The Collapse of a Once-Promising Democracy

In Peru, a nation once marked by its successful fight against poverty, voters now face a pair of unappealing alternatives.

David Frum

Staff writer at The Atlantic

Pedro Castillo / GIAN MASKO / AFP / GETTY

The first choice facing voters is a little-known union leader who leads a Marxist-Leninist party that wants to rewrite the constitution to eliminate congress.

The alternative is the daughter of a former dictator who has surrounded herself with kleptocrats and COVID-19 deniers.

Welcome to Round 2 of the Peruvian presidential election. 

How did one of the success stories of the developing world end up in such a crazy place?

Many democracies have suffered a collapse of the political middle, but few so starkly as Peru—or so unexpectedly. 

For years, Peru reported some of the highest growth rates in South America. 

It reduced the proportion of its people in poverty from 58 percent in 2004 to 23 percent by 2014. 

Exciting new mining discoveries promise more growth ahead.

Instead, even before COVID-19 struck, Peru faced a dissolution of familiar political structures. 

The country has rotated through five presidents or acting presidents since 2016. 

Then came the terrible shock of the pandemic. 

Peru has endured one of the highest excess-mortality rates on Earth from COVID-19, if not the very highest: 503 deaths per 100,000 persons, according to a global survey by The Economist. 

The economic carnage has been correspondingly awful, too.

The disaster discredited whatever remained of the former political ways. 

Parties of the left and center collapsed. 

The round of voting on April 11 was topped by a union leader so obscure that nobody even bothered to poll for him until November 2020—and who did not rise above 3 percent in the polls until early March 2021. 

Pedro Castillo was introduced to many Peruvians by a goofily endearing TikTok dance video. 

But the content of Castillo’s politics is troublingly resonant with the late Hugo Chávez’s attack on Venezuela’s once-democratic institutions. 

Castillo has called for the rewriting of Peru’s constitution to replace the elected congress with representatives of unions and other interest groups. 

He has spoken of nationalizing industries and restricting foreign investment and trade.

In shocked reaction, Peru’s non-left has rallied since April 11 to Keiko Fujimori, daughter of the president-dictator who crushed the Shining Path insurgency in the 1990s. 

Alberto Fujimori fell from power in 2000, and the question of what to do about him has bedeviled Peruvian politics ever since. 

He was convicted of human-rights abuses in 2009 and sentenced to 25 years in prison. 

Peru’s then president pardoned the elder Fujimori in 2017, but that act was overturned by the Peruvian supreme court in 2018. 

The release from prison of the now-82-year-old former dictator is a central issue of his daughter’s 2021 presidential campaign.

Among the political casualties of Peru’s upheaval was an old friend of mine, the economist Hernando de Soto, a globally famous social reformer. 

De Soto finished fourth in the first round of voting on April 11 with 11.6 percent of the ballots. 

De Soto’s vote appears to have come from the more liberal and globalized segments of Peruvian society—the segments most uncomfortable with their second-round choices on June 6.

The polarization in Peru is the latest indication of the global turn from the democratic, free-market, free-trade ideas that once seemed so ascendant. 

De Soto came to global prominence as one of the most original and brilliant contributors to that ascendancy. 

His two books—The Other Path (1986) and The Mystery of Capital (2000)—argued that state-led economic models had locked most of the world’s people out of the economic life of their societies. 

They lived in homes to which they lacked legal title. 

They farmed land without contracts for their crops. 

They worked in factories that evaded regulations and taxes.

These people were outside the law, but they were not criminals. 

They were victims of a system in which law was made by others, for others. 

If the law could be extended to them, de Soto argued, the world’s poor would better themselves and transform their countries.

One example of de Soto’s great insight: The cities of the Third World are ringed by settlements built by squatters on land that theoretically belongs to others: the government; defunct collective-farming associations; landowners who long ago left the country. 

Everybody accepts that these settlements are permanent urban facts. 

But they have no legal existence. 

The law sees only what used to be there, not what is there now.

And what is there now? 

For The Mystery of Capital, de Soto took satellite photos of the slums of cities like Cairo, Lima, and Port-au-Prince. 

His research team then imposed a grid on the photos and counted the number of slum dwellings within each square of the grid. 

They inquired locally about the value of these dwellings, and found that it might be as little as $500. 

Then they multiplied: the dwellings’ value times the number of dwellings in the square; then times the number of squares in the entire slum. 

He concluded:

So what is the value of all the buildings that are owned extralegally, especially by the poor, in Egypt? 

The reply is $241 billion. 

What percentage of Egyptians own real estate outside the law? 

The reply is 92 percent …

How much is $241 billion? 

It's fifty-five times bigger than all foreign direct investment in Egypt over the last 200 years, including the Suez Canal and the Aswan Dam, thirty times greater than the market value of all the companies recorded on the Cairo Stock Exchange, and roughly sixty-eight times the value of all foreign and bilateral aid received by Egypt, including World Bank loans. 

In other words, the group in Egypt with the largest accumulation of assets that could be converted into capital are the poor, but they’re not inside the legal system … and you can’t create a market economy out of them until they are governed by the rule of law.

(I should mention here that de Soto hired me to help him finish The Mystery of Capital.)

De Soto’s remedy: Give these de facto owners legal title to their dwellings. 

Give them the ability to buy and sell their dwellings, to rent to tenants, to borrow against their homes to start businesses or educate their children. 

Follow that step with other reforms to bring factories and farms and jitney buses within the law, too. 

Then … watch.

De Soto’s two books made him an international intellectual celebrity who conferred with presidents and prime ministers. 

He became a large figure inside Peru, too, perhaps the most visible face of market-opening reform. 

But the reforms he urged were not quite the reforms that arrived.

In November 2000, Peru returned to democracy after the seven-year dictatorship of Alberto Fujimori. 

Along with his many abuses, Fujimori bequeathed a legacy of economic reform: controlled public spending, moderate public debt. 

(Pre-pandemic, Peru’s debt totaled about 25 percent of GDP, less than half the burden borne by neighboring Bolivia, and about two-fifths of that carried by neighboring Ecuador. 

But Fujimori did not accomplish the de Soto agenda of bringing the poor into the legal economy. 

To this day, two-thirds of Peruvians work in the nonlegal—or “informal”—sector of the economy, one of the highest rates on Earth.

Peruvians might hear on TV or radio about the benefits of sound finances. 

But they experience low-quality schools and clinics, rutted roads, inadequate electricity, undrinkable water—the public goods that the government had skimped on to keep public spending low. 

The more tangible benefits urged by de Soto remain largely concepts for the international conference circuit.

When the pandemic struck, the Peruvian government locked down economic activity. 

It used its good credit to pay support to workers it could identify. 

But identifying informal workers was not easy—and neither was paying benefits to people who did not have bank accounts. 

Many informal workers faced the reality that they would not be paid if they did not work. 

If they worked during the pandemic, they risked getting sick. 

If they got sick, they might infect the other people in their multigenerational dwellings or on their informal jitney buses. 

State health services, always rickety, collapsed under the pressure.

The people who suffered most noticed that other people were suffering much, much less. 

And, of course, they resented it. 

The instability of Peruvian politics shifted from chronic to acute. 

Of the five presidents during the past five years, three served in the past 12 months. 

Presidents and congress battled each other. 

Pro-Fujimori factions maneuvered to reclaim power after 20 years of exclusion. 

Andrea Moncada, opinion editor of El Comercio, the country’s largest newspaper, told me, “We eroded democracy in a very 21st-century way, through our own institutions.”

The way was open for a radical new challenge to a discredited system. 

And that challenge materialized in the face of a dancing union leader who wore a peasant’s wide-brimmed hat as his trademark emblem.

What happens now? Nobody I asked even pretends to know. 

The polls are volatile. 

Castillo’s lead over Fujimori might be dwindling. 

Castillo’s message oscillates between more and less radical. 

Some believe that he’s duplicitous; others contend that Castillo has no real ideas beneath his hazy revolutionary slogans.

American influence in the country has dwindled. 

Since the defeat of the Shining Path, America’s top foreign-policy priority in Peru has been drug interdiction, and Peruvians of all political perspectives feel little zeal for that project. 

And Peruvians feel less need to fake it, since China has replaced the United States as Peru’s top trading partner. 

The Peruvian COVID-19 vaccination program relies on Chinese and not U.S. vaccines.

Paradoxically, Peru’s recent instability might cause a Castillo presidency to seem less threatening to undecided voters. 

Those voters might believe, as Moncada said to me, that a country that has removed so many presidents from office recently can always remove one more if he or she proves troublesome. 

But it’s always more prudent to assume that a politician who seems hostile to democracy before gaining power will prove even more dangerous to democracy afterward. 

But in this case, that grim assessment describes both choices that Peruvians face on June 6.

DAVID FRUM is a staff writer at The Atlantic and the author of Trumpocalypse: Restoring American Democracy (2020). In 2001 and 2002, he was a speechwriter for President George W. Bush.

BioNTech, CureVac and Co.

Patent Suspensions Threaten Germany's Booming Biotech Industry

With their next-generation mRNA vaccines, the German companies BioNTech and CureVac are at the forefront of pharmaceutical innovation. But U.S. President Joe Biden's plan to suspend patent protections is threatening that position.

By Claus Hecking, Michael Sauga, Thomas Schulz und Gerald Traufetter

BioNTech founders Özlem Türeci and Uğur Şahin: Their company is also working on vaccines against the flu and cancer. Foto: Ramon Haindl

Usually, hindsight is necessary to identify the moment a new technology is born. 

When Steve Jobs presented the first iPhone in January 2007, many experts just shook their heads. 

The device, they said, was unreliable and unnecessary, particularly in comparison with the time-tested Nokia mobile phones. 

Apple, they said, had no experience producing mobile phones, and it would never stand the test of time. 

Many governments around the world were similarly suspicious last fall when a brand-new vaccine technology appeared, seemingly out of nowhere: mRNA, a new approach that sounded a lot like science fiction and was being presented by a handful of small biotechnology companies that few had ever heard of. 

Many in the European Union were particularly skeptical of the technology – and doubtful that inexperienced companies would be able to produce the billions of doses necessary.

It would be better, many thought, to rely on large companies using tried-and-true technologies – vector vaccines, for example, from producers like AstraZeneca and Johnson & Johnson. 

The competition between the different technologies, many thought, should involve larger companies producing vaccines using reliable, time-tested technologies while the smaller, high-tech startups could go for the unreliable moonshot.

But in recent weeks, it has rapidly and surprisingly clear who won the race: the biotech newcomers. 

Before long, it now seems clear, mRNA technology will become the dominating approach to vaccine production around the world. 

The mRNA-based vaccines have proven more effective, simpler and safer.

Vector-vaccine producers, by contrast, have slipped up one after the other. 

AstraZeneca is able to deliver far fewer doses than originally promised, and following a series of mishaps and reports of rare-but-dangerous side-effects, it is widely seen as a second-tier product. 

Johnson & Johnson has run into production issues. 

The vaccine produced by French multinational Sanofi fell on its face in clinical trials.

The EU recently announced that it would be focusing its effort on mRNA vaccines starting in 2022 and has ordered another 1.8 billion doses from BioNTech.

Furthermore, in a moment of rare forthrightness, the Chinese government said that the vaccines developed in the country, based on traditional technologies, weren't good enough. 

Chinese vaccines "don't have very high rates of protection," said Gao Fu, head of the Chinese Centers for Disease Control and Prevention. 

"Everyone should consider the benefits mRNA vaccines can bring for humanity," he added. 

Other countries, including the United States and Japan, are also planning to shift their focus partly or entirely to mRNA vaccines.

Rarely has a virtually unknown technology proven its worth so quickly. 

"Even I didn't expect this to happen so clearly and at this speed," says BioNTech CEO Uğur Şahin. 

The company is expecting to accumulate revenues of 9.8 billion euros this year, more than twice what it projected as recently as 2020. 

Analysts are predicting global vaccine earnings of around $100 billion or more per year.

A New, Multi-Billion-Dollar Industry?

It is a vast market, and a promising one for three producers in particular: In addition to the U.S. company Moderna, mRNA vaccines are only produced by the two German companies BioNTech and CureVac. 

And COVID-19 is not the only malady the new technology can treat. 

Work is underway on mRNA approaches to the flu, AIDS, cancer and numerous other illnesses.

Curevac Co-founder Ingmar Hoerr: A significant Made-in-Germany component. Foto: Sebastian Gollnow / dpa

Are we seeing the growth of a new, multibillion-dollar industry developing before our very eyes, led, for once, by Germany? 

After years in which the German biotech and pharmaceutical industry played but a supporting role, it is a rather surprising development for German companies to be at the heart of efforts to emerge from this pandemic. 

Berlin and Brussels are also both hoping that the biotech industry will have a significant Made-in-Germany component in coming years.

And its not about the coronavirus, but about mRNA technology as a whole. 

Indeed, that partly explains the shock felt throughout the industry when the U.S. announced last Wednesday that it was in favor of temporarily suspending patent protection rights for newly developed COVID-19 vaccines. 

It was first and foremost a political move – and a controversial one when it comes to its potential benefits for fighting the pandemic.

Stock prices of the companies that may be affected dropped immediately and the pharmaceutical and biotech industries reacted with disgust. 

Who, they wonder, will continue investing in risky and capital-intensive research if it's not even clear that such investments will prove profitable in the end? 

If the result of one's own work will suddenly be made free to all?

There is a lot at stake for Europe. 

The EU is concerned that it may lose its hard-won advantage in the technology as a whole. 

What will happen, after all, if the technology ultimately ends up in the hands of Russian or Chinese companies?

From the perspective of the European Commission, it is clear who would profit most from a rapid suspension of patent protections: China. 

Officials in Brussels believe that the Chinese pharmaceutical industry would benefit immensely if the advantages enjoyed by European companies in mRNA technology were to be sacrificed. 

"Party leadership in Beijing is of course celebrating," says one official.

As such, at the upcoming Global Health Summit later this month in Rome, the EU isn't likely to quickly back down from its position, say officials in Brussels. 

Concessions on intellectual property will only be forthcoming, they say, if the U.S. is prepared to compromise on the export of materials necessary in vaccine production or in the release of vaccine supplies to other parts of the world. 

The U.S., after all, stood in the way of equitable international vaccine acquisition by pursuing a course of unveiled nationalism. 

As such, Biden's decision to support the suspension of patent protections is seen in Brussels as a blatant double standard.

The German government is also wary of suspending patents. 

"The protection of intellectual property is the wellspring of innovation and must remain so in the future," a German government spokeswoman said. 

Chancellor Angela Merkel spoke with Şahin last Thursday about the issue.

Worst-Case Scenarios

Two questions must thus be addressed: How can the world best be supplied with sufficient quantities of coronavirus vaccine? 

And, how can Europe protect its current advantage in a future technology that looks set to drastically change the pharmaceutical industry?

It is lucky for the world – and for the small, Mainz-based company BioNTech – that Uğur Şahin has a thing for worst-case scenarios. 

When Germans were celebrating Carnival at the very beginning of 2020 and enjoying their ski vacations in Ischgl, Austria, the BioNTech CEO shifted the focus of his company entirely to the development of a coronavirus vaccine.

When the EU was still thinking about how much vaccine it should order last summer and happy Germans were sitting in the beer gardens thinking the worst would soon be over, Şahin bought a new factory that could produce up to a billion doses per year. 

The first talks with pharmaceutical company Novartis aimed at buying an entire factory along with its specialist personnel took place in May 2020.

That factory, located in Marburg, Germany, went online several weeks ago, and it looks like it will be able to save a lot more than just this coming summer. 

Most experts now believe that COVID-19 will be with us for at least another decade, initially with seasonal outbreaks and then as a seasonal virus like the flu.

That means that we won't just have to be vaccinated now, but over and over again. 

Demand will remain high for the foreseeable future. 

Soon, the vaccination of teenagers and children will begin, on top of regular booster shots that everyone will have to receive. 

By 2030, experts believe there will be a global need for up to 10 billion doses.

Şahin wants to ensure that poorer countries can also be supplied in the long term. 

"Industrialized countries must begin to understand that helping out once won't be enough." 

That means that governments, producers and organizations will have to help poorer countries, he says, and BioNTech is making its vaccine available to such countries at prices that are not aimed at making a profit.

   Workers at the BioNTech factory in Marburg Foto: Thomas Lohnes / AFP

He does not believe that suspending intellectual property protections is a solution. 

"Patents are not the limiting factor when it comes to producing or supplying our vaccine," he says, adding that a temporary suspension of patents would not increase global production and supplies in the near- or medium-term. 

The eye of the needle, he says, isn't the production formula, but the supply of raw materials, the number of factories and the efficiency of delivery networks.

BioNTech is working on further expanding its production capacities. 

Currently, the company and its American partner Pfizer are producing vaccine at six sites, located in the U.S. and Europe. 

The company would now like to enlarge its own production capabilities in Europe and start in Asia.

Rapid Expansion

In late April, Şahin flew to Shanghai. 

Although China has developed several of its own vaccines, BioNTech found a partner in China in March and began carrying out clinical studies there. 

"The approval process is almost complete and assessment by the Chinese authorities is underway," Şahin says. 

He adds that talks with Chinese authorities and partners have been promising. 

"I have confidence that our vaccine is welcome there and can make a difference," Şahin says. 

BioNTech believes that it may be able to deliver up to 100 million doses to China by the end of the year.

In recent months, though, the company has primarily concentrated on expanding its production network in Germany. 

In Hanau, the chemical company Evonik set up a production site for urgently needed lipids, a primary ingredient in mRNA vaccines, in just eight weeks. Initially, the factory was supposed to be finished sometime this summer.

The fight against the pandemic has motivated many suppliers to increase their rates of production. But economic incentives have proven even more effective. 

The pharmaceutical and chemical industries have realized that COVID-19 vaccines will be a reliable revenue stream for some time to come and that investing in the conversion or new construction of factories makes good business sense. 

"In Europe, an entire industry, including suppliers, is developing," Şahin says.

Particularly since the coronavirus isn't the company's only focus. 

"We want to expand the technology, and in addition to cancer vaccine candidates, we have projects underway on HIV, tuberculosis and flu vaccines," the BioNTech CEO says. 

"And we are receiving a large number of new inquiries." The development of a malaria vaccine could, for example, become an additional focus.

That is what makes the U.S. government's plan to suspend patent protections so dangerous for the company. 

The COVID vaccine is rooted in a huge amount of basic research conducted by BioNTech, which is also being used in new cancer medications – and which would also be disclosed were patents to be lifted.

Still, despite the patent debate, Şahin is confident that BioNTech will be able to maintain its advantage. 

Even before the outbreak of the pandemic, the company had begun preparing to mass produce its cancer medication.

The mass production of sensitive pharmaceutical products like vaccines is extremely complicated – as is currently on full display at an industrial park in Baltimore. 

The U.S. firm Emergent BioSolutions, which has a production site there in a gray factory building, was supposed to produce large quantities of vaccine for both AstraZeneca and Johnson & Johnson – up to a billion doses by the end of the year.

The Challenges of Vaccine Production

Now, though, the factory has been shut down. 

AstraZeneca is no longer allowed to produce its vaccine at the site, with the U.S. government having banned it. 

And the production of the Johnson & Johnson vaccine at the site has been suspended for the foreseeable future. 

Some 15 million doses had to be destroyed. 

Emergent BioSolutions staff had accidentally contaminated the vaccine with traces of the AstraZeneca vaccine.

Johnson & Johnson is a giant in the industry, and not just in cosmetics and hygiene products. 

The New Jersey-based company is also on par with such pharma-giants as Roche, Novartis, Pfizer and Sanofi in the pharmaceuticals industry.

AstraZeneca has found itself beset by similar problems, despite being among the global leaders and possessing decades of experience in the production of pharmaceutical products. 

AstraZeneca promised the EU 120 million doses of its vaccine, called Vaxzevria, in the first three months of the year – but was only able to deliver 30 million doses. 

For the second quarter, the company promised 180 million doses, but will only be able to provide 70 million – if it can even reach that total.

The production shortfalls are apparently the result of serious manufacturing problems. 

That, at least, would seem to be the message of EU documents seen by the Belgian magazine Knack and the website 

The documents indicate that in January and February, a factory in the Netherlands belonging to Halix, which had been contracted by AstraZeneca to produce the vaccine, ran into major difficulties. 

A factory in Britain likewise encountered hurdles in ramping up to full-scale production.

"Scaling up is difficult for a new product," says pharmaceuticals expert Wilbert Bannenberg from the Netherlands-based Pharmaceuticals Accountability Foundation, which focuses on equal access to life-saving medications. 

"AstraZeneca didn't have much experience with vaccines. 

They apparently overestimated what they would be able to achieve."

The production of a vector vaccine requires hundreds of constituent parts. 

Even small variances – with a raw material being used, for example – can render the final product useless. 

As such, production experts doubt that suspending patents would increase vaccine supply on the short term. 

Even if you are holding the instruction manual in your hands, producing a vaccine is extremely complex.

High above the southern German city of Tübingen, the lights in many windows of a steel-and-glass structure are on the whole night through these days. 

This is where the biotech firm CureVac is located, and researchers there are in the final stages. 

In two, maybe three weeks, they will finally know whether and how well their vaccine works. 

The results of their global study, involving more than 40,000 trial participants, are almost complete. 

Preliminary data was encouraging, and CureVac has been conducting research on the mRNA technology longer than the others. For 20 years.

Moderna and BioNTech were faster anyway. 

For a time, it even looked as though the Tübingen-based company was going to be completely overshadowed by the others. 

But the problems that large companies like AstraZeneca and Johnson & Johnson have encountered, combined with the hype surrounding mRNA technology, have given CureVac new life.

"Our situation would look quite a bit different if we had had a strong partner on board by last summer," says Franz-Werner Haas, the CEO of CureVac. 

The U.S. company Moderna received billions of dollars in state support at the beginning of the pandemic, while BioNTech was the beneficiary of a huge investment from Pfizer, stemming from their pre-pandemic cooperation on other projects.

"It All Took Time"

CureVac wasn't quite as lucky. 

"To finance our study and develop our supply chains for production, we first had to complete a round of financing," says Haas. 

And then the company went public to acquire more money. 

"It all took time." 

The German state invested 300 million euros in the company, but by then, it was difficult to catch up.

Moderna and BioNTech used their capital mostly to reserve raw materials and production capacity. 

The American company, for example, secured an entire production facility belonging to the Swiss pharmaceutical company Lonza.

Absent comparable financial leverage, CureVac had a harder time finding suppliers and partners willing to turn over entire factories to vaccine production. 

Only in recent months has the company been able to assemble a group of partners including such giants as GlaxoSmithKline and Novartis. 

With their help, the company is planning on being able to supply 300 million doses this year.

"We would like to produce a lot more than that," says Haas. 

But there is a long lead time for many of the ingredients, he says, and suppliers don't have the required amounts in stock. 

"There is serious global competition for these resources."

There is particularly a shortage of raw materials produced in the U.S., like lipids. 

"Through the Defense Production Act, we are simply unable to get certain products out of the U.S.," Haas says. 

CureVac has little understanding for an America which, on the one hand, is hording both vaccine doses and raw materials necessary for vaccine production, while on the other hand, it is demanding that patent protections be suspended in order to help supply the rest of the world with vaccine.

As a latecomer to the vaccine party, CureVac would be especially disadvantaged by patent suspensions. 

If other pharmaceutical giants gained access to CureVac's vaccine blueprint, they would be in a promising position to quickly catch up. 

Sanofi, Roche and Chinese companies have already started their own mRNA research – research which would get a huge boost through patent suspensions.

Learning from the Pandemic

Were that to take place, what would become of CureVac's own production facilities which, similar to BioNTech's factory in Marburg, are set to produce around a billion vaccine doses per year? 

The company is currently converting its factory in Wuppertal, Germany, for the production of mRNA vaccines.

The company has also agreed on a deal with GlaxoSmithKline to quickly introduce vaccines against other infectious diseases. 

Together with Tesla, they are developing a compact, mobile mRNA factory that can be flown to regions experiencing viral outbreaks.

To avoid putting all that at risk, the CureVac CEO sees only one solution: "Europe has to be self-sufficient," he says. 

By way of licenses or technology transfer, all of the necessary raw materials and components must be produced in the EU, he says. 

"It's not about nationalism, but about establishing a certain degree of independence and ensuring that European companies can also profit from this new technology," agrees BioNTech CEO Şahin.

The German government has recognized the problem. 

It is speaking with pharmaceutical and chemical companies like Evonik, BASF, Merck and CordenPharma to ensure the production of vital special chemical products like lipids. 

New factories are to be supported both with financing and logistics.

In addition, Berlin is currently negotiating with all three mRNA producers about establishing stores so they always have enough supplies on hand to rapidly supply the entire country, independent of global demand. 

Moderna may also build its own factory in Germany for that reason. In return, Germany would provide either direct investment or purchasing guarantees.

It appears, in other words, that Germany's political leaders have drawn a few useful conclusions from the pandemic after all. 

Benefits for all

Joe Biden wants to Europeanise the American welfare state

His plans are ambitious, thoughtful and risky

WHAT A DIFFERENCE 25 years can make. 

In 1996, then-Senator Joe Biden was gushing about the vote he would soon cast in support of sharp reductions in cash payments for single mothers. 

“The culture of welfare must be replaced with the culture of work,” he said on the floor of the Senate. 

“The culture of dependence must be replaced with the culture of self-sufficiency and personal responsibility.” 

These days, President Joe Biden is proposing an ambitious reweaving of the American safety-net, which the White House says will cost $1.8trn. 

The American Families Plan has bits of the European welfare state that have long been missing in the country—a child allowance, paid family leave, universal pre-school, subsidised child care and free community college—but contains no reference to work requirements. 

Now that Mr Biden is president, his analysis of the problem has changed. 

“There’s millions of women out of work today not because they’re not qualified for the jobs they have, but they can’t take care of their children and do their job,” he has said.

The president’s opinions have followed those of his party: where the party goes, the man follows. 

So how did Democrats go from Clintonism—which implicitly conceded the Reaganite critique that too much governmental assistance is a very bad thing—to its present-day unconcern about (even relish for) deficit-financed expansions of the safety-net? Many factors are at work. 

They include general worries about inequality; a leftward shift reflected in the Democratic presidential primary; the Republican Party’s abandonment of fiscal responsibility under Donald Trump; and the recent spending bonanza prompted by covid-19. 

Data for Progress, a left-leaning but high-quality polling outfit, finds that the vast majority of Democratic voters endorse deficit spending on universal pre-K, clean-energy research, a health-insurance public option and a child allowance. 

More surprising is their finding that majorities of Republican voters support the same suite of policies (except for health insurance, on which they are exactly split).

However it happened, the break in philosophy, epitomised in the president’s own transformation, is here. 

According to this approach, reducing poverty is no longer just about aid targeted at the poor, which remains only tepidly popular. 

Poverty reduction is a side benefit of programmes that aim to help middle-class Americans as well. 

This would bring America more in line with the rest of the developed world: the average government spending on benefits such as child allowances, family leave and early education is 2.1% of GDP in the OECD club of mostly rich countries. 

In America, it is just 0.6%. 

The recommendations of the Biden plan could do quite a lot of good for American families, particularly if its excesses were curtailed.

Start with the most important bits. 

At present, one in six American children live in poverty by the government’s own measure. 

International comparisons, using a measure called relative poverty, suggest that the American rate is among the highest in the rich world. 

It is caused by flimsy supports for the youngest (as opposed to those for the elderly, who receive Social Security and Medicare). 

A generous child allowance is the main anti-poverty tool in most rich countries—and also one that America lacks. 

One such scheme was created this year as part of the covid-19 relief bill that the president signed in March. 

It will pay most families $3,000 per year per child ($3,600 for young children) and is expected to halve the poverty rate soon after its payments begin in July. 

A simultaneous boost to the earned-income tax credit, which tops up the wages of low-paid workers, would also reduce poverty among childless adults (while reducing disincentives to work).

Under the terms of the law, the child-allowance payments will last for only one year. 

The president’s plan proposes to extend these payments until 2025. 

Some Democrats think they should simply be made permanent rather than risking difficult concessions in a future when Republicans hold one chamber of Congress or the White House. 

“That’s the real downside risk: the possibility that we could end up having to agree to a bunch of regressive tax policies in order to extend what is a very progressive and popular tax policy,” says Michael Bennet, a Democratic senator from Colorado who has championed proposals of this sort since 2017. 

If the payments lapsed, child-poverty rates would probably shoot up again.

The White House’s decision to set an expiration date for the most important portion of its families’ package illustrates one quirk of Bidenism. 

The president wants to pursue the progressive wish-list while also nodding towards fiscal moderation. 

His team is already stretching the maths to suggest that its plans in this area could all be paid for by raising taxes on corporations and the wealthy. 

Recent number-crunching by the Penn Wharton Budget Model thinks the administration would still be several hundred billion dollars short. 

Extending the child-allowance portion fully would have been even harder to match with tax increases, particularly if they could only apply to the rich.

The families’ plan resembles signature policy platforms of Mr Biden’s Democratic challengers, cobbled together and funded at a fraction of their originally proposed cost. 

Among this team-of-rivals ideas are Mr Bennet’s child-benefits plan, Kirsten Gillibrand’s paid family-leave proposal and Elizabeth Warren’s massive subsidies for child-care centres. 

Republicans claim that all this is evidence of a Trojan-horse presidency for creeping socialism. 

But it is worth noting that Mr Biden’s proposed spending, grand as it seems, is approximately one-tenth of that laid out by Ms Warren in her primary campaign.

A half-strength cocktail can still induce a buzz. 

“In pretty much every respect, it really is just catching us up to what our peer countries have done for quite some time. 

On paid family leave, that dates back to Bismarck in Germany,” says Jane Waldfogel, an influential scholar on child well-being at Columbia University. 

Only America and Papua New Guinea lack a paid maternity-leave programme, notes Ms Waldfogel. 

Mr Biden aims to rectify that by setting up a federal scheme that would guarantee 12 weeks of leave. 

The federal compensation for the time off would cost $225bn over the coming decade.

States that have implemented paid family leave on their own initiative, like California, provide convincing evidence that what works in the rest of the developed world would take well to America, too. 

Infant health, maternal health, and rates of breastfeeding all increase with the implementation of such a programme, says Maya Rossin-Slater, a health economist at Stanford University. 

Ms Rossin-Slater’s own studies of the California example have shown a positive effect on labour-force participation for new mothers, though other studies have found a reduction in employment. 

“I like to say that paid family leave is not a silver bullet for solving gender-equity issues,” Ms Rossin-Slater points out.

A similar amount, about $200bn, is proposed to create a universal pre-K scheme for children aged three and four. 

This was a policy goal of Democrats even before Barack Obama pitched it, unsuccessfully, in his second term (at a more modest cost of $75bn). 

Advocates often cite the impressive long-run results from two experiments conducted 50 years ago, the Perry Preschool Project and the Abecedarian Early Intervention Project, which showed remarkable effects on improving education levels, employment and family lives. 

The question, however, is whether high-quality pre-K can be scaled. 

States such as Oklahoma, which implemented universal pre-K programmes decades ago, provide more up-to-date evidence. 

These, too, register positive effects on middle-school performance years later. 

Low-income students benefit the most from these programmes, scholars agree, but the results depend on the quality of the schooling.

Other components are on shakier ground. 

Take the generous subsidies proposed for child-care centres, under which families in rich states could receive tens of thousands of dollars in federal payments. 

Under the proposal, the cost of care at such centres would be capped at 7% of household income, for families making as much as 150% of the median household income in a given state. 

The paradox of child care in America is that it is ruinously expensive, almost $15,000 for an infant looked after in a centre, while child-care workers make $12.24 per hour. 

Mr Biden thinks that the market failure can be rectified by an enormous infusion of cash that will pay workers more and cost families less. 

But it seems more likely that, if the federal government is paying for much of it, centre-based care would grow even more expensive.

Discussion of efficient spending may now be seen as gauche in Democratic circles, but the question of quality matters as well. 

Done poorly, child care can have long-run negative effects rather than positive ones. 

The province of Quebec implemented a heavily subsidised universal child-care programme. 

A review of the results by three economists found that children had worse behaviour and social skills as a result; their parents, though they worked more, were less caring and reported worse health. 

Reviewing the evidence 11 years later, the same trio found that the negative effects had persisted and that “cohorts with increased child care access had worse health, lower life satisfaction, and higher crime rates later in life.”

This ought not to be fatal to the aspiration of universal child care in America. 

A brief experiment with the idea during the second world war seemed to result in long-run improvements for children, for instance. 

But it is a cautionary tale about the quality of public services that Democrats seem reluctant to grapple with. 

For all of the expense of formal child care in America, only one in ten providers are considered high quality.

A similar problem may confront Mr Biden’s proposal to make community college free for two years. 

Generous governmental subsidies and loan provision with little attention to quality resulted in the growth of low-quality, for-profit colleges (remember Trump University?). 

The Obama administration spent years drafting administrative rules to rectify that problem. 

With a newly advertised $109bn pot of money, ensuring that students actually enroll in degree programmes that provide gainful employment will be all the more important. 

Mr Biden’s approach is at least admirably restrained in comparison with the ideas coming from the party’s left wing, who favour a highly regressive programme of universal student-debt cancellation and heavy subsidies for four-year colleges favoured by the rich.

If Mr Biden does manage to create a durable new welfare policy, one characterised more by its benefits for the middle class than by aggressive means testing, he could create a better safety-net. 

Beyond the political challenge of actually getting it passed in Congress, however, lies the delicate challenge of proving that the new approach is economically sound. 

If employment drops, opponents will fret that the net has become “a hammock that lulls able-bodied people into complacency and dependency,” as Paul Ryan, a former Republican speaker of the House, once did. 

Already, Republicans are arguing that too-generous unemployment benefits are stalling the recovery. 

If inflation spikes, Mr Biden will be attacked for spending too much and overheating the economy. 

Progressives in his party will forever think he did not go far enough. 

Nonetheless they may also step back and consider their luck. After half a century in Washington, the final role Mr Biden wants to play is as the author of the biggest experiment in social policy since the 1960s.

A family affair: can prosecutors flip Donald Trump’s ‘eyes and ears’?

Allen Weisselberg is considered to be the key to unlocking the complex finances of the former president’s empire

Joshua Chaffin in New York 

     © FT montage; Getty Images

For Allen Weisselberg, the Trump Organization has not just been a job for the past 48 years. 

It has been a life — and his family’s life, too.

Weisselberg, 73, the company’s long-serving chief financial officer, was hired as a book-keeper by Fred Trump, the patriarch, soon after graduating from college. 

Over decades, he served Fred’s son, Donald, as the restless heir dragged the family business into Manhattan and then nearly wrecked it in Atlantic City.

On evenings after work — and sometimes early in the morning — he would drop by a Trump-owned apartment overlooking Central Park to visit his son, Barry, who worked for the Trumps managing the nearby Wollman skating rink until the city cancelled the contract this year.

Another Weisselberg son, Jack, is at a short remove: he is an executive at Ladder Capital, a real estate firm that was started after the 2008 financial crisis and soon became one of the biggest lenders to the Trump Organization. 

Allen’s sister-in-law, Stacy, also works for the Trumps in the insurance department at Trump Tower on Fifth Avenue.

So trusted is Weisselberg by the family that he was tapped to run the company alongside the elder Trump sons when Donald went to the White House.

Now, the legal question haunting the former president and his business empire is whether Weisselberg, who once described himself as Trump’s “eyes and ears”, will break that trust, and betray the family to whom he has devoted his adult life?

Donald Trump talks to his father Fred in Atlantic City in 1990. Trump Snr first hired Allen Weisselberg, the Trump Organization's chief financial officer, as a book-keeper soon after he graduated © AP

Out of office, and shorn of the protection of the presidency, Trump is facing legal peril on multiple fronts. 

In Georgia, prosecutors have launched separate investigations into his apparent attempt to overturn the November election when he badgered the state’s top election official in a January phone call to “find” more votes for him. 

Meanwhile, in Washington, local and federal prosecutors are examining whether the former president can be tried for his role in instigating the January 6 insurrection on Capitol Hill.

But the most dire threat may be the criminal investigation by Cyrus Vance, the Manhattan district attorney. 

It began in 2018 in response to reports that Trump’s former fixer, Michael Cohen, had made $130,000 in hush money payments to a former adult film actress who claimed to have had an extramarital affair with Trump. 

It has since evolved, according to court filings and people briefed on the matter, to focus on possible banking and insurance fraud at the Trump Organization.

In particular, Vance and his team are exploring whether the company committed fraud by knowingly inflating the values of some properties to secure bank loans or insurance on favourable terms while understating them to minimise taxes. 

Trump has dismissed that probe — and a parallel, civil investigation by the New York attorney-general, Letitia James — as a partisan “witch hunt.”

Weisselberg is regarded as a skeleton key uniquely capable of unlocking the complicated finances of the family business. 

“Not one penny came into the Trump Organization, or went out of the Trump Organization, without it crossing Allen Weisselberg’s desk,” says Cohen, who was sentenced to three years in prison for crimes stemming from the hush money payments.

Michael Cohen, centre, at a hearing in 2019. Trump's former fixer says: 'Not one penny came into the Trump Organization, or went out of the Trump Organization, without it crossing Allen Weisselberg’s desk' © Bloomberg

Authorities have stepped up their scrutiny of Weisselberg and some of his family members in recent months in what former prosecutors say looks like an attempt to force his co-operation. 

He could prove valuable on a witness stand, say legal experts, guiding a jury through a case that might otherwise rely on the drudgery of accounting ledgers. 

As Trump’s numbers man, he could also speak to the intentions of a boss who did not use email and seldom put his orders in writing.

“They need witnesses to connect those dots,” says Daniel Horwitz, a former prosecutor in the Manhattan DA’s office who now leads the white collar practice at McLaughlin & Stern.

‘A Trump soldier’

Persuading him to switch sides, according to Horwitz, is less a prosecutorial art than a matter of cold calculation. 

“The analysis is the same for anybody who’s being pressured to flip,” he says, “and that is: what is their tolerance for bad consequences if they don’t flip?”

Some legal observers are sceptical. 

“I would have expected flipping Weisselberg to be an uphill battle,” says Daniel R Alonso, who served as Vance’s top assistant and now practises at Buckley, noting that New York state law the DA upholds tends to be less frightening for defendants than federal law. 

“If I had to speculate, I’d say he doesn’t flip based on his own liability. 

But that could of course change if his family members are in jeopardy.”

Manhattan district attorney Cyrus Vance, centre, whose criminal investigation into Donald Trump and his business began in 2018 over hush money payments and has evolved to focus on possible banking and insurance fraud at the Trump Organization © Peter Foley/Bloomberg

So attuned to the Trumps is Weisselberg, says a person who knows him, that he gave up drinking out of respect for Donald, whose brother, Fred Jr, died of alcoholism in 1981. 

Another described him as a “Donald Trump soldier” who would “walk through fire” for his boss. 

“In order to be there forever you have to have undying, total loyalty that transcends human comprehension,” this person explains.

But for Weisselberg, the analysis may be shifting, thanks to an unlikely figure: his former daughter-in-law, Jennifer.

She has been engaged in a bitter divorce fight with Barry Weisselberg that began in 2017, losing custody of their two children in the process, which she is contesting.

In recent days Jennifer has handed over three boxes of personal financial records to Manhattan district attorney investigators, and has hired a forensic accountant to review others for possible evidence.

“She has a number of financial documents they’re interested in,” says her lawyer, Duncan Levin.

In control

One item to emerge from her divorce is that the apartment on Central Park South where she and Barry lived rent-free for several years after their 2004 wedding was still owned by the Trump Organization — unbeknown to Jennifer, who believed it had been a wedding gift to the couple. 

That has raised the question of whether appropriate taxes were paid on the property — by the company or the couple.

In an interview, Jennifer explains that compensating employees through other means — be it cars or paying her children’s $49,000-a-year private school tuition — was a standard Trump practice orchestrated by Weisselberg. 

It allowed the company to minimise taxes while enforcing loyalty.

“When you start working there and they pay for your house and your cars, it’s a lifestyle,” she says. 

“That’s how they pay, and it controls you.”

Investigators from the DA’s office have asked Jennifer about Barry’s work at Wollman Rink, and appear to be interested in how its cash receipts were handled, according to Levin. 

They have also inquired about Jack’s work at Ladder Capital.

The firm arranged a $100m loan for Trump Tower in 2012 and a $160m loan for 40 Wall Street in 2015. 

At the time, other lenders — with the exception of Deutsche Bank — shunned Trump after his string of bankruptcies. Jack Weisselberg and Ladder Capital declined requests for comment.

More broadly, says Jennifer, “a very big part” of the questions investigators had posed to her concerned “the control [Weisselberg] exhibits both at work and outside of work”.

Weisselberg has not been accused of any crime and it is far from clear whether he — let alone Trump — ever will be. Accounting cases are notoriously difficult to prove to a jury. 

To take the potentially explosive step of bringing charges against a former president would require a robust case — not a mere technicality, say former prosecutors.

 Weisselberg declined requests for comment for this article.

Vance’s window to bring charges is closing because he is leaving office at the end of the year.

Still, some believe they glimpsed the DA’s intentions in February when Mark Pomerantz, a seasoned former prosecutor who helped take down the Gambino crime family, left private practice to assist Vance.

“Would you do that if you were coming over for a BS [bullshit] investigation that’s not going anywhere? 

Would you want to quit your job and be associated with that? 

Probably not,” says one former official from the DA’s office. 

Michael Bachner, a New York defence lawyer, called Pomerantz’s hiring “a very aggressive tell by Vance”.

‘He knows the numbers’

Like his longtime boss, Weisselberg grew up in an outer borough of New York — in his case, the Brownsville neighbourhood of Brooklyn.

He graduated from Pace College in 1970 with an accounting degree.

Even as his fortunes rose, he and his wife lived for years in a modest ranch house in Wantagh, Long Island — which Trump once mocked at a shiva, a Jewish mourning ritual, according to Jennifer — before finally moving to a Trump building in Manhattan.

One of the rare occasions when the balding, bespectacled Weisselberg emerged from behind the curtain of the Trump Organization was his appearance as a judge on a 2004 episode of The Apprentice, the reality television programme that helped launch Trump’s political career.

“If this was a military manoeuvre and he lost his line of communication, he could lose an entire battalion,” he remarked, sounding like second world war US general George Patton by way of Brooklyn, as he assessed one contestant’s attempt to lead a pet massage business.

Behind the scenes, Weisselberg was an indispensable numbers man whose office was beside Trump’s on the 26th floor of Trump Tower. “He knew the business probably better than anybody when it came to numbers and performance,” one former colleague recalls. “It was always: get Allen in here! He knows the numbers.”

Over the years, he served on the board of the Trump-owned Miss Universe Organization, was the treasurer of the Trump Foundation, the former president’s scandal-plagued charity, and oversaw finances for the now shuttered Trump University, which paid a $25m settlement to aggrieved students.

In his book Think Like a Billionaire, Trump recalled how Weisselberg stood by him during his struggles in the early 1990s, when his casino empire was teetering and banks were threatening to cut off funding. Weisselberg dutifully set about renegotiating the company’s payments.

“He did whatever was necessary to protect the bottom line — and refused to succumb to the pressures of risk,” Trump wrote, calling Weisselberg “a loyal employee” and “the ultimate master at playing the cards of business”.

A New York real estate executive who has long known Weisselberg described him as “sort of the prototypical Trump executive” — one who understood that loyalty was the paramount virtue, and secrecy was a part of the bargain.

His tenure also attests to another truth about the Trump Organization: in spite of the world-conquering image it cultivates, it remains in many ways the same Queens shop Fred Trump founded. 

While other New York real estate dynasties have become more professional and institutional over the generations, Trump has not.

“He may have built bigger buildings, but he never built a bigger organisation,” the executive says of Trump. 

“The truth is he ran his father’s business. 

It’s all in the family, keep the families close, keep people forever. 

People who are loyal will do what you tell them to.”

The Weisselbergs are one of a handful of families in the upper echelons of the company. 

There is Matthew Calamari, a security officer who Trump recruited after watching him tackle a trespasser at the 1981 US Open tennis tournament. 

He eventually became head of operations. 

His son, Matt Jr, works in security and his brother, Michael, manages construction. 

There is Jeffrey McConney, the financial controller, whose son Justin guided Trump’s entrée to social media. 

There is Deborah Stellio, and her late husband, Vincent, who — among other chores — helped Trump manage the local politicians when the boss pushed to rename a street beside his Los Angeles golf course.

“It’s all in the family,” Jennifer says, of a universe where Trump is the sun, no one ever dares outshine him, and part of the reward for success is more time with Trump — on his private jet, on a Trump golf course or at his Mar-a-Lago club in Palm Beach. 

Her introduction came during her first date with Barry, who, she said, took her to lunch with his father at Trump Tower. 

“This is not a regular business,” she concludes. 

“These people aren’t regular business people. It’s a mess.”

In an interview with the FT, Cohen recalls his former colleague as respected in the company, but not necessarily liked. Asked what motivates Weisselberg, Cohen replies: “A job. 

A job that was far greater than what he should have been able to attain, and so keeping that job was the single most important thing to him.”

Testifying before Congress in 2019, Cohen mentioned Weisselberg more than 20 times as he provided a glimpse of one of the trickier assignments carried out by the Trump Organization’s CFO.

It was Weisselberg, he claimed, who contrived to reimburse him for the hush money payments by having the Trump Organization pay him a separate monthly fee it recorded as legal expenses. 

“Allen Weisselberg made the decision that it should be paid over the 12 months so that it would look like a retainer,” Cohen explained to legislators.

A brief shudder went through Trump observers three years ago when it was reported that Weisselberg had been granted limited immunity from the US attorney’s office for the southern district of New York in order to testify in the hush money investigation. 

Many interpreted his co-operation with federal prosecutors as Weisselberg having, at last, flipped on his boss.

It now appears that Weisselberg’s testimony was squarely aimed at Cohen — a man who once vowed that he would “take a bullet” for Trump before ultimately turning against him.

Now out of prison, and cast out of Trump world, Cohen says of his erstwhile rival for Trump’s affections: “He has talents. 

He’s been doing this for over four decades.”