World Economic Forum Annual Meeting 2009

What Global Challenge Most Threatens Economic Recovery?

When Annual Meeting participants arrived in Davos, they were well aware that the world has to come together to address the enormous challenges posed by the global economic crisis. "What the world needs most today is integration and cooperation," said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, in the opening plenary. "We will never meet the challenges if we want to do it all alone." Added Vladimir Putin, Prime Minister of the Russian Federation, in the same session: "We cannot afford to be isolationist and egotistic."

In those warnings lay what, by the end of the Annual Meeting, participants clearly understood to be the biggest challenge on the global agenda: the failure to achieve effective multilateral cooperation. Trevor Manuel, South Africa's Finance Minister, observed that "one of the biggest failures is that of multilateralism."

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Since the emerging markets financial crisis more than a decade ago and the antiglobalization protests that disrupted the World Trade Organization (WTO) conference in Seattle in late 1999, world leaders have talked about the urgent need to restructure the international financial architecture and make institutions of global governance, such as the G8 and the United Nations Security Council, more representative and inclusive. Fractious geopolitics due in part to perceptions that the US, especially after the 9/11 terrorist attacks, was intent on going its own way, or was otherwise disengaged, hampered the international community from making real progress on a host of issues such as climate change and the conflict in the Middle East.

Even as they pick up the pieces of the global economy, leaders must quickly shape the post-crisis world. The stakes are high. Failure to find effective multilateral approaches to the economic crisis and other pressing challenges that confront the international community will undermine recovery and could lead to a period of deglobalization, a dismantling of globalization that may well be marked by protectionism, chauvinism and the reversal of development gains - social, economic and even political - that have been achieved in recent decades.

"The time for words is over," stressed Maria Ramos, Group Chief Executive, Transnet, South Africa, and Co-Chair of the World Economic Forum Annual Meeting 2009. "This is the time for implementation and action. If we come back in six months or a year and are still talking about the same things, we will have failed. And the social unrest we will have to deal with will be absolutely dramatic."

Besides the economic crisis, two immediate challenges will serve as litmus tests for the cooperative capacity of the international community. First, the world must make good on the commitment made by G20 leaders at their summit in November to refrain from protectionism by concluding the Doha Round of global trade negotiations under the WTO. Second, nations will need to come together to forge a viable post-Kyoto global agreement to address climate change at the United Nations Climate Change Conference Copenhagen in December. What happens in the next year will indicate just what kind of world we live in. While "2009 opened on a very sombre note," Prime Minister Taro Aso of Japan reminded those gathered in Davos that "we must have the resilience, toughness and optimism to create a better world, turning this challenge into opportunity."

Among multiple challenges that the world faces - from the threat of terrorism to the mounting economic and social burdens of ageing demographics, from the spread of infectious disease to the expanding conflicts in the Middle East - the need to avert protectionism is an immediate priority. Participants expressed concern that muchneeded fiscal stimulus packages could also usher in a new era of economic nationalism as pressure is building in many countries to ensure that increased government spending and bank bailouts would first deliver jobs and growth at home. "This could bring us back to the 1930s," cautioned Celso Amorim, Minister of Foreign Relations of Brazil, referring to the widespread perception that protectionism and "beggar-thyneighbour" policies deepened the Great Depression.

Prime Minister Gordon Brown of the United Kingdom argued that decisions by governments to restrict bailout funding to the national operations of their endangered banks is "a form of financial protectionism and isolationism." Participants worried too about the rescue of other sectors such as the auto industry, questioning whether limits some governments have placed on the use of any money to propping up domestic companies are tantamount to subsidies that breach WTO rules. These moves, Brown said, are especially tough on smaller developing economies, which are suffering from the rapid withdrawal of huge amounts of capital and the drying up of investments. Said Indian Commerce Minister Kamal Nath: "In the long term, protectionism will not serve in salvaging the economic situation of any country." However the slow progress in concluding the Doha Round of trade negotiations, which was launched in 2001, reminded participants that action had yet to match rhetoric despite the looming threat of protectionism. Concluding the negotiations now "would send the right signal of confidence that people have realized that this is something they need to do together as part of their reaction to the crisis," said Pascal Lamy, Director-General of the Geneva-based World Trade Organization.

But any expectation about concluding the Doha Round was tempered by the reality that it was not going to happen in the first half of the year. "There's a lot of fear out there in the economy," acknowledged former US President William J. Clinton. "So now is the best time in the world to get new trade agreements. But I also believe that intelligent people all over the world will see that it is not necessarily the time to pick new fights, either. We have to get out of this together." Yet as Angel Gurría, Secretary-General of the Paris-based Organisation for Economic Cooperation and Development  (OECD), asked in a session on how to reboot the global economy: "How are we going to do climate change if we can't do Doha, which is the low-hanging fruit?"

Indeed, 80% of the work needed to conclude an agreement has already been completed, but WTO members have been unable to surmount impasses on agricultural subsidies in developed economies and antidumping regulations. The crisis has made it even more difficult to overcome these prickly political issues, as well as long-running arguments over whether developing countries should have to apply labour and environmental protection standards.

In stark contrast to the Doha Round, the perception in Davos was that the prospects for delivering a new treaty on climate change at the United Nations Climate Change Conference Copenhagen at the end of this year have brightened, particularly with the arrival of a new US administration. The forthcoming change in US policy-making with respect to climate change was underscored at the Annual Meeting by two influential advisers to President Obama.

Valerie Jarrett, Assistant to the US President for Intergovernmental Relations and Public Liaison, expressed that the new administration is committed to "active diplomacy" with the international community, especially on global warming. Al Gore, the 2007 Nobel Laureate for Peace, stressed that "President Obama is the greenest person [in the White House]" and that Obama is "pushing hard for a dramatic and bold move in the right direction." Gore added that "if other governments do the same, then we can make the change to a low-carbon future."

How the conference in Copenhagen turns out will be a major test not only of the international community's ability to come together at this time of grave economic stress but also of its responsibility towards future generations. The British Council selected six young people from around the world to take part in the Annual Meeting and to share their generation's perspectives and expectations regarding global challenges. One of them expressed to participants how "climate change affects everything and will fundamentally change the way we live. Those in developing countries will be the ones who suffer the most - a huge injustice as they are not responsible for it." Said Steve Howard, Chief Executive Officer, The Climate Group, United Kingdom, noting that 50 billion tons of CO2 emissions go into the atmosphere each week: "We have run out of wiggle room."

Industrialized countries must agree to reduce their emissions by 80% by 2050, warned Danish Prime Minister Anders Fogh Rasmussen, who will play a critical role as host of the UN Conference. Developed economies should help developing ones adapt to climate change through technology transfers and financing, he reckoned. "The essential thing is to agree on clear targets because it is a prerequisite for creating a private market. The policies we need to overcome the financial crisis are the same to combat climate change. We need green sustainable growth. Green efficiency is sound economics." To be sure, the hope in many countries, particularly the US, is that the adoption of clean energy and the retrofitting of infrastructure and industrial facilities to be energy efficient will generate the jobs necessary to counter rapidly rising unemployment and serve as a catalyst for driving the new economic growth needed for global recovery.

As with trade, the world must turn the crisis into a real opportunity to tackle climate change effectively. At a time when global solutions are in dire need, however, the global governance institutions and frameworks that exist do not seem up to the task, either because they are out of date or hamstrung by least common denominator constraints. While much expectation has been pinned on the G20 to tackle the global economic crisis, even that group of nations is not adequately representative of the international community, some participants pointed out. "We live in a global economy but we have only national authority," Thai Prime Minister Abhisit Vejjajiva lamented.
"The policies we need to overcome the financial crisis are the same to combat climate change. We need green sustainable growth. Green efficiency is sound economics."
Anders Fogh Rasmussen, 
Prime Minister of Denmark




Yet plainly national solutions are not enough - and many countries simply do not have the capacity to address the major challenges confronting them. When it comes to a pervasive problem such as food security, for example, regional and global multistakeholder cooperation is imperative. "The world has never been more advanced in terms of creating wealth, and yet more and more are becoming hungry," observed Abhisit. "The problem we face is a reflection of market and government failures," in which food production and distribution are distorted. "The root cause is all about distribution and purchasing power. In some countries, despite a food surplus, the very poorest are the farmers." Public and private institutions, said William H. Gates III, Co- Chair of the Bill & Melinda Gates Foundation, have to collaborate more to increase lending, investment, aid, training, food storage and research. Similar cooperative efforts are needed to address the shortage of water that many countries in the world are experiencing.

When reviewing the myriad of global challenges facing the world today, "the current architecture of managing global affairs is broken and needs to be fixed," expressed Kofi Annan, former Secretary- General of the United Nations and Co-Chair of the Annual Meeting 2009 - an assessment shared by many in Davos. His prescription that "new players have to be integrated and the poor have to be given a voice," was also widely supported by participants at the Annual Meeting. Acknowledging this new reality is the first step for the international community if it is

to have a better than good chance of successfully building various coalitions of countries willing to introduce as swiftly as possible innovative solutions to global challenges.

Article Source: http://www.weforum.org/pdf/AnnualReport/2009/economic_recovery.htm