The annual meeting of the World Economic Forum (WEF) will be a markedly chilly affair that even the promise of free Toblerone won’t be able to ease. Davos 2009 marks the first time that the world’s leading business men and women have found themselves coming face-to-face with a true economic behemoth and it’s no surprise that commentators and economists are eager to see what they plan to do about it.
In this week’s Money, we examine the options available in the current credit-less environment and whether a failure so far to think beyond economic orthodoxy will negate any attempt made by the WEF to kick-start a recovery. This will allow us to examine what such an economic recovery would look like and what implications this would carry for prospective university graduates as they join the labour force over the next five to ten years.
Some indication of what to expect was already provided by the WEF’s Dubai conference back in November. Though criticised at the time for its failure to provide any innovative solutions, the recommendations that were made nevertheless indicated a growing tolerance – rather than acceptance – of ideas that had, in the past, only resided on the fringes of the policymaking mainstream.
One of the more popular notions that began to gain currency last weekend was a realisation of “entrepreneurship in the global public interest”: that private business should work with, rather than simply within, communities by accepting their responsibility to their employees and to their customers. In contrast to the last decade, when globalisation provided multinational companies with the opportunity to abandon western labour markets for the cheaper options available in the south, firms are now beginning to realise the underlying importance that their original consumers held.
Is this strategy feasible though? For one thing, can fickle consumers be trusted to reciprocate to this offer? Because despite any attempt to artificially raise wages, consumers will nevertheless demand the cheapest prices, especially at a time when they are becoming more price conscious. In other words, efforts to work within the community are only likely to jeopardise business further.
This is the paradox that the WEF finds itself in. Despite paying lip service to a more cosmopolitan approach to capitalism, its members are still fundamentally driven by the naive belief that “The crisis is not reflective of a failed economic system”, prompting the question as to whether we should in fact be looking towards the people that caused this problem in the first place.
But who else, if anyone, has the authority to lead us out of this recession? The G20 meeting held in Washington DC last November ironically confirmed the limited role that politicians can now serve in the economy. For although promises of dismantling remaining protectionist measures and an agreement to create a ‘college of supervisors’ to oversee the financial services, the nature of international finance is such that it cannot be managed in this way.
The best that our politicians can therefore do is take away potential barriers. But without any positive motivation, recovery is not always guaranteed. This is arguably not a surprising fate for the West, which remains fundamentally driven by a neoliberal understanding of economics, which has so far served to paralyse any attempt at restructuring the global economy.
Could we therefore look towards Asia and particularly China? When Deng Xiaoping set China’s path to economic recovery in the late 1970s, Western economists argued that “Only capitalism could save China.” Exactly thirty years later, some commentators are already claiming that “Only China can save capitalism.” China’s wealth entrusts it with the opportunity to not only increase global demand, but also make the necessary donations to realise the IMF’s promised recovery packages.
However, before we get our hopes up too high, we must recognise that China hasn’t escaped the impeding global recession entirely. Construction, electricity consumption and steel demand have all been falling in recent months, while industrial production grew by only 8.2% in the year to October, its slowest for seven years. A reliance on China is therefore a naïve view to take.
This points towards the increasingly inevitable – if not regrettable – conclusion that Davos may well have been the only remaining chance for economic recovery. The problem is that they know it. And as a consequence, don’t be surprised when from beneath the surface of glossy philanthropic posturing, emerges an anticipation that government will reciprocate in their favour.
In other words, businesses will continue doing what they know best: getting economies to compete for their input. In readiness for this, governments are already preparing to protect themselves. NAFTA, the EU and ASEAN remain to keep high import tariffs in place in a bid to attract companies to settle inside these regions, while domestically, resources are already being allocated to investing in future human capital – the UK, for example, has already been promised an extended school leaving age and an expanded Heathrow Airport. The result could be disastrous: unnecessarily inflated prices and a dilution in the value of our qualifications at a time when we should be cooperating to create the necessary expertise to help develop a more innovative, permanent solution to this crisis.
To avoid this, therefore, ministers must ensure that Davos doesn’t get the better of them and the fact that representatives from both the US and UK treasuries will not be attending gives some indication that a few governments recognise this fact. Instead, governments, if not economic regions, must agree consensual tax arrangements and environmental targets, in a bid to overcome the fatal trade diversion that each economy fears. The Davosian man of 2009 may well be no improvement on what he was before, but at least he would be put in his place.