January 18, 2017  —  by

learning from Davos

credit: bloomberg.com

DAVOS — Kenneth Rogoff can pinpoint the moment he started to grow concerned Donald Trump would be the next U.S. president: It was when his fellow attendees at the World Economic Forum’s annual meeting last January said it could never happen. “A joke I’ve told 1,000 people in the months since leaving Davos is that the conventional wisdom of Davos is always wrong” says the Harvard professor and former chief economist of the International Monetary Fund. “No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is”.

The repeated failure of business and political elites to predict what’s coming—last year, that included the U.K.’s vote to leave the European Union—doesn’t strike those returning this month to the Swiss Alps as very funny. After a year in which political upsets roiled financial markets and killed off the careers of once-dominant Davos-going politicians, the concern for delegates attending this year’s meeting isn’t that their forecasts are often wrong, but that their worldview is.

In its four decades of existence, the World Economic Forum has nurtured a broad consensus in favor of globalization and open markets. At its core is the notion that capital, goods, and people should be able to move freely across borders, a principle that can deliver huge benefits to those with education and money but seems terrifying to those without either. For the 3,000 people who is confined in the small Swiss town from Jan. 17 to 20, the 2017 event could be a moment of reckoning. At speakers’ podiums, coffee bars, and the ubiquitous late-night parties, they’ll be asking themselves whether Davos has become, at best, the world’s most expensive intellectual feedback loop—and, at worst, part of the problem.

That the world is entering an era of populism that could tear apart long-established global bonds is beyond question. The result of the Brexit vote threatens the U.K.’s most important trading relationships. In the U.S., Trump will take office this month having pledged to reopen trade deals and reevaluate bedrock foreign policy principles such as the so-called One China policy. In France, hard-right leader Marine Le Pen leads opinion polls going into this spring’s presidential election. And in Germany, where elections also loom, the anti-immigrant Alternative for Germany party has sought to capitalize on mounting opposition to Chancellor Angela Merkel’s open-door policy for refugees fleeing Mideast war zones. Almost a third of bond investors surveyed last month by Bank of America Merrill Lynch identified populism as their biggest concern.

Collectively, anti-establishment forces may represent the greatest threat to what historian Samuel Huntington called “Davos Man”, a cross-border species whose values and interests are often divorced from those of more insular compatriots. While each populist movement is unique, all share a generalized disdain for elites, however defined—and by extension, the economic prescriptions they promote. Huntington, who died in 2008, may have divined the future when he said Americans might eventually rebel against rising immigration, especially from Mexico, and the growing influence of multinational businesses and intellectuals.

Some Davos regulars worry those sentiments will lead the U.S. and other nations down a dark path. “The last time that we had a convergence of fear of globalization, fear of economic stagnation and poverty, fear of the international, it was after the 1929 crash”, says Ngaire Woods, dean of the Blavatnik School of Government at Oxford University and a frequent Davos visitor. “We really have to learn the lessons of the 1930s”. This year’s conference agenda makes clear the degree of anxiety. Sessions include a panel of psychology experts offering thoughts on “cultivating appropriate emotions in a time of nationalist populism”. Another, titled “Squeezed and Angry: How to Fix the Middle Class Crisis”, will star International Monetary Fund chief Christine Lagarde. Separately, Facebook executive Sheryl Sandberg and Meg Whitman, chief executive officer of Hewlett Packard Enterprise, will try to stoke optimism in a chat about shaping “a positive narrative for the global community”.

The most talked-about guest will undoubtedly be Chinese President Xi Jinping, who’s attending for the first time. He’ll be pitching a Chinese-led rival to the Trans-Pacific Partnership, the proposed pan-Asian trade deal that died with Trump’s election. It’s an irony of the times that it’s Communist-run China that’s leading free trade.