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The rebirth of political economy

Davos is a big ski resort nested in the Swiss Alps. Having just over 11,000 inhabi­tants, it is the highest city in Europe. A century ago, it was popular with tuberculosis patients who believed that its air could help cure them. Today, Davos is synonymous with the annual forum organised by the World Economic Forum to deliberate about the state of the global economy. Probably, no other private conference enjoys the same prestige as Davos.

There is much more to economics than just market forces
- Joseph Vella Bonnici

Last week, the WEF held its 43rd meeting, which was attended by over 2,600 politicians, bankers, tycoons and celebrities from some 90 countries. Angela Merkel, Mario Monti, David Cameron and Dmitry Medvedev were among the over 40 heads of state invited to this year’s assembly.

What makes the gathering so special is the presence of about 1,600 bosses of the world’s top corporations. More recently, the organisers have sought to add flavour to the gathering by inviting leading artists, trade union activists, campaign group representatives and academics.

Samuel Huntington, renowned for his clash-of-civilisations thesis, coined the term ‘Davos man’ to refer to the elite present at this conference, who has “little need for national loyalty, view national boundaries as obstacles that, thankfully, are vanishing and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations”.

Davos is not for common mortals; minimum fees for attendance include a $50,000 membership fee plus a $19,000 conference fee. Security is provided by 4,000 troops who ensure that attendees can move around freely without fear of terrorists or of being pestered by paparazzi.

The Davos elite form a powerful ‘club’ that needs to be given due consideration in understanding what is taking place in global society. Indeed, its exclusivity has offered fertile ground for various conspiracy theories.

Seen from outside, Davos is a mere talking shop. No formal decisions are taken and no statements are issued. The mood at the five-day event is relaxed so as to stimulate a frank exchange of ideas, networking and socialisation. Its various workshops bring together a remarkable mix of personalities. For example, this year’s workshop on global development included Cameron, Bill Gates and Rania Al Abdullah of Jordan.

Various presentations at Davos 2013 betray a growing concern among this powerful capitalist club that the golden age of neo-liberalism is past and that governments are no longer convinced that low taxes for the super rich and minimal regulation are the best paths to promoting economic growth.

Cameron made it clear that during the imminent UK’s presidency of the G8 he will be declaring war on tax havens that are believed to be home to €30 trillion and which could yield an additional €180 billion to fiscal revenues. Recently, global corporations such as Starbucks, Google and Amazon have come under fire for systematically avoiding tax.

The scars of the 2007 financial meltdown are still evident as more people (voters) in the advanced economies are losing their trust in the infallibility of the market system and no longer believe that global capital will lead to widespread prosperity.

For these people, economic growth has no meaning as long as the resulting wealth remains in the pockets of the few.

The Davos elite are afraid of the return of what they see as ‘big government’. Little do they care that it was their greed which obliged governments to borrow heavily so as to bail out the banking system and in the hope of kick-starting the economy. This privileged group knows that its credibility has reached rock-bottom as the middle and lower classes continue struggling to make ends meet.

These classes have been carrying a disproportionate share of the burden of failed economic policies such as rushed trade liberalisation, the systematic undermining of trade unions as well as aggressive labour cost saving measures that have eroded employment conditions. For a while, cheap finance helped families to cope; now banks are reluctant to lend and consumers cannot afford to continue borrowing.

Berkeley economist Emmanuel Saez found that, in 2010, the top one per cent of Americans saw their incomes grow by 11.6 per cent while those of the other 99 per cent rose only 0.2 per cent.

The 2013 Davos meeting has confirmed the return of political economy. It is increasingly being acknowledged that there is much more to economics than just market forces. The WEF’s own reputation has been shaken by the deep societal changes that are taking place over the whole world. How relevant is a competitiveness index that comprises over 130 variables but fails to account for such events as the Arab Spring, the euro crisis, the fiscal cliff, the social unrest in rapidly growing economies and global warming.

The WEF is smart enough to realise this and has embarked on a new ‘sustainable competitiveness’ index that incorporates ‘environmental stewardship’ and ‘social sustainability’.

The WEF intends to start giving due consideration to socio-political issues such as shifting demographics, wealth distribution and the impact of (digital) technology as well as global warming and efficient resource utilisation.

For us that have been around long enough, this is déjà-vu. Development economics went down that path over 30 years ago.

The WEF excels in ‘repackaging’ conventional wisdom. There is no harm in its making money by organising some fun for global business leaders. But the required change will have to come from political leaders not from Davos.

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