World Economic Forum: Report from Davos, Switzerland
World Economic Forum: Report from Davos,
Switzerland
by Dr. Hans Black, Editor
Interinvest Review & Outlook
As
in the past, the World Economic Forum's annual meeting in Davos, Switzerland
provided a rare chance to hear clear insights about current global political
and economic problems. Celebrating their 30th anniversary in 2000, these
get-togethers were started and continue to be directed by Professor Klaus
Schwab of Geneva to provide a forum for global leaders to discuss pertinent
issues. Year after year, they have been attracting an ever-greater compliment
of luminaries covering a wide variety of topics. This year's meeting was
no exception. Among the speakers were the likes of U.S. Vice President Al
Gore, Secretary General of the United Nations, Kofi Annan, Secretary of
the U.S. Treasury, Robert Rubin, Germany's newly-elected chancellor, Gerhard
Schröder, as well as the heads of virtually every central bank in the
world. Representatives and numerous senior members of both the International
Monetary Fund and the World Bank, as well as corporate CEOs and other business
leaders, completed the roster. To top it all off, approximately four feet
of snow fell on Davos on the first day of this year's meeting, creating
absolute havoc. How fitting!
The
main philosophical thrust of this year's meeting was the examination of
the financial crisis of the previous eighteen months and the possible long-term
effects this will have on both global growth and global politics. The economic
crisis that began in Thailand almost two years ago and has now spread around
the globe, involving most recently Brazil, was the central point of all
discussions. Some leaders, such as Prime Minister Jean Chrétien of
Canada, eloquently spoke of revamping the post-World War II Bretton Woods
financial system. While many others agreed that the IMF, in its present
form, has lost its usefulness, few could provide long-term solutions to
prevent further contagion of the current economic crisis. In this respect,
the recent bankruptcies in quasi-government agencies in Southern China were
a cause of concern. A year ago Chinese officials at Davos promised they
would not devalue their currency during the next twelve months. While they
have kept this promise, Beijing will find it increasingly difficult not
to devalue in 1999. As the recent bankruptcies demonstrate, China's economic
growth is slowing dramatically and the recent riots in central China by
disgruntled farmers are a further indication of just how bad things have
become. Several members of the World Bank economic team agreed with our
stance that China would be the next casualty in this crisis.
In
his keynote speech, Henry Kissinger strongly criticized the growing practice
of expanding market-driven economies while ignoring political realities.
Kissinger warned that the current depression in Asia and severe economic
downturns being experienced in most of the rest of the world will lead to
increasing political discontent for which the United States, and indeed
the industrialized world, is ill prepared. Political systems have been slow
to react to the speed with which capital can now be transferred from country
to country. He used Malaysia as an example of what a country can do when
it finds it can no longer "cope with market-driven realities."
Equally interesting were speeches by Alan Blinder, former Vice Chairman
of the Federal Reserve Board. Professor Blinder, now at Princeton University,
warned of the likelihood of a crash, though he was also unable to predict
when it might happen. Like several of his American counterparts, he would
not like to see capital flow controls imposed on short-term capital movement
in the world, but felt such practices may be increasingly called for. Numerous
other speakers emphasized that inadequate political structures to cope with
the current crisis tend to increase the impatience of many political leaders.
Several
important sessions were devoted to the Year 2000 problem. Led by Ed Yardeni
and a senior official from the World Bank, the case was made that the Y2K
problem will likely be very severe and cause multiple disruptions in early
2000. This, in the opinion of some speakers, will lead to a dramatic recession
in 2000 as manufacturers will face increasing difficulties with distribution
channels as well as with their own networks. The leader of the second largest
European post office warned that the world is taking the situation far too
casually and that we will see massive disruptions early in the new millennium.
The CEO of one of the largest U.S. computer producers even warned that consumers
should buy their computers in 1999 as production disruptions may make it
difficult to buy anything in the high tech field during the early part of
2000. I will leave it to my readers to imagine what havoc these statements
created among members of the world's financial and political élite.
And they will not be the only ones affected by the consequences of the Y2K
problem and of the global condition in general at century's end.
Editor's Note: Dr. Hans Black is editor of Interinvest Review &
Outlook, P.O. Box 1585, Boston, MA 02104, 1 year, 12 issues, $125. Interinvest
is a global money management firm with offices in Boston, Montreal, Toronto,
Hamilton (Bermuda) and Zurich.
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