The theme of this year’s World Economic Forum (WEF) was the fourth industrial revolution, understood as that set of technological innovations, from robotics to artificial intelligence, which will change the way we live and work. But technological disruption was only one of the issues delegates found themselves debating, as a whole range of challenges is affecting governments and economies around the globe. GTR reports back from Davos.
- Changing China
Perhaps unsurprisingly, China dominated the discussion on the global economy. “Over the last 15 years, China has been an agent of global economic growth and demand for natural resources. It should have been obvious it wasn’t going to continue but markets are always short-sighted,” said Nobel Laureate professor Joseph Stiglitz.
Delegates’ feelings over China ranged from a mild worry over the actual state of the country’s economy behind the government-controlled data, to dismissing whatever is happening in the stock markets as a separate reality to what is happening on the ground. “As a private entrepreneur we are seeing two sides of it,” said Zhang Xin, co-founder of Soho China, the largest prime office real estate developer in the country, referring to, on one hand, the media reports focusing on the volatile stock market and currency devaluation and, on the other hand, the well-performing real estate market. “While the traditional economy is not growing as much, new economic sectors like internet and technology companies are taking up office space, at least in Beijing and Shanghai.”
Watch out for China’s growth in the technology sector. The country has the world’s second-highest rate of unicorns (tech start-ups that have received an evaluation of over US$1bn) after the US, and ever more graduates go down the entrepreneurial route instead of working for big corporates. “Graduates start their own business and the capital is there to support them, the whole society mentality is as such that it encourages these activities,” explains Xin. “If only 10% of these companies will grow, they’ll have a huge impact on society.”
Income inequality is growing across the world and this is bad news for business. According to Stiglitz, growing inequality is one of the factors affecting the global economy: “Those at the top don’t have to spend as much of their income as those at the bottom, who have to spend 100%, sometimes even more. When you have this growth of inequality, you’re going to have a weak economy,” he said. Stiglitz also conceded that GDP is generally not a good indicator of economic performance and wellbeing, explaining that while GDP in the US has gone up every year (except 2009), most Americans are worse off than they were a third of a century ago. “The benefits have gone to the very top. At the bottom, real wages adjusted for today are lower than they were 60 years ago. So this is an economic system that is not working for most people,” he said.
Growing inequality also fuels frustration and distrust in politicians and in the political system, leading to the popularity of candidates who present themselves as being outsiders to the political system, and thus championing people over bureaucracy. The most evident example of this dynamic is the political rise of billionaire entrepreneur Donald Trump. According to latest polls, at the eve of the Iowa vote on February 1 (the first of the caucus elections that nominate the delegates for the Republican Party convention in which the presidential candidate is selected), Trump holds a double digit lead over his rivals. The idea of a “President Trump” really did concern people at the WEF, with many whispering about the disastrous foreign policy and international relations impact such a scenario would bring.
- Europe’s Union
Not even the financial crisis and the Greek debt had threatened the European Union as much as the refugee crisis and the upcoming Brexit referendum. These issues target those core values – freedom of movement of goods and people – that have benefited the world’s largest single market and its commercial partners over the last few decades. British prime minister David Cameron was flooded with questions over the referendum during his speech at the WEF. Cameron said he wished for a deal with Brussels to be reached by February, but that he is not “in a hurry” to secure a deal for a deal’s sake. “I can hold my referendum at any time up to the end of 2017. It’s much more important to get this right than to rush it.” He also told the WEF attendees he wanted to “hardwire competitiveness into the European Union” and that migration is the “number-one concern” for people – and not just for the British.
The refugee crisis was one of the top issues on the WEF agenda. The picture of a Europe once again fragmented by lengthy border controls loomed clear in participants’ minds, but few could come up with concrete plans on how to fairly welcome refugees across EU member countries, without strong political will. Example of such political leadership came from across the Atlantic, in the form of new Canadian prime minister Justin Trudeau, who has put Canada back in the business spotlight (so much so that Canada night – usually a pretty boring affair, we hear – was one of the most star-studded and exciting parties of the week). “I welcomed them as new Canadians and the future of the Canadian economy,” said Trudeau, speaking about his policy towards refugees, “Diversity isn’t just sound policy, it’s the engine of invention.”