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Davos provides impetus for “shaping new models”
Urgent discussions needed
About 2,600 of the world's richest and most powerful people – among them 40 government and state leaders – gathered at the World Economic Forum's annual meeting in Davos this winter. More than a hundred sponsors supported the Forum financially.
It may come as a consequence of the present economic and financial crisis that European and global leaders started in earnest to analyse the remedy’s consequences. The need for urgent measures is obvious for all an all parts of the world.
In fact, it is already the seventh year in a row that this forum discuss the crisis issues; in 2007 leaders in Davos (for the first time they met in 1971) warned that the US sub-prime problems could lead to credit crisis to financial and economic recession, which could culminate in sovereign crisis in eurozone.
The same issues have been discussed by the US President, Barack Obama, in his January’s State of the Union address as one of the themes of his campaign for re-election. Russian president and premier both regard the issues as a serious threat.
Capitalism under fire
The global economic system brought prosperity to numerous nations; but it has also increased problems, risks and inequality as the gap between rich and poor increased. The global financial crisis has shown that the existing capitalist model shall be thought over and re-evaluated. It means for example that the financial institutions cannot survive in the present form. Actually, they have been already under constant modernisation both in the world and in Europe. Without the necessary changes the financial system can ruin both the United States and Europe; if crisis continue it may take decades to fix the economy.
The critical state in economy makes life difficult for politicians; some argue that old-fashioned politicians because they lack vision of the future and stick to rule-books. However, finding crisis’ remedy needs non-traditional approaches and solutions. The lack of leadership can threaten and weaken democracy. The crisis has already undermined trust between the electorate’s popular vote and politicians’ ambitions; the latter thought they can find the solution by replacing elected political leaders with technocrats, as already happened in Greece and Italy.
Income disparity heads the list of concern at Davos. Leaders called on business and financiers to engage in a radical rethink, as presently the world faces the greatest inequality since 1930s. The general secretary of the International Trade Union Congress said: “if capitalism was going to sustain itself the distribution of wealth should be more equal”.
George Soros voiced another message: “I am one of the billionaires that believe the rich do have to pay more taxes”.
Other business leaders expressed and opinion that that they prefer a more positive version of capitalism.
Globalization and nationalism
The crisis has endangered the relationships between the growing globalization and unprecedented drive to a strengthening nationalism.
One of the biggest issues is the confrontation between the global economy and the local, national policy because many political leaders in globalization’s holy name have given too much power to the capital and financial markets. Ordinary people would expect that their leaders and politicians are obliged to protect them against unemployment and social inequality.
Hence, it is not surprising that the capitalist model is under pressure in both the United States and in Europe; the “occupy movement” is seen on both sides of the Atlantics. The economic growth and prosperity has become a far distant concept in development models. In numerous countries including eurozone states like Ireland, Greece, Portugal, Spain and Italy the crisis hit hard. And the banking system in these countries (including some states outside euro-zone, e.g. Hungary and Latvia) were kept alive with the assistance from the European Central bank and IMF.
Capitalism’s dead, long live capitalism
During recent years there have been numerous attempts to reassess the “global capitalism”; some were even of an opinion that this system itself had been the crisis’ main threat. The capitalist system’s worst performance in economic and social spheres added to popular dissent. The lack of public confidence to political leaders consequently leads to a rejection of capitalist system as a whole.
Some leaders, e.g. French president N. Sarkozy already mentioned in Davos that the modern crisis has an additional component – a moral crisis. New growing powers like China, India, Russia and Brazil, to name a few, logically ask whether it is feasible in the long run to follow the Western capitalist model. The question seems fear: if politically disintegrated European leaders cannot agree on basic social-economic perspectives, what path the globalised economic model shall follow?
Crisis of capitalism in Western Europe poses numerous questions in its Eastern part. So far the main lesson is a sort of “interventionist economic model”, i.e. that as soon as an economic downturn has provided horrific consequences, the remedy is not to liberalise the economy too much. Bottom line is that it is safer to have public/state adjustments in the banking/financial sector, for example, which both the United States and Europe would definitely impose.
The capitalist idea is not dead at all; we just do not have a feasible alternative. What we actually need for survival is rethinking about the capitalist “background” in development, with ultimate new economic governance and – first and foremost – plausible and modern political leadership.
Praising Baltic States
Researchers at Yale and Columbia universities in the US showed in a report delivered in Davos (known as 2012 Environmental Performance Index) that in a society with a lack of good governance and non-transparency the economic system performs badly. Latvia, for example, topped the study list as a country which performed best in environmental issues during 2000 and 2010. Such measures as elimination of coal from Latvia’s electricity generation, reforestation and lack of heavy industry helped a lot.
The opinion in Davos shows that delegates consider the prospects of water supply, food shortages and extreme volatility in commodity prices were the second, third and fifth ranked risks of modern concern. However, such environmental concerns as greenhouse emissions or climate catastrophes are not of an immediate threat: performance on these challenges has declined globally.
Time to deliver
Some of the world’s newest banks CEOs are skipping the Davos meetings; the eurozone crisis and balance sheet problems keep them aside. However, Davos-2012 is a place to visit for established bank chiefs –especially from outside the eurozone states. For example, Vikram Pandit of Citigroup – one of the leading world’s bank names – has been given the role of “co-chair” at the Forum.The bankers in Davos fully agree on one single thing – the eurozone crisis must be fixed quick and efficient.
It seems a general mood that “capitalist practice” needs adjustments and “regulatory capital” shall be of primary attention. But anti-capitalist virulence shall not confuse “crony capitalism” with free market ideology: the former is engaged in political support for private sector people or businesses in exchange for favours (it is generally called corruption). The free-market capitalism has succeeded so far in meeting people needs better than any other existing development theory. And any dramatic “improvements” might be dangerous as is living in a fantasy world.
Everybody’s hope is that the Forum can deliver on its 2012 title – “The great transformation: shaping new models”. Although the Forum makes no officially binding decisions, it works as a guiding force for politicians, businessmen and the public to make the right choice.