The Wall Street Journal-20080115-Politics -amp- Economics- Davos Event to Reflect Shift in Power
Return to: The_Wall_Street_Journal-20080115
Politics & Economics: Davos Event to Reflect Shift in Power
When the elite of global business gather in Davos, Switzerland, for their annual retreat next week, the mood will be dramatically darker than just a year ago.
Since the World Economic Forum last met in Davos, fallout from the global credit crunch has transformed the outlook for the U.S. and global economies for the worse. Power and wealth have shifted from West to East, from major oil companies to petro-governments, and from U.S. banks and hedge funds to the state-controlled investment funds of the Middle East and Asia.
The turnaround promises to create a whole new A-list of stars this year in Davos, including once obscure sovereign-wealth-fund managers, formerly boring central bankers and previously ignored bearish economists.
"There is a sea change going through business," said Nigel Doughty, chairman of British private-equity firm Doughty Hanson & Co. and a Davos veteran. "The whole landscape has changed, not least because of the decline in influence of Western nation states."
Few saw it coming. When Citigroup Inc.'s then chief executive officer, Charles Prince, predicted a "benign" year for the global economy and financial markets last January in Davos, he was in good company. U.S. and European bankers, industry chiefs and political leaders bubbled with confidence as they clinked glasses in the tony ski resort.
Mr. Prince lost his job in the fallout from the subprime-lending crisis that hit in the summer. Citigroup needed a $7.5 billion cash infusion from a Middle Eastern sovereign-wealth fund. Other household names of banking are also looking to the East for cash, leaving Western governments to worry about the political implications.
Western stock markets have turned jittery. The price of oil has risen by half, gold has soared, and the dollar has slumped as investors run for safety.
This year's Davos gathering will search for answers to a new set of far more gloomy questions, such as: Will the U.S. economic downturn become a full-blown recession? Will Europe follow? Can Asia and other emerging regions go on booming if exports to Western markets stall?
Mr. Prince won't be back to give his view this year, while some returning financial stars may be keeping their heads down. Some CEOs from firms that sustained losses have been unwilling to join the discussion panels on the credit crisis, according to people familiar with the process.
"I doubt we'll be the stars of the show this year, which I think is appropriate and healthy. I'd like to go back to the obscurity we richly deserve," said Glenn Hutchins, a founder and co-chief executive of private-equity firm Silver Lake, based in Menlo Park, Calif., and New York. "Everyone who wanted to talk about private equity last year will want to talk about sovereign-wealth funds this year."
Central bankers, including the European Central Bank's Jean-Claude Trichet and the U.S. Federal Reserve's Ben Bernanke, are also likely to get a more careful hearing this year, as panels discuss how to rework the global financial system's rules and plumbing to avoid a repeat of the contagion from defaults on subprime mortgages in the U.S.
Mr. Trichet is likely to remind regulation-wary Davos financiers of what he believes are the credit crisis's lessons. Among them: the need to reduce markets' reliance on credit-rating firms and a need for scrutiny of the bank-affiliated funds that played a central role in the subprime turmoil.
The most important debate in Davos will be about "the appropriate monetary and fiscal policies to get us out of this mess." said Nouriel Roubini, a New York University economics professor and chairman of research firm Roubini Global Economics. Mr. Roubini recalls becoming the butt of jokes at Davos last year because of his bearish views on the economy.
One Wall Street boss who can walk tall in Davos is Lloyd Blankfein, chairman and CEO of Goldman Sachs Group Inc., whose traders got the firm out of the subprime quicksand just in time. He is due to speak on a panel with former U.S. Secretary of State Henry Kissinger on the need for a new concert of powers to secure global stability.
Doughty Hanson's Mr. Doughty, however, plans to spend time in Davos seeking out "the people from those parts of the world that are really experiencing dramatic growth, where there may be an opportunity for products and services we could provide them with," he said. Those include emerging economies such as China, Russia and Brazil, as well as Middle East oil producers.
One sign of rising interest in the Middle East beyond oil: A high- powered group of executives, including Cisco Systems Inc. Chairman John Chambers and Daniel Vasella, chairman of Swiss pharmaceutical group Novartis AG, are attending an international conference in Riyadh, Saudi Arabia, en route to Davos. Some will miss the Swiss meeting's first day as a result.
Delegates from the Middle East, China, India and other rising regions will convey a message of strength at the Swiss resort, many regular participants believe. The growing trade and investment linkages among the emerging economies are bolstering confidence that those countries can continue to grow despite the downturn taking hold in the U.S. and Europe. That in turn could help to limit the depth of the downturn in developed economies.
This "decoupling" is likely to be a big topic at Davos. Skeptics say the idea that emerging markets no longer depend on exporting goods to industrialized economies for growth could prove to be the next big illusion. "Asia doesn't have enough domestic demand to compensate for a recession in the U.S.," said Stephen Roach, Asia chairman at Morgan Stanley.
Mr. Roach's indefatigable warnings about U.S. credit and property bubbles bursting made him a marginal voice amid the overconfidence of Davos meetings in recent years. But with the odds of a U.S. recession rising, he and other bears who called 2007 right could get a wide hearing this year.
