Turning the tables: Can you help Davos leaders?

By Reuters Staff
January 27, 2009

Klaus SchwabDavos is a well-rehearsed event and everyone knows the part they should play. Business and political leaders gather each year to tackle the major challenges of a global economy while the rest of the world, or those of its citizens who are interested, look on from afar. But this year, for obvious reasons, things are different. The notion of leadership has been coupled in the public mind with that of responsibility. The tone here is a little more humble and the attitude more open-minded. There’s a recognition that new thinking is required.  A suitable time, perhaps, to turn the tables on convention and have Davos delegates ask the questions they can’t answer and for global citizens to offer solutions.

Gamefully opening the discourse is Professor Klaus Schwab, Founder and President of the World Economic Forum.

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If you’ve got suggestions for Klaus then use the comments section below.

997 comments

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To begin, the root problem of all of this is in the lathargic US Congress in failing to force the SEC, Justice, and all the other bodies of government that regulate and observe violations of ethics regarding the financial system. The cause of this problem is moot at this point, as it is in our future that we must live. A strong rattling of the cages in each market is inevitible and these stimuluses are mere bandaids to help get through the troubling times ahead. The Asians and Indians and Australians jumped into a lot of markets and are eating up a lot of profit. So, the old market shares are fewer and harder to come by resulting in too many suppliers for limited consumers and thus a contraction is going to occur and as the old saying goes, only the strong shall survive. The worst thing the American congress did was to allow the auto bailout, this caused every other major corporation to lay off thousands of workers to strong arm money out of the government like the Big Three Automakers did. Corruption and apathy in the most important positions on this earth, the US congress are the problem.. and it all seems to have started around the time Nancy Pelosi became the majority leader. Hopefully the strong financial sector that is HQ’ed in SF knows this and will vote in a better Senator to represent them in the future. But, till then.. I see only wasted efforts and no real motivational plans coming from Obama.. He stated in his campaign that he would eliminate Wall Street and Corporate lobbyists from having influence in Washington, but to me it looks just the opposite. I don’t see a legitimate plan or a course of action, and I believe the whole world will be saved by the efforts of China and Japan before America leads anyone anywhere… America used it’s wealth to become fat, lazy, and stupid and acted like the huge success from undercutting other nations would last forever.. America has invested very little in itself over the past 100 years, the school system is still based on the school system of 100 years ago, and time and changes have caught up and past a lathargic corrupt system of business. The Chinese and Asian run more efficiently and are hungrier for a buck.. That is just the way it is.. And America doesn’t want to accept this reality and better educate it’s own citizens.. So, I myself will do it for my children and feel sorry for everyone else’s..

Posted by American Investor | Report as abusive

In this day and age, with the advent of the internet, advancement in technologies and the amount of knowledge it provides to us, as the human race, it should be used to it’s best ability to further implement and address issues that the entire world needs to really take a long hard look at and solve, if possible. There are a lot of very smart people, worldwide, that care about globalization and world issues as well as their own county’s issues and there are some that throw out ideas that don’t really make sense. You just need to weed through the bad ideas, look for creative ones that might work and discuss them. As everyone can see, the global economy is heavily reliant upon each other, not just financial institutions but trade as well. The U.S. has propped up a lot of smaller countries, and larger(China)economies for a long time and now the effects of a lack of consumer spending from the U.S. is trickling to other countries and you can see the effect on their GDP and trade surplus. It’s slowly going down.

The people of the U.S. need to become more educated financially or need to rethink their basic financial skills, actually the entire world does(including Governments) and spend more responsibly or at least stop living beyond our means. From a Government’s point of view, there are things that have to be done, no matter the cost, but as we are now seeing with the failure of the banking system, stemming mostly from toxic loan portfolios by major banks, the failure of Wall Street and the lack of regulation and oversight that should have forewarned us partially about the seriousness of the crisis that has now started to effect economies around the globe, there needs to be a serious cooperation effort between all the major countries on our planet and some sort of global commitment to work together or else this recession will turn into a global depression.

Posted by Damian Palmares | Report as abusive

I think what is necessary is for the industrialized nations to take over their banking systems in a coordinated, temporary action with a temporary holiday for financial markets. This would be temporary and would not involve the wipe-out of existing shareholders or even necessarily the replacement of management, and would occur under the auspices of each nation’s central bank. The banks would continue to function in day to day operations and, backed and administered by central banks, would presumably be able to open up credit to businesses to run their operations. The markets would need to be closed during this period, including currency markets.

During the holiday individual nations as well as a conference of nations would evaluate the true state of banks and markets. Governments would need to have the authority to write down or eliminate some debt in a reasonable manner. Since much of the problem has been created by over-leveraging, de-leveraging is obviously necessary and is going to occur no matter what. The question is if it occurs quickly and in an orderly manner or if it takes a long, disorderly time. As with credit default swaps, much of the debt is likely off-setting. For the rest of it, many institutions will need to take haircuts.

During the debt destruction, each nation individually but even more importantly in concert with other nations, would evaluate financial regulation. The shadow banking system (dark market exchanges, derivatives, commodities) needs to come out of the shadows and into the sunlight. Agreements need to be reached about tax havens.

This holiday period with its debt destruction should take care of the immediate crisis. After the holiday period (3 months, 6 months, 9 months), the banks would go back to their shareholders and markets would reopen under the new rules and regulations with public exchanges established for the shadow banking system (and stiff criminal penalties for any attempt to sidestep the public exchanges).

Then the nations should continue to meet to work on Basel and international accounting standards, currency trading, the role of private auditors and credit rating agencies, and other issues of international systemic importance.

In addition to this financial work, the nations could also work on ideas to increase global economic growth which have more lasting benefits than mere consumerism and dicey financial innovations. Global energy, investment in developing economies, and improvement in global healthcare are promising areas that could provide both economic growth as well as long-lasting benefit.

Posted by JMV | Report as abusive

What’s the point? Big business and its government lackeys are bankrupting us all and ruining the planet – a trail of wreckage – economically and environmentally. We’re only short of World War 3 and we’re about finished.
Thank you.

Don’t spend more than you earn. Pay in cash. Create a budget that allows for savings. Help your neighbor. Works for my family. Will work for the world. Yes, it really is that simple. Growth would be slower, but realistic. This will always be the best system. Ocham rules.

Posted by Capthappy | Report as abusive

When oil prices spiked last year, apparently indicating a shortage, people and companies around the world did exactly what they were supposed to do: they started to cut usage.

This is like being becalmed in pre-steam sailing vessel; it is logical for the passengers and crew to cut down their food and water rations so they will last longer.

Just as cutting rations would have been good for the becalmed ship and its mission, so cutting down petroleum usage is good for the planet. Reducing fuel usage tends to reduce global warming, and also helps stretch out our finite supply of petroleum.

One who is concerned about the health of the planet and thus ultimately the health of the human species would logically be glad to see petroleum usage dropping.

Unfortunately this reduction in fuel use was bad for business. It triggered, in effect, a run on the banks, and those with a lot of bad assets began to fail. In a cascading, self-reinforcing reaction, money became tight, businesses could not roll over their debts, and the whole banking and investment system seemed (and still seems) to be in danger of collapse.

Thus we see once again that the planet’s needs are in very direct conflict with people’s everyday requirements for having a job and consuming food, electricity, fuel and so forth.

The above leads me to conclude that we have to modify our economic system in such a way that it will not punish people and societies for doing the right thing for the planet. When a company’s revenue decreases, usually some of the employees lose their entire job rather than taking, say, a 50% pay cut so that everyone can keep their jobs. One might think the pay cut would be the best way to proceed, but that would require a lot of cooperation from both management and labor and is not going to happen very often (though it has happened in the auto industry recently).

Instead we have to count on a lot of job losses, which are already happening. But the people losing their jobs still have to eat and heat their houses and so forth. Without jobs they will have to be given either money or some form of scrip. Giving away money is inflationary, so taxes would have to be raised to get that money back out of circulation. Alternatively, the scrip could be good only for one use.

I think it should be clear at this point that either significant industries such as food producers will have to be nationalized and operated so as to accept scrip and then destroy it, or else the government will have to create significant new entitlements and also raise taxes.

I suggest that nationalization will ultimately arouse fewer passions, and therefore should be chosen over the detested “tax and spend,” which has become a caricature of supposedly bad government.

Forget the bailouts and go straight to nationalization.

Solution for the US:
Bring the power of money creation back to The People.
1.In addition to Legislative, Executive and Judiciary branches of government create fourth Monetary branch. Nationalize the FED and make it part of the Monetary branch. In order to insulate the Monetary branch from the temporary shortsighted goals of the Executive branch it should be organized in a fashion similar to the Supreme Court. Monetary Board should decide on a monthly basis on the supply of INTEREST FREE money with a primary goal of maintaining price stability. Issued currency should be part of income side of the federal budget.
2. Abolish Fractional Reserve System. In order to prevent banks from violating this law banking institutions should be divided into two groups (at least):
a) Depository Institutions – would be allowed only to collect deposits and prohibited from lending. Would collect fees for maintenance of the checking accounts. Individuals with excess cash deposits could purchase Money Market Bonds from the Lending Institutions if they wanted to invest their money. It would eliminate the risk of run on the bank.
b) Lending Institutions – would issue Money Market Bonds in order to obtain money for lending purposes. They would make money on the spreads between the interest they pay on the Bonds and the interest they receive on the money they lend. Money Market Bonds would also be traded on the secondary market.

In a long term this would create very stable financial system, it would also reduce national debt, reduce taxes, increase savings ratio, maintain price stability and allow people to securely save for their retirement without being exposed either to the risk of inflation or market collapse.

Posted by PwlM | Report as abusive

Float the YUAN! No large economy gets to manage its currency.

Posted by Ken Marangue | Report as abusive

@PwlM
Ownership restrictions should also be put in place.
Lending institutions should be prohibited from purchasing shares of Depository institutions and vice versa. One entity could not have more than 30% or majority stake in Lending Institusion and Depository Institusion at the same time (lower % applies)

Posted by PwlM | Report as abusive

The first question I have that no one has asked is “If trillions have been lost, where did the money go?”. Somebody has surely made a gigantic profit somewhere or alternatively the loss is a perceived one rather than actual.

Since no one has apparently profited in these last few months, something is wrong with the numbers.

There is 2 main issues to take into consideration

1) Assets v Debt;
Institutions near to redefine debt that is presently marked as assets on the books. Accounting Standards should be revised!
2) Valuation of same;
An asset is not valued according to it’s “face value” but rather to its demand and thus “fair market value”. “Fair Market Value” has to be redefined for all assets and it can be done by effectively wiping out the “perceived” value of the assets to leave behind the actual “Fair Market Value”. A 30 year Zero corporate coupon is nothing more than a bet and as such has only value when redeemed at term. It should NOT be on the books as it’s future full face value.

Banks should no longer be “Financial Houses”. “Deposit banking” and it’s associated services should be clearly separated from ‘Investment Banking” operations.

Bailing out Banks is not a bad idea as long as the bailout is to protect depositors. Shoring up a bank’s failed “Investment Banking” division should not be tolerated.

A Global stimulus package should be agreed by the G7. This package should be for “food production”, “Energy production”, “Water purification and Water Management”, “Transport and Communications”. All of these could easily be for third world economies. Food production would include paying “Premium” for food produced (rather than cheap pittances because of perceive poverty). This would encourage peace, production of food v drugs, cooperation and a return to the land for many. Energy Production would be in any form that suits the environment (eg: Solar for deserts and the equatorial belt) and together with new delivery infrastructure would provide wealth for developing countries and power for the users. “Water Purification and Management”, desalination and water filtration plants to recycle water and provide for ythe growth of food and sustenance of population. “Transport & Communication” infrastructure of communication would allow for quicker response to armed conflicts and improved transport infrastructure (eg: roads and rail in Africa) allow the quicker and free movement of goods and resources. For Developed countries newer transportation alternatives (such as better rail in the USA), trams, subways etc, as well as electrical outlets for distribution of refueling power to electric vehicles of the future.

In The US, a complete revamping of laws pertaining to Lobbying should be looked at. This would remove many of the obstacles that would allow growth against the present system which effectively is no different than monopoly in a different coat.

Posted by John Prince | Report as abusive

The real answer to this problem is the recalibration of home prices AND the associated mortgage debt. Mortgages need to be reset to principal values appropriate to the new realities of the marketplace. Its not enough to simply reset payment terms. That does nothing to assuage the perceived loss of wealth inherent in a severely depreciated asset. If that perception remains, the holder of that asset feels so encumbered, that the spending necessary to revive the greater economy will not occur. Furthermore, the necessary liquidity of real estate assets cannot be achieved and so the market continues in a sort of slow motion mode of operation. Indeed, since the sale of a depreciated home immediately triggers the realization of catastrophic losses, home sales will continue to lag any other improvement in economic conditions. The home owner becomes analogous to an Aids patient with the disease imperfectly controlled. All decisions are made within the constraints of the potential catastrophic relapse(a forced home sale with its associated catastrophic loss). It may be possible to re-write existing mortgages together with a provision for windfall profits due to a sudden acceleration of home price appreciation, but this should expire in a short period (say three years) and the home and any subsequent appreciation should be relinquished to the homeowner. This would have the effect of preventing speculative pressures from re-inflating another housing bubble while allowing the return of necessary liquidity of residential homes so vital to a vigorous real estate market.

Posted by Indrid Cold | Report as abusive

The leaders must first really desire the input from the community; not just pretend they do. They must show that good ideas get implemented. It will then be a simple matter of opening web sites to suggestions.

Posted by Steve Emig | Report as abusive

Professor Schwab, It’s all about power.
The financial crisis is a result of the accumulation of extreme wealth in the hands of too few individuals and corporations, which gives them excessive power. Unlike democratic governments, they are neither accountable to the people nor representative of them: with very few exceptions, they act only in their own interests. They are more powerful than governments and so, by extension, the people. Their hubris leads them to take extreme risks with other people’s money. My solutions would limit the power of individuals and corporations and include:
1. Limit the size of companies by splitting up huge corporations (the US Supreme Court split up Standard Oil into 34 companies) and stopping large takeovers – for example, the US should have 20 auto companies, not three, and it doesn’t need megabanks like Citibank, Freddie Mac or Fannie May. Downsizing will encourage competition and innovation, and help prevent collusion: in a recession it will mean that no company is so big that a government can’t afford to let it fail. (Downsizing companies may result in some inefficiencies like more jobs (who’s complaining?) but the net payoff will be huge.)
2. Limit paid board positions to one per person, which will redistribute corporate power.
3. Limit salaries / incomes to $500,000 per year. I’ve met the people at the top and they are no smarter than you and me, and most are dumber. Don’t believe the nonsense that they are brilliantly clever and deserve whatever they can get: they don’t deserve or earn salaries that are multiples of hundreds of times average wages.
3. Limit personal wealth to say $5 million. Massive wealth leads to feelings of invincibility, hubris, extreme risk-taking and poor decision-making. Nobody needs massive amounts of money except to increase their power, and our objective should be to limit individual power.

Posted by Michael Gardiner | Report as abusive

The current economic situation is cleary a complex problem with many causes. China and Russia are standing up and blaming the United States; however, it is unfortunate that China has forgotten that it’s trememdous growth is a gift from American businesses and consumers. The thanks USA receives from China is an enormous trade deficit which is a measure of American job loss and depreciation of the American standard of living.

Globally, trading partners look at markets and attempt to make them “open”; countries with import tarriffs and barriers are targeted by trading “partners” until the barriers are removed.

Unfortunately there is only one true open market and that is the USA. All other countries have subtle regulatory, business, intellectual property, and even cultural (spending mentality, zenophobia, etc) barriers that result in token imports. How else does one country end up with a trade deficit measured in trillion dollars with it’s alleged “trading partners” ?

My question is, at what point will the world wake up and realize that America cannot employ the world?

When will we realize that import tarrifs are appropriate to prevent economic diasters? We normally only see the negative, the lack of choice, the support of laggard industries, while we don’t see the mass exodus of local jobs that support each other and government.

Until the world is completely flat the USA needs more hills.

Posted by Mac | Report as abusive

The massive executive salary increases we’ve seen over the last 10 years – justified on “performance” – now needs to be reversed (based on under-performance?). It’s simply unsustainable for these salaries to continue being paid in the new world.

Posted by Rob Mac | Report as abusive

it doesnt help to setup a bad bank to contain the bad debts. solution is to let them go chapter 11 and each hsehold will have one hse then so many hse.

Posted by colvis | Report as abusive

Create worldwide rates for taxation of carbon and other greenhouse gases, so that countries would agree to move close to the benchmark rate within two years.

The tax should be a sales tax, not an excise tax. A sales tax tends to stabilize prices and discourage volatile speculation.

Posted by Tom G | Report as abusive

By asking the right question like why are you Klaus Schwab, hardly a household name in the grand scheme of things , practically the only one at Davos asking how new technology can be used to really democratise the political decision making process at every level .

I’ve thought about why we arent using new technology to radically democratise and share the political decision making process a lot since the net took off so have the politicians in the country I live in , the UK, as most Government websites here have ‘designed out’ any meaningful participatory interactivity as have most other Governments and lets be honest here Klaus, politicians simply dont trust the people who vote for them and there is a long history of this priviledged political prejudice. .

In his Speech to the Electors of Bristol in 1774 Edmund Burke set out the position of most politicians making a good living off their craft today when he arrogantly stated :

“Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.”

We should be looking at how new technology can be used to rid the world of professional politicians and stop fearing the judgment of all.

The most important question to be asked is why there is no sign of improvement even after Trillion of dollars were poured by different countries?Where is the money going?So,somebody,some individuals,some corporates,some countries are making billions while the rest of the world is suffering.
The world is pouring money without knowing what & why it happened and without understanding what is going to happen.As more and more jobs are lost worldwide,there will be more defaults in individual loan payments.This will lead to more banking default.These will also result in lower sales,pile up in inventory and Corporate bankruptcies because companies require Working Capital and continuous drop in sales will eventually force them to declare bankruptcy.This will also lead to lower revenue generation for Governments because there will be lower Income Tax from individuals due to loss of jobs, lower Corporate Tax due to lower Net Income ,lower Customs & Sales Tax due to lower sales and production and lower investment in the country.
The whole problem was started by USA because of greed.The same people were rewarded who created these problems.The World is suffering because the Whole world just followed the same US Financial Model.So when the Model itself was proved wrong in USA,the same problem surfaced in all other countries at the same time without giving any time for action.

The wayout is to Write-off all Derivatives Products losses,start from scratch from Zero.Stop trading in Derivatives for next 2 years.Make Automated Trading Limits ,the moment it is reached, no body will be able to breach it even with the permission of MD or CEO.Write-off all bad loans or revalue them to only Principal.
Nationalise all Banks,Mutual Funds, put a limit on the no of Private companies that can operate in a country.Stop creating gigantic corporates like Citigroup,RBS,BOA,Sony,Toyota,GM and so on because as you grow enormous in size, it is next to impossible to manage those socalled no-fail organizations.

Stop using all these nonsence advanced Risk Management tools like Credit Risk,Market Risk like VAR,Interest Rate Lisk and Operational Risk because they are “cause and effect” and all are interlinked.No one can predict when a person will commit fraud in a company even though he is an honest person & is forced to do so in order to survive because he has no other source of income and all his efforts to get another job failed.This is a Operational Risk which emanated from the sudden Market Risk faced by the company, that too, due to non-payment from third party.

Posted by CHANDAN KUMAR | Report as abusive

“There is nothing new under the sun” All that is happening now has happened before, maybe on a different magnitude, different places but nonetheless it got solved eventually, so my outlook is very optimic for the long term…but then in the long term all of us will be dead.
What I think is key to get out of this mess is not to forget we are humans, unfortunately more prone to vice than to virtue, so we need laws ,institutions and checks and balances that can look after the common good.
My feeling is that in the specific case of the US most of the institutions have gone corrupt, not attending for the common goood but the private and very short term one. Some examples: Health care costs skyrocketing because of incredible ($$$$) verdicts of malpractice where there were only accidents. DEA unable to find tons of drugs smuggled into the US, just petty merchants. A governor selling a senate seat. A executive using a million dollars to remodelate its office. A mayor building a bridge to nowhere….

My advice to the world leaders would be to revitaliza institutions, legislate to make corruption a crime even worse than malpactice but… make sure that it is unlawfull to provide corruption insurance.

Posted by Maria A. Palacios | Report as abusive