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February 1, 2005
News from Davos
I just returned from the World Economic Forum's annual meeting in Davos, Switzerland. I will try to give you a quick sense of the tone of the meeting, then a specific report on each of the sessions I attended.
In past years, I have told you that it was the year of technology (1999), the year of America ascendant (2000), the year of Europe (2001), the reaction to 9/11(2002), the US-EU collision on Iraq (2003) and the implications of the rise of China (2004). The theme for this year officially was Taking Responsibility for Tough Choices, including such issues as climate change, equitable globalization, global governance (unilateral vs. bilateral), US leadership and weapons of mass destruction. In my view, the 2005 meeting reflected a profound and growing divide between two philosophical schools, the free marketers and the institutional or governmental camp, the American approach versus the European view, with other parts of the world choosing sides depending on the issue. There is agreement on the problems, not on the path to solution. One commentator noted that "America is moving toward its own reality, based on its own values." Meanwhile French President Chirac proposed a tax on financial transactions and airline tickets to fund the universal free treatment of AIDS patients, under the auspices of a World Economic and Social Governance Council, a new multilateral body which will be utterly unacceptable to the US. So my theme for 2005 is Common Problems, Divergent Paths.
Here are specific reports on each session attended:
World Economy--Generally positive outlook for 2005, but not nearly as strong as 2004. US economy still the world's engine, but China and India are new forces. US growth at around 3%, Europe at about 1.5%, China at 9%. Major concerns about US twin deficits (fiscal and trade) but no easy solutions, as currency devaluation will not fix 1.5 to 1 imbalance of imports versus exports. Interest rates will rise 100-200 basis points this year. Special opportunities in Brazil, Mexico, Russia, Turkey, though not in surrounding regions. One major question is success of next trade round, scheduled for this fall--will industrialized countries allow deregulation of agriculture--as economic growth in less developed countries depends on trade and globalization.
Transatlantic Relations--We have the development of a parallel reality. The boundary between religion and politics in the US is blurring, while the EU grows increasingly secular. The Bush Administration is a reflection of profound changes in US society, with growth of suburbs/exurbs, creeping patriotism since 9/11,conviction in free markets, and desire to preserve option of individual military or political action. Europe is particularly disenchanted with American values of consumerism, excessive hours of work, lack of social conscience and social contract. There was criticism that Europeans are acting like haughty smarter big brother to American younger brother, always knowing better, while US wants to show off its strength and prowess. The US is not putting its point of view across in Europe. Europeans do not know the middle of the US at all, staying only in NY, Boston, SF and LA. There is a real chance to bridge the gulf through common economic interests, using business to mend the rift, pushing politicians to reconcile. We should also recognize that much more joins us than divides us, including democracy, free markets, and a civil society, with common enemies of terrorism and poverty.
Terrorism--We have not found the key to breaking the replacement cycle for terrorism. Progress has been made in fight against Al Queda, as 3/4 of leadership has been killed or captured. But this is not a war, where you win through tactical attrition--it calls for a counter insurgency which is 75% political reform and economic development, only 25% military success. One big goal must be the elimination of sources of tension, such as corruption or poor education. Muslims believe they are under siege by the West, with most terrorists actually coming from middle class or affluent families. We need to be sensitive to the transition to democracy, the challenge of modernization in the region. Human rights must be part of a positive vision, including guarantee of rule of law in trying suspected terrorists, for reasons of principle and effectiveness. If a suspect is captured combatants, then he can be held without trial until the end of the war but those not picked up on a battlefield cannot be designated as combatants.
Corporate Governance--Lord Browne of BP noted that while people accept the role of business, they are demanding better behavior. The best solution is to find a point of mutual advantage for all stakeholders, talking to all in a transparent way. Companies can inspire trust by explaining what they are doing, with true value created by conversation. There should be value based decisions taken by companies on matters of public policy. CEO pay must be linked to performance and the CEO must be a coach, not a rock star.
The Future of Media--The news hole is shrinking. TV is providing news with more feature and entertainment value to keep audiences. The key dilemma is what is interesting versus what is important. Stories like the tsunami in Asia need to be told through real people, not simply recitation of facts. The "what's happening today" type of news is now a commodity so the news business is taking a point of view and pursuing an agenda. The new consumer of news is going to the outlet that serves up his opinion. There was severe criticism of the rush to publish, using the CBS News failure on the story on President Bush's service in the National Guard as the example. Media companies have implemented tough codes of conduct in the wake of recent scandals (BBC, USA Today, NY Times) so that multiple sources will be required before a story goes on air or into print.
Ubiquitous Computing--There are now 750 million devices connected to the Internet, with 14 billion to be connected by 2010. Some of the newer applications include refrigerators, washing machines, and cars. The periphery of the network is being extended, according to Forrester Research, with the physical world tied to the digital world. There will be item level tagging in all stores, health care companies using sensors to measure vital signs of patients. We are moving to a totally transparent society or in the most negative context, a surveillance society. The key question is whether consumers will trade off privacy for benefits such as health. There will need to be data security assurance and real consumer benefit, not simply lower price, to gain acceptance of this trade off. Some technology companies such as Amazon are beyond collaborative filtering--consumer reaction to specific promotions is already judged in real time.
Regaining Momentum in Pharmaceuticals--The key challenge is to square perceived social value of health with market value. We need to educate our consumers in order to persuade the politicians. We need to charge a price to suit the income of consumers by market (tiered pricing model), a classic economic model, because the poor will never be able to pay sufficiently to create a return on investment in R&D. There will need to be a subsidized market for categories like malaria drugs, with tax credits or other techniques. Research will be getting more efficient, as new drug discovery tools such as modelling will yield a higher probability of success. We will continue to go where the science takes us, focusing on both acute and chronic disease. We will fund more fundamental research at universities and look to new groups such as GAVI to do venture funding. There will be more research undertaken in Asia, particularly in India, where R&D is 1/7 as expensive.
Obesity--There is positive momentum in industry for new product development of lower fat, lower calories products. The key is persuading consumers to accept higher prices for higher quality but smaller quantity products. The industry needs to attract young consumers to better for you products with convenient distribution in schools, convincing spokespeople (athletes or rock stars) and reaching them where they are (on-line, TV, video games). The problem is becoming more severe in less developed countries, with India forecast to have 20 million diabetes sufferers by 2010 and real obesity in children in Beijing and Shanghai. The new emphasis for the World Health Organization will be total calorie count instead of nutrient content, because it is a simple statistic and can be tied easily to energy balance/exercise. Access to sports facilities is urgent--in Brazil, streets are now blocked off after school so kids can play football/soccer. There should be a change in how health ministers are evaluated, moving from treatment to prevention paradigm. Business must take the lead in changing product mix, while moving consumers to a better lifestyle, with government and NGOs providing a regulatory climate conducive to change.
Please contact me directly with any questions. I would be glad to respond.
Posted by Edelman at February 1, 2005 3:39 PM |
Comments
Thanks for the comprehensive summary. For those of us who weren't there, the WEF has made videos of many of the sessions available online at: http://clients.world-television.com/worldeconomicforum_annualmeeting2005/
I thought many of your readers might be interested. I know I hope to catch a few of the panels when I have time later this week.
I'm curious - from your summary a lot of the focus appears to have been the US vs. the world - is this the case? How much discussion was there around other relationships - developing world vs. rest of the world, Africa & the EU, India and China etc? Also any discussions about "metanational" corporations - i.e. corporations which increasingly exist seperately and independantly of country - and see themselves internally as working around products often not for local, geographically centered concerns (i.e. the international company who may have team members on a project in a dozen countries, or which only has limited "country" specific organizations and mostly only for legal not functional reasons?")
thanks!
Shannon
Shannon Clark
Founder, MeshForum
"Connecting Networks"
May 1-3, 2005 Chicago
www.meshforum.org
Posted by: Shannon Clark at February 1, 2005 5:28 PM
Richard,
I think I’ve just about read the most comprehensive world business forecast to date. Very well summarized. Reading through the summaries of all the sessions you attended, while the problems are common and paths divergent, I see a very strong singular requirement. Sort of golden thread running through each and every topic. And that is the need for transparency in communication. Any which way you slice it and dice it the solutions seem to permeate through dissemination of knowledge and awareness in a manner that fosters trust and accountability. The more times I re-read your blog, I more I am convinced that Professional Services firms such as yours have their hands full dealing with every one of the world-impacting issues that you speak about. The burning questions are "Are we ready or will we be overwhelmed? How do you brace yourself to take on more without diluting your core competencies?"
Sri Alathur
Posted by: Sri Alathur at February 2, 2005 4:36 PM
Sri,
We have to be ready. We need to fill this void or another professional service entity like management consultants will do it. Bearing Point just hired one of our bright people to compete in corporate reputation--are the accountants and lawyers far behind when they hire former Clinton types like Lanny Davis . We will do it for sure
Posted by: Richard Edelman at February 3, 2005 8:37 AM
Richard,
Thanks for the excellent article.
Have been working on the issues for some decades now. People may be interested in my approach to help resolve them : INTEGRATIVE IMPROVEMENT: Sustainable Development as if People and Their Physical, Social and Cultural Environments Matter. It is applicable to all individuals and organisations.
There is an introductory article at http://topics.developmentgateway.org/poverty/rc/ItemDetail.do?itemId=1030222 and more at my website www.integrative-thinking.com .
Kind regards,
Graham Douglas
4 Cintra Street
Ipswich, Australia 4305
Phone 617 3282 9762
Posted by: Graham Douglas at February 4, 2005 2:27 AM
I was particularly interested in the point you highlighted regarding organizations engaging in transparent communication / dialogue. Trust, accountability, cooperation, collaboration and commitment are all components of 'positive' organization-public relationships necessary for an organization's existance. Transparency is a key relational element as it instils a level of trust that is crucial, especially for organizations that have experienced crises and need to rebuild their reputations. Transparency is necessary in order for publics to trust that ethical communication and decision-making is taking place within the organization. Transparency increases trust, co-operation and collaboration because it makes accountability apparent.
However, transparency is often viewed as a 'quick fix' solution that makes accountability abundantly clear by providing a scapegoat and thus exonerating an organization from its crimes or misdeeds. Coercive pressure to be transparent can lead to an adverse affect on the decision-making process. Unsavory or difficult decisions may be put off or not even made for fear of the media and the ensuing public outcry when in reality those decisions might be better for the survival of the organization and the community in the long-term.
Public relations consultancies must move from the tactical to strategic arena and advise decision makers on the implications of their decisions and the resulting impact upon important organizational relationships. If not, then this void will be filled by management consultants (as this is already happening...).
Posted by: Julia Jahansoozi at February 5, 2005 3:07 PM
Julia,
Thanks for your note. I agree PR firms must pick up their game or else face incursion by management consultants. We are already doing so. We are consulting on nutrition and obesity issues for food companies We are forging partnerships between NGOs and corporates (Chiquita and Rain Forest Alliance). We are determined not to miss this opportunity for PR.
Posted by: Richard Edelman at February 15, 2005 1:40 PM
Graham,
Thanks for your note. Given the rapid development of China and now India, we have no choice but to look at sustainable development and to review ways to reduce US consumption of power. Note that US is 4% of population but 25% of energy use. This is not sustainable to say the least.
Posted by: Richard Edelman at February 15, 2005 1:42 PM