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Karan Bhatia: Post-Davos Reflections

Just finished three days at the annual World Economic Forum at Davos and thought I’d share a few takeaways.  A caveat:  Davos is kind of like Disney World _ and not just because of the inflated prices, long lines and annoying cult-like followings that both enjoy _ but also because what one takes away depends heavily on which of the many offerings one samples.  A traditionalist at heart, I tend to skip the hot new attractions (“Transformative Art,” for example) and gravitate to the Magic Kingdom of Davos panels: those on the global economy, emerging markets, international trade and investment.)

Here are my six takeaways from Davos 2013:

(1)  The world feels better … but there’s still uncertainty and wariness.  After Davoses of the past few years dedicated to existential discussions of financial crisis, European disintegration, market freefalls, and “the end of capitalism,” there was a tone of quiet — almost hushed — optimism in many of this year’s sessions.  With the U.S. elections and fiscal cliff behind us, Chinese political transition underway relatively smoothly, and a robust Euro, there’s no clear single great looming threat to the global economy, lightening the mood among business and political leaders.  That said, these same leaders — like dizzied riders recently alighted from Space Mountain — seem wary of what they don’t know and steeled to the prospect that the world remains volatile and unpredictable.

(2)  Focus shifting from the BRICS to the next tier of emerging markets.    Compared to other recent Davoses, it seemed to me that the presence of, and level of attention focused on, the four BRIC economies has been replaced by enthusiasm for a new tier of emerging markets.  Whether because Brazil, Russia, India and China shine slightly less brightly than in years past (certainly, each has had its share of political challenges recently), or simply desire for the “new new thing,” countries like Malaysia, Indonesia, Mexico and even Mongolia “played bigger” at Davos this year.

(3)  Lots of discussion of the impact of shale gas.   The “shale gas revolution” seems to have come of age, at least as a Davos topic, and came up repeatedly as a “game changer” — in discussions on energy, climate change, trade, and the global economy.   The geopolitical types in particular seem to find it irresistible, with one of them describing it as “the biggest thing to happen since the fall of the Soviet Union,” and generating passionate debates on whether it will cause the U.S. to disengage from the Middle East or destabilize Russia.

(4)  Strong belief that the world needs more and better infrastructure … but concerns about how it’s going to be financed.   Whether in sessions on the post-Arab Spring Middle East or on global trade, there seemed to be general consensus that the world needs more and better infrastructure — and, in some countries, that need’s going to get critical soon.  The  biggest challenge?  A panel consisting of the leaders of Kenya, Panama, and Ukraine and former UK Prime Minister Gordon Brown all pointed to financing as a key constraint.  With fiscal constraints in many countries and private financing less readily available post-financial crisis, creative financing solutions to tackle this issue are going to be at a premium.

(5)  Rising protectionism.  Although it may not have lead to widespread hikes in import duties that some had feared, the global financial crisis seems to have given way to a world with an array of complex new protectionist barriers — and they are increasingly coming into focus.  The one that seemed to capture particular attention at Davos this year:  the manipulation of exchange rates to support exports.   Recent announcements by the Bank of Japan are only the most recent announcement to cast a spotlight on actions by central banks — sometimes in coordination with or under pressure from political leadership — to tilt the trade playing field.  Perhaps more troubling than the policies themselves is the growing equivocation on whether such policies are good or bad.  GE’s Global Innovation Barometer, released just prior to Davos, indicates that 71 percent of CEOs — CEOs! — actually support policies that favor according preferences to domestic companies in government procurement!

(6)  Bring warmer socks.  (This one’s just a personal takeaway.  It was freezing in Davos this year. … OK, so its not completely like Disney World!)

Karan Bhatia is Vice President and Senior Counsel for GE Global Government Affairs & Policy.

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