My Notes From Davos 2011

Sorry for the long post. Here are my quick, random takeaways from this year's World Economic Forum in Davos. I hope you find this helpful...

1) European leaders felt activist, energetic, and up to the task of cleaning up their economies. David Cameron, prime minister of the UK, came off as decisive and vital. He's got a vision (make Britain more competitive, balance the budget, revive the country's export economy), and he's hell-bent to get there. I found him refreshing after the fuzziness of American politicians. Sarkozy of France and Medvedev of Russia also came off as forceful, opinionated leaders. Sarkozy was defending the euro ("We will never, ever let it fail") and kicking the bankers. Medvedev was soliciting investment in Russia...

2) The media cognoscenti believe the final nail in the coffin of newspapers will be local advertising going online. Believe it or not, that nail may be pounded by AOL...

3) When you meet a former president of the United States, don't make the mistake of calling him by his informal first name...you'll get a dirty look. Remember, it's "Mr. President."

4) Two years ago the negative nabobs of Davos were predicting double dips and potential depression. The elite love to draw straight lines -- they presume that whatever is happening now will happen tomorrow. So almost nobody saw the recovery of the past 18 months.

5) Paranoia about China was seeping out of the walls. Unlike in years past, the Chinese were much in evidence -- lots of press from China and a sprinkling of government ministers and businesspeople. As one Chinese executive said to me: "...1.2 billion consumers means something." More about this in my next post...

6) Old energy ain't going away. A panel of oil company executives and energy ministers were blunt: 1) Despite the BP debacle, they will drill in deeper and deeper water -- that's where the oil is. 2) Nuclear is a "sovereign" business -- meaning that it won't get built out unless federal governments are backing and pushing. 3) Higher inflation and capital costs will restrict renewables -- "We're not doing it unless we can make a profit."

7) MIT held a very cool session on renewable energy -- a big focus of Susan Hockfield, the president. MIT is not focused on quirky, nitchy solutions -- it is are putting its resources toward new energy sources that can serves billions of people. And MIT doesn't want to propose solutions that require big infrastructure changes -- that will be untenable. At the session, Tom Friedman predicted that there won't be a chance for an energy bill in the US until 2013. But it wasn't all hopeless -- he had a great quote: "The saving grace in the US is that some people don't get the message and just keep inventing and innovating despite the conventional wisdom and gloomy political environment." Susan calls the young people in this mode the "Y-nots." The MIT wonks believe that the sun is the ultimate game changer -- and that lower-cost, high-output photovoltaics and new organic fuels (like algae) are showing promise...

8) Great lunch on innovation. One professor said the idea that the US government hasn't funded innovation in the past is hogwash. ARPANET, the space program, and military research have been massive stimulators of innovation and invention in the US. The group, which included a child psychologist, didn't believe that the Tiger Mom approach to child-rearing would produce innovators -- free-play in children is required. No one believed that China would contribute breakthrough innovations -- tactical yes, iPhone no. Niall Ferguson, author of The Ascent of Money said that the West had six killer apps that enabled it to race ahead of the East after 1750: 1) competition, 2) science, 3) creativity and the protection of intellectual property, 4) modern medicine, 5) the construction of a consumer society, and 6) a strong work ethic. China will copy five of the killer apps but will not get there on the IP front. The US has been able to be innovative because the cost and cultural consequences of failure are low. In Europe and the East, failure is much less tolerated.

9) Larry Summer is still my favorite economist. He thinks that faster growth is coming, despite the negative chorus of his brethren. Here are some great Larryisms: "Yes, healthcare is expensive. But if you ask people to choose between a 1950 lifestyle with 2011 healthcare or a 2011 lifestyle with 1950 healthcare, most would choose the former." On a big challenge ahead: "In the US where are the jobs for ordinary, motivated people going to come from?" On the overpayment of financial services players: "Nowhere in the Constitution is it written that hedge fund managers should all get paid 20% of profits. We need more competition in financial markets." When asked about China, he had this comment: "In the 1950s, the worry was Russia. In the 1980s, it was Japan. Watch out for the over-veneration of autocratic, technocratic elites. Autocracy will work for a while, but eventually the autocrats will make a big mistake. I will bet on democracy over autocracy any day. Democracy is a check on disastrous decisions."

10) I helped run a session on Smart Computing -- the idea that the physical world will get connected to the digital world through sensors, small computers, switches. We built the three rules of Smart: 1) it must be person-centric (honoring privacy and personal security); 2) it should be standardized, so large networks can be built; and 3) it should be highly dependable (hey, if you're going to run the electrical grid this way, it better always, always work).

11) I was involved in a session for government leaders on technology. They are completely spooked by WikiLeaks. A cabinet minister of the Zimbabwean government said the prime minister of that country may be charged with treason because he was identified in WikiLeak documents as cooperating with the US to try to get rid of Mugabe.

12) Tim Geithner, the US treasury secretary, was interviewed by Charlie Rose. I've never been exposed to the guy, but he seemed tentative, nervous, twitchy. Is this guy in over his head? David Cameron, the rather energetic and passionate UK prime minister spoke before him -- and this made Geithner look all the more out of his league. He kept saying that he was "...optimistic about the US economy," but his tone, body language, and expression weren't making anyone in the audience believe him. I don't think he did much to stoke confidence in the US.  

Hope this gives some feel for the zeitgeist of the week. 

George

Comments

Can't resist -- who first-named the President?

You were there -- spill it!

Indeed

Inquiring minds want to know!

The Prezzz...

Unfortunately, it was me...

ROI of Attending Davos

Interesting post in DealBook last week breaking down the cost of attending Davos: The bottom line is well into the 6 figures. At that high a price, is it worth it? Or maybe you can argue the other direction and say that paying a couple hundred thousand dollars to rub elbows with such an elite audience is a bargain if you have something to sell/promote?

http://dealbook.nytimes.com/2011/01/24/a-hefty-price-for-entry-to-davos/

Geithner

George, did Secretary Geithner say anything that you considered to be surprising or unexpected regarding his optimism in the US economy?

I'd guess not, which speaks

I'd guess not, which speaks to George's observations about the Geithner interview. Treasury Secretaries must be scrupulously careful in choosing their words, because their words move markets. Much more so than the pols. Treasury Secretaries are always on script or worried about going off script.

Correction needed: China is

Correction needed: China is already there on the IP front. They are stealing the West's IP with no response. This is probably the greatest heist of wealth in history and shows no sign of abating.

Innovation in China?

I tend to disagree with what are allegedly some of the world's greatest minds when it comes to the idea of innovation in China (and India). Tactical innovations may be what changes the world. i.e. 1.3 billion people cannot access typical western medical facilities - so in India and China they are experimenting with a "manufacturing line" approach to surgical procedures. 1.3 billion people cannot get MRI/CT scans, and clinics cannot afford the huge prices of the traditional machines, so they are working on low cost (i.e. less than US$10K) portable scanners. Imagine the massive changes such technologies would make not only in the Chinese and Indian markets (r.e. better/earlier diagnosis potentially leading to longer lives and lower medical costs) but also in North American, Europe, and other Western economies.

All Apple did was take a traditional product and make it better - is that tactical or strategic innovation (one could argue that Nokia, Ericsson and Qualcomm the real innovators when it came to mobility - Apple's innovation just happened around the interface and ecosystem)? These same innovations are happening in China. And what about the innovation around distribution channels being made by the FMCG providers in China and India (i.e. how do you sell breakfast cereal or a cake of soap at a profit to 2.6 billion consumers when you don't have traditional distribution channels). Such innovation may sound tactical initially, but when it is unleashed in western markets, and the huge traditional retailers are undercut by local/social distribution networks, I am guessing someone will sit up and take notice.

Lots of small, tactical innovations can add up to a big strategic one. Excuse my poor knowledge of history, but as far as I am aware, Henry Ford invented neither the car, nor the assembly line. He just married the two ideas effectively - and in the process created the car industry as we still know it today. Tactical or strategic?

Just my thoughts (influenced by an excellent special report I read a while back in The Economist http://www.economist.com/).

Thanks for an realistic report

Thanks, George. That was the most realistic and sensible report on the 'zeitgeist' in Davos. Most of what I read in the newspapers was badly colored by other interests. Not that I think that Davos does anything practical or helps to solve any of the problems discussed, but it is kind of like a summary of what the relevant subjects are in the mind of 'the elite'. The main problem is that one can't expect the people who created the problems to solve them.

My suggestion is to fire everyone who was at Davos and get in new minds. Sorry, George ... but you really don't belong there! Thanks again, Max.

Democracy is a check on disastrous decisions

This is a great quote, and a great idea. After Francis Fukuyama's article in the FT about China being better than the west in making and implementing bold decisions, it is refreshing to see the counter-argument concerning the quality of decisions.

Social Media and Egypt

Thanks for the update George! Quick question: During Davos, Egypt erupted and a lot of newspeople highlighted (or underscored) the use of social networking during the revolts. Any comments or discussion at Davos regarding this?

Egypt

I helped moderate a panel on government and technology. The democratic states had one fear: Wikileaks. The ministers and representatives know that governance can often be a messy and unattractive process -- better kept out of the public eye. They worry that government won't be able to operate without a guaranteed level of privacy.

The autocratic states had a different fear: social media. It was obvious to all at Davos that social has become a fundamental instrument of electoral politics (df. Obama) and a new tool for revolution (cf. Tunisia and Egypt).

Governments of all stripes will ignore social at their peril -- that has now become obvious.

George

New Forrester Roles

Thanks! That's awesome. Plus, it sounds like you discovered two new roles for Forrester. :D

West versus East - doesn't ring true to me

The venerated leaders are Davos certainly are the world's brains on show. But I really winced in your summary about the East versus West comments and just wonder if I am off the planet or the collective Davos has their heads in the sand. I was pleased to see Tim Sheedy's comment with which I agree.

You said China will never have an iPhone. The essence of everything about the iPhone was copied from Japan - which as I recall is The East. Apple did add some key initiatives in it's ground-breaking commercial arrangements with the music companies, and in breaking the dead hand of the telcos. They were two great moves, combined with a whole bunch of continuous improvements around things hardware, software and ecosystem which had been in the market for 10 years in Japan.

How is it that the East will never get there yet the 2nd and 3rd largest economies in the world are Eastern? Japan would also seem to have a pretty fair record on IP, outstripping ever other nation except the USA despite their lack of tolerance for some of the wacko patents which flood out of the US system year after year.

Not to go on. The democracy verus autocracy argument with respect to China is certainly a real issue. History doesn't bode well. I think that all the other arguments verge on ludicrous in this day and age. While I couldn't envisage Japan doing it, and can't contemplate India doing it, I do expect that China could be a space power 2nd only to the USA, for example.

The only real shackle I can see on China competing on all of the West's "killer apps" is the nature of their political system.

Walter @adamson