Feeding the recession

It is becoming something of a cliche here to say the mood at this year’s Davos is so depressing that it is feeding the recession, rather than building a consensus on how we escape from our predicament. CEOs who arrived a little anxious about their prospects are now very worried. Those who arrived worried are now deeply depressed. Those who arrived depressed may not go home at all.

I began to wonder if this Spenglerian gloom was a financial sector phenomenon. Two invitations to talk to the automotive sector, and the Tourism and Travel group, gave me an opportunity to test that hypothesis. Sadly, it quickly folded.The petrol heads were not a happy bunch. Demand has collapsed more quickly than they have ever seen. Plants are closed or on short time, all around the globe. Credit is unavailable, for the manufacturers or their customers. Public equity raising is out of the question. Private equity firms do not return their calls. So governments are the only sources of finance. But the conditions of help are difficult to satisfy. Politicians and taxpayers do not want to see any leakage of funds outside the country, yet these are highly integrated global businesses. How does one guarantee that finance is only supporting local jobs? What sense does it make to support assembly line workers, if the supply chain elsewhere is disrupted through lack of cash?

These problems reflect a more general concern that we are beginning to see a new form of protectionism emerging, in both the financial and industrial sectors. all politicians say that there is no chance of a return to the 1930s. Messrs Smoot and Hawley have still not seen their reputations refurbished. But the support packages being agreed for banks and car companies are constructed to support local jobs, with little regard for the knock-ons elsewhere. The drivers of globalisation are engaging reverse gear.

And where is the environmental agenda, now that survival is the name of the game? A recent US poll put global warming 20th on the list of popular concerns. It has slipped from Aston Villa to West Brom in the rankings, in a matter of months. Though it seems to be alive and well in San Francisco. The Mayor harangued the car guys (they all are) about climate change, electric cars, and his plan to introduce 250,000 recharging points around the Bay Area, together with 150 switching stations, where a battery can be changed in less time than it takes to pump 20 gallons of gas. An inspiring vision, certainly, and delivered with genuine passion, but  without an explanation of where the new investment funds might be found. His hostility to the industry, and rejection of the case for a federal bailout for the Big 3, were striking. I wanted to ask how the citrcle could be squared, but he swept off in his limo while i was lacing up my snow boots.

Any good news to be found among the airlines and the tourist folk? Well, just a little, maybe. The airlines are having a tough time in the short term. Business travel in particular is well down, in spite of the diversion of traffic from those now unusable corporate jets. The nightmare of $140 a barrel oil has receded, but the threat of a renewed spike if growth returns has focused minds on alternative energy technologies, and on green tourism of all kinds. The timing of large scale algae production is highly uncertain, but wind power is expanding at a great rate. After a diligent search i found a man from Vestas wind systems, a Danish company, whose business is expanding at a steady 30% a year, with no sign of a slow down in the recession. It’s an ill wind, as they say.

Sir Howard Davies is director of The London School of Economics and Political Science

Davos blog 2009

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