By Gideon Rachman
Published: February 1 2010 19:51
Since the end of the cold war, discussions at the World Economic Forum in Davos have followed a reliable pattern. Everybody agreed that globalisation was a jolly good thing – but it was the delegates from the US and Europe who shaped the debate. It was informally accepted that the flow of ideas – as well as investment and jobs – was from west to east.The global financial crisis has changed all that. At this year’s Davos, the western delegates seemed depressed, defensive or even mildly deranged in the case of Nicolas Sarkozy, the French president. After listening to Mr Sarkozy’s passionate attack on financial capitalism, one Russian participant was overheard saying that he had found the experience pleasantly nostalgic. He remembered hearing many similar speeches in the Soviet Union.
That is unfair on the French president, who was careful to argue that he was trying to rescue capitalism from its own excesses. But Mr Sarkozy’s keynote address did reflect the ideological confusion among western leaders. Struggling with bulging deficits and high unemployment – and uneasily conscious of a shift of power to the east – western leaders are questioning many of the ideas that underpinned the old Davos consensus. These days, it is the Asian nations and the big emerging economies that are most comfortable with globalisation – and it is they that are urging the westerners not to give up on free trade.
There certainly is evidence that protectionist ideas are coming back. Mr Sarkozy showed how protectionism might be rehabilitated as an effort to “save the planet”, by endorsing the idea of a “carbon frontier tax” – that is a tariff imposed on countries that fail to control greenhouse gases.
Larry Summers, the chief economic adviser in the White House, was rather more subtle in his flirtation with protectionism. He told the Davos audience that one in five American men aged between their mid-20s and their mid-50s is now out of work. In the 1960s, he pointed out, 95 per cent of this age cohort had been employed. Mr Summers was careful to say that the US remains committed to open trade and can gain from globalisation. But he also pointed out that Paul Samuelson, a famous economist (and uncle of Mr Summers), had argued that the case for free trade might not apply when countries were trading with nations that were pursuing mercantilist policies. The reference to China did not need to be spelled out.
The other part of the old Davos consensus that is under serious attack is a belief in the virtues of global investment banks. The holy trinity of Davos used to be top politics, big business and high finance. But banker-bashing rivalled skiing as the most popular sport at this year’s forum.
One leading western businessman – worried about the protectionist threat – saw a silver lining in the attacks on high finance. “Thank God, the politicians are beating up on the bankers,” he mused, “it might stop them scapegoating the Chinese.” But, in fact, the backlashes against high finance and free trade could merge. Montek Singh Ahluwalia, a leading Indian civil servant, pointed out to the forum that investment bankers had traditionally been the strongest cheerleaders for globalisation at Davos. But Mr Ahluwalia, using a cricketing metaphor, noted that “the bankers have retired hurt”. In their absence, there were fewer western voices to be heard preaching the virtues of a borderless world.
With the Americans and the Europeans experiencing a crisis of confidence, Davos man was keen to learn from China this year. American businessmen could be heard ruefully contrasting their own “dysfunctional” political system and flaky politicians with China’s decisive and meritocratic leadership. China was also widely held up as an example of the virtues of “state capitalism” – in which government plays a bigger role in guiding the economy than has been fashionable in recent years. Given that China’s economic take-off started when the state allowed a greater role for private enterprise, it seems odd to attribute the country’s success to “state capitalism”. But there is little doubt that bigger government was one of the big ideas at this year’s World Economic Forum.
The other dominant themes were the backlash against high finance, the questioning of free trade and the inexorable rise of Asia. The analytical difficulty, however, lies in working out which of these trends will have staying power – and which will turn out simply to reflect the ephemeral mood of the moment.
It is worth remembering how much the mood of Davos can change from one year to the next. Last year, the majority of delegates were worried that the world was on the brink of another Great Depression – and it was conventional wisdom that the theory that Chinese growth could be “decoupled” from a strong American economy was nonsense. This year, worries about another depression had all but disappeared – and China’s ability to grow strongly while America floundered was hailed as self-evident.
It is entirely possible that, at next year’s Davos, delegates will be hailing the resurgence of the American economy, bemoaning the bursting of the Chinese bubble, decrying the rise of the state and singing the praises of high finance. But, personally, I would not bet on it. The crumbling of the old Davos consensus looks like a trend with staying power.
Copyright The Financial Times Limited 2010
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