By Gideon Rachman
Faced with a dangerous political threat, governments the world over tend to place their faith in the same magic medicine – economic growth. When world leaders try to address the roots of terrorism, for example, they instinctively assume that prosperity and jobs must be the long-term answer. And when a regional conflict threatens to get out of control – in east Asia or the Middle East – the standard political response is to call for greater economic integration. From Europe to China, governments place their faith in economic growth as the key to political and social stability.
Every year, there is debate at Davos about what is hot – and what is decidedly not. This year, the emerging markets are definitely in the second camp.
Never mind the fact that the streets of Davos are full of cheery posters proclaiming the joys of Malaysia, India or Brazil – or that Nigerian food was being served to Davos delegates at lunch (complete with snail stew.) Also ignore the determinedly upbeat messages emanating from a host of officials from the BRICs nations.
Behind the chirpy smiles, a new mood of anxiety is stalking the emerging markets delegations, amplified by the recent dramas around Argentina. And that marks a stark contrast to recent years, when the emerging markets were regarded as the new saviours of global growth – and their leaders strutted around the Davos corridors with pride.
UK Chancellor George Osborne and former US Treasury Secretary Lawrence Summers have just locked horns at Davos on the UK’s economic recovery. Whilst Summers didn’t directly use the words “you blew it” as some reported, FT reporters on the ground say that was the clear sentiment.
According to the Kübler-Ross model, there are five stages of grief: Denial, anger, bargaining, depression and acceptance. Jamie Dimon still seems a long way from acceptance.
The JPMorgan Chase chairman and chief executive waded into controversy again at the World Economic Forum in Davos on Thursday by saying that the $20bn legal costs the US bank has paid for alleged wrongdoing before the financial crisis were “unfair”.
FTChinese.com editor-in-chief Lifen Zhang says the focus is not just on China’s economic power but its foreign relations. He also says Chinese business remains cautious about spending its cash piles.
(c) World Economic Forum
By Martin Arnold, Banking Editor
Two of the world’s most senior bankers sought to rebuff the charges of their critics by arguing the industry had become safer since the financial crisis thanks to higher capital levels, lower leverage, reformed pay structures and a tougher regulatory scrutiny.
Douglas Flint, chairman of HSBC, said of the financial crisis: “Nobody in that room [the HSBC boardroom] ever wants to take the risk of ever being in that situation again.”
Speaking on a panel at the World Economic Forum in Davos, he added that the HSBC board was spending half to two-thirds of its time “dealing with the aftermath of the crisis”.
Antony Jenkins, chief executive of Barclays, said: “Where the system failed and where institutions failed within that was where they mis-priced risk.” Arguing that banks had increased the levels of capital they held and reduced their leverage, he added that “changes
in conduct” had also reduced the chances of the 2008 crisis being repeated.
The West is forever petrified of Chinese and Indian growth that might destroy advanced economy standards of living. Politicians fuel that fear. In the UK, David Cameron, prime minister, talks repeatedly about a “global race” and the need for sacrifices so Britain can succeed in that race. His predecessor Gordon Brown used to repeat one of his favourite statistics that there were 4 million graduates a year coming out of China and India and only 250,000 in the UK.
In a panel on the world of work, business leaders with experience in working in both advanced and emerging markets had a very different story to tell. There was a huge shortage of skilled workers, they all agreed, and a surfeit of unskilled. Emerging economies education systems were not up to scratch and there was still a need for ex pats and a lot of investment in basic education in emerging markets.
Here is a startling prediction from the European Commission. In the absence of comprehensive economic reforms, living standards in the eurozone, relative to the US, will be lower in 2023 than they were in the mid-1960s.
This forecast, contained in the Commission’s latest quarterly report on the euro area economy, deserves to be displayed prominently on the wall of every president and prime minister’s office in Europe.
It is a sobering prediction for two reasons. First, it contrasts starkly with the comforting tales of economic recovery and financial market stability on which Europe’s leaders are congratulating themselves in these early weeks of 2014. Second, it raises profound questions about Europe’s relative weight in the world and, in particular, about its military alliance and economic partnership with the US.
At the end of every year, I attempt a first draft of history by listing what seem to me to be the five most significant events of the past twelve months. Some of my picks for 2013 also featured in 2012. I hope this is not because of intellectual laziness, but simply because the war in Syria, and the turmoil in Egypt remain defining events of our era. I probably should also once again include the tensions between China and Japan – but they are still simmering and have not yet boiled over. So I’ll give the Senkaku-Diaoyu islands a rest this year.
So let me start the list for 2013 with a genuinely new event that has global significance:
Sunny Stockholm – Getty
Stockholm looks bright and brisk today, unlike some of the scientists and government officials who were heading into a large brick conference centre on the city’s waterfront at 8am this morning.
They had been working through the night until 2:30am to finalise the most comprehensive climate science report in six years for the UN’s Intergovernmental Panel on Climate Change.
The bulk of the report is finished, having been drafted by 259 scientists from 39 countries over the last four years, with the help of more than 600 contributing authors.
The Stockholm meeting, which started on Monday and is closed to the public and journalists, is finishing its most widely-read section: a 31-page summary for policymakers that governments have to approve before release, in consultation with some of the scientists who wrote it.
The summary is based on the larger report and its basic conclusion – that human influence on the climate caused most of the global warming recorded since 1951 – cannot change.
But the way its many findings are expressed are very much up for debate and with just one day left before the summary is due to be released on Friday morning, delegates are braced for another long night tonight.