Whom to Watch at the World Economic Forum in Davos

Five leaders jostling for attention at the annual gabfest

By Bobby Ghosh / Davos Jan. 21, 2014Add a Comment

davos_wef_0121 — Denis Balibouse / Reuters
A technician checks the light in the Congress Hall before the start of the annual meeting of the World Economic Forum (WEF) 2014 in Davos Jan. 21, 2014

As the World Economic Forum (WEF) kicks off Tuesday in the snowbound Swiss town of Davos, more than 40 heads of state and government will be competing to make a lasting impression, for themselves and their countries, among the 2,500 participants. Here are five who will have a head start:

Maryam Rahmanian for The Washington Post / Getty Images

Hassan Rouhani
Depending on how things are progressing in another part of Switzerland — Montreaux, scene of the Syria peace talks — Iran’s president may be just a little distracted during his Davos debut. But the purpose of his trip is to take advantage of the momentum from the Jan. 20 start of the six-month nuclear freeze agreement between Iran and the six world powers. Rouhani’s message: As the negotiating parties begin work on a long-term deal, Iran is open for business. It isn’t really: most of the economic sanctions imposed by the U.S. and Europe remain in place. But Rouhani’s trip is mostly about optics. Iran, he will be saying, is no longer an international pariah. He delivers a special address on Thursday.

Gali Tibbon / AFP / Getty Images

Benjamin Netanyahu
Israel’s prime minister follows Rouhani (a few hours later) with a discussion on Israel’s economic and political outlook. Netanyahu will keep up his rhetoric about Tehran being an unreliable negotiator. Don’t buy the peace deal, he will say, it’s just a smokescreen that allows Iran to build nuclear weapons. But that message didn’t get much traction at the U.N. General Assembly in New York City last fall, where Rouhani’s charm offensive won the day. Netanyahu is unlikely to find many takers in Davos.

Omar Torres / AFP / Getty Images

Enrique Pena Nieto
Mexico’s president is one of the WEF’s Young Global Leaders, and his country is making a splash at Davos this year. He will be seeking to capitalize on Mexico’s growing economy, which has recently become the country’s dominant narrative, overtaking the usual stories about drug cartels and kidnappings. If potential investors are impressed by energy, Pena Nieto will display plenty of it: he will deliver a special address and participate in two panel discussions, all on a single day, Thursday.

Evaristo Sa / AFP / Getty Images

Dilma Rousseff
The president of Brazil makes her first appearance in Davos just as tough questions are being asked about her country’s economic prospects. Three years of lackluster growth have some wondering if Brazil should lose its place among the BRICS. There are doubts, too, about the country’ ability to host soccer’s World Cup this summer. Top all that off with lingering fears of political unrest, after last year’s massive street demonstrations. Rousseff delivers a special address on Friday.

Jiji Press / AFP / Getty Images

Shinzo Abe
Japan’s prime minister has stirred things up in Asia over the past couple of years. His country’s economy has been doing remarkably well, but Abe’s aggressive rhetoric and military muscle-flexing has annoyed China and South Korea, while winning some praise from other Asian nations that see Japan as a bulwark against an increasingly militaristic China. The Chinese president and prime minister won’t be at Davos, but perhaps South Korea’s President Park Geun-Hye will have a cautionary word or two? Abe and Park both speak on Wednesday.

Davos Debate: Are the Markets Any Safer? - TIME

Davos Debate: Are the Markets Any Safer?

By Rana Foroohar Jan. 21, 2014Add a Comment

The Nasdaq MarketSite, in New York City, on Aug. 21, 2013. — Mark Lennihan / AP

“Are Markets Safer Now?” is the title of a panel I’m looking forward to attending Wednesday at the World Economic Forum in Davos. Five top financiers and financial experts, including hedge funder Paul Singer and Stanford professor Anat Admati, author of the “Banker’s New Clothes,” will duke it out over whether the financial system is any more secure now than it was in 2008. I suspect that Admati, with whom I spoke with for my recent “How Wall Street Won” story, will agree with my take – it isn’t.
I won’t recap that argument, which basically deals with the problems since 2008, here. Instead, I want to offer three deeper, historical reasons for continuing financial sector instability, and how they’ve led to a system in which business now serves banking, rather than the other way around.

The move from a partnership structure to a public company structure. Banks used to be organized like white shoe law firms—they were a collection of individuals who divided the profits of the business, but also had personality responsibility for its losses. With the move to a corporate structure, that individual responsibility was lost. While the reason for taking outside investors and making banks bigger was often to increase lending, and thus help Main Street, the practical result was ultimately to increase leverage (why not take more risk when you aren’t personally responsible for it?) and destabilize the system. It’s yet another argument for making banks smaller and dividing them along business lines (we’re not lacking capital in the financial world these days, but high quality, truly client oriented advisory services and top-tier research – I suspect boutique institutions offering more of that would do a brisk business).
The cult of shareholder capitalism. We’ve come to see shareholders as the sole “owners” of businesses, but there’s an argument to be made that their claim to true ownership of a business is weak, which is why they have to be awarded voting rights in the first place. Shareholders certainly deserve an important seat at the table, and can play a key role in policing management, but they also have a strong impetus to encourage decisions that boost share price above all else – and that can lead to short termism (since the 1990s, the rise of share buybacks, which almost always bolster stock prices, has coincided with a decline in R & D spending in corporate America). The Street pushes this short termism, and rewards it with higher share prices (that is, until a lack of investment begins to erode corporate market share).
The fact that corporate compensation is based largely on stock prices. Even if we shifted to a Germanic system of “stakeholder capitalism” in which a broader group – labor, and civic leaders, as well as management and shareholders – were considered “owners” of a business, to the extent that everyone gets compensated with stock options (particularly in packages that vest quickly, and have no claw back provisions for bad decision-making) the problem of short-term thinking at the expense of long-term investment remains.

A smart source recently pointed out to me that capitalism, which always awards a much greater share of the global pie to owners rather than laborers, only works if the capitalists invest in production, thus creating more jobs and giving some of the pie back to labor. These days, many of them are sitting on cash, and/or giving it back to themselves. Seems like a recipe for instability to me.

JKHC FORUM

Wednesday, January 22, 2014