Davos Notebook http://blogs.reuters.com/davos World Economic Forum Thu, 16 Jan 2014 21:23:01 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 How do we measure whether Americans are better off than in the past? http://blogs.reuters.com/great-debate/2014/01/16/how-do-we-measure-whether-americans-are-better-off-than-in-the-past/ http://blogs.reuters.com/great-debate/2014/01/16/how-do-we-measure-whether-americans-are-better-off-than-in-the-past/#comments Thu, 16 Jan 2014 21:18:57 +0000 http://blogs.reuters.com/great-debate/?p=27374 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.

In the last ten years, inflation measures have improved to reflect the better quality and expanding variety of the goods we buy. But the new method hasn’t been projected on historical inflation estimates that researchers often use. When Broda, Weinstein, and Leibtag revised historical inflation estimates and applied it to earnings, they found income increased for all income groups, even the bottom 10 percent of earners. They believe the actual poverty rate is half the official estimate.

But there’s more to life than money and the stuff it buys. Economists normally assume two things matter to people:  how much they consume and how much they work (or don’t work, because people value leisure time).  According to economists Erik Hurst, Mark Aguiar, and Loukas Karabarbounis, between 1965 and 2003 leisure time (they count things like watching TV, exercising, and socializing) increased 5 hours per week for the average American.  But starting in the 1980s, they found an increase in leisure inequality mirroring income inequality. Between 1985 and 2003, lower-educated Americans had more leisure time, while educated Americans had less. These trends have continued since 2003. Yet after 2008, in many cases, it doesn’t mean people are better off.  More leisure time may reflect higher unemployment or part-time work.

Of course, leisure time and flat-screen TVs don’t matter if you don’t have your health. Larry Summers recently pointed out that things like TVs and toys have become cheaper, but health care is much more expensive. Access to affordable health care has become fundamental to economic well-being. Since 1987, the proportion of Americans with health insurance has been fairly stable, about 85 percent of the population. This suggests that the fraction of Americans who have access to health care hasn’t changed, even if it takes a larger share of their income. Theoretically, that figure will increase with health care reform.

Similar to other goods, health care has also improved. Americans are living longer lives. According to the Social Security Administration’s Hilary Waldron, the life expectancy (at age 60) of lower-income earners has increased by two years since the 1970s. Similar to income, life expectancy increased much more for higher earners, but even at lower income levels, there is some improvement.

Another factor to consider is that risk and uncertainty make you worse off, many economists argue. This suggests that what’s happened to financial and economic security should also be considered. It seems that consumption has increased more than money income. This was possible in part because of lower prices, but also because people saved less. Saving rates have fallen since the 1970s. Median wealth of people under 35 has declined since the 1980s, mainly because they have more debt (especially student loans).  That means they are more vulnerable to financial hardship if faced with economic or personal misfortune. Economists also assume people derive utility from consumption that is smooth and predictable over their lifetime. A drop in lifestyle is, from an economic perspective, one of the worst things you might experience. If people are consuming more today, but it comes at the price of less in the future (or less leisure if they have to retire later) it’s hard to say that increased consumption is a positive development.

Finally, another troubling trend is mobility. Most Americans still believe they have control over their economic destiny. But if they have a hard time achieving their goals, that optimism may fade, breeding hopelessness and resentment. According to a Brookings study, Americans are less economically mobile than people in other countries (especially poor and minorities), although up until the recession, mobility rates were fairly stable. The recession exacerbated an ongoing structural trend; most job recovery has been concentrated in high or low-skill jobs, which means fewer middle-income jobs. That may mean people born into the middle class won’t stay there and will be even poorer relative to high earners.

So far, depending on how you measure economic improvement, it seems the rising tide did lift all boats. But it may be in ways that aren’t sustainable. That may mean a future where the rich get richer and the poor get poorer.

PHOTO: Demonstrators stage a rally after a long march from Sea-Tac to raise the hourly minimum wage to $15 for fast-food workers at City Hall in Seattle, Washington December 5, 2013. REUTERS/David Ryder 

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How did Davos do on climate change? http://blogs.reuters.com/davos/2013/01/29/how-did-davos-do-on-climate-change/ http://blogs.reuters.com/davos/2013/01/29/how-did-davos-do-on-climate-change/#comments Tue, 29 Jan 2013 18:54:32 +0000 http://blogs.reuters.com/davos/?p=1649 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.

Beneath all the talk was doubt about whether humanity could rise to the scale of this massive challenge. More than a few hands shot up in one session when the speaker asked if the time had come to deploy geoengineering – using technology on a massive scale in an attempt to reverse the problem by, for example, altering the chemistry of the ocean, or trying to block the sun’s rays from the atmosphere.

I didn’t raise my hand. I don’t see the logic of compounding the dangers of people playing god, with unknowable results. While these grand – and grandiose – ideas might appeal to a certain kind of techno-optimism, they also provide an easy distraction from the investments we know we need to make to protect against extreme weather that’s already here.

Technological fixes won’t change the fact that a certain amount of climate disruption is already guaranteed, thanks to past emissions. But we also need to make sure we don’t make the problem worse. That means we have to manage the unavoidable, but also avoid the unmanageable. The trend line to hell stops only when we slash emissions.

On that score, the conference reverberated with talk about the U.S. windfall in natural gas from shale, made possible by new drilling techniques, and how it is generating an economic boom while reducing heat-trapping carbon dioxide pollution. Many of these enthusiasts didn’t mention the serious problem posed by methane – the main component of natural gas – leaking from wellheads, pipes, compressors and storage tanks.

Methane is 72 times more potent than CO2 in causing stronger storms, prolonged droughts and higher temperatures over the next two decades. That means these “fugitive” emissions could seriously undermine the climate advantage of natural gas.

I listened as many business people in Davos raised concerns about extreme weather and its effect on their enterprises. This made me hopeful that worried talk will lead to climate action.

The WEF released its Global Risks 2013 report assessing the biggest and most likely risks that threaten the world over the next 10 years, citing rising greenhouse emissions as the third most likely hazard of the coming decade. Not coincidentally, water shortages came in at No. 4. Failure to adapt to changing climate was No. 7, and extreme weather No. 10 on this list of good reasons for sleepless nights.

Business seems to share this view. Seventy percent of companies believe climate change has the potential to significantly affect revenue, according to a report released last week by the Carbon Disclosure Project and Accenture, based on a survey of over 2,400 companies. Nearly a third say they are experiencing the impact already.

Here, I am cautiously positive. There’s no mystery about what we must do to avoid the worst impacts. We need to continue the urgent efforts to cut CO2 emissions. In his first term, President Obama cut carbon emissions from automobiles by acting to double fuel efficiency in cars and light trucks. Now he needs to direct the Environmental Protection Agency to finally cut emissions from power plants, proposed and existing

The president has also begun to open up a second front in the war against climate pollution. The administration founded a 65-nation group with the unwieldy name The Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants to cut emissions of fast-acting potent gasses like methane, which are responsible for up to 40 percent of the incremental warming and radiative forcing we will see in the next 20 years. If we slow the increase in warming, we also reduce the threat of extreme weather impacts.

Those are good steps, of course, but they’re not enough. To bend the climate trend line upward from the fire pit, we need to pick up the pace of change. That’s going to take the combined efforts of leaders from all walks of life, as well as new action by government.

Getting there will not happen without continued public pressure. But I am more optimistic than I have been in a long time that we may be ready to break the political logjam and move forward once again on the solutions needed to prevent economic and environmental catastrophe.

The question now is what happens when these global leaders go back to their day jobs. Without action, talk is cheap. And we know silence will be devastatingly expensive.

PHOTO: A woman wearing a mask rides past smoking chimneys and cooling towers of a steel plant in Beijing, January 17, 2013. REUTERS/Suzie Wong

 

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A handy guide to Davos-speak http://blogs.reuters.com/davos/2013/01/25/a-handy-guide-to-davos-speak/ http://blogs.reuters.com/davos/2013/01/25/a-handy-guide-to-davos-speak/#comments Fri, 25 Jan 2013 17:07:01 +0000 http://blogs.reuters.com/davos/?p=1646 “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).

What does Dalio actually mean by this? Dalio expanded a bit: the big conversation in politics and economics, he said, will be about how to get more out of workers – growth won’t come  from the next Internet, the next real estate boom or any new asset, in other words. This means, he said, hard choices about questions like “How long is a vacation?” or “What is a good life?”

If you unpack this Davos-speak a bit, what Dalio is saying is particularly dire for the rest of us. When the world’s most successful investors tells you economic growth is going to depend on whether or not you take a vacation, it’s time to worry. This is what Tyler Cowen calls “the great stagnation,” a period of declining productivity growth that could hurt living standards.

This isn’t good news for those of us who don’t have Davosian savings to rely on. But there’s another troubling phrase that kept coming up: on Friday, Mario Draghi said the ECB’s actions last year had “removed the tail risk” from the Euro, a phrase that was repeated by a handful of panelists on Friday. This a funny way to put it — as my Reuters colleague Felix Salmon has pointed out at length, tail risk is something that is , by definition, improbable, elusive and generally hard to identify. When a Davos luminary, even one as accomplished as Mario Draghi, starts claiming to have identified something largely unidentifiable, take it with a big dose of non-euphemistic skepticism.

Or, to put it in, Davos-speak: retain your “uber-mindfulness-influence”

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Advertising in Davos: The message isn’t medium http://blogs.reuters.com/davos/2013/01/25/advertising-in-davos-the-message-isnt-medium/ http://blogs.reuters.com/davos/2013/01/25/advertising-in-davos-the-message-isnt-medium/#comments Fri, 25 Jan 2013 15:13:39 +0000 http://blogs.reuters.com/davos/?p=1632 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.

This ad and many others seen around town are sponsored by the India Brand Equity Foundation – “A hub of knowledge for all facts, market research, industry reports, trade information etc related to Brand India.” Here’s another one that informs the skiers and elderly residents boarding this bus that India is an “aspirational nation of potential and promise” and that, by the way, the electronics market there will grow by 700% by 2020.

Not all of the ads in town go for the hard sell. This banner on the side of the Kirchner Museum features a tasteful image of the South African flag with the simple, if open-ended, message “South Africa – Inspiring new ways.”

On the even softer-sell side, some ads aren’t at all clear about what they’re selling. This billboard posted outside a centrally-located restaurant touts something called INDIAFRICA as being “the largest people to people and youth outreach programme for over 2.5 billion people across India and Africa.”

Those wanting clarification on what INDIAFRICA actually does can visit their website which states that “INDIAFRICA: A Shared Future is a unique people to people initiative that aims at engaging multiple stakeholders in India and Africa through contests, fellowships, discussions, events, collaborative projects and cultural exchanges” a message that perhaps can only be deciphered by those in the 1%.

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Where emerging markets are headed next http://blogs.reuters.com/davos/2013/01/24/where-emerging-markets-are-headed-next/ http://blogs.reuters.com/davos/2013/01/24/where-emerging-markets-are-headed-next/#comments Thu, 24 Jan 2013 17:07:33 +0000 http://blogs.reuters.com/davos/?p=1623 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.

Investment potential

Emerging markets provide an attractive destination for investment funds and already account for nearly half and one-fourth of global foreign direct investment inflows and outflows, respectively. However, they still face challenges, including inflation, income inequity and poor governance, that threaten their growth. They remain countries of contradiction, with high growth on one hand and inequitable growth and underdevelopment on the other.

Business potential

With almost $2.5 trillion in assets, the Industrial and Commercial Bank of China was the fourth-largest bank in the world in 2012. In India, conglomerates ? such as Aditya Birla Group, one of the world’s most cost-efficient producers of copper and aluminium – are showing their peers how to succeed. As emerging market businesses grow into global leaders, they will strengthen as well as disrupt the competitive landscape. The Indian company Tata Nano’s emergence as a leader in low-cost, four-wheel transportation is a classic example.

Leading emerging-market multinationals will not only compete with companies from the developed world but also will invest in them through joint ventures, mergers and outright acquisitions. This will open up opportunities for companies in the developed world to sell their knowledge, expertise and technology to the emerging world.

Innovation potential

Emerging markets have moved up the value chain beyond their traditional roles as cost-saving hubs. Today they are hubs of growth, talent and innovation. Innovation in emerging markets, however, is not about designing bigger, faster and smarter products but rather leaner, more durable and more affordable ones. Narayana Hrudayalaya, for instance, is one of India’s leading cardiac care hospitals, which is bringing state-of-the-art medical facilities to the masses. Founded by Dr. Devi Shetty, the average open-heart surgery at the hospital costs less than $2,000. This is a third of the cost elsewhere in India and a fraction of its costs in the U.S.

Another example, the Tata Nano, is an outcome of reverse innovation, which led to it being the cheapest car in the world at $2,500. In China, companies such as Lenovo, BYD, Alibaba and Huawei have risen in the rankings of the world’s most innovative companies. Innovations from emerging market companies are no longer limited to local markets but appeal to a global audience. For instance, 60 percent of multinational corporations in a recent survey said they expect to conduct research and development in China for their global markets.

Frugal innovation, which plays a key role in emerging markets, is gaining popularity even in developed markets.

Talent potential

Rising domestic costs have diminished emerging markets’ potential for labor cost savings, but there are finding new opportunities to supply large-scale technical and English-speaking human capital. In the United Kingdom, the number of engineering graduates dropped 3 percent, to about 12,000, from 2003 to 2011; the drop in computer science graduates was a steep 27 percent (to 11,400) in the same period. In contrast, India produces close to 700,000 engineers each year. Yes, research indicates that about 75 percent of these graduates aren’t directly employable because they lack industry-relevant skills. However, India’s corporate sector has found a solution in the form of in-campus training and apprenticeship programs. We have trained thousands of engineers at the Infosys campuses in India each year. We recently launched a technical training and apprenticeship initiative in the UK, which has met with resounding success. That, I believe, is as good an example of developing world contribution as any.

PHOTO: A Tata Motors Nano car is loaded onto a goods train for shipment at Sanand railway station in the western Indian state of Gujarat September 1, 2011. REUTERS/Amit Dave

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To fight worker illness, we need uniform measurements http://blogs.reuters.com/davos/2013/01/23/to-fight-worker-illness-we-need-uniform-measurements/ http://blogs.reuters.com/davos/2013/01/23/to-fight-worker-illness-we-need-uniform-measurements/#comments Wed, 23 Jan 2013 17:05:46 +0000 http://blogs.reuters.com/davos/?p=1618 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.

Among our insights and discoveries, Alliance members have also learned the monstrous toll of chronic diseases. In any given year, one-third of the world’s workforce must deal with diabetes, cancers, obesity and high blood pressure, among other maladies. But, workplace wellness programs that emphasize lifestyle changes and promote health clearly prove beneficial, research shows.

As the wise saying goes, what gets measured gets managed. That’s why we have collected homogeneous health metrics from almost two million employees across 25 companies. These metrics will help companies collaborate on a set of successful approaches and learn how to adapt best practices to their employees’ health needs.

This information repository will be housed on a web portal for any company to use. Through this effort we will be able to create a business case for companies to champion workplace wellness programs. These programs are designed to help employees address familiar risk factors – such as smoking, inactivity and poor diet – that cause complex chronic diseases and conditions.

The good news is that employers are recognizing the value of wellness programs and more companies are offering them today than ever before. In the U.S., 73 percent of large firms with 500 or more employees and 27 percent of smaller firms offered such programs in 2011, up from 49 percent and 16 percent, respectively, five years earlier.

Alliance members better understand that making progress on wellness lies in structured processes and collaborations. They’re essential to identify risk factor targets and design programs to mitigate them, and also to identify programs that make a difference to employee wellness.

My former company Humana and South Africa-based Discovery Holdings Ltd. have created a program that provides a comprehensive wellness and loyalty program that integrates rewards with healthy behaviors. HumanaVitality helps reduce costs by providing the tools and support to help members live healthier lives. Already, HumanaVitality has more than 1.7 nearly 2.6 million members enhancing their well-being through this comprehensive integrated approach to lifestyle improvement.

Members can save money at Walmart through a program that gives a five percent saving on certain healthier foods. Additionally, Humana members participate in healthy living, fitness and education activities to earn bonus points redeemable for movie tickets, hotel discounts, gift cards, and more.

Novartis, also an Alliance member, offers a wellness program called “Be Healthy,” that’s tailored to suit all employees from manufacturing to office-based roles. In 2012 this initiative reached 95 percent of more than 120,000 Novartis associates worldwide and it expects its absence rate to decline. Program champions also communicate regularly with employees, monitor participation and encourage best practice sharing.

A third Alliance member, Johnson & Johnson, is focusing on preventing chronic diseases by making smoking cessation a top priority. The company has a tobacco-free policy on company property, supports smoking cessation education and subsidizes efforts to quit. In this year’s WEF Workplace Alliance Report, the initiative’s return on investment, calculated on the time employees previously spent on smoking breaks, includes improved productivity equated to about $3.9 million per year.

Through knowledge sharing and metrics, the Alliance is working to achieve a global standard of wellness to enhance population health and workforce productivity. It has grown from a few companies to more than 150 multinational corporations, representing hundreds of thousands of employees. You can count on the Alliance and its new leadership, the Institute of Health and Productivity Management, to continue to collaborate and achieve further strides with employee wellness as a vector for improved population health and organizational resilience.

PHOTO: Nurse Donna Riccardi administers a shot of Influenze virus vaccine to patient Deanna Joa at the New York Downtown Hospital in New York January 10, 2013. REUTERS/Andrew Kelly

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China’s economy absent from concerns on Davos panel http://blogs.reuters.com/davos/2012/01/27/chinas-economy-absent-from-concerns-on-davos-panel/ http://blogs.reuters.com/davos/2012/01/27/chinas-economy-absent-from-concerns-on-davos-panel/#comments Fri, 27 Jan 2012 20:52:28 +0000 http://blogs.reuters.com/davos/?p=1539 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.

Stephen Roach, Chairman of Morgan Stanley Asia and senior research fellow at the Jackson Institute for Global Affairs at Yale University, shared the optimism. The current five-year Chinese plan will be a “watershed”, he said. The shift from investment and exports to consumption leaves him positive further out into the future. “China has demonstrated it’s up to the task.”

Perhaps the biggest concern among panel members is the need to develop a safety net that can support the masses of migrant workers who head for China’s cities, struggling to make ends meet, and maintain social peace.  Housing has been expensive, leading to a bubble, and rental costs are dear. Roach dismissed talk of ghost towns. He recalled Shanghai in the 1990s, relatively empty then, booming today. “Ghost towns are built in anticipation of the people who come.” Housing has spooked the markets. “They’re expecting the worst,” he said. “They will be pleasantly surprised.”

Other problems: pollution, which will impact health and be a burden on the state; and what Roach describes as “the financial repression” created by a gap between deposit and lending rates.

But there was not a word about the value of the yuan, and it took until question time for this to be raised. So how would Chinese authorities respond if Mitt Romney wins the U.S. election and declares China a currency manipulator? “You can expect a strong reaction from the government,” Li said. He, in turn, countered that the yuan was fairly close to “equilibrium”.

Elsewhere in the Congress Center, Boston Consulting Group Chief Executive Hans Paul Buerkner described the top risk in China, India and other major Asian economies. “The biggest risk for Western companies,” he said, “is not to get engaged and worry too much about setbacks.”

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Davos Man’s dirty secrets http://blogs.reuters.com/davos/2012/01/27/davos-mans-dirty-secrets/ http://blogs.reuters.com/davos/2012/01/27/davos-mans-dirty-secrets/#comments Fri, 27 Jan 2012 20:36:41 +0000 http://blogs.reuters.com/davos/?p=1522 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.

The Forum does its best to mitigate this, inviting a decent share of civil society leaders and trade unionists. But just as the academics and Nobel laureates that grace the Forum are, as one of those distinguished attendees once told me, the dancing bears at the circus, the non-corporate leaders in Davos are on the fringe, not at the center of action.

When I first went to Davos in 1993, then-Viscount Rothermere (who was the ultimate owner of Euromoney PLC, the joint venture partner with WEF in World Link, the magazine I ran) told me that the real mission of the Forum was much simpler. Don’t Offend Anyone.

What it means for the program

If your goal is to offend no one, you have a host of problems. Some are obvious. Taiwan and Tibet shall never pass your lips (WEF is hardly alone in this constraint). Plenty of rotten presidents and prime ministers get welcomed with open arms.

That comes with the territory. More difficult is the need to put corporate leaders on panels with relatively little regard to whether they have any original ideas, or any ability to talk about them. The dark, dirty secret you learn when you run the program at Davos is that the vast majority of CEOs have nothing to say. That doesn’t mean they are bad CEOs. It’s just that there is no correlation between being a successful business leader and having interesting ideas and the ability to express them.

It isn’t just people. Offending no one also constricts the range of things you can talk about. After I left the Forum, I was still persona grata for about two years. My successors running the program would solicit ideas from me. I remember developing, with considerable enthusiasm, the idea of a session called “How Much is Too Much?” It would look at whether a cap on CEO salaries, or perhaps on the multiple of those salaries to average wages, would create healthier organizations. My contention was most CEOs were more interested in power than money. Perhaps you could posit significant salaries for top executives, but taking the CEO post would mean a reduction in salary in return for power. I think most would take that deal. The session could also examine broader issues that are big for people researching the economics of happiness. Does more money mean more happiness (after a certain point, the answer seems to be no)? Is there a point that is really too much? And so on. Lots to talk about, and it’s the kind of thing that would have created a stir. That session idea didn’t go anywhere.

Not too far ahead

It isn’t just about ruffling feathers. Part of the genius of Klaus Schwab, the founder of WEF, is to recognize that his market is actually very middle of the road. There was a lot of enthusiasm in my day for having Phil Collins come to perform. If the WEF gets too far ahead of its crowd, it falls flat. The secret is to be five minutes ahead, not five months or five years.

So fast-moving events, like the beginnings of the Arab Spring one year ago, leave the Forum flat-footed. So, too, do the kinds of faint rumblings that might just turn into something significant, but could also be a bust. The Forum isn’t about weak signals or the long tail. It navigates skillfully along the tides of conventional wisdom, but with just slight deviances in the course so that there is the appearance of freshness and discovery.

I was fortunate enough to be involved with Davos in years of plenty, when we invited around 300 so-called Forum Fellows — the academics and other experts — and really tried to push the boundaries of the program (with plenty of encouragement from Klaus). After I left, with the dotcom crash and then 9/11, the Forum decided that more sobriety was needed in the program. CEOs needed to be able to show that they were coming to Davos to discuss important things, not frivolity.

I argued unsuccessfully with my ex-colleagues that it was precisely the off-the-track ideas and sessions that were most valuable in Davos. Another session on financial architecture, the Doha round, China’s rise, or networked societies would probably add very little to the discussion. But Davos had carved out a place where CEOs were suddenly tossed into a discussion on death (my all-time favorite session), the meaning of history, or endangered languages. Perhaps those could fire some disused synapses and spark something new.

Prosperity has returned to Davos and the Forum. The staff of the Forum has grown at least threefold. There’s a decidedly engineering-like approach to building the program now, with a cascade of agenda councils and meetings. I was, and am, more attuned to artisanal production. To my eyes, all the additional resources and grand processes has just pressed the program flatter and flatter. Davos continues to attract absolutely extraordinary people. But they are forced into discussions where the unremarkable is the norm.

Outside the Congress Center

When I first became involved with Davos, Maria Livanos Cattaui was the power behind the scenes, the ferocious number two to Klaus. Maria had the licence, or so it seemed, to be tough with the corporate members. The number of events and the scale of events outside the Congress Center were strictly controlled. WEF had the conviction that once you let outside events grow, it would diminish what happened inside the Congress Center.

Maria was brutally removed in 1996 and replaced by Claude Smadja (who was brutally removed himself five years later). That tough line on outside events remained largely intact. But the tenor of the age — the go-go years of the late 1990s — began to erode that policy. Big outside parties began to proliferate. More and more started to happen outside the Congress Center. Part of the core philosophy of the Forum — that if you had a white badge, you were equal and welcome to attend everything — began to crumble.

I’m ancient history, and I haven’t been to the Annual Meeting since 2002. But friends that continue to go tell me the corporate takeover has accelerated dramatically in recent years. Bigger, more elaborate events happen outside the Congress Center. There are more and more class distinctions, even if you have a white badge.

All that said, Davos remains a wonderful privilege. If I were ever invited again, I’d be on the next plane to Zurich (fat chance, I know). I had some of the best experiences of my life working on Davos, fighting against the constraints and trying to make something out of the fantastic raw materials at hand. I recognize the limitations, but I continue to wish that WEF aimed higher.

This post originally ran on DavosNewbies.com.

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Tackling healthcare for the very poor http://blogs.reuters.com/davos/2012/01/27/tackling-healthcare-for-the-very-poor/ http://blogs.reuters.com/davos/2012/01/27/tackling-healthcare-for-the-very-poor/#comments Fri, 27 Jan 2012 19:13:52 +0000 http://blogs.reuters.com/davos/?p=1521 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?

At Novartis, we realized it was important to take a step back and consider not just how we can enter a market but also how we can adapt to better consider local conditions. We saw that there was a need for a new model in emerging markets like India. That is why we developed Arogya Parivar, meaning “healthy family” in Hindi. This is what we call a “social business” model, meaning it blends corporate citizenship with entrepreneurship.

While many have highlighted the cost of medicine, there is not enough emphasis on solving the associated distribution and social challenges. Arogya Parivar addresses what I believe are the two most important issues in developing countries: healthcare education and infrastructure. The program works by recruiting and training locals to become health educators and tour villages, schools, and health centers. They conduct community health meetings and talk directly to patients about disease prevention and encourage them to seek timely treatments. Also, the local teams address the infrastructure issue by organizing health camps — mobile clinics that provide access to screening, diagnosis and therapies to patients in remote villages who don’t have regular access to healthcare. In 2010, we hosted more than 3,000 health camps, reaching an estimated 140,000 people.

To make treatments more available and affordable, we also sell over-the-counter medicines in smaller packs with doses for only one to three days. While patients need to purchase the packs more frequently, one local doctor mentioned that this helps them better track a patient’s compliance and helps keep weekly out-of-pocket costs low. Importantly, this initiative turned profit-positive this year after four years of losses. This is critical for its sustainability.

Our model is based on the understanding that access to medicines in the developing world is bigger than a pricing issue. Insufficient infrastructure and lack of healthcare access are larger problems that need to be addressed. What is needed is entrepreneurship that creates jobs, expands access to health education and works closely with patients in the context of local customs. Health solutions must be tailored to meet diverse local needs.

Since launching the program in 2007, we have improved access to medicines for more than 42 million people living in 33,000 villages across 10 states in India. We are currently rolling out similar models across Asia and sub-Saharan Africa, and our aim is to reach more than 100 million people.

However, there is so much more to be done. This is a vastly untapped market with serious needs. While business models like ours can make an important difference, we have to find ways to work with governments and NGOs to improve health and infrastructure. Together, we can make a difference.

PHOTO: Javed Sheikh, 61, is helped by his daughter as he washes hands outside their house in a slum area on the outskirts of Mumbai, October 29, 2011. REUTERS/Danish Siddiqui

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A Van Winkle return to Davos and to real problems http://blogs.reuters.com/davos/2012/01/27/a-van-winkle-return-to-davos-and-to-real-problems/ http://blogs.reuters.com/davos/2012/01/27/a-van-winkle-return-to-davos-and-to-real-problems/#comments Fri, 27 Jan 2012 17:11:40 +0000 http://blogs.reuters.com/davos/?p=1523 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.

The economic moderation turned out to be built on financial excess. That AOL deal – hailed as visionary by all the delegates of 2000 – has become the poster child for foolish corporate finance. The Nasdaq is a third lower than 12 years ago (before adjusting for inflation). And the banks – what can I say? From triumph to tribulation.

The political world also looks much more treacherous. Geopolitics has not yielded to the irresistible forward march of free market capitalism, and peace no longer looks like something to be taken for granted. The 9/11 attacks spawned wars in Afghanistan and Iraq – the kinds of conflicts that in 2000 were supposed to be a thing of the past.

The World Economic Forum has changed with the times. The rise of the BRICs has brought greater diversity to the audience, which is a good thing. It has also brought many more people – so many, in fact, the organizers have expanded their caste system. There is now a dizzying number of different badges, each offering differing levels of access and status. It’s much easier to be here and still be excluded from the elite – much like the feeling of many of the world’s dispossessed.

The most striking difference, though, is in the increased complexity and severity of the questions confronting the collection of top business people, politicians, investors and academics. Europe’s sovereign debt crisis keeps trundling forward, bringing to the fore thorny challenges to sovereignty, the role of central banks and the solvency of nations. Instead of Clinton smiling from the podium, this year’s keynote address came from the troubled German Chancellor Angela Merkel, the leader with the most cards at the debt crisis table.

There are still scenes of the excess and celebrity that accompany a gathering including many of the superrich. Some members of the elite have lost out in the last few years, but there is still more than enough wealth at the top to provide good times. Still, the specter of nearly a quarter-billion people around the world without gainful employment keeps a lid on the festivities.

In retrospect, the tone of triumph was not merely unjustified – it was also harmful. Many of the seeds of the economic and financial crises that followed during the next decade were sown around that gathering. It would have been a struggle in 2000 to find any delegate arguing against the deregulation of the global financial services business. Then again, everything is easy to judge in hindsight – even for a Rip Van Winkle in the Swiss Alps.

PHOTO: A participant watches a session at the World Economic Forum (WEF) in Davos, January 27, 2012. REUTERS/Christian Hartmann

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