Out of the valley This year, conference goers in Switzerland discussed how to achieve a better balance between growth and stability
On the afternoon following the close of the annual meeting of the World Economic Forum in Davos, Switzerland, the town starts to return to normal. Local children, bundled up against the cold, play in the snow; a man who a few days ago was managing tables in a frantically busy restaurant runs up the Thomas Mann Weg, a steep path that I have trouble walking down; ski boots appear outside hotel bedrooms; tour guides are overheard describing the best runs to new arrivals. And on their way to Zurich and flights home, some of them dozing, some of them nursing sore heads, those who have spent the last week in this alpine valley try to make sense of what they've heard.
They won't all come to the same conclusions; at Davos, there are too many competing attractions for that. "My London is not your London," the novelist Paul Theroux once wrote, "though everyone's Washington, D.C. is pretty much the same." Davos is a London, not a Washington, so take my sense of what happened there at a discount of your choosing. That said, this is Davos, perhaps the only place on earth where packed crowds jostle outside a room — "Just like English soccer fans," said Robert Hormats, U.S. Undersecretary of State for Economic Affairs — to hear six academics and George Soros muse on the need to "rebuild economics." The dismal science, and its real-world applications in the global economy, are properly at the heart of the week.
As to that central topic, the overwhelming mood at Davos was one of relief. After the financial crisis took hold in the fall of 2008, the world did not sink into a miasmic depression, though more than one senior official present thought it had come very close. Massive and coordinated fiscal stimuli and efforts to prop up global banking systems averted the worst. But nobody, at least from the developed world, thought the crisis was over. The key sound bite of the week was provided by Larry Summers, the director of President Barack Obama's National Economic Council. The U.S. and other leading economies, Summers said, were experiencing a "statistical recovery and a human recession." Unemployment, especially in the U.S., remains intolerably high; 1 in 5 men of prime working age in the U.S., Summers noted, were unemployed; in the mid-1960s, the figure was 1 in 20.
More than that, there were few voices arguing that the rich world would see a sustained burst of growth, the kind of expansion needed to make the recession a dim memory and bring jobs aplenty. There was something of a consensus that the stimulus packages that have fueled the economy can't be scaled back too soon — that way lies the dreaded double-dip recession — but at some point, enormous deficits will have to be addressed, and the belt-tightening that implies will have an impact on social expenditures.
That looming reality in turn fed a sustained anger at those who made out like bandits during financial capitalism's glory days. Certain "indecent behaviors will no longer be tolerated by public opinion," said French President Nicolas Sarkozy in a fire-breathing opening address, saving particular scorn for "excessive profits" and "remuneration packages that bear no relationship to merit." Worse, according to some, was the fact that some of those who once enjoyed those fat paychecks have had to be bailed out at the taxpayer's expense. "People are outraged and angry," said Philip Jennings, general secretary of the international labor union UNI, "that taxpayers' money has been diverted from education, health and social safety nets to bankers."
The Senate of Lords
Ah, the bankers. Not all of them turned up — no Jamie Dimon of JPMorganChase, no Lloyd Blankfein of Goldman Sachs. In public, those who did mostly repeated the standard line, with which investigating committees have become familiar. They understand why people are angry; they recognize that something went wrong with the global financial system; they see that there has to be a fresh look at regulatory structures; they get it.
But I'm not sure that they do. Perhaps the most authentic insight into the banking mentality came in a comment made by Josef Ackermann, the CEO of Deutsche Bank. "Seldom," he said, in a line with Churchillian echoes, "have so few done damage to so many." By "so few" he meant the financial institutions who had either failed or been rescued by government action. But by "so many" he did not — as you might think — mean taxpayers or those who had lost their jobs in the economic downturn; he meant other bankers whose reputation had been unfairly sullied. More than once in private (many of the most interesting comments on Davos, one should say, are off the record) I was assailed by bankers whose message was, in essence "We did everything right; it was they who are to blame."
At one level, that reaction is understandable. It must indeed be irksome if you work honestly for an institution of which you're proud, which has oiled the wheels of capitalism with credit, only to be pilloried for your pains. The point even "good" bankers miss, I think — especially American ones, who take refuge in the bedrock conviction that the politics of envy doesn't play in the U.S. — is those "remuneration packages that bear no relationship to merit" of Sarkozy's speech. Many in the financial-services industry, good, bad or indifferent at their jobs, got as rich as Croesus in the last 20 years, at just the time when middle-class wages have stagnated. They can't really be surprised that those who have not done as well as bankers now want their pound of flesh; nor does it suffice to dismiss public ire at the bankers' good fortune as nothing more than (dread word) "populism."