A version of this post was published on LinkedIn.
This was a World Economic Forum Annual Meeting of massive mood swings, linked to the plunging global stock markets, diving commodity prices, renewed concern about the flood of refugees moving toward the European Union, the rise of populism in the U.S. and European countries, and the effect of a slowing Chinese economy. There were new faces, including Canadian Prime Minister Justin Trudeau and Argentine President Mauricio Macri, plus celebrity Kevin Spacey. There was a robot at work in the Congress Centre chopping wood and performing safety routines. There were passionate addresses by British Prime Minister David Cameron on why Britain will stay in the EU and from Israeli Prime Minister Benjamin Netanyahu on Israel’s view of its dangerous neighborhood. It was the usual three-day sprint in which you capture impressions of the year ahead. Here we go:
1. The Global Economy — Do not put too much emphasis on the recent decline in stock prices. The underlying economy is sound but will not grow quickly. The lower oil prices move wealth from saver to consumer nations, a net plus for economic activity. The U.S. will be the developed market growth leader, despite a high dollar and declining exports. India will be the star of the developing world. Nouriel Roubini, professor at New York University’s Stern School of Business and chairman of Roubini Global Economics, said there could be another decline in commodity prices. And Kenneth Rogoff, professor of Economics at Harvard University, said the U.S. will be very solid, EU growth will be minimal, with UK and Germany at the high end and France at the low end.
2. China — There will be no economic implosion, nor a rapid recovery. The government cannot repeat its playbook of 2008-9 when it built thousands of miles of roads. There is an evolution of the economy from a producer export model, with high savings rates, to one that is consumption based and has more service jobs. This will take time. It will mean a slowing of Chinese investment in overseas markets. Ray Dalio, founder of the investment firm Bridgewater Associates, the money managers, said that China got too much capital in 2012-13, leading to appreciation of its currency and an inflated stock market. He predicts a grinding economic restructure, including state-owned enterprises, and a debt restructure as Chinese banks have many non-performing loans.
3. India — The NDTV debate was very bullish on the country’s prospects. The country’s present 7.5 percent growth rate could reach 9 percent. Sunil Bharti Mittal, founder and chairman of telecom company Bharti Enterprises, said that India’s entrepreneurial culture is being unlocked through wireless and micro finance. Subsidies are being rationalized, especially fuel. The country seeks to improve its presence in manufacturing, using the new GE factory, which builds turbines and locomotives, as an example.
4. Indonesia — For the past few years, the country has relied on exports to China for its growth strategy. With China trade cooling, there is a need to develop domestic consumption and improve infrastructure. Bambang Brodjonegoro, Indonesia’s Minister of Finance, said that he will be pushing through necessary economic reforms during the present slowdown in hopes of ending the protectionist laws enacted in 2008. “We have to become part of global supply chains. It is a mindset revolution. We have to make more things,” he said. The country is also looking for foreign investment in infrastructure and wants to sell finished goods into the commodity markets, no longer sending raw ore products but refined products.
5. Argentina — President Mauricio Macri said that the country is open for business. He has freed the Argentine peso, letting it float to its natural level. He is trying to reach an accommodation with foreign debt-holders so that the country can go back into capital markets. Given the present problems in Brazil, he is hoping to be considered as a hub for the Latin American operations of Multinational corporations.
6. The New Face of NGOs – I met Mark Tercek, the CEO of Nature Conservancy, who told me about his Impact Capital program. Instead of donors just making direct contributions, he is working with a new set of contributors to accept a lower than market interest rate, thereby enabling leveraged purchases of property such as 1,500 acres in Montana. The Global Fund for HIV, Malaria and Tuberculosis is negotiating directly with suppliers, offering mass guaranteed volume in return for price cuts. VillageReach is an NGO in Africa that makes sure vaccines are in stock. It is two guys in two trucks serving 40 clinics who don’t wait for orders from health workers, they just come on a regular basis.
7. The Refugee Crisis — There are 60 million refugees, 20 million on the move, 40 million within country, according to David Miliband, President and CEO of the International Rescue Committee. The old model of helping refugees is broken because the average refugee family now stays for 17 years. The EU is splitting on this issue. Germany’s Federal Minister of Finance, Wolfgang Schäuble, suggested a Marshall Plan for countries taking refugees. In a moment of high theater, the Greek Prime Minister, Alexis Tsipras, said, “We need European and foreign investment and debt restructuring to cope in an economy that has 25 percent unemployment.” Schäuble retorted, “European solidarity means respecting agreements. It is implementation, stupid. A country may ask for IMF assistance, but that would mean German Parliament voting to agree to debt restructure.”
8. Health Care — David Bloom of Harvard School of Public Health said that “Our current system is non-sustainable; there are not shared objectives and we do not have common interests.” There is tremendous waste in the system; one example is in the Arab world where there is mass over-prescribing of medicine because a patient goes to as many as three MDs when sick, gets a script in each case and none of the doctors are aware. Payment should move toward value, not volume or service; this would incentivize healthy behavior. In India, 90 percent of the tuberculosis treatment is done by the private sector, mostly with marginally skilled health workers who provide drugs. For those with more difficult cases, there are the “chest physicians” who do a low cost $4 X-ray. This new low cost technology, funded by a grant from the Gates Foundation, has attracted more patients happy with the more specific diagnosis.
9. Media — I attended a panel of regulators from Canada, EU and Brazil on media. It was somewhere between profoundly and mildly anti-American. The Brazilian minister said that there is a gap between the innovators and government regulation. “We need to balance the interests of business, citizens and government. The rules are made in the U.S. Europe and Brazil are subservient to the U.S. We need to break this cycle,” he said. The EU ambassador worried about encryption and the potential for mass surveillance. “Who will control the encryption keys?” he asked. He also worried about loss of competitive advantage to the U.S. On the part of entrepreneurs and investors, Jim Breyer, an early investor in Facebook, said, “American tech entrepreneurs welcome regulation that is smart and global.”
10. Internet of Things — This is an explosive business opportunity, from manufacturing to retailing to municipal applications. Mike McNamara, CEO of Flex, talked about a smart city with cars connected to traffic lights and cameras to provide better routes thereby easing congestion. Charles Phillips, CEO of Infor, described a new retailing process for Levi’s where they track what’s tried on via RFID tags. There will be sensors for patients that will detect activity or lack of it. Devin Wenig, CEO of eBay, said that virtual reality is going to make big changes at retail, “with technology enabling an experience appropriate to customer and occasion. Creating customer loyalty is the key.”
11. COP21 — Doug Mcmillon, president and CEO of Walmart, said he is very pleased with the progress of the company on its supply chain, with energy use down 10 percent in the past decade. Stuart Gulliver, CEO of HSBC, talked about the promise of green financing, with spreads on green bonds coming down, adding that there will need to be a lot more infrastructure spending to get to the COP21 goals, particularly in energy transmission for renewables. Christiana Figueres, who led the UN effort on COP21, said she wants a common European energy policy. “This should not be a political agenda.” She noted the progress of renewables in markets such as Germany. (NOTE: I had dinner on Saturday with an expert on energy in Germany who said consumers pay a stiff incremental bill to fund the switch to solar and wind.)
12. The Trust Gap and Populism — The 2016 Edelman Trust Barometer was a significant part of the conversation at Davos. The key finding, the gap in trust in institutions between the informed publics and mass population, leading to populism and slowing of innovation, proved an excellent basis for discussion. On our opening day panel, Keith Weed, CMO of Unilever, spoke passionately about business needing a healthy society: “It is an economic issue. CSR is tripping us up. It must be in the core of the business.” Dan Schulman, CEO of PayPal, said that “financial services must be a force for good. There are two billion people underserved in banking. We need to use technology to make it happen.” Olivier Brandicourt, CEO of Sanofi, said that “CEOs have to be more up front… to communicate the societal benefit of what we do…to make sure that people understand.” Winnie Byanyima, executive director of Oxfam said it is intolerable to have 62 people at the pinnacle of wealth having as much money as 3 billion citizens. She added that companies would do well to pay a fair level of tax and to ease up on IP protection.
As always, I leave Davos exhausted and inspired. I made a few mental notes about our business; to move faster in digital, to hang in there in developing markets where there is a good long-term prospect and exit where not, to try to help on the refugee crisis beyond what we are currently doing and to push our CEO clients to be out front more on societal issues that are linked to their business. I hope you find this summary of use.
Richard Edelman is president and CEO.