Davos makes no headway

30.01.2014 — Analysis

Looking back on the 44^th World Economic Forum

The forum is generally seen as the most important economic event of the year, as it brings together preeminent policymakers and business leaders so that they would "redesign the world". In the meantime, there is a sneaking feeling growing steadily after each annual meeting and suggesting that the high and mighties do nothing but carry water in a sieve. Heated debates about "reshaping of the planet" screen off the commonplace reluctance to change anything.

On the other hand, leaving everything as it is will not work out: The disregarding of national and social interests by the "borderless capital" has planted a giant bomb under the entire structure of the global world. The RusBusinessNews columnist assumes that it is going to blow up when the fight for oil resources enters the hot phase.

Over decades, Davos has play-acted its concern about the problems of individual countries and nations. For example, Russia held the limelight at a few forums: In 1993 the global elite delved into the conflict between the executive and the legislative branches of the government; in 1996 they assessed Boris Yeltsin’s chances of being reelected to a second term; in 1998 they worked out the destiny of the Gaidar economy; in 2000 they had the viewing of Putin.

Meanwhile, little has changed in Russia. In 2000, in his address to the Federal Assembly, the president fretted over the resource-based economy and immature financial market of the country. In 2009, in his speech in Davos, Putin again referred to the economy excessively dependent on commodity exports and to the weak financial market. No matter which rostrum was used, government officials indefatigably invited investors to open businesses in Russia, to set up clusters and industrial parks. However, as Vladimir Gruzdev, the governor of the Tula Region, pointed it out at the 2012 Davos Annual Meeting, "there are no investors – only swindlers so far".

The credit resources did not help much in Russia’s restructuring. In 2009, Vladimir Putin shuffled off the blame on to the global economy: The uncontrolled money emission by the United States caused the collapse of the global financial system and pushed entire regions to the sidelines of the economic processes. Due to the enormous appetite of global corporations, the race of financial indices began to dominate the real increase in labor productivity. It resulted in the built-up imbalance between the demand for credit resources and the sources of their provision.

Five years ago the Russian president urged the global elite to draw a line under the past and withdraw from virtual money. V. Putin offered to discuss the future economy of real values in Davos. The "ruling coterie" did not seem to object: In 2010 Klaus Schwab, president of the Forum, stated that "we should review our strategies to cope with problems and to overcome difficulties we encounter on our way." However, three years later, Prime Minister of the Russian Federation Dmitry Medvedev noted that the global economy remained unstable, as the elite had not made any attempt to get rid of the built-up financial and regional imbalances.

Just before the 44^th Forum leading economists talked only about the decreasing demand from the population of industrialized countries of the West. Corporations became concerned about the unemployment and wage stagnation, and, as usual, they turned their minds to the neighboring markets. But many countries had closed them to prevent inflows of foreign goods and migrants. Experts serving interests of the big business raised the alarm: Curtailing of transborder capital flows and protectionist policies undermine the globalization process. The 2014 Davos Annual Meeting reiterated traditionally that developing countries had unsatisfactory business climate. Even China that was deserted demonstratively by a number of investors got a scolding.

In the meantime, the Celestial Empire needs foreign capitals as much as Russia needs the snows of yester-year. In its checking accounts China has huge balances, due to which the economy does not need any overseas assistance for its growth. As a matter of fact, the Chinese economy keeps growing: Right before the 2014 Davos Annual Meeting, the British Broadcasting Corporation estimated that in 1990 the British economy outperformed the Chinese economy by 2.5 times, while in 2013 it already underperformed China by 3.5 times. Today, the Celestial Empire has 8 times as many skyscrapers as Europe – their number was twice as small in comparison with Europe twenty years ago.

Russia might have done without foreign investment as well. Mikhail Delyagin, Doctor of Economics, says that in 2013 the balances of idle money in the federal budget accounts increased by 600 billion rubles, reaching an amount of 6.6 trillion rubles. In the expert’s opinion, this money should be put into infrastructure, which needs upgrading. It will help to boost business activities and significantly improve chances of private capital flowing into the economy, as otherwise it will never be invested in infrastructure without participation of the state.

However, the Russian authorities, contrary to China, are wary of investment in the economy, preferring to use the weakening ruble to fight against the flagging economic growth. Funds required for restructuring of the industry, as twenty years ago, are found by using the safe and proven method: by increasing fiscal charges and clipping budget expenses. Since it has always been a dead end, the government delegation goes to Davos every year, trying to persuade investors to put money into the Russian economy. Its efforts remind of beating the air, as K. Schwab made it clear long ago that the national interests are of no concern of the clubbing circuit of the rich: "The global thought reigns here".

Why do then Russian officials visit regularly the Swiss ski resort? The answer to the question is usually off-the-shelf: To synchronize their watches with those of leaders of the world economy. In 2013, when Deputy Prime Minister Arkady Dvorkovich offered investors to develop infrastructure in Russian cities by the 2018 FIFA World Cup and to invest money in the power generation sector and machine-building, political analyst Alexey Chadayev made an off-beat supposition.

In his opinion, the policy aimed at attracting foreign investment at the current oil prices means giving other people an opportunity to make money, which otherwise could be ours. Curtailing of budget expenses and centralization of revenues when there is idle money in accounts generate corruption and inefficient management of investment projects.

Officials are aware of this, but show persistence that should be applied to better purposes in their visits to Davos where they utter the tedious mantra about structural reforms and ample investment opportunities in Russia. A. Chadayev assumes that "reformers" seek favor with "alpine skiers of Davos", just as centuries ago Russian princes had to go to the Golden Horde to get permission to rule. Having gained favor from the West, "the reformist government" can go about their business, paying no attention to opposing parties and to voters.

The lingering stagnation of the world economy suggests that the "permission" granted in Davos will not be sufficient to protect against raids made by Western competitors. The first one took place in the Arctic Region and was spearheaded by the dubious organization known as "Greenpeace", activists of which attacked the Prirazlomnaya oil platform. The attack was repelled, but the bosses of the "greens" did not stop there and started blackwashing Gazprom: At the 2014 Davos Annual Meeting, representatives of the organization founded with the support of Greenpeace branded the Gazprom Group as the most irresponsible company in the world, blaming it for …environmental pollution.

Experts understand that Gazprom with all its faults is in the firing line because it embarked on hydrocarbon production in the Arctic Region rather than because of its environmental blunders. The further it moves on with its project, the harder time it will be given, because the high and mighties want themselves to develop hydrocarbons in the Arctic shelf.

In this context, the words of columnist Maxim Sokolov come to the mind; he hit the nail on the head when he said in 2013 that there was no sense in synchronizing watches in Davos, for some participants came with a thermometer to the forum, while the other preferred a pressure gage. It is time the line was drawn both under this event and virtual money.

Vladimir Terletsky