• In 1973 World Economic Forum founder Klaus Schwab launched the first Davos Manifesto, a set of ethical principles.
  • 50 years after its founding, the Forum has launched a new manifesto.
  • The global economy has undergone a huge transformation in this time, with the rise of big tech, China, wage inequality and ethical companies.

As planning got underway in 1970 for the inaugural European Management Symposium in Davos, an obscure ski town in the Swiss Alps, the idea that companies should be mindful of far more than the bottom line was still fairly novel. That first version of what would become the World Economic Forum Annual Meeting helped establish the idea that businesses should serve society as a whole, and not just shareholders—a “stakeholder” concept memorialized in 1973’s Davos Manifesto.

Fast forward nearly 50 years, and the mainstreaming of stakeholder capitalism is in full swing. One example: the Business Roundtable, an organization that includes the CEOs of the biggest US companies and once defined a company’s purpose as serving shareholders, recently re-defined that purpose to include a commitment to all stakeholders. Other major shifts to occur in the past five decades include the rising influence of technology firms, the growing prominence of multinationals from the developing world, an expansion of the global talent pool, and a troubling increase in income inequality.

A social bent

Could a company like Patagonia, the outdoor clothing maker that identifies its reason for being as saving the planet, have thrived 50 years ago? The rise of social innovation intended to have positive environmental or social impact—in much the same way outlined in the Davos Manifesto—has been a particularly striking trend in recent decades. Just since 2014, the number of certified “B Corporations,” or companies with verified commitments to balancing profit and purpose by tackling issues like inequality and workers’ rights, has increased by about 366%:

Global economy: Rise of B corporations
Ethical companies are on the rise
Image: Data courtesy of B Lab Inc

A different kind of corporate giant

How have the world’s most influential companies changed over the past 50 years? In short: more technology, less natural resource extraction. One measure of this is the Dow Jones Industrial Average, the benchmark US stock index. The 30 companies in the Dow in 1970 included names like American Can and Texaco, and only one, Eastman Kodak Company, was a technology firm. There are now five technology firms in the index (including Apple and Microsoft), and while half of the included companies in 1970 were manufacturers, that has dwindled to eight, as oil companies have slipped in number from three to two, and chemicals and mining concerns have fallen from five to one. Here we see the Dow’s composition by sector, then and now:

Global economy: US Dow Jones share index in 1970
US Dow Jones share index in 1970
Image: Data courtesy of S&P Dow Jones Indices
US Dow Jones share index in 2019
US Dow Jones share index in 2019
Image: Data courtesy of S&P Dow Jones Indices

The rise of the developing world

It’s not just the type of companies impacting the global economy that has changed in the past half-century—it’s also their location. Back in 1970, multinational firms from emerging economies accounted for just 0.4% of global outward foreign direct investment, which would jump to 15.8% by 2008. Now, two of the ten biggest companies in the world in terms of market capitalisation are from Greater China: Tencent and Alibaba (the remainder are from the US). Here we see increases in market capitalisation since 2009 of those companies that are among the 100 biggest in the world, according to where they’re based—for Chinese firms in this group the increase has been 141%, while for firms from the rest of the world excluding the US and Europe it’s been 40%:

Global economy: Rise of Chinese companies
China's corporate sway has increased rapidly
Image: Data courtesy of PwC
Global economy: valuation of companies in 'rest of world'
The corporate sector in emerging markets has also increased markedly
Image: Data courtesy of PwC

A bigger talent pool

The global population has become a lot more mobile in the past half-century. According to the UN, the total number of international migrants increased by 78% between 1990 and this year, to nearly 272 million. Places that have opened up their job markets to candidates from abroad have seen their options multiply for recruiting much-needed labour. Singapore, which topped the Forum’s Global Competitiveness Index for 2019, provides a vivid example. Here we see breakdowns of Singapore’s population in both 1970 and 2010, where “Nonresidents” are foreigners with an employment pass or work permit in the city state:

Global economy trends: Singapore's population
Singapore's population in 1970
Image: Data courtesy of Migration Policy Institute
Global economy trends: Singapore's population
Singapore's population in 2010
Image: Data courtesy of Migration Policy Institute

Increasing Income Inequality

Not all trends have necessarily been positive over the past 50 years. Income inequality has increased in many parts of the world, helping to stir social unrest and the rise of populist rhetoric. According to a report published this year by the OECD, the gap between rich and poor has widened in the large majority of member countries during the past few decades. A separate OECD report conveyed rising income inequality in member countries between 1970 and 2000 — where lower “Gini Coefficient” scores mean less inequality, and higher scores mean more inequality. Here we see rising scores (and increasing income inequality) in three of those countries:

Global economy trends: Argentina
Argentina is one of many countries experiencing an increase in inequality
Image: Data courtesy of OECD
Global economy trends: Inequality in the UK
Rich countries like Great Britain have experiences broader economy...
Image: Data courtesy of OECD
Global economy trends: Inequality in the US
The world's biggest economy is struggling with inequality
Image: Data courtesy of OECD

For more context, here’s a set of links to deeper reading courtesy of the World Economic Forum’s Strategic Intelligence platform:

- Why are America’s CEOs talking about stakeholder capitalism? For one thing, activist investors have made their lives uncomfortable. For another, politics and public opinion are shifting in the US—where two leading contenders for the 2020 Democratic presidential nomination, Bernie Sanders and Elizabeth Warren, have called for big changes in the ways that corporations are run. (Project Syndicate)

- For almost 50 years, the gospel that companies know best and regulation is bad has been corporate America’s default policy position—and “permissionless innovation” has led to “permissionless exploitation.” Now, we’re waiting for the first concrete evidence that this is changing. (Brookings)

- Singapore is touted as one of the biggest economic success stories of the past half-century, but that is due to its split personality—as both a low-tax, low-regulation locale that attracts global capital, and a place with interventionist policies aimed at fostering social cohesion when it comes to housing and education. If the UK really wants to follow the city state’s model post-Brexit, it is well-advised to pursue both sides of that personality. (CityMetric)

- The UK doesn’t have a great track record over the past half-century when it comes to fostering social cohesion. In fact, it contributed significantly to inequality in the European Union over the years—whether through Margaret Thatcher’s role in completing the single market, influencing the EU response to the 2008 banking crisis, or impacting EU strategy for building a knowledge-based economy. (LSE)

- Opponents of globalisation have increased in number in recent decades, whether they’re Trump voters or French farmers. But inherent anti-globalisation biases often contribute to misguided public policy that benefits no one. One example: starting a trade war with China, when US sectors that rely on Chinese equipment enjoy faster job growth and bigger wage increases than others. (Project Syndicate)

Transformation Map for Sustainable Development

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