World Leaders Discuss 'New Reality' In Davos … January 26, 2011 More than 2,000 leaders representing business, government, civil society, and academia will discuss an array of issues at the 41st World Economic Forum this week in Switzerland. Following the financial crisis and the rise of new big players on the global stage, the theme of this year's meeting in the Alpine town of Davos is "Shared Norms for the New Reality," reflecting a desire to ensure that major powers share common values. Ahead of today's opening, Klaus Schwab, founder and executive chairman of the event, laid out some of those new realities. "Let's take again the emergence of China, the emergence of India, represented here as never before. Let's take the consequences of social media, how they impact even on politics. Let's take the need for creating a situation where we deleverage again in our world," he said. "Let's take the whole notion of employment and unemployment particularly. All those are the issues and features of the new reality." – Radio VOP
Dominant Social Theme: One big global family.
Free-Market Analysis: So the sentiment at Davos is mixed. The world converging on Davos is "weary" but warily optimistic (see article excerpt above). The "new reality" catchphrase is intended to emphasize the emergence of the BRIC countries (maybe with the exception of Russia) as economic superpowers. The idea is that while the West may still be suffering from the 2008 financial crisis, India and China especially are going to lead the way to a fuller lasting recovery.
To us this seems like a dominant social theme, a strangely unbelievable projection that has been patched together at the last moment to give the Davos forum an optimistic sheen. The agenda emphasizes China especially. Sessions include, "Insights on China", "The future of Chinese enterprise", "China's impact on global trade and growth" – just a few of the sessions "on offer for the 2,500 people attending the annual jamboree of the rich and powerful."
China we learn, is attending in force, with its largest delegation ever. European leaders are present as well. The names include keynote luminaries such as UK Prime Minister David Cameron, German Chancellor Angela Merkel and French President Nicolas Sarkozy. But the emphasis seems to be on emerging economies, particularly the largest ones.
"What is really happening is a slowdown of the western world and the growth of the emerging markets. This is a complete shift in the balance of power," Azim Premji, chairman of Indian software major Wipro, told the opening panel, according to AFP. Premji added that in a decade, the emerging world's economy will be as large as that of the United States.
Premji has plenty of backers. Western economies have not yet recovered from 2008 and growth must be found somewhere. The BRICS shall have to do though there is plenty of worry about rising food prices generating political unrest and about various international hot spots including Iran and North Korea. The riots in Tunisia and Egypt are weighing on the proceedings.
Nonetheless, Reuters tells us, "The captains of industry and money mostly sounded upbeat after two years in which global financial and economic turmoil curbed their swagger and made the annual talkfest of the rich and powerful almost contrite in tone." In a speech to the inaugural session, Davos founder and president Klaus Schwab was quoted as saying, "This meeting shall be a meeting of constructive optimism."
Bloomberg has a more gloomy view of the proceedings. In an article entitled "Davos Divines `Shared Norms' as Reality Turns Grim on Sarkozy's Influence," Bloomberg tells us that the global elite seems not to be very upbeat about finding the "shared norms in the new reality." Many attendees to the conference see more unrest and global challenges rather than less. Wei Jiafu, chairman of China Cosco Holdings Co., the nation's largest shipping line was quoted as saying, "The world is at a crossroads. If we get it wrong, we'll damage our economic future."
French President Nicolas Sarkozy warns, "The new world is above all marked by an extraordinary change in the equilibrium among the world's economic powers." But what defines this change is not entirely clear. European Central Bank President Jean-Claude Trichet is apparently worried about price inflation and told Bloomberg that the EU central bank was dedicated to fighting price pressure. Fed chief Ben Bernanke is far more worried about unemployment in the US and is to continue his quantitative stimulus – some US$600 billion worth.
Meanwhile in a TV appearance on BBC yesterday, Bloomberg's Albert Hunt, executive editor for Bloomberg News in Washington D.C. explained that a recent survey of investment leaders showed, surprisingly, that America was regarded as perhaps the most attractive investment destination at the moment among the larger powers. He cited President Obama's waning hostility to big business and an uptick in US economic news as a reason for this attractiveness.
At the same time, he indicated that those top investors surveyed expected that a China "bubble" would collapse within the next few years and that the EU, too, would come undone given the twin forces of austerity and sovereign debt that are now tearing apart so many of the union's Southern countries. Here's an excerpt from an article on the survey:
Greece Default With Ireland Breaks Euro by 2016 in Global Poll … Most global investors predict at least one nation will leave the euro area within five years and that Greece and Ireland will default, sentiment that is intensifying pressure on policy makers to strengthen their response to the debt crisis. As the World Economic Forum's annual meeting gets under way, 59 percent of respondents in a Bloomberg Global Poll said one or more of the 17 euro nations will quit by 2016, including 11 percent who see an exit within 12 months. Respondents were divided over whether Portugal would default, while a majority expressed confidence in Spain.
Bloomberg's survey responders are probably correct about the EU and China. One region is suffering from the aftermath of a bust and the other is in the throes of an incipient one. But how do we explain the affection for American opportunities? America's obligations as we have observed in several articles may total some US$200 trillion. Congress even now is debating ways that states can declare bankruptcy constitutionally. Of course this begs the question: Who bails out the US federal government when the bills come due?
We have never really understood the point of Davos. It seems like a big talking shop – and not a place where much of anything gets done (unlike Trilateral or Bilderberg meetings). It seems to us that both the participants of Davos and the mainstream media are straining to offer an optimistic economic message to the world, even though there is none.
The Bloomberg survey shows clearly that top investors don't believe the hype about China and the BRICs; and many have grave doubts about the longevity of the EU. But to maintain then that America offers a better investment is equally ludicrous. What strikes us most strongly about the coverage of Davos is the lack of discussion of the two most successful investments of the first decade of the 21st century – gold and silver. But perhaps this is a purposeful omission?