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Uncertainty Rampant: Interpreting the 2017 World Economic Forum Meeting in Davos

Uncertainty Rampant: Interpreting the 2017 World Economic Forum Meeting in Davos

25 Jan 2017

David Christianson, Political Analyst, comments on the recently concluded 2017 World Economic Forum

‘Donald Trump is an uncertainty generating machine’

- Michael Porter, WEF 2017 (interviewed on Bloomberg Television)

The World Economic Forum (WEF) annual meeting in Davos is unique in the extent to which it brings top political and business decision-makers together. Since the first meeting in 1971, it has been branded as the ‘must attend’ conference, offering insights not available elsewhere. Indeed it often delivers, setting the tone and raising themes that the media will chew over for the rest of the year. This profile makes it especially galling for organisers that the 2017 event should be so comprehensively overshadowed by an event elsewhere – the assumption of office by Donald Trump’s government in the US. The decision makers gathered in Davos were reduced to a commentariat, trying to explain Trump’s election and the assertion of similarly nationalist politics in Europe.

If supporters of Trump, Brexit, le Pen and other political forces said to be representing an anti-globalisation backlash are indeed the embittered ‘losers’ of caricature, they must surely feel satisfaction at the way the rich and powerful are now forced to share the sense of irrelevance and helplessness they know so well. This serves too as a salutary reminder that global business is not simply about rational calculation; the arena is permeated too with less-than-tangible sentiments. Ray Dalio, founder and CEO of hedge fund Bridgewater Associates commented that ‘politics will have a bigger affect than it usually does’. While it doesn’t take a WEF meeting to show that sentiments have turned negative, the contrast between the concerns articulated in January 2016 (‘where will growth come from?’) with the much more fundamental uncertainty a year later (‘The global economy is broken’ – Andrew Liveris, CEO Dow Chemicals, WEF Davos 2017) is striking.

Trump’s anti-globalisation credentials were established on the campaign trail during the 2016 US presidential election. To distinguish himself from the globalist Hilary Clinton, Trump has made assertions and indeed promises, which if literally put into practice will take the US – and thus the global economy – back to a degree of protectionism not seen since before the Second World War. He has promised to withdraw from the Trans Pacific Partnership (TPP) – effectively the extension of the North American Free Trade Agreement (NAFTA) to nine other Pacific rim economies (but excluding China)[1] – and to initiate the process on ‘day one’. On NAFTA, he has threatened to withdraw entirely unless Mexico and Canada agree to reformulate the agreement. Trump’s rationale appears to be that these agreements have been implemented at the expense of his core support base, ordinary working class Americans.

This is a claim that is appropriately described as ‘populist’. It is also, as Michael Porter put it at WEF 2017, ‘simplistic’. Other Davos attendees pointed out that a great deal of what is known about Trump’s policies is known only through 140 word tweets made during the US election campaign and may represent rhetorical rather than substantive positions. This seems to be the view of Lloyd Blankfein, CEO of Goldman Sachs. ‘If Trump really is anti-trade, then I’m at odds with him’ said Blankfein in an interview with Bloomberg TV at Davos. ‘But if he’s saying “I want to renegotiate some of these trade deals to make them better for the US” … I’ll take that’, he explained. Blankfein clearly suggested the second interpretation was more likely. Using terms like ‘push back’ he implied his view was that Trump had initiated a tough process of renegotiating but not fundamentally challenging the terms of the international trading system. Goldman Sachs may be in a position to know as the bank has provided more appointees to the Trump’s administration than any other corporate (including new National Economic Council head Gary Cohn).

The only prominent Trump appointee to attend WEF 2017 was a Davos regular, Skybridge Capital founder Anthony Scarmucci, named a week before Davos as an ‘assistant to the President’. Trump’s cabinet-level appointees are drawn from precisely the class that gather at the WEF – bankers and hedge fund managers, and the absence of many Trump insiders looks deliberate. Attending Davos could be seen as a betrayal of the populist movement that brought him to power. Scaramucci, effectively Trump’s ambassador to the WEF, was much in demand at the event. Describing his role as ‘translating Trump’, he argued that he sees Trump very differently to ‘the Davos crowd’. But his contributions boiled down to asserting that Trump was a defender of US citizens whose economic and occupational (upward) mobility had been compromised by globalisation. He gave little clarity on substantive policy issues other than to assert that Trump was ‘not an enemy of globalisation’ and sought ‘a strong bilateral relationship with China, not a trade war’.[2]

Others are less sanguine than Blankfein and Scaramucci. Commenting of Trump’s apparent espousal of a Two China policy (i.e. recognition of the sovereignty of both Taiwan and Mainland China) Bridgewater’s Dalio commented that ‘making this a big thing is not good’. One of Trump’s first acts after winning the election was to take a congratulatory phone call from Taiwanese President Tsai Ing-wen, the first formal contact between the two heads of state since 1979. Observing that issues like this are usually dealt with behind the scenes, Dalio observed that this raised the ‘face’ issue for (Mainland) China, makes compromise less likely and that it is ‘hard to see it as a smart decision’.

If WEF 2017 was the whole of the arena Donald Trump is contesting with China, the Davos event would have been a hands-down victory for the emerging Asian power. China Global Television Network (CGTN) carried the event almost continuously with frequent almost triumphalist remarks on the size of the Chinese delegation and the prominence of Chinese issues. President Xi Jinpeng – the first Chinese premier to attend the event – delivered what amounted to a keynote address on the opening day of the conference. In a much-remarked and extraordinary role reversal, his vigorous defence of globalisation and free trade seemed to be a direct rebuttal of Trump’s ideology, although the Chinese leader never mentioned the new US president by name.

Jinpeng said that trade protectionism was akin to ‘locking oneself in a dark room while at the same time depriving that room of light and air’. He argued that ‘no-one will emerge as the winner in a trade war’ and responded to Trump’s criticism that China’s success relied on currency manipulation.[3] ‘China has no intention to boost its trade competitiveness by devaluing the renminbi, still less will it launch a currency war’, he said. Some Davos attendees were less than impressed with Jinpeng’s avowed espousal of openness. German Ambassador to China, Michael Clauss, was among those who remarked that these assertions (of openness) had been made many times before and yet non-tariff obstacles to investment in China remain. Chinese dumping of steel, aluminium and solar panels were cited by participants as another indication of Chinese ambiguity.

Alongside the Chinese statement, an equally strong assertion of the virtues of globalisation and market capitalism came from British prime minister Theresa May on the second day of the event. May reiterated the main points of her 12-point ‘hard’ Brexit plan announced at Lancaster House the previous day. Asserting that the Brexit vote was ‘a vote for parliamentary sovereignty’, she claimed that it was also a mandate to ‘become even more globalist and internationalist’. Her government will be seeking a free trade agreement between Britain and Europe and ‘wants to emerge as a truly global Britain’, while asserting control over immigration from Europe. This, she asserted, is consistent with (Britain’s) profoundly internationalist history and culture. It means leaving the EU’s single market as that would mean ‘complying with the EU’s rules and regulations… without having a vote on what those rules and regulations are’.[4]

While May’s affirmation of a multi-lateral rules based global order contradicts the twitter-based impression of where the Trump administration is heading, May’s position on populism is very similar. Government’s first responsibility is ‘to serve the people... especially those who feel the modern world has left them behind’, she asserted. In a nod towards her populist audience she added that ‘talk of globalisation makes (many) people fearful’ and that many feel that ‘those who prosper do so under a different set of rules’. Whether or not it was her intention to set an example to the Trump administration, May showed, at least in terms of discourse, how the perceived gap between popular disillusionment and advocacy of globalisation can be bridged.

The new populism hardly featured in last years’ Davos meeting. In 2016, historian Niall Ferguson in fact dismissed the possibility of Brexit as a risk factor. Despite this, some prominent WEF figures insisted in 2017 that they have long emphasised the potential marginalisation of ‘losers’ in developed countries as a problem. At the first press conference of the 2017 event, WEF CEO Klaus Schwab read out a warning he had written more than 20 years ago against increased populism and demanding that globalisation benefit the majority, not just a small elite. IMF CEO Christine Lagarde complained that she had first warned of rising inequality four years ago but that her views ‘did not gain much traction’. The past prescience claimed here is not merely irritating (neither Schwab nor Lagarde are known as consistent campaigners for egalitarianism) but dangerous. It implies that someone or some group is to blame – and that is the central and potentially most baleful claim of the new populism.

The implication of the new (developed world) populism for the developing world received some consideration at Davos although the theme was almost overwhelmed by need to ‘interpret Trump’. Hung Tran, director of the Washington-based Institute for International Finance, pointed out that ‘reshoring’ (the return of significant parts of manufacturing value chains to the US) was bad news for developing countries. It certainly does harm to the idea that the way ahead for emerging market countries involves capturing parts of those value chains and, as Tran notes, means ‘the business and growth model which worked for many countries, especially in Asia, won’t provide the same growth opportunities as before.’ He added ‘That’s the big challenge for emerging economies that are only just trying to take off... it’s much harder to do than 20 years ago when all you needed to do was attract investment, produce and export.’

The WEF has in the past been prominent in promoting development opportunities through globalised values. However while emerging market leaders such as Brazil’s finance minister Henrique Meirelles and Francisco Gonzales Diaz, head of the Mexican civil service, were impassioned in defending the merits of globalisation, more detailed discussion of the role of globalised manufacturing value chains was honoured more in the breach. In fact the more limited and potentially dangerous tendency to promote the beneficiation of raw materials as the optimal growth path for the developing countries may have been more in evidence, although this was certainly not a major theme of discussion. Anil Agawal, CEO of Vedanta Resources, which has extensive mining holdings in Africa, spoke about how the company was looking downstream, seeking to find entrepreneurs to process the copper and zinc it mines. This may be Vedanta’s chosen growth path but it smacks rather of conformity with demands being made by a number of African political leaders. While there is nothing wrong with beneficiation, the danger is that it often seems to lend itself to development by political decree, which is fatal to investor confidence.

The South African delegation, led by deputy President Cyril Ramaphosa was right on message in 2017, in marked contrast to its fumbling performance last year. Last year’s WEF meeting came only a few weeks after President Zuma had sacked two finance ministers (in December 2015) and delegates were hoping for explanation and reassurance. Instead Zuma kept a low profile and did not appear at the panel discussion he was scheduled for. This year’s performance was much more coherent. Speaking in a session entitled “Coalition for African Research and Innovation’, Ramaphosa presented a more traditional Davos ‘open for business’ message. He did not duck the problems of 2016 referring to the ‘turbulence’ of the last 12 months but stating the South Africa remained committed to inclusive growth. What gave Ramaphosa credibility was the backing of not only much of the government delegation including finance minister Praveen Gordhan, trade and industry minister Rob Davies and economic development minister Ebrahim Patel (thereby at least presenting a positive front in an area that has been characterised by multiple, sometimes contradictory plans) but the strong private sector (corporate) delegation from South Africa (as well as a trade union leader, Dennis George of Fedusa), all seemingly keen to emphasise the extent to which the headwinds of 2016 had been managed by deepened tripartite (business, labour, government) relationships, led by Ramaphosa.

The South African delegation certainly supported Ramaphosa’s central argument, that South Africa remains a good place to do business. University of cape Town Vice Chancellor Max Price pointed out that while disruptive protests made the news headlines, South Africa’s universities continued to function and successfully graduated the cohort due to finish in 2016. Investec CEO Stephen Koseff gave a number of interviews[5] in which he stressed that the crises in 2015/16 have led to a stronger and more cohesive relationship between business, government and labour. Koseff referred to a number of major projects, developed over the course of business-government interaction in 2016 which, he hopes, will be finalised before President Zuma’s State of the Nation address in February. These include a youth employment programme designed to cover 330 000 internships as well as a programme to support small business.

Amidst the need to interpret the incoming Trump administration, the official theme at WEF 2017 – “Responsive and Responsible Leadership” – seemed a little marginalised. But the central purpose of the theme, to regenerate global growth while making the global economy more inclusive[6] did of course underpin the concerns articulated about the Trump administration, the new populism and the global foreign direct investment slowdown in recent years. Dow Chemicals’ Andrew Liveris published a discussion paper on the second day of the conference to show that the way ahead was not a zero-sum game and that ‘inclusive capitalism’ can fix the ‘broken’ global economy.

The big problem is of course that the WEF appeals to the same international elite (who attend its events) to lead the world out of these problems whereas the new populism is inclined to place its faith elsewhere. That its alternative is unknown, untested and potentially deeply threatening to a system that has delivered enormous benefit (one billion people raised out of extreme poverty in the last 20 years[7]) does not worry the new populist movement. But its leaders should know better. Theresa May attempted to show how globalist policies can be combined with populist leadership. But it is far from clear that that message crossed the Atlantic to the US.

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[1] Australia, Brunei, Chile, Japan, Malaysia, New Zealand, Peru, Singapore and Vietnam

[3] A criticism trump also directed at Japan, in a tweet, during the US election campaign