Time Internationa's Editor Writes A Very Perceptive Synthesis of the Annual Meeting of the World Economic Forum
Davos 2008 (Published in TIME Magazine, January 31, 2008)
By Michael Elliott
High winds on the last day of this year's annual meeting of the World Economic Forum in Davos prevented me from taking my usual run from the top of the Weissfluhjoch to Klosters, thinking on the way of what I'd learned during the week. I wasn't too upset. Deprived of my usual partner on the pistes — Martin Lukes, ex-CEO of a-b Glöbâl, who was unavoidably absent from this year's meeting — the long trail down into the village would not have been much fun. Instead, I donned cross-country skis and trudged from Davos up the sunless Dischma Valley. Within a few hundred meters, I'd left the apartment blocks and tourist shops of town, and was in a world where, not long ago, peasant farmers and transhumant cattle sustained each other in a way that had not changed in centuries. I'm reading Graham Robb's stunning new book The Discovery of France, and felt I was in one of those Savoyard valleys he describes where, deep into the 19th century, inhabitants hibernated through the long winter, huddled together with their cows for warmth, shut up in fuggy farmhouses against the bitter cold outside.
A gloomy thought, I will concede, but then this year's Davos began on a gloomy note, with the nosedive in Asian markets followed by the Fed's panicky 75 basis point cut in interest rates. I don't know if real bears can smack lips, but the ones at Davos certainly tried, outdoing each other in their predictions of the length and breadth of the coming U.S. slowdown. George Soros, for one, fretted that we were in the midst of the "worst market crisis in 60 years." In Davos, European schadenfreude for American woes of the moment always lurks just below the surface smiles, so there was also a certain grim satisfaction that Uncle Sam had got his comeuppance for years of profligacy. It didn't last. The final two days of the conference were overshadowed by the astonishing news that Jérôme Kerviel, a 31-year-old trader at Société Générale in Paris, had managed to lose one of France's most important banks $7.2 billion. Americans could mop their brows in relief; it wasn't, after all, just them that made a hash of their cash.
Like London or the Olympic Games, my Davos is not your Davos. With a couple of thousand people milling around the town and hundreds of official meetings, to say nothing of the unofficial ones in bars and restaurants, any view of the week is bound to be partial, so take these impressions for what they are — just that. But pretty much everyone would agree that the economic crisis dominated this year's Davos. In endless discussions, politicians and pundits lined up to say either (most of the politicians) that the fundamentals of the global economy were sound, or (many of the pundits) that the long boom in U.S. consumption had run its course, and hence that the essential locomotive of world growth had run out of puff. British Prime Minister Gordon Brown, during a short question-and-answer with Forum president Klaus Schwab, came across as a lot more sensible than most, both warning the audience not to celebrate a few silver linings in the gathering clouds, and setting out a menu of choices around which policy could coalesce — such as a continued commitment to free trade, and a real determination to reform the international financial institutions so that they can ameliorate global imbalances and smooth out economic disruptions. Old friends among the British journalism corps said they'd heard it all before; but for all Brown's travails in domestic politics, many of them of his own making, he came across at Davos just as he is — a man of high intelligence, who has thought through issues of globalization with a seriousness most political leaders could never approach. I was impressed.
The bigger question around the economy was only partly one of the right policies to follow. It was, rather (and I borrow the thought from Martin Wolf, indispensable columnist of the Financial Times), whether an intellectual fashion for financial capitalism has run its course. For the last 25 years, since the long bull market began in the early 1980s, economics has been synonymous with what goes on in the financial markets, and the movers of those markets — the investment bankers and the hedge-fund titans, the bond traders and the math wizards — have been the heroes of our time. It's been a very Anglo-Saxon world, at least as that adjective is normally, if erroneously, used. But if the bull run is truly over, it would not be surprising if attention turned once again to what used to be called "the real economy" — stuff like unemployment and capacity utilization, industrial structure and national wealth. Plainly, rising economic powers such as Russia and China have a very different conception of what capitalism means than the boys in London and New York, and a very different sense of the extent to which the national interest — rather than profit maximization pure and simple — is a driver of economic decisions. It will be interesting to see if such heterodox thoughts move west.
The Old Order Changeth
In a sense, you might say that they already have. Since the crisis started to roil Wall Street in the summer, the world has discovered that a sovereign wealth fund is not — as many must have thought — a stash of small change that Queen Elizabeth raided when she wanted a flutter on the horses. In the last 10 months, investment funds derived from public income and managed by government appointees have injected some $70 billion into U.S. finance houses. There is little sign of their role diminishing any time soon; the very non-Anglo-Saxon savings rates of Asian economies such as Singapore, and the wealth that $92-a-barrel oil is flooding into the Middle East, guarantees that there will be more funds from the East looking for opportunities in the West.
So far, I've been pleasantly surprised by the way in which the rise of sovereign wealth funds has not sparked off a wave of xenophobia in the U.S. (When the Japanese overpaid for everything from Hawaiian beachfront hotels to midtown New York City real estate and Californian golf courses 20 years ago, by contrast, half of Washington had a collective attack of the vapors.) Of course, in an election season, that may change — the IMF is probably wise to ask Singapore, Abu Dhabi and the blond sheiks of Norway to see if they can come up with a code of conduct for how the funds should operate — but so far, protectionism has been remarkably absent from U.S. political discourse this year. John Edwards, who was the most economically populist of the leading Democrat candidates for the party's nomination, is now out of the race; Mitt Romney's disingenuous pledge to save every lost job in Michigan may have won him the Republican primary there, but doesn't seem to have done him much good in other states.
Secretary of State Condoleezza Rice underlined the point in a plenary address on the first day. "The United States," she said, "continues to welcome foreign investment and free trade." Rice's speech was intelligent, thoughtful, illuminating, forward looking — and, as I heard two people say immediately after it, seven years too late. The non-Americans who comprise the majority of Davos devotees had made up their minds about the Bush Administration long ago. Still, in its statement of intellectual principles behind U.S. foreign policy, Rice's speech was clear and well argued. "We do not accept a firm distinction between our national interests and our universal ideals," she said, "and we seek to marry our power and our principles together to achieve great and enduring progress. This American approach to the world did not begin with President Bush. Indeed, it is as old as America itself." Rice went on to explain and defend the democracy agenda in the Middle East, and to assure her audience that "we Americans realize how central a solution to climate change is to the future health and success of the international system." She had nice words not just for the old allies of the U.S. in Asia and Europe, but for China, Russia ("recent talk about a new cold war is hyperbolic nonsense") and even North Korea.
All of that was just what the crowd wanted to hear in Davos, where such notions as multilateralism, a love of diplomacy and a suspicion of muscle as a way of settling international problems run deep. But however much Rice was applauded, it was hard to miss a sense that American dominance of the international agenda, so much a feature of Davos meetings from the mid-1990s until the U.S. invasion of Iraq in 2003, was a thing of the past. The woes of the U.S. economy, the difficulties in pacifying Iraq — even if the U.S. position there looks a lot better today than the bien savants of Davos would have imagined a year ago — and the rise of China, India and Russia all suggest that the period of a unipolar world has ended. Global discourse is shifting into topics where nobody could ever claim the U.S. is leading the debate — climate change is the obvious example. At the same time, the U.S. has been unable to demonstrate clear victories — that is to say, victories followed by stable political conditions — in the wars it has waged since 2001.
The presence of Hamid Karzai and Pervez Musharraf in Davos underlined the point. The Presidents of Afghanistan and Pakistan are both favorites of the Bush Administration, both frontline allies in the war on terror. Yet no amount of love and support from Washington allows them to sleep easy each night. Both are threatened by forces of Islamic militancy and Pashtun irredentism that all the might and muscle of the U.S. military have been unable to subdue — to say nothing of warlords enriched by poppy harvests (in Afghanistan) and a newly militant middle class (in Pakistan) that asks why a nation whose economy is growing by 7% a year cannot enjoy more of the freedoms that prosperity usually brings in its wake.
Of the two men, Musharraf was the more visible, using Davos as just one step of a European charm offensive that also took him to Brussels, London and Paris. Did it work? Depends who you asked. Musharraf made his points well, stressing the booming economy, insisting that he had a "multipronged" strategy against the Islamic extremist forces in the tribal areas along the border with Afghanistan, claiming that the coming election would be as clean as a whistle, and so on. He had a nice line in asking why Pakistan's nuclear arsenal should always be called an "Islamic bomb," when nobody ever refers to Christian, Jewish or Hindu bombs, and he made the familiar point that Western interlocutors should not ask too much in the way of democracy and civil liberties of a society such as Pakistan, in transition to modernity. Among the foreign-policy professionals in the halls, there was, I thought, a pretty widespread dismissal of his case as the special pleading of someone who would soon be shown history's door. Intriguingly, though, I spoke to two Western business leaders who told me how much sense they thought Musharraf spoke, especially about unrealistic demands for him to apply Western standards of democracy and human rights. His critics, they implied, should give Musharraf a break. They won't.
The Fortunes of Others
Don't let the cynics fool you; Davos is not just a talking shop. I think you can make a strong case that without the WEF, the principles of corporate social responsibility, and the very idea that corporations have a moral responsibility to do more than maximize shareholder value, would be nowhere near as prominent as they are. Global corporate citizenship is at the heart of Schwab's vision of the world (his own foundation supports social entrepreneurs), and over the years there must have been hundreds of corporate executives who have come away from Davos inspired with plans for broadening their contribution to society.
So it made sense that Davos should be the location for a major speech by Bill Gates on (no false modesty here) a new approach to capitalism in the 21st century. This Davos forum, Gates said, was the last he would attend as a full-time employee of Microsoft (starting this summer, he will devote himself to the Bill & Melinda Gates Foundation), and he used the opportunity to challenge other business leaders to rethink the way they see the world. At the heart of Gates' analysis was his sense of a partial failure of the market. "Capitalism," Gates argued, "harnesses self-interest in a helpful and sustainable way, but only on behalf of those who can pay." Gates cited Adam Smith — the Smith of The Theory of Moral Sentiments rather than The Wealth of Nations — quoting from him to remind the audience that "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him." A new creative capitalism, Gates said, would take "this interest in the fortunes of others and tie it to our interest in our own fortunes in ways that help advance both." Or, to put it more pithily, he made the case for doing well by doing good.
Where Gates encouraged one generation of business leaders to broaden their horizons (it was at Davos, in 2000, that he promised the Global Fund for Children's Vaccines $750 million, a gift that has saved countless lives), the two founders of Google are the inspirations for the next. These guys think big. At an off-campus session on climate change and the plans for their own foundation, which, among other things, aims to develop cheap sources of renewable energy, Larry Page made a simple but far-reaching point. The necessity for policies to combat climate change, he argued, does not mean that energy is bad; it means, rather, that we should seek to harness technology to provide energy that is clean, cheap and ubiquitous. There's a challenge for socially conscious entrepreneurs.
Page's point is an important one. At a session earlier the same morning, Al Gore and Bono had debated climate change and poverty reduction. Naturally, they both wanted to argue that the two were never in conflict — that global warming will disproportionately impact the poor, and hence that to tackle climate change is to help those most in need. Still, there are tensions between the two objectives. Turning land previously used to grow food crops into farms devoted to producing ethanol pushes up the price of food. And Bono gently reminded Gore that to demonize air travel — as some European greens do — does Africa no good. In many African countries, tourism from the rich world is an economic driver; in others, it is a vital way to get crops to market. But throw Page's argument for cheap and clean energy into the mix, and you can end up thinking that it is possible to both combat climate change and at the same time use technology to better the life chances of the poor.
Davos is full of moments like that, which is one reason so many keep going back. For more than 10 years, I've read that the annual meeting of the WEF is past its best, that its glory days are over. But that's like a Manchester United fan saying that today's team, with Cristiano Ronaldo and Wayne Rooney, couldn't hold a candle to the one with Denis Law and George Best 40 years ago. It doesn't make sense. "Look," said my friend the British writer Grenville Byford, when the whole thing was done. "You've got 2,000 of the smartest people in the world together in one small town for a week. If you can't enjoy that, you're nuts."