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Davos 2012: Soul searching at the World Economic Forum

Four years into a brutal recession those running the global economy know there is a problem – but do they really have an incentive to do something about it?

The ghost of Karl Polanyi is stalking Davos. The theme of this year’s annual meeting of the World Economic Forum is the Great Transformation, the title of Polanyi’s book criticising what he saw as the utopian nature of free market capitalism in the 19th century.

Totally free markets would lead to political and social collapse.

Four years into a brutal recession that has left 200 million unemployed around the world, and with protest movements occupying public spaces in western cities, there is clearly some soul-searching going on.

Wednesday’s programme in Davos kicked off with a debate on whether 20th-century capitalism is failing 21st-century society. A report on the risks facing the world in 2012, to be debated on Wednesday, is titled The Seeds of Dystopia. It notes that many of the indicators of economic and societal health are going in the wrong direction.

So, the good news in Davos is that the right questions are starting to be asked. Polanyi’s insight was that capitalism in its pure, unadulterated form was unsustainable, and that it could only be made to work through deep-seated reforms. Politicians, even right-wing politicians like Bismarck, eventually came to the same conclusion, which was why the century from 1850 to 1950 saw the creation of welfare states, the rise of trade union movements, and a much greater role of governments in the running of economies.

The extent of the unease about today’s toxic mix of unemployment and inequality was demonstrated in a straw poll of those attending the debate on capitalism showed that 40% thought it was failing 21st century society and 20% thought it wasn’t.

The bad news is that the appetite for reform is not really there.

The debate was somewhat one-sided: Sharan Burrow, general secretary of the International Trade Union Confederation was pitted against Brian Moynihan, chief executive of Bank of America, David Rubinstein, managing director of the private equity firm Carlyle, Ben Verwaayen, chief executive of Alcatel-Lucent and Raghuram Rajan, economics professor at Chicago University.

Burrow’s view was that corporations have too much power, that capitalism was eating itself through high unemployment, the highest levels of inequality since 1930 and tax avoidance. “Capitalism has to provide secure jobs and distribute wealth evenly, and contribute to the common good”, she said.

The other panellists begged to differ. Verwaayen said corporations had too little power, and that the key to the future was innovation and job creation rather than job security. There was no point in being nostalgic for a world that had disappeared, he added. Rajan said globalisation and technological change was increasing the returns to talent. Moynihan said the banks reflected society, warts and all.

Rubinstein, with a nod to Churchill, said capitalism was the worst system going, apart from all the others.

Not much sign there, then, that there is a new vision out there drawing on the ideas of Polanyi. Indeed, the panellists seemed more comfortable with one of Polanyi’s contemporaries, Joseph Schumpeter, and his notion of creative destruction.

Conclusion: those running the global economy know there is a problem but, since they are doing well out of the system personally, lack the incentive to do anything about it. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds