Of Davos, Doodles and Double-Down Indians

2 February 2009. By Keith Timimi, EconomyWatch.com. Reading through the reports from Davos (I was too busy running EconomyWatch.com to attend – oh yes, and my invite was strangely lost in the mail) there were a few trends the struck me that I think inform us of some of the key issues of the year ahead. [br]

2 February 2009. By Keith Timimi, EconomyWatch.com. Reading through the reports from Davos (I was too busy running EconomyWatch.com to attend – oh yes, and my invite was strangely lost in the mail) there were a few trends the struck me that I think inform us of some of the key issues of the year ahead. [br]

2 February 2009. By Keith Timimi, EconomyWatch.com. Reading through the reports from Davos (I was too busy running EconomyWatch.com to attend – oh yes, and my invite was strangely lost in the mail) there were a few trends the struck me that I think inform us of some of the key issues of the year ahead. [br]

Both the Indian and Chinese delegations were much larger than in previous years. This is perhaps to be expected, but what is more telling is that – shock! horror! – people are actually seeking them out and listening to their opinions. If only the same could be said about the African delegation.

India’s Planning Commission Deputy Chairman, Montek Singh Ahluwalia, said that the Indians are ‘now being seen, heard, and engaged with.’ 

The delegation apparently included 95 government officials, regulators, businessmen and downright billionaires. These included various Ambanis, Mittals, Mahindras and the like. Look out for corporate India to continue buying well-known western brands – several large deals were apparently in play – and for these names, and others like Tata and Wipro, to become household names in the west.

Which leads us nicely on to China. The entrepreneurs are less well-known, but the Chinese government is increasingly taking center stage, to the extent that Davos echoed with loud whispers that the Washington Consensus is being replaced by the Beijing Consensus.[br]

As we have said before, this is nonsense. The US is by far the world’s largest economy, and will remain that way for the forseeable future. China still has to face its ‘cross the chasm’ moment,  when it will need to transition from an export-led economy to one driven by domestic consumption.

However it is clear that China is feeling both more confident, and happier to challenge the US, at least as a negotiating position. This was first picked up on by our Chief Economist David Caploe PhD, in his review of the key event at the Copenhagen talks – the personal spat between the leaders of China and the US.

These public disagreements are now widening over the Google dispute with the Chinese authorities, President Obama’s upcoming meeting with the Dalai Lama, and vitally the multi-billion dollar arms sales to Taiwan, which China sees as a rude intervention into a domestic matter.

With the flow of exports (from China to the US), and the flow of investment (from the Chinese Central Bank to the Treasury), these two countries absolutely need each other, and these disputes are not going to change that. But the sparring this year will tell us what the balance of power is likely to look like over the next decade, and with the US facing a political crisis, the Chinese must sense an opportunity that they are keen to exploit.

And of course no after-thoughts about Davos would be complete without talking about the bankers.

There was a time that the Masters of the Universe and the rockstars of the World Economic Forum. Now they are as popular as terrorists.

Indeed it seems that bankers attempts to push back against reform have helped to strengthen the resolve of regulators to push that reform through. Everyone seems to now take a jaundiced view to the views of the financial community in general, including business people who are having trouble getting credit. Even conservative bankers are upset with their more risk-friendly colleagues, and everyone seems to have agreed that Wall Street Bankers are to blame, with Goldman Sachs and their CEO Lloyd Blankfein at the helm.

“I think that the relationship between government and banks has changed irreversibly,” said Peter Sands, group chief executive of Standard Chartered, one of the more conservative banks, and a co-chair of the Davos meeting. “I think the banks have not helped themselves at all. We have been tone deaf, and shot ourselves in the foot. We all need a little humility.“

An admirable sentiment, but one lost on Mr Blankfein, who according to the Times of London is due to get a a $100 m bonus  (said Goldmans: ‘this sort of speculative nonsense calls into question the editorial standards of the paper’), while according to the WSJ other bankers are ready to bet millions of dollars he will be out within 2 years (Goldmans: ‘It is preposterous that The Wall Street Journal would even consider publishing such effluent.’)

In an effort to stop the slide, bankers were attempting to rally the troops, find common ground with each other, and reach out to regulators and public opinion. The image of the doodle above was part of one such brain storm session. It says ‘It is possible to influence the congress’ – no joke, investing in campaign finance and lobbyists gives just about the best ROI that money can buy – and that bankers should reach out and do as much as possible. It also urges internal transparency.

All of which seems to miss the point, which was perhaps best expressed by David Rubenstein, one of the founders of the Carlyle Group, the giant private equity firm, who half-joked, “Our position is unsure because we’re afraid if we come out in favor, it won’t pass.”

Keith Timimi

EconomyWatch.com