"Social unrest and protectionism are the two major risks of the world economic crisis," warned Christine Lagarde, France's Minister of Finance and Member of the Foundation Board of the World Economic Forum, adding that the risks were increased by "having to engage taxpayers' money and by hampered growth." In Davos, the potential for a social backlash was clearly high on the agenda as participants were discussing how to keep rising joblessness and public outrage over perceived corporate greed from sparking a rollback of globalization. Capitalism need not be jettisoned, they concluded, but it needs to be brought back in line with its role as a tool for humanity's advancement. "It's time to challenge corporations to examine their personal morality and ethics and whether they truly believe that what's good for corporations has to be good for society and what's good for society is good for corporations," said Indra Nooyi, Chairman and Chief Executive Officer of PepsiCo. "We have to ask companies to perform with a sense of purpose, not just performing for short-term shareholder interests."

"When the economic malaise really begins to affect families and people don't have jobs, that will have huge political repercussions." Moisés Naím, Editor-in-Chief of Foreign Policy Magazine

Ann Veneman, Executive Director, United Nations Children's Fund (UNICEF), New York, greets
Ngozi Okonjo-Iweala, Managing Director, The World Bank, USA

Reflecting on the global economy's development over the past six decades, what became clear in the Annual Meeting's early sessions was that even though globalization had created vast wealth and lifted millions up from poverty, progress had been uneven, inequitable and unsustainable. While past Annual Meetings emphasized the importance of realigning business interests with society's needs, corporate social responsibility remained a largely extracurricular activity. Now the economic crisis has exposed the shortcomings of a business model whose singular focus on short-term profits left it disconnected from the broader interests of the community. And anyone who needed a reminder of the real impact of the economic crisis on everyday people got one on the Annual Meeting's second day, when a nationwide strike in France saw over a million demonstrators on the country's streets in protest.

The disappointment appears likely to grow as the crisis exacerbates globalization's gaps, particularly as trust in corporations has been broken. With an estimated 40% of global wealth destroyed, the days of easy money that drove a wave of investment and corporate philanthropy into emerging markets in Asia, Africa and the Middle East are over. Global unemployment is projected to double this year. Millions of people who were lifted out of poverty are being dropped back in. "When the economic malaise really begins to affect families and people don't have jobs, that will have huge political repercussions," predicted Moisés Naím, Editor-in-Chief of Foreign Policy Magazine.

A wave of new regulations was inevitable and, in light of the circumstances, desirable. What is needed, though, is better regulation, not necessarily more regulation. The risk is that new oversight squelches free enterprise and the entrepreneurial forces needed to revive the global economy. "The danger is that the pendulum is swinging from one extreme, from a regime of deregulation and insufficient supervision to overregulation," said Tony Tan Keng-Yam, Deputy Chairman and Executive Director of the Government of Singapore Investment Corporation. Perhaps the biggest concern is that, in trying to rescue their respective economies, governments will adopt protectionist policies. "Protectionism could drag us 20 to 30 years backward," warned Sir Martin Sorrell, Group Chief Executive of Britain's WPP. Any such moves would hit poorer, trade-dependent countries the most. President Paul Kagame of Rwanda reminded participants that "this [the current global financial crisis] increases the difficulties, but should not derail us from progress that has been made."

World Economic Forum Founder and Executive Chairman Klaus Schwab and Desmond M. Tutu, Archbishop Emeritus of South Africa

The problem is that many of the actions governments are taking to address the crisis are unintentionally protectionist. "There is an implicit protectionism in what is happening at the moment," said United Kingdom Prime Minister Gordon Brown. As banks pull back credit lines, for example, they are depriving global markets of capital, a trend that has hit emerging markets hardest. Governments, meanwhile, are bailing out only their own country's banks, not those abroad that bought their country's failed securities. Fiscal stimulus packages, moreover, are inherently nationalistic, representing virtual subsidies to domestic industries. Brown and others called for a renewed commitment to reaching a new global trade accord in the Doha Round to stave off growing protectionist sentiment.

The best way to prevent wider social upheaval is to return the global economy to growth. Bank bailouts therefore remain essential to recovery, even if they result in temporary government ownership. Likewise, governments need to deploy fiscal spending packages to help blunt the downturn in private spending and investment. However long it may take the global economy to turn the corner, corporations will need to overhaul their relationship with society. It is no longer enough for companies to make improving community welfare, preserving the environment and reducing social inequity a by-product of doing business. They have to become central to doing business as turning a profit. "We trusted the market and the market failed," said Philip J. Jennings, General Secretary of Union Network International (UNI) Global Union. "It delivered enormous wealth for the few, but not enormous wealth to the masses."

"Protectionism could drag us 20 to 30 years backward." Sir Martin Sorrell Group Chief Executive, WPP, United Kingdom

Some suggest that businesspeople be required to take a commercial version of medicine's Hippocratic Oath. While others argued that business school curricula need to be overhauled to replace the traditional emphasis on short-term profits with a stress on long-term sustainability. "We need to reverse the notions of our management and turn it into a true, honourable profession that exists to serve society," said Angel Cabrera, President of the Thunderbird School of Global Management, "not to make a quick buck."

For companies, this will mean elevating the role that employees play as stakeholders who usually bear the brunt of business downturns. Employees should be, therefore, the first to know of management decisions and thereby turn into emissaries of the corporate mission. However, corporate values can no longer be empty pledges. Boards need to include an independent audit of their corporate culture and workforce engagement along with their regular financial audits. In addition, multiple board memberships by directors should be reduced in number so that a board member spends more time overseeing one company.

Beyond this, management needs to offer society what one participant called "a tangible act of contrition". Some suggested cutting the salaries of top executives to demonstrate solidarity with employees, others an explicit apology or even some kind of prosecution of those bankers responsible for the current crisis. Stephen Green, Chairman of HSBC and Co-Chair of the Annual Meeting 2009, acknowledged that some "banks have clearly done things wrong ... and clearly some of the practices which were evident in financial markets have not contributed by any reasonable standards to human welfare." But he added: "Firms around the world are suffering because of a lack of trust" and "you are going to going to see a pulling back of some of the more excessive practices."

More than anything, though, companies need to change the way they compensate top executives, rewarding them for longterm sustainability, and not for taking shortterm risks. "We've had these crazy incentives where it's beneficial to look for as much risk as possible, because short-term incentive can be gained at the expense of long-term value," said Kurt Bjorklund, Co- Managing Partner at Permira Advisers.

Social Entrepreneur Muhammad Yunus, Managing Director, Grameen Bank, Bangladesh

Others argued that executive incentive packages should be stretched over five to seven years and based not only on profit targets, but on measures of the company's reputation, employee morale and customer satisfaction. There was some sentiment that executives should be paid less, while regulators should be paid more. However, larger salaries would not solve the problem inherent in having dozens of national regulators trying to keep up with businesses that cross borders. "There is asymmetry in our financial systems," said Chukwuma C. Soludo, Governor of the Central Bank of Nigeria. "Finance is global, but the regulatory framework and supervision are essentially national."

Steps must therefore be taken to coordinate international economic and financial policy. Some suggested expanding the regulatory authority of multilateral institutions such as the International Monetary Fund (IMF) and the World Bank so they could do a better job of preventing financial crisis and economic bubbles. Before that happens, though, their membership has to be more reflective of the new global reality, with greater representation from larger, faster-growing emerging economies such as China and India.

Urgent steps also need to be taken to ease the liquidity crunch faced by developing countries as global capital recedes, by recapitalizing the IMF and ensuring that state-supported lenders remain active in emerging markets. "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," said Ricardo Hausmann, Director of the Center for International Development at Harvard's John F. Kennedy School of Government.

The hardships posed by the crisis are therefore not entirely negative. Recession gives us an opportunity to retool our economy and corporations. The billions of dollars being deployed by governments to jolt economies back to life can and should be targeted to long-neglected projects such as retraining workers with skills for the new global economy and improving schools, healthcare and housing. The crisis provides governments with a unique opportunity to funnel public funds into developing green technologies and alternative energy. "Why not use the crisis," suggested Tony Blair, UN Middle East Quartet Representative and a member of the Forum's Foundation Board, "to invest in energies of the future?"

Amid the sober atmosphere at this Annual Meeting, there were voices of optimism that the future still holds promise. "We shouldn't feel that there is no hope," said Klaus Schwab, the Forum's Founder and Executive Chairman. "We can do it. The key is global cooperation."

But, in restoring our economy, we will have to confront the challenge - and seize the opportunity - of rediscovering our shared humanity. "You are meant to live in a delicate network of interdependence, of complementarity," Archbishop Emeritus Desmond M. Tutu of South Africa reminded participants at the closing session. "God says 'My children please know that you are my children, that you really belong in one family. Please care for one another.'"