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Click on the image of the Mt. Washington Hotel to see an interesting Financial Times report by Gillian Tett and Martin Wolf.
The World Economic Forum always meets this time of year in Davos, Switzerland. The WEF is basically the board of directors of globalization — a fluid collection of leaders from the .com, .gov and .org worlds, with a few .edu types like me to provide intellectual weight (or comic relief?), I suppose.
The list of formal sessions of the WEF always make it look like the coolest conference ever, whether you want to debate key global issues, rub shoulders with high government officials, get face time with corporate giants, hang out with rock stars and Nobel laureates or … well I suppose you could go skiing if you wanted to (and I guess some of the attendees actually do that!)
Once again this year I am not in Davos at the end of January. Usually my excuse is that I don’t want to take time away from classes, but I admit the real reason is that I have never been asked. But now I have a new and better reason — I can’t afford to go!
Andrew Ross Sorkin, writing in the New York Times, has been investigating the WEF’s finances and his research makes it clear that getting in the door would bankrupt me.
Just to have the opportunity to be invited to Davos, you must be invited to be a member of the World Economic Forum, a Swiss nonprofit that was founded by Klaus Schwab, a German-born academic who managed to build a global conference in the snow.
There are several levels of membership: the basic level, which will get you one invitation to Davos, costs 50,000 Swiss francs, or about $52,000. The ticket itself is another 18,000 Swiss francs ($19,000), plus tax, bringing the total cost of membership and entrance fee to $71,000.
But that fee just gets you in the door with the masses at Davos, with entry to all the general sessions. If you want to be invited behind the velvet rope to participate in private sessions among your industry’s peers, you need to step up to the “Industry Associate” level. That costs $137,000, plus the price of the ticket, bringing the total to about $156,000.
Of course, most chief executives don’t like going anywhere alone, so they might ask a colleague along. Well, the World Economic Forum doesn’t just let you buy an additional ticket for $19,000. Instead, you need to upgrade your annual membership to the “Industry Partner” level. That will set you back about $263,000, plus the cost of two tickets, bringing the total to $301,000.
Click here to read the whole story. It seems that the conference is organized on the pizza principle — the toppings you want all cost extra. So the total expense can get pretty high. I wonder how many $10 malaria nets the WEF’s total extended budget would buy?
All these embedded costs have helped make the World Economic Forum a big business — perhaps the biggest conference organizer in the world. According to its annual report, it brings in about $185 million in revenue and spends nearly all of it, with almost half of its costs going toward events and the other half on personnel.
Quite a few! At $10 per net, you could potentially save 18.5 million lives a year. So the meetings have to be awesome to justify their human cost. No wonder they are so cool.
And yet, we are told, Davos Man is left unfulfilled.
But all this spending may soon be going out of vogue. As one attendee, the author David Rothkopf, recently wrote on his blog, “The entire endeavor is fading for several reasons, all associated with the inadequacy of Davos as a networking forum.”
He explained, “As Steve Case, founder of AOL, once told me while standing at the bar in the middle of the hubbub of the main conference center: ‘You always feel like you are in the wrong place in Davos, like there is some better meeting going on somewhere in one of the hotels that you really ought to be at. Like the real Davos is happening in secret somewhere.’ “
Wow! That’s just how I feel now. So I guess I’m better off where I am, don’t you think? [Memo to Bob Dylan: here's an idea for a new song -- Stuck inside of Mobile with the Davos blues again!]
All these embedded costs have helped make the World Economic Forum a big business — perhaps the biggest conference organizer in the world. According to its annual report, it brings in about $185 million in revenue and spends nearly all of it, with almost half of its costs going toward events and the other half on personnel.
But all this spending may soon be going out of vogue. As one attendee, the author David Rothkopf, recently wrote on his blog, “The entire endeavor is fading for several reasons, all associated with the inadequacy of Davos as a networking forum.”
He explained, “As Steve Case, founder of AOL, once told me while standing at the bar in the middle of the hubbub of the main conference center: ‘You always feel like you are in the wrong place in Davos, like there is some better meeting going on somewhere in one of the hotels that you really ought to be at. Like the real Davos is happening in secret somewhere.’ “
The op-ed page of the Financial Times was devoted to a single question in the January 4, 2011 U.S. edition — is globalization is retreat in 2011? (Search for “globalisation” on the FT web page to find the articles discussed here.)
That’s the most important question of the year, according to the FT gurus and one that I address in Globaloney 2.0.
A Zero-Sum Year? Yes and No.
Five points of view are presented in the FT. Gideon Rachman, author of a new book on the Zero–Sum World kicks off the discussion, warning that globalization (and the prosperity associated with it) is indeed threatened unless there is a “coordinated global recovery.” Positive-sum actions are needed to prevent a spiral of individually zero-sum (which collectively become negative-sum) responses to the global crisis and the uneven recovery.
Former EU trade minister Peter Mandelson takes a contrarian view. He finds three reasons for optimism. First, he thinks technology that increasingly links us into tight networks is a positive force leaning against protectionist policies. Second, he finds that global leaders have on net kept their commitments to avoid beggar-thy-neighbor policies — a good sign. Finally, he believes that this might be the year that the Doha round of trade talks is completed. Really! Well, I’m glad someone is optimistic about that!
Microchips and Metaphors
Google CEO Eric Schmidt picks up on the technology theme, arguing that open systems are the way forward, both in terms of information technology and more generally (open systems used here as both a techie term and a social metaphor). The focus should be on developing an open world to build the next economy.
Nandan Nilekani, former Infosys CEO, argues that if globalization does in fact retreat in 2011, it will be just a blip on the trend line. He argues that the rise of India and China will pull globalization forward. “Globalization might pause briefly in 2011, but it cannot be reversed when many billions of Indians and Chinese want it.”
More? Less? Or Better?
Finally, Nobel-winning economist Joseph Stiglitz sounds a cautious note. “2011 will be a hard year for globalization,” he says. The initial cooperative spirit of G-20 meetings in 2008 and 2009 have given way to more protectionist actions in 2010. He paints a fairly dark picture of currents trends, including the continuing currency wars. “In a moment of dreaming one can imagine a better year,” he says. There is hope for progress on trade, finance, the euro and so forth. “Some of this could happen, although I wouldn’t bet on it. But we should still strive to make sure as many of these dreams come true as possible in the not too distant future.”
My own viewpoint, as explained in Globaloney 2.0, is that perhaps we shouldn’t worry so much about whether we have more or less globalization, but rather what kind of globalization. Some policies, like limited capital controls, that are being cited today as attempts to roll back globalization might in fact be useful improvements to the world wide financial system.
The leaders of the G20 countries are meeting in Pittsburgh this week to plan the next steps to help bring the world out of the economic crisis. This is a good thing both because the G20 is the right group (broad enough to include the most important players but compact enough to maybe get something done) and because coordinated action is needed.
What would be reasonable goals for this round of G20 meetings? Here is my checklist for the meetings.
- Coordinate plans for additional shared stimulus. We aren’t out of this mess yet (ask your banker about the potential for defaults on commercial loans), so it makes sense to keep the stimulus stream flowing for now. But it needs to be a shared burden otherwise global imbalances will increase (see below). It would be a mistake to imagine that China and the US can be the “engines” to pull the world economy out of the slump.
- We need to make progress on a coordinated “exit” plan so that stimulus turns into sustained growth and not either inflation or another recession. The inflation is a threat, of course, because of the tremendous money creation we have seen. The recession could be triggered either by a return of the financial crisis or by an over-action to the rising inflation. Getting out of this mess — putting on the brakes while still keeping one foot on the gas — is not going to be easy. It will take a delicate touch and policy coordination.
- Global financial imbalances need to be reduced at the same time that we are stimulating growth and then backing off on stimulus. The EU will need to play its part in this but it has resisted doing so so far. Huge global imbalances are a roadblock to the next step of the process.
- Re-regulation of the financial system along the general lines of the Bretton Woods system, with much less dependency on international financial flows and much more emphasis on domestic financial regulations that control risk.
I’ll be interested to see how many of these items the G20 leaders are willing and able to address.
Catherine Rampell’s article “Same Old Hope: This Bubble is Different” in today’s New York Times echoes a theme I raise in Globaloney 2.0, where I break down all the reasons investors and policymakers allowed themselves to be fooled — to believe that “this time” was really different.
In my new book I argue that we need once and for all to learn the lessons that financial bubbles are a fundamental characteristic of financial markets — this time is no different from all the times before. Rampell’s article suggests that this lesson is very hard to learn, however. Here’s a brief quote. Click on the link above to read the complete article.
“Globally, a lot of money is now seeking higher returns once again,” said Rachel Ziemba, senior analyst at RGE Monitor. The steadying of the economy, liquidity injections by governments and big returns reaped early this year by investment banks are encouraging more traders to dip their toes back in the water in search of the next big thing.
“As long as compensation and bonuses are based on short-term performance in the market,” she said, “that’s going to encourage risk-seeking behavior.”
Globalization will return, I argue in Globaloney 2.0, but in what form? Although the economic crisis will be shorter if the economy and financial systems simply “bounce back” in more or less the same form as before the crisis, this would be a mistake. Repeating the mistakes of the past is not a receipe for feasible, sustainable globalization. The old system of boom and bust, crash and burn needs to change.
An article “Financial Overhaul Falters as ’08 Shock Fades” in this morning’s Wall Street Journal provides unwelcome news. It suggests that the momentum for financial reform is fadding as early signs of financial and economic recovery emerge. Banking (and other financial instututions) are pretty much the same, the authors note, there are just fewer of them.
A good article — click on the link to read it all.
An article in today’s New York Times makes good reading for anyone interested in the future of globalization: “Off the Charts: Hints of a Rebound in Global Trade” by Floyd Norris. Click on the link to read the story. Be sure to click on the graphic in the article to see the dramatic charts showing export trends.
In Globaloney 2.0 I argue that the deglobalization that we’ve seen as a result of the Crash of 2008 is a temporary phenomenon. The question isn’t “will globalization return?” it is “in what form?”
Norris’s article gives a sense of just how deep deglobalization has been in some sectors. He sees evidence that the bottom has been hit and that exports are starting to rebound, but it doesn’t look like “reglobalization” is actually happening just yet.
Globalization will return eventually, but have we learned the necessary lessons to recast globalization in a more feasible and sustainable form?
