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January 28, 2011, Friday

The new reality

As CEOs and world leaders and celebrities gather in the snowy Swiss resort of Davos, they will be pondering the state of the world economy and discussing “the new reality,” the theme chosen by the organizers for this year’s gathering.

Prime Minister Erdoğan, who famously stormed out of a meeting two years ago, will make a return this year, together with several members of his economic team. Turkey, a country on an upward economic trend, is likely to get plenty of attention.

The new reality the organizers refer to is the gradual shift of economic balance toward emerging economies, including Turkey and the fragile global recovery. Yet it is hard to avoid the feeling that Davos remains largely a white man’s club, in spirit at least. Among the participants, male Westerners still dominate, even if up-and-coming powers are represented in ever larger numbers. The World Economic Forum was so concerned about the paucity of women that it made a special effort to recruit more female participants, but less than 20 percent of delegates are women.

But the poor gender balance is not the only reason why Davos appears to be losing some of its relevance. Of course, the world is interested in the predictions of top economists and business leaders. For all concerned, the gathering is also an opportunity to network and exchange views.

The new world reality does not just reflect a shift of economic balance, it is also a social one that politicians and corporate officers may find increasingly difficult to control. The world economy may be on the path to recovery, although the eurozone continues to cause concerns, but globally the return to growth is still largely jobless. Efforts to tackle climate change are half-hearted at best. Poorer countries are affected by rising food and energy costs, while mature economies in Europe, weakened by the bailout of financial institutions, are implementing savage budget cuts that will have lasting social and political consequences.

The economic crisis of 2008 turned the spotlight on the recklessness of financial institutions. In fact, a US commission is just about to officially unveil the results of its investigation into the roots of the meltdown, concluding that it was entirely “avoidable.” Its report, according to early copies that were leaked, points the finger at big banks and negligent regulators. But, as the rich and mighty gather in Davos, very little has so far been done to curb a corporate culture that continues to reward excessive risk taking. Major financial institutions have just doled out billions in bonuses to their top employees, while ordinary taxpayers the world over foot the bill.

For all the attempts of the G20 to find global solutions, governments have failed to reach consensus. Politicians don’t seem to have the muscle or the will to tackle big corporations: President Obama has just recruited yet another former banker, Bill Daley, to be his new chief of staff. Nor are economists and political leaders in agreement on how to create long-term growth and tackle long-term joblessness. More stimulus at the cost of increased deficit, as in the US, or tightened belts to improve confidence as in the UK?

The anger that spilled onto the streets of Tunisia in the past couple of weeks targeted an autocratic and corrupt regime. It is now spreading to Egypt, Algeria, Morocco and Yemen. Other illiberal countries of the region could be affected as the masses express their frustration.

In more democratic and politically stable countries, the liberal economy has also failed to prevent wealth from becoming increasingly concentrated at the top. Unhappiness is palpable as cuts affect the weakest, and it has already caused strikes and demonstrations in several European countries. While markets are enjoying a surge, unemployment is expected to remain high for several years in the US, where millions have lost their homes. In Spain, youth joblessness nears 40 percent, while in the UK, close to a million young people have failed to gain employment.

“There is no agreement on anything. We are in a world where there is no leadership,” economist Nouriel Roubini was quoted as saying. While Davos delegates struggle to identify “shared norms” for a more sustainable form of capitalism, ordinary people around the world are growing impatient.

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