Not surprisingly, Trump was the star of the show and the
positive message Europe heard was that “America
First does not mean America alone.” But he also pointed out that the world
"cannot have free and open trade if
some countries exploit the system" and that Washington "will no longer turn a blind eye to unfair
trade policies." The WEF’s annual report indeed highlighted that the
risk of some form of conflict was high on the list of issues which could derail
the current friendly economic environment. The WEF notes that “charismatic strongman politics is on the
rise” that has hastened the move away from the rules-based multilateralism
which has underpinned the peace and prosperity of the post-WWII economic
system. The US has blocked appointments to the WTO’s seven-member Appellate
Body during Trump’s tenure, and two seats are currently waiting to be filled. A
weakening of the WTO’s ability to resolve disputes does nothing to assuage
concerns that trade tensions between the US and China could yet become a major
problem.
But one of the biggest curiosities of the Davos bash is that
it should happen at all. One of the reasons why “strongman politics” is on the
rise is that many millions of ordinary voters feel left behind by the advance
of the global capitalist economy, which appears to benefit the very few at the
expense of the many. Two weeks ago BlackRock CEO Larry Fink distributed a
letter addressed to the CEOs of global companies arguing that “society is demanding that
companies, both public and private, serve a social purpose.” Economists
such as Milton Friedman would not agree. Writing in 1970, Friedman argued that
a business executive who exercises social responsibility in the course of their
work “must mean that he is to act in some
way that is not in the interest of his employers”. Businesses which do
anything other than maximise profits were “unwitting
puppets of the intellectual forces that have been undermining the basis of a
free society these past decades” and were guilty of “analytical looseness and lack of rigor.”
Arguably Friedman’s view is flawed because it fails to
distinguish between short-term and long-term profit maximisation and ignores
the non-pecuniary benefits which flow from social activities. Companies which
simply attempt to maximise profits each year, whilst failing to treat their
customers and employees with respect, will fail. But that is a different
proposition to suggesting that companies exist to serve a social purpose. In
any case, many large firms have long since taken ideas of social responsibility
on-board in drawing up their corporate sustainability programmes. Corporates do
have a duty to act responsibly, of course, and those which fail to do so are
held up to scrutiny. The problems faced by Volkswagen following the revelation
that it falsified diesel engine emissions highlights that there are costs
associated with acting in a non-socially responsible manner.
But the more I listened to what Fink had to say, the less I
was convinced by his message. Another of his Davos pronouncements was that too many
people are excluded from the workings of financial markets as a result of
financial illiteracy and more work has to be done to ensure “they don't feel frightened of moving their
money into long term instruments.” Given that Fink is the CEO of a primarily
passive investment fund, there is a certain irony (to say the least) in his
desire to get more people involved in financial markets. His point that a lack
of involvement ultimately hampers efforts to generate decent retirement incomes
was valid. But at a time when many people are finding their incomes being severely
squeezed, they simply do not have the excess resources to devote to financial
investing – a problem the likes of Fink do not have.
I have no doubt that Fink’s views – and those of his fellow
grandees – are motivated by a genuine concern that the system from which they
have benefited is under threat, and that they believe there is a strong case
for redistributing some of the wealth. Perhaps they not aware of how their
argument in favour of caring capitalism comes across – it does sound like a ‘let
them have cake’ view. Many people simply
feel that they are being screwed and want a piece of the pie. That said, when it falls
to the rich to talk about solving global inequality problems, it is small wonder that the ordinary voter has little faith in governments.
[1] In
the interests of disclosure, I should point out I was not there. I assume my
invitation was lost in the post.
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