I moderated a fascinating debate on corporate governance on Saturday on the following question: Has shareholder value maximisation failed as a source of long-term wealth creation and social benefit? Before starting the debate, I asked for a vote on the question. At that stage 70 per cent voted “Yes” and 30 per cent voted “No”. So the overwhelming majority voted that shareholder value maximisation had indeed failed. This was astonishing, I thought, given the nature of the participants in Davos. Read more
Once again, I attended a small dinner of “friends of Europe”. We enjoyed a lively discussion of a number of recent and prospective policy decisions. And, again, we had a series of votes.
Here are the questions and the results of the votes. (Not everybody voted on all issues.) The answers suggest, most significantly, continued informed nervousness about the future of the eurozone, despite recent action by the ECB. Read more
At a debate in Davos Joseph Nye, the American political scientist, asked the Chinese foreign minister, Wang Yi, what he felt about the comments of the Japanese prime minister Shinzo Abe on Sino-Japanese relations earlier in the week and especially the parallel Mr Abe drew between the pre-world war one relationships in Europe and those between China and Japan today.
These were Mr Yang’s key points in reply: Read more
In his address to the World Economic Forum, the prime minister was his
fluent self. But there was also an obvious tension between his embrace of
a globalised and open UK and his determination to curb immigration.
This led to a very pointed question from a Swedish MEP on precisely this
contradiction. Mr Cameron defended himself by pointing to the case for
curbing access of immigrants from the EU to welfare benefits and the need
to recognise the challenges created by the huge income gaps between some of
the new members and the old members. Read more
For a third year I attended a private dinner at which we laid notional wagers on the future.
This time the main question was not the future of the euro. Apparently, the future of the euro is now regarded as so assured that it is not even worth betting against it. I suspect this is too complacent. We did bet last year on Brexit (British exit from the EU), but that was by 2018. So this issue was not raised again this year.
Here are this year’s, rather less significant, bets, with the mean probabilities out of 100 per cent of the participants and my own probabilities below. Read more
Eric Schmidt (c) Getty Images
On Thursday Eric Schmidt gave a fascinating talk on technological innovation, in which he warned that broad range of jobs that once seemed beyond the reach of automation are in danger of being wiped out by technological advances.
I raised two questions to neither of which in my view did I receive a good answer.
First, we see IT everywhere, except in the productivity statistics. It is really quite hard to reconcile the idea of a dramatic technology revolution with stagnant or near-stagnant productivity in high-income countries. Read more
Lawrence Summers (c) WEF
On Thursday, I moderated a fascinating lunch-time discussion on “secular
stagnation” with Lawrence Summers, former US treasury secretary,
who has recently propounded this idea.
Other participants were Motoshige Itoh of Tokyo university, Edmund Phelps, Nobel laureate, director of the Center on Capitalism and Society, Columbia University, Adam Posen, director of the Peterson Institute for International Economics, Helene Rey of the London Business School and Kenneth Rogoff of Harvard. This was a notably heavy-weight panel.
The discussion was rich and complex. But here are some conclusions.
First, since the crisis in 2007 and 2008, the equilibrium long-run real interest rate in the high-income countries has been ultra-low and the equilibrium real short rate has been negative. There is no disagreement on this. This was an obvious indicator of sustained and chronic weakness of demand.
Second, the main instrument we have used to deal with condition this has been hyper-aggressive monetary policy. But this creates substantial problems (in some views, at least, including mine): it distributes income towards both the financial sector and the rich, while also generating bubbles. Read more
Having heard prime minister Shinzo Abe twice already today I can only concur with Gideon Rachman’s assessment that he does not seem to regard conflict with China as unthinkable.
Maybe, that is realistic and maybe such realism will protect the world from such a calamity. But it frightens the wits out of me. I was particularly struck by the almost casual way in which Mr Abe cited the World War I precedent. I wish the US would step more decisively on this nonsense.
I asked a question about the “third arrow” of Abenomics, which is structural reform. In this I indicated profound scepticism about the chances that this programme could generate sustainable growth of 2 per cent a year in an advanced economy with a shrinking labour force. This would imply labour productivity growth of 2.5 per cent a year – far faster than in any big high-income country since 2000. This is not inconceivable, since Japan’s labour productivity in services is relatively low. But it is a big stretch and would require large social and economic changes. Read more
The future of the UK in the EU is, of course, already a subject of fierce debate. Everybody can see that the chances of a British departure have increased. The question is by how much.
I was interested to discover from a private conversation with a very senior continental official that his worry is that the rest of the EU really does not need this diversion of attention from its immediate concern, which is the reform of the eurozone.
He referred to two specific risks.
First, he is worried that the very fact that the UK may be on the way out will shake confidence in the future of the eurozone. As he noted, people in Asia or the Americas do not understand the details. They will just regard this British decision as calling into question the vitality of the European project, partly, no doubt, because the UK has deep relations with these parts of the world. Read more
The financial panics are over. Now we must deal with the longer-term aftermath.
I advanced this thesis at a private dinner last night and, to my surprise, Nouriel Roubini agreed with me. More precisely, he agreed that “tail risk” had been sharply reduced.
The big change of the last 12 months has, of course, been in the eurozone. This has something to do with policy improvements in vulnerable countries, particularly Italy and Spain. It has even more to do with the willingness of the European Central Bank, under the redoubtable Mario Draghi, to use its power to reduce break-up risk and offer potentially unlimited liquidity to banks and sovereigns under stress. Read more
Mood. The improvement in optimism at Davos is palpable from last year, as I argued before. Interestingly, the group showing the greatest caution seems to be the CEOs of non-financial corporates. My experience over the years is that these people are a lagging indicator. What drives them is their recent performance. However, there seems to me to be a real return of confidence among bankers, who are back in force. That does make me quite nervous. Read more
I have, as usual, succeeded in spending a day in Davos without attending a single public session. But I have managed to speak to several interesting people about the world economy. Read more