Opinions - 02.02.2012 - 00:00
2 Febuary, 2012. Last Saturday saw the conclusion of the latest World Economic Forum in Davos. For an event that doesn't produce a communiqué--let along anything as grand as a treaty or even a lesser governmental accord--a surprising amount of ink is spilt divining the twist and turns of this alpine gabfest. It says much about the contemporary world that an informal event which is elitist -- despite its best efforts -- is afforded such prominence in the annual calendar.
With one exception, the public statements of leading politicians are to be taken with a grain of salt. Indeed, Mrs. Merkel speech was utterly pedestrian. Perhaps the best that can be said is that it tried not to be too overbearing. Mr. Cameron's speech in contrast was full of brim. Unfortunately, the largely accurate analysis of the deficiencies of the Eurozone set up was delivered 15 years too late. Both speeches were for domestic consumption.
The exception was the Israeli defence minister who -- closely paraphrasing his statement --warned that soon Iran would move to the point where external military attacks on their nuclear sites would be useless. The fact that the Israeli's rarely slip up on military matters makes threats of action more credible than listening to the latest promises of EU leaders.
Of course, this is no laughing matter as any Israeli attack on Iran may encourage the latter to disrupt oil supplies through the Straits of Hormuz, sending oil prices through the roof and endangering supplies in Asia and Europe. This is clearly the geopolitical wildcard to watch in 2012.
The hope for Eurozone reform
Other than monetary policy, however, Eurozone policymakers tried to put on a brave face claiming they were ready to do what it would take to solve the Eurozone crisis without daring to specify what was involved or come to any substantial agreement. Expect the European economy, then, to be stuck in the no-man's land between severe recession and stagnation. Reform expectations have been rightly downgraded.
Two long term trends move into the spotlight
While the Eurozone crisis may have provided much grist for the Davos mill, other longer term trends have attained enough significance that they can no longer be ignored. There is the continued emergence of a "dual world economy" where the economies of emerging markets continue to grow faster than Western and Japanese counterparts. This is not to say that difficulties in the west won't harm the emerging markets, rather it is that the differential growth advantage of the latter has been sustained through the global economic crisis, further reinforcing the importance captains of industry give to investing in the emerging markets. The geopolitical hour glass stops for no one and no crisis.
Concerns about large incidence of youth unemployment in the austerity-ridden richer countries also received a great deal of attention. Here the so-called "Davos Man", the unapologetic supporter of globalisation was stumped. While some business people acknowledged that tackling inequality required an effective state and that being seen to address this matter was a pre-requisite for sustaining public support for globalisation, few were prepared to take the argument further and advocate specific government initiatives. No major business person dared to mention more progressive tax systems might be part of the solution.
Was the World Economic Forum Stumped?
Some of the "Davos Men" linked the inequality "challenge" with the Iranian nuclear "problem" (notice how the language used to describe the difficulties is softened when really tough questions arise) arguing both were impossible to solve. Rarely does the Emperor admit to having no clothes, but the admission here had a clear purpose--to convince the listener to set aside the policy concern and to accept the status quo. This is a pretty brazen strategy not least given the continued practice of paying sizeable bonuses to senior corporate executives. Tempting as it may be to admire the gall of "Davos Man", 2012 was the year when they finally admitted they didn't have all the answers.