The political and business elite attending 2019’s World Economic Forum clearly need some visionary thinking as there has been a real sense of a changing of the guard as a youthful energy takes over the discussion of how to resolve many of the world’s most pressing problems, including climate change, the fate of refugees and, not least, anaemic economic growth.
Gone are the days when the annual skinding in the Swiss mountain resort was a chance for self-congratulation. This year, the widely shared concern is that the system of globalized capitalism dominant since the Reagan – Thatcher years is on a steep and slippery slope. The World Economic Forum (WEF) has modestly adopted the 4th Industrial Revolution (4IR) and the “Globalization 4.0” as this year’s summit theme. Some may wonder how the world ever missed “Globalization 3.0”. At any rate, Davos has rightly not given up on globalization, even if this year’s attendees have a distinctly populist streak, such as newly inaugurated President Jair Bolsonaro of Brazil.
The reality in our opinion is that globalization faces its most serious challenge in decades. The past – Lehman crash of 2008-2009 shook capitalism to its roots. It is now under intellectual assault, with the figure that used to be seen as the leader of the free world, the US president, railing against it. The role of global corporations has come under special scrutiny. Mr. Trump’s America First Policies raise awkward questions about where their loyalties really lie. Opposition to globalization has gone from being a fringe phenomenon – violent protests at G8 meetings or the Occupy Movement – to a driving force of populism, from Mr. Trump to Brexit to Matteo Salvini in Italy and Hungary’s Viktor Orban. Policymakers and business leaders in Davos need to find ways of changing behavior to address the concerns of those disadvantaged by globalization. Yet they must also preserve the benefits it has brought, especially in raising millions of people in the developing world out of poverty.
The choice is not a binary one, between letting markets rip on the one hand and throwing up protectionist barriers on the other. Public policy has an important role. There is more that national governments, along with international institutions such as the EU, can do to make globalization work better. Governments have plenty of scope to adjust tax policies to promote more inclusive capitalism. Recent decades have seen shifts towards indirect taxes, in taxation – cuts in top rates of income tax and corporation tax – which have greatly increased inequality. Shifts from income to consumer taxes have had similar effect.
Rootless corporations should be taxed at the point of economic activity to prevent them shifting vast sums of money away from the countries in which they operate. Encouraging signs have been seen recently at the international level, with the European Commission enforcing competition policy. In the US, the mood is ripe for antitrust and regulation reform with regard to the activities of Big Tech. The multinational companies themselves need to recognize the backlash they have helped to generate. Technological change is today’s revolutionary force – and tomorrow’s. But its transformative impact on the global economy cannot be divorced from its effects on politics, society and human relations. It is, meanwhile, hardly revolutionary to urge multinationals to think local rather than global. It was long ago that one captain of industry came up with the term “global” to describe how best international bosses might think. Added to that, they need to revisit their assumptions that shareholder value should be the organizing principle of the capitalist model.
Many executives fear that we are only now beginning to deal with the consequences of 2008 as the era of easy money finally unwinds in Europe and China’s economic growth slows. They see a prolonged recession on the horizon. They most probably could be right. Equally, it might also become a self-fulfilling prophecy as concerns about the future compel businesses to hold back on investments and expansion plans.
Those that led the response to the crisis a decade ago could be forgiven for doing what they thought was best, However, looking back there is a feeling that many of them – among them Hank Paulson, then US treasury secretary, for example, now in academia – fostered a culture of denial.
They panicked when they saw the reaction of letting investment bank Bear Stearns go to the wall, which was the correct decision. Policymakers in the US and Western Europe chose the short-term decision of bailing out the financial sector. Ultimately, jobs were lost everywhere, not just in banking, and wages have remained suppressed.
Opportunities for young people have been relatively limited. In the Middle East, the situation triggered the Arab uprisings. The Bric nations – Goldman Sachs’ name for the grouping of emerging economies of Brazil, Russia, India and China – which we had been certain would continue to drive economic growth, even if the US stuttered, are each still coping with the fallout in different ways. In Brazil, as in India, a populist, nationalist government has been elected. Russia is once again a pariah in the West.
Frankly, things have been bleak in the last few years. Yet here we are at the start of 2019 and a dynamic force has gripped Davos.
In short, we don’t need to start again, but we do need to change the way we do things – an informed and empowered young generations is needed to hold today’s leaders accountable on the issues that matter most.