A 3.8 per cent annualized decline in US GDP in the fourth quarter of 2008 is just the first validation of what is likely to be a series of sharp output declines reported in the major industrial economies. Moreover, to the extent that the decline in US GDP was tempered by an unintended pile-up of business inventories, there is good reason to look for further sharp cutbacks in production in the current quarter. Elsewhere around the developed world, the results are likely to be comparable—unusually steep declines in both the fourth quarter of 2008 and the first quarter of 2009.
Three grace notes as this year’s Davos stumbles towards a gloomy conclusion.
There’s an old saw, often used in government circles, that when it comes to public policy debates, if you’re not at the table, you’re certain to be on the menu.
The bankers have learned that lesson this year. Their low-key presence has itself achieved a high profile in the public prints. In their absence all the world’s problems have been laid at their door. No one would deny that in this economic car crash a high percentage of the blame should be ascribed to the financial sector. But not 100 per cent, I think. Bank salaries were exaggerated, definitely, but others benefited from the boom also, and should similarly have known better. There is an irony that an event strongly supported by finance should have bitten the feeding hand so firmly.
One of the biggest rounds of applause came when John Neill, chief executive of Unipart, the logistics company, said that if he had sold toxic products he would have been committing a criminal offence and would have expected to be in prison.
There was a frisson in the room. The atmosphere was such that a lynch mob could have been formed for the nearest banker. That got me thinking about the conduct of some of the bankers which has ranged from gross misjudgment to selfish actions in relation to bonuses and golden parachutes which really are totally unacceptable.
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.
I took part in a luncheon discussion on the ‘post-carbon’ economy. This very term, ‘post-carbon’, is an obviously optimistic, future-forward theme in a time when oil and coal consumption is surging. Finding consensus here towards far-reaching solutions feels like a distant hope. In fact, our looming ecological crisis mirrors our present economic crisis in disconcerting ways.
Both these crises, for instance, happen to be triggered by market failure. The absence of any accounting when it came to environmental costs, and our failure to price natural resources into the economy have brought about the climate crisis. The financial collapse represents the same case of ‘disastrous optimism’ – our overlooking of ‘negative externalities’ in financial reporting, balance sheets and risk assessment. And in both these cases, we have tried to privatise profits and socialise losses.
It had to happen. Every crisis invariably gives rise to finger pointing. This one is no exception. Sooner or later, the scapegoating had to break out in the open. It didn’t take long. At a dinner I attended on the first night of the World Economic Forum, the blame game erupted with full force.
The latest recipient of a bail-out seems to be Matthew Bishop, the author with Michael Green, of Philanthrocapitalism: How the Rich Can Save the World, a book about the new wave of philanthropy by business leaders and billionaires.
Matthew, who works for The Economist, had the misfortune to publish his book last August, at precisely the moment when the financial bubble popped and the notion that the such people were benefactors from whom traditional foundations and governments should learn lost its appeal.
Sessions with titles like “Reconfiguring the Global Financial Regulatory Architecture” are not always the most difficult to get into at Davos. This year is different. As the second G20 summit approaches there is a sense that decisions may be made which could significantly alter the environment within which financial firms work. So the topic seizes the attention here, especially of those who worry they may be brought into the net, like hedge funds and private equity firms. The private sector is not, however, defending the status quo. There is a widespread recognition that the system, especially in the US, but also in the EU, has not done what it says on the tin. And I detect an emerging consensus around three points.
Often the measure of a meeting is what is not said or spoken. And there is one very significant issue lurking in the current economic crisis that I doubt will be addressed at the World Economic Forum in Davos.
That issue is whether the public policy response to the crisis will take into account the need to bring about a fundamental change in the behaviour of the American consumer, most notably the problem of excessive consumption (or insufficient savings).
Boris Johnson may well have sung for his supper, but not as beautifully as Bryn Terfel, who also told more modern jokes.
Wen Jiabao did not have them rolling in the aisles, exactly, but it was an assured performance. It’s the year of the Ox, as we know, and associated with persistence, sacrifice and plenty. The second seems to be well in hand all over the globe. We might say that governments are persistent in their attempts to stimulate their flagging economies. But “plenty” is associated with deficits more than anything else these days, which was not quite what he had in mind, I think.