Davos draws record crowds, but its relevance is fading

For decades, business leaders, billionaires and politicians have gathered in Davos, Switzerland under the banner of forging ties that can help solve global problems.

It’s a glitzy exercise often criticized as out of touch. It also looks increasingly out of date as the biggest war in Europe since 1945 deepens splits in the world economy.

This year’s World Economic Forum, hosted in the Alpine ski town since the early 1970s, kicks off Monday. It’s expected to draw a record 2,700 attendees, including German Chancellor Olaf Scholz, European Commission President Ursula von der Leyen, Chinese Vice Premier Liu He, South Korean President Yoon Suk-yeol and US climate envoy John Kerry.

Yet the WEF’s first winter meeting in Davos since 2020 comes as economic heavyweights are playing by different rules, with companies moving supply chains closer to home, strategic stockpiling picking up pace and corporate executives who once extolled free trade appearing increasingly wary of rising geopolitical risks.

“I think Davos is totally irrelevant,” said Rana Foroohar, a Financial Times columnist, whose book “Homecoming” argues that a new shift toward localization is displacing the forces of globalization that have been dominant over the past half century.

WEF makes the case that its conference allows decision makers to zoom out and collaborate, a challenge as they battle concurrent, compounding crises such as the pandemic, the soaring cost of living, climate change, food insecurity and war.

“Only personal interaction creates the necessary level of trust, which we need so much in our fractured world,” WEF Chair Klaus Schwab, the founder of the event, said at a press conference last week. This year’s theme is “Cooperation in a Fragmented World.”

Schwab’s vision for a progressively interconnected global economy that also spreads democracy around the world has been under threat at least since the 2008 financial crisis. Data from the World Bank shows that global trade of goods and services as a percentage of total economic output peaked that year. Outflows of cross-border investment hit a high in 2007.

But damage to the Davos mission has accelerated over the past 12 months.

Russia’s invasion of Ukraine squashed what columnist Thomas Friedman once termed the “Golden Arches Theory of Conflict Prevention,” which argued that no two countries with McDonald’s restaurants would go to war with each other. Since the invasion, more than 1,000 Western companies have curtailed operations in Russia, and Europe swiftly cut ties with what was once its top energy supplier despite the high costs. WEF itself had to freeze relations with Russia after hosting its politicians and oligarchs for years.

Tensions between the world’s two biggest economies, the United States and China, now loom even larger, especially as Beijing ramps up military exercises aimed at menacing Taiwan. China’s strong-arm approach to containing Covid-19 also spooked companies and investors. Many remain wary even as restrictions are rolled back rapidly.

That’s pushing businesses and governments to rethink supply chains for key products, as reducing vulnerabilities and protecting national interests takes precedence over maximizing cost savings.

Where former US President Donald Trump used to champion “America First” trade policies, US Treasury Secretary Janet Yellen has been emphasizing “friendshoring,” or strengthening trade ties with countries like India, a fellow democracy. Apple

(AAPL) is looking to move more of its production outside China, whose labor market once served as an engine of its success. The European Union is reportedly drawing up plans to hoard scarce drugs so it can avoid future shortages.

At the same time, the United States is pushing ahead with a robust industrial strategy aimed at boosting its prowess in manufacturing everything from computer chips to electric vehicle parts. That’s triggered a dispute with Europe, which worries new subsidies will put its companies at a disadvantage.

“This really is a paradigmatic shift in this moment,” said Jeffrey Sonnenfeld, a Yale management professor who speaks regularly with many well-known executives. He said they’ve increasingly been talking about cutting deals and making investments using this new playbook.

Meanwhile, nationalism and populism — which can encourage leaders to criticize tenets of a globalized economy such as porous borders and lower barriers to trade — remain muscular forces. Just look to Italy’s new prime minister, Giorgia Meloni, who was installed in October. Her party’s agenda is rooted in skepticism of the European Union and anti-immigration policies.

An ‘in-between era’

The consequences of this transition are still playing out. While the trend towards deglobalization is expected to have some negative consequences, such as adding to inflation, Foroohar sees an opportunity to reinvigorate communities that lost out on jobs during the free-trade bonanza, reduce the carbon footprints of supply chains and ease crippling global inequality.

During the past two years, the richest 1% scooped up nearly twice as much new wealth as the rest of the world, according to an Oxfam report published ahead of Davos.

“Economic pendulums shift throughout history,” said Foroohar, who is also a CNN analyst. “Every time the pendulum shifts too far, which it clearly has, it starts to shift back a bit.”

Some core elements of globalization remain intact. The digital transformation of economies makes it easier for money and ideas to move across borders. The same, unfortunately, goes for viruses and other diseases. International cooperation is essential to solve food shortages and keep high-stakes climate goals within reach.

“It’s basically too simple to say it’s an era of globalization or an era of deglobalization,” said Markus Kornprobst, a professor of international relations at the Vienna School of International Studies. “It’s an in-between era.”

But even Davos organizers seem aware of the changing tides. Panels on the agenda include sessions titled “De-Globalization or Re-Globalization?” and “Keeping the Lights on amid Geopolitical Fracture.”

The forum will still draw big names. Top CEOs such as JPMorgan Chase’s

(JPM) Jamie Dimon, Microsoft’s

(MSFT) Satya Nadella, Uber’s

(UBER) Dara Khosrowshahi and BP’s

(BP) Bernard Looney are on the list of attendees; Scholz, von der Leyen and Spanish Prime Minister Pedro Sánchez will give speeches from the main stage.

Yet there will also be notable absences. Those skipping the gathering this year include US President Joe Biden, China’s Xi Jinping, Indian Prime Minister Narendra Modi, French President Emmanuel Macron and UK Prime Minister Rishi Sunak. That raises questions about whether Davos can hang on to its reputation an essential event for the rich and powerful.

— Hanna Ziady contributed reporting.

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