The global elite is doing a lot of soul-searching at this year’s World Economic Forum in Switzerland. But does globalization need to be fixed? And is Davos the place to answer such a question?
The global economy is picking up speed, according to the International Monetary Fund (IMF). This would normally have been cause for celebration. But IMF head Christine Lagarde was in no such mood. “Growth needs to be more inclusive,” she said in Davos. “Not only across countries, which has occurred over the last few decades, but within countries.”
For decades, Davos has been the meeting place of those who formed — and profited by — globalization as we know it. The bosses of multinational corporations, the finance guys and political leaders all agreed that open borders for goods, services and money was indeed making the world a better place.
Soul-searching in the snow
But at the 48th edition of the World Economic Forum (WEF), countless panels are asking how globalization can be fixed, made more fair, and if capitalism should be “protected from itself.”
Inequality is the word that comes up in every speech and discussion. Davos-man, long a symbol of an elitist, cold-hearted fixation on profits, seems to be doing a lot of soul-searching these days.
The reason, of course, is the rise of nationalism, protectionism and a general distrust of elites — especially in rich countries. The Brexit vote in the UK and the election of Donald Trump in the US are just the most striking examples.
“Voters in many advanced economies have soured on political establishments, doubting their ability to deliver broadly shared growth,” said Maurice Obstfeld, chief economist of the IMF.
Lots of talk about inequality
India’s Narendra Modi, prime minister of Asia’s second-biggest economy, tried to defend globalization in his opening speech, but even he had to concede that for many, globalization “was losing its luster.”
Swiss President Alain Berset, speaking just before Modi, even said the belief that markets can fix everything has been misguided.
“Over the past decades, the welfare states and the market economy have often been played off against each other,” Berset said. “The game was wrong, as well as the assumptions.”
Political leaders have been complicit in this development, said Guy Standing, a professor at the University of London. “Corporation taxes were halved in the last 20 years — and it will go down further as a result of the recent US tax reform. We have a subsidy systems which has created budget deficits.”
And budget deficits lead to austerity measures, meaning cuts in social spending and infrastructure investments, he added. “Meanwhile, wages in real terms have been stagnating for the past 30 years.”
What to do about it?
While most participants in Davos seem to agree that something needs to be done about inequality, they are deeply divided on what exactly that might be. The proposals range from better regulation to fairer international rules.
Some even see the growing trend towards nationalism and protectionism as not so bad after all. “For the first time, we have to answer this question: Are we a global company based in the United States, or are we an American company that operates globally,” said Andrew Liveris, CEO of Dow Chemical, an Amercian chemical company that generates two thirds of its revenues outside the US.
“We never had to think about that before, because we allocate capital wherever capital gives us the biggest return. We never had to think about jobs in the US versus Mexico or China. We create jobs, period,” said Liveris, who also acted as an advisor to Trump.
The boost of protectionism
And as if on cue, the American government just approved tariffs on imported solar energy components and large washing machines in a bid to put American companies first. The decision was criticised by the goverments of China, South Korea, Mexico and Germany.
But Dow Chemical’s CEO said that for him, Trump’s bare-knuckled approach to international trade does have advantages. “As a global American company operating in some foreign jurisdiction, we suddenly have leverage,” he said. “Because people are now worried of the United States. They are worried that if they don’t give an American company a shot, their companies won’t have a shot in the US.”
For his company, the effects have been “amazing,” Liveris said, adding: “Maybe that is President Trump’s strategy.”