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The Elite Huddle in Davos


When over 2,500 delegates gather at the plush resort town of Davos, Switzerland a week from now, they will have a lot on their plate. They had planned to open the annual meeting of the international elite with discussions of the environment and terrorism but that could change. Since the gathering last year, things are different and a new sense of urgency will mark the deliberations. It’s unlikely that the official theme of the meeting – ‘The Power of Collaborative Innovation’ – will encompass the most critical items on the agenda.

 

Of the five listed ‘pillars’ of discussion at this year’s meeting, the one titled ‘Economics and Finance: Addressing Economic Insecurity’ will surely command the most attention. ‘You can bet that all the heads of the European, Asian, and American central banks will be in Davos doing their own version of collaborative innovation, trying to coordinate interest-rate cuts to stem the recessionary tide rolling in,’ Business Week said last week.

 

‘The global outlook is currently marred by greater levels of political and economic uncertainty than at any point during the past decade,’ warned a report co-sponsored by the World Economic Forum, the organizers of the annual meeting in Davos, wrote Gillian Tett in the London-based Financial Times, Jan. 10. She went on to quote one of the report’s co-authors David Nadler: "Systemic financial risk is the most immediate and, from the point of view of economic cost, most severe risk facing the global economy. With so many potential consequences of the 2007 liquidity crunch unresolved, the outlook at the beginning of 2008 is more uncertain than it was a year ago."

 

The new uncertainty is a reality for a lot of people right now, including the maybe two million in the U.S. faced with losing their homes due to the ‘credit crunch,’ the newly unemployed, and those who have been jobless for a good while. Working people are faced with stagnant or declining wages and the impact of the economic recession that may or may not have begun. But none of these people will be at Davos. Instead, the state of the world at the beginning of 2008 will be pondered by 27 heads of state, 113 government cabinet ministers, a handful of religious figures, hand-picked media leaders, and heads of non-governmental organizations (NGOs). Around 60 percent of those enjoying the snowy Swiss Alps and exchanging calling cards for five days will be business executives from 1,000 of the leading companies in the world. It’s by invitation only and costs a least five figures to attend.

 

This is no expense account junket. These people take what they do at Davos seriously.

 

‘The unique combination of the world’s top business and political leaders, together with the heads of the world’s most important NGOs, and religious, cultural and media leaders allows us to approach the problems that face the world in a systematic way and with an eye to tackling the major issues that face us all,’ says the Forum’s founder and Executive Chairman Klaus Schwab. ‘The annual meeting gives all of us a chance to understand and shape the global agenda for the year ahead and beyond, serving global society by making sense of a rapidly changing world and harnessing collaborative innovation to the benefit of us all."

 

And if you think chart rooms are just for kids, think again. This year, in partnership with YouTube, the World Economic Forum has launched The Davos Question, with the aim of ‘creating a global video conversation.’

 

When the mucky mucks huddled at Davos last year, they talked a lot about globalization. True, some spoke of worrisome economic trends, however, a highlighted message out of those sessions was that the world economy was trending in the right direction and generally all was well. The problem, it was noted, was that the economics shifts and growing economic inequities within and between societies was engendering political problems. This year will be different. The political problems remain but things are far from alright in the world economy – particularly in some of the more advance capitalist countries.

 

One of the regulars at Davos is Martin Wolf of the Financial Times, who has been described as ‘conservative doyen of British economic commentators.’ Wolf now says he has had a reluctant change of mind since last year. He now favors some regulation of the compensation packages of executives in the world of finance. ‘I now fear that the combination of the fragility of the financial system with the huge rewards it generates for insiders will destroy something even more important – the political legitimacy of the market economy itself – across the globe. So it is time to start thinking radical thoughts about how to fix the problems.’

 

Financial services are ‘virtually the only businesses able to devastate entire economies,’ Wolf wrote recently. ‘Many market liberals would prefer to leave the financial sector to the rigors of the free market. Alas, the evidence of history is clear: we, the public, are unable to live with the consequences.’

 

Handing huge bonuses to bankers who have been on the job only a short time tempts them to take uncalled-for risks while making it look like they’re making lots of money, Wolf says. ‘We cannot pretend that the way the financial system behaves is not a matter of public interest – just look at what is happening in the US and UK today; and, second, if the problem is to be fixed, incentives for decision-makers have to be better aligned with the outcomes.’

 

Of course, the economic problems now facing the U.S. and the UK today cannot be ascribed solely, or even principally to bankers’ pay; it’s more systemic than that. But he does have a point.

 

Wolf was one of those who, last year at Davos, had an ‘optimistic view of prospects for the world economy’ and ‘pessimism about political prospects’

 

‘I missed the details of the link between subprime loans, securitization, special investment vehicles and a meltdown in money markets,’ Wolf now says. ‘But I did note that Ëœthe underpricing of risk and the combination of low interest rates with fast growth almost invite economic blunders. My mistake was to underestimate the ability of the world’s premier financial institutions to sink themselves in a quagmire. But I was in good company: theirs.’ (He insists on blaming the bankers – not for being greedy or corrupt but for being dumb and that’s surely debatable).

 

In laying out this semi-mea culpa, Wolf, I think, reveals something very important about the current mortgage crisis in the U.S. and the UK and the looming economic downturn. He quotes approvingly the thesis of two U.S. economic scholars who maintain that the build up of the housing bubble through credit was similar to what brought on debt crisis of the 1980s. This time, surplus savings were, in their words, "recycled to a developing country that exists within the US: the subprime borrowers.’

 

A developing country that exists within the U.S.? Well, we all know who lives within those borders. They’re the working people and their families who are now in danger of losing their homes – a disproportionate number of whom are African American, Latino, Asian and female. The head of one of the biggest moneylenders once referred to them as an ‘emerging market.’ Then there are the millions of others whose mortgages were not ‘subprime’ but whose lives have been rendered precarious as a result of the finance moguls’ greed, corruption or stupidity. Or, whatever.

 

The economic situation in the U.S. has indeed taken on a sharp political dimension, coming as it does amid a hard fought Presidential election contest. With the Bush Administration and each of the candidates of both major parties belatedly rushing forward with economic stimulus proposals, the question is, will any of the packages be enough to arrest a sharp economic downturn?

 

The world of high finance has not been overly impressed by the proposals to date. The Bush administration’s initial statement was followed by a sharp stock market decline. "It’s disappointed in the size of the economic growth package. Wall Street’s showing its displeasure," one research analyst told the Associated Press. ‘By the time they actually pass anything, it will be past the time we need it.’ James W. Paulsen, a strategist at Wells Capital Management. ‘I suspect that it’s already too late to prevent a recession,’ New York Times columnist Paul Krugman wrote last week, adding that ‘the next year or two could be quite unpleasant.’

 

Times columnist Bob Herbert penned an instructive piece Jan. 18. The policy makers, he wrote ‘should stop, take a deep breath and acknowledge the obvious: the way to put money into the hands of working people is to make sure they have access to good jobs at good wages. That has long been known, but it hasn’t been the policy in this country for many years.’

 

‘Big business and the federal government have worked hand in hand to squeeze the daylights out of working people, stripping them (in an era of downsizing and globalization) of much of their bargaining power while ferociously pursuing fiscal policies that radically favored the privileged few,’ wrote Herbert.

 

‘There is no question that some kind of stimulus package geared to the needs of ordinary Americans is in order,’ continued Herbert. ‘But that won’t begin to solve the fundamental problem. Good jobs at good wages – lots of them, growing like spring flowers in an endlessly fertile field – is the absolutely essential basis for a thriving American economy and a broad-based rise in standards of living.’

 

Robert Kuttner, co-editor of The American Prospect magazine, has urged Congressional Democrats to come up with a stimulus packed much bigger than those now being proposed and then move beyond it toward measures to reform the economy as a whole. Appearing before an economic town hall meeting on Capitol Hill, co- sponsored by the Congressional Progressive Caucus and the Campaign for America’s Future, Kuttner invoked the ‘D’ word. ‘If you look at subprime and all its glory, it recapitulates all of the abuses of the 1920s in all their glory,’ he said, concluding ‘we should be very alarmed.’

 

Reporting on the meeting, blogger Isaiah J. Poole, wrote, ‘Kuttner suggested that an adequate stimulus package should perhaps be three or four times that size, given the size of the economy and the severity of the ripple effects of the housing market implosion on the rest of the economy. Plus, none of the remedies most prominently on the table would address investment in public infrastructure, which would create a broad range of jobs, or seed the growth of urgently needed green-energy technologies – to name just two of the suggestions for stimulus raised during the town hall meeting. More importantly, Kuttner said, they would not address the fundamental need to, as he put it, ‘re- regulate financial capital,’ tax it appropriately, and use the proceeds efficiently to meet national and human needs.’

 

‘The challenge, as the national debate heats up over how to address the looming recession, is to draw the right lessons from history – and from the present – and be bold about both the nature of the problem and the right solutions,’ wrote Poole.

 

There is little likelihood that any such discussion will take place at Davos, where the suits will try to ‘shape the global agenda for the year ahead and beyond,’ just as is was unlikely that any of the major U.S. media would report what Kuttner had to say. But the political concern will be there, surely more pronounced and urgent than it was at the Forum in 2007. Martin Wolf, who is worried about ‘the political legitimacy of the market economy itself,’ says he is more nervous about the potential political repercussions in 2008 than he was last year, saying, ‘What is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism.’

 

Meanwhile back here in California, where the jobless rate has jumped to 6.1 percent, clever entrepreneurs have come up with a new way to profit from the economic crisis. They are conducting "Repo Home Tours," reported public television station KQED in a segment titled: ‘The Bus Tour of Broken Dreams.’ ‘Instead of dealing with clients one-on-one, an enterprising realtor is offering bus tours so groups of interested buyers can see the real estate "steals" in the area resulting from foreclosure.’

 

Davos and Stockton: worlds apart in more ways than one.

 

BlackCommentator.com Editorial Board member Carl Bloice is a writer in San Francisco, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism and formerly worked for a healthcare union. 

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