The World Economic Forum is probably best known for the big jamboree that takes place every year at Davos. The scene is breath taking as it held at the time when the place is laden with snow and the who’s who of the world are there for 4 days having meetings and discussions in small groups and generally having a great time. The ostensible reason is to share views of how the world should progress and the challenges and solutions that lie ahead. While the congregation is universal, there is a tendency for two groups to emerge – the developed countries and emerging markets which tend to have different voices, which is natural.
The participants could number between 2500-3000 and would range from presidents and Prime Ministers to senior bureaucrats, industrialists and economists besides the ubiquitous defenders of climate. The subjects discussed are also fairly well drafted on globalisation, lowering of trade barriers, fostering free trade, protecting the environment and addressing poverty. The irony is not lost as some of the richest people gather here and pontificate on the good things that need to be done. The cost of each delegate was estimated in 2014 to be around $40,000 which can really not be afforded by most countries.
At times not being there can be a stain on the importance of the person and the media is abuzz with extensive coverage. The journalists battle it out within these media houses to be there to interview whoever they can get.
There would always be shocking comments made by some like Joseph Stiglitz while the scions of industry will make you feel every year that the next year will be brilliant howsoever they have been incorrect in the previous year as their job is to keep up the spirit. There is finally no agenda or action points drawn up as most of these discussions are informal and do not have political sanction.
This year too, Davos would have actually passed off as being just another get-together which has no major significance but for the fact that two developments i.e. Donald Trump’s victory and the Brexit have actually made most of these deliberations meaningless.
Decisions are political but have economic implications as the edifice of globalisation has been questioned by these two events. More importantly, the wave appears to be weaning against globalisation and cooperation. The way of thinking today is quite straight forward. Countries would like to protect their own territory while dealing with either labour or goods and the tenets of competitive advantage would be preferred to be confined to the textbook.
This has been a result of two factors. The first is that the definite slowdown in the world economy, which has affected the developed countries more than the emerging markets, have made them realise that almost all arrangements at globalisation has meant that the larger country helps the others grow while receiving proportionately less in return. When the developed world went through the phase of what was called the ‘great moderation’ till 2007, this did not matter. But since the financial crisis of 2007-08 and the Euro crisis subsequently there has been limited recovery for the next 8-9 years which has called for introspection.
The second is that there has been growing disenchantment towards any kind of unions like the EU or euro where the individual country’s freedom to formulate policies that are best for them get impinged. Hence while countries would like to foster free movement of goods and services the choice on the ‘how much’ should vest with the concerned country. Hence, USA is against Mexican labour and Chinese goods, and UK is not predisposed to immigration of being bound by the EU laws. This is significant as other countries like Italy and France are likely to follow suit.
The declining importance and relevance of Davos and all that it has stood for also sends an important signal of the future of the euro as well as other global agreements. The euro currency already has some dissenting voices within as the compromises made by countries like Germany to keep the concept relevant has been quite significant. Therefore the future viability of a single currency could come under a cloud.
Within the ambit of such forums, the gradual diminishing importance of WEF and the Davos meetings also signals a bleak future for WTO which has ambled along quite arduously over the years to find a solution. The loss of faith in globalisation and its tenets and the move to protectionism comes at a time just when the major economic power China is looking to integrate its economy with the rest of the world.
This is one of the reasons as to why Donald Trump’s ascent to the Presidency is relevant and his first six months in office will provide a clue to what lies ahead. The emerging markets on the whole would be impacted quite significantly by a reversal in direction of economic integration and they would probably have to foster their own inter-regional blocks to leverage on each other’s strengths. The relatively weaker position of most of the developed countries will make them look inwards and seek to protect their own boundaries.
While Davos will continue to be conducted in future, the coverage in the media would tend to reduce as the relevance of these meetings diminishes over time unless there is a change of thinking and action at White House.
(The author is a chief economist at CARE ratings. Views are personal.)
Updated Date: Jan 19, 2017 17:30 PM