Davos Man's New Clothes: The World Economic Forum in Naked Denial

I was a Davos Man for a dozen years, from the mid-90s to the early oughts. And so this is time of year I get nostalgic for the late nights with Bill C.; the surprising intelligence of Angelina, Brad, and other Hollywood celebrities; the Saturday night soiree at the pool; pre-mayor Michael Bloomberg getting off his helicopter wearing a great sweater; the arrogant erudition of Larry Summers, who'd forgotten to zip his fly; Steve Jobs yelling at magazine editors; bumping into Yassir Arafat's nose while racing for coffee; watching the Queen of Jordon and the wife of Murdoch enter a midnight party arm-in-arm; watching Ivy League college presidents primp in front of mirrors, as if it were prom-night; and, at the end of my halcyon days, gape at hedge fund managers dancing with their Runway and Russian sweeties.

During these years, despite the silliness, Davos Man was dressed in a fine suit of for-profit humanitarianism. Globalization was good--and good for everyone. The Washington consensus of liberal market economics was the answer to ending worldwide poverty.

Yes, of course, the core competence of World Economic Forum was always business (CEO networking to be precise). But back then, business itself was a social good, and everyone was seen as benefitting, from the Top to the Bottom of the Pyramid. So it was okay to pass the caviar, please--as soon as Melinda Gates finished her talk on African water.

This year Davos Man was shorn of his cloak of concern at the WEF. There was an frenzy of corporate deal-making and networking, to the point that many CEOs had little time to make it to the conference itself to talk about global issues, according to Bloomberg News. Yes, it was the first time in two years that such deals were available, so a frenzy could be expected. But something more happened in the Conference Hall and hotel lunches and dinners this year.

Davos Man went into Denial. He didn't get the damage done to average people in the West by the Great Recession. He didn't accept responsibility for that damage. He didn't understand the loss of credibility and face for his system of liberal capitalism that has occurred. There were hundreds of sessions at WEF this year. Few were designed to address one key issue: Globalization has lost credibility and support among the middle class and poor in the U.S. and much of Europe.

While Indian and Chinese business leaders have spread the benefits of globalization to hundreds of millions of their employees and their families over the past 20 years, it is now clear that middle class America has benefited little, if at all. Stripped of bubble housing asset profits and deprived of constant credit, real incomes for middle class US families have stagnated for the past two decades. The same can be said for Britain, France, Italy and a good chunk of Germany.

True, the financial sector, which gobbled up a mammoth share of profits and income, did well. And corporate elites did fabulously well in general, with options and bonuses. But the real story of US livings standards during the current era of fast globalization can be summed up in two words: immiseration and inequality.

There weren't many panels at Davos about worsening work conditions, although there were a few on inequality. What was on display, however, from Day One, were bankers howling about public banker-bashing and demands for a return to "normality." Unseemly, at the very least, from CEOs who managed to deflect any punishment for privatizing enormous profits and socializing enormous losses.

There weren't many panels at Davos on the end to Free Trade either. The calls for another Doha Round completely ignore the rise of China's brilliant Fast-Follower strategy of economic growth, which makes a mockery of competitive advantage. China is forcing the largest transfer of technology ever seen in history. A panoply of policies including low-cost state bank loans, forced partnership with Chinese companies, required transfer of latest technologies, protected domestic markets, China-only state purchases, an "indigenous innovation" government policy, and an undervalued currency, are generating enormous growth--but undermine the foundation of free trade and the principles of WTO.

This potent policy combination means that Silicon Valley innovators cannot commercialize their creations by scaling manufacturing. It means that 70,000 Brazilian and 50,000 South Africa textile workers lose their jobs because of inexpensive Chinese imports. It means that Indonesian nail makers close their factories because Chinese nails are cheaper. Finally, it means that U.S. and European global corporations in search of profits that benefit managers and shareholders are increasingly the only economic players that benefit from free trade and globalization. Other stakeholders--employees, local suppliers, governments in need of taxes--are losing out in globalization and are withdrawing political support for it. In this too, Davos Man was in Denial.

Finally, there is the end to the Washington Consensus that everyone in the world can benefit economically from de-regulated, free markets. The failure of that system--the inability of markets to price efficiently and correct without government help--is a huge blow to the credibility of liberal capitalism. There were a few panels on this at Davos this year, but it wasn't a key issue. Indeed, bankers and other CEOs loudly proclaimed the dangers of more regulation, rather than less. Soft power has always been the foundation of U.S. power and nothing has been as important as the ideology of its economic success. The rise of the Beijing Consensus of authoritarian capitalism is a serious threat to both democracy and free trade. Again, Davos Man was in Denial.

So I miss the old Davos, where globalization was the new humanitarism, but not the new Davos, where a deal is a deal is a deal. Perhaps the cloak of concern was always a convenience for the real business at hand. But it was nice for a while to believe that globalization benefited everyone and that Davos Man cared for the whole world.

Bruce Nussbaum blogs, tweets, and writes on innovation, design thinking, and creativity. The former assistant managing editor for BusinessWeek is a Professor of Innovation and Design at Parsons The New School of Design. He is founder of the Innovation & Design online channel; founder of IN: Inside Innovation, a quarterly innovation supplement.

[Image by the whelming]

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  • Joe Raimondo

    Davos man in in denial that he's addicted -- to global labor arbitrage. It's an addiction that spells a further 30 percent loss of purchasing power for the western working class -- until it reaches parity with China and India.

  • James Whanger

    Thank you Mr. Nussbaum for shedding light on the 'dirty little secret' of globalization that has been obfuscated by the power elite in this country beginning with Reagan, accelerated with Clinton, and imperialized with Bush-43.

    Some of the most disingenuous arguments ever put forth by American politicians have been in the name of selling globalization based on the false notion that the lower classes in America would benefit from global free markets.

    If one takes a moment to think about the logical inevitability of the movement of capital within a global free market -- the reality is that large portions of the U.S. literally have to trade places with previously third world countries until the cost of labor and manufacturing is cheaper here than anywhere else. If there is a logically defensible counter argument to this reality, I would love to hear it.