, overruling executives
who sought to play down
early reports of fires as a statistical blip.
As reports began emerging
late last month that Samsung’s
replacement phones were also
suffering from the same problems, Mr. Lee was at first reluctant to throw in the towel,
the person said.
But after a Southwest Airlines flight was evacuated last
week after reports of a smoking Samsung smartphone, he
began leaning toward a total
shutdown of the product, the
person said.
Conferring with Mr. Koh
and G.S. Choi, another top
lieutenant, in daily phone
briefings, Mr. Lee argued that
U.S. aviation authorities’ continued insistence that the Galaxy Note 7 must be shut off
during flights would hamper
the brand.
While Mr. Lee has remained
behind the scenes throughout
the crisis, there are signs that
he could begin to assert himself more publicly, particularly
after a shareholder meeting
later this month where he is
set to win a board seat at
Samsung
Electronics—his
first-ever on any of Samsung
Group’s 58 affiliates.
The new position will give
him legal responsibility within
a conglomerate in which his
power and influence have so
far been exercised through
nonofficial channels, the person
familiar with the matter said.
Marcelo Claure, the chief executive of Sprint Corp., on
Tuesday said he had spoken directly with Mr. Lee about the
Galaxy Note 7 problems, as well
as other Samsung executives.
“They have always been
straightforward about what
the issues were,” he said.
Mr. Claure said he expected
Samsung to recover quickly.
“Brands recover when you
make great products, and they
do make great products,” Mr.
Claure said. “It’s a blow but
it’s not a fatal blow.”
—Eun-Young Jeong
and Ryan Knutson
contributed to this article.
€123 billion ($135 billion)
tied up in cash and centralbank deposits. Meanwhile,
its investment banking revenue has been sapped by regulations and docile markets.
George Karamanos, an analyst at Keefe, Bruyette and
Woods, says if current interest rates persist, by 2020
European banks’ profits will
drop 20% and Deutsche Bank
will be unprofitable.
Wells Fargo & Co. seemed
to separate itself from its
peers by boosting the number of products such as accounts and credit cards each
customer bought. But in the
process, many customers
ended up with accounts and
cards they didn’t want. Not
only did that business earn
nothing for Wells, it brought
a $185 million penalty, a Justice Department investigation and some $20 billion in
lost market value.
Indeed, investors must
now discount the possibility
that any bank could be one
scandal away from indictment and a crippling, multibillion dollar fine. Banks
have responded by exiting or
downsizing businesses that
carry the most reputational
risk, such as international
money transfers and issuing
mortgages to less creditworthy borrowers.
Those who blame many of
the economy’s ills on a
wasteful and overgrown financial sector will no doubt
cheer this retreat. Everyone
else should worry.
iaries to deal with potential
problems and be prepared for
the parent company to deploy
funds as needed.
Regulators cautioned this
has its own problems. First, it
is almost impossible to know
where a problem will emerge
and to have the right amount
of resources at the right subsidiary. Second, keeping assets
at the parent holding company
increases the chance an outside creditor could try to grab
them in bankruptcy.
That is where the new entities come into play. They will
hold resources that can be
rushed to support subsidiaries. But they won’t have liabilities to outside parties, such
as debt, and will be based in
the U.S. That will make it
harder for outside creditors or
foreign regulators to try to
grab assets.
The important thing is that
this will happen now or in the
near future, not when a crisis
is a hand. That should prevent
creditors or shareholders from
later claiming that the maneuvers were fraudulent transfers
or a breach of the company’s
fiduciary duty, according to
J.P. Morgan’s will submission.
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P2HW287000-0-A00300-1--------AL
Thursday, October 13, 2016 | A3
WORLD NEWS
Singapore Urges China to Ease Tensions
On visit to Australia,
leader also moves to
complete $1.7 billion
defense deal
CANBERRA,
Australia—
Singapore urged Beijing to engage “constructively” with
other regional players—including the U.S.—to ease tensions
in the disputed South China
Sea, even as the city-state
wraps up a deal here to
sharpen its military skills.
Prime Minister Lee Hsien
Loong told Australia’s Parliament at the start of a twoday visit on Wednesday that
both allies wanted a “stable
and orderly world in which
countries big and small can
prosper in peace.”
“This requires an open and
inclusive social regional order
where all the major powers
can participate,” he said.
Singapore has faced growing diplomatic pressure from
Beijing as regional tensions
flare over competing territorial
claims in the South China Sea.
While Singapore has professed its neutrality, some in
China see it as siding with
U.S.-led efforts to pressure
Beijing into accepting an international tribunal’s decision in
July that rejected China’s
claims. Beijing has denounced
the ruling as illegitimate.
Singapore regularly hosts
U.S. Navy warships, including
aircraft carriers and submarines, transiting through the
region, while its military fre-
LUKAS COCH/EUROPEAN PRESSPHOTO AGENCY
BY ROB TAYLOR
Singapore Prime Minister Lee Hsien Loong, left, and Australian Prime Minister Malcolm Turnbull in the legislature in Canberra on Wednesday.
quently trains with American
counterparts.
Mr. Lee described the U.S.
as “playing a major role in fostering peace and stability in
Asia,” and added: “We wish to
strengthen our cooperation
with China. We welcome China
in engaging constructively
with the region.”
China’s Foreign Ministry
didn’t respond to a request to
comment.
Mr. Lee’s Australian counterpart, Malcolm Turnbull,
said Canberra and Singapore
wanted regional stability and
were “at one in defending the
rule of law and rejecting the
proposition that might is
right.”
On Thursday, the two men
were to complete a deal announced in May under which
Singapore will spend US$1.7
billion to upgrade two Australian military bases at Townsville and Shoalwater Bay,
north of Brisbane. Singapore
plans to send up to 14,000
troops a year there by 2021
for four-month training rotations, up from a maximum of
6,600 now.
Singapore’s Defense Minister Ng Eng Hen said in April
that rising nationalism and
“this troubled peace around
us” was driving the country’s
military spending.
The U.S. has been using
Australia’s vast training areas
to carry out military exercises,
as part of Washington’s rebal-
ancing of forces to the AsiaPacific region. The Marines
and Air Force have been expanding their footprints in the
northern Australian port of
Darwin, while U.S. combat
ships have begun 10-month
patrol rotations through Singapore.
Mr. Lee, in the first address
to Australia’s Parliament by a
Singaporean leader, said both
nations were reliant on unfettered sea trade and wanted to
“keep the region open.”
Both countries already hold
regular joint military exercises, while a squadron of Republic of Singapore Air Force
aircraft is based at an Australian Air Force base in Western
Australia state.
“We feel quite at home in
each other’s countries,” Mr.
Lee said.
For its part, Australia in
February outlined a 195 billion
Australian dollar (US$148 billion) military modernization
centered on the navy.
The Asia-Pacific region will
hold half of the world’s submarines and advanced combat
aircraft within the next two
decades, strategic planners
say, as Asian nations modernize their militaries and hedge
against the possibility of a superpower conflict.
Singapore was Australia’s
fifth-largest trade partner last
year, with two-way export and
investment flows valued at
A$19 billion. The U.S. ranked
third, while China was Australia’s most important trade relationship.
—Chun Han Wong in Beijing
Economy Stable,
But Focus Is on
Housing Bubble
BEIJING—Stimulus measures appear to have stabilized
China’s economy over the past
few months, but the government now faces a resulting
housing bubble that it needs
to contain without choking off
growth, economists say.
The economy likely grew
6.7% from a year earlier in the
third quarter, the same pace
as the previous quarter, according to a median forecast
of 16 economists polled by The
Wall Street Journal. Overall,
those polled expect to see stable or improved performance
when the government reports
statistics for September and
the third quarter in coming
days.
China’s challenge is
to curb the property
market without
arresting growth.
Behind the sustained pace
is a push by Beijing to expand
fiscal spending and new
credit. One effect has been
what some have called a government-sponsored property
bull market. Fast-rising housing prices in many cities, after
several years during which the
overbuilt property market
dragged on overall growth, are
now causing alarm among
economists and some officials.
Rising household and corporate-debt levels amid an
overheating property market
may cause a chain reaction
that could eventually threaten
the global economic recovery,
economists at the Australia
and New Zealand Banking
Group said in a research re-
port Tuesday. “The property
frenzy is worrisome,” the ANZ
report said.
Chinese Premier Li Keqiang
struck a temperate note on the
risks this week, in overall positive remarks about the economy. The official Xinhua News
Agency quoted Mr. Li as saying Tuesday that growth this
year, especially in the third
quarter, is “better than expected,” with robust job creation.
“There are many discussions now about China’s debt
and property-market risks,
among other issues,” Mr. Li
said. “I think we need to look
at these issues objectively.”
He said local governments
will adopt suitable measures
to ensure steady development
of the property market. Already, at least 17 Chinese cities have imposed restrictions
on real-estate purchases in the
past week to cool the homebuying fever.
A challenge for Beijing is to
control the hot market without
arresting
economic
growth. To maintain the momentum, policy makers should
advance long-pledged structural reforms, such as overhauling state enterprises, said
Jianguang Shen, an economist
at Mizuho Securities Asia Ltd.
Aside from a sustained rate
of growth, economists also expect to see modest improvements in business activities in
the coming release of data.
Value-added industrial output likely rose 6.4% in September from a year ago, up
slightly from 6.3% year-to-year
growth in August, the Journal’s survey of economists
showed.
—Liyan Qi
BOBBY YIP/REUTERS
Customers inspected packaged foods in a fresh produce section
at a newly opened Wal-Mart Store in Tianjin in September.
A swearing-in ceremony to
kick off Hong Kong’s legislative
session descended into farce
Wednesday as newly elected prodemocracy lawmakers intentionally mangled their oaths in a show
of defiance against Beijing.
They also displayed flags declaring that Hong Kong isn’t a
part of China, and called for “democratic self-determination” for the
semiautonomous Chinese city
during the oath-taking session.
[Leung Kwok-hung and Ted
Hui, in photo, were restrained by
security guards when they tried
to block the election of the chairman of the Legislative Council.]
The provocative actions foreshadow what is expected to be a
chaotic term for Hong Kong’s
semidemocratic Legislative Council after a group of youthful candidates were elected in September, adding to the opposition’s
numbers.
The freshman lawmakers represent some of the new wave of
grass-roots groups that emerged
from the wake of 2014’s massive
pro-democracy street protests,
which failed to win concessions
from Beijing but sparked a rising
independence movement and a
political awakening among the
city’s young.
Sixtus Leung, 30, of the
Youngspiration party, draped a
blue flag with the words “Hong
Kong is not China” over his shoulders and crossed his fingers as he
held a Bible while he spoke. His
colleague Yau Wai-ching laid the
same flag on the table in front of
her when it was her turn.
They recited the oath in English but appeared to deliberately
mispronounce the word China as
Shina, an old fashioned Japanese
term for the country that some
see as derogatory.
Another lawmaker, Lau Siulai, who founded her own party,
Democracy Groundwork, recited
the oath very slowly. She took
about 10 minutes to repeat the
declaration, which has less than
100 words, by pausing for a few
seconds after each one, as the
rest of the council chamber listened in silence.
—Associated Press
Pakistan Court to Hear Blasphemy Case
BY SAEED SHAH
AND QASIM NAUMAN
ISLAMABAD, Pakistan—A
Pakistani Christian woman
whose death sentence for blasphemy sparked an international outcry is due to have
her appeal heard by the country’s highest court this week.
Asia Bibi was convicted six
years ago after being accused
by Muslim villagers of denigrating the Prophet Muhammad following an argument
over a drink of water. Ms. Bibi
denies the charge.
The Catholic farmworker’s
case became one of the country’s most high-profile blas-
AGENCE FRANCE-PRESSE/GETTY IMAGES
QILAI SHEN/BLOOMBERG NEWS
New Hong Kong Pro-Democracy Lawmakers Defy Beijing
A poster shows Asia Bibi, who will appeal her conviction and
death sentence for blasphemy this week in the Supreme Court.
phemy convictions, with Pope
Benedict XVI among those
who called for mercy for the
mother of five. A Pakistani
politician was shot dead by his
bodyguard after speaking out
in support of her. Ms. Bibi’s
lawyer, Saif ul Malook, receives death threats and, in
prison, she is kept separate
from others for her safety.
Of countries that outlaw
blasphemy, Pakistan has
among the highest number of
blasphemy cases, with the law
used against Muslims and religious minorities alike. Humanrights groups say the legislation is open to abuse, with
fabricated allegations often
used to settle grudges. Mobs
frequently attack the accused
even before they get to court.
The appeal will be heard at
the Supreme Court, the last legal forum open to Ms. Bibi, in
Islamabad on Thursday.
On a hot day in June 2009,
Ms. Bibi, now 51 years old, was
picking fruit with other
women laborers in a field in
Ittan Wali village 40 miles
west of Lahore, the capital of
Punjab province, said her husband, Ashiq Masih. She went
to fetch them some water.
However, some of the Muslim
workers refused to take water
from her, a Christian, igniting
an argument, according to her
statement to police.
Five days later that quarrel
turned into an accusation of
blasphemy, lodged by a local
Muslim cleric who wasn’t
present during the altercation
who claimed Ms. Bibi had denigrated the Prophet Muhammad during the argument, her
husband said. She was beaten
by villagers, her clothes torn
and she was handed over to
police, he added.
The success of the appeal
will hinge on proving that testimony of two women who argued with Ms. Bibi is false,
said her lawyer, Mr. Malook.
Attempts to contact the two
women were unsuccessful.
“Now that the hearing is
upon us, I can only pray that
the court gives us justice,” said Mr. Masih, who is in
hiding. He fled the village with
their children after his wife’s
arrest, fearing for their safety,
and hasn’t returned. He lives
elsewhere doing odd jobs.
“Our whole life was in that
village. That’s where I grew
up,” Mr. Masih said.
Cecil Chaudhry, executive
director of National Commission for Justice and Peace, a
Catholic group in Pakistan,
said the prominence of Ms.
Bibi’s case meant that its outcome was important for religious minorities, some 5% of
the population. “The blasphemy issue instills a constant
fear in the minds of the minority community,” he said.
P2HW287000-0-A00400-1--------AL
HK JP
KO ML
SI IN UK
FR MN
PR
WORLD NEWS
Paris-Attack Lawyers Quit
Attorneys say they are protesting suspect Salah Abdeslam’s round-the-clock surveillance in jail
ANDREY RUDAKOV/BLOOMBERG NEWS
BY INTI LANDAURO
Mr. Putin attended a panel discussion in Moscow on Wednesday.
Putin Says West
Unfair Over Syria
PARIS—The two lawyers
representing Salah Abdeslam,
the main suspect in the investigation of the Paris terror attacks that killed 130 people in
November, have stepped down
in protest at his detention conditions.
Attorney Frank Berton said
Mr. Abdeslam is under surveillance 24 hours a day and that,
as a result, the suspected terrorist will invoke his right to
remain silent, backtracking on
an initial claim that he would
cooperate with the French investigation.
Mr. Berton, who had represented Mr. Abdeslam since he
was transferred to France following his arrest in Belgium in
March, and Sven Mary, who
had represented him in Belgium, said on French TV channel BFM that they would no
longer be defending him.
“We have both decided to renounce the defense of Salah Abdeslam; it is not an abandonment, it is a resignation. We
know, are convinced—and he
told us—that he won’t speak and
will use his right to remain silent,” Mr. Berton said. The lawyers said Mr. Abdeslam plans to
represent himself in future.
A spokeswoman for the Justice Minister, who oversees
jails in France, wasn’t immediately available for comment.
Mr. Abdeslam, 27, is the
only surviving suspect in the
MICHEL SPINGLER/ASSOCIATED PRESS; KENZO TRIBOUILLARD/AGENCE FRANCE-PRESSE/GETTY IMAGES; BELGIAN FEDERAL POLICE/EPA
Frank Berton and Sven Mary represented Salah Abdeslam, the main suspect in last year’s attacks,
after he was transferred to France following his arrest in Belgium in March.
Nov. 13 Paris attacks. He was
arrested in the Brussels neighborhood he grew up in after a
four-month manhunt.
His noncooperation decision
is a setback for French and Belgian investigators who are
counting on him to provide
more information about the
network that was behind the
terror attacks in Paris in late
2015 and in Brussels in March
of this year. They also want to
know how he managed to avoid
being captured between November 2015 and March 2016.
When he was transferred to
France in late April, Mr. Abdeslam had said through his lawyers that he was eager to talk
with French judges.
Mr. Mary and Mr. Berton
blamed the French authorities’
constant surveillance of Mr. Abdeslam in his top-security jail cell
for his decision to remain silent.
“When they observe your
acting 24 hours a day, even
with an infrared camera, you
go crazy,” Mr. Berton said.
Justice Minister JeanJacques Urvoas, who oversees
jails in France, won’t comment
on the lawyers questioning, a
spokeswoman said. He has said
in the past French authorities
established the constant surveillance to prevent Mr. Abdeslam committing suicide and
contacting other inmates.
Olivier Morice, who represents about 40 families of victims at the Bataclan concert
hall, claimed the lawyers’ withdrawal is “political posturing.”
“They seek to move the debate away from their client’s
responsibility in the attacks
into a questioning of the
state,” Mr. Morice said. “It’s
typical defense line used by
terrorists in court.”
Mr. Abdeslam is alleged to
have been in charge of part of
the logistical operation behind
the Nov. 13 operation, such as
renting cars and rooms used
by the terrorists—his brother
among them—and driving
some of them to their targets
on the night of the rampage,
which killed 130 people and
left hundreds injured in several
areas in the French capital.
Unlike others involved in
the attacks, who blew themselves up or were subsequently
killed, Mr. Abdeslam arranged
for two friends to pick him up
and drive him back to Brussels,
where all the attackers had
come from a few days before.
He is thought to be the only
survivor among those who hit
Paris that night.
Burdened German Cities Tell Refugees to Go
Berlin Approves
Draft Law to
Cut Migrant Aid
ESSEN, Germany—Thomas
Kufen, the mayor of this rustbelt town in western Germany,
thinks his city has a bad case
of refugee overload.
Since the beginning of the
year, some 7,150 refugees have
flocked to Essen from other
towns, twice as many as the
city was allocated for the
whole year under Germany’s
complex burden-sharing mechanism. This, Mr. Kufen says, is
more than it can handle.
So when parliament passed
a law this summer allowing
overburdened cities to send
jobless refugees back to the
states where they were first
assigned, Mr. Kufen thought
he had found the solution to
his problem.
“As a big city we already
are doing integration work for
the entire country. But there is
a limit to our capacity that we
don’t want to put to the test,”
Mr. Kufen said.
The case of Essen and the
new residency restrictions underline how Berlin is scrambling to regain control of last
year’s historic refugee inflows
and to fend off a mounting
popular backlash. It also
shows that while Berlin has
gradually tightened its liberal
policies, the goal of integrating the newcomers remains
fraught with pitfalls.
When the flow of refugees
reached its peak a year ago,
Germany initially dispatched
the newcomers across the
country, spreading the cost of
looking after them. But once
the migrants had obtained
BERLIN—Germany moved to
curb social benefits for citizens
from other European Union
countries in a bid to prevent
migrants abusing its generous
welfare system.
EU migrants who have
never worked in the country
won’t be able to enjoy most
social and unemployment benefits for the first five years
here, according to a draft law
approved by the cabinet on
Wednesday.
The law seeks to clarify
confusion over recent court rulings. A German federal court
ruled recently that nonworking
EU migrants were entitled to
social benefits after six
months in the country, but the
EU’s top court had ruled in a
previous case that Germany
was allowed to deny social
benefits to EU nationals.
Germany’s tougher line on
welfare for EU migrants
comes as German towns are
struggling with the financial
burden of caring for last
year’s influx of refugees and
migrants, and the government
is trying to quell growing discomfort in the country with
Chancellor Angela Merkel’s
open-door migrant policies
that have boosted the popularity of the populist, anti-immigrant Alternative for Germany party.
The AfD scored unprecedented electoral wins in recent
state elections amid voter concern since Germany received
nearly one million migrants and
refugees last year.
—Ruth Bender
BY LAURA MILLS
MOSCOW—Russian President Vladimir Putin lashed out
at the West over Syria on
Wednesday, saying the U.S.
and Europe were unfairly placing blame on Moscow for the
breakdown of a cease-fire.
Mr. Putin said a September
airstrike on a humanitarian
convoy in Aleppo—an attack
that U.S. officials blamed on
Syria and its ally, Russia—was
“the work of extremist groups.”
“It was a terrorist organization. And we know that the
Americans know about that,
but they prefer to take a different position, they prefer to
make sweeping accusations
against Russia,” he said at an
investor conference in Moscow on Wednesday.
Mr. Putin also accused
Western powers of using Russia’s veto of a U.N. Security
Council resolution on Syria
drafted by France to further
undermine Moscow’s role in
the peace process. He said
France knew in advance that
Russia would veto the resolution in its current form, but
proceeded with a Security
Council vote anyway.
“They didn’t do it so that
the resolution would pass,” he
said. “And why? In order to
escalate the situation and to
inflame anti-Russian hysteria
in their controlled media.”
RUTH BENDER/THE WALL STREET JOURNAL
BY RUTH BENDER
Maisoun Mahmoud Khalaf moved to Essen with her son Ali in July. Now they have to move on.
asylum, they were free to settle anywhere.
As a result, some regions,
like the old industrial Ruhr
area, with housing left empty
after a coal-mining decline and
already existing migrant communities, have become magnets
for Syrians, Iraqis and Afghans.
With many unable to support themselves because they
can’t speak German or don’t
have the right job qualifications, the influx is turning into
a heavy financial burden.
Since Aug. 6, refugees who
don’t work or study have to
live in the state they were
originally sent to for three
years. In Essen, that means
some 2,500 refugees who
moved here, but failed to register before then, are being
told to leave and those who received benefits will be cut off.
Mazen Sheikh Alhadedeen
is one of those asked to go. After struggling to find an apartment in the Bavarian village of
Miltenberg, the 26-year-old
moved to Essen with his wife.
But he said he couldn’t get an
appointment to register with
the overstretched immigration
office in time.
“I have an apartment now, a
place in German class, I don’t
want to go back,” Mr. Alhadedeen said. He is challenging
the rule in court. City officials
said they are aware of a growing number of court filings.
That is just one hurdle in
enforcing the law. The legislation leaves open many questions—such as which administration is in charge, who can
be exempted, and whether cities can force refugees to leave,
officials say.
Maisoun Mahmoud Khalaf, a
45-year-old Syrian, feels caught
amid the uncertainty. After Essen warned her in a letter that
she would stop receiving benefits, she agreed to move back to
Schwerin in eastern Germany
with her 7-year-old son.
Days before the looming
deadline last month, local au-
thorities hadn’t told her who
would pay for her transportation, so she took the offer of a
driver for €350. She had only
just bought the bed and fridge
for the newly renovated apartment she left behind.
“I regret I moved now. If
only I had known about all
this trouble,” she said.
Mr. Kufen acknowledged
some people are hit hard but
insists the law is vital. In 2015,
Essen spent €130 million ($145
million) on refugees, only half
of which is reimbursed by the
federal government, he said.
Kindergartens, schools and
housing will cost millions more.
The neighboring city of
Gelsenkirchen, also popular
with migrants, is equally concerned. Some 800 refugees
who were told to return to
other states will be cut off
from social benefits at the end
of October.
“I don’t know if we would do
the refugees a favor by allowing them to stay,” said HansJoachim Olbering, in charge of
social affairs for Gelsenkirchen.
“We have an unemployment
rate of 15%. What sort of an integration prospect can we offer
to someone except social benefits and an apartment?”
Back in Essen, Ahmad
Hmedi from the Syrian-German Association is convinced
the Syrian community will
continue to grow. He is advising his fellow countrymen to
challenge evictions and points
out that refugees who obtained asylum in 2015 still remain free to move.
“Others will come,” he said.
“The city is still popular.”
BY JUAN FORERO
TIENDA NUEVA, Colombia—
Colombian voters’ rejection of
the government’s peace deal
with Marxist guerrillas has
fueled concern that the country’s simmering conflict could
reignite. But out here in the remote savanna, the rebels say
they won’t be the ones fighting.
“To fight, you need two, and
we’ve decided we won’t be the
second party,” said Federico
Nariño, the nom de guerre for a
midlevel commander of the
Revolutionary Armed Forces of
Colombia, or FARC, which has
under 6,000 men under arms.
Since the peace agreement’s
surprise defeat in a plebiscite
this month, the guerrillas haven’t redeployed into their jungle redoubts or carried out military drills. Instead, they have
largely spent their days as they
did this past weekend at a major guerrilla camp here: lolling
in hammocks and playing soccer on muddy patches.
However shocked by voters’
“no” to the deal, rebels and
their commanders alike said
they still believe peace is within
reach after 52 years of fighting
that claimed 220,000 lives.
“The news that the world
should know is that the war is
over and we are going to find—
I have no doubt—alternatives
to the problems we have now,”
said Luis Antonio Losada, a
member of the FARC’s ruling
secretariat. “A return to war is
not an alternative.”
The rebels’ attitude could
buy President Juan Manuel Santos some crucial time as he
seeks to work on a new, modified pact to address the concerns of critics including former
President Álvaro Uribe, who has
blasted the deal as a sellout to
the rebels. The political foes
have met and plan further talks.
The government also wants to
formally extend a cease-fire
that was agreed to last only
through the end of the month.
On Colombian radio Tuesday,
Mr. Uribe stood firm that
tougher punishments for guerrillas were needed, including
banning them from holding
public office. But he has eased
away from earlier calls for jail
time, saying they could be confined to farms instead of prison.
The FARC began fighting in
1964, and its troops say it has
survived so long by distrusting
the state and taking every extra
precautions. But Mr. Losada,
better known by the nom de
guerre Carlos Antonio Lozada,
spoke of the trust the group
has built with both Mr. Santos’s
government and the armed
forces’ high command.
“We built something important and decisive for this
[peace] process, and that’s trust
between the armed forces and
the insurgency.”“Perhaps, the
area where there’s less risk is in
the military, I’d say,” said Mr.
Losada, a compact, bald man
who has been crisscrossing this
region addressing his charges’
concerns since the vote. the impasse. “We built something important and decisive for this
[peace] process, and that’s trust
between the armed forces and
the insurgency.”
This past weekend, 230 reb-
els sat in the rain under a large
tarpaulin and listened as a
commander outlined details of
the 297-page accord. Most said
they believed the deal would
soon be fixed, allowing them to
disarm and become members
of a political party.
But more conflict isn’t out of
the question. Byron Yepes, a 56year-old commander who says
he has fought for 33 years, says
rebels wouldn’t agree to a pact
that set jail time for the leaders.
“We don’t want war, but if they
force us, we have to,” he said.
Though many rebels in the
area still carry around their
Galil assault rifles, Mr. Yepes
and others here said peace remains the most likely option.
And in this disciplined, hierarchical militia, the message from
the top is that rebels will soon
lay down their weapons forever.
Most fighters here—young
men and women as well as the
occasional haggard fighters with
30 years in the bush—described
dreaming of a new chapter.
“No one’s worried,” said a
37-year-old fighter who goes by
JUAN FORERO/THE WALL STREET JOURNAL
‘War Is Over,’ Colombia Rebels Say
Rebels in a makeshift jungle classroom listen to a commander
tell them about the peace accord.
the nom de guerre Jefferson.
He recalled surviving firefights,
bombings and strafing, including .50-caliber gunfire from an
attack helicopter that ripped
chunks out of his left leg. Now,
he reads Bogotá newspapers,
collects firewood, and ponders
finishing school. “This is our
daily life now,” he said.
—Kejal Vyas in Bogotá
P2HW287000-0-A00500-2--------AL
*
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P2HW287000-0-A00600-1--------AL
WORLD NEWS
Eurozone Industry Gains Strength U.K.’sMay
Defends
Data ease concerns
that drop in pound
following Brexit vote
will affect EU exports
BY PAUL HANNON
The eurozone’s factories,
mines and utilities stepped
up production in August, easing worries that the pound’s
sharp falls in the wake of the
U.K.’s June vote to leave the
European Union would have
an immediate impact on exports from the currency area
to its second-largest overseas
market.
The pound tumbled in the
vote’s aftermath, and last
week resumed its declines as
investors remain uncertain
about how a departure from
the EU will affect the U.K.’s
economy. That depreciation
makes goods manufactured in
the eurozone more expensive
for British buyers, which could
harm sales. Indeed, figures released by the U.K.’s Office for
National Statistics last week
showed imports from the rest
of the EU hit a record high in
August.
However, figures released
by the EU’s statistics agency
Wednesday showed industrial
output in the eurozone was
1.6% higher than in July, and
1.8% up on August 2015. That
was a slightly stronger performance than had been expected, with economists surveyed by The Wall Street
Journal last week having estimated that output rose 1.5%.
Eurostat also cut its estimate
for the decline in output during July to 0.7% from 1.1%.
The pickup was led by Ger-
many, the eurozone’s largest
exporter to the U.K. But there
were also significant increases
in France, Italy, Spain and the
Netherlands. There was a big
drop in Irish output, but that
tends to be highly volatile
from one month to the next.
The increase is
unlikely to fully
allay concerns about
the impact of Brexit.
The jump in production is
unlikely to fully allay concerns
among policy makers about
the impact of Brexit on the eurozone economy. Currency
moves can take many months
to translate into canceled or
reduced export orders, while
the renewed and sharp decline
at the same, weak pace in the
third quarter.
Modest as it is, there are
continuing signs that the recovery that began in mid-2013
is becoming more deeply
rooted. Figures also published
by Eurostat on Wednesday
showed house prices rose by
1.4% in the second quarter
from the first three months of
the year, while they were up
2.9% on a year earlier.
Some critics of the ECB’s
stimulus programs—which include negative interest rates—
have warned of a rising threat
of fresh asset bubbles. But
there were few signs of overheating in Eurostat’s figures,
with prices rising by 5.3% in
Germany and just 0.8% in
France, while the annual increase in Austria moderated to
9% in the second quarter from
13.4% in the first.
in the pound’s exchange rate
over recent days may take a
fresh toll on British purchases
from the eurozone ahead of
the busy Christmas shopping
period.
Speaking Saturday during
the annual meetings of the International Monetary Fund in
Washington, European Central
Bank President Mario Draghi
poured cold water on any
hopes that Britain’s vote
would have negligible economic consequences.
“The event is very significant,” he said. “To think that
it won’t have any consequence
would be to hope for too
much.”
The eurozone economy
slowed in the three months to
June, and despite August’s
pickup in industrial production, surveys and other economic figures indicate it grew
Portugal Seen Risking Debt-Crisis Relapse
World
Watch
CHINA
Soccer Team’s Failure
Fuels National Angst
Back-to-back losses over the
past week have all but derailed
China’s World Cup qualifying
campaign, prompting soulsearching over the country’s lavishly funded bid to become a
global soccer power.
China crashed to a 2-0 defeat
in Uzbekistan on Tuesday, just
days after a morale-sapping
home loss to war-torn Syria,
leaving it at the bottom of its
qualifying group.
Chinese head coach Gao
Hongbo took responsibility and
resigned, but others pointed to a
chronic underinvestment in
grass-roots soccer, masked by
the increasingly free-spending
ways of elite professional clubs.
“So what if broadcast rights
to the Chinese Super League
were sold for an astronomical 8
billion yuan ($1.2 billion)? So
what if foreign players in the
Chinese Super League are now
worth hundreds of millions of
yuan?” asked the Communist
Party’s flagship newspaper, People’s Daily.
Some respected sports commentators echoed the sentiment
on social media.
Soccer is China’s top spectator sport, but its national men’s
team ranks 78th globally and
has only once qualified for the
World Cup, in 2002.
—Chun Han Wong
Portugal struggles to grow and lower its debt.
GDP, change from a year earlier
Quarterly data
Investment
Quarterly data
3%
15%
2
10
1
5
Debt-to-GDP ratio
140%
130
120
0
0
–5
–1
110
–10
–2
–15
–3
–20
–4
–25
100
90
–30
–5
2010 ’11
’12
’13
’14
’15
’16
2010 ’11
80
’12
’13
’14
’15
’16
2010 ’11
Source: Portuguese statistics agency (GDP and investment); International Monetary Fund (debt-to-GDP)
rope is from overcoming the
hangover from the debt crisis
that early in this decade challenged the euro currency’s
survival.
In Germany, the eurozone’s
dominant country, officials
worry that Portugal’s loosening of its fiscal policies over
the past year has raised the
risk of a new crisis and the
need for another bailout program.
“Portugal is making a major
mistake if they no longer stick
to what they have committed
to,” German Finance Minister
Wolfgang Schäuble said in late
June, “They will have to request a new program. And
they will get it.”Mr. Schäuble’s
tough talk reflecting ed his
longstanding view that Southern European debtor countries
such as Portugal and Greece
need to take the medicine of
fiscal rigor and economic
overhauls if they want to leave
the crisis era behind them.
His comment stirred anger
in Portugal, where Prime Minister António Costa brushed
aside concerns of a debt default.
Still, talk persists of a possible new debt crisis here, and
its likely fallout for Europe.
“A bailout request for Portugal, while unlikely to have
the spillover effects to other
countries
we
saw
in
2011,...would again raise questions about the future of the
eurozone and would likely
make the political climate in
Europe even more hostile,”
said David Schnautz, a strategist at Frankfurt-based Commerzbank.
Recent indicators show Portugal’s economy struggling
more than expected. On Friday, the central bank forecast
a 1.8% decline this year in
gross fixed capital formation,
a measure of public and private investment in the country. The economy is growing
at an annual rate of 0.9%, half
what the government esti-
JAPAN
the killing of Prophet Muhammad’s grandson, Imam Hussein,
during Islam’s seventh-century
split into Sunni and Shiite sects.
Hussain Ali, a nearby resident,
described hearing two explosions early in the evening, followed by the sound of gunfire.
Streets around the mosque were
swiftly cordoned off by security
forces, Mr. Ali said.
The Taliban, Afghanistan’s
largest insurgent group, denied
responsibility for Tuesday’s attack. The group, which regularly
stages terror attacks in the capital, is mostly Sunni but has
called attacks on Shiites un-Islamic.
Afghanistan is a majority
Sunni country and has been
largely spared the sectarian
strife ravaging other countries in
the region.
Machinery Orders
End Winning Streak
Japanese core machinery orders, a leading indicator of business investment, were down
2.2% in August from July, the
first decline in three months,
government data showed
Wednesday.
The decline was smaller than
the 5.5% forecast by economists
surveyed by The Wall Street
Journal and the Nikkei. Compared with a year earlier, orders
were up 11.6%. August economic
data was scattered—retail sales
down 1.1% from July, industrial
production up 1.5%, exports flat.
Business investment for the
year ending in March is expected
to be up 4.6%, according to the
Bank of Japan’s tankan survey
released this month.
—Mitsuru Obe
’12
’13
’14
’15
’16
Portuguese Prime Minister
António Costa brushes
concerns aside.
mated for this year, as consumption and exports register
only modest growth.
While other European economies are also struggling, ratings firms have singled out
Portugal’s low growth and
high public and private debt
But a series of unclaimed kidnappings and the deadly bombing in Kabul targeting ethnic
Hazaras in July, a mostly Shiite
minority group, has revived concerns about the persecution of
Shiites. Police had warned civilians in Kabul to be vigilant
ahead of Tuesday’s ceremony
because of a heightened risk of
attack.
—Ehsanullah Amiri
SWITZERLAND
Authorities Expand
Probe of 1MDB Fund
Switzerland’s Office of the
Attorney General expanded its
scrutiny of Malaysian public investment fund 1Malaysia Development Bhd., or 1MDB, by opening a criminal probe of a small
Swiss lender recently penalized
as a toxic combination.
Remedies applied under the
country’s €78 billion ($87.6
billion) bailout program now
look insufficient. Starting in
2011, a center-right government raised taxes, cut spending and overhauled the labor
market in an effort to reduce
the budget deficit and encourage hiring. Unlike troubled eurozone peer Greece, Portugal
left the bailout program, in
2014.
But the appetite for change
waned last year as elections
approached. Promises to make
the public sector leaner and
more efficient were scrapped.
The IMF and the European
Commission, Portugal’s bailout
lenders, said the government
failed to tackle a high privatesector debt that limited investment and growth.
Mr. Costa’s Socialist government, which came to office
in November with the support
of three far-left parties,
quickly reversed cuts in public-employee salaries. It has
also raised the minimum wage
and begun to eliminate a special tax on income. The retreat
from austerity was meant to
spur consumption and boost
the economy.
That hasn’t happened. Consumption rose 1.7% on year in
the second quarter compared
with 2.6% in the first and a
2.4% forecast for 2016, Portugal’s statistics agency said.
Families are slowing their consumption of durable and nondurable goods.
The IMF said the policy reversals “generated uncertainty
that appears to be a significant factor behind the slowdown in investment.”
—Marcus Walker in Berlin
for its 1MDB ties.
The Swiss attorney general’s
office said on Wednesday that
internal “deficiencies” at Zurichbased Falcon Private Bank AG
may have caused it to fail to
prevent alleged money laundering associated with 1MDB. The
Swiss authorities opened a
broad 1MDB investigation last
year, and have previously said
they placed another Swiss bank,
BSI SA, under a related criminal
probe. The status of that probe
is unclear.
The Wall Street Journal reported last year that the Swiss
attorney general’s office was examining transactions tied to
1MDB that were made through
Falcon. A spokesman for the
bank said on Wednesday that it
has been cooperating with the
attorney general’s office, and
AFGHANISTAN
Gunman Kills 14,
Wounds 26 in Kabul
At least one gunman attacked worshipers at a popular
Shiite shrine in Kabul on Tuesday, Afghan officials said, killing
at least 14 people and wounding
26 others on one of the sect’s
holiest days of the year.
It was the latest in a string
of assaults targeting Shiite muslims in Afghanistan, following a
July sectarian bombing claimed
by the Islamic State extremist
group that killed 80 people in
the capital.
There was no claim of responsibility for Tuesday’s attack.
It began at one of the busiest
times at the Kart-e-Sakhi shrine,
as hundreds gathered to commemorate the Ashura day of
mourning that commemorates
CARLOS GARCIA RAWLINS/REUTERS
LISBON—With his company’s pottery selling briskly,
Joaquim Beato, president of
Molde Faianças SA, said ideally he would plow some of
the profit into research and
new-product development. Instead the company won’t
spend a single euro.
Mr. Beato said he worries
the Portuguese his company’s
sales in Europe will slacken as
economies across the continent
slow and import less. He is
also concerned about obstacles
at home—uncertainty over the
Socialist government’s policies
and the difficulty of borrowing
from a banking system burdened by bad loans.
“Between investing and not
investing, it is just safer not to
invest,” said Mr. Beato, who
employs about 100 people.
“My mood right now is ‘Let’s
go easy.’ ”
Portugal’s souring investment climate and weak economic growth are raising concern across Europe and
beyond that the country,
which required an international bailout five years ago,
could choke again on a debt
that is now nearly 130% of its
gross domestic product.
The International Monetary
Fund warned in September
that while the debt is manageable for now, risks to Portugal’s capacity to repay are rising, leaving the country
“uniquely vulnerable to shifts
in market sentiment.”
A Portuguese relapse would
deal a blow to the morale of a
European Union already reeling from sluggish growth, populist politics and Britain’s decision to leave the bloc. It
would show just how far Eu-
Losing Steam
HORACIO VILLALOBOS/CORBIS/GETTY IMAGES
BY PATRICIA KOWSMANN
Mourners in Jérémie, Haiti, on Wednesday carried the coffin of a woman killed by Hurricane Matthew.
Brexit
Stance
BY NICHOLAS WINNING
LONDON—Prime Minister
Theresa May’s government on
Wednesday defended itself
from accusations it isn’t giving
lawmakers enough say in its
plans to leave the European
Union, saying it welcomed
scrutiny but needed to protect
its negotiating position.
Since announcing last week
that the government would
trigger the two-year window
for exit talks by the end of
March, the Conservative
leader has come under increasing pressure over her decision to plan and negotiate
Brexit without parliamentary
approval.
She has also described in
general terms the government’s approach, taking a hard
line on demands for control
over immigration in opposition to EU rules for access to
its tariff-free single market.
Many in Parliament have questioned that direction, worried
that the economy would suffer.
At a debate called by the
opposition Labour Party, lawmakers criticized the government over what they said was
its lack of transparency.
Keir Starmer, Labour’s
spokesman on leaving the EU,
said the government was being too opaque about a move
with such major repercussions.
“It’s hard to think of a more
significant set of decisions
with…serious consequences
than the terms upon which we
leave the EU,” he said.
A spokeswoman for the
government reiterated that
there would be no vote on
triggering Article 50. The government is facing a legal challenge on the decision, with the
case due to start on Thursday.
Speaking on behalf of the
government, David Davis, the
minister in charge of the Department for Exiting the European Union, said it welcomed
parliamentary scrutiny, but “it
must not be used as a vehicle
to undermine the government’s negotiating position.”
Mary Creagh, a Labour
member of Parliament, said
that while Britons had voted
to leave the EU, they didn’t
vote for “their food to become
more expensive, the wages of
low-paid workers to be hit,
and for jobs to be lost in the
manufacturing, agricultural
and banking sectors, which is
what we are in danger of if we
choose the wrong exit from
the European Union.”
that it “will continue to do so in
order to contribute to an expeditious clarification of the allegations against the bank.” A
spokeswoman for BSI declined
to comment.
The latest disclosure follows
announcements from regulators
in Switzerland and Singapore
that cited alleged breaches of
money laundering rules at Falcon
related to its dealings with
1MDB. On Tuesday, the Monetary Authority of Singapore ordered Falcon to shut down its
local branch, while Switzerland’s
financial regulator Finma ordered
the bank to disgorge 2.5 million
Swiss francs ($2.5 million) in
what it said was illegally generated profit.
The alleged misappropriation
of billions of dollars from 1MDB
has been the focus of investigations in a number of countries.
The Swiss attorney general’s office recently said it suspects an
alleged “Ponzi scheme” at the
fund, which was established in
2009 by Malaysian Prime Minister Najib Razak.
The Wall Street Journal has
previously reported that global
investigators believe more than
$1 billion originating from 1MDB
landed in Mr. Najib’s bank accounts. Mr. Najib has denied any
wrongdoing. 1MDB has denied
wrongdoing and has said it is
cooperating with authorities.
Switzerland’s Finma said on
Tuesday that roughly $3.8 billion
in assets associated with 1MDB
were transferred to accounts at
Falcon between 2012 and last
year, and “were generally moved
on quickly.” The bank’s management had been alerted to the
unusual and relatively risky
transactions, Finma said, but
failed to properly investigate
them.
—John Letzing
P2HW287000-0-A00700-1--------AL
U.S. NEWS
Team was in touch with
agencies, lawmakers
over campaign response
to use of private server
BY BYRON TAU
AND COLLEEN MCCAIN NELSON
WASHINGTON—Hillar y
Clinton’s political team sought
to contain any potential fallout
over her use of a private email
server by communicating with
government agencies, enlisting
help of congressional allies and
managing public statements,
newly released emails show.
Hacked emails belonging to
Clinton campaign Chairman
John Podesta were posted by
the website WikiLeaks this
week, showing her staff debating the tone and substance of responses to media after the 2015
disclosure of her use of a private
email server while leading the
State Department during President Barack Obama’s first term.
In several electronic exchanges, almost all from last
year and this year, Mrs. Clinton’s staff appeared to be in
communication with government officials about the email
issue. One campaign official is
shown telling colleagues about a
coming procedural step, which
was part of the public record,
that he suggests he learned from
Justice Department officials.
In another case, an attorney
for Mrs. Clinton appeared to
know the contents of a State
Department document release
concerning speeches by former President Bill Clinton before it was made public.
Mrs. Clinton’s presidential
campaign hasn’t confirmed or
denied the authenticity of the
email trove posted by
WikiLeaks, but a spokesman
said the release of apparently
stolen internal communications
showcases Russian attempts to
interfere in the U.S. election on
behalf of Mrs. Clinton’s Republican rival, Donald Trump. U.S.
intelligence agencies have publicly accused Russia of directing hacks and leaks aimed at
top Democratic Party officials,
but they haven’t reached a
conclusion in the specific
breach of Mr. Podesta’s emails.
Mr. Podesta told reporters
Tuesday that he had been in
touch with the Federal Bureau
of Investigation about what he
called a “criminal hack.”
“If you think you’d like all
the contents of all your emails
for 10 years dumped into public, think about how that feels.
It doesn’t feel great,” Mr. Podesta said.
Campaign spokesman Brian
Fallon, who worked at the Justice Department before joining
the campaign in 2015, is shown
in the emails to be giving a
heads-up about a preliminary
hearing in a lawsuit brought by
a Vice News reporter against
the State Department. Justice
Department attorneys were
representing their colleagues at
State in the matter. The information provided to Mr. Fallon
was in the court’s docket.
“DOJ folks inform me there
is a status hearing in this case
this morning, so we could have
a window into the judge’s
thinking about this proposed
production schedule as quickly
as today,” Mr. Fallon wrote to
his colleagues on the campaign.
The
Clinton
attorney,
Heather Samuelson, is shown
providing a detailed accounting
of Mr. Clinton speeches discussed in documents that were
to be released by State. She also
reported how much the former
president, who commanded sixfigure sums for his speaking engagements, was paid.
“There is one request where
speaking fee would have been
paid by Turkish govt—WJC’s
office declined this,” Ms. Samuelson wrote, referring to Mr.
Clinton. “And one speaking engagement with fee from Canadian government, which he did
do.” Ms. Samuelson didn’t return a request for comment.
State Department spokesman
John Kirby said that the agency
“does not comment on alleged
TOM WILLIAMS/CQ ROLL CALL/GETTY IMAGES
Emails Show Role
Of Clinton’s Camp
Democratic presidential candidate Hillary Clinton and campaign Chairman John Podesta in Washington.
leaked documents,” but that it is
common practice for the department to contact any organization or person whose proprietary or personal information
might be involved in a Freedom
of Information Act release.
The Obama administration
has acknowledged some communication with Mrs. Clinton’s
campaign staff, given that the
emails involved government records and eventually a Federal
Bureau of Investigation probe
that was closed with a recommendation against the prosecution of Mrs. Clinton or her team.
Mrs. Clinton’s campaign was
also in touch with at least two
Senate Democrats, Patrick Leahy
Continued from Page One
support among his base, which
includes many voters who feel
estranged from the party establishment.
The decision means that a
campaign already marked by
personal attacks is primed to
grow uglier in the remaining
four weeks. Mr. Trump plans to
keep up a relentless assault on
Mrs. Clinton, including her use
of a private email server and allegations about her husband,
former President Bill Clinton,
with the intention of keeping
some of her supporters home on
Election Day, his advisers said.
“As more and more Republicans defect, it’s no surprise
that Donald Trump is getting
more and more desperate,”
said Clinton press secretary
Brian Fallon. “In the closing
weeks, he can run his campaign however he chooses, but
Hillary Clinton is going to continue talking about her positive vision for improving the
lives for everyday Americans.”
It remains questionable
whether Mr. Trump’s strategy
can turn around the electoral
math. His core supporters
don’t make up a majority of
the electorate, and many analysts see no path to victory
unless he adds to them, even if
Mrs. Clinton’s vote total is
driven down. And a new Wall
Street Journal/NBC News poll
shows him trailing the Democratic nominee by 9 percentage points among likely voters, though his standing
improved after his performance in Sunday’s debate,
particularly with Republicans.
MIKE SEGAR/REUTERS
PLAN
Donald Trump broke from debate preparation to greet supporters on Saturday in New York City.
Mr. Trump’s advisers said
they and their candidate are
convinced he can win, noting
that in the three weeks before
the first debate, Mr. Trump
climbed in the polls to even or
ahead of Mrs. Clinton.
Most Republican lawmakers
wouldn’t comment on their
candidate’s announced change
of tone. A written statement
provided by Mr. Ryan said the
Wisconsin congressman was
“focusing the next month on
defeating Democrats, and all
Republicans running for office
should probably do the same.”
Kevin Madden, a Republican
strategist who worked on the
presidential campaigns of Mitt
Romney and George W. Bush,
said Mr. Trump’s approach
would drive turnout among his
base, “but alienating his own
party and swing voters won’t
grow his vote. His remarks
and tactics can have the adverse effect of energizing the
Democratic base.”
Mr. Trump began losing
ground after his panned performance in the first presidential debate last month, which
was followed by news of a
nearly billion-dollar business
loss in the mid-1990s that may
have shielded him for years
from federal income taxes.
After the debate, Mr. Trump
persisted in tweets and in comments on the campaign trail
about the weight gains of a former Miss Universe, the woman
mentioned by Mrs. Clinton dur-
ing the first debate as the target of humiliating remarks by
Mr. Trump. Then on Friday, all
attention turned to the video of
Mr. Trump’s talking about
groping women’s genitals and
forcibly kissing women.
Mr. Trump huddled with
advisers in New York City that
night. That is when they resolved to implement the
“scorched earth” strategy that
had been held in reserve, one
adviser said.
The campaign recruited appearances by three women
who had accused Mr. Clinton
of sexual misconduct and a
fourth angry at Mrs. Clinton
for her work as a legal-aid
lawyer defending a man accused of raping the woman
Texas Becomes a Drag on the Economy
BY ERIN AILWORTH
AND BEN LEUBSDORF
HOUSTON — Texas helped
lead the U.S. out of recession,
thanks in part to the shale-drilling revolution. But after more
than two years of slumping oil
prices, the state is now a sore
spot for the national economy.
Petroleum prosperity helped
usher in an economic boom in
Texas, which added one out of
every seven new American jobs
from 2010 to 2014. But since
the end of 2014, the state has
lost more than 91,000 jobs in oil
and gas extraction and miningsupport activities, nearly half of
the total national job losses in
those categories. Texas payrolls
were up 1.6% in August from a
year earlier, trailing the national pace of job growth for
the 11th consecutive month.
The collapse in oil prices—
from more than $100 a barrel
in June 2014 to roughly $50 today—has been felt nationwide.
But the largest economic impacts are in Texas, the nation’s
second-most-populous state,
which accounts for roughly 9%
of U.S. economic output.
The Texas economy grew
3.9% a year on average from
2010 to 2015, nearly twice the
U.S. pace, according to data
from the U.S. Commerce Department. But the state’s output
barely grew in this year’s first
quarter, weighed down by losses
in the mining sector, which includes the oil-and-gas industry.
The Texas-centered
energy bust has sent
national business
spending lower.
The hiring slowdown in
Texas accounts for some of the
national deceleration in job creation since last year. And the
Texas-centered energy bust has
helped drive a national pullback
in business spending on structures and equipment, a drag on
overall economic growth.
While the pain in the oil
patch hasn’t driven the state
into recession, Houston, the nation’s energy capital and fourthlargest city, is on the brink.
The Houston metro area saw
healthy growth in economic
output in 2015, according to the
Commerce Department. But the
Federal Reserve Bank of Dallas
has said its index of Houstonarea economic conditions signaled a “modest contraction”
in the first half of 2016 and
that while the worst of the oil
bust may be in the past, “Houston is not yet recovering.”
Bill Gilmer, an economist at
the Institute for Regional Forecasting at the University of
Houston, estimates that 70,000
energy-related jobs have disappeared in the area since late
2014. He believes more losses
are on the way. “We may very
well be in a modest recession
right now,” he said.
Houston has a thriving medical-center complex and a bustling trade port, the second-largest in the U.S. by total tonnage.
But the fall in oil prices is wearing on the metro area, home to
nearly 6.7 million people.
The region’s unemployment
rate in August was 5.8%, up from
4.9% a year earlier—one of the
largest year-over-year jumps
among big U.S. metro areas. The
vacancy rate in Houston skyscrapers has risen to nearly 16%
from 11% when oil prices began
falling in the summer of 2014,
according to NAI Partners, a
commercial-real-estate firm.
Consumer spending, which
accounts for most U.S. economic output, has weakened
in Houston. Data from the
state comptroller’s office
shows city sales-tax revenue
down about 4.5% this year.
The bust has cut into the
state’s coffers. Republican Gov.
Greg Abbott, along with the
state’s lieutenant governor
and speaker of the house, in
June called on all state agencies to cut 4% from their
2018-19 biennial budgets.
—Lynn Cook
of Vermont and Dianne Feinstein
of California, as the campaign
worked to quell a controversy
about classified email discovered in Mrs. Clinton’s inbox.
“Talked to Leahy’s CoS [chief
of staff] yesterday who says that
they are working on another letter to State asking about over
classification. He didn’t have a
ton of details. Sounds like they
are working with Feinstein,” one
of Mrs. Clinton’s campaign staffers wrote to colleagues.
A spokesman for Mr. Leahy
said overclassification has “long,
long been a policy concern” for
the senator. A spokesman for
Ms. Feinstein said concern about
overclassification was “not a
new policy issue for her.”
In other instances, Mrs. Clinton’s staff debated the tone of
the campaign’s response and
whether humor was politically
risky. In one exchange, Communications Director Jennifer
Palmieri floated the idea of
Mrs. Clinton “making a joke
about the email situation at the
Emily’s List dinner tonight,” referring to a group that supports
pro-choice Democratic women.
“We don’t know what’s in the
emails, so we are nervous about
this,” said Mandy Grunwald, a
campaign media consultant.
—Laura Meckler, Rebecca
Ballhaus and Peter Nicholas
when she was a girl. Mr. Clinton has denied the allegations.
On Saturday, as leading Republicans withdrew their endorsements for the GOP nominee, Mr. Trump prepared for
the debate.
Republican National Committee Chairman Reince Priebus received many calls and
emails from Republicans urging him to pull his funding
from the Trump campaign.
Most donors and elected officials weren’t aware that Mr.
Priebus participated in Mr.
Trump’s debate preparation.
In rapid-fire fashion, according to two people there,
the RNC chairman asked Mr.
Trump questions such as: “I’m
a dreamer with illegal-immigrant parents and a little
brother, what will you do with
me?” and, “I’m a laid-off factory worker, how specifically
can you bring back my job?”
Supporters had gathered on
the street below, and Mr.
Trump put on a suit jacket and
went downstairs to greet
them. He returned upbeat,
several advisers said, and resolved to fight harder against
his opponents, including those
in his own party. Around 6
p.m., he retired to his penthouse for the night.
The advisers looked at each
other. They wanted their boss
to prepare more, but they also
noticed that Mr. Trump
seemed re-energized.
Only five people in the campaign knew the four women
would appear with Mr. Trump
before the debate. On Sunday,
they were brought before
news cameras.
When the debate began,
Mrs. Clinton and Mr. Trump
didn’t shake hands. The Re-
publican nominee took the
stage ready to deliver on his
goal of going on the attack.
Mrs. Clinton raised public revulsion over Mr. Trump’s
taped
comments
about
women, as well as his earlier
remarks disparaging Hispanics
and Muslims.
A new Wall Street Journal/
NBC News poll suggests Mr.
Trump’s performance might
have stopped his political
bleeding. He had trailed Mrs.
Clinton by 11 points in Journal/NBC News polling on Saturday and Sunday, conducted
shortly after disclosure of the
videotape.
Mrs. Clinton’s lead in the
polls fell Monday. Mr. Trump
narrowed the gap with more
support from Republicans, the
poll found. Some 83% of Republicans said in postdebate
polling that they would vote
for Mr. Trump in a head-tohead matchup against Mrs.
Clinton, up from a weak 60%
in weekend surveys.
Over the three days of polling, before and after the debate, Mrs. Clinton’s lead stood
at nine percentage points, 46%
to 37%, among likely voters on
a ballot including third-party
candidates
After attacking the Clintons
during Sunday’s debate, Mr.
Trump moved against GOP
leaders who had never fully
embraced him as candidate or
nominee. Mr. Trump has said
they risk alienating his supporters who make up the biggest share of the Republican
base.
“I may be limping across
that finish line,” Mr. Trump
said at a a rally Monday. “But
I’m getting across that finish
line.”
U.S.
Watch
IMMIGRATION
Funds Running Out
For Detaining Illegals
The Department of Homeland
Security is a month away from
running out of money to detain
illegal immigrants—a fresh sign
of federal budget dysfunction
emerging less than two weeks
after Congress funded the government through early December.
Homeland Security officials
planned to ask the White House
for a quick transfer of funds to enable them to continue to detain
undocumented immigrants, according to officials familiar with the
discussions. If they don’t get more
money by early November, officials
will be forced to stop holding
newly captured illegal immigrants,
including high-priority arrests at
the border, the officials said.
The shortfall has caught the
Obama administration by surprise,
coming so soon after Congress
passed a continuing resolution to
keep the government operating
through Dec. 9. The measure
passed in September aims only to
maintain funding at previous levels, which has turned out to be
far short of the money needed to
handle a new influx of undocumented people entering the U.S.
—Devlin Barrett
NORTH CAROLINA
More Deaths Possible
After Floods Kill 19
Floodwaters continued to rise in
eastern North Carolina, and at least
19 people in the state have died as
a result of Hurricane Matthew,
Gov. Pat McCrory said Wednesday.
Most of the deaths were from
drowning, Mr. McCrory said, and
more deaths were possible, as
some rivers weren't expected to
crest until the weekend. The
number of people killed in the U.S.
by the storm is now at least 30.
Flooding has driven thousands
in North Carolina from their homes.
There were 143,000 customers
without power, and schools, courts
and many businesses remained
closed, Mr. McCrory said.
—Valerie Bauerlein
P2HW287000-0-A00800-1--------AL
FROM PAGE ONE
TECH
SNOW
Dash Snow. The suit accuses
McDonald’s of painting him as
a corporate sellout and putting
his legacy at risk.
Jade Berreau, the administrator of his estate and mother
of his only child, alleges that
hundreds of McDonald’s restaurants across the globe are
adorned with replica images of
“SACE”—the tag, or signature,
used by Mr. Snow. He died in
2009 at the age of 27.
Mr. Snow, the lawsuit says,
would never have consented to
what it calls a “brazen” misappropriation of the Soho artist’s
“original graphic expression.”
“Nothing is more antithetical to Mr. Snow’s outsider
‘street cred,’ ” says the complaint, filed last week in Los
Angeles federal court, “than
association with corporate
consumerism—of
which
McDonald’s and its marketing
are the epitome.”
McDonald’s said its graffiti
décor, which also includes
partment of Labor.
U.S. tech workers are getting
a smaller piece of the economic
pie created from what they produce. As of 2014, employee compensation in computer and electronic-parts making was equal
to 49% of the value of the industry’s output, down from 79% in
1999, according to the Commerce Department.
While other tech jobs have
been created in sectors such as
software publishing, that growth
is smaller than the losses in tech
manufacturing.
Since 2002, the number of
tech startups has slowed, hurting job creation. In a 2014 study,
economists Javier Miranda,
John Haltiwanger and Ian Hathaway said the growth of tech
startups accelerated to 113,000
in 2001 from 64,000 in 1992.
That number slumped to
79,000 in 2011 and hasn’t recovered, according to the economists’ calculations using updated data. The causes include
global competition and increased domestic regulation,
says Mr. Haltiwanger, an economics professor at the University of Maryland.
Another problem is that
fewer tech companies have gone
public, which can enrich early
employees and spawn more jobs
as companies grow.
Jay Ritter, a professor at the
University of Florida’s Warrington College of Business, says
there were 548 initial public offerings of technology-related
companies from 2001 to 2015.
and authenticity. Commercial
misuse can be “morally offensive to them,” said Mr. Deitch.
An early booster of the
genre, Mr. Deitch, while at
MOCA, co-curated a major exhibit of graffiti and other
street art. In New York, he invited Mr. Snow and collaborator Dan Colen to turn his
Grand Street gallery into a giant hamster nest.
Mr. Snow, a scion of arts aristocracy (he was a greatgrandson of French-American
arts patron and oil-industry
heiress Dominique de Menil),
acquired a reputation as the
“Kurt Cobain” of the New York
gallery world.
As a teen, he roamed subway tunnels and rooftops,
snapping Polaroids and spraying his “SACE” tag. His photographs, collages and sculptures
often contained scabrous images of sex and hard drugs, or
featured his own body fluids.
Some art critics see Mr.
Snow as a shock-mongering
poseur. His admirers say he effectively captured a post-9/11
sense of angst and doom. Museums like the Whitney in New
York and London’s Saatchi Gallery have also promoted his
work. One piece, a defiled New
York Post cover of Saddam
Hussein, sold for $8,000 last
month at Sotheby’s. Other
Snow works have commanded
six figures.
Mr. Snow’s mystique also
extended to his reckless lifestyle,
which
ultimately
doomed him. In July 2009, his
family confirmed reports that
he had died of a drug overdose.
The perceived association
with McDonald’s has “diminished the value of Mr. Snow’s
work,” Ms. Berreau’s complaint alleges. In a statement
made through her lawyer, she
said that suing was a last resort.
Ms. Berreau’s lawsuit alleges “straightforward copyright infringement.”
But proving that may not be
so simple, said Christopher
Buccafusco, an intellectualproperty scholar at Cardozo
School of Law in New York
who isn’t involved in the case.
For Ms. Berreau to prevail,
he said, she’ll have to show
that McDonald’s interior designers copied the “SACE” logo
and also prove that the tag in
question possesses an originality distinguishable from generic graffiti.
“Courts and the U.S. Copyright Office have been pretty
resistant to the notion that the
design of letters is copyrightable,” the professor said.
If McDonald’s prevails, that
won’t guarantee a win in the
court of public opinion. The
company was on the defensive
earlier this year when a Brixton location in South London
got a graffiti makeover.
Some residents saw it as
misguided pandering.
“In an inner-city area like
Brixton, tagging is a bit of
blight,” said Jay Rayner, restaurant critic for London’s Observer and longtime Brixton
resident. While he admires
some graffiti in the area as
“fantastic,”
he
deems
McDonald’s indoor-tagging to
be “just a bit crass.”
A McDonald’s spokeswoman
defended the aesthetic, saying
that the new look had been
generally well-received.
After rising in the 1990s, employment at computer and electronic firms has fallen by more than 40%,
though a smaller number of jobs has been created in other tech sectors.
Number of employees
Inflation-adjusted total payroll value
2.0 million
$1.00 billion
Manufacturing
computers
and electronics
1.5
1.0
Manufacturing
computers
and electronics
0.75
0.50
Recession
Software
publishing
0.5
0.25
0
Software
publishing
0
1990
’00
’10
’15
1990
’00
200
0
1996
2.8
’00
’10
IPO
year
2015: Fitbit
2015:
2.6
2014:: Weibo,
2014
GoPro, Alibaba
2.4
2012:: Facebook,
2012
Trulia, Yelp
2.2
’15
Technology
IPOs, by year
Total employees at all
companies with IPOs in a
specific year
3.0 million
’10
400
Few technology companies are doing initial public
offerings, which can help spawn more jobs as those
companies grow. And companies that went public in
the five years before the dot-com bubble burst in 2000
have more employees overall than those with IPOs
since then.
2015
2014
2013
2012
2011
2009:: Ancestry.com,
2009
OpenTable
2.0
2010
2009
2008
2007
2006
1.8
1.6
1.2
1999:
1999: Priceline,
Expedia,
CareerBuilder
1.0
1998:
1998: eBay
1.4
2004:: Google,
2004
Salesforce.com
2005
2004
2003
2002
2001
1997::
0.8 1997
Ameritrade,
0.6 Amazon.com
2000
1999
1998
1997
1996
0.4
0.2
0
1996 ’97
’98
’99 2000 ’01
’02
’03
’04 ’05
’06
’07
’08
’09 ’10
’11
’12
’13
’14
’15
Note: Manufacturing figures are through September; publishing figures are through August; IPO figures are for full years.
Sources: Labor Department (payrolls, employees); professors Jay Ritter, Martin Kenney and Donald Patton (IPO employment)
Andrew Van Dam, Jon Hilsenrath and Bob Davis/THE WALL STREET JOURNAL.
NeXT Inc., another computer
maker, to revitalize U.S. manufacturing. Macintosh computers rolled off the line at an Apple factory “like a Holiday Inn
toaster turns out toasted bagels,” says Brent Schlender,
who co-wrote a biography of
Mr. Jobs.
By the time Mr. Jobs died in
2011, Apple made nearly every
one of its products outside
America, largely in Asia. Apple
halted U.S. manufacturing in
2004 and didn’t resume until
2013, when it began producing
Amazon.com uses robots at about a third of its warehouses in the U.S. Above, a site in Tracy, Calif.
scrawl on hanging light fixtures, is one of a dozen interior-design motifs recently introduced as part of a broader
reimaging of stores. A company spokeswoman declined to
comment on the litigation.
A similar infringement action was brought against the
company in March by Eric
Rosenbaum, a Los Angeles tattoo artist also known as Norm.
He alleged in federal court
there that McDonald’s ripped
off a graffiti work he titled “NO-R-M Fire Escape on Bartlett”
over boarded-up windows on a
vacant Brooklyn building.
Mr. Rosenbaum said he
spotted an image that looked
suspiciously like “Norm” on a
wall at a Tokyo McDonald’s
several years ago. Similar
“tags,” or letters in graffiti
parlance, are splashed on
McDonald’s walls in France
and London, too.
Mr. Rosenbaum doesn’t object to the commodification of
his work. “Since 2000, Norm
has been a street artist for
hire,” his complaint says, listing companies such as CocaCola Co. and Rockstar Inc. as
Mac Pro personal computers in
Austin, Texas.
Apple says it employs about
80,000 workers in the U.S., or
two-thirds of the company’s
overall workforce. About half
the U.S. employees have retail
jobs.
An Apple spokeswoman says
it is “creating jobs in new industries like the App Economy,” or
apps developed for the iPhone,
and is “a major contributor to
U.S. manufacturing” by buying
American-made components
and materials.
Mr. Schlender, the Jobs biographer, says it made sense to assemble the iPod outside the U.S.
when production began in 2001.
“The components were hard to
make, and putting them together was a labor-intensive job
because everything was so
small,” he says. “You had to
piece it together by hand.”
The computer-hardware exodus spread. International Business Machines Corp., the company that turned computers into
a big business, was born in Endicott, N.Y., and built its first factories there.
From 2001 to 2015, though,
employment in computer and
electronics manufacturing in
surrounding Broome County
fell about two-thirds to 3,055
jobs. Warehouses and transportation companies scooped up
some laid-off workers at salaries of less than half those paid
in high-tech manufacturing,
says Christian Harris, an analyst for the New York State De-
From 1990 to 2000, by contrast,
1,853 went public.
The latest generation of hot
tech startups has attracted a
mountain of venture-capital
funding and gigantic valuations, led by Uber Technologies
Inc., which was worth $68 billion as of June.
The influx of wealth has created more prosperity in Silicon
Valley but exemplifies the economic polarization rippling
through America.
WhatsApp had more than
450 million users world-wide
when Facebook bought the
messaging service for $19 billion in 2014, turning founder
Jan Koum into a billionaire several times over. At the time of
the acquisition, WhatsApp had
55 employees.
Economists call the phenomenon “skill-biased technical
change.” The spoils of growth
go to those few people with
skills and luck and who are best
positioned to take advantage of
new technology.
The five largest U.S.-based
technology companies by stockmarket value—Apple, Alphabet,
Microsoft, Facebook and Oracle
Corp.—are worth a combined
$1.8 trillion today. That is 80%
more than the five largest tech
companies in 2000.
Today’s five giants have 22%
fewer workers than their predecessors, or a total of 434,505
as of last year, compared with
556,523 at Cisco Systems Inc.,
Intel, IBM, Oracle and Microsoft in 2000.
Amazon uses 45,000 small
robots at about one-third of its
U.S. warehouses to automate
order processing. The robots
look like bread boxes on
wheels, lifting modular shelves
stuffed with products and carrying the shelves to workers
who pick out pieces.
An Amazon spokesman says
the company has added about
200,000 employees since it began using the robots in early
2012. Amazon has 268,000 employees world-wide.
In coming decades, machines
are likely to replace new forms
of routine work done by humans. From 1991 to 2001, the
number of secretaries declined
about 35%, according to the Bureau of Labor Statistics. The
number of textile and apparel
workers fell 37%.
For a long time, those with
bachelor’s degrees in science
seemed to be safe from automation-related layoffs because
their cognitive knowledge was
tough for computers to duplicate. Less-educated workers
who dispense personal service,
such as home health aides or
masseuses, also seemed safe.
Harvard University economist David Deming estimates
that the hollowing-out of work
spread to programmers, librarians and engineers between
2000 and 2012. As much as $2
trillion worth of human economic activity could be automated away using existing technologies, such as Amazon’s
robots, in coming years, consulting firm McKinsey & Co. estimates.
Knightscope Inc., based in
Mountain View, Calif., makes robots that serve as night watchmen. About three dozen are on
patrol, including at shopping
malls, corporate campuses such
as Microsoft’s in Mountain View
and the new home arena of the
Sacramento Kings. Knightscope
clients pay $7 an hour per robot.
“Robots don’t complain,”
says Stacy Stephens, a Knightscope co-founder and vice president of marketing and sales.
“There’s no pension. And there’s
no worker’s comp,” he adds.
Technology Booms, But Not For American Workers
DAVID PAUL MORRIS/BLOOMBERG NEWS
and wages slowed, and income
inequality rose as machines replaced routine, low- and middleincome, human-powered work.
This outcome is a far cry
from what many political leaders, tech entrepreneurs and
economists predicted about a
generation ago. In 2000, President Bill Clinton said in his last
State of the Union address:
“America will lead the world toward shared peace and prosperity and the far frontiers of science and technology.” His
economic team trumpeted “the
ferment of rapid technological
change” as one of the U.S. economy’s “principal engines” of
growth.
The gap between what the
tech boom promised and then
delivered is another source of
the rumbling national discontent that powered the rise this
year of political outsiders Donald Trump and Bernie Sanders.
The tech-powered disappointment is subtler than the
anger caused by the impact of
China’s import invasion and the
perceived failures of government institutions like the Federal Reserve in guiding the economy. Instead, it stems from the
idea that Americans expected
larger economic gains from
these amazing new machines
and the companies that created
them, not a widening between
the haves and have-nots.
“There is a growing sense of
frustration that people haven’t
seen the progress that their parents and grandparents did,” says
Erik Brynjolfsson, a Massachusetts Institute of Technology
economist whose work has
chronicled how technology widens the income gap between rich
and poor. “That frustration spills
into the political arena.”
In 1997, Time magazine
named computer-chip maker
Intel Corp.’s chief executive,
Andrew S. Grove, who died in
March 2016, as “Man of the
Year.” Amazon.com Inc. CEO
Jeff Bezos won in 1999. Companies spent billions of dollars reprogramming their computers
for the Year 2000 bug, and
profitless dot-com startups
won giant valuations from optimistic investors.
The bursting of the dot-com
bubble in early 2000, the recession in 2001 and deepening
globalization proved to be turning points for the tech economy
and its broader impact on American prosperity.
U.S. tech companies accelerated the reshuffling of their sup-
ply networks to China and elsewhere in Asia, places filled with
growth potential and cheap labor. Hardware makers concentrated production overseas to
supply U.S. and foreign computer makers.
After rising through the
1990s, total employment at
computer and electronic firms
in the U.S. sank to 1.03 million
in August 2016 from 1.87 million in 2001, according to Labor
Department statistics. Employment at semiconductor makers
fell by half to 359,000 in the
same period.
In the 1990s, Micron Technology Inc. was a successful example of how far the tech industry reached beyond its
nexus in Silicon Valley. Based in
Boise, Idaho, Micron was
founded by Idaho farmers and
businessmen, including the late
billionaire J.R. Simplot, who
supplied McDonald’s Corp. with
most of its frozen french fries
and had “MR SPUD” license
plates on his pickup truck.
Micron’s workforce quadrupled to 18,800 between 1994
and 2000, with the growth
overwhelmingly in the U.S. The
company fought with Japan in
the 1980s to restrict imported
memory chips and protect its
U.S. base.
These days, Micron is a case
study in how technology companies have exported jobs to other
countries. As of 2013, the most
recently disclosed data, Micron
had 11,300 workers in the U.S.,
down from 14,000 in 2000. The
company’s non-U.S. workforce
surged to 19,600, mainly in
China and other Asian nations,
from 4,800.
Securities filings show that
the percentage of employees at
Micron who were in the U.S.
shrank to 37% from 74% in the
same period. The company
stopped disclosing the annual
percentage in 2014. A Micron
spokesman says much of the
growth outside the U.S. came
from acquisitions.
“What we’re doing is replacing more resources there to support the growing customer
base—both the multinationals
that are leveraging the low labor-cost areas in China, in particular, as well as the indigenous
Chinese manufacturers,” Mike
Sadler, Micron’s head of sales,
told analysts in 2014. He is now
Micron’s strategic chief.
The Semiconductor Industry
Association says semiconductors remain a big U.S. business
and are America’s third-largest
export, trailing cars and aircraft.
Apple Inc. followed a similar
path. Co-founder Steve Jobs
made it a mission early in his
Apple career and after creating
past employers.
The problem, his lawyers
contended,
was
that
McDonald’s alleged “unauthorized use” of Norm stained his
reputation and caused the artist to lose several six-figure licensing deals and contracts.
Mr. Rosenbaum’s lawyers
withdrew the lawsuit in May.
They declined to elaborate.
The plaintiff in the Snow
case, meanwhile, appears to be
digging in.
“Our highest priority is securing the immediate removal
of this artwork from all
McDonald’s stores to prevent
any further trauma to Dash’s
family or his legacy,” said Jeff
Gluck, the lawyer representing
Ms. Berreau.
Art dealer Jeffrey Deitch,
former director of The Museum of Contemporary Art,
Los Angeles, said some street
artists are so antiestablishment that they refuse to allow
their work to be displayed at
all.
Others, he said, are more
amenable and will work for a
corporation—if they feel the
project has “the right attitude”
P2HW287000-0-A00900-1--------AL
ARTS & ENTERTAINMENT
A Picture of Picasso
As a Portrait Master
BY ANNA RUSSELL
AFTER THEIR LOVE AFFAIR SOURED, Dora
Maar remarked of Pablo Picasso’s work, “All
his portraits of me are lies. They’re all Picassos, not one is Dora Maar.”
Over eight decades, Picasso produced
tens of thousands of paintings, photos,
prints, sculptures and ceramics. At every
point, he showed a fascination with portraits, his own and others. Now, some of
them are taking center stage at a new exhibition at London’s National Portrait Gallery.
“Picasso’s Portraits” follows the artist’s
gaze through about 80 depictions of friends,
lovers, patrons and others in his circle. Several works on loan will appear in the U.K. for
the first time, before moving to Barcelona’s
Picasso Museum in the spring.
The artist’s earliest attempts, made as a
teenager under the direction of his father,
are realistic. Those paintings were easy for
him, says curator Elizabeth Cowling. “The
struggle was to do something more conceptual,” she says. “To pare a face down to an
essence that epitomized the person.”
In the sketchbooks of his late teenage
years, Picasso turned away from naturalism,
repeatedly casting in simple lines and bold
colors the faces of his artist friends who
popularized the Barcelona cafe Els Quatre Gats. In 1901,
when Picasso was
around 20, the poet
Jaume Sabartés was
sitting in a Parisian
cafe waiting for the
artist to arrive. “Just
when my desolation
was keenest, Picasso
appeared,” Sabartés
wrote. A few days
later, so did a portrait of the poet—a
surprise for Sabartés, since Picasso had
made no sketches at
the cafe and had
painted from memory. Sabartés said
later that he had
fallen “like a fly into
the trap of Picasso’s
stare.”
Picasso often used
portraiture to experiment. He made portraits
in his blue and rose periods, named after
colors predominant in two stages of his
early career, and in his photos and sculptures. Sometimes the artist tried different
styles on the same model, capturing his
lover Fernande Olivier in cubist and sculptural iterations that appear in the show. He
rarely worked on commission and kept many
of the portraits in his own collection or gave
them as gifts to his subjects.
“By the 1920s, having one’s portrait
drawn by Picasso was a badge of honor in
the art world,” Ms. Cowling writes in the exhibition catalog.
Some of Picasso’s most famous portraits
are cubist masterpieces: faces with eyes
askance and noses turned out at odd angles.
“There are so many realities that in trying to
encompass them all one ends in darkness,”
he said in the late 1950s. “That is why, when
one paints a portrait, one must stop somewhere, in a sort of caricature.”
The exhibition includes renderings of the
composer Igor Stravinsky, the French author
and filmmaker Jean Cocteau and the Spanish
artist Santiago Rusiñol. Ms. Cowling limited
the show to portraits of named individuals,
leaving out works with an unknown sitter. So
the nameless “The Old Guitarist” isn’t featured.
Not all of the portraits came easily. When
Picasso went to paint Gertrude Stein in 1905,
he found himself stalled. Long, intense sittings were required until, according to Stein,
a frustrated Picasso finally declared, “I can’t
see you anymore when I look.” Only when
the avant-garde author left for a trip to Italy
was Picasso able to complete the portrait,
which now hangs in New York’s Metropolitan
Museum of Art.
Picasso usually preferred not to paint an
individual from life, says Ms. Cowling, but
Stein was pleased. “For me, it is I, and it is
the only reproduction of me which is always
I, for me,” the author said.
Toward the end of his life, Picasso sped
up production, sometimes churning out multiple works a day. He turned increasingly to
art of the past.
Ms. Cowling included these riffs on oldmaster paintings in which the artist sometimes blends more than one subject—or
works himself into the canvas. Picasso spent
four months working from Velázquez’s famous group portrait, “Las Meninas” (often
translated as “The Ladies-in-Waiting”). The
London exhibition includes a few works from
this Picasso series.
In 1972, at the
age of 91, Picasso
completed one of
his final self-portraits, in which his
face appears angular and skull-like. “I
think maybe I
touched on something,” he told a biographer at the
time. “It’s not like
anything I’ve done
before.” That late
portrait is in the
London exhibition
as well.
This large-scale
celebration of his
portraits, which
ends in London on
Feb. 5, probably
wouldn’t have surprised the artist.
“You have an interesting face. I
would like to do a
portrait of you,” he told another lover, Marie-Thérèse Walter, in 1927, according to
John Richardson’s “A Life of Picasso.” “I feel
we are going to do great things together. I
am Picasso.”
ART
Crowdfunding
A Relic
BY INTI LANDAURO
ALL THE KING’S HORSES and all the
king’s men couldn’t put Humpty together again, but the Louvre is hoping
that with €500,000 ($555,000) it can
take apart and put back together a 50ton ancient Egyptian mausoleum.
The Paris museum this week
launched a crowdfunding campaign to
restore the 4,400-year-old tomb, a tactic
it has used since 2010 to both purchase
objects such as the 18th-century Teschen Table (€800,000) and restore
pieces including the second-century
Winged Victory of Samothrace (€1 million). In recent years, the Louvre has increased its appeals to donors as the
state, which accounts for about 50% of
its financing, has capped funding.
The mausoleum is one of the most
important objects in the Louvre’s Ancient Egypt collection, says Vincent
Rondot, director of Egyptian Antiquities
at the museum. To address decades of
wear and tear and new findings related
to its original structure, the museum
plans to remove the limestone bricks
from the current structure so they can
be cleaned and reassembled into a new,
larger structure, adding missing pieces
found in the museum’s depository.
The restoration campaign, launched
Tuesday, had drawn an estimated 240
donors by Wednesday, reaching 6% of
the funding goal. In previous projects,
donations averaged €150-€200.
Acquired by the Louvre in 1902-03,
the mausoleum was part of a larger
structure known as a mastaba built
above the burial site of Egyptian nobleman Akhethotep in Saqqara, the necropolis for the ancient Egyptian capital Memphis. The narrow chapel, now
located in the museum’s Sully wing, is
decorated with sculpted and painted
frescoes, including a large portrait of
Akhethotep.
Mr. Rondot says the current display,
set up in 1934, is now considered
slightly inaccurate. During excavations
carried out in Saqqara since the 1990s,
scientists linked to the Louvre discovered that the mausoleum stood almost
20-feet tall—much larger than the existing Louvre structure. Mr. Rondot‘s team
later found four blocks belonging to the
mastaba in the Louvre’s depository.
MUSÉE DU LOUVRE
SUCCESSION PICASSO/DACS LONDON, 2016 (2)
Picasso’s ‘Woman in a Hat (Olga)’ (1935), left.
Below, the artist’s wife was painted in a more
realistic mode in ‘Portrait of Olga Picasso’ (1923).
MUSIC
BY JIM FUSILLI
Indio, Calif.
DESERT TRIP, the three-day concert
held last weekend here, was a
chance to honor and say a collective
goodbye to Bob Dylan, Paul McCartney, the Rolling Stones, the Who,
Neil Young and Roger Waters of
Pink Floyd, once musical miraclemakers and now mostly predictable,
seasoned entertainers. Given that
it’s been quite a long while since
they were near the top of their
game, expectations needed to be
managed downward. But for the
most part, Desert Trip succeeded as
a celebration and music event.
On Friday night, Mr. Dylan and
his five-piece band opened Desert
Trip with a defiant performance.
Sitting in a semicircle with Mr. Dylan on grand piano or singing at
center stage without his guitar, the
group offered familiar Dylan standards and explored his more recent recordings: “High Water (For
Charley Patton),” “Pay in Blood”
and a poignant “Love Sick.” Mr.
Dylan said not a word to the audience and after 15 songs, he and the
band left the stage, returned to
play a stinging “Masters of War,”
and then departed, having set the
bar high for the remaining acts.
Anyone who has seen the Rolling Stones in the past 20 years
could have guessed much of the
setlist, but the band delivered, especially when the blues were on
display. Mick Jagger broke out his
harmonica for several tunes, in-
cluding Eddie Taylor’s “Ride ’Em
On Down,” a song that will appear
on the Stones’ all-blues “Blue and
Lonesome,” an album scheduled
for a December release. A nasty
“Midnight Rambler” allowed guitarists Keith Richards and Ron
Wood to engage in slinky interplay. Mr. Jagger joked that Desert
Trip was in fact “the Palm Springs
retirement home for genteel English musicians,” but if the Stones
are no longer dangerous disrupters, they can still rock the blues
deep into the night.
Similarly, on Sunday evening,
the Who performed without much
edge, but plenty of muscle and
enough special moments to allow
the audience to revel in its legend.
His voice faltering and with cues
missed, Roger Daltrey had a rough
evening, so what worked best
were the extended outros and instrumentals including “The Rock”
from “Quadrophenia” and excerpts
from “Tommy” with Pete Townshend raging on guitar above the
supple power provided by bassist
Pino Palladino and Zak Starkey. In
“My Generation,” Mr. Daltrey sang
the line “I hope I die before I get
old” without irony, adding, “We’re
still here.” A triumphant finale of
“Won’t Get Fooled Again” proved
the Who was more than merely
present.
Like a grizzled balladeer arriving to dispense wisdom on love
and nature, Mr. Young opened Saturday’s show with a solo set of his
reliable folk tunes. He was joined
by Promise of the Real and guitar-
ist Micah Nelson, who support him
on his 2015 anti-agribusiness album, “The Monsanto Years.” The
band gave the singer-songwriter’s
early songs a lift, particularly with
their pleasing vocal harmonies,
but Mr. Young was determined to
showcase “The Monsanto Years,”
which is inferior to his most notable work, and his set lost its momentum before concluding with
snarling electric rock.
Mr. McCartney’s Saturday night
program was overwhelming, wonderfully so: With his long-time
four-piece backing band, he dug
deep into the Beatles catalog for
relative obscurities “I’ve Got a
Feeling,” “I’ve Just Seen a Face,“
“Being for the Benefit of Mr. Kite”
and a gorgeous version of “And I
Love Her”—and sang “In Spite of
All the Danger,” recorded by the
Quarrymen, featuring Mr. McCartney, John Lennon and George Harrison, in 1958. During the dazzling
37-song set, Mr. McCartney embraced sentimentality without becoming maudlin, paying tribute to
Lennon with “Here Today,” written
after his death; performing Harrison’s “Something”; and inviting a
clearly thrilled Mr. Young to join
in during a three-song medley.
Playing his knotty bass parts with
disarming ease, honoring Jimi
Hendrix by soloing on electric guitar on “Foxy Lady,” and moving to
piano for his sing-along ballads
“Let It Be” and “Hey Jude,” among
others, Mr. McCartney’s performance was Desert Trip’s best.
The festival concluded with a
GETTY IMAGES
Genuflecting to Rock Gods
Mick Jagger and Keith Richards of the Rolling Stones perform at Desert Trip.
performance by Roger Waters,
who, like Mr. McCartney, went well
beyond his most familiar songs. He
revived rarities from Pink Floyd’s
“A Saucerful of Secrets” and “Meddle,” from 1968 and ’71, respectively, and explored the band’s
brimming catalog by tying together songs from various albums
into unique medleys. Mr. Waters
also took best advantage of the
festival’s 240-foot-wide, high-definition video screen above the
stage with trippy or confrontational films and photography to
support his ambitious prog rock,
folk and highbrow pop. The result
was an extraordinary spectacle.
Prior to the event, Desert Trip,
which will be repeated here this
weekend, was an easy target for
snark by those who mocked it as
boomer self-indulgence—Oldchella
and Geezerpalooza, they called it.
But delivered with admirable professionalism, occasional flashes of
brilliance and even a touch of sentimentality, the music justified
both lifelong loyalty and a threeday celebration. Whether it came
along several decades too late or
right on time, Desert Trip was an
unforgettable experience.
Mr. Fusilli is the Journal’s rock
and pop music critic. Email him at
[email protected] and follow him
on Twitter @wsjrock.
P2HW287000-0-A01000-1--------AL
OPINION
REVIEW & OUTLOOK
R
Philippine Tax Reform
odrigo Duterte has adopted some pay no tax at all. The bills would simplify the
alarmingly populist policies in his first income-tax brackets and index them to infla100 days as Philippine President, in- tion. The tax on investment income would
cluding extrajudicial killings
fall to 10% from 20%, and
Duterte moves in the
of suspected drug dealers. But
the estate tax and realhis economic program is detax to 6% from 20%.
right direction: lower estate
signed to promote fast growth
Those changes could free up
rates, fewer loopholes. the market for land and
rather than pander to the demands of the left wing. In parother assets, since title is ofticular, he deserves praise for
ten left in the name of dead
grasping the nettle of tax reform.
people to avoid taxes.
Last overhauled in 1997, the tax code needs
The bad news is that class warfare is reapurgent attention. Because tax brackets were pearing. Finance Secretary Carlos Dominguez
not indexed to inflation, Filipinos earning originally proposed that the top marginal rate
minimum wage in Manila pay a 25% marginal on personal income would fall to 25%. But now
tax rate. The top rate of 32% applies to annual an extra tax on the “ultra rich” means that the
income above $10,284.
top rate would effectively rise to 35% on inOfficially Filipinos pay the highest income come above $102,902.
taxes in Southeast Asia. But most find ways to
That would have little impact on the coundodge the tax man, meaning the government try’s richest families, whose income comes
says it collects a mere 6.2% of the income tax from investments. Instead it would hit the
owed. By comparison, the U.S. Internal Reve- most talented and productive professionals,
nue Service estimates it collected 83.7% of giving them less incentive to seek additional
taxes owed from 2008 to 2010.
work. Currently fewer than 1,000 filers report
The Philippines’ tax on corporate profits such income.
is the highest in the region at 30%, but corThe reform packages also remove exempruption and loopholes mean companies pay tions from the value-added tax and increase ex11.6% of that bill. The government take from cise taxes on fuel and sugar to make up for cutcorporate tax is 3.5% of GDP, much less than ting the income and profits rates. And the final
neighbors with lower rates. More than one- bill contains a hodgepodge of luxury and excise
third of the country’s blue-chip companies taxes in case revenues fall short. But most likely
have so many deductions that they pay the tax receipts will rise as lower rates encourage
minimum 2% of their profits. The punitive compliance, especially if the reforms are folrates thus fail at their most basic purpose of lowed by a tax amnesty as proposed.
raising revenue.
The new Philippine President’s shoot-fromLast month Mr. Duterte introduced five the-lip personal style is doing harm to the rule
legislative packages to bring down rates and of law and foreign policy. But he seems to unwiden the tax base. The corporate-profit tax derstand that tax reform will promote growth
rate would fall to 25%, while the minimum and help him pay for his public building plans,
rate would rise to 15% and deductions would expected to cost 7% of GDP in coming years.
be cut. That’s an improvement, but Indonesia The country desperately needs new roads, railplans to cuts its corporate tax to between ways, seaports and airports to keep up with the
17% and 20%.
7% growth rate that Mr. Duterte inherited, and
Individuals earning less than $5,142 would tax reform is crucial to the effort.
F
Clinton’s Me-Too Tax Credit
or several years a group of conservative tion to be valuable. The tax freebie does nothmedia types in the U.S. has lectured Re- ing to increase economic growth and it costs
publicans that the key to their political a bundle in lost revenue.
salvation is to expand the
Mrs. Clinton began her
Hillary picks up a
child tax credit. Well, they’ve
campaign with a promise to
now found their candidate—
increase the credit—details to
favorite idea of GOP
Hillary Clinton, and therein
come, as they did Tuesday—
redistributionists.
lies a political lesson.
and also boost the separate
This week Mrs. Clinton procredit for child-care expenses
posed to double the current
and mandate “free” maternity
$1,000 per child tax credit to $2,000 up to age leave. Donald Trump answered with his own
4. She’d also expand eligibility to people who expanded child subsidy in September—a dearen’t working or earning very little.
duction that would allow parents to write off
Oh, and in a press release, the Clinton cam- the average state-cost of child care for up to
paign threatened that the new proposal is “only four kids while applying the earned-income tax
a down payment” on other family-friendly tax credit to deliver more benefits to low-income
ideas—or not-so-family-friendly. Mrs. Clinton non-taxpaying families.
is promising “tax relief” for “those without
The political lesson is that once Republicans
children, and with older children.” If it takes cede the liberal premise that the tax code is
a village to raise a child, she now wants to sub- the appropriate venue for social engineering,
sidize the entire village.
liberals will always come through with a higher
The child tax credit, which was created in transfer payment and a chicken-in-every-tax1997, is a tutorial in how social spending pot pitch. Marco Rubio proposed lifting the
through the tax code becomes its own politi- child tax credit to $2,500, not that it did him
cal engine. It was originally a $500 deduction. much political good.
The George W. Bush tax bill of 2001 converted
But if Mr. Rubio were the GOP nominee, a
it to a partially refundable credit of $1,000, lot would be different in this race. For example,
on the notion that low-income Americans Mrs. Clinton would probably have proposed
don’t owe enough income taxes for a deduc- tripling the credit to $3,000.
M
A Pound of Worry
arkets have reacted sourly to British
As for households, they rely on imports
Prime Minister Theresa May’s Brexit for more than 40% of the clothes they buy,
agenda, with the pound on Tuesday 30% of their food, half of their shoes and
hitting a historic low against
nearly 57% of the spare
Those theories that
a basket of currencies. Some
parts for their cars. Britain
of our Keynesian friends are sterling’s fall will help the also imports much of its
saying that’s nothing to worry
fuel, and the weak pound is
U.K. economy? Wrong. helping to push gasoline
about, since a falling currency
will also boost British exports
prices to their highest level
and gain market share by
in a year and rising. That
making them cheaper. Not quite.
means employers will quickly face demands
It’s true that some U.K. merchants—luxury for higher wages as a weak pound leads to
retailers and hotels come to mind—have prof- higher prices.
ited as a weak pound makes Britain more atTo protect themselves from these effects,
tractive to foreign visitors. A September sur- U.K. firms have been raising, not cutting,
vey of manufacturers also shows export orders pound-denominated prices. As the pound fell
are picking up somewhat, though manufactur- 15% between November 2015 and July, exporters also are starting to worry about the poten- ers increased pound-denominated prices by
tial for rising import costs.
11%, according to Pantheon Macroeconomics.
But those benefits obscure the limits to This would be a boon if companies used their
how much Britain can gain from a cheaper additional sterling profits to invest in capital
pound. In Japan a 40% yen depreciation be- upgrades and additional capacity at home. But
tween 2012 and 2014 barely budged export British businesses are likely to delay investvolumes. Japanese export growth still trails ments while they wait to see what trading rethat of neighbors such as South Korea, lations Britain develops after Brexit and
against which a weak yen is supposed to offer whether Mrs. May will liberalize the economy
an advantage.
to stimulate growth. Given these worries, it’s
This happens because demand for exports especially hard to see how a slumping pound
from economies such as Britain’s depends on will magically boost exports.
more than simple price competition. Britain
Japan again leads the way: Despite rising
long ago replaced price-sensitive industries profitability for exporters as the yen deprecisuch as textiles and cars with pharmaceuticals, ated, capital expenditure hasn’t returned to its
precision tools and other ultra-high-tech com- pre-2008 level and companies instead are
panies whose customers will buy their prod- hoarding cash or engaging in financial engiucts at nearly any price because they can’t neering such as a record level of share buyeasily find substitutes.
backs this year.
Meanwhile, the costs of a cheap pound will
Rather than pretend that a plunging pound
be considerable for an economy as dependent is a disguised blessing, Brexit supporters
on imports as Britain is. Roughly 25% of the should treat it as a warning. Global investors,
value of Britain’s final exports originated on whom Britain depends to finance its trade
abroad in the form of imported inputs in 2011, deficit, are worried about regulatory, trade and
the most recent year for which we have data, immigration policies that would deter investand that figure has risen steadily. Rising in- ment and depress growth. Britain can’t devalue
put costs limit any pricing benefits from a its way to success. Only an aggressive freecheap pound.
trade, pro-liberalization agenda will work.
The Kompromat Attack
On Donald Trump
Republican
voters
knew Donald Trump
was a philandering
playboy before they
nominated him—one
of the many reasons
choosing him was a
BUSINESS
mistake.
WORLD
Philandering is a
By Holman W.
standard part of the
Jenkins, Jr.
process by which a
wife is traded in for a
younger one, which Mr. Trump did
twice. No secret tape is necessary. In
one of his memoirs, Mr. Trump boasts of
the “very happily married and important
women” who supposedly succumbed to
his improbable charms.
Still, talk about importing Russian
methods (i.e., “kompromat”) into the
U.S. election, with the tape leak, tax leak
and the stagy cameo by the aggrieved
beauty queen. Then came the Obama administration’s formal accusation on Friday of Russian meddling in the political
process. This seemed less aimed at
warning off Russia than at underscoring
a Democratic talking point that Mr.
Trump is a Russian agent.
For the sake of America, the election
better be a blowout, because otherwise
“rigged” will be the cry from Breitbart
and the rest of the pro-Donald media.
Mr. Trump, with his glaring deficiencies and vulnerabilities, was always going to be the most stringent test of
whether it’s plausible for anybody other
than a career politician to get elected
president. And yet the tape fuss is hard
to grok from a certain perspective.
The American people twice elected
Bill Clinton knowing he was a compulsive womanizer. His party put him up for
re-election in 1996 despite the apparent
knowledge of many senior members that
he had conducted a sexual liaison with a
22-year-old White House intern. Even today, his presidency is remembered
fondly by the American people. His wife,
who stuck by him through serial infidelities, is now riding his long-term coattails
to the White House.
The only difference is that Mr. Trump
hasn’t spent considerable private and
public resources covering up his
indiscretions, because he didn’t treat
them as indiscretions. They were a selling point of his public persona.
To Trump voters and the undecided,
nothing changed in the past week. If
you supported, or were thinking about
supporting Mr. Trump, you were already discounting his marital history,
his flamboyant lifestyle (advertised repeatedly on Howard Stern’s radio
show), his bankruptcies, his use of realestate-friendly tax loopholes.
You supported him, presumably, because of his stance that the globalization megatrend has been managed with
scant concern for its effect on American
workers. Yet Trumpism may surprise us
by turning out to be less a death cry of
the working class than a harbinger of
its reappreciation.
The kompromat attack on Mr.
Trump clearly has its orchestrated elements—witness the readiness of Mrs.
Clinton’s media allies to follow up her
mention of the offended 1996 Miss
Universe in the first debate. Witness
the media’s seamless leap to treat the
infantile sex banter of two man-babies
on an upholstered bus as the equivalent of “sexual assault.”
His gross foibles are an easy
target, but isn’t the election
about more than that?
Mrs. Clinton spoke of having private
and public stances on issues in one of
her Goldman Sachs speeches. She
should have mentioned a third principle: Democrats run on character assassination, as Mr. Obama also did
against Mitt Romney, rather than
frankly own up to a rent-seeking, social-engineering, Big Government
agenda that voters reject when it’s
presented plainly to them.
With his debate performance the
real-estate developer didn’t revive his
presidential hopes but showed he can
remain a populist icon on which future
media ambitions can be built. Mr.
Trump, we’re likely to find, doesn’t actually plan to lose the $100 million he
claims to have spent on the race. (He
is not stupid.)
NBC is in an interesting position,
having sat on a tape in its possession
for 11 years on which Mr. Trump was
unwittingly recorded mugging for an
apparently appreciative NBC TV personality. The network claims it was the
victim of a leak. When do first-class
news organizations leak their scoops to
their competitors?
NBC was Mr. Trump’s partner in
“The Apprentice.” It must have thousands of hours of outtakes. Let’s hear it
all, NBC, the stuff that makes Mr.
Trump look good, bad or indifferent, in
the name of balance. Otherwise, perhaps the network would like to register
as a pro-Clinton PAC.
God, Man and Politics—
We Can All Do Better
At sundown on Tuesday I began the annual
fast for Yom Kippur—
the Day of Repentance.
In the Jewish tradition, true repentance
requires an unqualified
POLITICS
verbal
acknowledg& IDEAS
ment of wrongdoing,
By William
genuine remorse (as
A. Galston
distinguished
from,
say, “I’m sorry if my
statement offended anyone”), and the
sincere, determined resolve not to repeat the wrong.
In the case of sin against another
human being rather than God alone, repentance also requires an effort to appease the wronged party with a direct
apology as well as material compensation when appropriate.
I will leave it to my readers to determine how close today’s politicians
come to meeting this test.
But the real point of Yom Kippur
isn’t so much to stand in judgment
over politics as to remind us of the
significance of what lies outside and
beyond politics. In fact, it is a critique
of the mind-set to which we are prone
to succumb when we make politics
central to our lives.
Consider two passages from the Yom
Kippur liturgy.
The first—an assault on our pride—is
the injunction to set aside our daily preoccupations and see our lives from the
perspective of the Divine. It reads:
“What are we? What is our life? Our
goodness? Our righteousness? Our
power? Our victories? What shall we
say in Your presence, Lord our God and
God of our ancestors? Heroes count as
nothing in Your presence, famous people are as if they never existed, the
wise seems ignorant, and the clever
ones as if they lack reason. The sum of
their acts is chaos; in Your presence
the days of their lives are futile.”
This is—and I must underscore the
point—not a rejection of worldly concerns. Judaism is not an otherworldly
religion. How could it be, when so
much of its law and theology is devoted to the way Jews conduct their
daily lives, when every act is regulated
with an eye to the imitation of divine
attributes as we are given to understand them?
Nor do the liturgy’s piercing questions and crushing pronouncements endorse an existentialist outlook. Our
lives are not meaningless. But they
only take on meaning when we are
forced—or force ourselves—to remain
aware of the limits of our striving.
Only America’s greatest president—
Abraham Lincoln—in his greatest
speech—the Second Inaugural—came
close to achieving this feat. Lincoln
dared to interpret the Civil War as a divine punishment—visited on all Americans—for the sin of slavery. Despite the
intensity of this conflict, he insisted,
we must strive to act in the spirit of
“malice toward none” and “charity for
all.” This speech is a standing rebuke
to the spiritual myopia of today’s
mean-spirited partisanship.
Another passage from the Yom Kippur service attacks our confidence that
we are the masters of our fate and that
we can plan with confidence for the future. Our lives, rather, are contingent
and unpredictable.
“On the Fast of the Day of Repentance it is sealed: Who will live and
who will die; who will live a long life
and who will come to an untimely
end.”
The issue is not only whether we
will live, but also how. On Yom Kippur,
reads the liturgy, it will be determined
“Who will be at peace and who will be
troubled; who will be serene and who
will be disturbed; who will be tranquil
and who will be tormented; who will be
impoverished and who will be enriched; who will be brought low, and
who will be raised up.”
From the divine perspective, these
particular judgments are threads in a
fabric of justice and mercy. But we are
not privy to this standpoint. From our
human perspective, which is all we
have, these judgments seem chaotic
and frightening. No matter how
smoothly our lives seem to be proceeding, we and the ones we love are vulnerable to appalling reverses that come
suddenly, seemingly from nowhere.
We cannot lead our own lives as
though we could die tomorrow. Nor
can leaders conduct the affairs of
state as though a catastrophe could
nullify their best efforts. The task,
rather, is to maintain a nearly contradictory duality—passionate immersion
in our worldly mission, coupled with
the abiding awareness of its fragility
and its limits.
Surely we can do better—as individuals, as community members, as citizens, as a nation. I will emerge from
this Yom Kippur with renewed hope
that the better angels of our nature
can prevail over the ugliness of the
present day.
P2HW287000-0-A01100-1--------AL
OPINION
By Judy Shelton
T
he International Monetary
Fund last week sharply
lowered its growth forecasts for the U.S. and other
advanced economies. Only
three months ago, in July, the IMF
was predicting U.S. growth of 2.2%
this year. But in the October edition
of its World Economic Outlook report, that figure has been cut to 1.6%.
The report’s authors blame “political
discontent” and policy uncertainty
for the deteriorating prognosis—in
other words, they’re worried about
Donald Trump.
Meanwhile, the IMF is forecasting
dismal 1.1% growth for the United
Kingdom in 2017, which is half the
Conservative leaders in
the U.S. and Britain are
standing up for those left
behind by ultralow rates.
2.2% it predicted in April before Britons voted in June to leave the European Union. The downgrade reflects
the fund’s opinion that uncertainty
over Brexit will depress consumer
spending as well as business investment and hiring.
In both cases, as Maurice Obstfeld,
the IMF’s chief economist, recently
told the press, the problem has to do
with the political consequences of
sluggish economic performance. “In
short, growth has been too low for
too long,” he said, “and in many
countries its benefits have reached
too few, with political repercussions
that are likely to depress global
growth further.”
No one would disagree that disappointing economic results since the
2008 financial meltdown have
spawned political agitation. People
want change. But it’s interesting—
quite telling, really—that the IMF assumes democratically determined
outcomes will make things worse.
Maybe a new Republican administration in the White House will actually
shake up the status quo by launching
a successful pro-growth economic
agenda. Maybe Brexit will prove liberating and serve to enhance the
U.K.’s growth potential.
The IMF plays an instrumental
role in global finance, and its innate
disdain for the wisdom of voters
helps fan widespread political dissatisfaction. It suggests that elites,
as they pursue broad economic objectives, disregard the hardship that
their policy decisions impose on
many average workers. The fact that
some people—global financialmarket participants—are enriched
by those same policies fuels social
and political tensions.
The monetary policies enacted by
the world’s leading central banks are
a predominant mechanism for doling
out differential financial rewards—
exacerbating income inequality in the
process. The Federal Reserve’s ultralow interest rates, intended to
stimulate economic growth, have
flooded wealthy investors and corporate borrowers with cheap money,
while savers with ordinary bank accounts have been obliged to accept
next-to-nothing returns.
Yet unconventional monetary policy has failed to deliver the anticipated boost to growth. Worse, the
Fed’s large-scale interventions in
credit and investment markets have
created significant distortions that
threaten financial stability. We can’t
ASSOCIATED PRESS/BLOOMBERG
A Trans-Atlantic Revolt Against Central Bankers
U.S. presidential candidate Donald Trump and British Prime Minister Theresa May.
expect Main Street to passively absorb the costs of a future Wall
Street bailout; there is a limit to
public patience with monetary policy that not only smacks of favoritism but might also be causing more
harm than good.
Mr. Trump has expressed strong
views about the Fed’s dubious contribution to economic well-being. He
appears to have struck a chord with
voters by challenging both the
model and the motives of an independent government agency that insists on exercising total discretion.
Mr. Trump readily admits that, as a
developer, he likes low interest
rates; at the same time, he recognizes that others have been penalized by the Fed’s monetary-policy
decisions. As he said in a Sept. 12
CNBC interview: “The people that
were hurt the worst are people that
saved their money all their lives and
thought they would live off their interest, and those people are getting
just absolutely creamed.”
Mr. Trump also believes that “we
are in a bubble right now” and that
it may well come crashing down
with the next uptick in interest
rates, which he says is being delayed
for political reasons. Questioning
the judgment of Fed officials is considered out of bounds—one isn’t
supposed to “politicize” America’s
central bank.
But in a similarly audacious move,
British Prime Minister Theresa May
took on her own nation’s central
bank in an Oct. 5 speech at her Conservative Party’s annual conference.
“People with assets have got richer,”
she said. “People without them have
suffered. People with mortgages
have found their debts cheaper. People with savings have found themselves poorer.”
The “bad side effects” of the Bank
of England’s “superlow interest
rates and quantitative easing,” Mrs.
May said, have taken a toll on social
and political relations. The British
leader may not have caused monetary officials to bristle quite as
much as Mr. Trump did with his
overt charge of political bias, but
her message was undeniably confrontational: “A change has got to
come, and we are going to deliver it,
because that’s what a Conservative
government can do.”
Both Mr. Trump and Mrs. May say
that the economy should work for everyone—not merely the privileged
few. A nation’s government should
act in the interests of everyday,
working-class people. If fundamental
reforms are needed to ensure that
central-bank policies don’t stratify
citizens into winners and losers, so
be it. Money should function as a
reliable measuring tool and dependable store of value—not as an instrument of government policy.
It’s not as if the IMF has any new
prescriptions. In a Sept. 28 speech at
Northwestern University, IMF Managing Director Christine Lagarde
dismissed as “pessimists” those who
think central banks are not stimulating
economic growth. “In my view, there
is more policy space—more room to
act—than is commonly believed,” she
declared. “Monetary policy in advanced economies needs to remain expansive at this stage.”
Pesky voters, it seems, have had
quite enough.
Ms. Shelton, an economist, is the
author of “Money Meltdown” (Free
Press, 1994) and co-director of the
Sound Money Project at the Atlas
Network. She is a member of the
Trump Economic Advisory Council.
From Crisis to Creative Destruction at Samsung
By Geoffrey Cain
T
he Galaxy Note 7 recall and
cancellation isn’t the first time
Samsung has suffered a quality
crisis. But the scale and nature of this
fiasco shows that the company can
no longer rely on its traditional approach to setbacks. Instead, it must
look for new ways to drive the company’s development.
Samsung has long used crises to
motivate employees. In 1995, the new
mobile phones that Chairman Lee
Kun-hee sent out as gifts proved to
be faulty. He had workers don headbands that read “quality first” and
smash $150 million worth of phones
and fax machines. Then they lighted
a bonfire. Then a bulldozer razed
whatever remained.
It may have been overkill, but
Chairman Lee wanted to send a clear
message: If we keep making bad
products, we’ll come back and do this
again. It’s a story that is repeated
constantly within the company.
This time, there were no mass incinerations, no tears shed, no Samsung
Men standing in formation. That’s
partly because Chairman Lee has been
hospitalized ever since his heart attack
in May 2014. His son, Jay Y. Lee, Samsung’s vice chairman, is effectively
running the company.
More importantly, Samsung, having reached the top of the global industry, can no longer rely on the culture of crisis that once kept it
moving. The Galaxy Note 7 blunders
far outstrip what happened in 1995—
and are unthinkable for a world-class
corporation. Samsung now needs to
prevent crises so it can stay on top,
not use them to catch up.
Today the company is staffed by
some of the world’s finest engineers
and designers whose careers don’t
depend on an emperor. The workforce is more professionalized but
less enthusiastic. Employees say the
company is beset by bureaucracy,
complacency and petty internal politics—similar to the problems that undid erstwhile rival Sony.
Under Vice Chairman Lee, Samsung has made some progress at reform, selling off noncore assets and
affiliates to trim down this sprawling
empire. But the pace of change has
been modest.
Now an unusual trifecta of problems is suddenly converging, offering
Vice Chairman Lee an opportunity to
Combustible smartphones
are a symptom of deeper
management problems
at the Korean company.
prove himself. In the short term, he
will have to reboot the Galaxy phone
brand. In the long term, he’ll need to
define a clearer direction into new
growth areas and against Chinese
handset makers.
Finally, and the most sensitive of
all, he’ll need to simplify Samsung’s
complicated ownership structure and
smooth relations with shareholders
such as Elliott Management.
The solutions for the first two depend on fixing the company’s hierar-
chical culture. The rush to beat Apple’s iPhone—and the reluctance of
its authoritarian bosses to have an
open dialogue about Samsung’s problems—probably contributed to the
Galaxy Note 7 fiasco.
Vice Chairman Lee will need to dismiss aging managers who are too enamored with Samsung’s old engineerfocused culture. He’ll need to make
room for a new generation of thinkers
in marketing, design, software and
other creative fields who can be entrusted to manage their own affairs.
Lay-offs will invoke a different kind of
crisis, but one that Samsung needs to
have to open space for a younger and
less authoritarian generation.
Addressing this dynastic culture
will require uncomfortable steps.
That includes weakening the founding Lee family’s hold on Samsung
Group. This is the vast web of companies that own pieces of each other
through cross-shareholding.
For decades, activist shareholders
have challenged this notoriously unaccountable governance structure.
The Lee family effectively controls
the group—including its crown
jewel, Samsung Electronics—with a
relatively small number of shares.
Passing control across generations
has created governance problems,
including criminal convictions and
presidential pardons of Chairman
Lee, and the convictions of a handful
of other executives.
Weaning Samsung off a culture of
reverence for its founding family will
require untangling its cross-shareholding structure and forming a holding company. On Oct. 5, Elliott Management proposed just this sort of
consolidation. Samsung hasn’t publicly responded. But it’s in the longterm interests of both the Lee family
and minority shareholders to streamline Samsung’s ownership structure.
This will free up its people and resources to make good products rather
than play family politics, and raise its
undervalued share price on stronger
investor confidence in its governance.
Mr. Cain, a Seoul-based journalist,
is writing a book about Samsung due
from Crown.
Europe Flounders to Fill the Void Left by America
In interviewing Barack Obama in July
2010 for his book
“Obama’s Wars,” Bob
Woodward asked the
president, “You can’t
lose a war or be perEYE ON
ceived to lose a war,
EUROPE
can you?”
By John
Mr. Obama anVinocur
swered: “I think
about it not so much
in the classic, do you lose a war on
my watch? I think about it more in
terms of do you successfully prosecute a strategy that results in the
country being stronger rather than
weaker at the end of it.”
Six years later, after Iraq, Afghanistan and Libya, the U.S. still isn’t winning—this time, against Islamic
State’s slaughterhouse ideology. And
by ducking under the couch in the
face of Russia’s successful engagements in Syria and Ukraine.
The newest loss is unconscionable.
Russia and Syria’s bombing of Aleppo
is an abomination, a siege of humankind’s moral sense. And Mr. Obama’s
failing response is a dismal one: an
evasion of reality by a U.S. president,
projecting the image of a defeatist
America at the edge of nihilism.
The result among American allies
in Europe isn’t a sudden assertion of
their own responsibility. Instead,
there’s a burst of heightened nationalism, opportunism and anti-Americanism. Or pro-Russian accommodation, including reports last week of
hard-line German right-wingers jeering at Chancellor Angela Merkel
with shouts of “Merkel to Siberia,
Putin to Berlin.”
In France, Le Figaro has written of
America’s “impotence” and its “humiliation” by Russia. Last week, Germany’s Sueddeutsche Zeitung ran a
commentary with the headline: “The
World’s Policeman Quits the Job.”
“The U.S. president,” the commentary said, “once the sheriff in the Mid-
dle East, is there but only with a pocketknife. That fills no one with respect
or fear. The American world power
has nothing more to say in the Middle
East. Its allies don’t take it seriously,
and its opponents even less.”
That’s a marker of considerable
contempt.
If you consider Mr. Obama’s 2010
articles of faith on judging the success of American power in relation
to his action in Syria, Ukraine or
against Islamic State—rejecting the
country’s “classic” win/lose report
card in favor of his notion of “successfully prosecuting” conflicts in
vague, intellectualized terms—then
he misled both Americans and their
European friends.
The evidence comes from his
2006 book, “The Audacity of Hope,”
where the would-be president made
this promise:
“So long as Russia and China retain their own large military forces
and haven’t fully rid themselves of
the instinct to throw their weight
around . . . there will be times when
we must again play the role of the
world’s reluctant sheriff. This will
not change—nor should it.” Mr.
Obama added that he opposed the
idea that the United Nations Security Council “should have a veto over
our actions.”
Washington’s absence
gives European leaders free
rein to indulge their worst
foreign-policy instincts.
Now, while Germany pushes to set
up a European Union military headquarters distinct from NATO, Germans there argue to its allies in
Brussels that this inept U.S. has lost
too much trust for the EU to ignore,
a European official told me. As the
argument goes, there is no America
to intervene where it is needed, and
too much of an overbearing U.S.
where it is unwanted.
For America-taunters, here’s a
free-fire zone. Last week, Sigmar
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Notable & Quotable
Heather Mac Donald, writing Sunday in “Trumped-Up Outrage” on
City Journal’s website:
Now why might it be that men regard women as sex objects? Surely
the ravenous purchase by females of
stiletto heels, push-up bras, butthugging mini-skirts, plunging necklines, false eyelashes, hair extensions,
breast implants, butt implants, lip implants, and mascara, rouge, and lipstick to the tune of billions a year has
nothing to do with it. Females would
never ever exploit their sexuality to
seek attention from men. . . .
The sudden onset of Victorian vapors among the liberal intelligentsia
and political class at the revelation
of Trump’s locker-room talk is part
and parcel of the Left’s hypocrisy
when it comes to feminism and sexual liberation. . . . But the feminists
can’t have it both ways: declaring
that women should be equal to men
in all things and then still demand a
chivalric deference to female’s delicate sensibilities. Either women are
the same as men or they’re not. It is
particularly galling to see the selective resurrection of Victorian values
from the same crowd that has been
pushing transgender locker rooms
on the world, in an effort to destroy
the last shred of girls’ innate sexual
modesty.
Gabriel, the Social Democrat vice
chancellor in Mrs. Merkel’s government, visiting Iran with 100 German
businessmen, chose to “remind” the
White House of “the United States
commitment to get an effective dismantling of its sanctions” handicapping Iran. This without a word
from the vice chancellor about the
Iranian combat role as Russia’s cohort in Syria.
New sanctions against Russia for
its criminal assault on Aleppo? The
German government’s special Russia
representative, Gernot Erler, also a
Social Democrat, spoke of such sanctions as “acts of desperation” that
must be avoided.
This kind of ignominy metastasizes when it is not met with real
push-back from America.
France sees no prospect of any
meaningful Obama administration inyour-face beyond some marginal gesticulation. It has expressed resentment about being excluded from the
collapsed U.S.-Russia Syrian ceasefire talks. And it has made clear, not
incorrectly, that it considers Mr.
Obama’s fade on bombing Syria in
2013 to be precipitous to the rise of
Islamic State and the involvement of
Russia and Iran in Syria.
As a response to Russia’s veto last
week of France’s Security Council
motion to stop Russian aircraft savaging Aleppo—Moscow’s fifth concerning Syria—President François
Hollande should call off his invitation
to Vladimir Putin for a visit to the
French capital on Oct. 19.
The cancellation would be a
small sign of solidarity among allies
without much determination or
leadership.
Most of all, it would deny Mr. Putin a symbolic victory lap in Paris—
and spare France for the sake of the
West from having to give a respectable podium to a man who intends to
tear the transatlantic relationship
even further apart.
P2HW287000-0-A01200-1--------AL
PERSONAL JOURNAL.
How Samsung Can Win Back Consumers’ Trust
Start with third-party
phone testing and
stronger oversight
We carried the Galaxy Note 7 in
our jeans after Samsung promised
it wouldn’t explode. We left it
charging when we weren’t home.
We recommended it to readers and
friends.
A 13-year-old girl was at school
when her just-replaced Note 7
started burning in her hand. Her
father, Andrew Zuis, told us that
her principal
kicked the flaming device into a
puddle to extinguish it.
That’s hard to
forget.
On Tuesday,
Samsung took the
extraordinary step
of permanently
halting the sale
PERSONAL
and production of
TECHNOLOGY the Note 7—not
only the 2.5 million phones it recalled just a month ago, but the
ones meant to replace them as
well.
There’s no word for a “re-recall” because it would imply such
a lapse in judgment that it’s just
unimaginable. Samsung said it is
“taking our customer’s safety as
our highest priority.”
This much is clear: If you have
a Note 7, power it down immediately and get a refund or swap it
for a different phone. There’s no
reason to believe other Samsung
models are dangerous, but we
wouldn’t blame anyone for thinking twice before buying Samsung
again.
This incident has focused attention on the potential for battery
fires across the smartphone industry. Know how many U.S. federal
laws are in place to require safety
certification of the whole phone
before it hits the market? Zero.
Know who was responsible for the
only marking on the Note 7 related
to battery safety? Samsung itself
was.
We think there ought to be
From left, the Samsung Galaxy Note 7; replacement Note 7 smartphones belonging to Abby Zuis of Farmington, Minn.,
and Shawn Minter of Richmond, Va., caught fire.
more protections for consumers—
and if Samsung wants to win back
our trust, it should start by leading the way on smartphone safety
standards.
The battery problem
As smartphones push batteries
to the limit, the electronics industry is literally playing with fire. As
tech columnists, we’ll accept some
of the blame. We frequently insist
companies should increase battery
life and improve charging times
without reducing capabilities. Now
we want to talk frankly about the
dangers that introduces on devices
we carry so close to our bodies.
Ordinarily, lithium-ion batteries
are relatively safe—they fail at a
rate of about one in 10 million, according to the certification firm
UL, which works with manufacturers globally to prevent electrical
fires and other hazards.
But as batteries grow ever
more dense, that leaves an ever
thinner margin for error in design
and manufacturing. It’s not just
Samsung that’s at risk of explosion. Last month, an Apple iPhone
7 Plus burned after being damaged
in shipping, Apple said.
Just ask the Federal Aviation
Administration: So far this year, it
has recorded 23 smoke, fire or explosion incidents involving batter-
ies aboard aircraft. In 2014, there
were just nine. This is why many
airlines ask you to remove batteries from checked luggage, and
flight attendants now offer a Note
7 warning along with instructions
on how to use your flotation device.
Leading theories about what
went wrong with the Note 7 point
to a faulty design that crammed a
high-capacity battery into too
small space. Samsung has also
been a part of a few recent
trends—such as physically sealed
batteries, superfast charging and
the adoption of USB-C ports—and
that could contribute to the problems.
What can you do to reduce your
risk? Aim to use chargers that are
made by the company that produced your device. At the very
least, use a UL-certified charger
from a trusted brand.
Never use a product if the battery might have been pierced or
bent. And, in all seriousness, get a
fire extinguisher for your house,
and know how to use it.
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©2016 Dow Jones & Co. Inc. All rights reserved. 6DJ3313
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Global Forecasts
Did cutting corners cause the
original Note 7 problem? Why did
Samsung ship “fixed” phones without knowing for sure they were
safe? (The U.S. Consumer Product
Safety Commission said it signed
off on them.)
Samsung hasn’t offered a detailed explanation, or shared its
research process. It did host a
Sept. 2 event in South Korea with
journalists, where DJ Koh, head of
Samsung’s smartphone business,
answered questions.
But it was far less revealing
than a similar media event, on Apple’s campus in 2010, where Steve
Jobs held a marathon Q&A session
with reporters to discuss the
iPhone 4’s questionable antenna.
Apple regained consumer trust,
and the iPhone continued its
steady march. The Note 7’s problems are much more serious, yet
we know far less.
Samsung launched its recall
without first enlisting the CPSC
and its legal powers, earning it a
rebuke from organizations such as
Consumer Reports. Another strike:
It didn’t offer cash refunds to all
customers world-wide. In some
cases, it only offered replacement
Note 7s.
For Samsung’s brand, this bad
PR—amplified by flight attendants
before every takeoff—has business
implications beyond this Note 7.
We have strongly recommended its
phones for the past two years, and
often pointed out how much better
its features were than Apple’s.
Now, even people who have long
loved Samsung are walking away.
The WSJ Daily Crossword | Edited by Mike Shenk
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30
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Samsung’s big miss
When you look at electronics
devices and their packaging and
marketing materials, you may see
all kinds of safety indicators. The
Note 7 was certified by the CTIA,
Shown are today’s noon positions of weather systems and precipitation. Temperature bands are highs for the day.
iji
Beijing
America’s wireless consortium.
Many U.S. carriers require this
for their phones. The CTIA tested
the phone and battery to ensure
they met international quality
standards.
But the “CE” on the phone’s
back only indicates that Samsung
complied with European Economic
Area safety, health and environmental standards. This may involve testing, but it’s a declaration
of compliance, not third-party certification. The mark is also found
on iPhones.
The Note’s charging plug was
certified by the UL. However, the
phone wasn’t.
Should the entire smartphone
get UL (or other third-party) certification, like laptops? We think so.
Sajeev Jesudas, president of
UL’s consumer business, says there
weren’t international safety standards for complete smartphones
until relatively recently. Phones
used to be considered less risky
because of their low voltage.
Self-policing issues
Weather
Riyadh
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FROM LEFT: GEORGE FREY/GETTY IMAGES; ANDREW ZUIS; SHAWN MINTER
BY GEOFFREY A. FOWLER AND
JOANNA STERN
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Beijing Cuts Itself Down to Size

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