World Economic Forum, Davos 2014

World Economic Forum, Davos 2014

September 18, 2014

Long-term Perspective for Socioeconomic Development

 Every country wants to be powerful because a country’s interest is nothing but the cumulative self-interest of its people and, as we all know, people are selfish. The only statistic that can truly determine a country’s power is its economic climate, in fact, a country’s legal and political systems are created in order to stimulate the most productive economic climate. Therefore, one can say, economy is power.

The World Economic Forum has a similar belief and understands that every nation, in the end, will put their own interests over all else, and therefore mutually beneficial solutions to major economic problems and industrial agendas must be found for the benefit of all countries. The World Economic forum is a Swiss non-profit organization based in Cologny, Geneva. Each year, in Davos, it holds an ‘invitation-only’ meeting with the current leaders in business, politics, academics and others to address global economic issues. The meeting brings forth some 2500 intellectuals from all across the world each year and, although the organization holds six to eight regional meetings in Latin America and East Asia, the meeting in Davos is the largest and most enduring.

This year’s meeting had a multitude topics that showcased both the good and the bad sides of global economy as last year’s topic of crisis response is substituted this year with long term risk.  This was evident in Europe; in last year’s meeting, experts were looking at 0.4% drop in annual GDP in European countries. This year on the other hand, things seem to have taken a turn for the better as European nations have finally gotten back to a positive GDP growth rate. However, the growth rate is still minute, at an average of 1%, and is thus insufficient to overcome government budget deficits and unemployment challenges. Also, it should be noted that the positive GDP growth was induced by government fiscal and monetary policies (i.e. since the market could not fix itself) meaning that the government budget deficit has increased even further.

On the plus side I should point out that for the first time in 7 years the invited panel of experts have been able to talk about long-term hurdles rather than the short term ones, this, however, did not make the discussions any easier or the debates any less intense.

Unemployment problems was also a hot topic since riots from Brazil to Turkey have sparked because of it. This mainly due to technological advancements since, as more innovations come to fruition, more machines replace workers.
T.K. Kurien, chief executive officer of Wipro Ltd. (WPRO) voiced his concern over the issue in an interview in Davos;
“With automation, you’re going to find a whole bunch of people — a whole section of society — out of work” he said. “Long-term, I worry about the future of some countries and some societies, primarily because of this pressure.”
In Spain and Italy the youth unemployment rates are over 50%, which is incredibly high. If fresh graduates are unable to get jobs then they won’t be able to gather experience and without experience under their belt they will find it incredibly difficult to compete in job market in the future. In Germany, the youth unemployment rate is less intense (at a meager 8%) and it seems that the German-style apprenticeship system is to thank for that.

The European commission has, in fact, launched an alliance on apprenticeship geared towards helping EU countries in adopting the German apprenticeship programs. Other solutions to the unemployment problem included bringing off-shored jobs back to their home countries. David Cameron, the current PM of the UK, stated that around 1500 jobs have been created in the UK through this method and launched a campaign to convince other companies to follow suit.
Other issues discussed included markets and how the government should influence them in a manner which is beneficial to its people and their standard of living. You see, from a completely economic point of view, most markets fail due to external costs and benefits that people incur and enjoy. However, this ‘failure’ is lessened when governments impose trade caps (such as carbon credits) on the production of those products which have high external costs and subsidize the production of those that provide high external benefits. The sad thing is that these mechanisms are becoming less and less popular. Due to the economic slowdown,governments had to strip away the trade caps in order to lessen the burden of expenses on companies and stimulate production. In the United States, for instance, the highly celebrated cap-and-trade system on sulfur dioxide emissions has all but withered away to make way for higher outputs. This affects the standard of living in countries as increased carbon emissions, brought about through the slackening restrictions, deteriorate the social environment.

This was also the first year when the forum decided to host The Drug Dilemma, a debate on the use of policies to mitigate drug use. The session had a star studded bench speakers which included former UN secretary general Kofi Annan, President Juan Manuel Santos of Colombia, Governor Rick Perry of Texas, and Human Rights Watch Executive Director Kenneth Roth. The panelists first presented the bare facts of how a numerous number of people die due to drug related violence every day. The statistics presented showed unparalleled levels of incarceration and higher levels of drug use worldwide, compared to last year. They also talked about how drugs are now being traded over the internet (specifically the ‘deep web’) making the transactions, and the people responsible for those transaction, harder and harder to track. President Santos argued that the world is doing its best to tackle the threat that drugs possess while Annan and Roth suggested restructuring the entire framework for drug control by first eliminating the current crime and punishment model, which does more harm than it does well. Roth argued that “The way to stop the balloon from shifting is to puncture the balloon. You puncture it by destroying the market, and you do that by decriminalizing.”

Corporate disclosure was also discussed intensely at the summit. A panel which included U-2 lead singer, rock legend and humanitarian Bono, who stressed the importance of business transparency in today’s world. Bono directly attacked companies for hiding their assets in firms registered in secretive tax havens. The panelists also determined that the need for greater awareness and education, about the matter of transparency, is also great as many stakeholders are rash in making investment decisions solely based on information that is not credible.

The final topic of discussion was the global gender gap index. The Index was created by the WEF in 2006 and is used to measure gender equality in various countries in the world. This year again (for the 5th year running) Iceland has been found to be the country with the smallest gender gap while Norway, Sweden and the Philippines took third, fourth and fifth place respectively while the UK ranks 18 out of the 135 countries (same position as last year). The index is created by a cumulative measure of life expectancy, access to education, economic participation (equity in salaries and job types) and political participation (voting rights, etc).
The discussions in Davos this year concentrated around achieving various long term economic goals which is a welcome sight. The panelists, who are leaders in their respective political/economical/educational fields, made sure the conclusions reached were well grounded, feasible and the ‘right’ solutions in the current economic climate. All in all, the summit was a huge success and governments all around the world could only benefit from the solutions suggested in the program, all they have to do is trust that the summit works and implement it’s solutions.

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