This year's meeting of the World Economic Forum has been widely reported in the media, so I am going to confine my report to a few observations which have left a strong impression on me, not all of which were reported.
First there was much discussion of how the global recession has been affecting different parts of the world. Two reports that I found worrying came from China and sub Saharan Africa respectively. It was reported to the conference that in the final quarter of 2008, thousands of Chinese factories have closed and millions (possibly tens of millions) of workers have returned from the urban centres to their rural villages. It is unlikely that these factories will reopen until the demand from European and American consumers starts to rise which most commentators do not consider will happen until 2010 at the earliest. How are these Chinese citizens going to react to unemployment or will the state create work programs for them? The African situation (reported by the South African finance minister) told how the natural resources boom which has been driving prosperity and employment in recent years has basically stopped. Mining developments, reprocessing factories and the transport infrastructure have all been abandoned with hundreds of thousands of workers going back to their villages or in many cases their countries of origin. There is no prospect of the governments in this region creating work programs or providing aid, so they will be left to their own endeavours and international aid.
Second, notwithstanding that the theme of the conference was planning for the post recession world, many of the business people, academics and politicians still wanted to know where the responsibility for the current crisis lay. One of the most passionate calls came from the Chairman of a UK manufacturing business, who made the argument that in his business, if he produced a toxic product which damaged or injured another party, then he and his executives could be prosecuted under the criminal code. He felt that given the importance of the banks and other financial institutions to the health of the nation, the directors of these businesses should be covered under similar legislation, which would make them think very carefully about the risk that the business was willing to take. This produced a spontaneous round of applause from delegates, many of whom think that the bankers have got off too lightly (the result of a straw poll). I don't know whether we are going to see former bank directors and executives being taken in handcuffs to jail. What I find more worrying is the view circulating that some of the financial products created may have been made more complex in order to obscure the ultimate risk and thereby deceive their employer. This is fraudulent and if proven I can see this being more likely to result in legal action and custodial sentences.
The third issue was a widely voiced concern about protectionism, which coincidentally reared its head as I returned to the UK this weekend. This crisis has clearly demonstrated the interconnected world in which we live. However if fiscal stimulus measures like that passed in the US last week, into which was inserted a "buy american" clause, preclude or limit trade outside national borders then an unpleasant sequence of events could occur. Other countries/trading blocs will respond to tariff barriers by erecting their own and before we know it we will find ourselves moving from recession to depression. Students of history will know that this is what the US did in the 1930's. The calls from the Russian Prime Minister and the Chinese Premier to move from a unipolar world centred on the US to a multi polar world will seem all the stronger. The taxi driver who picked me up from the airport proceeded to tell me that we should prioritise British workers over foreign nationals for employment opportunities thereby indicating how close to the surface this sentiment is.
My final observation is that there are some outstanding communicators who can make the most complex issues seem soluble. There were two ex politicians, Tony Blair and Bill Clinton who were quite superb and perhaps without the burden of office, now see things particularly clearly. The financier who most impressed me was Henry Kravis, founder of KKR whose view of the world and solutions to his own industry's challenges were very clear.
The ICAEW is the only professional body in the world with membership of the World Economic Forum and present at Davos. This allowed me to make contributions in debates and with delegates around issues as diverse as fair value accounting, corporate governance reform, accounting for externalities, future financial regulation and global climate change. For these reasons and for the profile it gives the ICAEW, it remains a useful membership to continue.