The Great Debate

Can the social network of Davos deliver?

– Aron Cramer is the president and CEO of BSR , a global business network and consultancy focused on sustainability. He is also coauthor of the forthcoming book Sustainable Excellence (Rodale 2010). The views expressed are his own. – The 40th World Economic Forum at Davos gets underway this week in a world still groping for direction and solutions to structural changes and economic weakness that plague the global economy. Is it realistic to expect that the 2,500 people at Davos will deliver a truly sustainable economic recovery?

The disappointing outcome at Copenhagen was a powerful example of how risky it is to expect grand, global gatherings to save the world. Does that mean it’s best to keep expectations of Davos in check? Maybe not.

Davos is a place where influential government, business, and civil society leaders gather to create new solutions to vexing problems. It is, in its own elite way, more representative of the 21st century world than the summits that rely on formal treaties. You could say that Davos, with its informal opportunities for connections, is a social networking site in the snow, while Copenhagen, with its formal communiqués, is more like the Congress of Vienna.

In proper web 2.0 fashion, much of the goings-on are user generated, organized by participants outside the official program. And by looking at what’s happening at the “off-piste” meetings and events, it’s easy to see that sustainability is at the core of this 40th Davos.

It is precisely the combination of the official and unofficial agenda at Davos that has the potential to contribute to sustainable prosperity—especially if it can deliver systemic redesign, spark innovation for sustainability, and leverage the power of the network it has assembled.

Indeed, one of the WEF’s core themes this year is system redesign. It’s looking to make progress on its Global Redesign Initiative, an effort to promote governance improvements for inclusive economic growth that is also environmentally sustainable. In addition, the chairs of Davos’ 70 Global Agenda Councils (which includes one I will lead on sustainable consumption) will close the event with recommendations to bring to a summit in Qatar this May. It is then that the outputs of these 70 councils, which range from the future of China to the future of journalism, will be presented formally to a group of governments. The goal is nothing less than “fostering transformational innovation in global governance” to solve the world’s most pressing problems. So we should give the WEF credit for its effort to look at global problems from a systemic perspective.

Innovation for sustainability is also on the agenda. I’ll be leading a discussion on “Redirecting Marketing,” in which leaders from fields such as marketing and consumer products will debate the fundamental premise of how we communicate about and sell products. Today, innovation is about much more than just new kinds of products, and we’ll consider whether marketing is mired in a “Mad Men” world, or whether there’s an opportunity to inspire consumers to make more sustainable choices.

Business must take the lead on carbon management

Léo Apotheker is CEO of SAP. The views expressed are his own.

Most people who followed the Copenhagen climate talks in December will have been disappointed.

While the agreement brokered by the group of countries that included the United States, Brazil, China, India and South Africa and ratified by most of the attending countries is being touted as a success of sorts, it fell far short of the expectations that had built up, and achieved very little in concrete terms.

Now with the World Economic Forum approaching, the issue of climate change and sustainability will once again dominate discussions among the business and political leaders who attend the annual gathering in Davos.

Ever since the 1968 publication in Science of Garrett Hardin’s article “The Tragedy of the Commons,” it has been regarded as virtually an article of faith that only strong national and international regulators can be trusted with the proper management of public resources.

A clear regulatory framework is necessary for businesses to act in competitive environments and maybe at least some pieces of such a framework will be provided in the future. But it was not provided at Copenhagen.

from The Great Debate (Commentary):

Redefining balance between state and free enterprise

-Ashraf Ghani is Chairman of the Institute for State Effectiveness and co-author with Clare Lockhart of "Fixing Failed States: a Framework for Rebuilding a Fractured World". His opinions are his own. -

The current financial crisis has called into question our trust in globalization as a spontaneously generated order. Such orders, while of human making, are not of human design. The market can be seen as a force capable of generating solutions to the most difficult of economic problems.

We should not forget, however, that the visible hand of the state is necessary to set the appropriate regulatory mechanisms that keep the market functioning according to a set of rules, and to put in place the risk management systems to deal with market failures. The return of the state to the center stage of economic management in the current global economy highlights the shift in values that will guide economic policy for the next decade, or possibly even the rest of the century. All business models operate with assumptions regarding the enabling regulatory environment. With the return of the state to active management of the financial sector in the short-term, and the emerging consensus on a more assertive role by the state in the regulation of the market over the longer-term, business models now require major revisions.

The crisis is global in nature, yet the response mechanisms have been predominantly national in character. The resumption of prosperity is going to require concerted global action, and the most powerful nations will have to agree to give up some of their powers in the national arena in return for collaborative powers within a more predictable global arena. Agreeing on such rules requires a shift in values to highlight the need for cooperative solutions and rule based behavior, rather than unilateral actions based on individual interests. While the state is "back in", the market that it needs to regulate is fundamentally different from the national markets after World War II.

The market operates with speed, while bureaucracies are bound by rules and procedures. We must now arrive at regulatory instruments that can satisfy public demand for accountability while having the speed to keep up with the market. Failure to establish alignment between the pace of the market and government will be extremely dangerous.

Since the time of U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher in the 1980s, the market has been seen to provide both the instruments for assessing risks and the instruments of risk management. Trust in market ratings systems led to underestimation of the risks to which the banking sector was exposed and the massive failure of the market has now made the state, and thereby the public, assume management of risks.

The challenge both to the state and business is going to be in the determination of the balance of risks to be assumed between a revitalized market and an interventionist state. Decisions regarding these options will have immense consequences for they way business models are to be built, operated and endure. Assumption of a more assertive role by the state requires a massive shift in the values of public service as well as the skills, mental models and mechanisms of interaction between the government and the market.

Ethics without regulation won’t cut it

J Saft

Jan 30, 2009 11:07 EST

– James Saft is a Reuters columnist. The opinions expressed are his own –

There has been a lot of talk in Davos about improving business ethics, and mercy knows there is certainly room for that. The past few years, like the end of most booms, have included plenty of fraud, self-dealing, and general all-purpose unethical behaviour.

I think it’s fantastic that business should seek to raise ethical standards. It’s good business, and not before time. I do understand that a lot of what happened was a social phenomenon, and that a change in mores can only help.

But frankly, a new emphasis on ethics is a sideshow, and among some who propose it, a diversionary tactic.

While I agree that mankind is perfectible, as an investor, a citizen and hopefully some day a retiree, I am not willing to bet my future or the future of my children on it.

I want some guarantees.

from For the Record:

Twittering away standards or tweeting the future of journalism?

David Schlesinger

Jan 30, 2009 04:30 EST

I've been tweeting from the World Economic Forum, using the microblogging platform Twitter to discuss the mundane (describing crepuscular darkness of the Swiss Alps at 5 a.m.) or the interesting (live tweeting from presentations).

Is it journalism?

Is it dangerous?

Is it embarrassing that my tweets even beat the Reuters newswire?

Am I destroying Reuters standards by encouraging tweeting or blogging?

(These aren't rhetorical questions - I've been challenged by many people who would answer those questions as No, Yes, Yes, and Yes! I answer them as Yes, Potentially, No and No.)

The end of the Davos consensus

J Saft

Jan 30, 2009 07:20 EST

– James Saft is a Reuters columnist. The opinions expressed are his own –

It’s not exactly a wake, but participants at this year’s World Economic Forum have witnessed many of their most cherished beliefs being challenged, upended and sometimes ground in the mud.

Think of it as the “Davos Consensus,” a loose alignment of principles that held sway in this Swiss mountain resort and in large parts of the world over the past decade.

This consensus, which generally favoured the market over the state, “light-touch” regulation of financial services and the free flow of goods and capital across borders, is somewhere between on the defensive and in full, not always organised retreat.

What is a lot less clear is what might replace it.

It’s true that the global economic crisis and the debt bubble that preceded it did not deliver on much of the promises made by defenders of globalisation and market forces. Instead it was one of the biggest misallocation of resources in history; to housing and consumption that either wasn’t needed or really couldn’t be afforded.

Banks wiped out much of their capital base and their regulators failed spectacularly too, missing everything from the dangers of a build up in leverage to the Madoff Ponzi scheme.

Davos debate: What happens to development and sustainability amid crisis?

Reuters Staff

Jan 28, 2009 14:26 EST

Davos leaders have traditionally looked to the long term and have largely been keen on helping all nations of the world to benefit from economic development. But with politicians and businesses tied up with short term concerns about the economic crisis there’s a risk at least that efforts to spread development and to ward against the threat of climate change may go on hold, at least for a time. Reuters News asked delegates at the World Economic Forum’s annual meeting to share their thoughts on whether we should be concerned about development and sustainability slipping down the global agenda.

Trust: the commodity in shortest supply

Reuters Staff

Jan 28, 2009 11:29 EST

Where do I put my money? What do I read? Who do I listen to? Who saw it coming? Who made money from it? Who will make money from it? Who can I trust?

As Davos gets under way, my feeling from chatting with contacts and listening to conversations around me is that one thing the world economy is really suffering from right now is a crisis in trust.

Institutions failed us. Governments failed us.

Our own intuition failed most of us (George Soros said today that he protected his capital and had a satisfactory return — that’s certainly better than I did!).

Our advisers failed us. The media failed us too.

So before we buy again, or invest again, or behave normally again, people need an answer to the fundamental question — where can I invest my trust.

I think that’s the issue behind all of the discussions here.

Building a three-legged stool

Reuters Staff

Jan 28, 2009 09:44 EST

-  Lawrence Bloom is deputy chairman of Noble Cities and chairman of the World Economic Forum, Global Agenda Council on Urban Management. His views are his own –

The chaos generated by the meltdown of the global economic system provides environmentalists and human rights advocates with utopian opportunities to promote a new economic model, which will not only help sustain life on our planet, but actually increase its quality for many. As world leaders search for creative solutions to restore global equilibrium, the opportunity for recognising the importance of both human and environmental capital has perhaps never been so possible or achievable. Recognising all three types of capital: financial, environmental and human, will help us to build the equivalent of a balanced three-legged stool . Hopefully, this stool will be more stable than the current one-legged model of financial capital. Last week the United Nations Environment Program recommended the business world use the global downturn to press ahead with green technologies that will save firms money and help save the planet. It also recommended using micro-finance loans to help developing countries provide sustainable solutions in such places as Bangladesh where small loans have allowed women entrepreneurs to install solar panels and bring electricity to 100,000 homes. Society has been operating on the belief that if the engines of capitalism are powered to churn constantly, wealth will prevail and all of human society will benefit. But this system has served to create great income disparities by generating incredible wealth and incredible poverty, and has been the main driver in causing catastrophic environmental damage. The unregulated, trickle-down financial policy is necessary to generate positive GDP figures, but traditionally these data do not include the cost of rainforest or biodiversity loss. Thanks to the United Nations Green Economy Initiative, and the work being undertaken by Pavan Sukhdev and his colleagues who are engaged in the Economics of Ecosystems and Biodiversity project, we can now put GDP-like values on these losses. As a result, we are beginning to recognise that the credit crunch in the financial markets is a minnow in comparison to the credit crunch in our environment and biodiversity systems. It appears that we have been “borrowing” $2.5 trillion every year for the last 25 years without any significant compensating payback. Over time, we may acquire the wisdom to realise that what traditional economics considers “externalities”, as if they were irrelevant, are closer to our survival needs than the creation of economic wealth. The 90 pence we pay for a litre of petrol is divided between government tax and profit for the oil company, but who picks up the tab for the damage that is done by burning the fuel in the atmosphere? We privatise profit and we socialise loss. We need to start valuing people first, and then we will collectively begin to operate on the principle that the environment is not just another word for commodity market, but that it supports life. Valuing human capital means acknowledging that each person on this planet is entitled to fresh water, nutritious food, proper shelter, healthcare, education, justice and access to capital. This way we can release the creative potential of all of humanity. Only when we are clear on these values can we create a financial system that serves it. The current financial credit drivers are akin to the booster rockets on a space craft. In the same way as the boosters blast the craft free of the Earth’s atmosphere and gravitational pull, so the current financial system has created wealth, education and freedom for 1.5 billion people. But for many – the remaining 4.5 billion – the cost has been very great and to our ecosystems it has been disastrous. The skill in a space shot is knowing when to blow the explosive bolts, releasing the boosters and continuing the mission with the second stage only. Our skill will be in jettisoning our current economic model and designing a new and more inclusive “second stage”. What we should be talking about now at a strategic level is urgently restructuring our monetary system into a non-debt, or minimal-based debt structure using Sharia-type finance and complementary currencies with government spending money directly into circulation. In whichever way we choose as a society to tackle the global financial crisis, we must create a system that protects and nurtures all of humanity and the environment before it is too late. An inspirational quote attributed to a North American First Nations Chief Seattle states: “We are all connected like the blood that unites one family. Whatever befalls the Earth befalls the sons of the Earth. Man did not create the web of life, but he is part of it, whatever he does to the web, he does to himself.” These words written more than one hundred years ago speak directly to us today. Will we have the intelligence to listen?

From financial crisis to sustainable global economy

- Jonathan Lash is president of the World Resources Institute. The views expressed are his own -

Much of the world’s attention is fixed on the brutal effects of the global financial crisis. But sooner or later – sooner we hope – the global economy will rebound. Markets will recover, and stocks will rise. Nature, on the other hand, does not do bailouts. The effects of today’s greenhouse gas emissions – like those of yesterday and tomorrow – will be permanent, at least in the timescales that we care about.

They are what will shape the lives and markets of tomorrow.

My view of sustainability is very simple: what can’t be sustained won’t be. It was impossible for real estate values to continue to rise much faster than economic growth. It had to end sometime . . . and it did. When the bubble burst, the consequences were severe.

The same lesson applies to the ecological sphere. We simply cannot continue changing the chemistry of the atmosphere, through rising greenhouse gas emissions, without inviting enormous consequences. We cannot continue to increase human use of fresh water at twice the rate of population growth. Not only are there are limits on available supplies, but in many places these are reduced by climate change and pollution. Nor can we continue to create coastal dead zones, in areas where hundreds of millions of people depend on fisheries, by releasing ever more nitrogen into the surface waters of the Earth.

Since these behaviours can’t be sustained, they won’t be. The key question is whether we choose a managed transition to sustainability, or wait until the bubble bursts. That choice will have a profound effect on tomorrow’s markets.

So what is the solution, the way forward?