Geopolitics Takes Center Stage at Davos
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The theme of the World Economic Forum’s 54th annual meeting in Davos, Switzerland last week was “Rebuilding Trust,” never an easy proposition in the best of times.
This is especially true when some on the far left and right view the WEF as a powerful cabal with a sinister plan for world domination.
However, the real problem with Davos is that it's not working. The Davos
agenda of a global security order, a unified world economy, and progress on goals like decarbonization, gender equality, and ending extreme poverty are simply falling apart.
Conflict hurts free trade, and the collapse of the global security order weakens the economic integration that the Davos elite so long for. While there has been some reproachment, China and the West are still increasingly splitting apart. The recent Taiwan election results signal more trouble ahead.
The European Union and the U.S. imposed limits on imports to protect their domestic industries from cheap and low-standard production in China and elsewhere, making free trade less likely.
Russia’s war in Ukraine continues. Chaos reigns in the Middle East with Red Sea shipping now being disrupted by the conflict in Gaza. The World Bank predicts that global trade flows will be half of what they were before the pandemic, and warns that the 2020s could be a lost decade for the world economy.
As war spreads and the global economy slows, the Davos agenda -- issues like the energy transition and gender justice -- becomes less urgent when countries are at war or preparing for it.
The number of desperate refugees, now at 114 million, keeps growing. Civilians suffer from the violence of war. Human rights groups and other activists have to focus on humanitarian crises instead of social problems. The challenge now is how companies and countries can cope with the risks of a broken world order.
“Geopolitics is more important than the economy,” Christian Mumenthaler, chief executive of reinsurance giant Swiss Re, told The Wall Street Journal. Geopolitics hasn’t been such a big economic risk since the peak of the first Cold War in the 1980s, he said.
“We’re starting this year with the longest list of possible disruptions I ever remember,” said Christian Ulbrich, chief executive of real-estate company JLL, which works globally. “You have to run your organization very flexibly so you can respond quickly.”
Davos veterans grew up in a world where goods, money and people moved more and more freely. But globalization started breaking down in 2016 when Britain left the European Union and Donald Trump became president—who pulled out of a global climate deal and a trade deal with Pacific countries and then raised tariffs a lot, especially on China.
Deglobalization sped up with the pandemic, Russia’s attack on Ukraine, the growing competition between the U.S and China and the new popularity of industrial policy—governments giving money to home industries they like.
Gita Gopinath, the No. 2 official at the International Monetary Fund, said business leaders are concerned about geopolitics affecting trade and investment for a good reason: “Fragmentation is real, not just a threat.”
That’s on top of the dangers of nature, like extreme weather and rising sea levels, the result that most scientists believe is the result of global warming.
The result is that political events that used to be less important for business leaders now take center stage, especially when they hope that big economies will lower inflation without recession, so-called soft landings.
Fear of a Trump Comeback
The upcoming presidential election in the United States was reported to be on everyone’s minds at Davos (I didn't attend) because of the chance of Donald Trump coming back. The questions come from fear, curiosity, and worry that “the U.S. withdraws, becomes protectionist, isolationist.”
“In Davos, Donald Trump is already the president,” Open Society Foundations Chairman Alex Soros told a WEF panel on Friday. “That’s a good thing because the Davos consensus is always wrong.”
Trump is facing 91 felony charges in various criminal cases related to his efforts to reverse his 2020 election loss, mishandling of secret documents and paying off a porn star.
But many U.S. business executives still think he will defeat President Joe Biden, if the two compete in the 2024 race, as expected.
Making AI Safe and Reliable
And while ChatGPT dazzled world leaders at Davos last year, this year the focus was more on how the growing technology might boost fake news, take jobs, and widen the wealth gap between rich and poor nations.
“Last year, the conversation was ‘wow,’” Chris Padilla, IBM’s vice president of government and regulatory affairs, told The Washington Post. “Now, it’s what are the dangers? What do we have to do to make AI reliable?”
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