Why the world’s powerful are worried about 2015
It’s a perennial question: What is the World Economic Forum (WEF) actually good for? The annual confab of the world’s rich and powerful in Davos, Switzerland, has evolved significantly in the past few decades, from a gathering of hardcore economists and financiers to a broader forum for the discussion of ideas ranging from the role of women in the workplace to the future of the Internet. In my opinion, it’s still the best place on earth to get a sense of what global decisionmakers will be thinking about in the year ahead. I made my way around the Magic Mountain listening to bankers, executives, policymakers and world leaders, and here’s what I found.
Tech Brings Bad With Good
Digital Disrupters and Web Pioneers–Google executive Chairman Eric Schmidt, Yahoo CEO Marissa Mayer and Facebook COO Sheryl Sandberg among them–were out in force as always, extolling the virtues of concepts like the “Internet of things,” which could create entirely new markets. But average people don’t necessarily share their enthusiasm for, and abiding faith in, tech. The Edelman Trust Barometer report, a 27-country survey measuring confidence in the public and private sectors that was released during the conference, found that the majority of the world’s consumers think technological change is moving too fast for them. By a margin of 2 to 1, people don’t believe that governments or businesses are thinking enough about the broad societal impact of developments like social media, digital security, genetically modified foods and fracking. Technology for technology’s sake, most people feel, is not a good thing.
That, in part, may be because the gains made possible by technology over the past decade or so have been unevenly shared. A WEF white paper prepared by the Swiss bank UBS found that sectors boosted by new technologies, such as finance and manufacturing, “have delivered a large share of U.S. economic growth without adding significant numbers of new jobs.” Smarter software and the advent of such innovations as 3-D printing are making some people very wealthy. But technological advances have done comparatively little to replace the middle-class jobs lost over the past couple of decades.
How to explain the divide? Technologists like MIT’s Andrew McAfee, who made waves at Davos last year with a book he co-wrote, Race Against the Machine, would argue that the scope of the digital revolution is so massive that it will destroy more jobs before it starts creating them and that the broader growth-enhancing effects of technology will simply take longer to be felt. As the UBS paper notes, it took around 50 years for the benefits of electricity to completely filter through the economy. Still, for a civilization that reflexively looks to technology to deliver us from seemingly unsolvable predicaments, this is a worrisome trend.
Global Growth May Be in Peril
We need that broader tech boom to goose productivity. Globally, productivity grew at a good clip over the past half-century, rising 1.7% a year. But as countries become more developed, productivity growth slows. One of the most sobering presentations, given by the consulting giant McKinsey, made the point that when you combine slower productivity with a dramatic decrease in the global birth rate, you get economic growth that could be much lower over the next 50 years than it has been in the past 50.
Economic growth is basically a function of the number of workers and their productivity. The former is falling sharply as countries get richer and women have fewer children, and the latter is more or less stagnant. “It’s as if we’ve been flying a plane on two engines, and one of them is about to go out,” says James Manyika, head of the McKinsey Global Institute. If current trends continue, McKinsey projects that global growth will slow to about 2.1% a year, even as more people than ever have expectations of a middle-class life. Not a great formula for social stability.
Women and Children First
People can keep praying that technology will produce more middle-class jobs, but there is one proven solution for boosting economic growth: putting more women to work. The picture of gender parity from Davos is never great; this year, the meeting had a record 17% female participation, up from 9% in the early 2000s. One WEF study found that at the current rate of change, it would take women 81 more years to reach economic equality with men.
Ironically, this seems to have created a cottage industry in gender-parity consulting. Employees of both sexes from firms like Mercer and Ernst & Young were at Davos hawking strategies about how to promote women. My advice: think less about leaning in and more about how to help families create support structures that allow more women to work. Warren Buffett once suggested to me that the U.S. government should offer subsidized child care, allowing caregivers (mostly women) to earn a better wage while freeing women who are higher up the educational food chain to take bigger jobs. It remains one of the best policy proposals I’ve ever heard.
Plenty of Band-Aids, Not Many Cures
Of course, that would require action from politicians, something that everyone agrees is in short supply. The divide between the fortunes of global markets (which have remained surprisingly buoyant) and national economies (which are sluggish in many parts of the world) was a big topic yet again. In the middle of the WEF meeting, the European Central Bank (ECB) launched its version of quantitative easing, a $1.3 trillion bond-buying program of the type that the U.S. Federal Reserve–which bought some $4 trillion in assets over the past few years–has only just reined in. It is an effort to help Europe avert another recession, and markets responded instantly, with European stocks rising, bond yields falling and the euro weakening, which should help exports.
While many at Davos were grateful for the uptick in their portfolios, some high-profile financiers fretted that the ECB’s move comes with a downside that will thwart a lasting solution to the European debt crisis. As hedge funder Paul Singer put it to me, “The QE program takes the pressure off European leaders to take the fiscal, tax, regulatory, trade, education and other steps necessary to generate real sustainable growth. [ECB president] Mario Draghi is an enabler, because the money printing enables the Presidents and Prime Ministers to avoid making real structural reforms.”
Polarized politics on both sides of the Atlantic has made it hard for governments to make the sorts of moves that create real growth. (The recent Greek elections won’t change much there.) So central bankers have kept the easy money flowing to give countries more time. But the emerging-market crises of the 1980s and ’90s teach us that printing money isn’t a substitute for fixing structural problems. If you do one without the other, the market will punish you viciously later on.
And all that easy money has exacerbated the growth of inequality globally, since most of it has gone to pumping up stocks, which are mainly held by the top 25% of the population. Wages remain stagnant and middle-class jobs elusive. That divide, which reflects the one between Davos and everywhere else, is what we’ll be grappling with in the year ahead.