Every year more than two thousand of the world’s most powerful business leaders, international political leaders, economists, celebrities and journalists gather at the tiny Swiss Alpine ski resort of Davos to discuss the most pressing issues facing the world.
And every year the same niggling question is left lingering: What has changed? But perhaps the question is wrong-headed. For to ask “what” is to invite the same answer year after year. The more poignant question is this: Why Davos?
When the WEF was founded by German economist Klaus Schwab in 1971 as a not-for-profit organisation and then reinvented in 1987 as a platform for “improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas”, it seemed timely.
By the late 1990s the Bretton Woods architecture of the “new world order” had left deep scars. The seclusion and predominance of the “winner takes all” principle, whether of a socioeconomic nature or eco-environmental kind, was everywhere to be seen — from rising global inequality to extreme concentrations of wealth.
Indeed, global governance institutions such as the United Nations associated with Western-centric global order had all run into a variety of difficulties no sooner than the collapse of the Soviet era and rise of globalisation. As the Bretton Woods system — represented by the International Monetary Fund (IMF), World Bank, and later the World Trade Organisation (WTO) — that has underpinned global governance, trade and development for close on eight decades has come under increasing strain, the need for a fresh approach has been self-evident.
Against a backdrop of what is now perceived to be malfunctioning global governance institutions and stalled international policymaking, the reinvention of the WEF in January 2015 under the Swiss Host-State Act, as an International Institution for Public-Private Co-operation, was an acknowledgement that in a rapidly globalised world socioeconomic inclusion was a systemic requirement of the emerging global order.
To be fair, after years of warnings, most business leaders, politicians and economists seem to have got the message. Climate change and extreme weather events have rocketed to the top of the list of dangers facing the world economy, according to the WEF’s annual survey of global risks.
After decades championing globalisation, the WEF now fears that rising inequality, protectionism and nationalist politics could send the world economy “sleepwalking” into another crisis. Even the WEF’s Schwab conceded at this year’s meeting that:
“Globalisation produces winners and losers and there are many more winners in the last 24, 25, 30 years.”
Understandably, the WEF agenda remains a work-in-progress. But questions have grown about whether the organisation is meeting its declared goal of “improving the state of the world”, with resentment rising and voters turning instead to populist leaders.
Nearly all its commitments and intentions remain largely symbolic and have opened the forum to criticism that it is no more than a “socialising institution for the emerging global elite”.
Indeed, Oxfam’s 2018 global inequality report, released on the back of Davos in 2019, is a telling reminder that rather than pushing for systemic change, the Davos agenda only reinforces our lopsided economic reality. Despite a broad-based recovery in the global economy during 2018, the latest IMF data in this area has shown that rising inequality poses downside risks to the strength and durability of a more inclusive economic growth path.
The wealthy are getting wealthier and the poor poorer. In advanced economies, the incomes of the top 1% have grown three times faster than those of the rest of the population and considerably more than populations in developing economies.
What is frequently underestimated is just how concentrated world economic growth is in only a few countries. On the IMF’s 2017 projections, the bulk of global economic growth in the next five years will come from only three countries, collectively accounting for 54% of world growth at current exchange rates and 52% measured in purchasing power parities (PPPs) in the next decade.
This reflects the reality of extreme inequality. Developing countries, in particular, are mired in a legacy of skewed trade relations with developed economies and the rest of the world that have created persistent current account deficits.
A study, published in the Journal of Consumer Research, on the sociological impact of the WEF concluded that the WEF “has simply reframed the focus away from the problems of governance and markets to one of moral pathologies, individual greed, etc”.
In his latest book, Winner Takes All, former New York Times columnist Anand Giridharadas concludes that Davos has actually perpetuated the same old problems in a new guise. In South Africa alone, 30,4 million people are living in poverty (earning less than $2 a day). Globally, the number of billionaires doubled from 2008 to 2017. In fact, billionaires increased their wealth by $762bn in 2018, enough to end “global extreme poverty seven times over”, Oxfam’s annual inequality report said.
And there lies the rub. The very elite who own a staggering 82% of global wealth gather at Davos as philanthropic plutocrats and aspiring “change agents”. But are they? Giridharadas exposes the rationalisations of the 0.001%, arguing that they “have had many years now of hand-wringing about the growing gap between rich and poor, and very little to show for it”.
The rote conversations of the elite were once again on display at Davos in 2019, where talk of social impact investing, philanthropy, artificial intelligence, and innovation solutions resonated. The problem is that rather than change the rules of the game, the WEF has been trying to revitalise Davos as a safe space for the financial elite to lobby governments without oversight.
Perhaps recognising the intractability and complexity of the fix we are in, Giridharadas sidesteps prescriptions by concluding that seeking to “improve the world” by doing what can be done within a bad system is not enough. What is needed instead of symbolism is more entrepreneurs, not less, by liberating individual entrepreneurial freedoms and skills within an institutional framework characterised by a new governance and trade architecture.
This may sound like the standard prescriptions of development economics.
There’s a reason: Structural reform and diversification are fundamental to sustainable economic growth. Otherwise, such forums will represent a gibble-gabble. Marx may have presented a lot more controversial statements, but he gave us a materialist dialectics: There is no single answer to a question — it is always a unity of opposites. DM
"If I have seen further it is by standing on the shoulders of giants" ~ Sir Isaac Newton