Davos Notebook

from The Great Debate:

How do we measure whether Americans are better off than in the past?

Are you better off than you were twenty years ago? Probably not relative to very rich people today, but what about relative to you, or to someone your age and position twenty years ago? Income inequality has been called the defining issue of our time. Powerful leaders, from President Obama to Pope Francis, have cited it as evidence that the unfettered capitalism that has enriched the wealthy hasn’t been shared. Of course, there’s a difference between the gains in income being shared evenly, shared a little, or making everyone else poorer. In many ways the average American is much better off than he used to be; in other ways he’s worse off.  But even if we focus on what’s gotten better, we may still need to worry about the future.

The most common metric used to measure changes in our economic condition is income, but several other factors determine quality of life: health, consumption, leisure time, financial security, and prospects for the future. Which of these factors matters most comes down to personal values. Some people prefer more leisure to income. If they work less, even at the cost of lower earnings, they’ll be happier. Some people are more comfortable with risk; health care coverage and financial security matter less if they can buy more stuff.

In order to assess economic improvement, we must also consider demographics. Over the course of your lifetime, you will probably see an increase in earnings and wealth and accumulate goods. Most people get pay raises as they age and acquire more skills. They also become more risk averse and have more years to collect wealth. In this respect, the relevant question is: are your finances improving at the same rate they used to? Or did people your age used to have more than you do now?

Income statistics are not a sufficient indicator of well being, but they are a good place to start. It’s fairly well known that median household income in America has stagnated since the 1980s. That means while it’s not worse off, the typical American household’s income didn’t grow as much this century as it did in the 20th century. The picture darkens when you consider demographics. Since the 1970s, the median age in America increased about 8 years. You would expect income to increase too. Stagnating income could mean we’re worse off relative to earlier decades. Alternatively, income does not fully capture compensation. When you consider household size, taxes, and the value of non-monetary benefits (like health care) income has increased since the 1970s by some estimates more than 30 percent.

These income figures all account for inflation. That’s because it’s not income itself that matters; it’s what you can buy with it. Some economists argue that even if income has stagnated, people are still better off because they buy more and better things.  Flat-screen TVs, air-conditioning and air travel have become ubiquitous among the middle class. David Weinstein, Christian Broda, and Ephraim Leibtag point out that historically, inflation was not measured properly because it only considered prices for a fixed basket of goods. This method doesn’t allow for new, cheaper, and better quality products, and this shortcoming over-estimates inflation, thereby understating real income growth.

How did Davos do on climate change?

One sometimes hears that the World Economic Forum is all talk and no action. I don’t buy it — talk matters. Social currency is a powerful driver of change, even at the highest reaches of business and government. And last week climate change was on center stage at the famous Davos summit. So as I moved through the WEF Annual Meeting, the question on my mind was simple: How many of the conversations here will lead to real-world outcomes?

President Barack Obama had helped point the spotlight with his second inaugural address two days earlier, but the real reason for renewed focus, after several years of near silence, is the increasingly destructive and incredibly costly wave of unprecedented weather events that have occurred around the globe. There were more than 30 official sessions on climate change, environmental resilience and food security this year at the Annual Meeting, and even more related side events.

At a dinner on climate change and extreme weather hosted by my organization the Environmental Defense Fund and The Weather Company, meteorologist Jim Cantore explained that the vanishing sea ice around the North Pole may be changing the whole jet stream. That could trigger a level of climate chaos that makes the disruptions we’ve seen so far look like child’s play.

A handy guide to Davos-speak

“The impatience for growth will really take patience” — that’s Bank of America CEO Brian Moynihan in a panel on low economic growth, using the particular kind of language particular to the people who inhabit particular places like Davos. A panel called “No Growth, Easy Money — The New Normal?” (those latter three words another terrible Davos phrase) began with the moderator grimly telling the crowd: “Will we ever return to the normal, free world?” This kind of sentence is ostensibly the kind of English you and I subscribe to, but on further examination, not so much.

Are the Davos elite really worrying about their freedom? Well, no. The World Economic Forum has no shortage of silly phrases, but some of them actually do have meaning beyond the euphemistic. What Davos folks mean when they constantly call for a “growth plan” or “restoring growth” is that no one can see any particular industry that’s going to increase the pace at which they get rich. And, as a result, the rest of us will have fewer jobs.

Ray Dalio, who runs Bridgewater, the world’s biggest hedge fund, had probably the clearest take on this low-growth world. In a post-crisis, high-debt global economy, Dalio said, economic growth can’t come from debt, as it did during the last few decades or so. Economies are still deleveraging, debt won’t rise faster than income and the primary way large economies can grow is by increasing productivity. (CNBC has a bit more on his philosophy here).

Advertising in Davos: The message isn’t medium

With 1,500 business leaders and up to 50 government officials in town for the World Economic Forum it shouldn’t be a surprise that advertising messages in Davos are aimed at a different demographic than one would expect in even the most upscale of ski resorts.

The most popular source of ads are emerging nations attempting to attract investors with millions of dollars to sling around. For example many of the buses here tout former Soviet State Azerbaijan as the “Land of the Future.”

Despite their subject matter, some of the ads adhere to standard conventions such as citing statistics to prove their “product” is bigger or better than competitors. For example this billboard above Davos’s famed Kaffee Klatsch restaurant informs passing plutocrats of India’s high population of low median age people who apparently enjoy dressing up and striking nonchalant poses.

Where emerging markets are headed next

In its video presentation “Looking to 2060: A Global Vision of Long-term Growth,” the Organization for Economic Cooperation and Development predicts that China will soon surpass the United States to become the world’s largest economy, and will account for 28 percent of global gross domestic product by 2030. The OECD also predicts that by 2060 the combined GDP of China and India will overtake that of the OECD economies. Meanwhile, Bain estimates that by 2020 emerging economies will account for two-thirds of global economic growth.

Without doubt, emerging countries are showing more resilience and promise than established economies in the Americas and the euro zone.

While emerging economies have shown potential for many years, they came of age during the global financial crisis. Thanks to prudent government and monetary policies, they have helped stabilize the global economy. A closer look at the emerging market growth story reveals some of its key strengths.

To fight worker illness, we need uniform measurements

Improving the health of employees worldwide is vital to our global economic strength and growth. In the U.S. alone, the economic cost of chronic diseases is estimated at $1.3 trillion annually. The World Economic Forum’s Workplace Wellness Alliance was launched in 2010, and it has spent the years since driving home the critical importance of investing in workplace wellness.

This year, the Alliance is releasing a report that underscores a crucial ingredient to help our mission. Entitled “Making the Right Investment: Employee Health and the Power of Metrics,” the report focuses on the need to establish a common set of yardsticks that organizations can use to understand fully the impact of their wellness programs. It further demonstrates how imperative it is for all of us to work together to learn more about the ways we can encourage and enhance health and wellness in the workplace.

The Alliance’s collaborative structure has generated several key insights about developing a sustainable workforce. Primarily, we’ve learned that a healthy work environment makes a positive impact on employee engagement, productivity and the bottom line.

China’s economy absent from concerns on Davos panel

If policymakers and financial markets outside the Swiss alps are concerned about China’s economic outlook, those worries were missing from a panel discussion at the World Economic Forum in Davos. While delegates to the meeting of the rich and powerful surfaced a host of challenges facing China’s new leadership later this year, the pace of growth wasn’t one of them.

The panel talked about political cronyism, pollution, and the need for a more robust safety net for migrant workers. But there wasn’t any talk of crisis or hard landing. Despite the fact that China is still very export dependent, defenders and critics at this session betrayed no concern about the impact that the euro crisis and slow U.S. growth could have on the Asian powerhouse.

Many economists expect China to grow at 8 percent or more this year, slowing from 9.2 percent in 2011, as authorities seek to avert inflation and ensure more sustainable expansion. China is comforted by having the world’s biggest foreign reserves, which lets it cope with weaker demand for its products. Li Daokui, Director of the Center for China in the World Economy in Beijing, and an advisor to the Chinese central bank, is sticking to his 8.5 percent growth projection this year and insists the economy, the world’s second largest, will grow by “at least 8 percent” in 2013.

Davos Man’s dirty secrets

It’s the time of year when everywhere I turn, I read tweets and posts about Davos, which was a huge part of my life for 10 years. I’m a long way from the mountaintop these days, but I find that too many people don’t understand some basic truths about the Annual Meeting of the World Economic Forum. The Forum’s mission

The Forum’s often-stated mission is: “Committed to Improving the State of the World.” There were moments that a few other subversives and I used to say that it was a bit like the signs you see entering a London borough: Croydon: The Brighter Borough. Sounds nice, but it’s meaningless.

I don’t think — and, in the day, I didn’t think — that’s quite fair. The Forum is truly committed to improving the state of the world, and some of the corporations that are members are wholly on board with that mission. The problem is that, for all the good intentions, and plenty of good actions, an organization that is at heart a grouping of the world’s largest corporations isn’t necessarily in the best position to improve the state of the world, particularly in an era of the Arab Spring and Occupy.

Tackling healthcare for the very poor

This year in Davos, there is a lot of talk about transformations and new business models that will be important in our global economic recovery. In healthcare, new models will be a significant part of expanding access to patients in need. While it is clear there is lots of growth potential in emerging markets, it’s also important to address the larger societal challenges associated with this growth. This is especially true in the developing world where access and affordability are major issues.

Nearly half of the world’s population lives on less than $2 per day. I was recently in India, where I got to see firsthand what this means. According to the latest estimate from the World Health Organization, there are more than 835 million people across rural India — more than twice the entire population of the United States. Only 35 percent of these people have access to essential medicines. For those of us in the developed world, this is a seemingly unimaginable gap.

As CEO of a global healthcare company, I believe it is critically important to help improve the health of people everywhere by expanding access to medicines in a sustainable way. However, there are many obstacles to delivering care in developing countries, and overcoming them requires adapting to local needs. Poor infrastructure, poverty, inadequate sanitation systems, unclean drinking water and a lack of trained health workers all compound the problem. The question is: With problems so large, how can we be part of the solution?

A Van Winkle return to Davos and to real problems

It was well past midnight in late January 2000 when an investment banking contact called my Davos hotel room to share the latest details on Vodafone’s hostile bid for Mannesmann. That was news, but the huge hostile takeover was no longer the largest deal in history. It had been displaced a few weeks earlier by the agreed merger of AOL and Time Warner. Such was the talk of the World Economic Forum. The great and the powerful had gathered together to celebrate the success of business and, especially, of finance.

Exuberance over technology and venture capital was almost limitless back in 2000, thanks to the seemingly limitless rise of the tech stocks. Dotcom startups were all the rage. When Japanese Internet mogul Masayoshi Son finished one panel, he was assailed by a gaggle of entrepreneurs waving business plans for him to peruse. In full disclosure, this columnist two weeks later signed up to establish the online financial commentary business that eventually became Reuters Breakingviews.

Coming back to this gathering 12 years later is a Rip Van Winklerian experience. The old world and its little worries look positively quaint. Back then, at what in retrospect proved to be the height of the Great Moderation, business was booming, the Nasdaq still had another 20 percent or so to climb, companies were merging like mad; everything looked rosy. President Bill Clinton parachuted in to give a victory lap. Even the demonstrations that took place against neoliberalism and world trade now look quaint. Defacing a McDonald’s is a far cry from overthrowing governments.