Geopolitics, energy and recession: the unfinished business of the Davos Forum
"I hear people talk about participation, fairness, equality, transparency... but hardly anyone mentions a real problem: tax evasion," said Rutger Bregman in 2019. The Dutch historian was taking part in a debate organised by Time magazine as part of the Davos Forum, in which he denounced the fact that the rich were not paying their fair share. "It's as if I were at a firemen's conference and nobody could talk about water. Something has to change," the controversial essayist insistently demanded, before recommending that those present "stop talking about philanthropy and start talking about taxes".
His statements have resurfaced three years later, just as the World Economic Forum (WEF) brings together political and economic elites in Davos to discuss global issues. The spotlight is once again on this tiny Swiss town, located at an altitude of 1,500 metres in the Alps, which this week brings together more than 2,600 attendees, including heads of state and government, foreign, trade and finance ministers, presidents and executives of the main multinationals, and leading figures from civil society and academia. Bregman has not been invited this time, but his demands have been pushed up the agenda against the tide.
Growing inequality is the underlying problem. Experts argue that this is a systemic problem of globalisation that has not yet been seriously addressed. Oxfam has called for action to reverse this dynamic following the publication of their latest report, in which they argue that the richest 1% of the world's population pocketed almost twice as much wealth as the rest of the world combined in the last two years. "Elites flock to the Swiss ski resort while extreme wealth and poverty have increased simultaneously for the first time in 25 years," says the organisation, which proposes a 5% tax on the world's billionaires.
The rise in taxes on large fortunes, despite being one of the main topics of debate, has been relegated to second or third place in Davos. The spotlight was taken by the COVID-19 pandemic and the Russian invasion of Ukraine, whose direct impact on markets destabilises the foundations of globalisation - a phenomenon promoted for decades by the World Economic Forum - and forcibly disconnects the economies of Russia and the West. But elites have made space for other issues, such as the retreat of democratic capitalism to the detriment of authoritarian populism and the environmentally aggressive model used by major energy companies.
UN Secretary General António Guterres warned that the world is "in a sorry state". In his speech, the Portuguese diplomat launched a scathing attack on the major oil companies represented at Davos. "Today, fossil fuel producers and their facilitators are still racing to increase production, knowing full well that their business model is incompatible with human survival," he said.
The horizon is uncertain for many economies, which are moving towards protectionism and the search for self-sufficiency. The disruption of supply chains brought about by COVID-19 convinced states of the importance of reducing external dependence as much as possible. The same scenario, aggravated by the Russian invasion of Ukraine and the ensuing energy crisis, which led to an exponential rise in inflation rates, has led to a race among the world's major economies to subsidise local industries. This is the case, for example, in the United States.
The Biden administration launched the Inflation Reduction Act, a $369 billion stimulus to encourage US companies to invest in green energy. In response, European Commission president Ursula von der Leyen announced at the Davos Forum that Brussels would get down in the mud to compete with Washington in this sector: it would temporarily ease regulations affecting EU partners' public spending and inject money into strategic companies that are environmentally friendly.
Neither wants to be pushed into recession, but they are equally at risk. Their respective central banks have in recent months undertaken successive interest rate hikes to contain the crisis rumblings, and promise to continue to do so. So far, the data far exceed low expectations, but two-thirds of economists surveyed by the World Economic Forum expect a global recession by 2023. "The drivers of global growth are slowing and more households and firms are facing economic difficulties," the survey says.
The economic competitors of the United States and the European Union are starting from a much more difficult position. In the case of the Russian economy, the World Economic Forum expects it to contract by up to 6% in 2022 despite record energy prices. China, for its part, is re-opening up to the world after three years of isolation on account of COVID-19. Its economic growth has stagnated at 3%, well below the trend of the last decade, which used to exceed double digits. But Beijing took advantage of its presence in Davos to send a clear message: it was back on track.
"China's economy will experience a significant improvement in 2023," predicted China's vice-minister and top economic official Lui He. "If we make sufficient efforts, we are confident that growth will most likely return to its normal trend". He, who is well-connected in Western circles and is President Xi Jinping's economic deputy - despite recently stepping down from the politburo - said China's reality "dictates that opening up to the world is an obligation, not a convenience". "We must open up more and make it work better. We oppose unilateralism and protectionism," it was stressed.
The intervention of Beijing's envoy had nothing to do with Xi's rhetoric six years ago, when he claimed from the same lectern he used the Chinese leadership of the world economy in a convulsive global context, still marked by the election of Trump in the United States and the ratification of Brexit at the ballot box. The Asian giant has lost ground, but claims to be on its way back. First, however, it will have to contain the tens of thousands of cases and deaths of COVID-19 within the country after the lifting of the severe restrictions that have stifled its economy since 2020.
The founder and executive chairman of the World Economic Forum, Klaus Schwab, made it clear that the aim of this edition was to get rid of "the crisis mentality". Davos has shown that there is some optimism among the global elite. Several business and political leaders have highlighted the positive direction in which the world economy is heading. With China reopening its doors, the United States significantly increasing its investment in green energy and the European Union adjusting to the war scenario by leaps and bounds.
International Monetary Fund (IMF) deputy managing director Gina Gopinath said the agency expects an improvement in the second half of 2023 and 2024. While Daniel Pinto, chief operating officer of JP Morgan, one of the world's largest financial firms, said the world had "come through a period with a war, a pandemic and the biggest normalisation of monetary policy in history". "Given everything that has happened, the world is much better off than you would expect," he said.
