World Economic Forum sees five main risks for global economy in 2017

The World Economic Forum (WEF) claims that rising inequality and polarisation within societies could result in the reversal of globalization without urgent action taken to address problems.

The WEF said before its meeting in Davos that the gap between rich and poor had been a priime causeof the recent U.K. Brexit vote and Donald Trump's election victory in the U.S. The group warned that there would be new threats to social cohesion from a revolution in robotics and artificial intelligence (AI). The group, with reports from 700 experts, even suggests that a fundamental reform of capitalism may be needed to address the problems that are arising.

There is a definite irony in the topics discussed at Davos in that the gathering is in a luxurious resort and comprises important people from many countries who in fact support the very policies that have brought about the global situation that they now decry and want to reform. A Guardian article notes:It’s that time of the year when the world’s financial and business “elite” gather in an expensive Swiss ski resort to drink champagne and declare that they are terribly worried about global inequality. This parody-defying event is the World Economic Forum in Davos and, to create the correct veneer of earnest contemplation, the organisers publish an assessment of the risks they think the world faces.

In the past, economic growth has often been the solution to discontent with capitalism but the group claim there is a "growing mood of anti-establishment populism" that may not be assuaged just by economic growth but may require a reform of market capitalism. This reform comes down to a series of objectives such as: "Fostering greater solidarity and long term thinking in market capitalism". No clear recipe is provided as to how this might be achieved and capitalism hardly develops through solidarity but often involves dividing groups. For example immigrants are exploited because they will work for low wages and if they are illegal they are unable to complain about their position. They can be seen by other working people as taking jobs away from them and as lowering wages and allowing poor working conditions.

Many of those who attend, claim to have been stimulated by discussions at the event which is financed by 120 different sponsors — mostly multinational corporation. The main feature of the meetings the Guardian article declares: "The only lasting impression is of how unfractured is the society of millionaire bosses enjoying each other’s company at shareholders’ expense. Please, one of you, use next week’s forum to point out the absurdity of Davos."

However, some descriptions of the developing situation were interesting. Dani Rodrik, a U.S. economist. talks about what he calls "the globalisation trilemma". He claims that countries are unable to have democracy, sovereignty and globalisation all at the same time but only two of them at once. At present, there is a reaction against globalization and more stress on national sovereignty and democracy as illustrated by events in Europe. However, globalisation is in the interest of global capital and there is likely to be strong resistance to this trend that may produce even more social unrest. What can happen as well is that blocs of capital will use conflict such as that between Russia or China and many western countries as a way of deflecting anger upon other countries rather than being directed against the system. Populist demagogues such as Trump appear to have the ability to fight against such moves and direct anger back at the system. Some capitalists may see a benefit in better relations with Russia. Trump however seems to be playing an opposite strategy with respect to relations with China, perhaps attempting to have Russia and China at odds with one another. Having sovereignty will simply mean that national corporations will have a privileged place within a country. Large corporations will still have the biggest say in policy even if there is a formal democracy.

While President-elect Donald Trump is not attending the meeting in Davos, vice-president Joe Biden is. Xi Jinping is the first Chinese president to attend. Margareta Drzeniek-Hanouz sounded an optimistic note saying: “Urgent action is needed … to overcome political or ideological differences and work together to solve critical challenges. The momentum of 2016 towards addressing climate change shows this is possible and offers hope that collective action at the international level aimed at resetting other risks could also be achieved.”

The top risk to the economy for 2017 was the rising income and wealth disparity. However, the actual data show that countries are not all experiencing increased inequality: "Since the 1980s, the share of income going to the top 1 percent wealthiest citizens has increased in the U.K., the U.S., Canada, Ireland and Australia – though not Germany, France, Japan or Sweden – says the WEF."

Still important for the WEF is climate change, the second biggest risk for the economy in 2017. The end of the El Nino cycle may mean 2017 is not likely to register record heat. It is not expected that there will be major new accords such as the Paris Climate Agreement. However, governments must get on with the carbon cuts promised in Paris. The election of Donald Trump in the U.S. is likely to result in less action there.

The third risk for the WEF concerns problems facing democracy in that those setting policy and managing institutions have become divorced from the electorate both in pay, benefits, and culture. This gap may also be seen between those at Davos and average citizens. Austerity programs cut welfare provisions for those most vulnerable. Multiculturalism is also under stress as nationalism increases. The report claims: “This could be a pivotal moment in political history, and it requires courageous new thinking about how best to manage the relationship between citizens and their elected representatives.”

The fourth of five risks to the economy in 2017 is rising cyber dependency. As the economy depends more on the Internet the system becomes more open to disruption through hacking. This is indirectly connected to terrorism — a feature of the global situation which one might think is a considerable risk to the economy. Huge amounts of resources are devoted to dealing with terrorism both internally and in outright warfare that could have been used to deal with some of the other problems the WEF has listed. It is estimated that 10 percent of U.K. GDP comes from the "Internet economy"

The final issue facing the 2017 economy is the ageing population. Japan is a prime example of a country with a growing number of older citizens. The number of those over 65 in Japan is already 25 percent and is expected to reach 40 percent. In 2060 the number of citizens below 19 is expected to be just 13 percent. The situation is trending in the same direction in many parts of the developed world. The increased cost of welfare programs can drive a country into debt as in Japan which has a debt to GDP ratio of 240 percent. While this trend may lead to a labor shortage the introduction of new technology may offset this. Often the resulting increase in productivity goes to capital rather than labour. More of it should be used for the needs of the aged. China may also be facing the same sort of problem soon.

Rather surprisingly, terrorism was not picked out as one of the fives specific problem areas, nor were the ongoing conflicts in the Middle East nor the increasing conflicts between Russia and the west. The elaborate preparations for Davos are described in this article.

US economy stars at Davos meeting

Davos - Usually emerging economies star at the annual World Economic Forum in Davos Switzerland. This year talk is about the superior performance of the U.S. economy compared to that of most other developed countries. + Add Image Russia is entering a recession due to sanctions but mostly because of the decline in oil prices that in turn has caused the value of the ruble to drop. India is struggling with economic reforms. Even China is growing more slowly. The U.S. on the other hand, in the fourth quarter of 2014 grew at an annual rate of 5 percent. Jacob Frenkel of JP Morgan Chase and Co said : “The U.S. is now regaining its position in the world economy. It is the place where the recovery took hold in the most robust way.”

The Davos meeting runs from January 21-24. The US will have a high profile at the meeting as Secretary of State John Kerry will attend. Kerry is the highest level official the Obama administration has ever sent to Davos. Often at the meetings there will be talk of pending and possible takeovers. This year many investors are looking to invest in the U.S. Merck CEO Karl-Ludwig Kley said: “If you want to participate in innovation, you have to be in the U.S. No country on earth is investing as much in innovation.” This interest in the US extends to many countries. Last May Japanese distiller Suntory paid out $16 billion for US distiller Jim Bean. Even Canada got in on the act with Encana paying $5.9 billion for Athlon Energy in Texas. Also, Qatar's sovereign-wealth fund joined other investors to buy half of American Express's business travel unit.

Some analysts warn that the performance of the U.S. should be put in perspective. China overtook the US in 2014 as the world's largest economy. While the US economy is predicted to expand by 3.2 percent this year, China is set to expand by 7.1 percent down from the 7.5 percent projected last June. Last June, the world economy was predicted in Global Economic Prospects to be 3.4 percent but is now set to be 3.0 percent. The US growth rate has been revised upward but China is still expanding at a much faster rate. The full Global Economic Prospects report for 2015 can be found here.

 The following paragraph summarizes much of the outlook for the world economy: "While activity in the United States and the United Kingdom has gathered momentum as labor markets heal and monetary policy remains extremely accommodative, the recovery has been sputtering in the Euro Area and Japan as legacies of the financial crisis linger, intertwined with structural bottlenecks. China, meanwhile, is undergoing a carefully managed slowdown. Disappointing growth in other developing countries in 2014 reflected weak external demand, but also domestic policy tightening, political uncertainties and supply-side constraints."

 Lower oil prices will impact negatively on countries such as Russia, Venezuela, Iran and to some extent Canada. but will help countries such as China and India who need to import a great deal of oil. The stronger US dollar may hurt US exports along with decreased demand as growth in many countries remains sluggish.

Turkish PM walks out of Davos

One wonders why Peres was given 25 minutes to speak at Davos. Were the Palestinians given equal time! Apparently the Turkish response less than half that time was too much. Peres at least tried to cool things down afterwards.


Turkish PM gets hero's welcome after shouting match with Israeli leader
Last Updated: Friday, January 30, 2009 7:35 AM ET
CBC News

Thousands of jubilant supporters greeted the Turkish prime minister as he arrived home early Friday after a heated exchange with the Israeli president over his country's Gaza Strip offensive.
Over 5,000 people, many waving Turkish and Palestinian flags, gathered at Istanbul's Ataturk airport to welcome Recep Tayyip Erdogan when his plane touched down at 2 a.m.
Hours earlier, Erdogan clashed on stage with Israeli President Shimon Peres at a panel discussion at the World Economic Forum in Davos, Switzerland.
One banner held by a supporter outside the airport gate called him The Conqueror of Davos.Turkish President Recep Tayyip Erdogan, left, talks to Israeli President Shimon Peres during a plenary session at the World Economic Forum in Switzerland on Thursday. (Alessandro Della Bella/Associated Press)
The two leaders butted heads over Israel's three-week offensive against Hamas militants in the Gaza Strip in response to rocket attacks fired from the Palestinian territory. More than 1,300 Palestinians died in the conflict. Israel lost 10 soldiers and three civilians.
Peres had asked the panel what others would do if they were in Israel's position and bombarded with nightly rocket attacks.
"You kill people," Erdogan told the 85-year-old Israeli leader. "I remember the children who died on beaches. I remember two former prime ministers who said they felt very happy when they were able to enter Palestine on tanks."
Erdogan grew angry when the panel moderator cut off his remarks in response to Peres's passionate defence of the Israeli offensive against Hamas and stalked off stage when asked to stop. He then said: "I will not come to Davos again."
Late Thursday, Erdogan stressed that he left the stage because he was not given time to respond and complained he was given 12 minutes to speak compared with Peres's 25.
Later, at the airport, Erdogan told reporters in brief comments that he had felt insulted and felt a responsibility to protect the Turkish nation. He also said Peres called him before he left Davos and expressed regrets.
Peres said Friday he didn't think the exchange was personal and relations between the two countries wouldn't be affected.
"I called [Erdogan] up and said, 'Yes, I do not see the matter as personal … and the relations can remain as they are," Peres said. "My respect for him didn't change. We had an exchange of views — and the views are views."With files from the Associated Press

Reaction to Fed Interest Rate Cut from Davos

I always thought that economists were supposed to be worshippers of the free market. Shouldn't the government just keep its hands off and let the discipline of the market punish all these evil doers!!The Invisible Hand is supposed to give them a good spanking for being such reckless lenders and borrowers.


Financial Times - January 23, 2008


Davos 2008
FED'S CUT TRIGGERS HARSH WORDS FROM DAVOS

Reactions to the US Federal Reserve's dramatic 0.75 percentage point
cut in interest rates ranged from hostile to lukewarm as
policymakers, businessmen and economists gathered at the World
Economic Forum on Wednesday.

Economists at the meeting warned that the monetary easing announced
on Tuesday would not succeed in boosting a sickly US economy.
Moreover, they said, by reacting to turmoil in equity markets, the
Fed seriously risked creating the impression that it was most
concerned with ensuring investors did not lose money.

Stephen Roach of Morgan Stanley said that the Fed's policy of
cleaning up after a bubble has burst was "a dangerous and reckless
and irresponsible way to run the world economy". "It was market-
friendly action," he wrote in his FT.com blog from Davos, asking: "Is
that the way to run a central bank?"

Sir Howard Davies, the director of the London School of Economics and
a former chairman of the UK Financial Services Authority, the UK
financial regulator, agreed with Mr Roach. He said the move reminded
him of the character Corporal Jones in the long-running UK sitcom
Dad's Army, who always shouted "don't panic" just when he and
everyone else were doing just that.

In one session, almost 60 per cent of the delegates voted in favour
of a motion saying central banks had lost both their focus and
control with respect to economic governance.

The reactions among delegates were not entirely negative, however.
John Snow, chairman of Cerberus Capital Management and the former US
treasury secretary said the emergency rate cut showed that "the
question of whether the central bank is capable of bold action was
answered yesterday".

Jacob Frenkel, vice-chairman of AIG, added the cut was "on the mark",
indicating the drama and the severity of the situation.

But they were in a minority.

Professor Lawrence Summers of Harvard University - another former US
treasury secretary - said: "It is hard to give central banks a high
grade over the past two years on recognition of incipient bubbles or
on their action to address them. Nor in the last six months when they
were behind the curve."

Professor Nouriel Roubini of New York University, a long-standing
bear on the US and global economies, agreed and called for a more
symmetric approach from the Fed. "There was a Greenspan put and now
there is a Bernanke put," he added, in reference to the perception
that Fed chairmen always cut interest rates when investors lose money.

But the more worrying suggestion was that the action would not work.
Professor Joseph Stiglitz of Columbia University, a Nobel prize-
winning economist, thought the Fed had acted "too late". With
structural forces in the US housing market and financial system
likely to bring a contraction, it would be as effective as "pushing
on a piece of string".

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