Every year the world’s elite, or “global leaders” as they are called in the official documents, convenes in a small Swiss resort of Davos for The World Economic Forum (WEF), with a noble purpose of “improving the state of the world”. This year’s WEF was, rather unsurprisingly, politically oriented. The world’s brightest minds in science talked about the Fourth Industrial Revolution and climate change while the heads of states were more concerned about migrants and geopolitics. At the same time, in the corridors of Davos, public figures discussed the recent boost of populism in Europe, as well as in the US, where Donald Trump seriously threatens the current establishment. Concurrently, a number of the world’s top economists present at the Forum, among whom one could spot several Nobel laureates, were engaged in captivating discussions and raised controversial questions.
The Global Risks Report 2016 has put economic risks such as unemployment and illicit trade on 7th and 10th place respectively, but that does not mean that economic issues are considered irrelevant nowadays. On the contrary, the Fourth Industrial Revolution, the official name of this year’s forum, was discussed by economists as avidly as by tech specialists. The shocks of the previous technological revolutions are still well-remembered and mass unemployment is the last thing governments want to have in the current unpredictable world.
The revolution is expected to greatly impact the social and economic policies of governments. Anders Borg, Chair of the World Economic Forum’s Global Financial System Initiative, shared a number of ideas and predictions concerning the way the revolution would affect economic policy. According to him, we are very likely to have a prolonged period of low interest rates and inflation due to the popularity of online-shops, which operate with tiny margins and have smaller price-setting power. In this light, it will be extremely difficult for central banks to maintain their current targets.
The fiscal policy may be even more vulnerable to digitalizing of the world. While the government will need funds to provide modern education and expanding social security, tax revenues are expected to shrink. Robots and machines do not pay income taxes, at least not yet; “digital” goods can be sold from any place in the world, so the so-called “tax heavens” may become even more populous and popular.
The most thought-provoking discussion, however, revolved around the acute question of the future of jobs. It is obvious that machines will render many jobs obsolete and the people working in them redundant. As Dileep George, Artificial Intelligence researcher aphoristically noted about AI replacing workers: “it is not a question of whether it will happen; it is a question of when”. Another question is how to keep the labour market stable. Although we may have more wealth and leisure in total, the progress may be discriminatory. It will not be easy for the unemployed to find new jobs; additional training, education as well as financial support should be universal. The greatest challenge for the world leaders is to ensure that the transition will be smooth and the outcomes available for everyone.
Besides all of these factors, the World Economic Forum once again raised the question of growth.
In 2015, the global economy’s growth failed to reach 3%, with many European countries facing stagnation. Evoking few worries today, the problem will presumably become the number-one concern once the political crises in Europe and the Middle East are resolved. One of the most active debates of growth and perspectives was at the panel “How to Reboot the Global Economy?” Experts from four continents admitted the existing trouble and tried to suggest a “cure” for the eternal disease.
A Nobel Prize winner Joseph Stiglitz reiterated his usual stance on the issue, calling once again for cancelling austerity, boosting the aggregate demand and dealing with inequality. Enda Kenny, an Irish politician, talking about Ireland’s successes offered to seek a solution neither in fiscal nor in monetary policy, but in education and job-creation. “An economy is an engine,” he said, “and it’s an engine that can provide resources to invest in people.”
Stiglitz, one of the key opinion-makers at the forum, also recommended introducing higher taxes, noting that “GDP is not a good measure of economic performance”, and asked for more government involvement in the technology sector. Zhang Xin, CEO of SOHO Ltd, expressed a converse contention, arguing that China undertakes the strategy of reducing government’s role in the economy to deal with the crisis.
It is hard to say whether the meeting in Davos should be dubbed as a success. The issues of growth, the fourth industrial revolution, China’s slowdown, along with many other topics, were raised and discussed, but we cannot be sure that ultimate decisions will actually match the political rhetoric at the forum. Anyway, we will find out if the debates were worth it only in a few years. Now, the forum is over, and the “global leaders” have to be heading back to their domestic political issues.
By Filip Drazdou
Market Analyst at the Investment Fund