Joseph Pearlman on the outcomes of Davos | Video

World Finance interviews Joseph Pearlman, Professor of Economics at City University London, on the key themes that came out of the 2014 World Economic Forum at Davos

January 28, 2014

The 2014 World Economic Forum has now come to a close, and it was the first Davos in five years where the financial crisis hasn’t been at the forefront. Joseph Pearlman, economist at City University London, discusses Davos’ theme of inequality, the irony of low representation of women, and the ongoing problem of youth unemployment.

World Finance: So Joseph, let’s start with the purpose of the event. Would you say it was a January jolly, or as the founder maybe intended, a platform for collaborative thinking and searching for solutions?

Joseph Pearlman: It is more like a January jolly; however, one does see that there are lots of important business leaders who are meeting up with the top world economists, and that is likely to lead to, probably, better thinking about the role of business in the future, and the direction that the economy is going to take.

World Finance: So would you say there was anything that came out of this year’s Davos that would impact lives or economies?

Joseph Pearlman: The only thing it might influence is the concern that economists and have the concern that politicians of both left and right are beginning to have, and certain other business leaders as well: that the world, and particularly the developed world, is becoming more unequal.

World Finance: Well let’s talk more about that, as inequality was one of the key themes of Davos. Oxfam came out with startling statistics: 85 people hold half of the world’s wealth. Now, this is a really strong statistic, is it as bad as it sounds?

The greater our income disparities, the more likely that one is going to see increased political unrest within countries

Joseph Pearlman: What one would hope for the world is social cohesion, and the greater our income disparities, the more likely that one is going to see increased political unrest within countries. Occupy Wall Street is the kind of thing which potentially could increase as people become more and more dissatisfied, and in certain countries such as Greece, one is seeing violence in the streets, and maybe that could extend to other southern European countries.

Also from an economic perspective, if you think about ever pound that is earned, the poor will by and large consume virtually everything out of that one pound, whereas for every one pound that the rich earn, they’ll probably only spend 60p or 70p of it. And in order to help the economy to grow, one wants to see increased demand.

World Finance: One thing that does strike me about the inequality debate is that maybe it should focus more on how people make their money, because if they do it in a competitive way, it can really benefit economies. So maybe the debate should be more about people who gain wealth through corruption, this kind of thing. Surely there is always going to be inequality?

Joseph Pearlman: Oh yes, and I think corruption is probably less of a problem in the developed world. One has always seen it as more of a problem in the developing world, notably in African economies. But on the other hand, the irony is that in the economies where there is greater corruption, one is seeing less inequality. There’s a tendency towards economies and countries becoming less unequal. Whereas if you examine what’s happening in the developed economies, where there’s less inequality, over the past 30 years one has seen increased inequality, where there’s a level of inequality that hasn’t been seen since about 100 years ago.

World Finance: Moving on now to another big talking point of Davos, and that was the female delegates who attended the event. This year that was only 15 percent, which is down from last year – 17 percent. So, do you think this is a reflection of the world of business?

Joseph Pearlman: I don’t understand why the proportion of women at Davos is actually down, given that one is seeing a greater proportion of world leaders – prime ministers, presidents, being women. So I’m quite puzzled by that.

World Finance: What else came out of Davos then? I know there was a lot of talk about challenges facing Europe, especially with youth unemployment. How do you think this can be resolved by businesses getting involved? Is there anything that they can do?

Joseph Pearlman: Governments’ fiscal policies have got to come in. There seems to be a general view among the top economists who attended Davos that governments have been rather reluctant to engage in government investment.

World Finance: British Prime Minister David Cameron suggested at Davos that the UK should take back factory jobs from Asia to boost western economies. Do you think this could be a solution? And is it realistic?

I think firms will go to where costs are cheapest

Joseph Pearlman: I don’t think it’s terribly realistic, I think firms will go to where costs are cheapest. And who can blame them for that? Trade is a cyclical process that eventually, as people in developed countries become more skilled, and costs of employment for unskilled jobs start to rise, and eventually unskilled jobs will have to move elsewhere.

One can see that with the experience particularly of Hong Kong and South Korea. Hong Kong, 50 years ago, was producing all the rubbishy plastic goods. Then subsequently South Korea did. Look at South Korea now: it’s the second most important shipbuilder in the world, in Samsung it’s got probably the most important electronics company in the world, and they’re not producing the rubbishy plastic items that they used to produce.

That’s now going to be produced among the lesser southeast Asian economies. And eventually that’s going to move towards African countries which are in their own right starting to grow. Eventually, when all of those countries achieve a decent skills level, then we’re going to see more and more manufacturing start to return to the countries where the firms that are responsible for these manufactured goods are based.

World Finance: I think what was interesting was the Google chairman Eric Schmidt said that new technologies could take over some jobs of people. So there’s a race between computers and people: what’s your take on this?

Joseph Pearlman: It strikes me that one will as a result see an increase in service industries. You know, leisure industries. There’s always going to be a desire for more goods, and it’s not as though there’s a set number of jobs in the country. The moment the demand for jobs in one industry disappears, there’s likely to be a demand for jobs in other industries. And if people are losing their jobs in skilled industries, then there’s likely to be a decline in wages, which will make the demand for jobs in other industries start to increase.

World Finance: Joseph, thank you.

Joseph Pearlman: Thank you.