Optimism was in short supply at the 2012 annual meeting of the World Economic Forum in Davos, Switzerland, which ended on Sunday. As Wharton management professor Michael Useem reports below, keynote speakers and panelists alike focused on a number of problems that are getting in the way of global prosperity. Chief among them is unemployment, followed by a shortage of highly trained workers needed to spur innovation and solve social challenges. On the bright side, Useem notes, is the rapid growth of emerging economies.

Imagine gathering 2,600 people from around the world for five days in a remote Alpine resort with record snowfall. Some will come alone, but others — including more than 40 heads of state — will arrive with entourages. Then arrange for reasoned dialogue on some of the most contentious and portentous issues of the day among hundreds of CEOs, public officials, thought leaders and even a few labor chiefs and “Occupy” protesters. Is the eurozone heading for financial collapse? Can India avoid a slowdown? What if Iran is developing a nuclear weapon?

This is the Rubik’s Cube that the Geneva-based World Economic Forum had to align for its 2012 annual meeting in Davos, Switzerland — the tenth such gathering I have attended. The world from Davos this year could hardly have looked more different from the one I first witnessed in 1997. Back then, American executives, including Microsoft’s Bill Gates, Intel’s Andy Grove and Enron’s Kenneth Lay, could bask in the glow of U.S. economic growth. Participants from around the world seemed eager to learn how the American model had succeeded so well.

This year, U.S. business leaders still appeared in substantial number, including Google’s Eric Schmidt, Archer Daniels Midland’s Patricia A. Woertz and JPMorgan Chase’s Jamie Dimon. But the home market for American executives has become less promising, growth is slower, the mood far more sober. Social problems also seem deeper.

‘A Lost Decade’

Among the most vexing of these social problems is the jobless recovery in the West. In sessions ranging from the future of capitalism to the drivers of growth, joblessness and its discontents emerged repeatedly. For Duncan Niederauer, chief executive of NYSE Euronext, “our biggest problem is job creation.” For David M. Rubenstein, Carlisle Group managing director, “it all comes back to job creation.” For Ben J. Verwaayen, CEO of Alcatel-Lucent, “it’s all about the creation of jobs.” For Vikram Pandit, CEO of Citigroup, job generation is the “biggest question we’ve got this decade.” And for German Chancellor Angela Merkel, millions of new jobs are needed now.

Several participants referenced the gloomy conclusion of a recent McKinsey report on Job Creation and America’s Future. According to this report, the unemployment rate in the U.S. is unlikely to drop to its pre-crisis level of 5% much before the end of the decade. Other participants singled out the soaring youth unemployment in the U.S. and U.K., where jobless rates have reached 20% or more. When the moderator of one session polled its several hundred participants on whether 21st century capitalism was so far failing our 21st century societies, more hands went up in agreement than in dissent.

Many of the problems that were discussed stemmed from the American financial crisis of 2008-2009, arguably the product of a market failure, and the European sovereign crisis of 2011-12, arguably a state failure. Together, they have created what one participant termed “a lost decade.” Young people trying to enter the labor market for the first time during one of these crises may already be consigned to what another commentator deemed a “lost generation.”

A contrary trend, also noted by many, is the growing worldwide demand for high-end human capital, the talent on which stimulating innovation and managing complexity so often depends. Airbus CEO Thomas Enders, whose supply chains cross a host of geographies and whose order book is strong, put it this way: “We look for the best and the brightest everywhere.” In some regions, the expanding demand for engineers and other specialists has far outstripped trained supply. India’s Infosys, for example, has become one of the world’s largest educators as it trains thousands of new employees for the sourcing services that it provides worldwide.

At the same time, the rising demand for highly educated workers has exacerbated still another social problem — the growing income disparity between university-graduated white-collar employees and those less fortunate. In its seventh annual Global Risks report, the World Economic Forum noted that in the view of a survey panel of more than 400 experts and industry leaders, “severe income disparity” has emerged as one of the world’s most probable threats, surpassing financial risks and natural calamities.

Economic Growth in the East

The jobless recovery in the U.S. and Europe is, however, a largely Western preoccupation. The rapid growth of Brazil, China, India and a host of other emerging economies continues unabated. Their enormous populations, with large fractions still under-served, should sustain growth for decades to come.

One Indian business leader, for instance, noted that his products are already purchased by several hundred million consumers. Demand for them should continue to ramp up as millions more move out of poverty, powered by an annual Indian GDP growth rate of 8% that is expected to continue for the foreseeable future. With a predicted year-on-year growth of more than 25% at his company, the Indian executive reported that his firm has now embarked on a “10 X 10” strategy — a plan to expand his company no less than 10-fold within 10 years.

Still, several executives from the East cautioned that their rapid growth should not be based on mimicking the West. “If we follow the West,” warned an East Asian banker, “we will not surpass the West.” In finding their own way, Asian companies are likely to be led by Chinese enterprise. Over the past 10 years, China has already become “the de facto leader of Asia,” observed one government minister from the region, and over the next 10 years, he confidently predicted, China will become the “de factor leader of the world.”

Consistent with the region’s optimism, a 2011 Citigroup report forecast that the Chinese economy will become the world’s largest by 2020. But if the coming decade is China’s to define, India may be even more defining in the years to follow: Citigroup also predicted that the Indian economy would overtake China’s to become the world’s largest by 2050.

Despite disparate trends in the East and West, both sides viewed their fates as reciprocally contingent rather than mutually exclusive. The rise of one should bolster the other. In the view of Michael Froman, who holds the title of deputy assistant to the [U.S.] president, “we welcome the rise of a prosperous China.” In the assessment of NYSE Euronext’s Niederauer: “We are cheering for the developing world. We want India and China to get it right. It’s not a zero-sum game.” Martin C. Wittig, CEO of Roland Berger Strategy Consultants, explained why: “All Western companies are depending on China,” and as a result, “China will continue to drive prosperity in the West.”

Public leadership in the West will be essential, according to many Davos participants, for rekindling growth and restoring jobs. This was certainly the message of British Prime Minister David Cameron, who said that “fear of failure should not hold us back,” and “this is the time for boldness.” Britain has no intention of “walking away” from the European Union, he stated, and can help “restore dynamism” in the EU but “only if we are decisive.”

For Mexican President Felipe Calderon, “there’s a new world order and the rules have changed. [Now] is the time to show leadership to build and sustain human development.” It will require urgent and sustained dedication by those at the top, he added. “The days are long, but the years are short.”

Public actions are in the offing. Just two days after the closing of the World Economic Forum’s annual meeting, 27 European Union heads of state gathered in Brussels to agree on a new treaty for reducing country debt. To that end, the European leaders made a special point of calling for a focus on joblessness across the Continent. “We must do more to get Europe out of the crisis,” they declared in a statement. Their plans include increasing youth training, making it easier for businesses to operate across the EU, strengthening access to credit for small businesses and directing a €82-billion development fund toward job creation.

Private-sector Initiatives Needed

Others in Davos pressed for private leadership as well. Wharton organized a session on “new creative models for job growth and creation” during which faculty explored what companies can do in both the West and the East to create more jobs and better manage risks to job growth. Fresh thinking emerged from a host of other sessions that touched on jobs and work:

·         Search for the best job-generation practices worldwide (from Chancellor Angela Merkel).

·         Invest in lifelong learning to ensure lifelong employability (from a former CEO of Infosys).

·         Place more value on talent. “Our associates are not a cost center; they are the center of our competitive advantage” (from the CEO of a U.S. consumer-products company).

One of the more promising private-sector initiatives centers around the idea of leaders of successful firms reaching out to others. Starbucks CEO Howard Schultz, for example, is pressing his company and its customers to generate new jobs in the communities where his U.S. stores are located. Customers are encouraged to donate cash “to create and sustain jobs in communities across America.” Similarly, NYSE Euronext is creating a program for its larger members to help smaller firms generate more jobs. Large companies will be guided on how to better source their products and services from small companies, thereby stimulating job creation. Small firms will be guided on how to bring in business from large firms.

Business leaders are taking measures that might have been left to government leaders in the past. If institutional investors, equity analysts and corporate directors can also be drawn into the job-generating agenda, those attending the World Economic Forum’s annual meeting in 2013 could find themselves talking more about job growth than joblessness, not only in the East but also in the West. A return of confidence and optimism to Davos would be welcomed by all.