For the past five years, the participants to the Annual Meetings of the World Economic Forum (WEF) have gathered in Davos to discuss urgent global crises the world was facing: subprime lending, the credit crunch, banking, Greece, the euro zone’s woes, and so on. Soul-searching about the political and economic status quo ensued. This year, with leadership transitions in the two largest economies completed, the euro zone no longer facing imminent break-up, and China growing at 7.8%, Davos resumed some normalcy. Some even claimed optimism.
Some of the optimism is based on the growth prospects in Asia and China. For the past five years, while Europe has not grown at all, Chinese GDP has grown 60%. In this year’s Davos, there were no fewer than five public sessions on China, with topics ranging from its rapid growth, transformation of its growth model, and emergence of its soft power. Interests in Asia are high.
On Thursday, I moderated a discussion on Asian integration. Five panelists from Asia-Pacific countries shared their views on the dynamics within the region surrounding economic interdependence, geopolitical tension, and integration. Australian Foreign Minister Bob Carr made a point to stress the importance of a peaceful and collaborating region. Malaysia’s Trade Minister Mohamed Mustapa discussed the goal of achieving the ASEAN Economic Community by 2015. The session ended with an agreement, surprisingly, on “Asian identity.” While Asia may not have a collective identity as strong as that of the African continent, it was pointed out that we all enjoy each other’s food, that PSY can gather a huge crowd with his Gangnam Style across the region, and that the Confucius mindset is widely shared in many aspects of life in East Asia. As a result, in addition to economic connections and institutional arrangements, the region’s integration could also benefit from a shared cultural identity. In another brainstorming session I moderated on the upcoming Myanmar WEF, Myanmar Senior Minister U Soe Thane joined the discussion as a special guest, and we had a similar discussion on how Myanmar could be better integrated into the regional economy.
The economic growth in Asia and emerging markets is likely to be driven by continued urbanization, as emerging economies upgrade their living standards and particularly infrastructure. At this year’s Davos, I attended a number of industry sessions WEF organized on infrastructure finance and urbanization, which were very well-attended by policy makers, investors, construction companies and international organizations. In a roundtable on global infrastructure financing chaired by Gordon Brown and Prudential Chairman Tidjane Thiam, I spoke about the importance of having credit enhancement tools systematically available for infrastructure projects. In a cross-industry CEO session titled Global Physical Infrastructure, President Aquino of the Philippines shared with the group his plan to develop infrastructure in the country and participants examined the hurdles that prevent the large amount of idling long-term capital to be channeled into infrastructure development. This lead to brainstorming about solutions ranging from project preparation facilities, public-private partnerships, and risk mitigation tools.
Infrastructure development and reconstruction are most urgently needed in fragile states that have recently emerged from political, economic and/or natural crises. On Friday, I joined a discussion on fragile states where I spoke about the importance of aligning the long-term interests between foreign investors and host governments, especially in social and environment impact assessments and community engagements. Former Australian Prime Minister Kevin Rudd expertly moderated the session. Also present at the discussion was Haiti President Laurent Lamothe and UN Assistant Secretary-General for Peacekeeping Judy Cheng-Hopkins. After discussing the important role of private sector and where it was agreed that the role of state is equally crucial, the lunch discussion participants had a riveting conversation on Myanmar, Haiti, Libya, and other economies that have recently emerged from crisis.
The crisis of capitalism, on the other hand, seems to have abated this year. With the Occupy movement all but disappeared, there did not seem to be any urgency in this Davos in contemplating alternatives to the prevailing free-market capitalist system. This mood was apparent in a Friday evening session I joined titled “Can Capitalism Evolve?” and moderated by the Financial Times’ Martin Wolf. Other panelists included Larry Summers from Harvard, Laura Tyson from Berkeley, Anthony Scaramucci of Skybridge Capital, Nigerian Central Bank Governor Lamido Sanusi, and Chilean Central Bank Governor Rodrigo Montes. In my opening remarks, I asked the audience four questions: Can free-market capitalism and the real-time marking-to-market of everything truly adopt a long-term perspective? Are there other means beyond markets that create price signals and feedback loops? Is a state-directed economic system necessarily less adaptable than free-market capitalism? What will happen in a globalized world when you pitch a state-directed system against a free market system? The two-hour heated discussion ended with one speaker pointing out that policy makers are not paying attention to the biggest challenge we face on climate change, precisely as a result of the lack of long-termism. Another speaker claimed that all is well with capitalism as a way to organize society and that the sun will rise again.
If all is well with capitalism, no wonder optimism abounds in Davos this year. Much of the optimism in Davos this year reminds me of the ancient Chinese story about a thief who wanted to steal a bell. He covered his own ears so he could not hear the sound of the bell, under the assumption that if he himself could not hear the bell others would not hear it either—so he could steal it without any fuss. He was quickly caught and sent to jail. Similarly, the crisis-fatigued developed economies might have breathed a sigh of relief in Davos this year for successfully kicking many cans down the road so we could not hear them. It is hard for me to subscribe to this type of optimism.
In Davos, debates don’t seem to yield agreements on many topics, and uncertainty seems to prevail. However, when one applies a truly long-term perspective over the next two or three decades, the world is surprisingly predictable. We know for sure that the emerging economies will continue to grow robustly over the next decades, driven by many factors chief among them urbanization and globalization. We know for sure that economic linkages that are growing into economic interdependence—strengthened by the increased flows of goods, technology, labor, and capital—will only create powerful incentives for countries to work together for shared prosperity, rather than to drift apart towards isolation and despair. We know for sure that fundamental changes in global economy, mainly the shift of economic weight towards emerging markets, will sooner or later bring about changes in the institutional arrangement of the international system and that a misaligned system today will eventually have to be aligned.
These longer-term certainties do call for optimism, but of a very different kind from that of the bell-stealing thief, who we saw in Davos last week.