The reason? Call it the new season of sobriety. Farewell, a decade of riding high–runaway economic growth, dotcom and telecom booms, a Dow that wouldn’t quit. With war looming in Iraq and a crisis in North Korea, not to mention the new economic hard times, the world’s business and political leaders gathered in this snowy Swiss resort are understandably wary of being seen partying the night away and quaffing champagne in gaudy revelry. So this year, instead of black tie and dance bands, Saturday night will feature the Verbier Festival Youth Orchestra–“112 young and talented musicians from 34 countries,” as the organizers put it–playing Symphonie Fantastique.
Actually, the new sobriety may only partly explain the fete’s demise. In keeping with the economic downturn, corporate belt-tightening is also a big theme at this year’s Davos. Indeed, there’s no mistaking the gloom that’s settled over the place, for all the animated talk of the world’s still-shared global future and optimistic thinking about how to bridge a widening gap between the world’s leaders–business and political–and their people.
Nowhere was the mood more somber than at Thursday’s global economic update, a session that kicked off the five-day conference. The good news? The United States, the world’s locomotive, is showing surprising economic resilience, reported Gail Fosler, chief economist of The Conference Board USA. Along with others, she estimates U.S. economic growth at 3.5 percent this year–a healthy sign of economic recovery, she says. The bad news? None of the rest of the world is keeping up, except for China. “Europe,” she adds, “is as likely to go down as up.” Worst of all is Germany, once the powerhouse of the continent. There the mostly likely prospect is outright “stagflation,” said Jurgen von Hagen, an economics professor at the University of Bonn. He puts German growth at 0.8 percent at the max this year, and even that slender figure he considers optimistic. “A slight weakening will throw Germany into recession,” he says, “and drag down the rest of Europe with it.”
If that’s the good news, listen to what the pessimists had to say. Stephen Roach, chief economist at Morgan Stanley in New York, thinks U.S. growth could easily slide to 2 percent or less this year, raising the prospect of another “double dip” into recession. If you’re calling this a recovery, he told Fosler, “this is pathetic!” As he sees it, “the engine of the world is struggling,” driven artificially by high U.S. car and home sales. Both these near-bubbles are powered by low interest rates. If they pop, the American economy is toast, he added, rating the possibility of deflation–a debilitating round of declining prices that stifle economic activity and erode personal wealth–as 50-50. “I anticipate a very disappointing 2003,” Roach told his audience.
Small wonder that this year’s famous “Davos chats” among the mighty have been glum. At a reception in the tony Hotel Belvedere, where white coated waiters carried canapes to and fro, one participant described a recent conversation with a real estate developer in St. Louis, Mo. Because of anxieties over war and economic caution, the developer’s business is getting clobbered, the Davosian reported. The office and warehouse space he rents out are half empty. “People aren’t investing, they aren’t taking advantage of opportunities to grow their business, they’re not hiring, they’re not spending. We’re getting clobbered by uncertainty. It’s got to be resolved.” The other businesspeople in the circle nodded their heads. “That’s what all my clients are saying,” said a partner in Bain consultants in Boston, one of the Davos sponsors.
Everyone, it seems, has a scare scenario. “Who talks of bulls and bears anymore?” asked a European financial type at the gathering. “We should be talking of Wall Street sheep, or maybe snakes”–as in something that slithers indifferently around, neither going down nor up very much. Many spoke of the dollar. Roach predicted a continuing slide in the U.S. currency, with the euro hitting $1.15 by year-end. “Try $1.50,” laughed a businessman leaving the briefing. “Don’t keep your money in dollars,” he said with a knowing look. Contemplating the lackluster future of his business, a British telecom exec reflected that the industry would eventually recover its lost ground and luster–in about 10 years.
Meanwhile, global execs talked about the importance of rebuilding trust. Once world-conquering heroes, today’s CEOs debated how best to recover that image. They agreed that it won’t do to simply run their companies better or to rein in egregiously excessive pay and stock options. “As in personal relations, once trust is lost it’s hard to regain,” said Vernon Ellis, chairman of Accenture UK. The danger, he added, is that feeling besiege and beleaguered, “businessmen are becoming tentative. And to succeed, they must be proactive and forward-looking–otherwise they’re not setting up their business to succeed.”
What a comedown from the heady Davos meetings of the late ’90s, when everyone was flush with money and riding high. Once, globalization was considered an unmitigated good, at least in these circles. Even better, the power elite believed the good times could be shared, a source of growth and prosperity for all the world. It turns out that in a globalized world, everything is shared. Welcome to the Dark Side.
No wonder the parties in Davos have gone underground this year.
