A well-worn ritual is that in the days preceding Davos folks like me are asked by assorted bystanders, “what will it all be about this year”. And so as I begin my annual pilgrimage up the Magic Mountain, I find myself musing on this modern koan. Yes, we will surely talk about financial regulation, or perhaps just about the forthcoming assault on bankers. And yes, we will surely wring our hands about Copenhagen and debate how best to move forward. And certainly, we will review progress in emerging from the recession, and I will eat my (much beloved) hat if cadres of American’s do not bemoan the overvalued Renminbi. And without any doubt, domestic US politics (and its global fall-out) will dominate the corridor gossip.
Billions of words, quite literally, will be spoken and even on occasion heard about these all-important topics. But are they an ‘all-sorts’ collection, or do they provide the backdrop to an X-ray of our current needs and options.
It is less than 600 hours since we passed into this second decade of the new millennium, and we are already struggling to keep up with momentary events. We have witnessed yet another horror in Haiti and, despite the inevitable shortfalls, a clear show of all that is good in our international community, compassion and response. And we have seen the spectacle of American democracy punish Obama through the ballot box, which could drive him to embrace a more populist economics, and an unseemly parochial politics, as witnessed already in Clinton’s pronouncement on internet freedom in support of Google’s tangle with the Chinese. And on that topic, we have seen China emerge from Copenhagen in a very different frame of mind, less inclined to pursue its designed humility of recent decades, and more willing to exercise their muscle by laying down the law, certainly their own, and increasingly the international rules of the game.
Davos 2010 is framed in no small part by the results of our collective efforts since its predecessor. Davos in January 2009 was a conversation about two fundamental needs, to drive economic recovery through strong fiscal stimulus and a guided, rescued financial sector, and to secure a strong global climate deal in Copenhagen.
Positively, the global economy did not crash and appears now to be on the mend, largely because of China’s economic resilience and our collective fiscal stimulus. Also, the financial sector did not crash, and much of it is now emerging from its own Y2K in rude health, indeed some would say too rude by half. The good news is that the greatest recession in history has, we hope, done its worst, and we are alive to tell the tale.
Copenhagen was a mess, and the outcome less than most desired or, for climate deniers and carbon profiteers, feared. Positively, however, low carbon economics did move into the mainstream. There is no doubt that China, India and Brazil understand that if their time has indeed come it will have to be a ‘low carbon moment’, and they are readying themselves, more than most of the North Atlantic incumbents, to win in this arena come what may.
The ultimate fall-out from the events of 2009 is yet to come. On the economy, the West has now acquired a debt hangover of almost unimaginable proportions that could go down in history as the pivot on which global economics finally swung east and southwards. On climate, it seems we are heading for a 3-4 degree centigrade increase in global temperatures, a cause for huge concern unless the emerging scandals around the IPCC wrongly convince us all that it was all a self-serving fuss about nothing. Crucial is how we pick up the pieces of last year’s exhausting melodrama, which brings us to the topic of governance.
The last 12 months has deprived us of any remaining trust in our collective ability to do the right thing or to get it right in practice. Yes, we saved the bankers from their own folly, but once rescued they have returned to their old ways. And yes, the huge fiscal stimulus did help, but in so doing we have mortgaged our children’s futures, and done nothing to prevent a rerun of the housing and consumer booms that helped to cause the problem in the first place. And on climate, we must hope that self-interested national economics drives us along a low carbon growth pathway because the fractured international relations emerging from Copenhagen will not provide the framework for more conscious collective action in the future.
Davos 2010 should be about reinventing global governance. Our experience of Doha (remember Doha?) and Copenhagen (remember this even if you want to forget it) say it as it is – our way of handling international affairs is simply bust. We have to fix our approach to climate and trade, but also a ton of other cross-border stuff from energy security to arms proliferation and terrorism. The UN, frankly, hardly passes the ‘laugh test’ these days, the G8 is well past its sell-by date and the G20, MEF and now BASIC remain at this stage immature manifestations of our governance problems rather than emergent approaches to solving them.
To give due where it is warranted, the WEF has recognised that the real agenda is about global governance in launching a major initiative at Davos 2009 entitled the ‘Global Redesign Initiative’. This was the frame for its Dubai-hosted ‘Global Agenda Councils’ meeting last November, and in fact will be softly humming (hovering up knowledge and insights) in the background throughout the predictably chaotic discussions on the Magic Mountain this month.
Global governance is of course not just about what happens globally, in fact quite the reverse. We must all be concerned that the US courts appear intent on strengthening the corporate lobby, just as deepening restrictions in China reinforce unhelpful, populist nationalism. National developments profoundly impact our capacity to build effective international governance.
Crucially, we have to face up the intimate relationship between effective global governance, and enabling corporate governance. Despite brave attempts (by collective initiatives like CERES and private initiatives such as the Al Gore-Chaired Generation Investment Management, our efforts to balance the public good with private rights have been less then effective. In the main, they have been undermined by the narrow, Anglo-Saxon fiduciary approach that privileges private shareholders whose representatives, fund managers, have in the main little interest in the real economy let alone our future. Let us not forget that it is the corporate community in the US, driven by short-termism embedded in their interpretation of fiduciary accountability, that more than any other driver has undermined that nation’s capacity to act with others internationally on climate change.
Climate change and financial regulation, definite topics for Davos 2010, need to be seen as two sides of the same coin, and that coin can be best understood as being about economic not ‘global’ or even national governance per se. Our greatest challenge in addressing climate change is to channel finances into low carbon growth and development. Although we might well need some lubricating public funds for this, the overwhelming proportion needs to come from private sources, as Project Catalyst and others have pointed out. The greatest impediment to such an investment in our very survival is the short-termism of the bulk of the international investment community that leads them to discount the value of a future economy and so rationalise their unwillingness to invest our funds according to our undoubted needs.
Economic ownership must be part of the global governance agenda, and not just because of the unruly behaviour of Messrs Putin and Chavez. ‘Corporate responsibility’ has squeezed some additional public value from today’s dominant economic model, certainly. And public policies can make a difference when they can get to the statute books and be effectively implemented, probably more so in China today than in the US and maybe even Europe. But its not enough, and in the cases of climate and capital markets, way too little too late. Yet today’s re-emerging force of public ownership, through sovereign wealth funds, state-owned enterprises, public-private partnerships and renationalisation, remains a desperately immature alternative that will not contribute to a new social contract without more open minds, serious design innovation and effective political engagement. We do not want to go backwards towards a 20th Century model of public ownership. But today’s approach will not do, and we need to build new forms of capital ownership and stewardship that secure the public interest and private rights at an historic time that requires unprecedented innovation in governance and economy.
Davos 2010 should be about global governance, with a focus on its national and corporate underpinnings. It should see Copenhagen for what it was, not a disaster but the clearest possible signal of the need for radical change in how we organise our affairs. Similarly, financial regulation should not be seen as an organ of retribution, but a more fundamental move to reassess the nature of capital ownership and how associated power is exercised. Resurging public ownership and the up-swelling of all forms of public-private partnerships should be welcomed as the most important experimentation in organising our economic affairs since Hayek’s disciples won the ideological battle of the 1970s and thereby changed our lives and our understanding of ourselves.