Now the 45th Davos World Economic Forum is behind us for an additional year, the question is: Does Davos even matter anymore?
Getting 2,500 top business and political leaders together each January inside a resort in Switzerland isn’t a bad idea if they can give us outsiders a concept of how the world economy is going to do within the coming year. But it turns out that getting that lots of smart individuals one place doesn’t take it from there of us much practical good. Davos didn’t warn us from the blood-curdling stock exchange crash of 2008 brought on by subprime mortgages. Yet, in ’09, the so-called Davos mood was so pessimistic that the consensus went too far the other way, mistakenly forecasting a worldwide Second Great Depression.
On the political front, in 2011 there is general euphoria that the Arab Spring would finally usher within an era of democracy and peace in the Middle East. We know how that turned out.
So what can we expect within the coming year? Shall we be in an era of continued low oil prices? Shall we be facing an age of worldwide deflation, as predicted by financier George Soros? Will today’s technology finally pull us from decades of poor economic growth?
Whatever it’s, these Davos “experts” might actually be sorely unqualified to answer any of our questions, as argued within the recent book, Superforecasting: The skill and Science of Prediction by Philip E. Tetlock and Dan Gardner. This is not simply because they aren’t smart or have no idea a lot more than the rest of us, however when confronted with answering complex geopolitical questions, experts have no better than a 50-50 possibility of setting it up right. As Tetlock says, “It tells us something concerning the limits of expertise inside a complex world.”
This year’s theme at Davos, for anyone who was paying attention, was The Fourth Industrial Revolution; a revolution which will finally bring together information technology with digital, physical and biological spheres. And based on “Davos Man” – a manifestation to explain the worldview at Davos – this latest industrial revolution is advancing at exponential speed. Just think of the advances in artificial intelligence, robotics and the Internet of Things which will kick productivity and economic growth into high gear.
Modern technologies, impressive because they are, only have generated marginal improvements
Are we actually on the verge of finally getting all the advantages of our information age? Or can we be disappointed again in the same way expressed by Nobel economist Robert Solow, as he said 29 years back, “we can see the pc age everywhere but in the productivity statistics”? This productivity paradox has baffled economists for decades. Maybe Davos Man is onto something this time.
There is a strong case from the techno-optimist made in a brand new book The Rise and Fall of American Growth, by Robert Gordon, an economic historian at Northwestern University. Gordon argues that we aren’t likely to begin to see the gains the U.S. experienced from 1870 to 1970 because the period was unique in human history and could not be replicated. It was a period of time that included the introduction of electricity, the car, air and rail travel, modern communication and vast improvements in public places health all uniting to totally transform a fiscally primitive world right into a modern paradise.
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Productivity and economic growth happen to be slow over the past 4 decades because modern technologies, impressive as they are, have only generated marginal improvements to existing products.
To make his point Gordon notes it now takes longer to fly from La to New York of computer did in 1958, because of the time delays of crowded airports and security. With regards to the whole economy, the standards that stifle progress today are a declining education system, rising government debt, an aging population and rising income inequality. These are strong headwinds that may keep us from generating more wealth and prosperity. This explains the apparent historic shift, where new generations look as if they’ll be no better off compared to previous one.
Professor Gordon might be too pessimistic. Browsing through the material on the World Economic Forum’s website, you could easily be convinced that a new era of prosperity is simply now pulling into the station. Just think of the driverless car and also the so-called smart city that lots of believe will usher in a new era of efficiency and growth. But even here Gordon reminds us that these are improved technologies, not transformative or entirely brand new ones.
Right or wrong, the books, taken together, provide us with more reason than ever to wonder if we any longer have use for that worldly, conferencing prophets who think today’s technology and expert consultancy will save us from our stagnating economies. Now that’s a debate worthy of all of the brains at Davos.
Patrick Luciani is senior adviser using the Atlantic Institute of Market Studies.
