Time was when Davos was the throne-room of the new world order.
Once a year, the very rich and very powerful gravely gathered in the small Swiss town to celebrate the status quo. Everything was in its allotted place. If capitalism had triumphed, it was because, reversing the Marxist trope, it was inevitable.
If they, the very rich and very powerful, had climbed to the mountaintop, it was because they had understood and exploited the ineluctable laws of the market faster and more intuitively than anyone else. They were there because they had earned that privilege, and being there qualified them to pontificate not just about business but also about health, education, the social services and – why not? – government itself. Davos embodied business’s claim to govern the world.
What a difference a couple of years makes. It’s now startlingly clear that the global financial crisis wasn’t just a caesura in the steady upward path of progress. It was a juddering full stop marking the end of an era where for those who bothered to look, returns had been diminishing for decades.
In that light it is hard to overestimate the degree to which the Davos worldview now seems irrelevant – as passé as Dallas. The Washington consensus has gone in a puff of bad debt. The economies which most enthusiastically did as it said and opened themselves up to the borderless flows of capital are the ones in the deepest financial doodoo: Iceland and Ireland, separated only by a letter, most of all, with the storm clouds now squatting menacingly over the the static economies of the US and UK, while Greece and Portugal have been caught up in the squall. Meanwhile, powering ahead are the brics, particularly China, and other emerging economies, despite ramshackle institutions, enthusiastic corruption and political regimes ranging from the lacklustre to the thoroughly authoritarian. According to Davos, none of this could happen.
Everywhere what was solid is turning to air. The stunned silence of Western leaders as the Arab dictators they shored up for decades topple like dominoes says it all. Even politicians in (so far) peaceful western democracies look fearfully over their shoulders as, facilitated by social networks such as Twitter, protest ripples through not only the countries immediately affected by the crisis but also the previously somnolent UK and US (although perversely in the latter case the most vocal protests are those in favour of big business’s god-given right to bring down the world financial system free of government regulation). In France, the publishing sensation of the year has been a 22-page pamphlet written by a 93-year-old Resistance veteran called, untranslatably, ‘Indignez-vous!’, or ‘Get angry’, which calls for a return to the social values first articulated at the liberation in 1945. Many in France, and indeed the rest of old Europe, are prepared to take him at his word.
The intellectual foundations of Davos are crumbling – or more accurately have imploded – too. Economics, the standard bearer of the social sciences which has come to dominate all the others, is in disarray, and leading economists have lined up to twist the knife in the corpse. For Paul Samuelson, godfather of the profession and the first American Nobel economics laureate, the crunch shows ‘how utterly mistaken was the Milton Friedman notion that a market system can regulate itself.’
Alan Greenspan, himself perhaps the most influential Friedmanite of all, likewise accepts that the fundamental failure of enlightened self-interest in 2008 brings ‘the whole intellectual edifice’ of financial economics down with it. ‘Large swathes of economics are going to have to be rethought on the basis of what’s happened,’ concedes Larry Summers, Barack Obama’s top economic adviser, a sentiment echoed by LSE’s Willem Buiter, for whom the last 30 years of economic work represent a ‘costly waste of time and other resources’. Among a barrage of other criticisms, New York Times columnist and Nobel laureate Paul Krugman calls modern macroeconomics ‘spectacularly useless at best, and positively harmful at worst.’ In his entertaining and provocative Zombie Economics: How Dead Ideas Still Walk Among Us, the Australian economist John Quiggin forensically demonstrates how the crunch explodes the most cherished economic axioms – efficient markets, general equilibrium, trickle-down economics and the superiority of privatisation – and the policies based on them.
In short, sums up the Cambridge economist Ha-Joon Chang, ‘What we were told by the free-marketeers... was at best only partially true and at worst plain wrong’; even before the financial meltdown, he adds, ‘unbeknown to most people, free-market policies had resulted in slower growth, rising inequality and heightened instability’.
Davos, in short, is running on empty, although not everyone realises it. Most unreconstructed of all, since it has most to lose, is the complacent old guard of business, which with profits high and interest rates low has done pretty well out of the last two years. This is not the case on the academic side, where Umair Haque, with his coruscating blogs from Harvard Business School and freshly published The New Capitalist Manifesto, and veteran Michael Porter, author of a piece entitled ‘How to fix capitalism’ in Harvard Business Revew, have joined Gary Hamel and his allies in contesting the old order and attempting to articulate, at least partially, a new one. But in this context, the bankers’ pleas to be left to carry on business as usual, complete with bonuses, while they nod their heads sagely over the austerity visited on the rest of us, sound as much part of another time as Sky’s football presenters.
The new time, on the other hand, is being formulated not at Davos but on the new media like Twitter. ‘Egypt: the young desperately fighting for a better future. Davos: old rich dudes fighting savagely against it’, summed up Haque, the sharpest of the new business revolutionaries. Another aphorised: ‘It’s my fiduciary responsibility to max shareholder value’ is our ‘I was just following orders’. Davos' epitaph in a tweet.