World leaders have a mountain to climb at Davos

Anti-globalisation attitudes, economic inequality and a dramatic slowdown in global trade are all on the agenda for the 2017 World Economic Forum meeting in Davos

 
World leaders have a mountain to climb at Davos
The World Economic Forum's annual meeting at Davos will tackle a host of issues presented by a hectic 2016 
Author: Tom Bailey
December 27, 2016

This January, the world’s richest and best connected will descend on a sleepy village in the Swiss Alps for the annual meeting of the World Economic Forum (WEF). Since 1971, the global elite has gathered at the small mountain resort of Davos to discuss the world’s most pressing issues. This time round, more than 2,500 guests are expected, with attendees paying upwards of $20,000 for the privilege.

2017’s gathering will focus on a number of global events that have caused great concern, particularly in terms of the world economy

Founded by Klaus Schwab in 1971, the WEF operates under the motto “committed to improving the state of the world”. From Canadian Prime Minister Justin Trudeau and the IMF’s Christine Lagarde to leading business minds such as Bill Gates, the wide array of speakers always makes for an impressive showing.

The range of issues is broad too, with recent discussions ranging from the impact of 3D printing to global gender equality. However, there is usually some sort of overarching theme to the discussions. The 2016 edition focused on the world’s ‘fourth industrial revolution’, a concept first put forward by Schwab himself. In his most recent book on the topic, Schwab argued we are once again undergoing a revolution in economic production techniques, one that will have profound consequences for our world. Whether it is mobile supercomputing, artificial intelligence and cognitive computing, self-driving cars, or neuro-technological brain enhancements, the way society and economies are organised is set for a huge shake-up. How world leaders should approach this seismic shift was the central theme for 2016.

This year’s meeting, it appears, will take a slightly more political turn. The headline theme will be ‘responsive and responsible leadership’. Indeed, 2017’s gathering will focus on a number of growing trends and global events that have caused great concern, particularly in terms of the future direction of the world economy. According to the overview: “The weakening of multiple systems has eroded confidence at national, regional and global levels. In the absence of innovative and credible steps towards their renewal, the likelihood increases of a downward spiral of the global economy, fuelled by protectionism, populism and nativism.” How to stem this tide will be the primary concern of this year’s meeting.

The rise in anti-globalisation
Davos 2016 focused partly on the then-upcoming referendum concerning the UK’s membership of the EU. Since then, the UK electorate voted narrowly to leave the bloc, surprising most observers. Of immediate concern for WEF attendees this year will be how this decision is handled.

UK Prime Minister Theresa May has said the formal exit process will begin no later than March, with the activation of Article 50 of the Lisbon Treaty. The UK will then have two years to negotiate the terms of its exit. The direction of the UK’s departure and what terms it should both seek and receive will be a hot topic for all involved.

Questions will be raised about the precise nature of the separation; specifically, whether or not the UK will remain in the single market. The answer to this question will have serious implications for firms around the world that currently use the UK as the base of their European operations. Financial institutions based in the City of London, for instance, will be keen to maintain passporting rights in order to operate in the EU. However, these may be lost should the UK go for a ‘hard Brexit’ and leave the single market altogether.

Economic implications aside, the sentiment behind the vote will also be up for discussion at the WEF meeting. For many commentators, the Brexit vote was indicative of a rising populism across the continent, which the WEF has identified as one of the key threats facing the future of the global economy. Panellists are likely to discuss the recent surge in populist and anti-EU groups, including Germany’s Alternative für Deutschland and France’s Front National.

Davos in numbers:

444

people attended the original meeting in 1971

$20,000+

The cost of attending

30%

Fall in local CO2 levels during the annual meeting

2,500

delegates travel to the summit every year

$50m

The amount the World Economic Forum contributes to Davos each year

For many attendees, this ideological shift will raise the spectre of a growing sentiment against globalisation, chiefly in its forms of international governance and increased mobility of labour. Speakers and panels will explore why growing numbers of people are becoming disenchanted with, and hostile towards, globalisation – with many now sceptical of its outcomes and processes. The focus will be on how leaders around the world can maintain a global and open economy, while also placating the fears and concerns of their electorates.

This will involve finding solutions to some of the most pressing issues faced by Europe today. Top of the agenda in this respect will be Europe’s migration crisis. Since the last WEF gathering, millions of migrants have entered Europe from war-torn countries, including Syria and Afghanistan, in order to claim asylum. Europe was woefully underprepared for this mass movement, and rifts quickly emerged within countries and even within political parties as to whether to welcome or turn away those in need. With migrants still making their way into Europe, how the continent can coordinate a coherent and unified strategy will be of vital importance.

Likewise, other perceptions of the EU are likely to be addressed. While the southern European debt crisis was largely out of the news during the latter half of 2016, questions over the currency union’s viability and Greece’s financial health persist. Other threats to the fiscal health of the continent are also likely to be on the agenda, including Italy’s weakening financial position, the effect of the European Central Bank’s negative interest rate policy, depressed profitability for European banks, Hungary’s own referendum vote to reject EU migrant quotas, and Deutsche Bank’s increasing volatility. On an existential level, attendees will have to grapple over whether European integration should continue, and how it could continue in a way that is acceptable to the citizens of Europe.

Talking about trade
After years of ever-greater advances in global trade, voters in many countries have started to assert their dissatisfaction with the direction of the trend. In the US, both of last year’s presidential candidates opposed the Trans-Pacific Partnership (TPP). Donald Trump called it a “bad deal”, while Hillary Clinton – once a TPP advocate – reversed her policy to oppose it on the campaign trail. This rare point of agreement between the two figures was reflective of a rising anti-trade sentiment within the US.

Now, with the victory of Donald Trump, the US’ commitment to free trade seems very much in doubt. Even without the consent of Congress, as president, Trump will be able to impose tariffs on other states. The extent to which he will pull the US away from its commitment to free trade – and, indeed, globalisation in general – is yet to be seen. But, with his campaign for office staked on the promise of ending the US’ reliance on other nations – and the backbone of his support coming from Americans who ranged from disillusioned about to openly hostile towards global collaboration – the US’ long commitment to free trade appears to be coming to an end.

Indeed, after decades of growing trade, momentum appears to be slowing worldwide. In September, the World Trade Organisation announced it was revising its estimates for global trade growth in 2016 to just 1.7 percent, from an earlier estimate of 2.8 percent. This new figure is the slowest predicted rate of trade growth since the start of the 2008 financial crisis.

Economic implications aside, the sentiment behind the Brexit vote will also be up for discussion at the meeting

Trade growth, relative to GDP, has been weak since the end of the global recession. As an analysis by the Peterson Institute for International Economics noted: “Following the recession of 2008-9, global trade and FDI performance did not resume their accustomed growth rates, unlike in the aftermath of previous recessions.” Since 2008, the world has seen “the longest post-war period of relative trade stagnation”.

It will be of vital importance then for the bigwigs at Davos to discuss the future of international trade. Generally a pro-trade crowd, top on the agenda for meeting participants will be how to reverse this slowdown.

Economic inequality
In addition to worries over trade and growing protectionist sentiment, as well as populist sentiment within in the EU and beyond, another topic is of increasing concern among the global elite today: economic inequality. The subject is rife in today’s political and social discussion: Thomas Piketty’s book Capital in the Twenty-First Century is one of the most popular economic tomes of recent years; think tanks and charities regularly publish reports measuring inequality around the world; and indeed, Barack Obama himself labelled economic inequality as the “defining issue of our age”.

Many economic commentators see the issue as holding back growth through lowering aggregate demand, and much of the anti-trade sentiment in the US stems from growing inequality. Trade has, it is argued in some quarters, damaged the US’ middle class through offshoring and reduced wages. A hot topic at last year’s WEF gathering, attendees will once again hold counsel on how to address the growing gap between top-end wealth and average incomes.

On the surface, the focus on responding to the threats facing the world economy seems overtly political. However, embedded in these political challenges are deeper social, economic, financial and existential ones. At the heart of the WEF discussion will be how leaders can make the global economy and its integration more palatable and more inclusive for the world’s citizens. Political trends reflect a growing malaise with the globalised economy and world at large, and the meeting at Davos will provide a forum for the sharpest minds to work out the cause of this sentiment, and how best to address it.