Davos Notebook

On wealth versus well-being

Back in the Middle Ages, no-one took any notice of Copernicus when he said the Earth was not at the centre of the universe.

Stewart Wallis, executive director of London-based “think-and-do-tank” the New Economics Foundation and one of the thousands attending the World Economic Forum in Davos, can sympathise.

“I don’t mind being called an idealistic idiot,” he told Reuters, with reference to a philosophy he summed up as “the macro-economic text-books are works of fiction”.

Undaunted by the non-believers, he will continue to spread the word and in Davos addressed the assembled money-makers on the importance of “gross domestic happiness”, as opposed to gross domestic product.
His new economics aspire to demonstrate “real economic well-being” through sustainable living, a focus on the local, not the global, and a more equal distribution of wealth.

The foundation’s latest survey of National Accounts of Well-being, based on around 40,000 interviews across Europe, found overworked, tired, bored and lonely Britons were near the bottom of the league.
Increasingly, they might be ready to give new economics a try. To that extent, Wallis’ time has come.

In crowded Davos, keeping VIPs happy is no easy task

How do you keep VIPs — hundreds of them — happy?

You can’t, especially at the World Economic Forum. There’s no point in pulling that “Don’t you know who I am?” line here at the annual Davos gathering, which is attended by hundreds of the biggest corporate and political bigwigs.

Aides to Pakistan’s Prime Minister Yousaf Raza Gilani (including Commerce Minister Makhdoom Amin Fahim) and officials traveling with Kazakh President Nursultan Nazarbayev were visibly upset after they were refused entry into the opening plenary session. Before the same event, Senegal’s president Abdoulaye Wade and his aides were made to stand around for 15 minutes or so.

Later in the week, Belgium’s prime minister, Herman van Rompuy, was pushed aside by bodyguards to make way for British Prime Minister Gordon Brown.

The answer, dear bankers, lies not in yourselves, but in Shakespeare

Many of the bankers blamed for the world financial crisis have been conspicuous by their absence from this year’s World Economic Forum in Davos.

They haven’t just missed conventional debate on how to prevent a re-run. They’ve also skipped the chance to hear Richard Olivier, theatre director and son of acting legend Laurence Olivier, draw comparisons between the masters of the universe and Shakespeare’s murderous tragic hero Macbeth.

“Macbeth didn’t set out to be evil,” Olivier told Reuters. On the face of it, he was the kind of bright, ambitious young man who could be trusted with big investment decisions. Equally, Lady Macbeth, who stands for “the familial culture of an organisation” thought she was just nurturing his career.

Risk Takers Anonymous

An eminent scientist who studies the brain and economics thinks that the financial industry in essence became addicted and insensitive to both risk and reward.

“The finance industry was adapting to the level or risk,” said Gregory Berns a professor at Emory University in Atlanta and a leader in the relatively new field of neuroeconomics.

“It is an insidious process, and you are not aware of it. You are addicted to returns, you are addicted to risk, you are addicted to cocaine – its all the same as far the brain goes.”

Climate change – does business get it?

Climate change — and the need for governments to reach a deal in Copenhagen on limiting climate-changing emissions — has been one of the central themes of this year’s World Economic Forum in Davos.

And despite concerns that the economic crisis could push climate change down the agenda, businesses are salivating at the opportunities offered by going green.

Previously sceptical politicians and NGOs welcome business’s enthusiasm.

“Quite a lot of business has got it, and really understands that this has got to happen and are talking about really innovative things,” Barbara Stocking, CEO of Oxfam.

Banks to be disintermediated? or is that just replaced?

Is it actually distintermediation if the thing being disintermediated has ceased to function?

Henry Kravis of Kohlberg Kravis Roberts said in Davos that, as in essence banks aren’t playing their role of intermediating debt capital for buyouts, he would be going straight to the source, doing deals directly with investors who want to fund debt for deals.

Of course many of the institutions that used to fund buyouts, CLOs and CDOs for example, no longer exist and many like hedge funds have lower appetite. He acknowledged that leverage has “come down tremendously,” which might get the prize for biggest understatement of the week.

Overheard in Davos

One of the best things about Davos is the conversations you overhear. It’s like no place else.

Sitting minding my own business, typing away I became aware of a central banker from a medium sized emerging market sitting nearby. He was joined by a gentleman from a bank in his home country. After a few muffled preliminaries the central banks said:

“So, how much trouble are you in?”

The banker responded in what sounded like soothing tones but I couldn’t make out exactly what he was saying. The only other line that came through clearly was that after a long speech the banker said to the central banker, with an air of exasperation.:

Hank Paulson is not Gavrilo Princip, Lehman is not the Archduke Franz Ferdinand

Was letting Lehman go down the biggest mistake of the crisis? Many, including George Soros in the Financial Times, have argued that letting Lehman go down sowed panic to markets, consumers and businesses.

Not so fast, says Harvard historian Niall Ferguson, in an interview in Davos:

“My position is this is a typical error of historical understanding in which a single event is blamed for much more than it can possibly have caused. You can say ‘Hank Paulson is to blame for my troubles’ and if you can change one thing in the story it would have a happy ending.

It’s like saying if only Princip had not shot the Archduke Franz Ferdinand in 1914 there wouldn’t have been a First World War.

U.S. – They’re skint, they’re frugal, get used to it

Good session on the “Frugal American,” an as yet undiscovered species that is coming to a global economy near you.

You know the general idea, a decade or so of living beyond their means, borrowing money against their rising house values to finance consumption is coming to a grinding halt. That’s called a recession, but how long will this frugal thing last?

Ian Davis, the MD from consultants McKinsey & Co was blunt:

“Americans have no option but to be relatively more frugal over the next 10-20 years.” This is irrespective of the crisis and is a structural issue due to overspending in the past and the huge host of baby boomers who are now moving into what they fondly hope will be their retirement years. Old people buy fewer ipods and ski boots apparently, and are less likely to remodel their kitchens and bathrooms. That is a problem for the global economy.

It’s never too late to blame Greenspan

Alan Greenspan hasn’t been chairman of the Fed for three years, but his policy mistakes keep paying dividends in the form of blame at this year’s World Economic Forum in Davos.

Polish Finance Minister Jacek Rostowski yesterday:

“This was the failure of one of the key institutions in the world.” During the Greenspan era he said they continually met downturns and distress with easing and “eliminated fear.”

Ken Rosen of Berkeley, who was writing about the housing bubble in 2005 or so, is in the same camp: