The Davos Manifesto and the future of capitalism

In 1989, we witnessed the fall of the Berlin Wall. And with that, history had put an end to an era of communism that had begun with the Bolshevik Revolution.  
On the other side of the coin, we saw in 2008 that confidence in an unbridled and vulgar capitalist system frayed fatally. As we recall that was triggered by the bankruptcy filing of Lehman Brothers and the consequent global financial meltdown and crisis.
These two rival systems dominated the world for much of the 20th century. Even though living standards under Soviet communism were only protected, not enhanced, there was significant scientific and technological progress.
At the other end, the era of open markets and trade that followed World War II resulted in substantial improvement in living standards, great scientific and technological progress and remarkable poverty alleviation that reached in some developing countries. Partly due to the technological progress and partly from inherent imperfections, both systems created a disadvantaged class of citizens — disadvantaged either through a lack of social mobility, insufficient income generation, unaffordable or inaccessible social services.
Development forums and economic thinkers nowadays are patching together these “mixed” policies into a quilted framework that is probably best described as “inclusive capitalism”.
I like the word inclusive. Who doesn’t? We can distill “inclusiveness” down to a single word that captures the concept in its fullest dimensions. That word is EQUITY.
However, when the feel-good word “inclusive” is applied to the not always feel-good word “capitalism,” it’s a little like mixing oil and water.
To coincide with its 50th anniversary, the World Economic Forum (WEF) that I usually watch its deliberations closely, has launched a new Davos Manifesto last month, trying to elaborate on what kind of better inclusive capitalism do we want in the future?
Another snowy January, another session of wealthy people dabbling in social change at Davos. They aren’t coming close to solving anything — never have — and you can tell because the problems never improve. Change is hard because it requires the people who claim to want it to change as well.
For the Davos Manifesto and its lead author Klaus Schwab, the Founder and Executive Chairman of the WEF, inclusive capitalism may be the defining question of our era, and if we want to sustain our economic system for future generations, we must answer it correctly. For him, there are three models of capitalism to choose from.
The first is “shareholder capitalism,” embraced by most Western corporations, which holds that a corporation’s primary goal should be to maximise its profits. The second model is “state capitalism,” which entrusts the government with setting the direction of the economy and has risen to prominence in many emerging markets, not least China. But, compared to these two options, the third has the most to recommend by the Davos Manifesto as inclusive and capable of addressing the ever increasing trend of inequality. “Stakeholder capitalism,” is a model that positions private corporations as trustees of society, and is clearly the best response to today’s social and environmental challenges.
At the same time, it is stressed in the manifesto that inequality is not a fateful consequence of globalisation and new technologies but can be combated politically. The Scandinavian countries are named as models, as they ‘have not only become among the world’s most technologically advanced, innovative and dynamic economies in the world, but are also providing better living conditions and better social protection, are more cohesive and more sustainable than their peers’.
Of course, one immediately asks oneself how seriously such statements are really intended. After all, the WEF seeks a closing of ranks between politics and the billionaires of the world. It is precisely the large international companies which are shifting their profits to tax havens and show no readiness at all to pay their fair share of taxes. How should one then finance inclusive stakeholders capitalist states, such as those in the Scandinavian countries?
The billionaires need not worry however that the WEF is really asserting their responsibilities beyond general declarations. The Global Competiveness Report 2019   which is published by the WEF shows the dichotomy. Ironically, the contradicting message the WEF intends to convey in the GCR Report is clear: A push for more inequality instead of advocating equality and inclusiveness .
Let us take some indicators as examples. One of the criteria that the GCR Report advocates is that  good protection against dismissal, high commitment to collective agreements and high social-security contributions — for instance to finance a general sickness-insurance scheme or compulsory old-age insurance — are obstacles to competition. If countries want to prosper, they must get rid of such barriers to competition. The WEF thereby follows argumentatively exactly the line of the World Bank, the International Monetary Fund and the European Commission, which imposed on debtor countries, such as Greece, deregulation of their labour markets, with a dramatic increase in social inequality.
Let’s look also at the indicator ‘Hiring and firing procedures’. Here one finds the USA (ranked 5th) and the UK (11th) in the top places, whereas Finland, Norway and Sweden, with their good protection against dismissal, are relegated to the lower ranks, between 85 and 97.
Moreover, in the competitiveness indicator ‘Flexibility of wage determination’, Finland, Sweden, Denmark and Norway are downgraded to places between 118 and 133 out of a total of 141 countries — far behind the United States, the United Kingdom or Saudi Arabia. The top positions, representing high competitiveness, are awarded to countries with weak trade unions, fragmented wage negotiations and low commitment to collective agreements.
Here we can see how far the gulf and the contradictions between the WEF’s podium speeches, panels of discussion and its manifesto discourse compared to the indicators  clearly displayed in the  Global Competiveness Report that is published by the same organisation.
Let us be blunt, the WEF will not solve the inequality crisis because its participants – the ultra-rich and powerful 1% – are the primary beneficiaries of the system that ravages the planet and discards the 99%.
We do not need to look far to know how inequality hurts us all. Globally, inequality blights the lives of the majority of the world’s population, while the wealth of the richest people continues to soar. We are truly living in an inequality crisis.
The World Inequality Report 2018 showed that between 1980 and 2016 the poorest 50% of humanity only captured 12 cents in every dollar of global income growth. By contrast, the top 1% captured 27 cents of every dollar.
More importantly, the latest report from Oxfam released in Davos while the representatives of the organisation attending the WEF meetings last month is just the latest to put numbers to this hoarding of wealth and power. One single minibus-load of just 26 people,  now own as much as half the planet’s population, and the collective wealth of the billionaire class swells by $2.5bn every day. This economic polarisation is far more obscene than anything detested by Davos man, and it is the root cause of the social and political divide that now makes his world so unstable and unequal.
Over my decades of field work in development planning, I have seen not only the effects of economic inequality, but also the importance of the perspectives of those most affected. I believe that until the socially excluded and the fixed income representatives toiling in the chalets at Davos,  get the microphones and push the levers of policy, economic inequality is likely to persist and perhaps get worse. If the financial and political elite who gather in Davos really want to understand and solve economic inequality, they need to leave the ski resort and include the voices and concerns of everyone who doesn’t get to go there.
The solutions to inequality and the other crises it breeds will not come from the icy mountains of Davos, but the hot, crowded streets of Santiago, Beirut and Baghdad.
On another front, the intellectual contradictions to which this act of doing the splits leads have become apparent from the example of the evaluation of the Scandinavian social models in the WEF manifesto.  As Gerhard Bosch nicely described it in his recent article published in Social Europe “The WEF is to these contradictions as is the Catholic Church: on Sundays water is preached and during the week wine is drunk.”
Inequality can be seen in various ways, ranging from a denial of equal opportunity as the WEF manifesto adopts to a more structural understanding of inequality of social condition.
Inequality has been aggravated and was moved up the political agenda during the early years of the third millennium because of the repercussions of the global transition took place in the 1980s, which led to the enforcement of the ‘neoliberal’ economic regime as part of the Washington Consensus. Cutting the ribbon on the market-is-the solution world  economic order back in the 80s, Ronald Reagan claimed that the nine most terrifying words in the English language were: “I’m from the government and I’m here to help.” A joke perhaps, but the intention was real enough. Breaking with the Keynesianism practised in Western Europe and North America in the early post-war decades, this has returned to an earlier, ‘classical’ presumption that, left to them, markets arrive at optimal economic equilibrium and the state should therefore withdraw from social steering. The neoliberal era has not only seen the soaring away of top incomes at the expense of those in the lower reaches of the income hierarchy but has also itself been thrown into question by the financial crash of 2008, which no neoclassical economist anticipated.
The last three decades have seen the political and economic elites hack away at people’s  social scaffolding – rights, taxes and institutions. It proved profitable, for a while, but now it threatens their own world. And still they block the quite reasonable alternatives of more taxes on wealth, of more power for workers, of companies not run solely to enrich their owners.
There is indeed a social and economic system that can ensure stakeholder and inclusive capitalism away from the neoliberal doctrine. It is  usefully be referred to as the Nordic model which was valued by the WEF manifesto.
The Nordic model comprises unique economic and social policies. This is backed up by typical cultural practices and “historical specificity”, with the centralised structure of the Lutheran church being but one aspect of the cultural values and state structures that led to the development of social democracy and the establishment of the welfare state. More importantly, it is a model based on social accountability. Nordic economies are home to large public sectors (roughly 30% of the work force), multi-level collective bargaining, strong job protections, and labour markets governed by centralised union contracts that establish the work rules and pay scales for the vast majority of Nordic workers.
Even more interesting than Nordic labour market institutions is Nordic state ownership. The governments of Norway and Finland own financial assets equal to 330% and 130% of each country’s respective GDP. In the US, the same figure is just 26%. State-owned enterprises (SOEs), defined as commercial enterprises in which the state has a controlling stake or large minority stake, are also far more prevalent in the Nordic countries. In 2012, the value of Norwegian SOEs was equal to 87.9% of the country’s GDP. For Finland, that figure was 52.3%. In the US, it was not even 1%.
These structural characteristics are the essence of stakeholder/inclusive capitalism. They are hardly neoliberal or quasi-libertarian, at least if we stick to typical definitions of those terms. The neoliberal tendency, as exemplified most recently by France’s Emmanuel Macron, is to cut public sector jobs, reduce job protections, and push for local rather than centralised labour agreements. For the US and other countries’ labour market that suffer from high inequality trends to become more like the Nordics, they would have to move in the opposite direction on all of those fronts.
Is it possible to do that? The answer is No, since it needs structural changes and a new balance of power equation between capital and labour capable of ensuring stakeholder/ inclusive capitalism. It is a whole-of-the-system reform model at both macro/structural level and micro/enterprise level. To reach “Stakeholder Capitalism,”  as the WEF manifesto declares, positioning reforms solely at the micro/ private corporations level to be as trustees of society is not enough. There will be a need for macro/structural reforms as illustrated by the Nordic model.