9 observations from the World Economic Forum

The World Economic Forum Annual Meeting 2015 felt very serious and business-dominated. Of course, there were the celebrities and important government leaders, leading journalists and top players in civil society. But the stars of the show were from the private sector, including Paul Polman of Unilever, Jack Ma of Alibaba and Indra Nooyi of PepsiCo. Several of the disruptor upstarts were also present, from Airbnb to Xiomi, promising more change at lightning speed.

The overall prognosis for the economy is a repeat of 2014, with positive supply shocks of lower energy prices and the Internet of Things offset by shortfall in demand. Europe and Japan will struggle to grow. The legendary BRICs have split into two speeds: China and India are steaming ahead of Brazil and Russia while South Africa struggles for any growth. The U.S. is the best economic story of all developed countries with 3 to 4 percent growth expected. Here are specific observations from my three days on the mountain:

1. The Travails of Europe – While we were in Davos, Mario Draghi unveiled a program of further monetary easing in which the European Central Bank bought government bonds, releasing cash into the struggling economies. The day before Davos, the Greeks voted for a person who will fight for better payment terms on debt. Angela Merkel of Germany said, “On Greece, we must show European solidarity but Greece must also shoulder its responsibility.” The Finnish Finance Minister was blunt, “Stop the illusion that the public sector creates growth. All of the growth comes from the private sector. All we can do in government is structural reform, infrastructure, trade and education of workers.”
2. Terrorism – François Hollande of France gave a very passionate address only 10 days after the horrendous murders of journalists in Paris by terrorists. “France will lead by example. France will be on the front line where it has to be.” He acknowledged the need for better integration of the Muslim population in France; he noted that one quarter of the 40,000 ISIS soldiers come from outside of the Mideast, some from France. Jane Harman, former Congresswoman currently at Princeton, said that terror now has loose, horizontal connectivity that makes it harder to disarm than the top down approach used by Al-Qaeda.
3. Concerns About Technology Sector – For the first time, I heard genuine opposition to the power and attitude of the technology sector. It came in several forms, starting with privacy and protection of personal data. The next big issue is fairness, do these companies pay their fair share of taxes or do they move the money to places such as Ireland with tax advantage. Third, there are real employment concerns, despite the CEO of Uber saying that he can create 50,000 new jobs in Europe. Fourth, the sector has been dismissive of government regulation and critiqued by media. As the Financial Times’ Richard Waters wrote persuasively after Davos, “Technology does not possess a divine right … the last industry to fly too close to the sun was Wall Street.” The entire business model of the sharing economy relies on trust, therefore the digital revolution needs a trust revolution.
4. Climate Change – I felt a much more optimistic tone about climate change at this Davos than in previous years. The hot breath of next November’s meeting in Paris is on each nation’s neck. The U.S. deal on carbon with China was seen as a major plus. Polman of Unilever called for carbon pricing while the cost of oil is at its present low level. He also recommended strong action on deforestation. There is a parallel effort to the negotiations among the countries on carbon, which is being led by Christiana Figueres of the United Nations. She is recruiting cities, companies and individuals under the banner, “WE WILL,” in the hopes that this large citizen commitment will push wavering nations over the goal line in Paris.
5. Agriculture and Food Security – The world has made great progress on fighting poverty from the Millennium Development Goals of 2000, with the number of poor dropping from 2 billion to 1 billion. On hunger, there has been improvement, but not as dramatic, with the percentage of hungry people declining from 18 percent to 11 percent. The key to the problem is the improvement of output from the family farm, which accounts for 70 percent of total output. Food experts suggest a two-pronged strategy. First, the efficiency of the small holder farmer who is working one-to-two hectares must increase. Second, there should be a consolidation of family farms in order to afford mechanization and specialization. Farmers should organize by geography and product line to achieve scale enough to negotiate with buyers.
6. Media and Entertainment – There was a fascinating debate about specialist versus crowd sourcing of content, with Jimmy Wales of Wikipedia asserting, “Our community gets to accuracy. It organizes first then gets to the truth.” Some of the mainstream media owners expressed discomfort with their born-digital competitors who “use speed at the expense of facts and scale at the expense of depth,” with the motive of monetizing larger audiences. Millennials are a difficult audience to assess at the moment; Rich Gelfond, CEO of Imax, noted that their theater-going is lower than previous generations and wonders whether he has to bring his content to them through their mobile devices. Noreena Herz, professor at Cambridge, said that, the subset of 15-to-20-year-olds in Generation K want value exchange in return for allowing use of their data.
7. Rising Inequality of Income – This was a constant undercurrent at Davos. Professor Nouriel Roubini of NYU said that he attributes this phenomenon to the skills bias and ability of the few to implement new technologies or ideas. The Oxfam report on the first day of Davos said that 1 percent of the world controls as much of the assets as half of the world. The thesis is that with such concentration of wealth, the growth of economy is stunted by lower propensity to consume. At present the politicians are focused on redistribution of wealth, raising taxes to get to fairness. Rick Samans of WEF went a different way, to inclusive growth. “We need better educated workers. But we also need specialized workers who can get paid more.” The family business group that I chaired had great concerns about the tendency of business to get to efficient operating levels by reducing head count.
8. Ukraine – The most dramatic theater in Davos this year was the speech by President Petro Poroshenko of the Ukraine. He held up a piece of the Malaysian Airliner shot down over his country by Russian separatists, with shrapnel holes. “There are 9,000 Russian soldiers and 500 tanks on our soil. This is aggression. We are fighting for values, the Russians for money. We need a ceasefire according to the Minsk memorandum, which means release of our hostages in the Russian prisons, removal of heavy weapons and immediate suspension of aggression. The world must pay attention. This is the first violation of sovereign lands since World War II.”
9. Trust – I was involved with the Trust panels in Davos. Jim Smith, CEO of Thomson Reuters, said that CEOs should engender trust in part by examples, especially concern for their pay relative to ordinary employees. For Mike Meehan of Global Reporting Initiative, trust begins with transparency. Katherine Garrett, CEO of Alliance Trust, said that she relies on integrated reporting for a holistic view of the companies that she invests in. Eduardo Leite of Baker & McKenzie, said that the new codes of conduct in financial services are strong, but that training is missing; he also argued for positive regulation by government. Paul Achleitner, chairman of Deutsche Bank, said, “You get trust by what you do. It is a long rebuilding process. Self-regulation, no matter what you do, will not be enough. Government is a legitimate source of the rules.” Fadi Chehadé of ICANN echoed this thought, “Technology and public policy are now interlinked. The world of engineers has to be brought into dialogue with government and NGOs.”

A quote from Ben Franklin perfectly describes this Davos: “You may delay, but time will not.” The problems are obvious, from climate change to income inequality to fear of rapid change to jobless growth to terrorism. The solutions must be better cooperation among institutions of business, government and NGOs, plus a determined effort by individuals to take problems into their own hands, to organize and to volunteer, to not accept the status quo. Dispersion of authority leads to dispersion of opportunity, people and business are stepping in where government is failing. They are organizing, moving and pressuring. The sweet spot for leadership has changed; this quote from a business school professor at Davos says it all, “Everything from the top down is dumb, everything from the bottom up is brilliant, but chaotic.” As always, it was my favourite three days of the year.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Richard Edelman is the President and CEO of Edelman. 

Image: Davos 2015 session taking place in the congress hall.