The Global Agenda for 2009: The View from Davos

There are insightful summaries of all Davos 2009 sessions on the following link: http://www.weforum.org/en/knowledge/Events/2009/AnnualMeeting/index.htm?ssUserText=&fragment12_NextRow=1

In my opinion, our way out of this financial mess largely rests upon the US housing market; The US consumers will not start spending unless they see home equity go up and businesses quit laying people off left and rigt….

The Global Agenda for 2009: The View from Davos

Business and governmental leaders face a destructive social backlash that could foment political instability, revive protectionism and reverse the trend towards globalization if they fail to develop effective solutions to the current economic crisis, participants at this year’s closing plenary session warned. Leaders of the G20 countries, who will meet in London in April, must quickly deliver on their commitment to develop a coordinated policy response to the most serious global recession since the 1930s.

“This is the time to see courageous leadership on the part of the G20,” said Maria Ramos, Group Chief Executive, Transnet, South Africa, and Co-Chair of this year’s Annual Meeting. “The time for words is over; this is the time for implementation and action. If we come back in six months or a year and are still talking about the same things, we will have failed. And the social unrest we will have to deal with will be absolutely dramatic.”

Participants painted a sobering picture of a rapidly darkening economic landscape, in which the pain of rising unemployment, home foreclosures, bankruptcies and poverty are only beginning to be felt. “When the economic malaise really begins to affect families and people don’t have jobs, that will have huge political repercussions,” warnedMoisés Naím, Editor-in-Chief, Foreign Policy Magazine, USA. Naím predicted that, while 2008 will be remembered as the year of financial crashes, 2009 will go down in history as the year of “political crashes”, with governments falling in many countries.

Participants cited numerous signs of a policy response that is in danger of going badly off course, including efforts in the developed countries to direct fiscal stimulus funds to national producers through domestic content requirements and other protectionist measures, the withdrawal of state-supported lenders from emerging financial markets and a reluctance to recapitalize the IMF and other multilateral lending institutions on the scale required by the crisis. These developments pose a particular threat to the developing countries, said Ricardo Hausmann, Director, Center for International Development, John F. Kennedy School of Government, Harvard, USA. “If we are going to have a global response to the crisis, we need to give all the countries of the world the capacity for fiscal expansion,” he said.

Participants gave the G20 governments mixed reviews for their actions to date. Jeroen van der Veer, Chief Executive, Royal Dutch Shell, Netherlands, another Co-Chair of this year’s Annual Meeting, praised governments for moving quickly to shore up battered financial institutions and curb market panic, arguing that political leaders have actually seen their standing with the public increase, rather than decline, as a result of the crisis. Others debated this assessment, however, arguing that the response so far has been slow, fragmented and non-systemic.

There was less disagreement on the public status of business leaders, particularly those in the financial industry. One participant cited recent revelations of the huge bonuses paid by Wall Street firms last year, even as the financial markets imploded. The loss of private sector influence increases the risk that governments will ultimately overreact to the crisis, one participant warned. Van der Veer, however, disagreed, arguing that while the crisis has revealed the flaws of laissez-faire ideology, few would wish to see a return to communism, or to the stagflation of the late 1960s and the 1970s. This, he said, has created a rare opportunity to “forge a new consensus and build a better system.”

In terms of remedies for the current crisis, participants urged governments and firms to do whatever is in their power to preserve employment and avoid mass layoffs, which would further ravage consumer and business confidence. Voluntary salary reduction and job sharing schemes could help achieve this while still giving firms latitude to cope with sharply declining revenues. Investors and analysts should also be publicly pressured not to penalize company shares for maintaining employment levels, one participant suggested, while acknowledging that such a campaign might sound “implausible”. Participants also discussed various proposals for encouraging investment in alternative energy and other green technologies.