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6 A.M.

World Economic Forum

Davos: More Confident, Certainly Not Relaxed

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The annual meeting of the World Economic Forum in Davos, Switzerland gave participants its usual over-stuffed schedule and array of notables (55 heads of state!). The CEOs were low key and serious about the challenges ahead. The government leaders were solicitous of business, hustling for new investment in their countries. Most notably, the members departed the snowy village with a greater sense of confidence than the prior four years.

Here are my impressions of the four days:
  1. Environment at Tipping Point — The feedback loop on environment is now firmly set, with change accelerating. Fred Krupp of Environmental Defense Fund predicted the polar ice cap will have melted by summer, 2030. In the developed world, CO2 from livestock now equals that produced by cars. 75 percent of fish in the seas proximate to Europe are endangered. Companies are moving from focusing on the supply side (packaging, concentrates) to the demand side (altering consumer behavior) by use of QR codes to prove point of origin. The key challenge: 70 percent of consumers say they will buy sustainable products, but only 17 percent actually do. 
  2. Non-Communicable Disease Epidemic — The new focus for health officials is obesity, diabetes and other preventable diseases. As Linda Fried of Columbia University’s Mailman School of Public Health noted, 70 percent of health work must happen outside of the health care system. Health initiatives need to be localized. There should be public-private partnership, with health insurers working together with corporate customers to encourage healthy behaviors through pricing. The problem is that developing nations prefer to put their capital to work on infrastructure than to pay for health care.
  3. Aging — Japan is the only nation that has 30 percent of the population over 60 years old today. That picture will change radically by 2040, when nations such as China, Chile, Vietnam and all of the European nations will have the same aging population. This will require a fundamental shift in retirement age, with older workers accepting a longer working life and likelihood of lower wages at the end of a career. We are moving toward a “life continuum,” with less structure around education, work and retirement.
  4. The European Debate — Prior to Davos, UK Prime Minister David Cameron gave a speech promising to address the issue of continued participation in the European Union to the voters in 2018. He continued at Davos, bluntly asserting that Europe “was being out-competed and out-innovated.” The Prime Minister of Italy, Mario Monti, countered, “Eventually the Confederation of British Industry and other UK groups will support the EU. We want British state of mind without its ideology.” A roundtable of prime ministers from Holland, Denmark and Ireland concluded that “we must fix the labor market rigidities, reduce the power of local insiders by de-regulating and opening the markets.”
  5. China and the World — At a CCTV panel, former Australian Prime Minister Kevin Rudd suggested China had been inwardly focused for the past 20 years, raising an unprecedented 600 million people out of poverty. “But the world now wants to know how China is going to do given its great power position.” The Chinese corporate sector is looking outwards, as evidenced by the rise in outbound investment from $3 billion in 2002 to $80 billion in 2012. China also has several other challenges to face: Chinese manufacturers are being forced to focus on efficiency and quality due to competitiveness.
  6. Nigeria and South Africa — Both President Goodluck Jonathan and President Jacob Zuma described investment opportunities in their nations saying that “our laws are business friendly. There is no restriction on the inward or outward flow of money.” Zuma noted that “The African National Congress (ruling party) has created certainty for policy by having a National Development Plan to emphasize tourism, agriculture, manufacturing and shale gas.” Jonathan said that Nigeria and fellow African states are now “stable politically.” Adding, “We need a private sector perspective. We want the private sector to help us to improve our airports, our roads.” 
  7. Russia — A panel of former government officials and academics concluded that the rising middle class will demand reforms. Former finance minister Alexei Kudrin said, “The negative signals are significant. The low level of growth and failure to overhaul institutions, in the context of weak oil prices, could jeopardize the public budget.” Professor Sergei Guriev, professor of economics and rector at the New Economic School (NES) in Moscow, said, “More income is no longer enough for the people. They are too urban and sophisticated to postpone change any longer. Russia is unprecedented in its level of education for such a corrupt government.” 
  8. Religion and Democracy — I attended a fascinating panel discussion of religious leaders debating its proper role in a democratic society. On one side were those who felt religion was a barrier to rapid development. A female minister said, “Religion can have a positive role in the free marketplace of ideas, but not when government imposes religious doctrine.” Meanwhile, an Indian professor noted that his nation has rich cultural identity and a functioning democracy. He quoted Gandhi as saying, “The human mind is not divided into political, social and religious compartments. Religion harmonizes… it is ordered moral government of the universe.”
  9. Banking — I went to a panel with CEOs of major banks, including Doug Flint, chairman of HSBC and Peter Sands, CEO of Standard Chartered. The consensus of these executives was that the crises of 2012 stemmed largely from “bad behavior and poor ethics.” Sands noted that his bank has instituted a dual track performance review, focused on financial results and on living the values, with equal weight on both elements. Both cited an email to staff this week by the new Barclays’ CEO, Antony Jenkins, in which he said that his team should buy into values of client service and decent behavior or leave the firm. The matter of compensation, amazingly, was left unnoticed until a question at the end by former Mexican President Ernesto Zedillo, who suggested that the bonus culture was at the core of banking’s problem.
  10. The Economy — There was general agreement on the economic forecast for 2013, as one of slow and steady growth. The best performer among the BRIC nations will be China, around 8 percent, India around 5 percent and both Russia and Brazil mired in 1-2 percent growth. The U.S. is expected to have a better year, with low energy costs, reindustrialization and in-sourcing helping to boost employment. Europe is expected to be in a zero growth environment, with Germany at the high end, while Spain, Italy and France struggle to gain any forward progress. 
Here are a few personal anecdotes to wrap up my report. The Edelman Trust Barometer, launched on the first day of the conference, provided fodder for a debate on Thursday. As a European regulator was thrashing technology industry leaders about privacy and security, one of the CEOs stood up and said, “According to the Edelman study, the tech industry has four times as much trust as you government bureaucrats. Why don’t you just sit down.”

I was invited to lunch with New York Yankees star Derek Jeter. My favorite story was how, as captain, he dealt with trouble makers who put themselves before the team. “I watch how they treat the locker room attendants and waiters at restaurants. I have learned to listen, to get their side of the story. But in the end they get on board or go.” His most memorable moment as a Yankee: “I don’t dwell on my achievements. I am looking to see what’s next.” It is indeed time for modesty.

 

Richard Edelman is president and CEO. 

Image by World Economic Forum/Remy Steinegger.

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