If Davos wants to run the world, it has to show some leadership
– Matthew Bishop is the U.S. business editor of The Economist and co-author, along with Michael Green, of “Road from Ruin – How to Revive Capitalism and put America Back on Top“, published by Crown Business, Jan. 2010. The opinions expressed are their own. –
Who runs the world? Conspiracy theorists have long believed that the secretive annual gathering of the World Economic Forum (WEF) at the Swiss ski resort of Davos makes the real decisions in our globalized economy. If only it did.
A few years ago Davos was the focus of anti-globalization anger. Protestors tried to storm this secretive citadel of capitalist power, they even set up their own rival World Social Forum to be, as they saw it, a legitimate alternative to the WEF. That challenge failed in part because the World Social Forum has, frankly, been a bit of a joke. The WEF itself has also changed. Social activists of all kinds now participate in the meetings, journalists have plenty of access, and the proceedings are now broadcast to the world via Youtube.
As a result, as the WEF gathers to ponder its plans for a ‘global redesign’ it will do so transparently and with a broad range of stakeholders, not just heads of state and captains of industry. Discussions can break free from the painful protocols of official summits where the need for unanimity drags the debate down to the lowest common denominator. The WEF is uniquely placed to cut through the bluster and set an agenda for change. It needs to take that opportunity.
When we looked back at economic crises of past as part of the research for our new book The Road from Ruin, it was striking how often the great powers had gathered at summits to try to sort out the mess. Sadly, like at Paris in 1878 and London in 1933, there was a failure of imagination and the conferences ended in failure. This year more than ever, the WEF needs to use its freedom from tiresome diplomatic protocols to seize the opportunity in the crisis and to set an agenda for change. New thinking is needed.
At the top of the agenda at WEF should be reform of global finance. We cannot just reboot the system and go back to where we were before the crisis. Nor can we subject the financial system to large slabs of politically-motivated regulation, without doing enormous harm to all our prosperity. In the meeting rooms and corridors of Davos governments and financiers need to figure out a way to rewrite the rules in a way that makes our banks more responsible without tying them up in red tape.
There also needs to be a debate about a new monetary order. The super-bubble that burst in September 2008 had been inflated by the endless supply of credit flowing into America from emerging economies running huge trade surpluses. The global economy is not out of the woods unless we can fix these imbalances in global finance.
Finally, WEF needs to figure out a global ‘New Deal’ between the rich and the poor world. The ailing fiscal position of the governments of the rich world is going to put pressure on aid budgets just at a time when the poor world needs more help to deal with the adaption and adjustment costs of dealing with climate change. After the failure at Copenhagen we risk a global impasse where the poor won’t act because the rich won’t pay.
In the history of global summitry, the Bretton Woods meeting of 1944 was exceptional in actually achieving something, creating of the International Monetary Fund and World Bank, but then America just bullied everyone else into line. That is no longer possible. The creation of the G20 as the new top table of world power, taking over from the G8, marked the emergence of a messier, multi-polar world.
While the first meeting of the G20 in London last April did make some progress on reforming the global financial architecture, this forum has quickly run out of steam as the panic about an economic meltdown has subsided. Stalemate on urgent global reforms threatens, as the Copenhagen climate change summit demonstrated at the end of 2009. The WEF needs to break the logjam.