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Global Elite at Davos Wonder If They Sowed Seeds of Populist Backlash

Published: January 13, 2017
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Source: Bloomberg

Kenneth Rogoff can pinpoint the moment he started to grow concerned Donald Trump would be the next U.S. president: It was when Rogoff’s fellow attendees at the World Economic Forum’s annual meeting last January said it could never happen. “A joke I’ve told 1,000 people in the months since leaving Davos is that the conventional wisdom of Davos is always wrong,” says the Harvard professor and former chief economist of the International Monetary Fund. “No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is.”

The repeated failure of business and political elites to predict what’s coming—last year, that included the U.K.’s vote to leave the European Union—doesn’t strike those returning this month to the Swiss Alps as very funny. After a year in which political upsets roiled financial markets and killed off the careers of once-dominant Davos-going politicians, the concern for delegates attending this year’s meeting isn’t that their forecasts are often wrong, but that their worldview is.

In its four decades of existence, the WEF has nurtured a broad consensus in favor of globalization and open markets. At its core is the notion that capital, goods, and people should be able to move freely across borders, a principle that can deliver huge benefits to those with education and money but seems terrifying to those without either. For the 3,000 people who will convene in the small Swiss town from Jan. 17 to 20, the 2017 event could be a moment of reckoning. At speakers’ podiums, coffee bars, and the ubiquitous late-night parties, they’ll be asking themselves whether Davos has become, at best, the world’s most expensive intellectual feedback loop—and, at worst, part of the problem. “Since the recession, the boom has benefited the upper-income earners and done little for those in the middle or on less. That’s the backlash,” says Nariman Behravesh, the chief economist for research provider IHS Markit. “The Davos vision of the world has not delivered a broad-based economic recovery.”

That the world is entering an era of populism that could tear apart long-established global bonds is beyond question. The result of the Brexit vote threatens the U.K.’s most important trading relationships. In the U.S., Trump will take office this month having pledged to reopen trade deals and reevaluate bedrock foreign policy principles such as the so-called One China policy. Italian Prime Minister Matteo Renzi resigned in December after voters rejected proposed constitutional changes.

In France, hard-right leader Marine Le Pen leads opinion polls going into this spring’s presidential election. And in Germany, where elections also loom, the anti-immigrant Alternative for Germany party has sought to capitalize on mounting opposition to Chancellor Angela Merkel’s open-door policy for refugees fleeing Mideast war zones, which some believe has left the country vulnerable to terrorist attacks such as the one in Berlin on Dec. 19. Almost a third of bond investors surveyed last month by Bank of America Merrill Lynch identified populism as their biggest concern, up from 9 percent in October.

Collectively, anti-establishment forces may represent the greatest threat to what historian Samuel Huntington called “Davos Man,” a cross-border species whose values and interests are often divorced from those of more insular compatriots. While each populist movement is unique, all share a generalized disdain for elites, however defined—and by extension, the economic prescriptions they promote. Huntington, who died in 2008, may have divined the future when he said Americans might eventually rebel against rising immigration, especially from Mexico, and the growing influence of multinational businesses and intellectuals.


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