Davos: Governments Take Their Best Shot

This was the Davos when government leaders took center stage and attempted to reassert their primacy. From President Donald Trump to President Emmanuel Macron to Prime Minister Justin Trudeau and Prime Minister Narendra Modi, nations made their case for investment by multinationals, the superiority of their governance models and the happiness of their people. The present tendency to trust in markets and deregulation was most powerfully presented by Trump, who pointed to record low unemployment of African Americans and Hispanics, while the stock market swells the pensions of workers. 

Business leaders were universally bullish on the prospects for 2018. The tax cuts for business in the U.S., the recovery of Europe, the continued growth of China and India, and the higher oil prices buoying natural resource dependent economies portend a 2.5-3 percent global growth rate, according to Harvard economist Ken Rogoff. The obvious geo-political risks, such as a conflict with North Korea or the implosion of NAFTA, were dismissed as unlikely scenarios.

The most impressive presentation of the four days was delivered by President Macron of France, who presented a very different version of the world than President Trump. While Trump pushed the idea that each country should represent its own interests, focusing on deregulation, lowering taxes and rebuilding its infrastructure, Macron touted reinvestment in education and maintaining taxes to have money available for retraining. In his speech, Macron stated boldly that France is back. He made the case for Au Meme Temps ("at the same time"), referring to the necessity of opening France to the world while helping those left behind by globalization. He set out three pillars for this evolution, including a reform of education (to be 5 percent of GNP), including re-training and apprenticeship on the German model, investment capital that deleverages the local companies by reallocating French savings from banks into stock purchase while cutting corporate taxes from 33 to 25 percent, and finally a reform of the labor market to allow more flexibility for employers while guaranteeing a strong social safety net. He promised to keep the Paris Accords top of mind, including a closure of all coal-powered stations by 2021. He said that Europe needs to play a key role in balancing the superpowers of China and the U.S., ensuring both individual rights and freedom. He warned about automation without a plan; “Schumpeter will start to look like Darwin,” he said, an implicit shot across the bow of business employing robots without retraining workers. His ending comment was profound: “Do we figure this out together or not?”

There was great backlash against social media, with worries about fake news and fake accounts. Campbell Brown, head of Facebook’s News Partnerships team, acknowledged the culture battle between big tech and journalism. An executive from SNAP suggested separating mainstream content from social and providing context for where the content originated. Michael Posner, a professor at NYU’s Stern School of Business, spoke about the asymmetrical threat to democracies from state interference in elections. The consensus is that it must be the job of government to regulate or remove this kind of objectionable content. One stunning fact from Google: when you mark a story as disputed, it gets far more shares.

On preparedness for epidemics, there is a false sense of security, leading to a failure to stockpile vaccines. There is a role for simple products, such as masks and gloves, to prevent spread of infection. But the key point is the ability to deliver vaccines quickly to the point of infection. In the case of Zika, it took three-to-four weeks too long. The death rates for some of the outbreaks is stunning: 50 percent for avian flu. There is a communications issue on epidemics, now being managed through cellphone alerts. The business community has a big interest in containing outbreaks. Tourism is deeply vulnerable to bad visual images, with MERS causing a plunge in visits to Korea and Hong Kong last year. Here’s an interesting fact: a Silicon Valley start-up called Zipline can deliver blood or a vaccine via drone in Rwanda within 20 minutes of receipt of a text message from a doctor.

On NAFTA, there is considerable optimism, given the resolution of the dispute settlement mechanism. There are areas to upgrade the treaty, given the new industries emerging in the past 20 years, from IP protection to energy (Mexico has deregulated) to labor and human rights. The outstanding issues are related to manufacturing, with the U.S. seeking a return of jobs, especially in the auto sector. There is a strong possibility that the candidate of the left, Andres Manuel Lopez Obrador, will win the presidency in June, having promised to reconsider energy and telecom deregulation. 

China is steaming ahead. A panel of economists and business leaders termed China the country most open to business model change, particularly in financial services, where China does 50 times as much in e-payments as the U.S. The country is making big progress in business-to-consumer, but is behind in business-to-business. In areas ranging from Bitcoin to AI to genomics, look for Chinese companies to seek global partners to make up lost ground. The panelists acknowledged the problem of state-owned enterprises in making the necessary investments to comply with more stringent pollution regulations. But they also noted the opportunities in the sustainability arena for those involved with the One Belt, One Road plan that seeks to build infrastructure connecting China to both Asia and Europe. 

Pollution has now become the largest killer in the world, with 9 million deaths out of a total mortality of 55 million, three times more than AIDS and malaria and TB together. The hot spots for air pollution are China, India and Southeast Asia due to burning of forests for palm oil plantations and Thailand with burning of corn stalks. In India, one in four deaths is related to pollution, either airborne or toxins in water. The Chinese are making great progress in sanitation, connecting sewer lines to waste treatment. There are 4,000 dangerously toxic sites in 50 countries, many of which are tied to artisanal businesses, such as mining in Peru. A miner uses mercury to leach the gold out of soil, then leaves the residue on the ground to bleed into the soil. Large multinationals are bringing up the pollution standard but need to connect the small and medium-sized enterprises. 

Autonomous vehicles are coming quickly, with the first use most likely in delivery and long-haul segments. Trucks are being developed with a 1,000-to-1,500-kilometer range. Mini-buses are envisaged for on-demand or peak use in mass transit. Cities are not coordinating their regulatory frameworks on issues such as liability for man-machine accidents. There is concern about a move away from subways in favor of low-cost, on-demand autonomous vehicles for passengers. There are already 700,000 connected vehicles; again, China is moving fastest on implementation. 

Food security was discussed in the context of sustainability, with climate change the biggest risk to adequate supply. One economist suggested implementation of a carbon tax on food production, which would raise food prices as much as two times but “would drive real change in the developed world toward smaller farms.” This panel lavished praise on Cargill and Mars for “getting the tropical supply chain right…helping to stop deforestation.” The Tropical Forest Alliance specifies certain regions as being in compliance, a jurisdictional approach that enables the companies to assure sustainably-grown product. Indonesia was cited as the most difficult country for sourcing. An important point: for the first time, there are more obese people in the world (1 billion) than malnourished (850 million).

I left Davos convinced that CEOs have made up their minds to stay on their new path of speaking out on issues that matter to their employees and consumers. I was amazed by a comment by Ulrich Speisshofer, the CEO of ABB, who said during our Trust Barometer panel that five years ago, he had 100,000 blue collar workers and 30,000 white collar workers but that through re-training, he now has 100,000 white collar workers and 30,000 blue collar workers. As always, Paul Polman, CEO of Unilever, stood apart, saying that “we need more moral courage by CEOs. We need a different social contract as business. It is not smart to avoid taxes. There has to be a re-thinking of risk, to focus on impact and purpose, with the help of the financial community which now recognizes the need for long-term investing.” 

Richard Edelman is president and CEO.

World Economic Forum

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