When over 2,500 delegates
gather at the plush resort town of Davos, Switzerland a
week from now, they will have a lot
on their plate. They had planned to open the annual meeting
of the international elite with discussions of the environment
and terrorism but that could change. Since the gathering last
year, things are different and a new sense of urgency will
mark the deliberations. It’s unlikely that the official theme
of the meeting - “The Power of Collaborative Innovation” -
will encompass the most critical items on the agenda.
Of the five
listed “pillars” of
discussion at this year’s meeting, the one titled “Economics
and Finance: Addressing Economic Insecurity” will surely command
the most attention. “You can bet that all the heads of the
European, Asian, and American central banks will be in Davos
doing their own version of collaborative innovation, trying
to coordinate
interest-rate cuts to stem the recessionary tide rolling in,” Business
Week said last week.
“The global outlook is currently
marred by greater levels of political and economic uncertainty
than at any point during the past decade,” warned a report
co-sponsored by the World Economic Forum, the organizers of
the annual meeting in Davos, wrote
Gillian Tett in the London-based Financial
Times, Jan. 10. She went on to quote one of the report’s
co-authors David Nadler: "Systemic financial risk is the
most immediate and, from the point of view of economic cost,
most severe risk facing the global economy. With so many potential
consequences of the 2007 liquidity crunch unresolved, the outlook
at the beginning of 2008 is more uncertain than it was a year
ago."
The new uncertainty is a reality
for a lot of people right now, including the maybe two million
in the U.S. faced with losing their
homes due to the “credit crunch,” the newly unemployed, and
those who have been jobless for a good while. Working people
are faced with stagnant or declining wages and the impact of
the economic recession that may or may not have begun. But
none of these people will be at Davos.
Instead, the state of the world at the beginning of 2008 will
be pondered by 27 heads of state, 113 government cabinet ministers,
a handful of religious figures, hand-picked media leaders,
and heads of non-governmental organizations (NGOs). Around
60 percent of those enjoying the snowy Swiss Alps and exchanging
calling cards for five days will be business executives from
1,000 of the leading companies in the world. It’s by invitation
only and costs a least five figures to attend.
This is no expense account
junket. These people take what they do at Davos seriously.
“The unique combination of
the world's top business and political leaders, together with
the heads of the world's most important NGOs, and religious,
cultural and media leaders allows us to approach the problems
that face the world in a systematic way and with an eye to
tackling the major issues that face us all,” says the Forum’s
founder and Executive Chairman Klaus Schwab. “The annual meeting
gives all of us a chance to understand and shape the global
agenda for the year ahead and beyond, serving global society
by making sense of a rapidly changing world and harnessing
collaborative innovation to the benefit of us all."
And if you think chart rooms
are is just for kids, think again. This year, in partnership
with YouTube, the World Economic Forum has launched The
Davos Question, with the aim of “creating a global video
conversation.”
When the mucky
mucks huddled at Davos last year, they talked a
lot about globalization. True, some spoke of worrisome economic
trends, however, a highlighted message out of those sessions
was that the world economy was trending in the right direction
and generally all was well. The problem, it was noted, was
that the economics shifts and growing economic inequities within
and between societies was engendering political problems. This
year will be different. The political problems remain but things
are far from alright in the world economy – particularly in
some of the more advance capitalist countries.
One of the regulars at Davos
is Martin Wolf of the Financial Times, who has
been described as “conservative doyen of British economic commentators.” Wolf
now says he has had a reluctant change of mind since last year.
He now favors some regulation of the compensation packages
of executives in the world of finance. “I now fear that the
combination of the fragility of the financial system with the
huge rewards it generates for insiders will destroy something
even more important - the political legitimacy of the market
economy itself - across the globe. So it is time to start thinking
radical thoughts about how to fix the problems.”
Financial services
are “virtually
the only businesses able to devastate entire economies,” Wolf
wrote recently. “Many market liberals would prefer to leave
the financial sector to the rigors of the free market. Alas,
the evidence of history is clear: we, the public, are unable
to live with the consequences.”
Handing huge
bonuses to bankers who have been on the job only a short time
tempts them to take
uncalled-for risks while making it look like they’re making
lots of money, Wolf says. “We cannot pretend that the way the
financial system behaves is not a matter of public interest
- just look at what is happening in the US and UK today; and,
second, if the problem is to be fixed, incentives for decision-makers
have to be better aligned with the outcomes.”
Of course, the economic problems
now facing the U.S. and
the UK today
cannot be ascribed solely, or even principally to bankers’ pay;
it’s more systemic than that. But he does have a point.
Wolf was one
of those who, last year at Davos, had an “optimistic
view of prospects for the world economy” and “pessimism about
political prospects”
“I missed the details of the
link between subprime loans, securitization,
special investment vehicles and a meltdown in money markets,” Wolf
now says. “But I did note that ‘the underpricing of
risk and the combination of low interest rates with fast growth
almost invite economic blunders. My mistake was to underestimate
the ability of the world's premier financial institutions to
sink themselves in a quagmire. But
I was in good company: theirs.” (He insists on blaming the
bankers – not for being greedy or corrupt but for being dumb
and that’s surely debatable).
In laying out this semi-mea
culpa, Wolf, I think, reveals something very important about
the current mortgage crisis in the U.S. and
the UK and
the looming economic downturn. He quotes approvingly the thesis
of two U.S. economic scholars who
maintain that the build up of the housing bubble through credit
was similar to what brought on debt crisis of the 1980s. This
time, surplus savings were, in their words, "recycled
to a developing country that exists within the US:
the subprime borrowers.”
A developing country that
exists within the U.S.?
Well, we all know who lives within those borders. They’re the
working people and their families who are now in danger of
losing their homes – a disproportionate number of whom are
African American, Latino, Asian and female. The head of one
of the biggest moneylenders once referred to them as an “emerging
market.” Then there are the millions of others whose mortgages
were not “subprime” but whose lives have been rendered precarious as
a result of the finance moguls’ greed, corruption or stupidity.
Or, whatever.
The economic situation in
the U.S. has
indeed taken on a sharp political dimension, coming as it does
amid a hard fought Presidential election contest. With the
Bush Administration and each of the candidates of both major
parties belatedly rushing forward with economic stimulus proposals,
the question is, will any of the packages be enough to arrest
a sharp economic downturn?
The world of
high finance has not been overly impressed by the proposals
to date. The
Bush administration’s initial statement was followed by a sharp
stock market decline. "It's disappointed in the size of
the economic growth package. Wall Street's showing its displeasure," one
research analyst told the Associated Press. “By the
time they actually pass anything, it will be past the time
we need it.” James W. Paulsen, a strategist at Wells Capital
Management. “I suspect that it’s already too late to prevent
a recession,” New York Times columnist Paul Krugman
wrote last week, adding that “the next year or two could be
quite unpleasant.”
Times columnist
Bob Herbert penned an instructive piece Jan. 18. The policy
makers, he wrote “should stop, take a deep breath and acknowledge
the obvious: the way to put money into the hands of working
people is to make sure they have access to good jobs at good
wages. That has long been known, but it hasn't been the policy
in this country for many years.”
“Big business and the federal
government have worked hand in hand to squeeze the daylights
out of working people, stripping them (in an era of downsizing
and globalization) of much of their bargaining power while
ferociously pursuing fiscal policies that radically favored
the privileged few,” wrote Herbert.
“There is no question that
some kind of stimulus package geared to the needs of ordinary
Americans is in order,” continued Herbert. “But that won't
begin to solve the fundamental problem. Good
jobs at good wages - lots of them, growing like spring flowers
in an endlessly fertile field - is the absolutely essential
basis for a thriving American economy and a broad-based rise
in standards of living.”
Robert Kuttner,
co-editor of The American Prospect magazine, has urged Congressional
Democrats to come up with a stimulus packed much bigger than
those now being proposed and then move beyond it toward measures
to reform the economy as a whole. Appearing before an economic
town hall meeting on Capitol Hill, co-sponsored by the Congressional
Progressive Caucus and the Campaign for America’s Future, Kuttner
invoked the “D” word. “If you look at subprime and
all its glory, it recapitulates all of the abuses of the 1920s
in all their glory,” he said, concluding “we should be very
alarmed.”
Reporting on
the meeting, blogger Isaiah J. Poole, wrote, ”Kuttner suggested
that an adequate stimulus package should perhaps be three or
four times that size, given the size of the economy and the
severity of the ripple effects of the housing market implosion
on the rest of the economy. Plus, none of the remedies most
prominently on the table would address investment in public
infrastructure, which would create a broad range of jobs, or
seed the growth of urgently needed green-energy technologies — to
name just two of the suggestions for stimulus raised during
the town hall meeting. More importantly, Kuttner said,
they would not address the fundamental need to, as he put it, ‘re-regulate
financial capital,’ tax it appropriately, and use the proceeds
efficiently to meet national and human needs.”
“The challenge, as the national
debate heats up over how to address the looming recession,
is to draw the right lessons from history — and from the present — and
be bold about both the nature of the problem and the right
solutions,” wrote Poole.
There is little
likelihood that any such discussion will take place at Davos,
where
the suits will try to “shape the global agenda for the year
ahead and beyond,” just as is was unlikely that any of the
major U.S. media would report what Kuttner had
to say. But the political concern will be there, surely more
pronounced and urgent than it was at the Forum in 2007. Martin
Wolf, who is worried about “the political legitimacy of the
market economy itself,” says he is more nervous about the potential
political repercussions in 2008 than he was last year, saying, "What
is happening in credit markets today is a huge blow to the
credibility of the Anglo-Saxon model of transactions-orientated
financial capitalism."
Meanwhile back here in California, where the jobless rate has jumped
to 6.1 percent, clever entrepreneurs have come up with a new
way to profit from the economic crisis. They are conducting "Repo
Home Tours," reported public television station
KQED in a segment titled: “The Bus Tour of Broken Dreams.” “Instead
of dealing with clients one-on-one, an enterprising realtor
is offering bus tours so groups of interested buyers can see
the real estate ‘steals’ in the area resulting from foreclosure.”
Davos and Stockton:
worlds apart in more ways than one.
BlackCommentator.com Editorial
Board member Carl Bloice is a writer in San
Francisco, a member of the National Coordinating Committee of
the Committees of Correspondence for Democracy and Socialism and
formerly worked for a healthcare union. Click
here to contact Mr. Bloice.