Davos 23: going pear-shaped

23 January 2023 by Michael Roberts

This week, the jamboree of the rich global elite of the World Economic Forum (WEF) has started again after the COVID interregnum. Top political and business leaders have flown in on their private jets to discuss climate change and global warming, as well as the impending global economic slump, the cost of living crisis and the Ukraine war.

Their mood is apparently downbeat. Two-thirds of chief economists surveyed by WEF believe there is likely to be a global recession in 2023, with nearly one in five saying it is extremely likely to occur. Corporate leaders are also anxious, with 73% of CEOs around the world reckoning that global economic growth will decline over the next 12-months. That’s the most pessimistic outlook since the WEF survey was first done 12 years ago.

Just before the start of the Forum in the snow of the exclusive ski resort of Davos, Switzerland, the WEF published its Global Risk Report. It makes shocking reading on the state of global capitalism in the 2020s.

The report says that: “the next decade will be characterized by environmental and societal crises, driven by underlying geopolitical and economic trends.” The cost-of-living crisis is ranked as the most severe global risk over the next two years, peaking in the short term. Biodiversity loss and ecosystem collapse is viewed as one of the fastest deteriorating global risks over the next decade and all six environmental risks feature in the top ten risks over the next ten years. 

The report goes on: “Continued supply-driven inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. could lead to stagflation, the socioeconomic consequences of which could be severe, given an unprecedented interaction with historically high levels of public debt. Global economic fragmentation, geopolitical tensions and rockier restructuring could contribute to widespread debt distress in the next 10 years.” It notes that “technology will exacerbate inequalities; while climate mitigation and climate adaptation efforts are set up for a risky trade-off, as nature collapses. And “food, fuel and cost crises exacerbate societal vulnerability while declining investments in human development erode future resilience.” Apparently, the risk of a ‘polycrisis’ has accelerated.

What do the organisers of the WEF and its participants plan to do about this ‘polycrisis’? Well, the WEF starts from the assumption that capitalism must survive, but the best way to achieve this is by ‘shaping’ capitalism into something “inclusive of all.” Klaus Schwab, the co-founder of the WEF likes to call it ‘stakeholder capitalism’.

Schwab explains: “Generally speaking, we have three models to choose from. The first is “shareholder capitalism,” embraced by most Western corporations, which holds that a corporation’s primary goal should be to maximize its profits. The second model is “state capitalism,” which entrusts the government with setting the direction of the economy, and has risen to prominence in many emerging markets, not least China. But, compared to these two options, the third has the most to recommend it. “Stakeholder capitalism,” a model I first proposed a half-century ago, positions private corporations as trustees of society and is clearly the best response to today’s social and environmental challenges.”

The big corporations should be the ‘trustees of society’ and the main force in solving “today’s social and environmental challenges”. But we need to replace ‘shareholder capitalism’ where “the single-minded focus is on profits so that capitalism becomes increasingly disconnected from the real economy”. According to Schwab, “this form of capitalism is no longer sustainable.” In contrast, the big corporations, in conjunction with governments and multi-lateral organisations, can develop ‘stakeholder capitalism’ instead, which, according to Schwab, can “bring the world closer to achieving shared goals”.

Every year Oxfam releases its annual report on inequalityto coincide with the WEF meeting, in order to expose the hypocrisy of ‘stakeholder capitalism’. This year’s report told the story of increased inequality of wealth and incomes since the pandemic. “Over the past two years, the world’s super-rich 1 per cent have gained nearly twice as much wealth as the remaining 99 per cent combined”, Oxfam said.

While there are nearly 8 billion people in the world, just over 3,000 are billionaires as of November 2022. This tiny group of people is worth nearly $11.8 trillion – equivalent to about 11.8% of global GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
. Meanwhile, at least 1.7 billion workers live in countries where inflation is outpacing their wage growth, even as billionaire fortunes are rising by $2.7 billion (€2.5 billion) a day.

The annual global wealth report from Credit Suisse is the most comprehensive analysis of global personal wealth and its distribution. The 2022 reportrevealed that by the end of 2021, total global wealth had reached $463.6 trillion, or more than 4.5 times world annual output. Global wealth rose 9.8% in 2021, far above the average annual 6.6% recorded since the beginning of the century. If you exclude the movement of currencies, aggregate global wealth grew by 12.7%, making it the fastest annual rate ever recorded. 

This rocketing rise was down to two factors: sharply rising property prices and a credit-fueled stock market boom. So nearly all of this wealth increase went to the richest in the world. Indeed, in 2020, 1% of all adults (56m) in the world owned 45.8% of all personal wealth in the world; while 2.9bn owned just 1.3%. In 2021, that inequality worsened. In 2021, that the top 1% now owned 47.8% of all personal wealth while 2.8bn owned just 1.1%! And the top 13% own 86% of all wealth.

The Oxfam report points out that for every $1 raised in tax, only four cents come from taxes on wealth. The failure to tax wealth is most pronounced in low- and middle-income countries, where inequality is highest. Two-thirds of countries do not have any form of inheritance tax on wealth and assets passed to direct descendants. Half of the world’s billionaires now live in countries with no such tax, meaning $5 trillion will be passed on tax-free to the next generation, a sum greater than the GDP of Africa.

Top rates of tax on income have become lower and less progressive, with the average tax rate on the richest falling from 58% in 1980 to 42% more recently in OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

countries. Across 100 countries, the average rate is even lower, at 31%. Rates of tax on capital gains – in most countries the most important source of income for the top 1% – are only 18% on average across more than 100 countries. Only three countries tax income from capital more than income from work. 

Many of the richest men on the planet today get away with paying hardly any tax. For example, one of the richest men in history, Elon Musk, has been shown to pay a ‘true tax rate’ of 3.2%, while another of the richest billionaires, Jeff Bezos, pays less than 1%.

Oxfam’s policy answer is to tax the rich. Oxfam calls for a tax of up to 5% on the world’s multi-millionaires and billionaires that could raise $1.7 trillion a year “enough to lift 2 billion people out of poverty and fund a global plan to end hunger. “The eventual aim should be to go further, and to abolish billionaires altogether, as part of a fairer, more rational distribution of the world’s wealth.”

The question that will be naturally asked is how realistic is it to expect that governments that support ‘stakeholder capitalism’ are likely to introduce higher taxes on wealth and income, let alone abolish all billionaires through taxation? That is going to require mass struggle to bring governments of working people to power to work in coordination globally. In which case, why stop at taxing the rich but instead aim to end capitalism altogether.

It’s same story with climate change. COP 27and COP 15 were complete ‘cop-outs’ in trying to meet even the Paris COP target of limiting global average temperatures to 1.5C above pre-industrial levels. Last year was the fifth warmest on record, with the average global temperature almost 1.2C above pre-industrial levels, according to the EU’s earth observation programme.

The year was marked by 12 months of climate extremes, with Europe registering its hottest summer on record despite the presence for the third year in a row of the La Niña phenomenon that has a cooling effect, Copernicus Climate Change Service found in its annual round-up of the earth’s climate. At the same time, US greenhouse gas emissions rose again in 2022, putting the country further behind its targets under the Paris climate agreement despite the passage of sweeping clean energy legislation last year.

Global carbon dioxide emissions from fossil fuels and cement increased by 1.0% in 2022, hitting a new record high of 36.6bn tonnes of CO2 (GtCO2). Emissions “are approximately constant since 2015” due to a modest decline in land-use emissions balancing out modest increases in fossil CO2. But remember, stable emission levels are not enough to stop the world continuing to heat up beyond official target limits. A 50% reduction in emissions by the end of this decade and zero emissions by the end of the century are needed at the very least.

Instead, US emissions increased by 1.3 per cent last year, according to preliminary estimates by environmental consultancy Rhodium Group, led by sharp increases from the country’s buildings, industry and transport. “With the slight increase in emissions in 2022, the US continues to fall behind in its efforts to meet its target set under the Paris Agreement of reducing GHG emissions 50-52 per cent below 2005 levels by 2030,” the authors said. Last year, US emissions were just 15.5 per cent below 2005 levels. 

But don’t worry, the US spokesman on climate, John Kerry, was at Davos this week to complain about slow progress. And former Bank of England governor, Mark Carney, now the organizer among international banks of a climate financing fund, was also there to complain about slow progress. I am sure that will lead to action.

And then there is the state of the world economy itself. Just before Davos, IMF chief Kristalina Georgieva warned that a third of the global economy would be hit by recession this year. The IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

reckons that global real GDP growth will be just 2.7% in 2023. That is officially not a recession in 2023 – “but it will feel like one”. And the IMF is set to lower its forecasts again at the end of this month. “Risks to the outlook remain unusually large and to the downside,”. 

And the IMF’s forecast is the most optimistic. The OECD reckons global growth will slow to 2.2% next year.  “The global economy is facing significant challenges. Growth has lost momentum, high inflation has broadened out across countries and products, and is proving persistent. Risks are skewed to the downside.” Then UNCTAD UNCTAD
United Nations Conference on Trade and Development
This was established in 1964, after pressure from the developing countries, to offset the GATT effects.

, in its latest Trade and Development report, also projects that world economic growth will drop to 2.2% in 2023. “The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion – close to 20% of the world’s income.”

The World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s latest Global Economic Prospects reportis even more pessimistic. The WB reckons that global growth will slow to its third-weakest pace in nearly three decades, overshadowed only by the 2009 and 2020 global recessions. It will be a sharp, long-lasting slowdown, with global growth declining to 1.7% in 2023, with the deterioration broad-based: in virtually all regions of the world, per-capita income growth will be slower than it was during the decade before Covid-19. And that was the decade of what I call the Long Depression. By the end of 2024, GDP levels in developing economies will be about 6% below the level expected on the eve of the pandemic.

Then there are the growing geopolitical tensions. – not just the Russia-Ukraine conflict but the increasing ‘fragmentation’ of the world economy. The US hegemony, built round ‘globalisation’ and the Great Moderation of the 1980s up to the 2000s, is over. 

Georgieva is particularly worried. In her pre-Davos message, she groaned: “we are facing the specter of a new Cold War that could see the world fragment into rival economic blocs”. The gains of globalisation could be “squandered”.  But it’s another myth that ‘globalisation’ benefited the majority. Georgieva says that “since the end of the Cold War, the size of the global economy roughly tripled, and nearly 1.5 billion people were lifted out of extreme poverty.” But what improvement in global output and living standards that has been achieved has been confined mainly to China and East Asia. World economic growth has slowed since the 1990s and poverty has not been reduced for some 4bn on the planet, while inequality has risen (as revealed above). 

Georgieva wants to reverse the surge in new trade restrictionswhich is “a dangerous slippery slope towards runaway geoeconomic fragmentation”. She reckons that the longer-term cost of trade fragmentation alone could range from 0.2 percent of global output in a ‘limited fragmentation’ scenario to almost 7 percent in a ‘severe scenario’ —roughly equivalent to the combined annual output of Germany and Japan. If technological decoupling is added to the mix, some countries could see losses of up to 12 percent of GDP. Globalisation increased inequalities and and did not deliver on reducing poverty; fragmentation is likely to intensify those outcomes.

What is Georgieva’s answer to all this? First, strengthen the international trade system. Second, help vulnerable countries deal with debt. Third, step up climate action. She summed up: “The discussions in Davos will be a hopeful sign that we can move in the right direction and foster economic integration that brings peace and prosperity to all.” Some hope. Davos wants to ‘shape’ capitalism, but instead it’s going pear-shaped.

Michael Roberts

worked in the City of London as an economist for over 40 years. He has closely observed the machinations of global capitalism from within the dragon’s den. At the same time, he was a political activist in the labour movement for decades. Since retiring, he has written several books. The Great Recession – a Marxist view (2009); The Long Depression (2016); Marx 200: a review of Marx’s economics (2018): and jointly with Guglielmo Carchedi as editors of World in Crisis (2018). He has published numerous papers in various academic economic journals and articles in leftist publications.
He blogs at thenextrecession.wordpress.com

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