Meeting in Davos, and Missing the Point

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

The World Economic Forum is underway in Davos.  The global capital markets are off to one of their worst years ever.  The threat of terrorism hangs over us like the Sword of Damocles while GDP growth, except in a few countries, is not keeping pace with population growth. 

The World Economic Forum is underway in Davos.  The global capital markets are off to one of their worst years ever.  The threat of terrorism hangs over us like the Sword of Damocles while GDP growth, except in a few countries, is not keeping pace with population growth. 

As 2500 rich, powerful, and famous (mostly) men meet in the Swiss resort, one cannot help but wonder if Ayn Rand’s Atlas is Shrugging?  The movers and shakers have ensconced themselves during this, particularly turbulent time.  Their instructions are not to address our current woes but to look for new ideas.  One of the themes is the Fourth Industrial Revolution.  Really, the Fourth Industrial Revolution?  Isn’t this tantamount to a strike, as Rand’s novel depicted?

The Fourth Industrial Revolution offers a periodization of history based on the dominant technology.  The first, according to Klaus Schwab, the Executive Chairman of the World Economic Forum, was mechanical production and steam, (a period apparently covering a few centuries).  The second was mass production and electricity (late 19th century/ early 20th century).  The third was electronics and information technology (the 1980s to present).  The fourth is artificial intelligence. 

Our most pressing problems are not about technology.  Artificial intelligence, no matter how capable, is not a substitute for human intelligence.  The most pressing issues are not about technology but social relationships.  How can one offer a periodization of history without people being at the center of it?

Many who have picked up this meme make is seem as if the technology just develops on its own.  Artificial intelligence is the next obvious stage that grows natural out of the digital revolution just as the IT naturally emerged from mass production and electricity.  This ignores that technology does not emerge as cause sui (cause of itself), but is itself a product of a certain set of cultural values and social relationships.  Artificial intelligence is one path, but others are possible.  Further, even claiming that artificial intelligence is the fourth revolution reflects ideological assumptions. 

The AI revolution could empower individuals; the proponents explain, but it could exacerbate inequality among people and countries.  While creating new opportunities for economic, social, and personal developments, it could marginalize some groups (many of whom are already marginalized). Some of the more thoughtful proponents, such as Schwab himself, recognize that the AI could undermine human relationships. 

Still, Schwab holds out the possibility that the new technology age could foster a truly global civilization.     The reason that there is no global civilization is not because we lack the proper technology.  It is because how people relate to each other.  Oxfam notes that 62 people have the net worth of half of the world’s  population.  The kind of technology that is developed reflects the system that generated that concentration of wealth and power.

We suggest that three key relationships are changing and that this, not the technological developments will characterize the period ahead.  The first is gender relations.  The economic crisis appears to be accelerating what some have called the feminization of wok and power.  This may overlap with the rising networks that both strengthen and challenge hierarchical organization. 

A second relationship that is changing is between employers and employees.  This is reflected in the growing interest in work-life balance, a concept that seems to be practically unheard of the last decade or so.  The increasingly global shift away from defined benefit pension plans toward defined contributions also reflects this changing relationship.

A third relationship that is changing is between citizens and the state.  What is the basket of goods that the state provides and at what cost to the citizens?  When austerians talk about cutting spending, they are talking about cutting benefits.  What are the civic responsibilities of citizens?  Many representative governments are seeing participation in elections fall.  Large corporations, regarded as persons, are engaged in intense tax arbitrage.  Many US companies have chosen to move their headquarters abroad to reduce taxes.  In the US, the minimal earnings for income tax charges are such that an estimated 45% of Americans will not pay income tax for 2015.

The 1 in 2.8 mln (of the world’s population) attending Davos are fiddling while Rome (proverbial) burns.  They are not on strike, as they were in Ayn Rand’s novel, but appear to be throwing their hands up in defeat.  The political and economic elite have not addressed pressing old issues. Shouldn’t the best and brightest stay focus on the existing vexing issues.  Increasing aggregate demand and reducing the extremes of income and wealth are noble goals.  Ensuring physical security, which does not only mean from terrorists, but also from hunger, thirst, and local violence.  

Rather than spending so much time discussing artificial intelligence, wouldn’t applying existing human intelligence to real pressing problems be a better service for the elites.  Moreover, what of the democratic deficit that Davos is both cause and effect.  No, the elites are not on strike, but they might be guilty of dereliction of duty.

Is Atlas Shrugging in Davos? is republished with permission from Marc to Market

About Marc Chandler PRO INVESTOR

Head of Global Currency Strategy at Brown Brothers Harriman.