Highlights and key lessons from the 2010 Davos Forum

This yearning for changes was evident in the forum’s conclusions as leading global business executives and politicians that graced this year’s forum conceded that fundamental changes to the existing decision-making processes within the international institutions and a positive change of attitude on the part of developed countries that have not always listened closely enough to the needs of developing and emerging market countries are needed to successfully address the new global socio-economic and political challenges such as the current economic crisis, climate change, Doha Trade Agreements, etc.

Calls for a new Bretton Woods treaty 

It is of particular importance that the strident calls for a total overhaul of the existing national and global affairs management systems were led by French President Nicolas Sarkozy, the key speaker at the opening of this year’s forum, who has unequivocally advocated for a new ‘Bretton Woods’ treaty to address current geopolitical problems as “it will not be possible to emerge from the economic crisis and protect against future economic meltdowns if the economic imbalances at the root of the current problems remain unsolved.” 

“Today, the global community has now reached the time to completely rethink and redesign the decision-making processes in the existing international organizations.”

Specifically, Sarkozy, calling for an examination of the nature of globalization and reform of today’s capitalism, attacked the world’s current financial system and currency regime, as the exchange rate instability and the undervaluation of some national currencies lead to unfair trade and competition, the existing banking practices as the financial institutions’ key role is not to speculate, but to diligently analyze risks, including clients’ creditworthiness, as well as finance economic growth in their countries. 

The French president also condemned western-type consumerism, where people live beyond their means, the excessive bonuses and disproportionate wages for CEOs, especially in the financial industry. “This is because this crisis is not a crisis in globalization, but a crisis of globalization. Also, it is vital to remember that post-WWII era prosperity owed a great deal to the 1944 Bretton Woods Agreement and institutions. Therefore, we need a new Bretton Woods today, as we don’t have to replace capitalism, but seriously reform it to make it more moral.”

Other world leaders at the forum also shared the same views, as they conceded that the failure of the international community to come to agreements on several issues means that negotiations based on the so-called ‘consensus mechanism’ are no longer working because the tools being used to seek compromises on key issues are absolutely obsolete in today’s new realities. “We have new problems that cannot be tackled with the instruments that were created in 1944. This is why we need to create totally new instruments to solve problems and challenges of today’s realities,” Mexican President Felipe Calderon said. 

Solidarizing with this view, Vietnamese Prime Minister Nguyen Tan Dung, who also currently holds the ASEAN-2010 chairmanship, noted that the financial crisis had revealed the gaping ‘weaknesses and shortcomings’ in the current system of global governance, while South African President Jacob Zuma noted that the global community has now reached the time to rethink and redesign the decision-making processes in the existing international organizations.”

Timing and implementation of exit strategies critical

Another key item addressed by the forum was the issue of timing and implementation of exit strategies from the current crisis, as Dominique Strauss-Kahn, the IMF managing director, called on world leaders to remain cautious as they examine their exit strategies from the stimulus packages implemented in their countries in response to the global economic crisis. “This is because if we exit too late, the public debt will become too high, and if we exit too early, there is the risk of relapsing into a double-dip recession.” Echoing similar view, Christine Lagarde, France’s economics minister, noted the exact timing of such exit strategies is absolutely critical’ to achieve the desired positive results.

Another problem highlighted by the IMF chief is the uneven pace of the global economic recovery around the world, with Asia and some emerging market countries leading the way, while the United States and Europe lagging behind. Of equal concern is the fact that the budding recovery is not only uneven in the developed countries, but is also very fragile, and hence does not exclude the possibility of a relapse. Such situation, according to the forum experts, requires more principled leadership from all countries in order to attain sustainable stabilization in both domestic and global economies.

The forum also called for a much broader internalization of global cooperation beyond the traditional formats of the G20 and G8 clubs, etc., so as to attain a much deeper intensification of economic cooperation between the developed and developing countries. Such approach, according to the forum experts, is needed to overcome the existing barriers, such as protectionism, to growth in national economies and also to reach consensuses in other sticky issues begging for urgent solutions today. “This is why it is important that the G20 reach out to those not taking part in it, listen to and reflect their needs in the group’s discussions. Otherwise, such discussions will not be effective,” said South Korean President Lee Myung-Bak that will host the G20 Summit in November. Echoing similar sentiments, Canadian Prime Minister Stephen Harper, who will host the 2010 G8 and G20 Summits in June, says squaring national interests with global interests will only be possible and productive if world leaders learn to recognize the ‘legitimacy of the points of views’ of one another. 

Emerging markets incapable of sparking global recovery

Another conclusion drawn at the forum was that the emerging markets will not be able to pull the world out of the recession in isolation from the more developed economies. “While most emerging markets have proven remarkably resilient to the negative effects of the current global financial crisis, they, however, cannot act as the locomotives for full global recovery if the developed countries fail to revive their own economies and address the structural problems that had led to this crisis in the first place,” the participants of the New Growth Narratives discussion session said. 

 “The forum also called for a much broader internalization of global cooperation beyond the existing traditional formats such as the G20 and G8 so as to attain a deeper intensification of economic cooperation between the developed and developing countries.”

One of these experts, Ernesto Zedillo Ponce de Leon, Mexico’s former president and currently director of Yale University’s Center for Globalization Studies, premised his arguments on the grounds that these countries lack the resources to maintain the growth steam on a long-term perspective. “While economists and corporate strategists look to emerging market giants, notably, the so-called BRIC states of Brazil, Russia, India and China, to be the primary drivers of global demand and growth over the next few years, it is, however, not realistic to expect those countries to sustain their current rapid GDP growth rates without stronger recovery in the developed world,” he said. “We need to see sound domestic macroeconomic policies in the main players in the global economy.”

While noting the stabilization of economic conditions in the developed world over the past year, several leaders expressed skepticism over the prospects for a more rapid recovery going forward, as the unprecedented fiscal and monetary stimulus measures applied during the crisis are reduced or withdrawn from the economies. “It’s difficult to talk about stability at this point,” Alexei Kudrin, Russian finance minister said. “If you look at the U.S. and European economies, you can see some growth features, but private demand on these markets is still very weak, and therefore, it is hard to expect sustainable growth in these regions in the near future.”

Refocusing the Davos forum audience to the Kremlin’s pet initiative of diversification of the exiting pool of global reserves currencies to include new ones, such as the Russian ruble, Kudrin noted that the current financial crisis had clearly demonstrated the urgent need for more effective management of the world’s major reserve currencies, such as the U.S. dollar and the euro. “This might require the creation of new international regulatory institutions,” he added. 

Time for concrete actions, not rhetoric

Another consensus at the forum was that the participants agreed that it was to shift from rhetoric to concrete actions in tackling major challenges such as the global economic crisis, climate change and the Doha multilateral trade negotiations, poverty, diseases, etc. 

Thus, Klaus Schwab, the Davos forum founder and chairman, warned the global community in his address of the imminent negative consequences of less or no actions, excessive preoccupations with domestic problems and issues, ignoring long-term international challenges and failure to exercise the necessary global stewardship when needed. “Otherwise, we run the risk of turning 2010 into a year of social crisis, following the financial crisis of 2008, which worsened and degenerated into a full-blown economic crisis in 2009.”