On the second day of the World Economic Forum’s annual meeting in the Swiss Alps, delegates disagreed on how best to address the upending of the western political order, a debate made doubly urgent by the string of elections in Europe this year where anti-establishment parties could gain more ground.
While IMF chief Christine Lagarde urged a list of policies from programmes to retrain workers to more social spending, others fretted that the turbulence is only starting.
Hedge fund billionaire Ray Dalio warned on a panel that “we may be at a point where globalisation is ending, and provincialisation and nationalisation is taking hold”.
That leaves technocrats trying to patch together potentially costly remedies to make the current system of global trade, banking, and business links that the Davos club represents acceptable to the public at a time when newcomers such as US president-elect Donald Trump threaten to dismantle it by scrapping trade deals and introducing tariffs.
“We need to go to a system where we are protecting workers, not jobs, and society will help people retrain or reorient,” said Richard Baldwin, professor of international economics at the Graduate Institute of International and Development Studies in Geneva.
“There may just be a need to man up. We have to pay for the social cohesion that we need to keep our societies advancing, and accept that this may be a higher tax burden on people.”
Ms Lagarde said policymakers “really have to think it through and see what can be done”, given the feedback from voters who say no. Among measures that could be implemented are fiscal and structural reforms, she added.
“But it needs to be granular, it needs to be regional, it needs to be focused on what will people get out of it, and it probably means more redistribution than we have in place at the moment,” Ms Lagarde told the panel, entitled ‘Squeezed and angry: How to fix the middle-class crisis’. Excessive inequalities were a brake on sustainable growth, she said.
Over the decades, Davos has become synonymous with globalisation and open markets, but in the background this year is the failure of business and political elites to predict any of the seismic political events that shaped 2016. That has raised questions over whether they are capable of understanding and addressing the anti-establishment forces that have roiled the US and Europe over the past year.
After Mr Trump and Brexit, there are more votes coming this year. Elections are due in the Netherlands, France, and Germany, with a possible early poll in Italy following a constitutional referendum where voters rallied against the government.
The panel saw former US Treasury secretary Lawrence Summers attacking Mr Trump while Mr Dalio, founder of Bridgewater Associates, struck a more pessimistic tone than Ms Lagarde.
“I want to be loud and clear: Populism scares me,” said Mr Dalio. “The No 1 issue economically as a market participant is how populism manifests itself over the next year or two.”
Mr Summers said populism is “invariably counter-productive” for those it claims to help.
“Our president-elect has made four or five phone calls to four or five companies, largely suspending the rule of law, and extorting them into relocating dozens or perhaps even a few hundred jobs into plants in the United States,” said Mr Summers.
The panel also discussed how to combat the backlash against governments and the elite by taking back control of the political narrative.
Mr Summers’ recipe for dealing with populism twisted Mr Trump’s campaign slogan. “Our broad objective should be to make America greater than ever before,” said Mr Summers. “That’s very different from making it great again.”