THE president of Sri Lanka, Mahinda Rajapaksa, may well feel pleased with himself. On the face of it, more than six years after his first election, his prospects are still remarkably rosy. The economy clips along at about 7% a year. Mr Rajapaksa’s coalition controls over two-thirds of parliament, and opposition parties are so weak that a senior minister chuckles about not being held to account. The chief political threat, Sarath Fonseka, a former general turned popular presidential candidate, is in a Colombo jail. There, says an MP who has visited him, he wears short trousers and passes his days in a cell known as the “Scouting Room”, complete with a portrait of Baden-Powell.

Confidence lay behind the heavy hint dropped on February 8th by Basil Rajapaksa, the economy minister, that Mr Fonseka, a classmate chum, might soon leave prison and even return to politics. Basil is one of several Rajapaksa brothers, the one reckoned to be the brains of the ruling family. Possibly he thinks that Mr Fonseka may make a fool of himself at large, while enjoying martyr status behind bars.

On independence day, February 4th, the president chided his countrymen, urging them to be more grateful. It is true that since a bitter end in 2009 to a long, wretched ethnic civil war, the lot of many Sri Lankans has steadily improved. The state of emergency is gone, even if other draconian laws remain. Many of the tens of thousands of Tamils detained in the north at the war’s end have been released. New roads, ports, railways and power stations are spreading. In Colombo, the capital, various swanky structures are rising and the ground has been cleared for a lotus-shaped tower intended to be South Asia’s tallest.

How, then, to explain a persistent grouchiness among Sri Lankans? The past months have brought strikes, riots and protests by students, railwaymen, prisoners and public workers. The opposition Tamil National Alliance swept local elections in the north, leaving the president’s party in the dust. Ranil Wickremasinghe, the main Sinhalese opposition leader, no ball of energy himself, claims to see wide “protests and agitation against unfulfilled promises”.

Hushed café talk about a “Colombo spring” overstates things, but Mr Rajapaksa may remember how such grumbles and protests helped his own rise to power. Most outsiders focus on his headaches abroad. In March the United Nations will consider a resolution on Sri Lanka over suspected killings of thousands of Tamil civilians and rebel prisoners in the last days of the war. Last month Hillary Clinton, the secretary of state, said America would vote against Sri Lanka. A retired senior official frets about an “adversarial lock” closing on his country.

Yet matters at home may be more troubling. Furious recriminations followed the murder in October of a senior politician, an old friend of the president, in a shoot-out with a fellow MP. Rumours of graft in infrastructure deals persist. A big investor calls the government “extremely corrupt and arrogant”. In the past this businessman went along with kickbacks of a “few million dollars: this is a developing country, after all”; but he balked once demands rose to tens of millions of dollars to win tenders for projects funded with Chinese loans. The bribes, he suggests, are split between Chinese state-owned partners and members of the ruling clique. Morals aside, he says this makes it impossible to turn a profit. He has been threatened, including with violence, for speaking out.

In the capital, commentators, activists and business types—who all demand anonymity on the topic of the Rajapaksas—warn of a family rule that has become more centralised, heavy-handed and authoritarian. Here, the defence secretary, Gotabaya Rajapaksa, is most often mentioned. Whereas the president has an earthy charm that appeals to rural Sinhalese, Gotabaya Rajapaksa wields power more bluntly. He presides over both army and police, 300,000 armed men in all—just what a good democracy needs, he says. This year the defence budget will top $2 billion, a fifth of all public spending—an alarming share for a country now at peace. The army’s role in business is also growing. An economist and opposition figure, Harsha de Silva, says the army is getting into hotels, farming, construction, golf courses, sports stadiums and even running roadside tea stalls.

The vegetarian strongman

The defence secretary, curiously, also oversees urban development, giving Gotabaya wide powers of patronage. His brother, Basil, calls him “fully vegetarian…the nicest, kindest person in the family”, yet he is widely feared. A Tamil leader says the army oversees “oppressive, insulting, humiliating” rule in the north, with tales of land grabs, murders and rape. In Colombo political observers worry about the militarisation of politics. And though Gotabaya rejects the natural comparison with Pakistan, he enthuses about his recent expansion of what he calls his “huge” intelligence agencies. A suggestion that spooks can undermine democracy is dismissed as merely “hypothetical”. Yet some local journalists are warned by editors never to write about him. Asked if he frightens people, he says: “If they don’t criticise me, it is because there is nothing to criticise.”

Some think that growing army clout could be the defence secretary’s personal route to power. It presumes potential discord among the brothers, of which there is no sign yet. Gotabaya disavows any interest in politics: he is an army man, he says. A human-rights lawyer, whose home was once attacked by assailants with grenades, raises a greater fear. If the ruling family feels it can rely on the army, it may worry less about appealing to voters; one day, it may even refuse to “go home”. Unsurprisingly, the Rajapaksas see it otherwise. “We brothers are a very successful family, maybe because we grew up close,” says Gotabaya. The brothers’ rule looks assured for a while yet.

^{Economist.com/blogs/banyan}

ANOTHER day, another milestone: there appears to be no let-up in the frenetic pace of Myanmar’s political transformation. In early February, for the first time in memory, the finance minister revealed details of the government budget. In a speech to parliament (of all places: the place had been considered a joke), he also divulged how much Myanmar owed in foreign debt ($11 billion). Then, a couple of days later, the hitherto secretive and repressive dictatorship told a UN human-rights envoy that it will now consider allowing monitors into the country for by-elections on April 1st.

It would be an extraordinary step. These will be the first parliamentary seats to be contested by Aung San Suu Kyi’s opposition party, the National League for Democracy (NLD), since it was unbanned by the government just a few months ago. Ms Suu Kyi herself is running for a seat, and she recently held her first political rallies outside the capital since being released from house arrest in November 2010. The by-elections will be a test of the government’s sincerity. If they are seen to be free and fair, that might go a long way to persuading American legislators to start lifting sanctions imposed on Myanmar in the mid-1990s.

Parliament is also considering a new media law that would, in theory, give Myanmar one of the most liberal reporting environments in the region. Only a year ago papers were not allowed even to mention Ms Suu Kyi’s name, and the few independent-minded publications had to resort to imaginative ruses. On Ms Suu Kyi’s release from house arrest, a sports paper jiggled around with some innocuous headlines from English football. The list “Sunderland Freeze Chelsea”, “United Stunned by Villa” & “Arsenal Advance to Grab Their Hope” was highlighted in varying colours to give readers the real news: “Su Free Unite & Advance to Grab the Hope”.

It all seems like ancient history. Yet the question remains why an entrenched military regime, in power since 1962, is doing all this now, and so fast. In comparison with the bloody political upheavals in the Middle East, Myanmar’s political revolution has been top-down and largely peaceful. The changes may yet prove to be more profound than in Libya or Egypt.

Long-term anxieties contributed to the generals’ change of heart. After decades of failed socialist planning followed by a few more of military crony capitalism, the regime became increasingly aware that once-rich Myanmar had in its hands fallen embarrassingly far behind the neighbours. At some point, this humiliation trumped the ability of a few to make very corrupt fortunes.

In the spirit of openness now sweeping the country, officials acknowledge that the economy was in no shape, for instance, to prosper after Myanmar’s planned entry into a single market among the ten-country Association of South-East Asian Nations in 2015. What is more, many in government badly want their country to be reconnected to sources of international finance, especially the IMF and the World Bank. Myanmar has been denied this under Western sanctions. If prisoners must be freed to get sanctions lifted, so be it.

Many presumed that these sanctions did not worry the generals because they could rely on Chinese aid instead. Not so. Particularly in northern Myanmar, the often arrogant and sometimes brutal behaviour of Chinese companies in the end alienated even the government. What is more, the sort of technical and educational assistance—“capacity-building” in the jargon—that Myanmar now craves is just what China does not do. Thus the generals have been obliged to turn back to the West, and political reform.

Government types now acknowledge that other factors were at work, too. One high-up official concedes that the reform process was greatly accelerated last year by the Arab spring. This scared the generals: “it was a very critical time for us”. The regime was afraid that opposition groups would take to the streets again, as they had done in 1988 and 2007, maybe in conjunction with the many armed groups, including among the Karen and Kachin minorities, fighting ethnic insurgencies in the border regions. It was time, this official says, to pursue national reconciliation.

Then there was the emergence of Thein Sein, a former general who became the new president in March 2011, succeeding the hardline General Than Shwe. Even his own officials were surprised by how enthusiastically Mr Thein Sein embraced reforms. In stark contrast to his predecessors, Mr Thein Sein is ready to admit to the regime’s failures and says the country must learn from others. One person who dealt with him described the president as “a listener, sincere and sympathetic….it’s largely down to his personality”. Some Burmese think that his loyalties to the army were largely cut once he took off his uniform. One visiting foreign minister has reported that Mr Thein Sein told him last year that it was ages since he had spoken to General Than Shwe (who was presumed still to be pulling the strings).

Another person who testifies to the president’s sincerity is Ms Suu Kyi. The personal trust that the two have established has enormously contributed to moving Myanmar’s changes along. The government knows that Ms Suu Kyi has the first and last word on lifting any sanctions, a powerful bargaining position. Yet Ms Suu Kyi has had to be flexible too. To the bewilderment of those who admired her intransigence, by running for parliament she seems to have reneged on her principled opposition to participating in politics under the terms of a constitution, passed in 2008, which, above all, entrenches the army in politics.

Both Mr Thein Sein and Ms Suu Kyi have learned the virtues of pragmatism. At their crucial meeting last August, which Ms Suu Kyi will not discuss, some sort of deal was worked out, and after that the pace of change quickened. Broadly, it seems that Mr Thein Sein promised to push ahead with the release of political prisoners, and give the nod to political reforms that might one day allow the NLD to take power. In exchange, Ms Suu Kyi promised to rejoin (and so legitimise) the political process, and to work to lift sanctions. Tacitly, at least, the NLD seems to have agreed that no retribution or prosecutions will follow against the generals for past crimes and misdemeanours, should they one day lose power.

This last demand is critical, and has probably allowed Mr Thein Sein to win the sceptical generals round. Fears of the junta being dragged off to The Hague have stymied progress before. Now the army will feel a bit more secure about relaxing its grip on power. Certainly, interlocutors from the opposition play down expectations of holding the army to account, instead cajoling everyone to look firmly to the future. Thus in Myanmar the generals and their families may get to keep their Ferraris, while peace may prevail over justice. Such is the price of change.

One hand, one speciality

IN THE crumbling Muslim quarter of Lucknow, the capital of Uttar Pradesh, India’s most populous state, a man with white beard and lilac kurta pyjamas weaves briskly through the alleys. Ahmadullah does not want to be seen at home talking to strangers, but agrees to meet in a nearby park. He is not, he says, ashamed of his job, but he does not want nosy neighbours discovering his profession. “People do not look with a very good view on it,” he says, “and they would want to come and gawk at me, a hangman.”

With a gentle smile he recalls that in 1965, when he took over from his father as Lucknow’s chief executioner, the state paid 25 rupees ($5 in those days) a hanging, on top of a salary. He thinks he has conducted 40 in all, being called to work in Delhi, Assam and Madhya Pradesh in the years when India’s judges—and politicians—had few qualms seeing the death sentence carried out.

Today, though still on the books and paid monthly, he is idle. He says he last hanged a man over two decades ago: an insurgent in Assam, who had kidnapped and killed a child. (The rate per execution had, by then, risen to 10,000 rupees.) Though the death sentence is frequently passed on defendants, its use is extremely unusual since a Supreme Court order, in 1983, reserved it for the “rarest of rare” cases. A single hanging has taken place in India in the past 17 years.

Led by retired judges and the Hindu newspaper, a campaign is under way to remove it altogether from the statute books. The issue flares into mainstream debate only when prominent killers—such as Ajmal Kasab, the surviving attacker among a group of Islamists who carried out a massacre in Mumbai in November 2008—appear to be heading to the gallows. Mr Kasab’s latest appeal against his execution went before the Supreme Court late in January, but is likely to march on for years yet.

Ahmadullah favours the penalty, though he talks of the harrowing execution of three brothers convicted of murder, one of whom pleaded his innocence—convincingly, Ahmadullah says—to his anguished last breath. Otherwise the hangman talks with pride of his professionalism, ensuring as quick and painless a death as possible: “he drops dead, not even alive when he drops, this is my speciality.”

Yet he sees no future in it. British rulers ordered “so many murders”, he says, “my father was unable to sit, he was always called for a hanging”. Today there is nothing to do. Though he would work again, if ordered, he expects not to. Nor does he wish to see his son continue in the family business. “I will be the last of the hangmen.”

Anni returns to his old job

“IN POLITICS in this country,” Mohamed Nasheed told The Economist in 2006, “you’re either in government or in jail.” Under house arrest at the time, he seemed more at ease than later, when, bizarrely, he became the Maldives’ president. Having fallen prey this week to what presents itself as a popular revolt but looks much like an old-fashioned coup, Mr Nasheed, known by his nickname “Anni”, is back in a familiar predicament, as a beleaguered activist bewailing the injustice of Maldivian politics.

He relinquished his presidency in a brief press conference on February 7th—a performance forced on him at gunpoint, he later said. After a night “in protective custody”, he was freed and the next day took to the streets, leading a rally of his Maldivian Democratic Party (MDP) which ended in arrests and violent scuffles, in which he was hurt.

The vice-president, Waheed Hassan, had been sworn in as his replacement. Mr Nasheed’s supporters see the new man as an ineffectual puppet, with the real power-grabbers being close to Maumoon Abdul Gayoom. Mr Gayoom’s nasty 30-year dictatorship was overthrown in the Maldives’ first multiparty election, in 2008.

Then, Mr Nasheed won 54% of the vote. Young and charismatic, he came to power bearing the hopes of liberals among the Maldives’ 400,000-strong population. He soon charmed the outside world with shrewd publicity stunts that were aimed at drawing attention to the particular danger climate change poses to the Maldives—1,200 tiny islands, barely above sea-level. Mr Nasheed held the world’s first (scuba-enabled) underwater cabinet meeting, and suggested his country set aside some of its tourism earnings to buy a new homeland.

But from the beginning, the MDP has struggled to remake the Maldives. In particular, the judiciary has blocked efforts to reform and to prosecute members of the Gayoom regime. Mr Nasheed’s detractors allege that, in response, he acquired some of the intolerance of dissent that marked the Gayoom era. What precipitated his downfall was the arrest of a judge accused of being in Mr Gayoom’s pocket. That arrest, which was condemned as unconstitutional, galvanised nightly protests in Male, the crowded capital. When some of the police mutinied and joined the protesters, it seemed clear that Mr Nasheed’s days were numbered. (The offending judge has now issued an order for Mr Nasheed’s arrest.)

One element of the opposition to him is Islamic. After he resigned, there were soon stories of the alcohol and “hash oil” allegedly found in his home. The stress on Islamic virtue seems odd for a country whose main industry relies on pandering to the sybaritic excesses of honeymooning couples. But the Maldives operates touristic apartheid. The resorts are on uninhabited islands. Tourists need have no truck with Maldivian culture or currency, let alone its politics.

They may be thankful for that in the weeks to come. The ugly clashes on February 8th-9th are a warning of the potential for violence. In his resignation speech, Mr Nasheed said he did not want to rely on force to stay in power. Whatever else one thinks about his rule, at least Anni did not get his gun.

State employees?

IN MORE ways than one, things are hotting up at Tokyo Electric Power (TEPCO), which runs the Fukushima Dai-ichi nuclear power plant crippled by an earthquake and tsunami last March 11th. In recent days temperatures in one of the plant’s reactors may have hovered too close for comfort to the level where a chain-reaction might reoccur from melted fuel. Since February 7th TEPCO has been pouring in 14 tonnes of water an hour in the hopes of keeping things cool. It is an uneasy reminder for ordinary Japanese that nearly a year after the disaster the reactors are not yet stable.

Back in Tokyo, TEPCO faces more hot water. The government is laying plans to nationalise the troubled utility, overhaul its management, and bring much-needed competition to the energy market.

The Nuclear Damage Liability Facilitation Fund (NDF), which the government created in September to oversee vast compensation payments related to the Fukushima disaster, is preparing to inject ¥1 trillion ($13 billion) of public money into TEPCO later this year, in return for perhaps two-thirds of the company. A stream of lawyers and accountants has joined the NDF to serve as a sort of shadow management team for the utility. The model being contemplated is close to Japan’s successful bank nationalisations a decade ago, when the state-backed bail-out agency replaced bank boards, but let many managers continue in their jobs under new supervision.

Because of the scale of Fukushima’s costs, TEPCO may see its liabilities exceed its assets when it reports its financial results, which are due by February 14th. This would throw into doubt its ability to raise capital. The public money would be used solely to pay compensation. By saving TEPCO from bankruptcy, the bail-out might ensure that banks put in a further ¥1 trillion to be used as working capital. The utility is also being pressed to cut costs and sell assets. It wants to raise electricity rates by as much as 17% for business users. The price rise should not only help pay for imported fuel to replace lost nuclear power, but might, officials think, also encourage competition in the energy sector by pushing big industrial users of electricity to shop around for the best deal.

The government also wants to restart nuclear power plants that have been shut down for scheduled maintenance but are now in limbo. None switched off after the earthquake have restarted, and only three of 54 reactors in the country are operating, because local governors refuse to grant approval to others. The International Atomic Energy Agency endorsed the government’s “stress test” of reactors on January 31st. But it did so based on criteria that predated the Fukushima accident and do not incorporate the lessons that might come from it. Popular distrust of nuclear power continues.

The utility is fighting against a state takeover. The government, it contends, has no business running an energy company. TEPCO’s banks also dislike nationalisation, since it will mean taking a loss on part of their loans; but they fear bankruptcy more. And the Ministry of Finance is wary, thinking politicians will just put the state in hock, with unlimited debts. So long as the final tab for decontamination, decommissioning and compensation remains uncertain, so will the question of who pays—but count on the poor public being hit either with higher taxes or with higher electricity bills.

Thumbs at work

A NORTH KOREAN professor apparently posted footage on YouTube last year boasting that his country was developing applications for the Android mobile-phone operating system. Ordinary North Koreans are more likely to be pining for a humble mobile phone of any sort, and now their chances of owning one are increasing. Smuggled mobiles have been used on Chinese networks near the border for years, but now business is booming for Koryolink, the North’s only official cellular network, based in the capital, Pyongyang.

The service—75%-owned by Orascom, an Egyptian firm, and 25%-owned by the North Korean state—has gone from 300,000 to 1m subscribers in 18 months. For a hermit kingdom whose rulers resent their subjects keeping closely in touch with each other, this is a remarkable development.

Koryolink earns a gross margin of 80%, making North Korea by far the most profitable market in which Orascom operates. The company has worked hard to court the regime, its chairman travelling to Pyongyang last year to meet the late supreme leader, Kim Jong Il.

North Korean mobile-phone users spend an average of $13.90 a month on calls and text messages, and they tend to pay in hard currency. According to a foreign diplomat, many customers turn up at Koryolink shops with bundles of euro notes. There are even incentives for paying in euros, such as free off-peak calls. This provides foreign currency for a government that craves it.

Mobile-phone customers obtain the hard currency from the informal private trading on which many North Koreans depend. Such business is forbidden, but the government has failed to feed its people, forcing it to turn a blind eye to some capitalist practices. Many insiders benefit: Pyongyang’s “golden couples” consist of a government-official husband and an entrepreneur wife.

Mobile usage now appears to be spreading beyond Pyongyang. The gadgets are a common sight in other cities such as Nampo, not far from the capital, and increasingly are owned by non-officials. As yet, though, only a sixth of the country has a mobile signal.

The authorities are not naive. Some outside observers believe that North Korea’s first experiment with mobile telephony came to a sudden end in 2004 because a mobile phone was used to detonate a huge bomb at a train station that nearly killed Kim Jong Il.

Koryolink is a walled garden: users are not able to make or receive international calls, and there is no internet access. It would be hard to imagine that calls and text messages are not monitored. As in China, the network is even becoming a means by which the state disseminates propaganda. Rodong Shinmun, the government mouthpiece, sends out text messages that relay the latest news to phone subscribers.

Orascom’s slogan is “Giving the world a voice”. For Koryolink’s users, that may literally be true, as North Korean mobile-phone users enjoy some of the benefits of modernity that other countries take for granted. Their phones are not yet the tools of revolution, but mark an amazing change for all that.

The Future of Pakistan. By Stephen Cohen and others. Brookings Institution Press; 311 pages; $29.95 and £20.99. Buy from Amazon.com, Amazon.co.uk

IT SEEMS optimistic to write a book called “The Future of Pakistan”; it assumes the country has one. Tot up the assorted threats and its survival may look dubious: Islamists, separatists, potentially stray nuclear weapons, the war in Afghanistan, economic and natural disasters, a booming and restless young population, unfathomably venal leaders, rotting institutions and violent megacities. Any of these could yet spell the country’s demise (see our special report this week).

Individually, none of the 17 expert contributors to this frank and detailed volume is quite so apocalyptic. But their collective mood is grim. In pondering scenarios for the coming years, these various specialists have produced a flood of gloomy details and prognoses.

Stephen Cohen, a well-respected observer of Pakistani politics at the Brookings Institution, sets the tone by observing how Pakistanis lack even a shared idea of their nation. They are increasingly divided between the urban and rural, the educated and illiterate, and by competing religious strands. “The new normal is abnormal,” he observes.

The country is threatened by various long-term trends. Of Pakistan’s 185m people, two-thirds are younger than 30 years old. Only the population of Yemen—hardly a model of stability—is more youthful. One poll taken among such youngsters and cited in the book suggests that three-quarters might emigrate if given the chance. Also many of the young hold extreme religious views, unleashed by the zealous regime of Zia ul Haq in the 1980s.

Rapid urbanisation brings more problems. Over a third of Pakistanis now live in towns and cities, where tribal and rural rivalries are morphing into violent, urban warlordism. Town-dwelling Pakistanis are “historically more religious and conservative than rural populations,” writes Shuja Nawaz of the Atlantic Council. They also have smaller families, and the youngsters are often left to fend for themselves. Thus it is in towns that both extremists and the armed forces increasingly find recruits, which bodes ill for preserving moderate views inside the army. Oddly, little space is given to the bloody turmoil in Karachi, perhaps the world’s most violent metropolis.

The army’s destructive habit of meddling in Pakistani politics continues unabated. Roughly every decade this switches from explicit power grabs to unsubtle efforts to manipulate civilian leaders. For now Pakistan is in the latter phase. Though this book went to press before the most recent civilian-military clash, known as Memogate, the authors may well prove largely right in predicting lots of scheming but no new coup for some years yet.

Within the gloom there are glimmers of hope. Most of the authors expect Pakistan to hobble forward more or less in its current state. The lives of some will improve. Literacy rates are rising fast (79% of men under 24 can now read, says the World Bank), families are shrinking (even in rural areas the norm is now to have four children, down from as many as ten two generations ago) and the press, generally, is more open than before. One sharp contributor, Aqil Shah, reckons that Pakistan will become “neither Sweden nor Somalia”, as the army’s strong grip will prevent disintegration but also block growth of strong civilian institutions. Even an optimist would not describe Pakistan’s glass as half full—keeping it unbroken may be the best one could hope for.

LUCIAN FREUD is suddenly everywhere in London. When he died last summer, aged 89, he was completing plans for two surveys of his work: more than 100 of his painted portraits have just gone on view at the National Portrait Gallery (NPG); an equal number of works on paper will soon be shown at the Blaine/Southern gallery. (Both shows will then travel to America.) Photographs of the artist in his studio by David Dawson, his longtime assistant and model, cover the walls at the Hazlitt Holland-Hibbert gallery. And Sotheby’s and Christie’s prominently feature Freud’s paintings, drawings and etchings in their February sales.

A torrent of mythmaking washes over it all. “Freud is widely acknowledged as one of the greatest realist painters,” writes Sarah Howgate in the NPG catalogue, placing him in the company of Ingres, Courbet and Rembrandt. Tales about Freud’s wit, intelligence, charm and—in later life—prodigious hard work stand on firmer ground. The artist had said of his paintings that “everything is autobiographical”, so gossip, too, has its place. The fact that he fathered at least 14 children enhances the Olympian image being fashioned. So too does his negligence about their upbringing, which must make furious at least a few of their mothers.

A friend of Freud’s once said he had a cloven hoof. This was evidently part of his seducer’s arsenal, along with his good looks. It also informed his vision. His self-portrait “Reflection” from 1981-82 (pictured) reveals quite a bit of sympathy for the devil. Painting portraits was his life’s work, so the NPG show is the main event.

“Astonish, disturb, seduce, convince”. This was the artist’s credo, which apparently informed his work by the time he was 20. (Now it can be bought on T-shirts, mugs and tote bags at the gift shop.) Among the early works is a 1946 self-portrait, “Man with a Thistle”, powerful and confident. Two arresting 1947 portraits of his wide-eyed first wife Kitty Garman introduce us to a startled young woman. By 1950, the year they split, she looks terrified and trapped. A 1952 portrait of Freud’s soon-to-be second wife Caroline Blackwood, an even more wide-eyed aristocrat and writer, features a radiant beauty. Two years later, she looks wan and imprisoned. (That marriage, his last, ended in 1959.) Like many sitters, Freud’s often look forlorn. Yet these early works are thrilling—thinly painted, intensely observed, sometimes surrealist and often awkward. There is a kind of magic about them, poetic, haunting and distinctive. One glance and they stay fixed in memory. What a debut for an artist who was largely self-taught.

In the 1960s, influenced by his great friend and fellow painter Francis Bacon, Freud began using heftier brushes and thick paint. Nakedness takes over, canvasses get big. Grandees pose. In the 1980s Freud became obsessed by skin, with sometimes creepy results. Sitters who were ravishing in life look ravaged in paint, like burn victims. The work duly astonishes and disturbs, but rarely seduces or convinces. Then there is big, fat, naked Leigh Bowery, a transvestite performance artist who modelled for a series of portraits in the early 1990s. Unlike the passive, vacant look of so many of Freud’s subjects, Bowery’s mounds of flesh have presence; his expression is commanding. It is as if Freud was wowed and so he wows us, too. The show ends with portraits of naked Mr Dawson with his dog. The very last, from 2011, is unfinished. The exhibition starts on a high note and ends on a poignant one.

^{“Lucian Freud: Portraits” is at the National Portrait Gallery until May 27th, and then at the Modern Art Museum of Fort Worth from July 1st to October 28th}

Why do they need to touch me?

The Real Romney. By Michael Kranish and Scott Helman. Harper; 401 pages; $27.99 and £17.99. Buy from Amazon.com, Amazon.co.uk

MITT ROMNEY is still the clear favourite to secure the Republican presidential nomination, and has a chance of unseating Barack Obama in November. He has been in the public eye for more than a decade, first as a rather successful governor of Massachusetts and then as a chronic presidential candidate. Yet even political junkies have a hazy idea of what the man who may be the next president is actually like and what he really stands for. Unfortunately, this book will not help much.

This is not the authors’ fault: Mr Romney is simply too protean. The writers, two senior journalists at the Boston Globe, have thoroughly trawled through the would-be-president’s history, and indeed that of his zealous Mormon ancestors. The book charts the various stages of Mr Romney’s polymorphic life in impressive detail: his father’s work in Detroit before he became a successful governor and then a failed Republican presidential candidate; Mitt’s time as a missionary, followed by his years of exceptional success at Bain Capital; his rescue of the floundering Salt Lake City Olympics of 2002 and his time as governor. Above all the authors chronicle his launch of universal health care in Massachusetts—the model for Mr Obama’s national version—which is his finest achievement and his biggest political headache.

All this is well done. The analysis of Mr Romney’s time at Bain is balanced and fair. It gives him credit for saving some floundering companies in unsexy businesses, but also describes how other firms were left overloaded with debt while the Bain partners made out like bandits. That Mr Romney was never a hands-on manager at any of these firms, and never an entrepreneur, is duly underlined. But the conclusion that he was a superb and meticulous businessman whose actions yielded a big net gain for the economy is surely right.

Equally to Mr Romney’s credit is what we learn of his gubernatorial stint; the disciplined way in which he turned around Massachusetts’s finances and got his health-care plan passed against terrific odds. His documented ability to work with Democrats, such as Ted Kennedy, is perhaps his most promising strength.

Other things are much less creditable. Mr Romney’s infamous flip-flops on gay marriage, abortion and embryonic stem-cell research are documented in depressing detail. His extreme discomfort with anyone outside his tight inner circle of family and business associates is cruelly exposed. (His genuinely dreadful sense of humour gets off too lightly, though.) The real Romney, it seems, is both patrician and a pragmatist. His most burning desire is simply to succeed. What he would do with America’s greatest prize is still unclear.

Hope: A Tragedy. By Shalom Auslander. Riverhead; 292 pages; $26.95; Picador; £16.99. Buy from Amazon.com, Amazon.co.uk

What We Talk About When We Talk About Anne Frank. By Nathan Englander. Knopf; 207 pages; $24.95. Weidenfeld & Nicolson; £12.99. Buy from Amazon.com, Amazon.co.uk

EVER since Abraham’s idol-smashing outburst in the Hebrew Bible, a strain of iconoclasm has run through Jewish literature. There is no shortage of stories that mock righteousness and skewer ritual, that kill the father and masturbate with the sister’s underwear. So perhaps it was inevitable that Anne Frank, patron saint of Jewish suffering, would succumb to this heretical tradition. Thankfully her rather tasteless return to fictional life—as a foul-mouthed, matza-munching, horribly disfigured and terribly old woman—takes place in a very funny book.

In “Hope: A Tragedy”, Shalom Auslander’s debut novel, Anne Frank is discovered in an attic in rural New York, wretchedly struggling to write a book that will rival her first; “Thirty-two million copies…that’s nothing to sneeze at!” Solomon Kugel finds her stinking up the home he bought to give his family a new start. The premise is so outlandish—and this Anne is so profane—that it is easy to picture Mr Auslander cackling devilishly at his keyboard (“Six million he kills …and this one gets away”). But while he balances zingers with more thoughtful meditations on martyrdom and history, the jokes wear thin two-thirds in. By then it is clear that Mr Auslander has written a clever set-piece, not a story.

Storytelling comes more naturally to Nathan Englander, whose new book of short stories features his finest work yet. He has a rare range; his clean writing feels fresh, but it vibrates with a charming old-world sensibility, much like his first acclaimed collection. For example, there is something about this line that demands a pause: “A little girl, fat and happy. Fat in the ankle, fat in the wrist”. A palpable softness, so simply conveyed.

There is a melancholic heft to these stories, as if Mr Englander’s tales about West Bank pioneers or vengeful geriatric Holocaust survivors are as fragile as memory, as lasting as life. Like Mr Auslander, but more subtle, he captures the mess of feelings provoked by accounts of the Holocaust: the way these stories are often too big and unwieldy to manage; too tragic or melodramatic to comprehend. Humour can be a way to express the absurdity of the horror. The strongest stories are the first and last; with both, Mr Englander reveals his grasp of the small moment, the modest gesture, which can reveal unexpected beauty or something unspeakably dark.

SECURITY men, most in plain clothes, speckle the main market square of Deraa, a town of 350,000 near Syria’s border with Jordan. Yet in the brief time given for visiting journalists to stray from a scripted tour that highlights “terrorist” attacks on state property, a few ordinary citizens dare to speak. “We are so scared,” says a woman clutching a boy’s hand. “I come out to buy food, which costs more every day, but never know if I can make it home again.” A young man with burning, bloodshot eyes lifts his shirt, revealing two bullet scars. “We will never give up,” he declares as men in leather jackets approach to hustle him off. A middle-aged shopper pauses briefly before slipping into an alley. “God help us,” he whispers in deliberate English.

It was in Deraa that Syria’s uprising began last March, with riots protesting against the arrest and nail-pulling torture of teenage boys who, inspired by other Arab revolts unfolding on satellite television, had daubed a wall with the words, “The people demand the fall of the regime”. An ongoing government crackdown has left perhaps 1,000 civilians dead in the town and surrounding villages, imposing an ice-thin calm. Most shops and schools are open only some of the time. Internet-video footage reveals daily combat between chanting, rock-throwing citizens and soldiers shooting live rounds. Officials speak of sporadic “terrorist” attacks on sandbagged checkpoints. As proof they parade a collection of captured pipe bombs and rusted firearms. Clearly though, should the government withdraw its armoured vehicles, combat troops, rooftop snipers and gun-toting thugs, then Deraa would swiftly revert to rebel rule.

The poison in New York

Meanwhile, the world looks on impotently. At the UN Security Council on February 4th, Russia and China raised Western ire by vetoing a mild resolution that would have urged Bashar Assad, the president, to adhere to a peace plan drafted by the Arab League. It pressed him to cede at least some unspecified powers to a deputy, pending the outcome of reconciliation talks. Russia objected to this, and more generally to the West imposing a diktat on a sovereign state it considers an ally.

Sergei Lavrov, the Russian foreign minister, accompanied by the overseas intelligence chief, Mikhail Fradkov, flew to Syria on February 7th. Mr Lavrov described their meeting with Mr Assad as productive, insisting that the Syrian president was committed to speedy reforms, including a new constitution and elections, an end to violence and dialogue with his foes. The Russians said that, as a first step, Mr Assad had directed a vice-president, Farouk Sharaa, to initiate talks with opposition groups. “Only Syria can decide the fate of Mr Assad,” Mr Lavrov declared.

America and many of its European allies, along with Arab Gulf states, responded with outrage to the UN vetoes. Saying that Russia and China had granted Mr Assad a licence to kill his own people, they jointly withdrew their ambassadors from Damascus. Sanctions on Syria include export bans on American technology, a European ban on oil imports and strict financial controls, including a freeze on the overseas assets of members of the regime.

Diplomats now speak of further options to press Mr Assad’s regime, such as tabling a vote of condemnation at the UN General Assembly, where no country wields a veto, and forming a contact group together with neighbouring Turkey and Jordan to co-ordinate stronger action. This might include the imposition of safe havens along Syria’s borders as well as direct aid to the Free Syrian Army, a patchwork of guerrilla cells led by defecting soldiers that has harassed government forces across the country.

Even as international diplomacy has degenerated into a power tussle reminiscent of the cold war, Syrians are confronted with scenes of bloody wreckage in their own cities. Since the uprising began 11 months ago, the pattern has been for government forces to single out one rebellious village or urban district at a time for punishment. Some 7,000 civilians have perished as a result of such tactics. Since December frequent protests have taken place even in the heavily populated suburbs ringing Damascus, the capital, and Aleppo, the second city and the country’s commercial hub. Usually, government troops have then withdrawn, taking “terrorist” prisoners with them but leaving behind only token checkpoints.

More recently, the state-owned press has spoken ominously of the need to shift away from what it terms “restraint”. A new security plan does indeed seem to have been launched on February 3rd, a day seared in Syrian memories as the anniversary of a merciless 1982 artillery assault on the then-rebellious city of Hama, during the rule of Mr Assad’s father, Hafez, that left the ancient town’s picturesque old quarter in ruins and some 20,000 dead.

Since that date, Bashar Assad’s troops have mounted an unprecedentedly brutal show of force. They have showered artillery and rocket fire on Baba Amr and Khaldiyeh, two rebel-held districts of Homs, Syria’s third-largest city and the hub of the current uprising. They have also attacked the nearby town of Rastan, the mountain resort of Zabadani, near the Lebanese border, the city of Idlib, close to Turkey, and other towns. Attacks have taken place simultaneously and relentlessly. Opposition sources say they think the shelling is a prelude to ground assaults on all these areas.

With up to several hundred projectiles raining into Homs every hour, the nationwide casualty toll has surged from around 20 a day to more than 50. Transport and telephone links, along with power, water and fuel supplies have been severed to many of the stricken areas, which were poor to begin with and have seen their incomes shrivel during the long months of unrest. With thousands of civilians choosing to abandon their homes despite cold winter weather, Syria is likely soon to confront a grave internal refugee crisis within its sealed borders. “We ask for nothing from the world, except for coffins, since there are not enough of them here for our bodies,” declares a sarcastic tweet from Homs.

Mr Assad’s government seems to believe that such tactics will succeed in stanching the revolt. A Syrian businessman recounts that in a chance meeting with a senior security official at a posh gym he was told confidently that the current offensive would be decisive. It would in effect “decapitate” the Free Syrian Army, the official boasted.

There are nearby precedents for such success. Saddam Hussein, the former Iraqi dictator, ruled for more than a decade following his brutal suppression of an uprising in the country’s south after the first Gulf war. Turkey’s army has put a fairly tight lid on Kurdish separatism, just as Israel has crushed two Palestinian intifadas. And Mr Assad’s own father outlived the rebels in Hama.

There are other reasons why Mr Assad might feel he will prevail. The centre of Damascus does, on the surface, appear surprisingly normal. Shops and cafés are open, if largely empty. Traffic is busy at times. Syria’s president felt secure enough recently to venture out to a restaurant.

Despite the rotting of state institutions under one-party rule, Mr Assad’s army and security forces have, to general surprise, so far suffered relatively few defections. Conscripts typically serve far from their hometowns, and the army is believed to have culled potentially disloyal soldiers from active units. Nor has Syria’s army yet unleashed its full array of firepower, which could include helicopter gunships and jet bombers. Despite making inroads, the rebels, who have briefly controlled areas close to Damascus, have as yet neither the supply lines, nor the communications capacity and heavy weaponry, to mount more than localised pinprick raids.

Perhaps more importantly, Mr Assad still enjoys at least tacit backing from a fair proportion of Syrians. The very brutality of his crackdown has, ironically but perhaps deliberately, bolstered loyalty among minorities that together make up a third of Syria’s 23m people. The Assad clan, which has ruled since 1970, are Alawites, an esoteric branch of Shiism that dominates Syria’s coastal mountains as well as the armed forces. Poor Alawites also make up much of the rank and file of more shadowy government militias, such as the plainclothes thugs known as the shabiha. Vicious government tactics have served to implicate the Alawites as a whole, raising fears of retribution should the regime fall.

Sectarian quicksands

Other minority sects, including half a dozen Christian groups as well as Shias and Druze, are less privileged by or attached to the state. Yet they have benefited from the regime’s secularist doctrine, which has maintained a degree of religious freedom unique in the region. Although Syria’s opposition leadership is cross-sectarian, on the streets it is the country’s Sunni Arab majority that has suffered the brunt of the oppression.

It is no accident that the areas which have fallen under rebel control are almost entirely Sunni. In line with much of the region, Syria’s Sunnis have grown religiously conservative in recent decades, and increasingly influenced by the harsh anti-Shia rhetoric propounded by Saudi Arabia. As in Iraq, the Sunnis’ predicament has pushed many into outright radicalism. Comments posted below a YouTube video of an Alawite tank commander captured by the Free Syrian Army, for instance, proposed that he should be sodomised before being ritually slaughtered as an “infidel animal”. Many of the rebel army’s local brigades carry names associated with Sunni triumphalism. Mosque sermons in rebel areas habitually describe government forces as satanic hordes.

Such talk, seemingly reflecting a Sunni rage that has long simmered under the surface, frightens other Syrians—and with good reason. Alawites recall that what prompted the atrocity in Hama was a far smaller massacre of Alawite army cadets, carried out by members of the Muslim Brotherhood. Fear of empowered Sunni radicals has pushed many Christians, who are keenly aware of the decimation of neighbouring Iraq’s equally large and ancient Christian community, grudgingly to accept the government’s characterisation of the rebels as terrorists. “We were all with the revolution so long as the demonstrations were peaceful,” says a Christian housewife in Damascus. “But how can we support an armed criminal mob?”

For reasons of class, many Sunnis, particularly among the privileged business elite that has profited under the Assads, also fear the revolutionaries. Middle-class Syrians, too, are often warier of growing economic hardship than of oppressive rule. Even the country’s long-repressed 15% Kurdish minority, which is mostly Sunni Muslim, has only tepidly embraced the uprising. “They are hedging bets,” says a Syrian analyst. “What they want is guarantees of Kurdish national rights, and so long as the opposition cannot give these, they can hope Bashar will reward them for staying quiet.”

Divided opposition

The fissures within Syrian society have stymied efforts to organise opposition to the regime. When Mr Assad succeeded his father 12 years ago, a flush of optimism emboldened intellectuals to demand democratic reforms in a movement known as the Damascus spring. Most were eventually jailed or exiled and have lost credibility. But even with much coaxing from Western powers, products of the uprising such as the Syrian National Council (SNC) and a rival group, the National Co-ordination Body (NCB), have gained little diplomatic traction. Neither do they have much influence in Syria, where local committees organise resistance. The two main opposition groupings have bickered over strategy, as the NCB at first counselled dialogue with the state and the SNC backed foreign intervention. In fact, neither course has proved fruitful. Some Syrians suspect the Muslim Brotherhood of being too powerful within the SNC, whereas others say it is a tool of America. Even the head of the Free Syrian Army has complained that the exiled opposition groups are dominated by plotters and traitors.

All this has comforted Mr Assad, who appears to reckon that he is not as isolated as some think. True, 19 of the Arab League’s 22 member states now shun him, along with the West and even countries such as India, Brazil and South Africa. And Hamas, the Palestinian Islamist group that was long backed by Syria, has abandoned its Damascus headquarters. But two crucial neighbours, Iraq and Lebanon, are politically dominated by Shia parties with no love for Mr Assad’s foes. Hizbullah, the powerful Lebanese Shia party-cum-militia, is a staunch friend. Strong rumours suggest that Iraq’s prime minister, Nuri al-Maliki, has quietly funnelled money to his beleaguered neighbour. And Iran, the Shia superpower and a longstanding ally, views Mr Assad’s regime as its most important strategic buffer.

Two of Syria’s other neighbours, meanwhile, may have little interest in seeing radical change. Israel would dearly love to break the axis linking Iran to Hizbullah. Yet despite Syria’s rhetoric about liberating the Golan Heights, captured by Israel in 1967, the Syrian border has in fact been Israel’s quietest for the past 40 years. Fearing that Syria’s stockpile of missiles and chemical weapons could fall into less restrained hands, Israel may also calculate that maintaining a feeble, delegitimised Assad regime is in its interest. Despite his own family’s history of tense relations with Syria, Jordan’s King Abdullah, too, may prefer the devil he knows to the possibility of an Islamist republic next door, though he has publicly called for Mr Assad’s ouster.

As for Russia, Mr Assad seems to believe that much as in his father’s time, when Syria was a Soviet client state, the Kremlin will be willing to pay a high diplomatic price to prop him up. Syria has certainly been an avid customer for Russian arms—though whether it will have money to spend in future is another matter. It has encouraged Russia to revamp a naval station at Tartus that represents Russia’s only military base outside the old Soviet Union.

Yet on all these scores, Mr Assad could be overplaying his hand. Russia is driven less by nostalgic delusions than by cold calculation. Perhaps it believes that, as in Chechnya, a scorched-earth policy can fix a deathly peace. Like Israel, it would prefer to see its southern flank bordered by weak and polarised states, rather than an emerging Sunni Islamist bloc dominated by an increasingly powerful Turkey. Russia may also be happy to cock a snook at Western powers it regards as hypocritically manipulative of public opinion, particularly in advance of next month’s presidential election. But only if the price is right.

The zombie regime

That price could soon rise, dramatically. Most independent observers in Damascus believe that indeed, in the short term, the Syrian regime’s savage offensive may succeed in containing most forms of armed resistance. But if Deraa is any indication, Mr Assad has little chance of long-term survival. As in a vampire film, citizens go through the motions of daily life, fearful of contact with officials. In the eyes of most, the government is totally discredited, at best an evil to be suffered. The cold fury that clearly burns in many homes, linked now in many hearts to religious fervour, may flare at any time.

Look, no blood

Even with the army’s offensive at its peak, flash protests are frequently breaking out across Syria, including in the security-infested heart of Damascus. Over a recent weekend, protesters staged some 400 separate demonstrations. Israel’s military-intelligence chief reported in a recent public briefing that only a third of conscripts answered the latest call-up for Syria’s compulsory military service. He also cited intelligence of cracks in Syria’s command structure, with officers speaking of the need to replace Mr Assad and his clan.

This may be disinformation, designed to dismay Israel’s enemy, Iran. But in economic terms Syria is pitching into a deepening crisis. The central bank’s reserves are believed to have topped $20 billion before the uprising. Since then they are thought to have fallen by as much as two-thirds. Syria’s currency has slipped by nearly 50% in the past few weeks, stoking already fierce inflation. Power cuts and fuel shortages are common, and many of the country’s factories have closed. The tourist industry is all but dead. Syria’s modest oil exports, the staple of government revenue, have virtually dried up.

Many Syrians are convinced that, eventually, Mr Assad will go. What worries them is how. Few expect the opposition to seize Russia’s bait and engage in talks with the regime. Nor do they see Mr Assad retiring willingly. On the other hand, few expect much help from the outside world either. Those who can are leaving the country. Those who cannot are waiting, resigned to their fate.

TWICE during the 1970s, a stroppy decade, leftish British politicians tried to turn the monarchy into a nationalised industry. There were plans to place Queen Elizabeth II and a few close relatives on state salaries and sack the rest of her family, and—a few years later—for a Department for Royal Affairs, bringing the crown under Whitehall’s management. Both attempts were resisted. Since then, royal aides have cannily worked to secure autonomy and arms-length financing from government. Just now, the mood behind palace walls must be giddy relief.

The queen has rarely been as popular as she is now, in her Diamond Jubilee year. The contrast with other arms of the establishment is striking, and revealing. For most people at the top of the public sector, this is a perilous time.

For months there has been angry scrutiny of the sums paid to the bosses of public or publicly controlled bodies, from the BBC to the railways and the bailed out Royal Bank of Scotland (RBS). The BBC says that its next director-general will take a big pay cut. Network Rail directors this week bowed to ministerial nagging and promised to donate any annual bonuses they receive to a fund for improving safety at level crossings.

Stephen Hester, the RBS chief executive recruited on a commercial contract by the previous Labour government to salvage the stricken bank, found himself pilloried on tabloid front pages (photographs of him riding to hounds saw heavy use). He was threatened with a vote in the House of Commons, organised by the now-opposition Labour Party, on whether he should take his annual bonus. When Conservative ministers offered tepid support, Mr Hester buckled and gave up the bonus.

In a BBC interview on February 8th, Mr Hester mounted a valiant defence of high pay in his bank and elsewhere. RBS was a “time-bomb” saddled with £45 billion ($71 billion) in losses, he said. He had scoured the world for the best people to defuse it, and if they did a good job they deserved recognition. He warned Britain not to seek fairness by “cutting down success”. Yet Mr Hester’s arguments will not end the storm.

Ed Miliband, the Labour leader, presents today’s voter anger as a yearning for “fairness in tough times”. The Conservative chancellor of the exchequer, George Osborne, vows to fight unnamed foes trying to create an “anti-business culture in Britain”.

On the streets, another explanation can be heard. Interview voters almost anywhere, and they couch their anger in terms of natural justice. The bankers caused this mess but are doing fine while ordinary folk suffer, is the invariable charge. Ask them about bonuses in particular, and they wonder why well-paid bosses need extra for doing their jobs properly.

None of these explanations is wholly wrong. But none really explains the depth of national outrage. Start with Mr Miliband. His talk of “fairness” is, in part, a coded call for redistribution. Higher taxes on millionaires are strongly backed in opinion polls, but—unluckily for the left—voters also overwhelmingly back a government plan to cap payments to those on welfare. Britons are only partly in Robin Hood mode: they want to take from the rich, but also to kick the poor to look for work.

Nor are Mr Osborne’s warnings about anti-business forces convincing. Although Britons are cross about high pay, few seek capitalism’s overthrow: they dislike corporate fat cats for being fat, not for being cats. As for voters’ stated desire to see bankers suffer just retribution, they need to explain their dislike of well-paid BBC or railway bosses who did not cause the credit crunch.

Other explanations are needed for the public mood. Perhaps surprisingly, one clue may lie in the popularity gap between the queen and bankers such as Mr Hester. The Diamond Jubilee has prompted a slew of new royal biographies, making familiar points about how the monarchy has shrewdly adapted to modern mores. A new biography by Andrew Marr, a writer and broadcaster (and former Bagehot) makes a less familiar point. It quotes palace advisers who believe the queen has the “humility of the hereditary principle”, meaning a sense of duty rooted in knowing she did nothing to earn her extraordinary position.

Listen carefully to Mr Hester, and he stands for an opposing principle: the idea that the unusually talented may deserve extraordinary rewards. Yes, people are paid unequal amounts, but don’t forget how wealth is created and the successful motivated, he says. In essence, he is making the case for meritocracy.

Merit is a fine principle. But the most painful revelation of the debate on high pay may be this: many Britons are not convinced that they live in a functioning meritocracy.

Are the bosses bluffing?

Assuming that voters are not suicidally casual about who holds Britain’s biggest jobs, their desire to slash bosses’ pay leads to one conclusion: the public does not believe that executives are as exceptional as today’s pay levels would suggest. Some voters may be ready for a gamble, believing that bosses are not as globally mobile as they claim to be and would stick around if their pay was cut. Others may be more cynical, suspecting that bosses are not as unusually talented as they claim, so that others could do as good (or as mediocre) a job for less.

This is a dangerous mood, transcending labels of left and right. Indeed, it sometimes feels as if all political parties are following, not leading, public opinion. Even the queen’s popularity, though mostly rooted in 60 years’ service, is a warning sign: she is also admired because she does not claim to deserve her status.

Britain, an unusually free-market minded place, likes to think it is organised around such principles as open competition and rewards for merit. Cut through the noise about bankers and their bonuses, and it turns out that many voters think the fix is in.

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IMPRESSIVELY for a government led by a former public-relations man, the coalition avoided responding tactically to the news of the day in its first 18 months. David Cameron took big strategic decisions—on fiscal policy, education, policing, welfare, health care—and, for the most part, stuck to them. The government seemed to offer a sense of direction in convulsive times.

Some of this has been lost in recent weeks. First the prime minister zig-zagged on the issue of a new European Union treaty designed to save the euro. Having refused to support it in December, to domestic acclaim, he has softened his opposition to the signatories using EU institutions to enforce their “fiscal compact”. Europhiles and Eurosceptics alike doubt that he ever had a diplomatic game plan to begin with. This is policy by pragmatic reaction.

Meanwhile the government trims and tilts on its proposed reform of the National Health Service. The initially radical bill, which would give family doctors more power to commission services and allow private provision to expand, enraged health workers. The coalition has mangled the legislation with so many concessions that even many reformers now suggest abandoning it. By bowing to pressure—to the extent of undermining Andrew Lansley, the health secretary, in private briefings—the government is likely to achieve neither popularity nor meaningful reform.

Shabbiest of all has been the government’s handling of executive bonuses at the Royal Bank of Scotland, which has been mostly owned by the state since its bail-out in 2008 (see Bagehot). Stephen Hester was hired as chief executive by the previous Labour government to cut the bank’s colossal debts. Having made progress, he was in line for a bonus of around £1m ($1.6m). The government was in a bind. It could give in to the anti-City mood by leaning on RBS to cancel the bonus (or on Mr Hester to waive it). Or it could refuse to get involved, pointing out that the bank is run as an independent entity. It equivocated before plumping for the crowd-pleasing option.

Again, this sacrificed credibility for not much popularity. Business figures accused the government of a capricious approach to executive pay. Michael Spencer, a usually circumspect financier and Conservative donor, is among those who have spoken out. There has also been intense criticism in parts of the media. The Sunday Times, whose daily equivalent is perhaps the newspaper taken most seriously in Downing Street, called the prime minister “weak and shifty”.

Part of the problem is coalition politics. Mr Cameron must heed the Lib Dems, who implore him to mend ties with Europe, dilute the health reforms and get tough on the City. Their growing assertiveness is unlikely to be much checked by the resignation on February 3rd of Chris Huhne, who had learned he would be charged with passing on points incurred by a speeding offence to his then wife. The most ornery of Lib Dem cabinet members, Mr Huhne was replaced as energy secretary by the more Tory-friendly Ed Davey.

Tory backbenchers, knowing that the Lib Dems are unlikely to provoke a snap election while they are languishing at around 10% in the polls, implore Mr Cameron to override their concerns. But Tory strategists are not confident of winning the next general election outright. They want to keep on good terms with a party which, even in its diminished state, could yet hold the balance of power in 2015.

The permanent campaign

Indeed, the extent to which an election that is officially more than three years away already intrudes upon the thoughts of senior Conservatives is something to behold. Few policy decisions are taken without the electoral implications being gamed out. This is why the 50% top rate of income tax, which many in government would like to scrap as a boost to Britain’s competitiveness, is likely to stay. The Tories are fearful of compounding their image as a party of the rich.

The coalition is at its best when it avoids short-term political calculation in favour of its original strategic vision: a smaller, less centralised state. Quiet progress is being made. Spending cuts are proceeding. Welfare is being reformed. The mission to open up schools to non-state providers is ahead of schedule. Elections for city mayors and police commissioners have been brought forward to November, and high-profile candidates are lining up to run. The state could look very different by 2015. But it will require more strategic discipline than the government has shown so far this year.

“SACK the lot of them” came a cry from the Conservative benches of the House of Commons on February 7th, backed by a rumbling chorus of “disgrace” and “shame”. The object of the backbenchers’ ire was the European Court of Human Rights in Strasbourg. Its judges had sorely provoked Parliament—not to mention the press and public opinion—by preventing Britain from deporting a radical Muslim cleric, Abu Qatada, to his native Jordan, citing concerns that evidence obtained by torture might be used against him there. That had led a British judge to grant him bail, albeit with strict curbs on his movements. No matter that Theresa May, the home secretary, calls the cleric a serious threat to national security.

Some Conservative MPs urged Mrs May to defy the court in Strasbourg, the judicial arm of the 47-member Council of Europe and guardian of the European Convention on Human Rights (ECHR). Others want her to go further and suspend recognition of the convention, a rights charter crafted soon after the second world war. Such calls are in vain. Lib Dem ministers, backed by two liberal-minded Conservatives—Ken Clarke, the justice secretary, and Dominic Grieve, the attorney-general—have ruled out any British exit from the ECHR. In the short term, the government hopes assurances from Jordan may allow for Mr Qatada’s deportation. More broadly, the coalition is trying to reform the Strasbourg court and make it defer to national decisions more often.

Conservative MPs also launched a parallel assault on a second outfit, the European Court of Justice (ECJ) in Luxembourg, the highest court of the European Union. This caused less fuss. But it is likely to prove more explosive in the end than heckles about sacking Strasbourg justices.

The reason is an obscure wrinkle of treaty law, linked to a European ambush of the previous Labour government. In 2007 the EU was poised to transfer a thicket of crime-fighting and policing laws from one section of the union’s treaties (in which individual countries have national vetoes and ECJ judges may not meddle) to a section of the treaties governed by majority voting and ECJ oversight. The laws at stake include the most ambitious EU experiments in the field of law enforcement. One is the European Arrest Warrant, a powerful tool that allows judges anywhere in the union to have suspects arrested in another country at their say-so. The warrant offers only limited rights to mount an appeal against extradition.

When Labour ministers sought concessions to answer concerns about the ECJ having a final say over such measures, other governments led by France and Germany retaliated by offering Britain an alternative: a one-off, time-limited right to opt out of all the crime-fighting measures or sign up to all of them for ever. In diplomatic jargon, Britain was offered a “nuclear button” to push.

The deadline for a British decision falls in 2014. But on February 6th fully 102 Tory MPs urged the government in an open letter to seize the moment, and opt out of the lot. This was no empty grandstanding. Though the question is set to strain coalition unity (Lib Dems instinctively like pan-European co-operation) ministers have told officials seriously to weigh the case for and against an opt-out.

In 2007 it was assumed that no British government would ever want to withdraw from all the measures. In addition to the arrest warrant, they cover uncontroversial things like Britain’s membership of EU systems for cross-border policing and prosecutorial co-operation, as well as easier access to national criminal record registers around Europe. But the political landscape has changed. Tory MPs are in their most Eurosceptic mood ever, and are keen for the government to repatriate powers from Brussels. And, despite assurances that the European Arrest Warrant would be reserved for the gravest crimes, it has been used thousands of times in cases both footling (one extradition involved the alleged theft of a piglet) and troubling (warrants have swept up people tried in absentia without their knowledge).

The issue will not go away. In January 2011, during a big fight in Westminster over EU powers, the government offered a concession to Eurosceptics: a promise of a vote in Parliament on whether to opt out of justice and policing laws. Most Tories would probably vote to walk away, putting both their Lib Dem allies and the opposition Labour Party on the spot. Would they want to defend unpopular Euro-judges by voting for a big increase in their powers?

Not everyone wants out. Police chiefs and some in the Home Office like tools such as the European Arrest Warrant. They cite a 2005 case when the warrant was used to extradite a man accused of involvement in the London Underground bomb plots to Britain from Italy within days, when it might have taken a year under previous rules. Even Eurosceptics who want to use the opt-out are in favour of preserving some forms of EU co-operation, such as criminal-record checks. Such sceptics insist that Britain, having walked away, will be at liberty to ask to opt back in to things it likes. Surely, they argue, other European powers would not reject such requests.

They may be too confident. A junior Home Office minister, James Brokenshire, predicted last year that the European Commission “would attach conditions” to any British requests for selective re-entry, perhaps insisting that Britain join bundles of related measures. Negotiations could become bound up with unrelated horse-trading, perhaps over the EU budget. Inside the coalition, Lib Dems may have to choose between their pro-European instincts and their commitment to civil liberties.

The 2014 opt-out deadline was “always a time-bomb” waiting to be discovered by British MPs, says a Brussels official. They have found it now. In the next couple of years, the bomb will either be defused or detonated.

KEVIN WARD shudders when he recalls December 2008. His engineering company, Brown & Holmes of Tamworth, began the month with a pretty full order book. Spooked by the financial crisis, though, the carmakers and aerospace firms that buy his workshop equipment suddenly cut back. The company lived off “scraps of work” throughout 2009. Turnover tumbled by one-third and the company went into loss. Mr Ward was unable to raise the financing needed to buy another firm that was going bust; to make matters worse, his company was put on credit watch, with extra banking charges.

And now look at it. Brown & Holmes’s sales recovered strongly, rising from £2.3m ($3.6m) in 2009 to £4.3m in 2010, and have continued to go up since. Along with other Midlands manufacturers, it is thriving despite generally tight credit conditions. The former workshop of the world, which was crushed by the early 1980s recession and the rise of Asia’s low-cost manufacturers, is seeing work drift back. In Britain as a whole, some 100,000 manufacturing jobs have been lost in the past two years. In the Midlands, manufacturing employment has grown slightly.

Weaker sterling and rising wages in China help matters. “Chinese companies used to be 50% cheaper,” says Jason Aldridge, managing director of Arrowsmith Engineering, which makes parts for aerospace firms. “Now the difference is only 15%.” Andrew Essom, technical sales manager of HT Brigham, a metal-pressing firm, can see work returning from abroad. His firm makes the small metal spoons dispensed by the National Health Service to injecting drug users to keep their habit clean. These had formerly come from a French supplier which had them manufactured in China. But HT Brigham can now undercut the French.

Another reason for the health of small manufacturers is that some industrial giants have rediscovered the virtues of local suppliers. Floods and tsunamis in Asia have underscored the hazards of long-distance supply chains, and there have been worries about quality too. Leading firms in the aerospace and defence industry have set up a support network, Supply Chain 21, to raise standards among domestic suppliers. Drop in on Arrowsmith Engineering in Coventry and you are likely to find one or two Rolls-Royce engineers visiting.

Finally, local firms credit two helpful outfits. One is Made in the Midlands, a business network that supports its 250 member firms by putting them in touch, largely online, to help solve mutual problems and share market intelligence. The network has helped HT Brigham diversify into other new areas, such as stainless-steel pressings used in fuel cells. Mr Essom says social media such as Twitter are invaluable for making new business connections and raising issues with government officials and other business leaders. Another prop is the Manufacturing Advisory Service, run through regional development agencies, which provides expert help to small and medium-sized enterprises. This will survive a culling of agencies by the coalition government.

The small manufacturing firms that have survived and grown in the Midlands cannot match Germany’s famous Mittelstand of sturdy family firms that supply the world (and especially China) with products such as machine tools and brakes for railway carriages. The Midlanders’ metal goes round the world, too, but usually as a key component in a Rolls-Royce jet engine or in a Land Rover. Nonetheless, the firms have emerged surprisingly nimble and profitable from recession.

Like many businesses, the Midlands manufacturers worry about credit shortages and the state of the world economy. A survey of Britain’s small and medium-sized manufacturing firms by the CBI, an employers’ group, released on February 6th shows rising pessimism, particularly about the euro zone. Before last Christmas Mr Ward was worried about spending £200,000 on new equipment. The mood, he said, was “nervous again”. But he went ahead with the investment.

PEOPLE who work in private equity love a good party. But at a recent gala, many revellers looked beleaguered. “This industry is going to go through a period where everybody gets sacked,” groused one private-equity executive to another.

Life isn’t as flush as it used to be for private-equity, or buy-out, firms, which purchase companies with debt, fix them up and sell them. Debt, which juices the profits of private-equity firms, is harder to come by. And firms are stuck holding investments for longer, since the public markets are not strong enough to list companies and cash out.

All buy-out firms share these tough conditions. But British outfits, which managed £146 billion ($234 billion) and 19% of global buy-out assets in June 2011, are having a tougher time than their American peers. Many British firms focus on investing in Europe, where the economic outlook is rotten. European banks are more loth to provide debt given their own funding difficulties. Another source of financing—the high-yield debt market—is weaker in Europe than in America.

Many investors are wary of putting money into the euro-denominated funds that many British buy-out firms raise. Executives complain that they show up to meetings to be pummelled with questions about the European sovereign-debt crisis, not about their fund. One buy-out boss said that before the crisis, his executives had to meet with no more than 150 investors to raise their fund; this time the tally was nearly 700. Some firms, like BC Partners and Cinven, have had to offer a discount on fees to entice investors.

Some British buy-outs have failed spectacularly. Think of Terra Firma’s disastrous ownership of EMI, a music label, before it was taken over by Citibank, its major creditor, last year. British private-equity firms used to specialise in smaller deals, but some strayed, joining larger American firms such as KKR in big buy-outs. Many now regret it.

Britain’s largest listed private-equity group, 3i, is struggling. In September it was relegated from the FTSE 100; soon after, it announced another round of job cuts. Its share price has been battered over the past year. Iain Scouller of Oriel Securities, a boutique investment bank, reckons 3i could receive a takeover offer. Many question whether the model of private-equity firms going public is sensible, given the additional scrutiny.

Some firms have accepted that they will not raise another fund. Candover, once a private-equity star, is winding down after some of its investments imploded. Duke Street is the latest British firm to scrap fund-raising plans. It takes a while for private-equity firms to admit illness, and even longer to die. Executives live on fees for as long as possible while they sell off investments. “Death is slow in private equity, and it’s not in penury,” says Tim Jenkinson, professor of finance at Oxford’s Saïd Business School.

But London could yet benefit from the crisis across the English Channel. Some smaller private-equity firms in continental Europe are struggling even more than British outfits, weakening the competition. International firms could decide it is not cost-effective to keep open their other European offices and retrench to London. Meanwhile some American firms are descending on London to expand their offices or set up new ones. They plan to take advantage of distressed buying opportunities in Europe, as banks sell assets.

The boss of one firm’s European operations predicts London will consolidate its position as Europe’s private-equity hub. Cushy treatment of non-domiciled residents helps, he says. Although Britain has hiked taxes on the rich, foreigners’ favourable tax status, which permits them to avoid levies on income earned elsewhere, has not been touched since an annual charge was imposed in 2008. Most funds are registered offshore, so many executives can book profits as foreign-earned income. One reason to go wild at next year’s gala.

First the crammer, then the grammar

MICHAEL GOVE, the education secretary, wants to offer parents who send their kids to state schools the same choice and quality that is available in the private sector. He has introduced reforms to allow popular state schools to expand and sink schools to shut. His new academies, which are largely free from local-authority control, are mostly popular. But in west Kent, parental demand has led to a potentially troubling development for Mr Gove: the prospect of the first new grammar school to be created for 50 years.

Some 164 grammar schools remain in England, remnants of a once-universal system of selection at the age of 11 that shunted most children into secondary moderns, and which was mostly abolished in the 1960s and 1970s. Grammars are the only state schools that can select which children to admit on academic grounds.

Getting into grammar school has become increasingly difficult. Nowadays it is not always enough for a child to pass the 11-plus entrance test. The most selective schools rank applicants according to their test scores, admitting only the best performers. Schools close to London have recruited ever more children from the capital, as ambitious parents seek a quality education for their children on the cheap. West Kent’s grammar schools are so competitive and so good that several fee-paying primary schools have sprung up to prepare pupils for the tests—a phenomenon vanishingly rare elsewhere.

Now a group of parents in Sevenoaks has collected 2,200 signatures, forcing Kent County Council to take seriously their campaign for a new grammar school. The town is currently served by a large, mixed-ability academy that has replaced two struggling comprehensives and by the private Sevenoaks School, which charges boarders some £28,600 ($45,200) a year. Several hundred children depart every morning for selective schools in neighbouring Tonbridge and Tunbridge Wells. Their parents naturally want them to study closer to home.

Mike Whiting, Kent’s lead councillor for education, is trying to work out whether it is possible to grant the parents’ wishes. New grammar schools are banned, so the school would have to be a satellite campus of an existing one. They would have to use the same entrance criteria, which would be straightforward if students were admitted according to their exam results. But parents would prefer a community grammar school that serves local kids who have passed a floor standard in the entrance tests. Matters are complicated by a second group of parents, which plans to bid for a non-selective free school to be established on the same site as the proposed new grammar.

The prospect of a new grammar school is likely to unsettle the coalition. It is a touchy subject for the Tories: in 2007 David Cameron promised not to expand the grammar-school system, as part of his attempt to detoxify the party’s image. David Willetts, the universities minister, argues that grammar schools entrench privilege because middle-class parents now prepare their children so well for the entrance exams that clever children who have not been coached do not pass. But Mr Gove has been less willing to criticise them. Such divisions delight Stephen Twigg, the shadow education secretary, who accuses the government of “expanding selection at 11 by the back door”. Expect more ragging.

THREE years ago the Bank of England, which had already cut interest rates to record lows, wheeled out a new, unconventional tool to stimulate the economy. It would buy government debt using newly-created cash—a policy that became known as “quantitative easing” or QE. The Bank is now a market mammoth, owning over 30% of the £940 billion ($1.5 trillion) pool of outstanding government bonds. It is set to get bigger: on February 9th the Bank's monetary-policy committee authorised £50 billion of new purchases over the next three months. But is this strategy working?

A surge of demand from a new buyer will push up prices in any market. Indeed, this is the Bank’s aim. Its current purchases outstrip the supply of new bonds by around £5 billion per month. This causes bond prices to rise, lowering yields and making them less attractive as investments. That, combined with the cash that investors receive from the Bank, ought to nudge them towards assets offering better yields, like corporate debt and equity. That, in turn, should lower businesses’ financing costs and boost investment.

Market movements suggest quantitative easing has achieved most of these things. Yields on ten-year government debt, a favoured purchase, have fallen from around 4% to 2% since the programme began. Over the same period the FTSE 100 index has risen by nearly 70%, although actions taken in America and Europe were probably the main reason for that. The Bank estimates its first injection of QE boosted Britain’s GDP by up to two percentage points and inflation by up to 1.5 points. Inflation is projected to fall well below the Bank’s 2% target in 2013, justifying further easing, according to Jens Larsen at RBC Capital Markets.

Yet QE has not made life much easier for British businesses. True, since the beginning of 2009 firms have been able to raise £46 billion in new debt and equity. But banks have slashed business lending by £85 billion. In December 2011, the latest month for which figures are available, £2.4 billion of market financing was raised by British firms. In the same month banks cut business lending by £2.4 billion (see chart). Britain’s tight-fisted banks are draining away the QE stimulus, and more. Small businesses, which cannot access debt markets, are suffering an unrelenting squeeze.

Anaemic business lending has led Adam Posen, a member of the Bank’s monetary-policy committee, to call for additional measures to be tried. To help small businesses, the Bank could buy other assets, as the Federal Reserve and European Central Bank have done, including packages of business debt. But this proposal has gained little traction. Other committee members, including the Bank’s governor, Sir Mervyn King, regard it as a quasi-fiscal action. If this purist stance endures, a £20 billion scheme under which the Treasury provides banks with funding guarantees if they can prove they are lending to business may need to be expanded.

Mr Posen and others are right to think beyond quantitative easing. A recent paper by Jonathan Ashworth and Charles Goodhart (a member of the monetary-policy committee between 1997 and 2000) of Morgan Stanley shows that small businesses have created at least 41% of the new jobs in Britain since 2001. And a change in direction could be less unconventional than is supposed. In 1857, in response to the first global crash, the Bank lent directly to merchants, as well as to banks.

• Perilous journey
• Too close for comfort
• State of vulnerability
• Captain’s innings
• In the shadow of the mosque
• Lights off
• A taste of Hunny
• Always with us
• Dripping with blood
• Going with the flow

KAMRAN, A TAILOR in Rawalpindi, is enjoying a little boom. He and his staff—two men perched on a platform above the counter in his tiny shop—have increased production fivefold this year, to five or six suits a day. They charge 300 rupees (about $3.30) each, with the customers supplying the material. The secret of their success is simple. They have access to credit, in the form of a 15,000-rupee loan from Tameer Bank, a microcredit lender, and, thanks to that, to a reliable supply of electricity. They have invested the money in a battery that enables them to keep sewing through the power cuts that bedevil Rawalpindi, and indeed most of Pakistan, for much of the day and night.

Multiply Kamran’s experience across the Pakistani economy, and the common estimate that power cuts knock about three percentage points off the growth rate seems extremely conservative. To make matters worse, natural gas, widely used for heating and cooking and to fuel buses and cars, has been in short supply. The shortages have become a serious deterrent to investment and a big cause of social unrest.

At the other end of the economic scale from Kamran, Asad Umar, who besides his role at the Pakistan Business Council is boss of Engro, a big Pakistani conglomerate, also has access to credit. Even so, Engro’s ammonia-urea fertiliser plant in northern Sindh—the biggest in the world and the largest private-investment project in Pakistan—shut down only four days after it started production in December 2010 and was closed for half of last year because its feedstock, natural gas, was unavailable. Yet Engro’s fertiliser business is profitable, so subsidised is the price it pays for the gas. Engro has promised to cut its fertiliser prices as soon as it has a reliable supply of gas.

Neither gas nor generating capacity need be in such acutely short supply. The power cuts are largely the result of bad policy and mismanagement. What started as a financial problem is now crippling the real economy. The electricity industry is beset by “circular” debts. Fuel suppliers are owed money by generators who are owed money by distributors who cannot get consumers to pay. At the end of November last year unpaid electricity bills reached 326 billion rupees. Among the big defaulters were the railways, the prime minister’s secretariat, the army and the ISI.

A lot of the electricity used is never billed in the first place. Estimates of “transmission and distribution” losses—in large measure a euphemism for theft—vary from 11% to 37% of total supply, according to the central bank, the State Bank of Pakistan (SBP). About two-thirds of generation comes from inefficient, high-cost oil-fired plants. Generating costs have doubled in the past two years. In the long run much hope is invested in the planned Diamer Bhasha dam and hydropower plant in the north of Pakistan-held Kashmir, backed by the Asian Development Bank (ADB). But it will be hugely expensive, at an estimated $12 billion, and worries some observers because of the risk of earthquakes. And it is opposed by India (because of where it is).

For Mr Umar, the solution to both the gas and electricity crises are obvious: deregulate and finish privatising the energy market. He points out that there is never a shortage of phosphate-based fertiliser because it is in the private sector, with prices set by the market. He also cites two examples of privatisation working in Pakistan: telecommunications, where the cost of a call from Karachi to Lahore is now 5% of what it used to be; and banking, where some 85% of assets are now held in private banks, compared with only 10% in 1990.

It is true that the government’s performance in running businesses is poor. Government-owned companies are piling up losses of about 600 billion rupees a year. Besides the state-owned electricity distributors, the railways, the national airline and a steel company are all bleeding cash. Most are seen as corrupt. The chief justice, Iftikhar Chaudhry, started an investigation into the non-payment of salaries and pensions by Pakistan Railways. He asked why it was so interested in buying new locomotives, and why it had retired 104 out of the 204 it had acquired since 2008. The implication was that the purchase of new rolling stock brought lavish commissions.

Can lend, won’t lend

Not everyone agrees with Mr Umar that the privatisation of the banks has been a success. Most of the big ones are indeed doing very well. But they are doing so by indulging in what Rakesh Mohan, a former deputy governor of India’s central bank, dubbed “lazy banking”: simply investing their deposits in government bonds. Mian Mohammad Mansha, chairman of MCB, a large and highly profitable commercial bank, says it is lending less than half its deposits. Most of its assets are in treasuries, which he understandably sees as a better investment than loans to state-owned companies. For small businesses—which means 70% of Pakistan’s firms—credit is hard to come by.

So Kamran the tailor is lucky to have made contact with Tameer, which is backed by Britain’s aid agency, DFID. With the formal banking sector doing well by lending to the government and big companies, small business is neglected. The economy does not collapse, says Werner Liepach of the ADB, because so much activity is shifting into the informal sector. Moneylenders—usurers—are having a field day. According to Yaseen Anwar, the governor of the SBP, 56% of Pakistan’s adult population have no access at all to financial services, with a further 32% served only informally—among the lowest levels of financial penetration in the world.

There is a crying need for microfinance, and not just for its traditional purpose of providing seed money for the poor starting their first, tiny business but as working capital for small firms. Just over the road from Kamran, Tahir Mahmud has borrowed 30,000 rupees, like Kamran at an annual interest rate of 20%, to expand his thriving business of designing and decorating customised motorcycle petrol tanks. But so far the number of active microfinance borrowers stands at just 2m or so.

What enables banks to be lazy is the government’s appetite for borrowing. Its deficit in the fiscal year that ended in June 2011 was 6.6% of GDP, if electricity subsidies are included. The budget for the current fiscal year sets a target of a deficit of 4%, but that is likely to be missed by a wide margin for the third year running. The target had been agreed with the IMF, which in November 2008 approved a standby arrangement of $11.3 billion for Pakistan. The arrangement was put on hold in May 2010, by when $7.6 billion had been disbursed, and terminated in September 2011.

The IMF withdrew because the government failed to meet its fiscal targets. In particular, it needs to raise taxes. Government tax revenues as a proportion of GDP are about 10%, among the lowest in the world. In 2010 and 2011 floods hindered efforts to raise more taxes, but the fundamental problem is political. No democracy finds it easy to raise taxes, and in Pakistan that difficulty is compounded by the main parties’ perception of their support bases. The PML(N) does not want to alienate business, which opposes indirect taxes, and the PPP rejects land or other taxes that would hurt its landowner friends.

So the government does not have much to spend and, as the SBP noted in its annual report, risks being caught in a debt trap because it is borrowing for recurrent as well as capital spending. Spending on health, welfare and education is further constrained by a big outlay on defence, which accounts for nearly 20% of the 2011-12 budget expenditure, compared with less than 8% for education.

Some analysts worry that the fiscal deficit is about to take a dire toll on Pakistan’s external accounts. This month the first repayment to the IMF, of $1.2 billion, falls due. Fears that this is going to precipitate a crisis seem overblown. But Pakistan’s current account—in a small surplus last year—is likely to tilt into deficit. The healthy flow of repatriated income from overseas workers may be reduced by the deterioration in the world economy and by Saudi Arabia’s plan, if implemented, to cap remittances.

Exports did surprisingly well in 2010, despite the floods, thanks in large measure to a rise in the price of cotton. That trend has reversed, and with the power shortages plaguing the textile industry, and falling global demand, exports are unlikely to maintain their growth. It is possible that Pakistan, which has foreign-exchange reserves to cover four to five months of imports, will run into balance-of-payment difficulties in the next couple of years.

GDP growth may pick up slightly from the 2.4% seen in 2010-11, but will remain far below that achieved by Pakistan’s neighbours, and well below the 7% per year that Pakistan’s Planning Commission says is necessary to absorb a bulge in the working-age population. In 1971, when East Pakistan seceded to form Bangladesh, its population, of about 70m, was 9m-10m bigger than Pakistan’s. Now Bangladesh has about 156m people and Pakistan somewhere between 180m and 200m. Its population is growing at nearly 2% a year, and is expected to reach 350m by 2050. Family planning has never been a government priority. The number of children per woman is falling, from 6.1 in 1990 to 3.9 now, but is still the highest in continental Asia outside Afghanistan.

In an enlightened “Framework for Economic Growth”, published last year, the commission sought to pinpoint the reason for Pakistan’s persistent failure to grow fast. The problem, it concluded, was not the “hardware”—Pakistan’s infrastructure, though deficient, was no worse than India’s, for example—but the “software”. Markets were not well developed because of lack of competition, policy distortions, entry barriers and poor regulation. And efficient public-sector management was lacking, meaning that “security of life, property, transaction and contract” cannot be guaranteed.

• Perilous journey
• Too close for comfort
• State of vulnerability
• Captain’s innings
• In the shadow of the mosque
• Lights off
• A taste of Hunny
• Always with us
• Dripping with blood
• Going with the flow

Arid debates

FOR MILLIONS SUFFERING the misery of the past two years’ floods it must seem the cruellest of jokes, but Pakistan is one of the world’s most arid countries. Average annual rainfall is less than 240mm, and the total availability of water per person has fallen from about 5,000 cubic metres in the 1950s to about 1,100 now, just above the 1,000 cubic-metre-per-head definition of “water-scarce”. A shortage of water is a more serious peril than any of the others mentioned in this report. Combined with continued fast growth in its population, it is the true existential threat to Pakistan.

Pakistan is arranged along the Indus river basin and the world’s largest contiguous irrigation system which it feeds. From the air much of Pakistan looks brown, dusty and infertile. Only about one-quarter of the land is cultivated. According to a 2009 study by the Woodrow Wilson Centre in Washington, at least 90% of Pakistan’s fresh water is used for irrigation and agriculture. But, it says, “intensive irrigation regimes and poor drainage practices have caused waterlogging and soil salinity throughout Pakistan’s countryside. As a result, vast expanses of the nation’s rich agricultural lands are too wet or salty to yield any meaningful harvests.”

The study forecasts that by 2025 Pakistan’s annual water supply will fall short of demand by around 100 billion cubic metres, about half of the entire present flow of the Indus. In parts of the country the shortage of water is already acute. Around Quetta in Balochistan, for example, the water table is now 330-400 metres (1,000-1,200 feet) below the surface and estimated to be falling by 3.5 metres a year. Over 2,000 tube wells have dried up. Electricity subsidies encourage expensive pumping of scarce water.

John Briscoe, a water specialist who used to work for the World Bank and is now engaged in a study for the Friends of Democratic Pakistan, a donor group, says that in any event some 60% of water supplies around Quetta are unaccounted for—leaked or stolen. The only solution, he argues, is to stop pumping except for urban use and put a price on it. Without some drastic action, Quetta, with more than 1m people, may have to close down.

Quetta’s thirst could become a national phenomenon. Already more than two-fifths of Pakistan’s population lacks access to safe drinking water. The glaciers of the western Himalayas, whose snowmelt and rains provide the Indus with its water, are dwindling as the world warms up. In the short term this, and spectacular rains such as those seen in the past two years, could lead to more floods. In the longer run, river flows could fall by what the World Bank calls a “terrifying” 30-40%.

Much could be done to avert disaster: repairing and modernising canal systems; developing spate irrigation schemes that divert flash floods to replenish aquifers; stopping electricity subsidies that encourage water-intensive agriculture; and building small and medium-sized dams. But many experts believe that Pakistan also needs some megadams, which are more controversial. They point out that, whereas America and Australia have dams that can hold 900 days-worth of river run-off, Pakistan can barely store 30 days-worth in the Indus basin.

For Mr Briscoe, storage would be the main benefit offered by Diamer Bhasha, besides the much-needed electricity generation and flood control. Another big dam, Kalabagh, under discussion for years, may never be built, because it would be in Punjab province and Sindh has objected.

For some, despairing of Pakistan’s perpetually messy politics, such disputes are reasons for suspending democracy. Only a strong government, they argue, undistracted by the quotidian dealmaking and corruption of parliamentary politics, can take the tough decisions needed: to combat Islamist extremism, broaden the tax base, curb political violence and counter the environmental and demographic threats to Pakistan’s future.

Such were the hopes for decisive, impartial, “executive” government that accompanied Mr Musharraf when he took over. And in Pakistan, it is still to the army that people look for strength. But military rule is not the answer. After all, it has been tried for half of Pakistan’s existence. What has not been tried is truly civilian rule backed by a wholly supportive army.

It is too much to hope that the army will withdraw from politics altogether. But it is not too much to dream that an enlightened high command might try to put its house in order. It might realise that the flirtation with terrorist groups has become a threat to the nation’s future as well as to its own image; that a true peace with India is in Pakistan’s interests; that politics would be less messy if the army meddled less; and even, at a mundane level, as a member of parliament said of the ISI last November, that “when they can finance political parties and interfere in democratic affairs, why can’t they pay electricity bills?”

Bananas are not the only fruit

The BBC documentary that prompted cable operators to block the channel indefinitely included an interview with Amrullah Saleh, a former head of Afghanistan’s intelligence services. He describes a meeting in 2007 with Mr Musharraf, Pakistan’s president at the time, at which he was told of Afghan suspicions that bin Laden was living in a settled area of Pakistan. Mr Musharraf lost his temper and shouted: “Am I the president of the Republic of Banana?” He need not have worried. The only sense in which Pakistan is a banana republic is that parts of the army are out of civilian control, and unaccountable.