All those clever people who meet at the World Economic Forum's annual meeting in Davos, Switzerland each year, from the executives to the analysts, seem to have the knack for getting things absolutely backwards. In their forecasts, that is. And they know it. They utterly failed to predict the financial crisis, Brexit, the direction of oil prices, Donald Trump, the bottom-crawling interest rates or the ramp-up in share prices. They are perennially overshooting, either on the upside or downside. Investors hoping to tap the 400 discussions or endless interviews and articles emanating from Davos each year would be wise to bet their money against the Davos consensus.
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If this holds true this year, the world has a problem. Davos was in a remarkably chipper mood. On the traditional panel on global forecasts, this year featuring the finance ministers of Britain and Germany, the central bank governor of Japan and the chairman of the International Monetary Fund, the prevailing forecasts may be “too conservative.” If they see a surprise coming, it’s that global growth will outstrip present expectations. Investors – you have been warned.
Whence this sunny optimism from wall to wall? The main reasons were expectations of tax cuts and laxer regulation, and anticipation that costs will be lowered and the “animal urges” of the capitalist markets will be given free rein.
If all that happens, it’s good news for the managers of big business, though it doesn’t mean squat for the prosperity of the little man. If anything, one possible outcome is that the giant corporations and their executives will earn even more than they do now, while the rest of the world will groan, thanks to some of the other trends highlighted at Davos – trade wars between blocs and nations, an increase in economic protectionism, and escalating political populism and inequality.
If during the last five years inequality was the topic nobody wanted to touch with a barge pole at Davos (though they were forced to, thanks to critics and howling demonstrations outside their venues in the snowy town), this time around, in Davos 2017, inequality is right there in the center of the table. That word came up in every discussion, and all agreed with pursed lips about the danger that social gaps pose to economic growth.
However, while the problem was very clearly identified, proposed cures for the disease were glaringly absent, or even any serious discussion about possible ideas for remedies.
Disease? Yes, disease. It is one, though to Davos Man, inequality is more like a bug in the profit machine of the executives. Of all the big names there, only IMF leader Christine Lagarde dared state the screamingly obvious: If the executives at Davos want to diminish inequality, they have to pay. Meaning, tax income has to be shared in a different way. Everyone else clung to their “oh well, if we generate enough economic growth everybody will have more.”
Mine is bigger
The theme of Davos this year was “Responsive and Responsible Leadership,” and indeed, the discussions focused on these words, though no solutions or reforms were actually presented.
Examples of this discrepancy between talk and deed were legion. Take the discussion on executive pay: The discussion had a practically subversive working title, in terms of Davos-speak, where most of the participants earn millions a year – “Ending Executive Pay,” no less.
Executive pay has long stopped being about the money itself. It’s about “who has a bigger one,” the speakers solemnly agreed. There are other explanations behind the increase in executive pay, such as economic concentration and “winner takes all,” which leads the board to hire the “best” executive and pay through the nose for the pleasure. Also, because the boards aren’t independent enough of the top management – they all sit in echo chambers where all they hear is the management narrative.
The speakers agreed that executive pay, in substance, is not an economic issue – it is a cultural one, and a moral one. The fundamental question isn’t how much money a corporation earns but who gets a share of the profits.
It is trivial to prove the cultural connection. CEOs in the United States earn on average five times as much as CEOs in Sweden, where the standard of living is no lower. It is also trivial to prove the moral issue. Research done all over the world found no correlation between CEO pay and performance. In any case, the CEO doesn’t run a big company alone, a whole team of managers and experts does.
But the forecasts are grim – despite all the public criticism, executive pay looks set to keep climbing until the public loses its patience completely and demands that politicians set caps in law. Israel did that with finance companies.
Banking is Us
Meanwhile, the bankers were again top dog at Davos, strutting the corridors with smiles from ear to ear – and for good reason. Interest rates in the world are starting to rise and that will increase their profits. Regulation is receding and the advance of technology will reduce their costs, meanwhile. What’s not to smile? Apparently it is good to be a banker these days, unless you’re not that senior, in which case you’re going to get replaced by a computer. Or if you work in London. Brexit is probably going to eat your bank branch and you’ll be transferred somewhere else.
A world without a need for banks, for instance thanks to technology, is not discussed at Davos. Ssssh. It’s no coincidence that the CEO of Bank of America, Brian Moynihan, was one of the conference chairmen.
Other discussions of technology range freely, on the other hand. The Davosites tried to cluster around the thesis of WEF Chairman Klaus Schwab about the “fourth technological revolution,” about which he wrote a book that he’s trying to promote. The conference halls were decked not with holly but with technological presentations of things like virtual reality and talking computers, as though Davos had become an arm of the Vegas tech expo CES.
Yet despite efforts to place the implications of technology at the center of things, and en route, to blame technology for society’s problems, Davos is, at the end of the day, a conference about political economics. What managers really want to know is who’s going to lower taxes and when, when regulation will be removed from their necks, which countries are about to turn protectionist and how much they’ll have to pay to get the unions off their backs, calls for equality and so on.
As usual, politicians supplied most of the headlines. Chinese president Xi Jinpang impressively took the leadership in the war over globalization and free trade, with the rest of the audience cheering him on.
It couldn’t be otherwise. Globalization, free trade and international cooperation are the substance of activity at the WEC. Without them, the organization would not exist. The forum members are global businessmen, not workers who lost their job to some robot in China.
Even British Premier Theresa May, who has Brexit to contend with, danced the globalization dance and promised new trade agreements with the whole world, even when it had become patently clear that her position was forced and internally illogical, since Brexit is the categorical opposite.
The Davosites wanted to show that they are doers, not just talkers, and sent us journalists a list of their decisions and achievements. But the list consisted entirely of names that had exploited the dais to publish a press announcement that had been in the works anyway. For instance, one “achievement” was by social entrepreneur Gary White with the Hollywood actor Matt Damon, about a collaboration with the manufacturers of Stella Artois beer in a $1.2 million project to supply clean water to 3.5 million people. A worthy cause to be sure, but not exactly global revolution.
A shock, that isn’t. Davos never was a place where decisions are made, though it is a place where questions are asked. One such on everyone’s mind was what the hell he’s doing to do. Donald Trump, that is. No question about it: If the Knights of the Order of Davos and Globalization had heard his populist, in-their-faces inauguration speech before the conference began, they would have been a lot less optimistic.