Home » Opinion » Foreign Views
Daunting global issues arrayed at Davos talks
By Orit Gadiesh |
January 28, 2011, Friday
|
Print Edition
Print Edition
WITH the worldwide financial system still on crutches, the 2011 global business outlook hinges largely on which economic advice Western nations turn into policy - and whether or not countries can develop unprecedented levels of collaboration to jump start aggregate demand.
In the idling engine room of the global economy, chastened US consumers have begun saving prodigiously, mirroring their counterparts in other Western countries, while businesses have not been investing much despite historically low real interest rates.
State governments obliged to run balanced budgets have reduced spending and the federal government is not moving to fill the gap. The picture looks similar in many Western economies.
Many political leaders talk of the imperative for government to retrench. Yet economists see no evidence of a spike in interest rates.
In fact, they are still close to zero. Even Japan, which has the highest ratio of government debt to gross domestic product, has no problem borrowing yen. In the US, some argue that inflation remains low and deflation, rather than inflation, appears to pose a greater risk for the time being. Yet oil and food prices are rising globally, creating conditions which can lead to unrest in some countries.
Meanwhile, many of the emerging market economies seem to be doing fine, particularly China. Or is it?
Thanks to a major government stimulus plan, China's economy has returned to rapid growth. But plenty of people in Davos, Switzerland, for the World Economic Forum this week will point out that China's current economic health depends on a massive trade surplus, principally with the US. That will not continue if the US economy remains depressed.
Another issue likely to come up at Davos which business leaders need to track is the convergence of two demographic challenges: the developing world's population is growing larger while the developed world's population is aging.
The real solution is labor mobility and the continuing integration of the global economy. That, however, poses formidable political issues, requiring some real leadership.
Business leaders are also beginning to realize that we're approaching a global water emergency. Indeed, today's water consumption gap is estimated at 300 cubic kilometers. That's 79 trillion missing gallons for a global population of around 6.8 billion.
The world needs more than conservation to meet this crisis. Today, there are few economic incentives for carefully managing irreplaceable water. As a result, the West is exporting a meat-eater's diet, when a calorie of rice takes one sixth of the water requirement of a calorie of beef.
Without an accurate cost, how can water be better allocated? Maybe some answers will start to emerge at Davos around low-cost technologies to capture more.
But we also need the kind of global pricing mechanisms that govern another increasingly scarce commodity: oil.
Even though business leaders can't control fiscal policies, demographics or resources, part of the job is to stay close to these issues.
As they prepare for an economic recovery, however, there is another set of decisions that senior executives can make now.
For instance, the cost of capital, especially debt capital, is historically low and many corporations are sitting on substantial reserves of cash. Every CEO should have a clear set of priorities for strategic investment. The biggest decisions affecting the recovery will be made, or not made, by governments. Business leaders need to be able to anticipate those choices and quickly respond to them as they unfold.
(The author is chairman of Bain & Co. Shanghai Daily condensed the article.)
In the idling engine room of the global economy, chastened US consumers have begun saving prodigiously, mirroring their counterparts in other Western countries, while businesses have not been investing much despite historically low real interest rates.
State governments obliged to run balanced budgets have reduced spending and the federal government is not moving to fill the gap. The picture looks similar in many Western economies.
Many political leaders talk of the imperative for government to retrench. Yet economists see no evidence of a spike in interest rates.
In fact, they are still close to zero. Even Japan, which has the highest ratio of government debt to gross domestic product, has no problem borrowing yen. In the US, some argue that inflation remains low and deflation, rather than inflation, appears to pose a greater risk for the time being. Yet oil and food prices are rising globally, creating conditions which can lead to unrest in some countries.
Meanwhile, many of the emerging market economies seem to be doing fine, particularly China. Or is it?
Thanks to a major government stimulus plan, China's economy has returned to rapid growth. But plenty of people in Davos, Switzerland, for the World Economic Forum this week will point out that China's current economic health depends on a massive trade surplus, principally with the US. That will not continue if the US economy remains depressed.
Another issue likely to come up at Davos which business leaders need to track is the convergence of two demographic challenges: the developing world's population is growing larger while the developed world's population is aging.
The real solution is labor mobility and the continuing integration of the global economy. That, however, poses formidable political issues, requiring some real leadership.
Business leaders are also beginning to realize that we're approaching a global water emergency. Indeed, today's water consumption gap is estimated at 300 cubic kilometers. That's 79 trillion missing gallons for a global population of around 6.8 billion.
The world needs more than conservation to meet this crisis. Today, there are few economic incentives for carefully managing irreplaceable water. As a result, the West is exporting a meat-eater's diet, when a calorie of rice takes one sixth of the water requirement of a calorie of beef.
Without an accurate cost, how can water be better allocated? Maybe some answers will start to emerge at Davos around low-cost technologies to capture more.
But we also need the kind of global pricing mechanisms that govern another increasingly scarce commodity: oil.
Even though business leaders can't control fiscal policies, demographics or resources, part of the job is to stay close to these issues.
As they prepare for an economic recovery, however, there is another set of decisions that senior executives can make now.
For instance, the cost of capital, especially debt capital, is historically low and many corporations are sitting on substantial reserves of cash. Every CEO should have a clear set of priorities for strategic investment. The biggest decisions affecting the recovery will be made, or not made, by governments. Business leaders need to be able to anticipate those choices and quickly respond to them as they unfold.
(The author is chairman of Bain & Co. Shanghai Daily condensed the article.)
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
