World's Elite Visit Davos in Doubt

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JANUARY 26, 2009
World's Elite Visit Davos in Doubt
Leaders, CEOs Seek New Model at Forum, as IMF Prepares to Lower Growth Forecast
By MARC CHAMPION

In the 38 years that business and political leaders have been trekking to the Swiss ski resort of Davos to talk about the world economy, the outlook hasn't been bleaker or global capitalism more racked with self-doubt.

Forty heads of state -- compared with 27 last year -- have signed up to attend the annual meeting of the World Economic Forum that begins Tuesday evening with two questions dominating: Just how bad will this global recession get? And what will provide the growth needed to end it?

The International Monetary Fund is recalculating its estimate of global growth and on Wednesday is likely to lower it to less than 1%, similar to what the World Bank estimated last month, according to people familiar with the IMF calculations. The IMF is refining its estimates in light of lower-than-anticipated growth figures last week from China.

"Why are we surprised all the time, almost weekly" by bad financial news, said Victor Halberstadt, professor of economics at Leiden University in the Netherlands and a veteran of the Davos event. "Do we really understand too little about the economy? I'm afraid the answer may be 'yes,' and that is why policy makers are going to Davos."

Davos could mark an opportunity to seek a new economic model, he and others say. "Everyone is at a loss, this is the start of a period of huge improvisation. There is no longer any best practice around to refer to," Mr. Halberstadt says.

Over the years, Davos has become as much a marketing event, where companies look for business and polish images, as the intimate brainstorming venue of the event's early years, when a few hundred executives attended.

The five-day confab, which has signed up about 2,500 participants, will be a more sober affair than usual, organizers say. There are fewer gimmicks -- such as scents pumped into session rooms last year by a high-profile perfumer -- fewer movie stars have been invited, and fewer lavish parties are being thrown by governments and companies. Goldman Sachs won't be holding its usual party this year. "In the current environment, we didn't think it was appropriate," says spokesman Lucas van Praag.

Still, more than 1,400 chief executives and chairmen of companies are making the trip despite the deep slump in corporate revenues and stock markets.

And Davos doesn't come cheap. The annual corporate membership required in order to send executives costs 42,500 Swiss francs ($36,768), plus 18,000 francs to attend the meeting, not including accommodations, according to a Forum spokesman.

There have been gatherings during other economic crises, in the 1980s and 1990s, that seemed severe at the time. But none was so global or open-ended, says Klaus Schwab, who founded the World Economic Forum in 1971 and runs it through a nonprofit organization.

"This is absolutely new in Davos. The only parallel would be in 2002, where people were similarly concerned about terrorism," he says, referring to the Forum meeting that followed the Sept. 11, 2001, attacks on the U.S.

This year, big government looks set to seize the Davos limelight from the banks, hedge funds and sovereign wealth funds that attracted attention in recent years. The reason for this change, economists say, is simple: The taxpayer now holds what money and power remain in an ailing global economy. Many big banks are on government life support and even state-controlled sovereign wealth funds aren't offering capital to struggling Western corporations.

"This may be the first Davos where capitalism is widely viewed as a failure, rather than something to be admired," says Ethan Kapstein, professor of economics and political science at French business school Insead, who has been going to Davos since 1994.

In a sign of the times, many of the financial elite present at past sessions won't be coming this year. Richard Fuld Jr., former CEO of Lehman Brothers Holdings Inc., which filed for bankruptcy in the fall, won't be back this year, according to the organizers. Nor will John Thain, former CEO of Merrill Lynch & Co., who was forced to resign by Merrill's new owner Bank of America last week. One point of contention was that he had scheduled a trip to Davos, even though Bank of America had signaled it wouldn't be a good idea for him to attend.

Citigroup Chief Executive Vikram Pandit and Lloyd Blankfein of Goldman Sachs have chosen to stay home, though they will send other executives. Sir Win Bischoff, Citi's chairman, is scheduled to come, but was told last week he is being replaced at Citi by former Time Warner Inc. CEO Richard Parsons.

B. Ramalinga Raju, former chairman of India's Satyam Computer Services Ltd., was to have been on a panel this year at the Forum, but instead is in jail, arrested in connection with a massive fraud. One banker scheduled to attend, Edgar de Picciotto, chairman of Union Bancaire Privée, lost big -- to the tune of $700 million -- for clients by investing in Bernard Madoff's alleged Ponzi scheme.

The U.S. is likely to be the subject of finger-pointing at Davos, as the country where the global financial crisis started. It is also the focus of most hopes for recovery. Yet the Obama administration is planning to send just one official, White House senior adviser Valerie Jarrett. Ms. Jarrett, a longtime friend of President Barack Obama, is subbing for Lawrence Summers, head of the National Economic Council, and National Security Adviser James Jones, who are remaining in Washington "to advise the president on the near-term issues he must address," according to an administration official.

The headline governmental names this year instead come from emerging markets. China's premier, Wen Jiabao, and Russian Prime Minister Vladimir Putin are to give speeches on Wednesday, at a time when their economies, too, are getting hit hard. Mr. Wen will be the first Chinese leader to go to Davos. The leaders of Japan, Germany and the U.K. speak later in the event.

"The capitalist myth is lovely and youthful. It kicked off the industrial revolution, but maybe we need a new one," says Richard Olivier, son of the late British actor Sir Laurence Olivier. Mr. Olivier, who owns a company that gives seminars, will give a dinner talk on business leadership at Davos, based on Shakespeare's tragedy Macbeth. The tale shows a heroic soldier turned bad, led to self-delusion by his own ambition and greed -- think Lehman Brothers, says Mr. Olivier.

German novelist Thomas Mann called Davos "the Magic Mountain" back when it was a center for tuberculosis cures. Whether people will find the medicine they are looking for at this meeting is doubtful. But Mr. Halberstadt believes it is a good sign politicians want to meet and talk informally at a moment when the globalized economy and its institutions will be under growing stress from protectionism and other threats, as governments respond to domestic pressures.

Amid the bad economic news, Mr. Schwab and others such as philanthropist and Microsoft Corp. Chairman Bill Gates will be pressing governments and CEOs to continue to address and fund other global challenges from climate change to dwindling water supplies to Third World disease. That, say Davos regulars, could prove to be a much tougher sell than a ticket to the Magic Mountain.

Write to Marc Champion at marc.champion@wsj.com

Printed in The Wall Street Journal, page A6