From left to right: Gloria Macapagal Arroyo, President of the Philippines; Felipe Calderón-Hinojosa, President of Mexico; John McCain, Senator from Arizona (Republican), USA; Paul D. Wolfowitz, President, World Bank, Washington DC; Ellen Johnson Sirleaf, President of Liberia

Since the opening of China and the fall of the Soviet bloc, the ideological shackles of the cold war have been cast aside, reuniting the world's biggest markets and ushering in a gilded age of growth, the likes of which has not been seen since the Industrial Revolution.

The United States is still an economic powerhouse, but it has been largely supplanted at the forefront of growth by China and India and other emerging economies. "The world is no longer as dependent on a single locomotive," said Economics Professor Laura D. Tyson. Even the once-moribund economies of Europe and Japan are enjoying growth as China and India provide new sources of labour and consumer demand that are helping to keep the cost of capital low as global incomes rise.

This astonishing growth in global wealth is creating its own problems, however. Widespread pollution is wreaking havoc on the environment, causing changes to the climate that sustains life itself. Booming demand for resources has created shortages of raw materials, sending commodity prices up and thrusting resource-rich nations into disproportionate positions of influence (see Figure 1).

"Let's face it: to manage globalization in developing countries a huge amount of energy has to be put politically - at least in an open society - on arguing these issues and educating the public. You need a comparable debate in the wealthy countries that isn't happening." Montek S. Ahluwalia Deputy Chairman, Planning Commission, India

The mountains of wealth are exerting new and little understood pressures on financial markets. Prosperity has created a demographic paradox: lower birth rates that are leaving the wealthiest nations short of new workers to help finance the rising cost of healthcare and retirement among older generations.

Perhaps the biggest challenge stems from the uneven distribution of surging global wealth. Millions are being lifted out of poverty, it is true. Rising fortunes are spawning a new cosmopolitan class of global superrich - free to roam where taxes are lowest. Yet incomes among the politically powerful middle class that they leave behind are rising more slowly - so slowly that to many it seems as though they are standing still or even slipping behind. "They have a diminishing sense that we are all in the same boat," said former US treasury secretary Lawrence H. Summers, now the Charles W. Eliot University Professor at Harvard.

In short, this new period of global growth is producing many of the same imbalances and inequities that during the Industrial Revolution gave rise to nationalism, fascism and communism. Many fear that similar reactionary or even retrogressive forces could again be rising.

Heading off the political backlash will require a concerted effort by both governments and business to better publicize the benefits of globalization. "Most people who are hurt or think they are hurt by globalization, know it. Most people who benefit do not know it," said Carlos Ghosn, who heads Renault and Nissan. "What we need to do is come in with concrete cases and messages."

Min Zhu Group Executive Vice - President, Bank of China, People's Republic of China

Urgent steps also need to be taken to mitigate the negative side effects of globalization. Climate change is an especially critical global priority. While developed countries to date have the highest carbon emissions, fast-growing developing economies are rapidly catching up (see Figure 2). China is expected to surpass the US as the top producer of greenhouse gases by 2009.

While efforts are being made to improve energy efficiency in China and India, breakneck economic growth is taking a devastating toll on the environmental health of these nations. Despite the recent jump in oil prices, research for greener energy by the world's largest polluter, the United States, has been shrinking. Given the rising costs associated with climate change, it has become clear that nations should undertake unilateral efforts to limit their own carbon emissions and to support international efforts to reduce emissions, such as carbon trading programmes, even in the absence of a global consensus on what form those efforts should take. Some also argue that, because a multinational solution is unlikely to emerge in time to reverse climate change, efforts must be made to prepare for the inevitable impact of it.

Another vexing issue is the rising tide of capital flooding through the world's financial markets, though it is not clear if anything can or needs to be done to address this development. Cheap capital has been a boon to developing nations, lowering their financing costs and enabling them to dig their way out of debt. But to compensate for low interest rates, investors are taking advantage of cheap funding costs to make more leveraged investments. An increasing amount of public pension funds and private savings are flowing into hedge funds (see Figure 3) and private equity funds, which in turn use unconventional investments to generate higher returns.

While most funds do not disclose their portfolios, many have been investing increasingly in sophisticated and little understood instruments such as credit derivatives. With multilayered, leveraged investments including funds of funds, institutional funds and hedge funds, bankers and regulators worry that the impact of any financial shock could be amplified. "Countries need to do their homework to reduce the risks of these instruments and investing habits. We need to improve documentation and address legal issues," said Chilean Central Bank President Vittorio Corbo.

Ultimately, the negative impact of a rapidly globalizing labour market will increasingly affect workers in developed countries, which could lead national politicians to promote greater insulation of domestic employment and protectionism. How can this be avoided? Some suggest a kind of universal tax on the "cosmopolitan" class - those who can most benefit from globalization - or at least some form of international tax harmonization. Others believe the answer may lie in shifting the burden of health insurance to the state and beefing up public unemployment insurance. "We have to move the social protections from the basis of the corporation to the basis of society," said Columbia University Economics Professor Joseph E. Stiglitz. "The recognition of that is a change in mindset."

Getting the Doha Round Back on Track

On the penultimate day of the World Economic Forum Annual Meeting 2007, World Trade Organization (WTO) Director-General Pascal Lamy told participants that the discussions among the 30 trade ministers in Davos had given new impetus to the stalled Doha Round. "Today's ministerial meeting has put quite a lot of energy into the notion that the landing zone is in sight," said Lamy. Added Kamal Nath, India's Minister of Commerce and Industry: "Despite the cold outside, we have been able to defreeze the talks that were frozen." Days later, negotiators at the WTO in Geneva agreed that full talks to set a framework for concluding the Round would resume. The negotiations were suspended in July 2006 largely due to disputes over agricultural tariffs and subsidies. Earlier, the World Economic Forum's International Business Council (IBC) of leading CEOs from both developed and developing countries had called for a revival of the Round. "The impasse with the Doha Round threatens to undermine growth and the spread of economic opportunities to all," the IBC warned in a statement. "Trade is the most effective means we can offer to the members of the global community struggling to lift themselves out of poverty." "It has to be more than a lowest-commondenominator deal that doesn't generate trade flows." Susan Schwab, US Trade Representative "We are now in the endgame. Either way, this is going to end in success or failure in the next two to three months. It would be a terrible misjudgement if we allow what we have now to slip away." Peter Mandelson, Commissioner, Trade, European Commission, Brussels

Reshaping the International Monetary System

The World Economic Forum and the Reinventing Bretton Woods Committee (RBWC) issued at the World Economic Forum Annual Meeting 2007 the final report of a two-year review of the international monetary system conducted in cooperation with the Group of 20 (G20) governments. Entitled The International Monetary System, the IMF and the G20: A Great Transformation in the Making?, the report concludes that a critical mass of governments appears ready to try to adapt international financial institutions to a world characterized by increasingly large cross-border private capital flows, wider geographic distribution of economic activity and deepened regional macroeconomic and international trade policy coordination. From 2004 to 2006, the Forum and the RBWC organized a series of public-private roundtables on different aspects of the international financial architecture in cooperation with selected finance ministries and central banks of the G20. Seven different G20 governments hosted these discussions - co-chairing them with the Forum and the RBWC - supported by a research programme in which leading public, private and academic experts prepared more than 50 discussion papers. The report includes a selection of the papers prepared for the project that offer specific proposals for reform in such areas as strengthening the international adjustment process, improving crisis prevention and resolution instruments, and modernizing and rationalizing the governance of the system's principal institutions. Among the notable proposals is one presenting a new "business model" for the IMF. Another outlines significant yet feasible improvements in the exchange rate system that could help prevent large, persistent economic imbalances of the kind that threaten world financial stability today. "An important transformation of the international monetary system appears to have begun in which the Group of 20, by virtue of its relatively informal and representative nature, may well prove to be the crucible in which its primary features are forged." Richard Samans, Managing Director, World Economic Forum

Travel the Competitive World

Travel and tourism is a major driver of social and economic development, a leading industry in many countries and the fastest growing economic sector in terms of job creation worldwide. In recognition of this, the World Economic Forum is launching the Travel & Tourism Competitiveness Report 2007, which measures the factors and policies that make it attractive to develop the T&T sector in different countries. The report, which will be launched on 1 March 2007, has been produced in collaboration with strategic design partner, Booz Allen Hamilton; data partners, World Tourism Organization, World Travel & Tourism Council (WTTC) and International Air Transport Association (IATA); and industry partners, Carlson, Swiss International Airlines, Visa International, Emirates Group, Royal Jordanian, Bombardier and Qatar Airways. In the report, the Forum is releasing the inaugural Travel & Tourism Competitiveness Index (TTCI) covering 124 economies. The TTCI is calculated using a combination of data from publicly available sources, international T&T institutions and industry experts, as well as the results of the Forum's Executive Opinion Survey. Criteria for the report's assessments are set according to the three pillars of travel & tourism competitiveness - regulatory framework; business environment and infrastructure; and human, cultural and natural resources (see figure below). Travel & Tourism Competitiveness Report 2007