States, disunited: the controversy around cluster bombs

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Hello, and welcome to the Intelligence from the Economist. I'm Jason Palmer.

And I'm Ora Ogumbi. Every weekday we provide a fresh perspective on the events shaping your world.

Given just how much news there is around artificial intelligence, you'd think every business in the world is dipping its toes into the tech. But there are some real leaders and some real laggards, and the Economist has got a handy new index to track them.

And when powerful companies become embroiled in scandal, things can get juicy. The NDAs, the whistleblowers, and the millions and billions of dollars at stake make for great stories. Our correspondent recommends a few books to get, But first. Today, America's President Joe Biden is making a brief stop in Britain on his way to a NATO summit in Lithuania. He'll meet Prime Minister Rishi Sunak to discuss how to keep supporting Ukraine's war effort. While both leaders are committed to sending arms, they seem to disagree on what kind. Last week, Washington confirmed that they will supply Ukraine with cluster bombs in a bid to support their ongoing counteroffensive.

We base our security assistance decision on Ukraine's needs on the ground. And Ukraine needs artillery to sustain its offensive and defensive operations. We will not leave Ukraine defenseless at any point in this conflict, period.

But it's a decision that the UK won't be able to support.

Well, the UK is signatory to a convention which prohibits the production or use of cluster munitions and discourages their use. We will continue to do our part to support Ukraine.

Beyond America and Britain, other NATO members are divided on the use of these highly controversial, indiscriminate bombs, based largely on the consequences of their use in the past. But is the argument different this time?

Ever since the beginning of the war, Ukraine and the west have been in a strange dance where Ukraine keeps demanding more weapon systems and the west holds back on giving them what they want.

Chris Lockwood is our Europe editor.

But gradually, the west does do it. They say that they're afraid of escalation and the threat from Russia, but they do it in the end. So we saw that with longer range weapons like the Himars rocket systems. We've seen it with tanks, we've seen it with jet fighters now. And the latest iteration of this is the demand for cluster bombs. Ukraine needs cluster bombs and for a long time the west wouldn't supply them. Now America says it will supply them, although other European countries are opposed to doing this.

Chris, tell me a bit more about these cluster bombs and why are some states skeptical of them?

Yes.

So a cluster bomb is fired either from a howitzer or possibly from a missile launcher, and what it does is explode and scatter small bombs over a wide area. And the point about that is it's a very efficient way of doing a lot of damage in a wide area. And that being asked for by the Ukrainians, because they are trying to clear Russian mines and tank defences and indeed personnel from wide areas of territory where the Russians are dug in so that they can continue their advance. At the moment, they're pinned down and not very able to move. And lots of people don't like these cluster bombs. Why? Because quite often when they scatter, not all of the bombs go off. But the problem is that the unexploded ones stay there, on or in the ground, for possibly decades. A bit like landmines, in fact, which is not what they're meant to do. They're meant to go off immediately, not to sit around like landmines. But that poses a threat, possibly for many decades. Children pick them up and get injured by them. They are a weapon to be used with great circumspection. But the Ukrainians argue this is their territory they're using them on. They will deal with cleaning them up afterwards and it's the only way to get the Russians out. So please, can they have them okay.

Tell us who is in support of them and who isn't.

What we have is the situation where Ukraine wants to have them, America wants to supply them, but lots of other countries are skeptical. There's been a convention signed, many countries are signatories to it banning their use. In fact, 25 out of 31 members of NATO have signed up to this agreement that prohibits their use. But crucially America hasn't and Ukraine's not in NATO and hasn't. Russia actually hasn't. This is the point. You know, the cluster bombs are already being used in Ukraine very extensively, in fact by Ukraine itself, but mostly by Russia. So there's plenty of cluster bombs being used anyway. Ukraine just wants to have more and better ones. But it is very controversial because of the existence of that treaty. And now we have a situation where it's almost turning into a wedge issue within NATO because several NATO members, including Germany and Britain have extended, expressed great scepticism about their use in Ukraine. Not quite come as far as saying to America don't use them, not that America would be bound to listen, but certainly saying that they don't think they should be used, if I can put it that way. And this comes to the head slightly today actually because Joe Biden is in Britain where he's going to meet Rishi Sunak, the Prime Minister before going on to the NATO summit in Vilnius that starts tomorrow. And they will certainly, among a list of other things where there's a certain amount of tension just at the moment, they will certainly talk about cluster bombs.

And you said that the Ukrainians want more and better ones. What are their plans to use these tactically?

What the Ukrainians main strategic objective in the current counteroffensive is, is to cut the so called land bridge that connects Russia itself through the occupied Donbas region all the way to Crimea. Ukraine has a huge strategic interest in cutting that land bridge which would render Crimea effectively isolated, very difficult to resupply. So that's what they're trying to do. And the problem is the Russians are very well dug across that whole land bridge area. And the Russians have got in some places as many as four defensive lines, which means trenches, tank traps, mines and artillery positions. Lots of things there to prevent the Ukrainians punching through. So in order to do that the Ukrainians need to clear those areas of obstacles. And the best way they think for them to do that is cluster bombs. Now they could have done it other ways, but the problem is the west has been so slow at giving the Ukrainians other things that Might have been useful, like advanced aircraft. They could have done it by having air superiority or longer range missiles or more tanks. There are lots of other ways they could have done this, but they haven't been able to. So now say, well, at least give us Custer bombs.

Tell us a bit about the nature of the opposition to these weapons. I mean, what are Ukraine's other allies saying about these weapons?

Well, there is a lot of opposition. Some countries are opposed because they've signed up to the convention against the use of them. So Spain has explicitly said that they shouldn't be sent. Germany is actually blocking Estonia from re exporting its cluster weapons to Ukraine. And in America there is opposition too. Mostly the Democrats and Republicans do support what Joe Biden says he's planning to do. But House progressives have said that they oppose this. I mean, it's actually kind of irrelevant because they have no power to block it in any way. It's an executive action. But still, it shows you that this is a somewhat controversial move. Even, you know, the leader of NATO, the Secretary General, Jens Stoltenberg, has, you know, alluded to the fact that there are some difficulties here.

Cluster munitions are only used in the war in Ukraine by both sides. The difference is that Russia is using cluster munitions to attack, to invade Ukraine. Ukraine is using cluster munition to protect itself against an aggressor.

But the fact is that it doesn't require all of NATO to agree. There's no veto here. If America decides it wants to do this, as it apparently has, then it can do it.

But Chris, despite these reservations, America's still going ahead to supply these weapons.

Yes, and the reason for that is just because the counteroffensive is going quite slowly. They've taken a few villages here and there, but mostly on the Ukrainian side of these big defensive lines. What they haven't done is started the process even of punching through the first defensive line, let alone the second, third, and in some places fourth. So, you know, they definitely need something more. It's going slowly but steadily. So I don't think one should despair yet. But you know, war doesn't proceed according to direct timetables. And the Americans also claim that the new versions of cluster munitions that they're going to spend are much better than the older ones. Better in the sense that they have a much lower dud rate, so there's less to clean up in terms of unexploded cluster munitions afterwards.

Okay, so better cluster bombs. And Ukraine has said they're willing to use them on their own territory and they'll be responsible for the cleanup. Chris, could things unfold a bit differently than in cases when cluster bombs have been used in the past?

Well, I think so. You know, first let's remember this is Ukraine's own territory that we're talking about, so they're taking the responsibility for it. The uses of cluster bombs that people really object to the most, I think, is when a hostile state uses them on territory that it's moving into, in occupied territory, then perhaps if it's beaten back, it leaves behind this terrible legacy. But the Ukrainians are saying we will take that risk, we will bear that burden. We will do that cleaning up afterwards. So they say they're the ones that are in the best position to judge, judge the trade off between getting rid of the Russians today and dealing with any possible harm from leftover cluster bombs in the future. You know, the Ukrainians say they will be extremely careful to map where they use the munitions. They won't fire them in urban areas where obviously they could do much more damage to civilians. You know, for the most part, they will be doing it in pretty rural areas where the only people that are there are Russian soldiers. That doesn't mean that later on civilians might not move into those areas, but they'll be very thinly populated, you know. And I come back to the point that runs all the way through this, that there are already quite a lot of cluster bombs in this territory. So a big cleanup operation after the war will be necessary, whatever happens. And this just adds a bit more element to it, but hopefully ends the war sooner and therefore means that there will be much less destruction and loss of civilian life as a result of that.

And Chris, in light of all this, what should we expect from the summit in Vilnius?

Well, Vilnius will try, I imagine, to paper over this row about cluster bombs. The summit is going to operate at a kind of much higher and strategic level. And the big thing that they will want to talk about there and the thing that everybody should watch for is what kind of security guarantees are given to Ukraine and what kind of path towards membership of NATO is given to Ukraine.

And we'll be sure to cover the outcomes of the summit on the show. Chris, thank you so much for coming on.

And thank you very much.

If you believe some of the reporting on artificial intelligence, it's about to take over the world of business. Everywhere you turn, there's some firm touting a new AI driven way to automate tasks or take humans out of the loop. But how much difference AI will make and in which companies and industries is really unclear. So we're introducing the Economist's AI Early Adopters Index, a deep dive into which sectors are getting their teeth into the tech and which are lagging behind.

There's a huge amount of excitement around at the moment about artificial intelligence.

Guy Scriven is the Economist's US Technology editor.

People compare it to the invention of electricity, or some people compare it to the invention of fire, which feels a bit far fetched. But I think it certainly, certainly true that it's going to diffuse into the wider economy and has already started doing that. And I think it is important to get a sense of which firms are actually using AI and which firms are using it in a sophisticated manner.

So how do you actually construct such an index?

Well, I think no methodology is perfect, but what we did to have a kind of stab at it was to look at the firms in the S&P 500. And then we looked at five different indicators as to how much a firm is focusing or thinking about AI. So one was the share of patents that the firm had been granted that mention AI. Another was the share of venture capital deals the firm had struck which target AI companies. The third measure was acquisition of AI firms. We also looked at job listings which cite AI as a necessary skill. And we also looked at earnings calls and the extent to which they mention AI as well.

And in doing all of that, what are the sort of broad trends that you see?

So the first thing to say, I think is some degree of AI expertise is already widespread in all sorts of companies. So from our data, about 2/3 of companies had placed a job ad in the last three years which mentioned or kind of requested AI skills. You've also seen an uptick in the kind of focus these companies are placing on AI. And that uptick's also reflected in the patent data. So you see a Trend upwards of AI related patents between 2020 and 2022. And the upticks also reflected in the venture capital data. So far this year, about 25% of venture capital deals by S&P 500 firms have involved an AI startup. And that's up from about 19% in 2021.

And so you looked at this also across sectors industries, which industries are right out front in your index?

Well, it won't come as a surprise to anyone that Silicon Valley dominate the top of the list. Once you look beyond tech, though, There are probably two types of industries that also appear in the top 100 of our ranking. One type of industries are industries that are very data heavy, that have Lots of structured databases. So in particular I'm thinking of kind of financial services firms, insurance firms and healthcare providers. I think there's another group of industries which also have been quite quick to adopt AI and that's basically industries which are in the process of or have been recently kind of disrupted by technology. So that includes firms like carmakers. So if you think of a surge in interest in electric vehicles, that includes retail. And if you think about the way that E commerce has disrupted that industry and similarly kind of telecoms and media have also been kind of disrupted recently with technology.

I mean, that is already a whole lot of business. You might guess that, you know, more or less AI is coming for every business to one degree or another eventually.

I mean, I think it's certainly fair to say that there are lots of different applications for AI and lots of different businesses can use it in different ways. But it's also true that there's a lot of variation within industries. Looking through our data, I mean, There are about 70 firms in the S&P 500 that show kind of no signs on any of our metrics of focusing or kind of talking about AI. And that includes firms in some of the industries I've already mentioned. So you see a kind of wide spectrum of AI use across individual industries and you even see a kind of big variation within companies. So I spoke to one management consultant who told me that he visited two different departments in one day in one business and there was a huge gap in the amount of kind of AI experience and understanding that those two departments in the same company had.

So this is all kind of a top level measure of who is in the space and who's leading the innovation and what have you. But we haven't really spoken much about how this stuff is to get used to.

Yeah, so it gets used in all sorts of different ways. And just for a moment, focusing on the most recent wave of what they call generative AI, which is a kind of form of artificial intelligence, which is very good at creating new content, from new poems to pictures to films. There was a recent study which looked at the different applications of this generative AI and it found that basically a lot of the value is likely to be created in four different applications. So one was customer service, another was generating writing code, another was research development, and the fourth was sales and marketing. So we found that about 45 non tech firms had recently placed ads mentioning model training and that was from companies in all sorts of industries. So kind of insurers, aerospace companies like Boeing, healthcare providers like Unitedhealth and that suggests that companies are building their own models rather than using off the shelf ones from companies like OpenAI. And that suggests that a lot of companies, even outside tech, are starting to become more sophisticated in the way they use AI and using them for lots of different applications too.

And I guess the big question here, and perhaps fodder for a future index you'll be working on, is does this result in returns, though? Is all of this AI activity going to be linked, do you think, to AI successes?

Well, I think ultimately it'll probably be a mixed bag. That at least has been the experience of kind of previous waves of AI where lots of companies have got very excited about AI and started experimenting with it. There certainly are ways that it can hugely increase productivity. So I think there are financial rewards out there and some companies are going to make the most of that. But that said, there are plenty of risks here. Some of the companies that make models such as OpenAI, are being sued for violating copyright laws. There are also risks of the kind of your investment in this technology just not working out, that the application that you had in mind just isn't really right and it doesn't really work. But in all these risks have to be weighed against the potential benefits of using AI, which could be enormous. And often big waves of technology like this can turn industries on their head and create a whole new list of winners and losers. And it's hard not to imagine this wave of AI doing the same thing. I think for a lot of companies it is becoming table stakes to either be experimenting or thinking quite seriously about how they should be using AI.

Thanks very much for your time, Guy.

Thanks, Jason.

The telling of a juicy corporate scandal is much like a detective story.

Philip Coggan was a longtime columnist at the Economist, but now has a bit more time to read than he used to.

The investigator, usually a journalist, must examine the clues, interrogate those suspects who are willing to talk, and with luck, get to the bottom of things. My selection of books uncovering individual corporate scams deals with a wide range of industries, from biotech to fintech. But the common factor in them is the enormous difficulties faced by those who.

Try to investigate bad secrets and lies in a Silicon Valley startup by John Carreyrou.

Bill Gates described the book as a thriller, and it's easy to understand why. It's the extraordinary story of Theranos, a healthcare company led by the charismatic Elizabeth Holmes.

I want to just take a minute to say, especially to the young women in the room here, it's these are actions that will determine this new stereotype around women being the best in science and technology and engineering.

The company claimed to have a revolutionary product which could diagnose all sorts of diseases with a tiny finger prick sample of blood.

Over the course of the last 11 years, we've made it possible to run comprehensive laboratory tests from a tiny sample that could be taken from a finger.

It led to enormous buzz, and Elizabeth Holmes, who started the company as a Stanford dropout with her black Steve Jobs like turtlenecks and adopted raspy voice, seemed to perfectly encapsulate what we expect from a Silicon Valley genius capable of changing the world with a single product.

First they think you're crazy, then they fight you, and then all of a sudden you change the world.

The company managed to attract luminaries such as Henry Kissinger and General James Mattis to its board and lured Rupert Murdoch as an investor. But there was just one problem. Its technology never actually worked. And Theranos elaborate security was designed not to protect its secrets, but to disguise its lack of progress. In 2015, John Carreyrou, a reporter for the Wall Street Journal, started investigating the company. With everything at stake, Theranauts fought back with everything it could. Whistleblowers were fired or silenced with non disclosure agreements, and doctors were intimidated. All of which made it tremendously difficult for Mr. Carreyrou to uncover the full story. But he prevailed, and his book, which was published in 2018, was a bombshell. The company shut down all operations a few months later, and Ms. Holmes, after years of court proceedings, entered prison to begin a 12 year sentence. It was the closing chapter of one of the most dramatic rises and falls in Silicon Valley history.

Empire of the Secret History of the Sackler Dynasty by Patrick Radden Keefe.

The Theranos scandal is relatively small compared with the opioid crisis that has affected America in recent decades and which has devastated thousands of lives. In his meticulously researched book, Patrick Radden Keefe, a reporter for the New Yorker, recounts the history of the Sacklers, the family behind Purdue Pharma and OxyContin, a prescription drug that many blame for the crisis. Reading the book, it's hard not to become angry as this tale unfolds. A member of the Sackler family told people had gathered at the launch party for OxyContin that the prescription blizzard will be so deep, dense and white, their plan for mass market opioids was aided by a vast salesforce team and by misleading advertising which claimed that fewer than 1% of patients would become addicted. But the widely available and prescribed drug caught many people in its web, and regulators failed for years to prevent the marketing of what was clearly an extremely addictive drug. When OxyContin was reformulated in 2010 to make it more difficult to abuse, many Americans who are already addicted switched to heroin and eventually fentanyl, with consequences that we still see today. OxyContin maker Purdue Pharma is reportedly preparing a bankruptcy filing. The Wall Street Journal reports the company.

Is seeking to avoid liability from hundreds.

Of lawsuits alleging it fueled the US Opioid epidemic. Faced with lawsuits, Purdue Pharma was dissolved in 2021, but members of the Sackler family escaped without serious personal consequences.

A federal appeals court has ruled that the billionaire owners of Purdue Pharma, the Sackler family, will be protected from civil lawsuits linked to the opioid crisis in exchange for a 6 billion dollar settlement.

Sifting through the reams of evidence unearthed by court proceedings, Mr. Keefe shows how callous some of the Sacklers have been over the destruction wrought around them, blaming the problem on immoral addicts rather than the drug.

Money men. By Dan McCrum A few years ago.

Wirecard, a payments processing company, was riding high. It had become one of the top companies in its field globally and was seen as one of Europe's brightest tech stars. At its peak, it was even included in the DAX, Germany's leading stock market index. But Dan McCrum, a journalist for the Financial Times, was one of a small band of skeptics who believed the firm was a giant fraud and with the help of leaked information, he started digging into the accounting of the company its business called into question why a card went on a vicious counter attack. It hired private detectives and had Mr. McCrum followed and surveyed. But what makes this story stand out is that the Financial Times didn't just have to face countermeasures by the company. It also faced the wrath of the German authorities, which saw the stories as a trumped up attack on the national champion after Wirecard stock tanked. Following articles by Mr. McCrum published in 2019, the German financial regulator Bafin banned investors from betting against Wirecard shares for two months. And that wasn't all. Barfin went so far as to file a criminal complaint against Dan McCrum and another journalist at the FT with the Munich Criminal Prosecution Office. They accused the journalists of potential market manipulation over their reporting on Wirecard suspicious accounting. Finally, by 2020, when it was shown beyond a shadow of a doubt that large proportions of its corporate revenue and cash were a complete sham, Wirecard collapsed and filed for insolvency the CEO, Marcus Braun, was arrested and charged with fraud and market manipulation. The scandal was an absolute embarrassment for German regulators and a remarkable redemption for Dan McCrum and his reporting. Corporate fraud is a risky business. The more successful the fraud, the harder it becomes to maintain as the company grows. But the struggles involved in bringing these stories to light suggest that many more corporate scandals have yet to be uncovered. All they need is someone capable and willing to do the work of unearthing the crimes.

That's all for this episode of the Intelligence. Let us know what you think of the show. You can get in touch@podcastseconomist.com and if.

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