5. Preface
“The Davos Man and Woman are aware of all
the challenges and, in a pragmatic way, they do
what they can to mitigate the risks and address
the challenges. They also see the opportunities
in the world. But if we don’t address the
challenges, even the greatest opportunities will
not be enough to guarantee the future of
humankind.”
Klaus Schwab, Founder and Executive Chairman, World Economic Forum
Participants in the World Economic Forum Annual The power of collaborative innovation was a most
Meeting 2008 convened in Davos at a time of great apt theme for a second crucial reason. It served to
anxiety in the world. The turmoil in the financial underline the need for new and imaginative ways to
markets and the continuing conflict in the Middle mitigate global risks and the importance of
East were naturally of immediate concern. achieving tangible results or value. While some may
Mounting awareness of the epochal challenge of criticize us for our continued optimism amidst
climate change and the looming threat of global gloom, we must never discard our positive attitude
terrorism, two issues that were addressed in the for irrational pessimism.
opening plenary session, heightened our shared
sense of urgency. We should be neither paralyzed by despair nor
casual in our concern.
In such times of stress and disquiet, we truly
understand the value of the Davos Spirit of This is a time for sincere pragmatism and a new
inclusiveness, openness and commitment to brand of collaborative leadership to address the
improving the state of the world. The Annual many priorities on the global agenda. We look
Meeting theme – The Power of Collaborative forward to continuing our collaboration with
Innovation – was a fitting focus for two reasons. Members and Partners at our regional meetings
First, it highlighted that a multistakeholder approach and through the many Forum initiatives and
is critical for any authentic and viable solutions to industry activities this year.
global problems. The World Economic Forum has
underscored that, since the first Davos meeting 38 Klaus Schwab
years ago, government, business and civil society Founder and Executive Chairman
must engage each other to find effective
approaches to the most pressing issues. This year,
we placed particular emphasis on corporate global
citizenship, the principle that companies must be
involved in addressing the major challenges we
face today, aligning their engagement in society
with their business goals. This commitment is at
the core of what the Forum stands for.
3 | World Economic Forum Annual Meeting 2008
6. The Power of Collaborative Innovation
Executive Summary
“In spite of the economic crisis, can we Collaborative innovation is far from the norm in
international affairs, not least because the
look beyond that and view Davos as a
structures of global governance have not evolved
collection of minds to address issues for nearly three generations. Nation states, even
that can be addressed? My hope is that those working closely together, will not be able to
we are here not only with a can-do address future global challenges if business and
civil society are not engaged at the outset. In the
spirit, but with a must-do spirit.”
current context, the World Economic Forum
provides a unique platform for multiple stakeholders
to address a range of global, regional and industry
Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo,
issues. Fostering collaborative innovation becomes
USA
all the more critical in a time of heightened
Participants in the World Economic Forum Annual uncertainty.
Meeting 2008 focused on the tools for addressing
the many challenges emerging as a result of the
“Globalization is forcing changes in how
shifting power equations in the world. The Power of
people collaborate in a fundamental
Collaborative Innovation is arguably the last remedy
to the stresses of intense globalization that have way. You need stronger and stronger
been evident in financial market volatility, widening
collaborative political leadership. If we
income disparities, and in conflict zones around the
are interconnected and the world is
world. As former British Prime Minister Tony Blair
interconnected, the only way for the
observed in the closing plenary session:
“Globalization is forcing changes in how people world to work is to have a set of
collaborate in a fundamental way.” Blair added: “If
common values. We have no option but
we are interconnected and the world is
to work together.”
interconnected, the only way for the world to work
is to have a set of common values. We have no
option but to work together.” Tony Blair, Prime Minister of the United Kingdom (1997-2007);
Member of the Foundation Board of the World Economic Forum
4 | World Economic Forum Annual Meeting 2008
7. Among the outcomes of the Annual Meeting:
• Japanese Prime Minister Yasuo Fukuda unveiled
a five-year, US$ 10 billion fund to support efforts
in developing countries to combat global
warming – a move to ensure that top priority is
given to climate change at this year’s G8 Summit
in Hokkaido. In addition, Japan aims to create a
new multilateral fund with the US and the United
Kingdom to mitigate changes in the earth’s
climate as a result of global warming.
“I am optimistic about the future. The
• The Bill & Melinda Gates Foundation announced
question is if the economic growth of
a US$ 306 million package of agricultural
India and China will slow down if the
development grants “designed to boost the
global economy slows. I don’t think the
yields and incomes of millions of small farmers in
Africa and other parts of the developing world so impact on China will be very big.”
they can lift themselves and their families out of
hunger and poverty”. Wang Jianzhou, Chairman and Chief Executive, China Mobile
Communications Corporation, People’s Republic of China
• The World Economic Forum, Forum Member
companies and the United Nations launched
initiatives to facilitate broader and deeper private
sector support of humanitarian relief operations.
Among the programmes established: Agility, TNT
and UPS, three leading logistics and transport • The World Economic Forum launched a landmark
companies, are joining forces to help the report on the interfaith dialogue between Muslim
humanitarian sector with emergency response to and Western societies. Islam and the West:
large-scale natural disasters. Annual Report on the State of Dialogue was the
result of in-depth research and polling in more
than 40 countries. The report is intended to be
an annual global reference on the state of
dialogue among faiths that will increase interfaith
communication and strengthen efforts to deepen
understanding.
• The World Economic Forum released the first
part of the most comprehensive investigation into
private equity: The Globalization of Alternative
Investments Working Papers Volume 1: The
Global Economic Impact of Private Equity Report
2008. The study focuses on the demography of
global private equity deals, the willingness of
“There is no time to lose in addressing private equity-backed firms to make long-term
investments globally, and the impact of private
climate change. We have a readily
equity investments on the employment levels of
available means of taking action
firms in the US and corporate governance in the
without waiting for the agreement on a United Kingdom.
post-Kyoto framework. It goes without
• The Forum’s Global Education Initiative (GEI)
saying that aiming at the most efficient
designated Rwanda as the launch country for a
use of energy is now an obligation
pilot programme of the initiative. In partnership
upon humanity.” with the Education For All Fast Track Initiative
(FTI) under the banner of the Global Education
Yasuo Fukuda, Prime Minister of Japan
Alliance (GEA), the Forum will provide the
platform to combine the strengths of the private
sector and foundations to achieve education for
all in low-income countries.
5 | World Economic Forum Annual Meeting 2008
8. • Mayors, regional governors and the private sector • The Forum conducted an innovative outreach
launched the World Economic Forum’s SlimCity exercise with the online video website YouTube,
Initiative, an exchange programme between cities asking people from around the world to answer
and companies to support action on resource “The Davos Question” – What one thing do you
efficiency in urban areas, focusing on energy, think that countries, companies or individuals
water, waste, mobility, planning, health and must do to make the world a better place in
climate change. 2008? More than 2 million people took part, and
business, government and civil society leaders
• British Prime Minister Gordon Brown, Microsoft from the Annual Meeting posted replies. Among
Chairman Bill Gates, Irish musician Bono, H.M. those submitting video responses: President
Queen Rania Al Abdullah of the Hashemite Shimon Peres of Israel, President Abdoulaye
Kingdom of Jordan, United Nations Secretary- Wade of Senegal, President Hamid Karzai of
General Ban Ki-moon, World Economic Forum Afghanistan, former US Secretary of State Henry
Founder and Executive Chairman Klaus Schwab, A. Kissinger and Irish musician Bono. The
Nigerian President Umaru Musa Yar’Adua, and resulting global conversation may be viewed at
Cisco Chairman and Chief Executive Officer John www.youtube.com/Davos
T. Chambers issued a joint statement vowing to
make 2008 a turning point in the fight against • Fourteen global CEOs and company chairmen
poverty. The world is facing a “development representing a range of industries and regions
emergency”, they said, pledging to “work issued a call to their peers to join collaborative
together to help the world get back on track to efforts to strengthen public governance
meet the Millennium Development Goals.” frameworks and institutions as a core element of
their approach to corporate citizenship.
“This is not a great year in the US for
far-sighted and imaginative economic The Annual Meeting agenda was organized under
policies. We need to activate world five sub-themes – Economics and Finance:
Addressing Economic Insecurity; Geopolitics:
trade talks and strengthen the global
Aligning Interests Across Divides; Business:
international system.”
Competing While Collaborating; Science and
Technology: Exploring Nature’s New Frontiers; and
Values and Society: Understanding Future Shifts.
Henry A. Kissinger, Chairman, Kissinger Associates, USA
6 | World Economic Forum Annual Meeting 2008
9. World Economic Forum Reaches Millions with the Davos Conversation
Ahead of the Annual Meeting, the World Economic Forum In Davos, the Forum set up a special Davos Conversation
created the first-ever global video conversation between corner where all participants were encouraged to reply to
the general public and the world leaders who were these videos uploaded by the YouTube users, or to simply
participating in Davos. By the last day of the Meeting, the answer the Davos Question. Over 110 participants, including
Forum reached a worldwide audience of over 7 million with President Shimon Peres of Israel, President Abdoulaye Wade
the Davos Question on YouTube. of Senegal, President Hamid Karzai of Afghanistan, musician
Bono and actress Emma Thompson along with numerous
In the run-up to the Annual Meeting the Forum had asked business leaders used the special video corner to record
the Davos Question: “What one thing do you think countries, their messages. Watch the best responses here:
companies or individuals must do to make the world a better http://www.youtube.com/view_play_list?p=749732FFD312CA7F.
place in 2008?” Nearly 300 people, including some of the
Forum’s Members, sent in personal video replies. The best “The Davos Question and the Davos Conversation video
were shown during the opening and other selected plenary corner were the embodiment of our Annual Meeting theme:
sessions at the Annual Meeting 2008. The topics most often ‘The Power of Collaborative Innovation’,” said Klaus Schwab,
included development, economics, education, environment, Founder and Executive Chairman of the World Economic
climate change, energy, water, governance, human rights, Forum. The Forum is currently planning to continue the video
values and technology innovations. You can check out the conversation with YouTube at some of its regional meetings.
best replies on the following website:
http://www.youtube.com/profile_favorites?user=thedavosquestion
Economics and Finance: Addressing Geopolitics: Aligning Interests Across Divides
Economic Insecurity
Collaborative innovation is the framework to
The unfolding financial crisis should be viewed as a address major global challenges linked to the
chapter in a much larger, more profound story – the intensification of globalization.
rebalancing of global wealth away from the West
and toward the emerging economies of Asia and • The legacy institutions of global governance are
the Middle East. not capable of tackling the many interconnected
and complex challenges of a multipolar world.
• The shift of economic power from West to East is • Collaboration among nation states is not
an epochal transformation that is taking place sufficient to address pressing global problems.
faster than anticipated. The participation of business and civil society is
• The challenge to policy-makers and needed.
businesspeople is how to address the more • Climate change is an immediate test of whether a
dangerous side effects of global growth such as new brand of collaborative and pragmatic
widening income disparities, inflation and leadership can lead to real and lasting results.
environmental degradation. • The world is in transition. The US is too strong to
• The decoupling of global growth from the US stand on the sidelines, but too weak to go it
economy is premature, but there is a new alone. The state is no longer the most important
dynamic with the rapid growth of China and other point of reference for many populations.
emerging economies shortening and softening • There are global challenges that simply require
the US downturn. greater collaboration such as the Doha Round of
• Charting a more equitable and sustainable Trade negotiations and the Middle East peace
course for global growth will require long-term process. And there are those that will require
investments in human capital, education, health greater innovation to solve such as rapidly ageing
and environmental protection. societies, urbanization and food security. But the
• Greater coordination of macroeconomic policy, most pressing challenges for humankind, such as
beyond just the G8, is needed given the limits of climate change, terrorism and non-proliferation
traditional monetary and fiscal policy in a global will require both collaboration and innovation.
economy.
7 | World Economic Forum Annual Meeting 2008
10. Business: Competing While Collaborating Science and Technology: Exploring Nature’s
New Frontiers
To survive and prosper in the rapidly evolving global
marketplace, companies must win the war for Science and technology are progressing so fast
talent and innovate rapidly but also, where that advances are challenging our assumptions
appropriate, collaborate - even with the about the human experience. While death remains
competition. inevitable, when and how it happens is now less of
a mystery.
• As worldwide markets reward swift and agile
companies, mobile technology has become a • Deeper understanding of the essence of our
powerful tool for empowering consumers and individuality, DNA, may help us to be more in
connecting customers and clients with product control of our health and lifespan. Meanwhile, the
and service providers. finality of paralysis is being challenged by
• In addition to shifts in technology, the global developments in neurotechnology and
business climate continues to be profoundly regenerative medicine. In addition, advances in
affected by shifts in power from developed genetics are providing new weapons against
economies to emerging markets including Brazil, cancer.
Russia, India and China, which are spawning • These developments are changing the rules of
multinational companies of their own that are the labour force, the calculus of healthcare and
effectively competing against established our concepts of age, equality and privacy.
corporations from the West. • Highly bespoke diagnosis and treatment is
• Globalization is decentralizing power, while challenging the traditional assumption that each
demographic differentials are heightening the person needs, and is entitled to, a common slate
fight for talent. of medical procedures. However, patients and
• Web collaboration is distributive; open source doctors fear that people with a genetic
results in robustness but not innovation. How to disposition to disease will face discrimination and
innovate is less complicated than discovering that employers or insurers might reject them.
what to innovate. • While science may decrease our mortality, the
• The practice of corporate global citizenship is total cost of healthcare will rise.
crucial for a company to succeed in this context. • Businesses are fundamentally altering the way in
which they conduct research. They are
increasingly relying on collaborative research
rather than large-scale integrated research that
invents a new technology from top to bottom.
8 | World Economic Forum Annual Meeting 2008
11. Values and Society: Understanding Future The Forum would like to thank the distinguished
Shifts Co-Chairs of the Annual Meeting 2008, who led
many sessions and provided valuable insights and
Globalization’s impact on cultures, societies and wisdom. They were:
values must be the subject of deeper, more Tony Blair, Prime Minister of the United Kingdom
qualitative analysis. Increasing interconnectedness (1997-2007); Member of the Foundation Board of
has not always led to secularization or the World Economic Forum
homogenization. Often, in fact, it has exacerbated James Dimon, Chairman and Chief Executive
divisions. Officer, JPMorgan Chase & Co., USA
K. V. Kamath, Managing Director and Chief
• The growth of economic opportunity as a result Executive Officer, ICICI Bank, India
of globalization must be combined with a sense Henry A. Kissinger, Chairman, Kissinger
of values centred on the notions of justice and Associates, USA
freedom to ensure its sustainability over the long Indra K. Nooyi, Chairman and Chief Executive
run. Officer, PepsiCo, USA
• Burgeoning urban populations place enormous David J. O’Reilly, Chairman and Chief Executive
strains on existing infrastructure, particularly in Officer, Chevron, USA
Asia and Latin America. Urbanization must be Wang Jianzhou, Chairman and Chief Executive,
made sustainable. China Mobile Communications Corporation,
• While consuming less is a difficult message in People’s Republic of China
much of the world, developing market
consumers have the economic motivation to “get
more for less” which promotes demand for
energy-efficient products.
• It is not necessarily faith that brings people into
conflict but rather politics and the pursuit of
economic and military power, as well as the
manipulation of ideology, whether religious or
secular.
• To foster cross-cultural understanding, public and
private learning institutions must work to promote
empathy. The Internet can play a critical role in
education to bridge divides.
9 | World Economic Forum Annual Meeting 2008
12. Economics and Finance:
Addressing Economic Insecurity
“If everyone tries to consume the way
America has consumed, the world is not US Mortgage-backed Securities
Value erosion
viable.”
US sub-prime mortgage-backed securities prices, by rating*
100
AAA
Joseph E. Stiglitz, University Professor, Columbia University, Banks
annouce
USA 80 write-downs
Fed Funds
cut 25 bp
It might be tempting to lay the blame for the 60
Largest
sub-prime
A
unfolding financial crisis at the feet of bankers like lender declares
Two bulge-bracket
bankruptcy
hedge funds reach
creditor settlement
Jérôme Kerviel, the young trader whose 40
Central banks Bank
misadventures have allegedly cost Société coordinate run on
BBB-
first liquidity Northern
injection
20 Rock
Générale US$ 7.3 billion, to castigate the supposed SWF’s begin
bail out
greed of investment banks or to demonize the Fed Funds of banks
cut 50 bp
0
derivatives at the heart of the turmoil. But what Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2007
became clear during discussions at this year’s * ABX series 06-2. The ABX are credit default swaps based on sub-prime mortgage securities.
Source: Thomson Financial; press accounts
Annual Meeting was that the sub-prime crisis roiling
global financial markets is but a dramatic and
costly chapter in a much larger, more profound It may not seem like it to those watching their
story - the rebalancing of global wealth away from portfolios plummet, but this trend is not all bad
the developed economies of the West towards the news. The rising prosperity of the East is lifting
emerging economies of Asia and the Middle East. millions out of poverty and is even spreading to the
poorest corners of Africa. The challenge to policy-
“When this is over we will wake up and realize that makers and businesspeople as the crisis subsides
the issue is that the transformation of wealth and will be how to alleviate the more dangerous side
information and industrial activity is taking place at effects of global economic growth – rising inequities
a pace none of us has ever experienced,” said within nations and a worsening global environment.
Michael S. Klein, Chairman and Co-Chief Executive Climate change has underscored the limits of
Officer of Markets and Banking at Citi. Or as development: without dramatic advances in
Kishore Mahbubani, Dean of the Lee Kuan Yew resource efficiency and reductions in emissions,
School of Public Policy, put it: “We are entering a universal prosperity is environmental suicide. “If
completely new era of world history – the end of everyone tries to consume the way America has
Western domination. In the Industrial Revolution consumed, the world is not viable,” said Nobel
there was a rapid increase in living standards of Prize-winning economist Joseph E. Stiglitz.
50% in one lifetime. In Asia today in one lifetime
you will see an increase of 10,000%.”
10 | World Economic Forum Annual Meeting 2008
13. Results of the World Economic Brainstorming
The Greatest Threat to Global Growth
1. Recession in the United States 15.90%
2. Greater Income Inequalities 2.20%
3. Rise in Energy and Commodity Prices 5.70%
4. Severe Global Credit Crunch 11.00%
5. Mismanagement of Current Crisis 18.10%
6. Broad-based Collapse of Confidence 16.70%
7. Rise of Protectionism 4.40%
8. Overreaction to the Threat of Recession 7.50%
18.50%
9. Lack of Coordinated Response/Leadership
One of the most remarkable features of the current obligations, or CDOs, that allowed lenders to sell
crisis is how widely it was predicted. “A year ago their risks on to investors searching for yields, the
we said there was an underpricing of risk,” recalled quest for which fuelled a boom in lending to home
European Central Bank President Jean-Claude buyers with poor, or sub-prime, credit.
Trichet. Indeed, participants at last year’s meeting
warned of a bubble in the US housing market and CDOs were repeatedly repackaged and resold to
of a worrying proliferation of complex credit investors paying with borrowed funds, creating a
derivatives. mountain of leverage that is now collapsing. What
was a liquidity bubble has instead become a
Underlying the flood of money into mortgage- liquidity crunch as holders of CDOs search in vain
backed securities was a tsunami of global capital, for anyone willing to buy or lend. “It’s not mistrust
fuelled by growing Asian export earnings that has that other institutions will go bankrupt,” said Walter
helped finance America’s swelling debt and kept B. Kielholz, Chairman of the Board of Directors at
global interest rates and inflation low. Credit Suisse, “It’s mistrust that if I lend to them
they may not lend to me, so I’ll keep my money.
This so-called liquidity bubble was good for And that was something that I in my career had
emerging economies, providing them with cheap never seen before.”
capital to pay off their debts and finance
development and trade. The boom in global growth
Equity Market Volatility
and investment has surpassed the resource
Crash of 1987 stands out as the most volatile S&P500 event over the past 55 years
industry’s ability to supply it, sending prices for 0.023
commodities soaring. Record prices for oil, metals 1987 Crash
0.021
S&P 500 volatility (12 month std dev)
and food have been a boon to nations that export 0.019
Gulf war 2
them. 0.017
9/11
Dot-com
Oil crisis 1
0.015
Asian crisis
0.013
Booming markets and easy money also put Cuban Falklands
Missile
Gulf war 1
Oil crisis 2
Crisis
0.011
pressure on financial managers to take greater Sub-prime
Suez Vietnam
0.009
risks, and borrow more money, in search of higher Average
0.007
returns. “If you are in a risk business, one of the 0.005
easiest ways to grow is to leverage up,” observed 0.003
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
James Dimon, Chairman and Chief Executive
Officer of JPMorgan Chase & Co. The industry
Source: World Economic Forum
responded with innovative collateralized debt
11 | World Economic Forum Annual Meeting 2008
14. predict a US recession, which could lead to a
sharp slowdown in demand for raw materials and
manufactured exports and with it slower global
growth. If that happens, countries and regions with
stronger fiscal positions, like China, East Asia and
Latin America are likely to be able to cushion
themselves better than those with heavy overseas
debt, like Eastern Europe.
But a sharp debate took place between those who
say the world still depends on US demand and
those who believe that the emerging markets’
“We are entering a completely new era
boom has produced enough momentum that,
of world history – the end of Western
combined with Europe and Japan, the world is less
domination. In the Industrial Revolution reliant on the US. “When the US catches a cold,
there was a rapid increase in living maybe the rest of the world catches a sniffle, but
certainly not pneumonia,” noted C. Fred Bergsten,
standards of 50% in one lifetime. In
Director of the Peterson Institute for International
Asia today in one lifetime you will see
Economics. On the contrary, Bergsten argued that
an increase of 10,000%.” the world may experience its first episode of
“reverse coupling” in which reasonably rapid growth
Kishore Mahbubani, Dean, Lee Kuan Yew School of Public
in China and other economies softens and shortens
Policy, Singapore
the US downturn.
Predictably, the sub-prime debacle has sparked
calls for regulatory reform, in particular the Perhaps the best indication of the changing
harmonization of regulations internationally to balance of economic power, though, is the list of
prevent banks from “regulatory arbitrage”. who has been bailing out the big banks wounded
“Regulation is fragmented,” said Malcolm Knight, by the sub-prime fiasco. Swollen with revenues
General Manager and Chief Executive Officer at the from oil, electronics and public savings, sovereign
Bank for International Settlements. “There has to wealth funds have become the latest global
be more conformity in the way these regulations financial force, sparking concern that they may
are implemented across jurisdictions.” have more than profits in mind as they buy up
strategic assets in developed countries.
The US Federal Reserve and other central banks
are also under scrutiny. Some argue that their Largest Sovereign Wealth Funds
efforts to pump liquidity into money markets and
Over US$ 2 trillion held by the largest SWFs
lower rates to stave off recession are critical to
$700
keep the global financial system working. Others 600
say such moves only reward investors for their
Assets, 2007 (US$, billions)
500
excesses and encourage continued American 400
profligacy. “The Fed’s attitude is that they are here 300
to clean up after bubbles burst, not prevent them 200
from happening in the first place,” said Stephen S. 100
0
Roach, Chairman for Asia at Morgan Stanley. “This
UAE (Abu Dhabi)-ADIA
Norway
Singapore-GIC
Kuwait
China-CIC
Russia
Singapore-Temasek
Qatar
US (Alaska)
Brunei
S. Korea
Malaysia
Venezuela-NDF
Canada (Alberta)
Taiwan
Kazakhstan
Chile
UAE (Dubai)-Istithmar
UAE (Dubai)-DIC
Oman
is a dangerous and irresponsible and reckless way
to run the world’s largest economy.”
Now there are concerns that the sub-prime
Source: Standard Chartered (2007)
mortgage crisis will spread to other credit markets
– areas dependent on cash-strapped US
consumers such as auto loans, as well as markets Bankers point out that sovereign wealth funds have
for other exotic credit derivatives. been ideal investors, taking only small stakes and
serving as silent, long-term investors. Moreover,
The billions in losses suffered by banks and other their investments help ensure that some of the
investors could go so far as to reduce credit money spent on oil and electronics finds its way
available to corporations to invest. The real back to the US. Nonetheless, scepticism has
question, however, is what impact falling housing emerged about whether the funds’ owners –
prices will have on US consumers and the global particularly those that are non-democratic
economy. While policy-makers extolled the governments – would refrain from interfering if their
resilience of the US economy, many economists national interests were at stake.
12 | World Economic Forum Annual Meeting 2008
15. Sovereign Wealth Funds: A New Development
The rising importance of sovereign wealth funds (SWFs) • There is virtually no difference between going to a
SWF for investment capital and going to a state
received much attention at the World Economic Forum
pension fund in the US.
Annual Meeting 2008, fuelling concern about their
potential political influence. Many agreed that the • If high oil prices continue to channel surplus funds
growing financial clout of SWFs – government- into the coffers of the major exporting countries,
controlled funds estimated at US$ 2.5 trillion in assets – sovereign investments could reach US$ 15 trillion
should be welcomed, not opposed, by global policy- within the next five years. This growth will inevitably
make SWFs major players in the global capital
makers because:
markets.
• SWFs represent a valuable pool of stable, long-term
capital, and have reduced, rather than increased, “So far as we can see, these investments
capital market volatility.
have been made on commercial, not
• SWFs not only contribute to domestic economic political grounds. We welcome that type
stability but to the stability of the global economy as
of investment, whether it is from an SWF
well.
or anyone else.”
Robert M. Kimmitt, US Deputy Secretary of the Treasury.
of corporate investment and development are not
adequate. “The world is getting better, but it’s not
getting better fast enough, and it’s not getting
better for everyone. We have to find a way to make
the aspects of capitalism that serve wealthier
people serve poorer people as well,” said William
H. Gates III, Chairman of Microsoft Corporation. “If
we’re going to find a sustainable way to help those
who can’t pay, we have to use self-interest and
caring – capitalism and philanthropy – to direct
attention to people who have been left behind.”
“When this is over we will wake up and
realize that the issue is that the Top Sovereign Wealth Funds
transformation of wealth and Perceived levels of transparency and investment approaches vary
Strategic
information and industrial activity is UAE (Dubai)-DIC
Malaysia
taking place at a pace none of us has UAE (Dubai)-Istithmar
Qatar
Investment approach
Singapore-Temasek
China
ever experienced.”
Libya Singapore-GIC
Michael S. Klein, Chairman and Co-Chief Executive Officer, S Korea
UAE (Abu Dhabi)-ADIA
Markets and Banking, Citi, USA Brunei
Oman
Conventional
Kuwait
Algeria Norway
Taiwan
US (Alaska)
Venezuela-NDF
Kazakhstan
Ultimately, however, the wealth of exporters alone Chile
Canada (Alberta)
Russia
will not solve the enduring problems confronting the Low Level of transparency High
Assets (2007): Over US$ 500 billion
global economy. Charting a more equitable and US$ 250-500 billion
Commodity fund
US$ 100-250 billion
Non-commodity fund
<US$ 100 billion
sustainable course will require long-term
Source: Standard Chartered (2007)
investments in human capital, education, health
and environmental protection. Conventional models
13 | World Economic Forum Annual Meeting 2008
16. Geopolitics: Aligning Interests Across Divides
“There is not one challenge in the “The United Nations is often a bystander on
geopolitical issues,” said Nandan M. Nilekani,
world today that will get better if we
Executive Co-Chairman of Indian IT group Infosys
approach it without confidence in the Technologies. “The Security Council is still
appeal and effectiveness of our ideals – structured with members from 60 years ago. The
political and economic freedom, open G8 is still not ready to expand its membership to
include the new countries. The World Bank is
markets and free and fair trade, human
finding that its capital flows are dwarfed by private
dignity and human rights, equal capital and it’s time to find a new role in this world.
opportunity and the rule of law.” The IMF voting patterns are based on 60-year old
rules. The Doha Round of trade discussions has
Condoleezza Rice, US Secretary of State
been going on for the last 10 years. When we look
at every dimension of global coordination we find
that there is not enough coordination happening
and things are just falling apart.”
Collaboration is most certainly the best way to
develop effective approaches to these many global To prevent such a breakdown requires collaborative
risks. But cooperation among nations will be innovation. In business, “innovation”, strictly
insufficient if the responses involve obsolete tools of speaking, is the turning of a concept into
diplomacy and statecraft – commissions that report commercial value. Applying innovation in
but do not act, resolutions and declarations with no geopolitics is the turning of an idea – a new policy
bite, international protocols that major powers or approach – into valuable results, or viable
refuse to sign, or multilateral organizations which solutions. “The power of collaborative innovation,”
key nations can opt out of or undermine with a said former British Prime Minister Tony Blair in
veto or refusal of funding. The global governance advance of the Annual Meeting, “is the answer to
institutions that exist today are legacies of the post- all the big global challenges we are facing.”
World War age and the cold war era. They are not
equipped to tackle the challenges of a multipolar The linkages among issues means that any
world, are simply too weak, or are hobbled by the effective approach to a problem will require action
burden of lowest denominator consensus. across several fronts and by many actors including
business, civil society and citizens. Nobel Peace
14 | World Economic Forum Annual Meeting 2008
17. “Water is today’s issue; it is the oil of It was in the series of sessions on water,
particularly the WorkSpace session, that the urgent
this century.”
need for collaborative and innovative approaches
was most evident. Ignorance of the many problems
Andrew N. Liveris, Chairman and Chief Executive Officer, Dow
Chemical Company, USA associated with water supply in the world and
inaction are already having severe consequences –
conflict, malnutrition, displacement, disease and
death. “Water is today’s issue; it is the oil of this
Prize laureate Al Gore and Irish musician Bono century,” warned Andrew N. Liveris, Chairman and
made this point as they underscored the Chief Executive Officer of Dow Chemical Company.
connection between climate change and poverty. Added UN Secretary-General Ban Ki-moon: “Too
Gore argued that individual actions to conserve often where we need water we find guns instead.”
energy were not enough to deal with the climate
crisis. “They’re important and making changes of
Per Capita Water Consumption Worldwide
those sorts can build a political consensus,” he
explained. “But, in addition to changing the light Per capita water consumption rising in both developed and developing countries
bulbs, it is far more important to change the laws 60
and the treaty obligations that nations have.”
50
Cubic metres per person per year
Many government leaders at the Annual Meeting 40
including Blair stressed that the Israeli-Palestinian
30
conflict and the stability of the Middle East is not
simply a matter for politicians and diplomats. It 20
impinges on the rest of the world because of its 10
motivational link to global terrorism and its impact 1995 2025 1995 2025
on energy markets. The international business 0
Developed countries Deveoping countries
community obviously needs to support the peace
Source: IFPRI and IWMI, quot;Global Water Outlook to 2025: Averting an Impending Crisisquot; (2002)
process for it to succeed.
15 | World Economic Forum Annual Meeting 2008
18. But is the new brand of leadership – the kind that is At the Annual Meeting, geopolitical collaborative
focused on finding collaborative and innovative innovation was very much on display in the ASEAN
solutions – for real? To be sure, we have seen the session, with three heads of government, six
application of collaborative innovation in the past. ministers and the organization’s secretary-general
The creation of the UN peacekeeping forces, the on the Congress Hall stage. It was a bold
establishment of the International Criminal Court, statement by 10 disparate countries that, while
the conclusion of landmark conventions such as they may have different cultures, traditions and
the Law of the Sea and the global banning of histories, and while they may have even fought
landmines were collaborative innovations in their each other on the battlefield, they share a common
time. Today, it is critical to apply collaborative future. Indeed, they must – and not just because by
innovation to even bigger geopolitical challenges. joining forces in an ever-closer union they become
a more powerful market or a more attractive
Two immediate tests of whether this concept is destination for foreign direct investment, but
more than a Davos ideal are the challenges of because only by banding together can they fully
concluding a post-Kyoto international framework and effectively address the multiple risks that
for mitigating global warming and resolving the threaten the future of their people.
Israeli-Palestinian conflict by the end of this year. It
is far from clear that these two goals can be And it is not just nation states that have to sit at the
achieved. What is clear is that nations are table. In session after session, the message of
beginning to understand that business as usual is inclusiveness was clear: business and civil society
simply unacceptable. “Globalization is forcing must join with government. The only way for the
changes in how people collaborate in a ideal of collaborative innovation to be a reality – as
fundamental way,” said Blair. “You need stronger it must be – is for the international community to
and stronger collaborative political leadership.” The set common values to underpin a globalization that
“good news” is this, he concluded: “If we are is fair and just.
interconnected and the world is interconnected, the
only way for the world to work is to have a set of A group photo in Davos said more than any of the
common values. We have no option but to work statements the assembled public figures gave in
together.” support of the renewed push by the United Nations
16 | World Economic Forum Annual Meeting 2008
19. Securing Water for the Future
Water emerged as one of the dominant themes at the World The resource is often wasted because it has no economic
Economic Forum Annual Meeting 2008. No individual, firm or value, despite being the most precious and scarce resource
nation can escape the consequences of water scarcity. of all, said Peter Brabeck-Letmathe, Chairman and Chief
Executive Officer, Nestlé, Switzerland. “If we allow market
“The challenge of securing safe and plentiful water for all is forces to play a role in how to define the value of water, we
one of the most daunting challenges faced by the world could take a big step forward.”
today,” said UN Secretary-General Ban Ki-moon. He told
leaders in Davos that water stress poses a risk to economic Efforts to extract more and alternative energy sources such
growth, human rights, health, safety and national security, as shale oil or biofuels only speed the depletion through their
and that water shortages can lead to conflict, such as in own requirements for water. But, it was suggested that
Darfur and other parts of the world. market forces could work well under a cap and trade
approach similar to those applied to carbon dioxide.
Many participants, however, agreed that the water challenge
could be solved, using collaborative approaches, political will,
market mechanisms and innovative technology like those
which arose in response to global warming.
to achieve the Millennium Development Goals Cynics and devotees of zero sum diplomacy may
(MDGs). Together with UN Secretary-General Ban dismiss the idea of collaborative innovation as
Ki-moon stood Nigerian President Umaru Musa simplistic or naïve. Certainly, the power of this
Yar’Adua, British Prime Minister Gordon Brown, approach will be tested in a world where recidivism
H.M. Queen Rania Al Abdullah of Jordan, Microsoft lingers. At the Annual Meeting, formidable voices
Chairman and global philanthropist Bill Gates, Irish spoke of the residual ills of colonialism and took a
musician Bono and Cisco Systems Chairman and hard line on the enmities of a bygone age. History,
CEO John T. Chambers. This creative coalition, of course, cannot be denied. But if the state of the
they declared, was necessary to reinvigorate the world is to improve, then those truly committed to
international community’s flagging campaign. “The improving it cannot waste time eschewing the balm
goals look like they’re not going to happen, and the of forgiveness for the false satisfaction of revenge
G8 commitments made in 2005 look like they will and the easy languor of dwelling on past injustice.
not come off,” Bono complained. “This is a Instead, to forge ahead, as South Africa did after
scandal.” the end of apartheid, they should pursue truth and
reconciliation – collaborative innovation at its finest.
This unprecedented gathering to rally the
international community was emblematic of the
new geopolitics that globalization has spawned.
The greater interconnectedness of the world has
begotten a host of interconnected problems that
the old nation-state model was never meant to deal
with. Climate change, terrorism, regional conflict
and the rapid spread of infectious diseases are only
some of the modern global challenges that require
multiple approaches and the attention of multiple
actors. As the problems have expanded in scope,
so too have the number of players needed to
tackle them.
17 | World Economic Forum Annual Meeting 2008
20. Business: Competing While Collaborating
“We’ve been talking about the mobile In short, worldwide markets reward swift and agile
companies, and those that win the race for talent
Internet and mobile stuff for a very long
and customers must be responsive to both. To be
time. And it’s obvious that with 3 billion truly responsive, corporations must be good as well
people and hundreds of millions of very as great.
high-end mobile phones, that there’s
Mobile technology is changing the way businesses
going to be a huge revolution.”
interface with customers, and the way customers
interface with one another. In China, home to the
Eric Schmidt, Chairman of the Executive Committee and Chief
Executive Officer, Google, USA world’s largest mobile network, this is particularly
true. “On New Year’s Day, we had about 5 billion
SMS New Year’s greetings,” said the man who runs
French poet Paul Valéry might have been the network, Wang Jianzhou, Chairman and Chief
forecasting for today’s multinational corporation Executive, China Mobile Communications
when he said that “the trouble of our times is that Corporation.
the future isn’t what it used to be.” New mobile
communications technology and Internet Worldwide, mobile phone owners total 3 billion and
advertising are revolutionizing the way business is may reach 4 billion in the next four years. “We’ve
done. Economic power is shifting away from the been talking about the mobile Internet and mobile
West, and corporations in other parts of the world stuff for a very long time. And it’s obvious that with
are emerging as new champions. To survive and 3 billion people and ... hundreds of millions of very
prosper in the rapidly evolving global marketplace, high-end mobile phones, that there’s going to be a
companies must win the war for talent, innovate huge revolution,” said Eric Schmidt, Chairman of
rapidly, but also, where appropriate, collaborate the Executive Committee and Chief Executive
effectively. Good corporate citizenship will also Officer of Google Inc.
attract customers, especially if such citizenship
underpins business models themselves. A parallel technological revolution is taking place in
advertising, with Internet and mobile ads surging
18 | World Economic Forum Annual Meeting 2008
21. and traditional television ads waning. The future is adequate skills training for the future. It must also
particularly bleak for old print advertising, but viral address the needs of the half of the Indian
marketing continues to grow as a cost-effective population that survives on less than a dollar a day.
alternative. Research is needed to determine what
types of Internet advertising work best. Globalization is decentralizing power, a trend visible
not just in the shift away from the West, but also in
In addition to shifts in technology, the global the shift of influence away from CEOs and towards
business climate continues to be profoundly customers and employees. To survive and prosper,
affected by shifts in the location of power. The successful multinationals must be ready to
emerging markets of Brazil, Russia, India and China collaborate effectively.
are drawing huge capital investments, and have
spawned innovative multinational corporations that The world is currently undergoing a demographic
compete on an even footing with established shift that amounts to an earthquake for business.
companies from the developed world. “We were With much of the planet experiencing a youth
bold, we were passionate in what we believed, we bulge, rates of mortality and fertility are falling in the
persevered, we were committed, and underpinning developed world, with average life expectancy
all of that was a sound business strategy,” said one projected to reach 100 by the end of the century. In
such new champion, Aditya Mittal, Chief Financial Europe, talent is increasingly mobile and thus tough
Officer of ArcelorMittal Limited and Young Global to retain: employees between the ages of 25 and
Leader. 34 spend an average of just 2.9 years in a job. In
Africa, a surplus of workers is driving immigration to
India in particular holds the potential for the north.
tremendous growth. Since reorienting from a
command economy to one driven by To retain talent, management must demonstrate
entrepreneurship, India has given birth to countless empathy for its needs and create attractive
innovations, and Indian corporations have scaled workplaces. Corporate boards must be diverse,
up their research and development budgets and CEOs must be able to manage across political
exponentially. However, for India to sustain its and cultural boundaries. Increasingly this means
growth over the long term, it must make sure that recruiting leadership from countries outside of
the 550 million of its citizens under age 24 have Europe and North America.
19 | World Economic Forum Annual Meeting 2008
22. “There has been a massive shift in
Foreign-born CEOs
power to the consumer.”
One-third of FTSE 100 CEOs were born outside of the UK
Mark G. Parker, President and Chief Executive Officer, Nike,
35%
USA
30
foreign-born, as of 12 Dec 2007
Percentage of CEOs who are
25
20
networks are islands,” said Schmidt, while “an
15
open Internet produces more content, more users,
10
more revenue, more competition, more choices,
5
more growth.”
0
FTSE 100 (UK) CAC 40 (France) Xetra Dax (Germany) Fortune 100 (US)
The world’s top 1,250 companies spent 10% more
Source: New York Times; London Chamber of Commerce and Industry; press reports; company websites
on research and development in 2006 than they
did in 2005; but most innovation now comes
Customers are also enjoying more clout than ever, through collaboration with employees, customers
as businesses vie to learn from, and respond to and business partners. Still, the growing open
their needs. “There has been a massive shift in source community must not mean a total erosion of
power to the consumer,” said Mark G. Parker, intellectual property rights. Excessive IP regulation
President and Chief Executive Officer of Nike. “And will stifle growth; but forehanded policies that
the other thing that’s changed is the relationship nurture future innovation rather than protect past
isn’t just a company like Nike just communicating methods will make happy shareholders.
out to a consumer; it’s a dialogue.”
Finally, shareholders also respond to prudential
In an economy where a knowledge base is corporate global citizenship, and companies that
increasingly replacing a manufacturing base, and succeed must be good as well as great. By
where the Internet is breaking down corporate partnering with governments and civil societies and
walls, collaboration also means sharing information. working within core competencies, companies can
“We have to fundamentally decide whether you greatly benefit societies and improve their bottom
want closed networks or open networks: closed lines. One Edelman study of 5,000 consumers in
20 | World Economic Forum Annual Meeting 2008