The State of the World: 10 Belated Reflections on 2011 Davos
It is my custom after attending Davos to formulate my top 10 reflections. These are not necessarily the top issues discussed at Davos but rather some observations about the state of the world.
1. The Age of Wiki Revolutions
Not surprisingly, the historic events in Tunisia and Egypt captured the attention of many at Davos. The timing was impeccable, reminding some of the Davos conspiracy theory – that the world’s leaders organize big events to time well with the Davos meeting.
Tunisia and Egypt are examples of a new species of revolution based on social media. Traditional revolutions have a leadership and are positioned to take power with popular support. The new “wiki revolutions” are so explosive and happen so fast, that there is no clear vanguard to take power, leaving a vacuum. The vacuums that result pose significant challenges for everyone who cares about moving from oppression, dictatorship and fundamentalism to openness, democracy and 21st century governments.
Appropriately, Tunisia’s so-called Jasmine Revolution was hailed by many as a model of social and democratic revolution in the Arab world. “We are going to leverage social media to build a horizontal democracy rather than a vertical democracy,” said Yassine Brahim, Tunisia’s new minister of infrastructure and transport.
The new governor of Tunisia’s central bank, Mustapha Kamel Nabli, went to Davos to reassure attendees and the international media that Tunisia was getting back to business as normal.
Nabli said Tunisia plans to move forward following the toppling of President Zine al-Abidine Ben Ali. “The situation is stabilising and security is back. This means that democracy has taken root. We have come a long way. People had had such depressed feelings for so long that something had to break – which was fear of the regime. When it was removed everything happened very quickly.”
“I would like to convey to investors that that the country has returned to business. Democracy is good for investment,” Nabli said. Foreign companies will be “doing business in a much more favourable environment.” He promised corruption would be replaced with transparency, and asked international investors not to flee the country or speculate in ways that would hurt the economy.
Yes, everyone was left wondering: what country is next? And how will each of these wiki revolutions play out?
2. Bifurcated Norms for the New Realities
The theme of Davos was “Shared Norms for the New Realities.” It reflects what the Forum organizers say is the top global issue: The world is increasingly complex and interconnected, and, at the same time, experiencing an erosion of common values and principles. This undermines the public’s trust in leadership, which in turn threatens economic growth and political stability. In the words of the WEF’s founder Klaus Schwab, we need to “concentrate on defining the new reality and discuss which shared norms are required for making global cooperation possible in this new age.”
Compared to previous Forum meetings, there is growing awareness by corporate executives that business can’t succeed in a world that is failing. Environmental sessions at Davos used to be attended by environmentalists only. Now the participation is much broader. This year serious business leaders spoke convincingly of their responsibilities for helping develop a globally sustainable economy. A broad cross-section of business leaders spoke of the urgency of helping Africa.
I chaired two sessions. The first was “Rethinking our Institutions for the New Realities.” The second was about how young people around the world share a positive new culture and set of norms, but were bumping up against “old models.” At both sessions there was a rich, sometimes exhilarating discussion about the need for change.
But when it comes to norms being shared we’ve got a long way to go. In fact, a bifurcation is underway. Many CEOs, government leaders, economists and media still view the world in traditional ways. The biggest disconnect was about the state of the global economy. Many executives are quite comfortable with the status quo. They think the financial and economic crisis is over and that we’re now coming out of a predictable and traditional business cycle. Implicit in this view is that there are no truly new realities, just variations on the age old business rhythms.
According to the typical CEO, especially bankers, all is well. Profits are good and bonuses can’t be far behind. It was reported last week that the top five U.S. banks will pay staff a combined $119 billion for 2010, up 4 percent from 2009. Nevertheless, bankers insist the proper tonic for other sectors of the economy is austerity. Writing from Davos for States News Service, Simon Johnson noted that “Leading bankers, in particular, insisted on the paramount importance of providing unlimited government support to their sector during 2008-09; now they insist with equal or greater vigor that support to all other parts of society be curtailed.”
These business leaders are trying to turn back the clock. When they see any signs of improvement they have a natural inclination to fall back on old ways and conclude it is business as usual. This is a big problem. Those who say the global economic crisis is over are wishful thinkers with a false sense of comfort.
There were bifurcated norms on many of the issues discussed. Some were uneasy at the uprising in Egypt, insisting this was bad news and that such instability would be harmful for business. They preferred the old paradigm where the West supports any government — including despots and tyrants — if it suits the West’s strategic interests. This was in sharp contrast to those who saws Egypt’s turmoil as an opportunity for democracy, social justice and economic prosperity. They believe that the main problem for economic growth in the Mid-East is that it is run by despots who act as a brake on their local economies. They agree with the young people tweeting from Tunisia and Egypt that “Democracy is good for business.”
3. A New Era of Global Risks
We haven’t come to grips with what it means to live in a networked and increasingly interdependent world. There are traditional risks like nuclear war, terrorism, climate change, infectious diseases, economic crisis and failed states. But new risks are emerging everywhere. Consider something as seemingly mundane as the global supply chain. The vast networks that provide the world with food, clothing, fuel and other necessities could handle an Iceland volcano and one other catastrophe like the failure of the Panama Canal. But according to experts, a third simultaneous disaster would collapse the system. People around the world would stop getting food and water, leading to unthinkable social unrest and even a disintegration of civilized society.
By tackling this issue, the Forum is filling a void that no other organization addresses. It gets people talking constructively, in sharp contrast to the recent failures of other bodies such as the Doha Development Round of the World Trade Organization and the Copenhagen Conference on climate change.
This year the Forum inaugurated a Risk Response Network. Risk Officers from top corporations, governments and international organizations will be brought together online. They will draw on insights from the Forum’s communities and contributors, including expert Forum working groups and a network of the world’s top universities. If some new global crisis arises, these leaders could spring to action on a secure network, drawing on insights from the any of the Forum’s 50 communities.
It is hoped that rather than just reacting to unanticipated problems like the European Sovereign Debt Crisis, leaders could be more proactive and take preventive action. Chancellor of Germany Angela Merkel warned participants against being complacent about the risks of a further financial crisis, saying that the international mechanisms needed to prevent another crash are not yet in place. She stressed that Germany stands firmly behind the Euro and will continue to defend the currency.
4. For Growth to be Sustainable it must be Inclusive.
In the Davos wrap-up communiqué this was one of four themes, but again there were big differences in the views of participants. Some CEOs don’t really care, believing that the world economy can continue to grow without concern for how the wealth is shared. As far as they were concerned, the global economy is back on track and business is back to usual. I said you can’t call it a recovery if it’s not inclusive. The people at the very bottom aren’t benefiting. Huge parts of the world are mired in economic stagnation. This has huge risks, as is illustrated by the developments in Egypt and Tunisia.
In one television interview I argued that we’re in more than a global slump. The journalist challenged me, saying “what slump – economy is doing great, already running at 4 percent growth.” I replied that he should tell that to the millions of young people who are unemployed – to them the term jobless recovery is an oxymoron. The incident was reflective of the divide.
United Nations Secretary-General Ban Ki-moon said that a “revolution” is urgently needed in thinking and policy to bring about sustainable economic growth that can both protect the environment and raise living standards. Chanda Kochhar, managing director and chief executive officer of the ICICI Bank of India, said we will only make growth sustainable “if we make our growth inclusive.”
Greek Prime Minister George Papandreou said there had been a “race to the top” among the rich. More and more wealth was concentrated in fewer hands, while the middle and working classes were being forced to make do with less and less.
Despite the well-meaning concern, there was inadequate about how to achieve inclusive growth. In the United States 80 percent of new private sector jobs come from companies less than 5 year old. But smaller companies are having a tough time. There is lower demand due to recession and some behavioral change from consumers along with very high levels of uncertainty in the economy. There is a credit crunch as banks are not lending money and there is a lack of venture funding. Internationally the situation is ever more complicated. These problems need to be addressed with fresh thinking.
5. The Potential of a New Global Youth Radicalization
As the events of Tunisia and Egypt unfolded I became convinced that a new youth radicalization is underway.
First, there is a massive generation of young people coming of age. Born between 1977 and 1997, the children of the baby boom in North America outnumber their parents. The echo is larger than the boom itself. In South America the demographic bulge is huge, and even bigger in Africa, the Mideast and Asia. A majority of people in the world are under the age of 30 and a whopping 27% under the age of 15.
Second, despite the digital divide, this generation is the first to grow up digital. They have been bathed in bits; computers, the internet, and interactive technologies are a fundamental part of the experience of youth. To them, technology is like the air. When young people today use digital devices, they are interacting, searching, authenticating, remembering, collaborating, composing their thoughts, and organizing information. They interact with the media and know how to inform themselves and use technology to get things done.
Third, as they become adults, they are entering a world that is broken. Youth unemployment is high around the world. In Spain more than 40 percent of young people are without work. In France the rate is over 20 percent. Many failing institutions are in need of reform. Throughout the Mideast there are undemocratic regimes with few human rights. Women want to be part of the work force but in many countries are denied full opportunities to do so.
Put these three factors together and there is a perfect storm brewing. During the 1960s there was a generation gap where young people and their parents had different attitudes towards many things, from civil rights and women’s role in society to war. The youth radicalization of the time brought about significant changes in society, among them the end of the war in Vietnam.
But this time is different. Today a huge, deeply frustrated generation has at their fingertips the most powerful tool ever for finding out what’s going on, informing others and organizing collective responses. The leaders of Iran, Tunisia, Egypt , Syria, Saudi Arabia or even China can take steps to prevent them from communicating with new media, but ultimately this will not work. Turning off the Internet, as Egypt has tried to do, only broadens dissent as outlying nodes on the human network become engaged and for everyone the best way to communicate is to come into the streets. Further, as the Internet becomes an essential part of the economy’s infrastructure, shutting it down is akin to self-inflicting a general strike.
6. Oblivious Bankers Take the Offensive
At last year’s meeting, the prevailing mood was that banks needed to be reined in, the sooner the better. US banking executives used to be the stars of Davos, but the last two years they were a low-key, humble and dour-looking group. I remember my wife and I attended the reception one of the world’s largest financial institutions and were greeted with eerie enthusiasm by a welcoming line of the CEO several of his top execs. They stood at the door in a wedding-style line greeting, thanking every guest. They were just delighted to have some new faces at their sparsely attended event. Even the Wall Street Journal reported that an international backlash at Davos has “bankers are on the run.”
What a difference one year can make. In private, and sometimes in public, top bankers were hitting back, warning that the mind-set of increased regulation was jeopardizing the economic recovery without making the system any safer. The Times (UK) reported that Jamie Dimon, the chief executive of JP Morgan Chase, led the attack, which provoked a furious response from French President Nicolas Sarkozy. Gary Cohn, No 2 at Goldman Sachs, warned the new rules would merely ensure that the next crisis was in the unregulated world. The Times also reported that people close to Tim Geithner were privately exasperated by Cohn, even before it emerged that his boss Lloyd Blankfein’s compensation had been a salary of $2 million and $12.6 million in shares.
7. Asia, Asia and More Asia.
When it comes to talk about the Asian Tigers, India displaced China this year, including hosting the final gala that was a technological and cultural tour de force. But the region’s biggest individual star was Russia’s President Dmitry Medvedev, whose speech notes were conspicuously on an iPad. Obama might have to stand down as the Internet President.
Medvedev presented ten reasons investors should flock to Russia and it was impressive. The government has begun an unprecedented economic modernization program, including uniform regulation to make it attractive to investors. Russia hopes to join the WTO and OECD and is working to establish a common economic area with the European Union. The government is promoting innovative joint ventures as part of a massive technological modernization program and a great number of enterprises will be working on the development of Russia’s Innovation Center Skolkovo. The Russian government will also pass laws to protect intellectual property rights. The country is striving to be more energy efficient and implementing programs to expand broadband technology throughout the country. In the next ten years, thousands of Russia’s leading minds will receive masters and doctorate degrees in the world’s top institutions and will take leadership roles in Russia’s economic development strategy. Finally, the country has launched large scale infrastructure projects, including having obtained the right to host major global sporting events.
Medvedev’s speech came just two days after the deadly terrorist attack on Moscow’s Domodedovo airport. Medvedev told attendees that “All our efforts to further develop the world economy will be for nothing if we fail to defeat terrorism, extremism and intolerance, and if we fail to eradicate altogether these evils which are the greatest danger to mankind.”
Indonesia, the world’s fourth most populous country, also considerable buzz. Indonesian President Susilo Bambang Yudhoyono attended the Forum along with a number of his ministers and senior officials. Indonesia has a lot of poverty, and Yudhoyono warned about the fallout of recent increases in food and energy prices, which “impact inflation and poverty, and could lead to social and political unrest.” Yudhoyono also used Davos to network. “In terms of investment, Davos is an extraordinary place for us to build networks because this forum is attended by more than 1,000 chief executive officers from more than 1,000 companies,” Trade Minister Mari Elka Pengestu said.
But in the talk of India surpassing China as the world’s economic juggernaut was most interesting to me. India has the advantages of being a more open and less hierarchical society. China’s disciplined command-and-control style work force could ultimately be trumped by a massive force of Indian professionals who are creative, collaborative, entrepreneurial and life- long learners.
8. Crippling Sovereign Debt
Almost everywhere countries, regional states and cities are in debt. Many thought prior to Davos that this would be one of the Forum’s biggest issues, but it wasn’t. Nevertheless, the increasing reliance on borrowed money to sustain government expenditures was referenced often.
It’s easy to see why. The debt/GDP ratio for the Eurozone is a startling 85 percent, but the situation is worse in the US. The Congressional Budget Office estimates that the US debt/GDP ratio will continue to rise this decade and next, reaching 200 per cent around 2030. The highest debt to GDP ratio the US has experienced was 109 percent just after World War II. The deficit headache will get worse as baby boomers retire and social security pay-outs increase.
But in the US, it’s not just the federal government that has problems. Of the 50 US states, 48 ran deficits in fiscal 2010. Federal stimulus funds to the states will run out 2012, so it’s possible that more than one state will default. So might a number of cities. Taken together, state and municipal debt is more than $2 trillion.
It’s not clear to me how this global problem will be solved. The irresistible force to cut government spending is confronted with the immoveable object of essential services, entitlements, military spending and extraordinary expenditures stemming from corporate bailouts and fiscal stimulation. Many Tea Party members just elected to Congress have vowed to cut government spending come hell or high water, despite warnings this may wreak havoc with the US and global economy.
9. Progress on New Models of Global Problem Solving
The World Economic Forum is quickly morphing from a once-a-year talkathon into a year-round network of leaders and leading thinkers tackling global problems – from think tank to do tank. Nature hates a vacuum, and new networks are expanding to fill a void in our systems for global cooperation. The forum itself is an example, getting people acting constructively, in sharp contrast to the recent failures of other bodies such as the Doha Development Round of the World Trade Organization and the Cancun or Copenhagen Conferences on climate change.
The world is organized around nation states based on national economies and that is unlikely to change in the foreseeable future. The idea of national sovereignty was initiated hundreds of years ago with the Treaty of Westphalia of 1648 and persists today. After the second world was there were many bold initiatives to create better systems of global cooperation, including Breton Woods, The United Nations, The General Agreement of Trades and Tariffs (GATT), the World Trade Organization and now the G8 and G20. But these international systems for cooperation are failing in achieving world goals of economic growth, climate protection, poverty eradication, conflict avoidance, human security and promotion of shared values.
What’s needed is a Wikinomics approach — embracing more agile, networked structures enabled by global networks for new kinds of collaboration. Nation states would continue to play a central role but can overcome their silo thinking and behavior by sharing information more effectively, cooperating on real-time networks, and basing their decisions more deeply in the processes of multi-stakeholder networks.
But how would this new, networked system of global cooperation work? There are many tough issues. How would these vast multi-stakeholder networks achieve legitimacy? How could they be held accountable? How would they interact with existing structures? How would participation be achieved? What should existing governments and other institutions do to embrace global networked cooperation and problem solving?
10. The Internet Does Change Everything, including Davos.
Understandably social media, mobility and the relentless digital revolution continues to drive change and cause concern in everything from intellectual property to youth revolutions. One striking indication is that Davos (really) embracing social media and consequentially opening up.
The Forum wants to shake its elitist reputation and be seen as an open venue for global debate. But not everyone who wants to participate in the discussions can make their way to this small Swiss town. So Forum officials have arranged the next best thing: participating in Davos via social media. The newly established Social Media Corner was a hub of activity.
Most of the major sessions were streamed live online and then posted on YouTube. WEF officials say that more than 42.000 people watched the sessions live, and the YouTube recordings were watched more than 60,000 times. Press conferences were also streamed live and viewers could submit questions to those in the press conference.
“Ask a Leader” series put questions from the general public to participants. More than 120 participants uploaded a video response directly to the person who submitted the question via YouTube. The videos were viewed more than 20,000 times over the 5 days.
Randi Zuckerberg from Facebook hosted Live Stream interviews with crowdsourced questions with participants ranging from Kumi Naido to Paulo Cheolo to John Kerry to Bono. More than 104,000 people watched the live interviews during the 5 days.
More than 400 Davos participants were on the official Twitter list, including Presidents, Prime Ministers and top business leaders. The hash tags #WEF and #Davos were mentioned more than 65,000 times on Twitter.
The Forum blog, featuring 50 guest posts from participants was read more than 21,000 times. The Forum is serious in wanting to be less elitist. This year’s social media innovations were a good start.