The global financial chaos cast its shadow over a gloomy opening of the World Economic Forum today.
Despite the breadth and width of the current crisis – with the knock-on effects expected to continue through 2010 and perhaps beyond – there were some at the Davos gathering who retained their faith in capitalism.
“Don’t let’s lose sight of what creates wealth. It is open markets, it is capitalism,” said Rupert Murdoch, chief executive of News Corporation.
The usually glitzy gathering in the Swiss Alpine town was muted. Some of the biggest players contributing to the economic slide stayed away, as did top economic policy makers in US President Barack Obama’s new administration.
Economist Stephen Roach gave a grim forecast for the global economic outlook, saying growth worldwide for the next three years was only likely to be about 2.5% – what the Morgan Stanley Asia chairman and long-time Davos attendee termed a “near recession.” That compares with 5% growth over the last four and a half years.
But even that was deemed optimistic by some other participants.
Experts said stimulus packages being approved by developed nations would not be enough to pull the world out of the current crisis, with some calling instead for a co-ordinated fiscal response with a greater role for multilateral institutions like the Group of 20 wealthy and developing nations.
“Based on our experience, a capital injection is not enough,” said Heizo Takenaka, the director of Global Security Research Institute at Japan’s Keio University. Mr Takenaka said an accurate assessment of troubled assets was needed to know exactly how much capital to inject.
Not everyone welcomed the increasing role of governments in resolving the crisis, but British businessman Martin Sorrell, chief executive of advertising company WPP, said government’s hand was necessary until the system can be restored.
“You will get government out when private industry has re-established confidence,” he said. “We all know government cannot run banks but at the moment no one has confidence in the financial institutions.”
University of California-Berkeley economist Laura Tyson, economic adviser in the Clinton administration, said self-regulation of financial institutions as tried in the US did not work. She was sceptical about turning over power to multilateral organisations, saying it was likely to diffuse power instead of focusing it.
The crisis already is drying up investment in developing nations, said South Africa’s Finance Minister Trevor Manuel. He warned that “hurried interventions” – in the form of huge stimulus packages – may “lead to naught.”
“We see a lemming-like approach trying to get to the precipice first without having any idea what that money will do.”
At the same time, he said the crisis already is drying up money for developing nations, citing 48 mining projects in the Republic of Congo that are “in various stages of abandonment”.
Among the 2,500 participants in Davos are over 40 heads of state who will discuss this year’s theme of “shaping the post-crisis world” in fields such as energy, climate change and free trade. They include Chinese Premier Wen Jiabao, British Prime Minister Gordon Brown, European Commission President Jose Manuel Barroso, German Chancellor Angela Merkel and Japanese Prime Minister Taro Aso.
But, underscoring the sober mood this year, some of the glitz has been scaled back and there is no entertainment celebrity on a level with previous attendees Angelina Jolie, Sharon Stone and Bono.