The stated aim of the World Economic Forum that closed in Davos yesterday was to:
“Improve the State of the World: Rethink, Redesign, Rebuild”
The discussions demonstrated some rethinking, but there little evidence of agreement over a coherent redesign, and therefore no shared vision of how to rebuild the world economy.
Not surprisingly, there was a lot of talk about banking and bankers, but the three issues that struck me from the final session were more fundamental than problems in the financial system. These are issues that reach right into the heart of the principles with which we manage the economy.
First, were reports of the call from President Nicolas Sarkozy for the need to add a moral dimension if we are to be able to save capitalism. I interpret this to mean that capitalism is not in itself a problem, but capitalism without a moral compass is. A number of speakers echoed this theme.
Second, there was a discussion over the relationship between stakeholder value and shareholder value. The business leaders at Davos seemed to accept (partly as a consequence of the financial crisis) that a narrow focus on shareholder value is not sustainable. If business neglects the needs of a range of stakeholders, and thereby loses the support of society, then the business will suffer.
Finally, a brief vignette caught my attention. The point of view represented was that the bail-out of the financial system had made the situation worse. The world economy was pictured as a car that has been prevented from driving off a cliff. However that car was now racing downhill even faster than before. This summons up a vision of the world economy charging into an even bigger car wreck as stimulus measures are withdrawn.
The results coming out of Davos are inconclusive. I offer my interpretation of the deductions that follow from the discussion. We need a moral compass; stakeholders are important and we must steer the economy onto a safer track. That means being responsible for the future, putting people before profits and in doing so retreat from a narrow focus on growth as the prime measure of progress. This is my conclusion, but it is unlikely to be the conclusion that we will read in the final reports coming out of Davos.