For the 2,500 people attending the recent 2010 meeting of the World Economic Forum in Davos, it was clear that the dominant role once played by the business community in the U.S. and parts of Europe has given way to the rapid rise of capitalism in China and India. Indeed, leaders from these two Asian countries held center stage in discussions of the global, industry and societal issues that business leaders must address in the wake of the “Great Recession.” Wharton management professor Michael Useem, who was in Davos last week, offers his impressions of the new world order that made its appearance at this year’s Forum.
Klaus Schwab organized a “European Management Symposium” in February, 1971, in the Swiss mountain town of Davos, the venue of Thomas Mann’s The Magic Mountain. The event, which drew 450 participants, was intended to provide European executives with a chance to learn about the latest management concepts from prominent thought leaders, including the president of IBM and Harvard economist John Kenneth Galbraith.
Renamed the World Economic Forum in 1987, the organization has orchestrated more than a thousand meetings around the world, but its annual meeting in Davos in January remains the crown jewel. I first attended in 1997, a year that drew some 1,000 participants, and though such notables as South African President Nelson Mandela and Egyptian President Muhammad Hosni Mubarak walked the halls, attention seemed riveted on those who were at that time driving the American business juggernaut, including Intel CEO Andrew Grove and Microsoft CEO William Gates.
For the 2,500 attending the just concluded 2010 meeting in Davos, the Forum’s 40th, the shift in tone was pronounced. Any whiff of American triumphalism had given way to U.S. contrition in the wake of the great financial crisis of 2008-2009. Capturing the essence of the mood, one of the event’s leading figures put it bluntly: The calamity was caused by a “failure of leadership” in both financial services and government. Since America’s AIG and Lehman Brothers and Britain’s HBOS and Royal Bank of Scotland were at the center of the vortex, the national locus for that leadership failure was all too clear.
Still, French President Nicolas Sarkozy spread the blame. “All of us must learn from the crisis,” he said, “because all of us are responsible for the crisis.” Market capitalism is here to stay, since the alternatives are all worse, he warned, but we also must build a better capitalism that “reflects shared values” and a “common morality.” Tougher regulation to prevent excessive speculation and risk taking in both Europe and the U.S., he declared, was thus essential. Two of America’s key players in shaping the tougher regime — Congressman Barney Frank, chairman of the House Financial Services Committee, and Lawrence Summers, director of the President’s National Economic Council — made the same point.
Among the regulators’ objectives on both sides of the Atlantic: Ensuring that no companies again become TBTF, “too big to fail,” or even TITF, “too interconnected to fail.” In addition, private sector leaders now understand, in the words of Barclays President Robert Diamond, that financial institutions have, in any case, become TBTGW, “too big to get wrong.”
The Move to Prime Time
As attention at this year’s World Economic Forum thus shifted toward rewriting the rule book for “Market Capitalism 2.0” in the U.S. and some European countries, attention also shifted as never before to the rapid rise of Chinese and Indian capitalism.
Business and political leaders from Asia have long attended the annual meeting of the World Economic Forum. In 1997, Indian Prime Minister H. D. Deve Gowda hosted a dinner session on the challenges facing India, and four Chinese leaders presided over a session on “Business in China.” This year, however, China and India moved from special session to prime time.
On the first morning of the 2010 annual meeting, for instance, CNBC’s Maria Bartiromo moderated a packed debate on “The Next Global Crisis.” Two of the three featured commentators were the chairmen of JPMorgan Chase International and Lloyd’s. But responding to them were the deputy governor of the People’s Bank of China and the managing director of Mahindra & Mahindra, one of India’s leading enterprises.
The Forum provided Davos participants with a host of statistical trends, many pointing toward the rise of China and India. One chart showed that public trust in business in China and India far outranked that in the U.S.; another chart confirmed that international trade increasingly favored China and India, less than the U.S. Participants received invitations to private parties hosted by Coke, Google and McKinsey, but also to gatherings sponsored by Infosys, Wipro and the Confederation of Indian Industry.
A telling moment came in a packed room of some 1,000 participants who had come to learn about “the pressing global, industry and societal issues that business leaders must address in the wake of the ‘Great Recession.'” The chief executives of HSBC, PepsiCo, Google and China Mobile gathered on stage. Although English has long served as the lingua franca of global business and therefore the World Economic Forum, simultaneous interpretation was made available for the China Mobile CEO, Wang Jianzhou.
When it came to Wang’s turn to speak, a rustle spread across the room as most of us donned our ear phones to hear in translation this leader of the world’s largest mobile telephone company. But when he began to speak in fluent English, a ripple of laughter also spread across the room as we acknowledged our mistake in assuming that leaders of Chinese companies were now any less global than their counterparts elsewhere. Reinforcing the point, immediately behind us sat a number of Chinese participants, none of whom had opted to hear Wang’s English commentary in translation.
Speaking for many of the business leaders from China and India, Wang advised companies worldwide to “take more social responsibility” for delivering products and services that people really need. Telecom analysts, he said, had warned China Mobile not to enter rural areas where operating costs would be high and consumer income low. But China Mobile did precisely that, deciding that hundreds of millions of Chinese villagers deserved affordable telephone service that only his company could provide.
The ascendance of China, India and other developing countries — a profound “power shift” noted by many at the annual meeting and obvious to anybody who had been in Davos in the 1990s — may thus offer a useful antidote to the driving forces of private gain that had fueled the market capitalism 1.0 so much on display in Davos in 1997, but whose social ravages had become all too evident by 2010. With the rise of mission-driven business enterprise and leadership ethos in China and India — and with the rise of the Chinese and Indian economies — social responsibility may come to better define market capitalism 2.0 in the decade ahead than the ethos of shareholder value that had characterized the 1.0 version of the decade past.