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World Economic Forum Annual Meeting 2006

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World Economic Forum Annual Meeting 2006

  1. 1. WORLD ECONOMIC FORUM Annual Meeting 2006 The Creative Imperative Davos, Switzerland 25-29 January INSIGHTS
  2. 2. This publication is also available in electronic form on the World Economic Forum's website at the following address: Annual Meeting 2006 web report: http:/www.weforum.org/summitreports/annualmeeting2006 The electronic version of this report allows access to a richer level of content from the Annual Meeting including webcasts, weblogs, photographs and session summaries. The Report is also available as a PDF: http:/www.weforum.org/pdf/SummitReports/annualmeeting2006.pdf Other specific information on the Annual Meeting 2006 can be found at the following links: Annual Meeting www.weforum.org/annualmeeting Programme www.weforum.org/annualmeeting/programme Participants www.weforum.org/annualmeeting/participants Partners www.weforum.org/annualmeeting/partners Open Forum www.weforum.org/openforum Issues in Depth (Interviews) www.weforum.org/annualmeeting/indepth Editorial Cartoons www.weforum.org/annualmeeting/cartoons Session Summaries www.weforum.org/annualmeeting/summaries2006 Photographs www.swiss-image.ch/Y249M7AC/INDEX.htm Webcasts www.weforum.org/annualmeeting/webcasts Podcasts www.weforum.org/annualmeeting/podcasts CEO Series www.weforum.org/annualmeeting/ceoseries FAQs www.weforum.org/faq Press Releases www.weforum.org/pressreleases Weblog www.forumblog.org Trust Survey www.weforum.org/trustsurvey Voice of the People survey www.weforum.org/voiceofthepeople Voice of the Leaders survey www.weforum.org/voiceoftheleaders The views expressed in this publication do not necessarily reflect the views of the World Economic Forum. World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 E-mail: contact@weforum.org www.weforum.org © 2006 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.
  3. 3. Contents Preface 3 Foreword 4 The Emergence of China and India 7 The Changing Economic Landscape 10 New Mindsets and Changing Attitudes 14 Creating Future Jobs 16 Regional Identities and Struggles 18 Responding to Global Challenges 20 The Creative Imperative – Responses 23 Acknowledgements 25 1 World Economic Forum Annual Meeting 2006
  4. 4. Preface The World Economic Forum Annual Meeting 2006 offered participants a great opportunity to better understand those issues influencing society and business over the year ahead – and beyond. Starting from the premise that the world community is at a turning point given the pace of change, the global nature of the challenges we face and the need for new responses, the theme “The Creative Imperative” provided this Annual Meeting with a solutions-driven impetus. Participants discussed how the assumptions, tools and frameworks that business, government and civil society leaders have employed to make decisions over the past decades now appear inadequate. Be it to address income disparities, climate change, job creation or to build design strategy in organizations, discussions centred on how leaders and their institutions can adopt more collaborative approaches to resolving issues – and the need to improve the capacity to adapt to a new emerging environment. Moreover, it was agreed that to successfully meet the challenges we face will require greater emphasis on human imagination, innovation and creativity. Once again, the Meeting drew leaders from business, government, international institutions, non-governmental organizations, universities and other communities. This year’s Meeting also saw valuable and innovative contributions from a strong contingent of Young Global Leaders. Together with our Members and Partners, we look forward to continuing to drive the Global Agenda forward in a creative and constructive fashion, taking up the findings from Davos in our regional meetings, through Forum initiatives and industry activities over the coming year. Klaus Schwab Founder and Executive Chairman The Forum would once again like to take this opportunity to thank the Annual Meeting Co-Chairs, each of whom provided invaluable support to the proceedings, bringing a distinguished background in business and public service to the discussions. They were: Mukesh D. Ambani, Chairman, Reliance Industries Limited, India Peter Brabeck-Letmathe, Chairman and Chief Executive Officer, Nestlé, Switzerland; Member of the Foundation Board of the World Economic Forum Sir Martin Sorrell, Group Chief Executive, WPP, United Kingdom Lawrence H. Summers, President, Harvard University, USA 3 World Economic Forum Annual Meeting 2006
  5. 5. Foreword – The Creative Imperative “We need to remove obstacles. We have to open the windows; we have to breathe deeply the fresh air. And we have to seize the opportunities.” Angela Merkel, Federal Chancellor of Germany The confluence of mood and world events, made discussions at this year’s Annual Meeting even more focused than usual. With over 240 sessions covering eight sub- themes and involving leaders from business, government, international organizations and many other communities, participants sought to apply fresh thinking to pressing global challenges. The eight sub-themes of the Annual Meeting 2006 comprised five challenges and three responses. The challenges include the Emergence of China and India, the Challenging Economic Landscape, New Mindsets and Changing Attitudes, Creating Future Jobs, and Regional Identities and Struggles. The responses include Building Trust in Public and Private Institutions, Effective Leadership in Managing Global Risks and Creativity, Design Strategy. In this foreword, we highlight key messages emerging from participants on these eight sub-themes. Following this, we further delve into each theme concerning each of the five challenges and then separately consider the three responses. The Emergence of China and India The Changing Economic Landscape “The story has moved “Two things move the world, and beyond GDP growth rates… two things move economies: hope the emergence of China and and fear. In the short run in financial India gives the world an markets I fear that we have too opportunity to experiment much hope and too little fear.” and make sure that there is Lawrence H. Summers, President, equitable wealth Harvard University generation.” Given US influence on the Mukesh D. Ambani, Chairman global economy, its current and Managing Director, account deficit of 5.7% of Reliance Industries Limited GDP in 2004 or US$ 666 These two very billion, continues to concern different, yet rapidly policy-makers in Washington DC and abroad. growing countries face enormous challenges as China’s economy is still too small to counter a they restructure and integrate their economies into possible US slowdown, and Europe and Japan, the global system. For China to continue to grow it while perhaps improving, are currently too slow- must expand domestic demand, reduce its reliance growing to drive the global economy forward. on exports and foreign direct investment for growth Moreover, the major economies are struggling to and further reform financial systems so consumers keep fiscal promises as their pension and healthcare can spend some of their savings and privately held bills grow. Inequities in trade and increased businesses can finance their growth. Consequently, competition for natural resources mean risk is rising the government will need to find a balance between – especially to the environment. While the world structural reforms, social equity and statist control. economy has proven resilient enough to absorb a India continues to face poor infrastructure, sustained US$ 60 a barrel for oil, participants were deregulation and bureaucratic corruption. It may be quick to agree, if prices rise further and stay high, the “fastest growing free market democracy” the the effects will hurt. world has ever known, but its leadership must respond rapidly to create jobs and reduce income disparities. 4 World Economic Forum Annual Meeting 2006
  6. 6. Foreword – The Creative Imperative New Mindsets and Changing Attitudes The challenge for many countries is not only what new jobs they create, but also how these jobs translate into livelihoods. And with the total “I have been seeking to global workforce having doubled over the last change … the mindset five years, pressure on wages is likely to that international continue. So where are the jobs of the future? relations are nothing With fiscal budgets already stretched, they are more than relations unlikely to come from the public sector. But between states, and the policy-makers can play an important role in United Nations is little providing the environment for the private sector more than a trade union to create jobs. More generally, both developed for governments.” and developing countries will need to re-examine Kofi Annan, Secretary- education strategies to build the skills necessary General, United Nations for the future. The 21st century will be about managing the implications of a shrinking yet more fragmented and complex Regional Identities and Struggles world. Individual states have less influence than in the past and are subject to the wider interests “The challenge that has of regional or economic groupings. Institutional dominated the headlines frameworks designed to respond to cold war is … a minority group of threats are not appropriate to deal with global extremist Muslims who warming, international terrorism or poverty have taken upon reduction. Leaders themselves will need to learn themselves to distort or re-learn skills if they are to drive organizations Islam in order to justify to innovate and adopt new ideas. For policy- violent action… And I makers in the developed and developing world think this has led the the challenge will be to create educational Muslim world to a very curricula that will provide today’s youth with the critical crossroads of tools they will need tomorrow. self-evaluation and self- definition and to really look at what it is that we stand for. And this has led to a Creating Future Jobs reaffirmation of the basic principles of Islam.” H.M. Queen Rania of the Hashemite Kingdom of Jordan “Cities like Shanghai are Closing regional income gaps will require regional saying, ‘We need 20,000 cooperation, coordination and compromise. experts right now and if Trade is key but targeted investment in you can find them abroad, infrastructure, education and easier access to we’ll give them work capital are also important concerns. But, without permits’. They are doing geopolitical stability, regional cooperation efforts the first – that I’ve seen will be hampered. The Hamas election victory worldwide – rigorous sparked reactions from many, though some saw forecasting of skill this as a moment to trigger change. However, requirements and … Iran, whose absence from the meeting served to channelling people into the accentuate the gravity of the current situation, right vocational skill lines drew most attention. Experts warned that, for future requirements.” whatever the outcome, the consequences for David Arkless, Executive Board Member, Manpower the region and the international community will be significant. 5 World Economic Forum Annual Meeting 2006
  7. 7. Foreword – The Creative Imperative And from Where Will Responses Come? “Do we need to worry? Of course we need to worry ... … Through Building Trust in Public and Private We know that terrorists are Institutions highly sophisticated and are interested in acquiring “The unfortunate thing is nuclear weapons or nuclear that companies haven’t material ... What you have to done a good job of building do is simply to cross your the [public’s] trust by fingers and prioritize.” managing themselves in a Mohamed M. ElBaradei, Director- positive way.” General, International Atomic Michael E. Porter, Bishop Energy Agency William Lawrence University Professor, Harvard Business School … Through Innovation, Creativity and Design Evidence shows public Strategy disenchantment and mistrust of institutions and business is growing. In “Today, if you don’t innovate, the developing world, corruption and inefficiency you’re just going to die.” threaten to overwhelm trust. In industrial countries, Barry S. Sternlicht, Chairman and economic change spurs fears of a broken social Chief Executive Officer, Starwood contract. If not addressed through truly collaborative Capital Group solutions, global leaders face a potential political backlash. Finally, the frameworks and assumptions upon which leaders in … Through Effective Leadership in Managing business and Global Risks government have long depended to make decisions are no longer “The basic ingredient of a adequate. The economic and political context in leader, I personally feel, is which businesses and government institutions seek that he should never panic… to compete or otherwise serve their constituents whatever the problems, has fundamentally altered; new models, new leaders whatever the and new mindsets are necessary. As the world circumstances…” reacts to a new emerging architecture and creativity Pervez Musharraf, President of increasingly drives the economy, tomorrow’s leading Pakistan companies and institutions will be those who seize In a globalized world, the courage and capability to adapt. risks cannot be dealt with in isolation. Despite increased attention and some success in mitigating, if not preventing calamity, new risk frameworks are still in their infancy. Recent natural disasters in Asia or the US and public concern about pandemics, are further proof that today’s international institutions and frameworks are not designed to respond to the nature, or the frequency, of the risks that lie ahead. What is clear is that the way in which organizations mitigate, manage and respond to risk is a source of differentiation. 6 World Economic Forum Annual Meeting 2006
  8. 8. The Emergence of China and India “China cannot achieve development in isolation of the rest of the world, and the world needs China for development.” Zeng Peiyan Vice-Premier of the People’s Republic of China China and India are at inflection points in their Participants went beyond conventional wisdom to development requiring them to sustain economic consider long-term problems for China and India development, in particular to manage natural that require innovative solutions, namely the quality resource consumption and environmental and sustainability of growth models, creating jobs, degradation. maintaining stability, eradicating corruption and better integrating into the global system. • China is focusing more on stimulating domestic demand and reducing its reliance on exports These issues are closely connected. Better and foreign direct investment to drive growth. integration with the rest of the world will enable both to achieve more balanced, diversified growth • India must deal with structural problems such as and transform them into more efficient economies, poor infrastructure, deregulation and more inclusive societies, and more responsible bureaucratic tangles that could hamper its and responsive members of the international ambitions to achieve growth at par with China. community. Adopting sustainable development policies to promote social equity, a cleaner • Retail and manufacturing sectors are in need of environment and economic stability will naturally attention. deepen their integration with the global economy. “China cannot achieve development in isolation of • Failure to address obstacles to sustainability, the rest of the world, and the world needs China stability and global integration will not only set for development,” said China’s Vice-Premier Zeng China and India back but will also aggravate Peiyan. His statement could equally apply to India. global imbalances. Comparing China and India, however, pits apples against oranges. Yes, they have similarities, but That China and India have emerged as drivers of there are even more crucial differences that are global growth is nothing new. These economies widely recognized – the makeup of their each with one-billion-plus populations are set to economies; depth of integration with global supply grow by over 6% and 8% a year respectively for chains; share of global trade, notably exports (see the near to medium term. China is already an Figure 1); and workforce skill levels, not to mention integral part of the global supply chain; India has obvious and significant divergences in their political become a dominant player in outsourcing services. system, rule of law, infrastructure and level of development. 7 World Economic Forum Annual Meeting 2006
  9. 9. The Emergence of China and India Figure 1: China and India Exports to the Rest of the World US$ TN US$ TN Source: Thomson Datastream In China, domestic consumption must increase; The complacent and fearless may cling to one- China must lower its reliance on exports and dimensional high-growth stories. But it is time to foreign direct investment (FDI) to drive growth. take in the bigger picture. The tricky shifts that Chinese officials including Vice-Premier Zeng China and India are trying to pull off as they emphasized that the new five-year plan to be implement complex reforms will prove more approved in March should set a “moderate” painful than anything they have so far achieved. growth target of 8% to allow for greater focus on Turning an economy driven by exports and FDI social programmes and initiatives for sustainable into a consumption-led one cannot be easy for a development. society still nominally steeped in central planning. Moreover, China must create a system of India’s delegation delivered its own stark rationally allocating finance (i.e. reform the message: While India has arrived on the world banking system) so long constrained by political stage, it has a raft of urgent problems to tackle, interference. As Morgan Stanley Chief Economist including poor infrastructure, widespread poverty Stephen Roach said, “switching from an and widening income disparities particularly investment-led economy to a consumer-led one between urban and rural areas, limited is more art than science. A consumer culture is manufacturing capabilities and deficiencies in the DNA of market-based capitalism and this is education. The self-styled “fastest growing free not in the experience set of China’s market democracy in the world” is proving that macroeconomic managers.” pluralism and growth are compatible. While China must balance bold structural “Democracy is going to be a source of reforms with statist controls to avoid destabilizing competitive advantage for us,” predicted Nandan social tensions, India inches forward gingerly, its M. Nilekani, President, Chief Executive Officer revolutionary reform ambitions tempered by a and Managing Director, Infosys Technologies. much admired, yet constraining devotion to Indian Minister of Commerce and Industry Kamal democracy and social heritage. Bridging Nath added: “As the world’s perception of India significant gaps of poverty, empowering women changes, India’s perception of itself changes. through education and addressing infrastructure The Indian electorate is realizing more and more deficiency are enormous tasks that lie ahead. that a more liberalized economy is what is driving growth.” 8 World Economic Forum Annual Meeting 2006
  10. 10. The Emergence of China and India “As the world’s perception of India changes, India’s perception of itself changes. The Indian electorate is realizing more and more that a more liberalized economy is what is driving growth.” Kamal Nath Minister of Commerce and Industry of India All this suggests that China and India could each rights including intellectual property protection hit a wall, forcing them to scramble to generate through available legal channels, adhering to new models of growth. And in the case of China, transparent and ethical conduct, and requiring we need no reminders that not a single country the same of partners and contractors. The in the post-World War II period has undertaken leaderships of both countries are struggling to banking reform the likes of which China is stay far enough ahead on the reform curve to attempting absent a significant financial crisis. prevent human resources and infrastructure There are many plausible negative scenarios: constraints from damaging critical labour cost rising protectionism stemming from advantages. disillusionment with multilateral trade negotiations, social tensions resulting from rising China and India’s developments are unparalleled expectations and uneven development, disputes transitions with profound consequences and with rivals over natural resources, diplomatic opportunities for the world at large. Conditions friction over ties to potentially destabilizing change quickly; objectives once considered regimes such as Iran, and falling FDI due to incongruent can swiftly turn into complements. frustration with the shaky rule of law and thin Environmental protection and economic growth profit margins in China or India’s infrastructure are a prime example. As US architect William deficiencies and bureaucratic bottlenecks. McDonough, Chairman, William McDonough + Partners Architecture and Community Design / Business must consider the implications of the MBDC, who is designing cutting edge eco- transformations underway and adopt risk friendly cities in China, concluded: “The Chinese strategies accordingly. At the same time, have the ability to go to scale with velocity.” Chinese companies are venturing overseas to While India may move more slowly, its impact on acquire management expertise, technology and the global economy is likely to be as great as brand-building savvy to apply them at home. China’s, particularly as life sciences and other Boardrooms in Europe and the US are having to services are outsourced to India. As many consider new potential emerging competition. participants put it, as go China and India, so goes the world. Chinese and, to a lesser extent, Indian firms are building resource supply networks and strategic business relationships in Africa, Latin America and other emerging markets. Global companies that source products from China and India are beginning to apply environmental best practices standards to suppliers. Companies are bolstering the rule of law by asserting their commercial 9 World Economic Forum Annual Meeting 2006
  11. 11. The Changing Economic Landscape • The global economy is beset with inefficiencies news for the penguins and, it turns out, for and imbalances that threaten to derail growth humans too: thanks to overfishing in the world’s and halt efforts to bring prosperity to the oceans, mankind has moved right down to the world’s poorest corners. bottom of the food chain to harvest krill alongside the seals. • Massive US deficits and yawning Asian surpluses, inequities in trade and the The same inefficiencies and imbalances that increasingly heated race for natural resources economists say imperil trade and markets are pose risks. hastening the depletion of natural resources and environmental destruction. These imbalances • The brunt of these imbalances, however, is have so far not derailed global economic growth, being borne by the environment, which looms but the slow destruction of our own habitat above all else as a risk to the well-being of the belies the conclusion that the situation is planet. sustainable. No one drills for oil or assembles iPods at the The most fundamental imbalance has long been South Pole. But evidence that the global the disparity of wealth between developed economy is dangerously out of kilter can be nations and undeveloped nations. This disparity found swimming under the ice nearby. There in is being slowly reduced now in what some call the frigid Antarctic seawater, tiny shrimp-like the most dramatic shift of wealth ever witnessed. crustaceans – called krill – eke out an existence While erosion of Socialist orthodoxy catalysed eating plankton and algae until they are eaten by the re-emergence of China and India, their seabirds, whales and other animals. Global impact stems largely from their massive ranks of warming is melting polar ice and reducing the young workers, which have helped double the krill’s habitat, causing by some estimates a 90% global workforce since 1990. But discrimination drop in krill populations in the past 20 years. Bad against women in both nations has helped give 10 World Economic Forum Annual Meeting 2006
  12. 12. The Changing Economic Landscape rise to vast gender disparities that are deepening emerging shortages of skilled labour. “In the developing world, there are 100 million women ‘missing’,” said Lawrence H. Summers, President, Harvard University, USA; Co-Chair of the Annual Meeting 2006. The developed economies, by contrast, face increasingly aged, unproductive populations. Persistently high demand for consumer products in the US and Europe has enabled developing economies such as China to use manufactured exports as an engine of growth. The emerging skilled labour shortages in China and India have largely dispelled fears that they would export deflation. Instead, a potentially precipitous paradox has emerged in which the developing nations of Asia finance consumption of their exports by the world’s richest nation. Asian purchases of US government bonds enable the US to run an ever-widening trade deficit, consuming more than is financially sound, Min Zhu, Executive Assistant President, Bank of China; Laura D. Tyson, Dean, without depreciation of the dollar or significantly London Business School; Peter Gumbel, Senior Writer, Business, Time higher inflation. US debt is rising close to 50% of Magazine; Michael J. Elliott, Editor, Time International; Stephen S. Roach, Chief Economist, Morgan Stanley; and Jacob A. Frenkel, Vice-Chairman, American GDP (See Figure 2), with US savings rates at International Group (AIG), during the session “Update 2006: Global Economy” their lowest since the Great Depression. Figure 2: US Debt and Budget Balance Source: Thomson Datastream 11 World Economic Forum Annual Meeting 2006
  13. 13. The Changing Economic Landscape This artificial support for US deficits fuels asset- With the dollar artificially overvalued and global price inflation, particularly housing prices. US inflation kept low, the world is flush with cash. housing prices and those around the globe have Interest rates paid by borrowers once risen sharply, by 85% since 1997 (see Figure 3) considered relatively risky compared to leading some commentators to believe this is the governments are historically low, making it largest bubble in history. harder for investors to earn the kind of returns needed to finance the world’s growing pension Economists say rising home values are largely liabilities. behind the illusion of wealth that inspires US consumers to spend more than they earn. Many predict that housing prices may stop rising soon, which could chill US consumer demand for Asian exports. Figure 3: Global House Price Rises (1997-2005) Percentages Source: The Economist 12 World Economic Forum Annual Meeting 2006
  14. 14. The Changing Economic Landscape “Consider the dynamic ”It’s actually an economic that 73% of tariffs paid necessity, if we’re going to by developing countries have enough capacity on are paid to other earth to give China and developing countries.” India and other countries the growth which they Peter Mandelson rightfully claim is theirs.” Commissioner, Trade, European Commission William J. Clinton Founder, William Jefferson Clinton Foundation; President of the United States (1993- 2001) Growing trade imbalances also increase the risk Policy-makers need to take steps to redress that politicians will grasp for protectionist these imbalances. In particular, prices for goods solutions and halt efforts to make trade fairer and services should reflect their real cost, not through the World Trade Organization. Tariffs only in terms of labour and capital, but also their designed to protect agriculture in Europe and the impact on natural resources and the US hinder the ability of developing nations to environment. “It’s actually an economic export their way out of poverty. But not all such necessity,” said William J. Clinton, Founder, barriers are from developed countries. “Consider William Jefferson Clinton Foundation; President the dynamic that 73% of tariffs paid by of the United States (1993-2001). “If we’re going developing countries are paid to other to have enough capacity on earth to give China developing countries,” said Peter Mandelson, and India and other countries the growth which Commissioner, Trade, European Commission, they rightfully claim is theirs, and revive the Brussels. American economy, and provide an opportunity for Europe to continue to grow and prosper, I Aside from feeding extremism, such inequities in think we have to deal with [preserving the global trade distort the cost of resources. Tariffs environment].” and subsidies encourage the wasteful use of land, water and oil. Oil, and our over-reliance on it as our principle source of energy, remains a problem. With China and India leading a new surge in demand, the global economy is susceptible to shocks such as those triggered by the terrorist attack on gas pipelines in Georgia, or Hurricane Katrina. 13 World Economic Forum Annual Meeting 2006
  15. 15. New Mindsets and Changing Attitudes programmes to encourage tolerance and diversity “Adaptation of technology, along with economic and prevent growing extremism that can lead to growth and education, is terrorism. Besides, economies that aim for a fully one of the essential functioning modern democracy will need to foster components of critical thinking, knowledge of the market economy, modernism.” gender acceptance and racial diversity. More Hamid Karzai focused education programmes will make such President of Afghanistan attributes more likely, especially if combined with the intelligent use of technology. “Adaptation of technology, along with economic growth and education, is one of the essential • With technology advancing rapidly and components of modernism”, said Hamid Karzai, globalization a fact of life, “new mindsets” President of Afghanistan. But new technology also inevitably collide with old ways of thinking. poses critical challenges for businesses and Government, business and civil society all play a governments alike. Will these new technologies role in ensuring that these new mindsets bring the advance accountability, destroy privacy, or both? greatest good to the greatest number of people. How will old brands weather the storm of new media? • The most critical goals involve fortifying and expanding educational systems to spread the In the fields of marketing and news media, the benefits of growth and to stem extremism, Internet has been nothing short of a sea change. harnessing new technologies to solve old Consumers of news, an essential pillar of a problems – particularly poverty, unaccountability of public and private sector officials, and health crises – and creating constructive synergy between governments, NGOs and businesses. Expanding education to benefit the largest number of people remains a critical challenge. Participants voted a “global educational framework that fosters inclusivity” – a priority for several well-established reasons. For example, educated societies tend to be more productive, rich and happy. As Jiro Nemoto, Honorary Chairman, Nippon Yusen Kabushiki Kaisha, Japan put it, “Human development must be the foundation for economic development.” Educated societies also tend to be healthier; combating ignorance – in the form of testing and information on prevention – is an essential weapon in the fight against diseases such as HIV/AIDS. However, participants also recognized that in today’s society, education is important to tackle some of the world’s more pressing issues, like extremism. For example, many understand that generally exchanging knowledge prevents ignorance and alienation. Nations with significant immigrant populations or large ethnic, religious or linguistic sub-communities need proactive education 14 World Economic Forum Annual Meeting 2006
  16. 16. New Mindsets and Changing Attitudes functioning democracy, increasingly rely on blogs or Breaking down the barriers between governments, online versions of print newspapers. Many in the NGOs and businesses holds the potential to foster media expressed concern that such trends would cooperation and growth within and between mean the erosion of responsible journalism, but nations. “My objective has been to persuade both publishers such as Arthur Sulzberger Jr, Chairman the member states and my colleagues in the and Publisher, The New York Times, USA, Secretariat that the United Nations needs to engage expressed guarded optimism “that the need and not only with governments, but with people,” said desire for quality, trustworthy journalism would keep Kofi Annan, Secretary-General, United Nations, New the old media brands afloat.” But change is York. undeniable. “The consumer has been empowered,” said Frederick Kempe, Assistant Managing Editor How private-public engagements occur remains an and Columnist, Wall Street Journal, USA, “the essential question. Generally, business is better than Internet is a democratizing force.” government at changing the behaviour of individuals. “Where there is opportunity for more Privacy issues such as ID theft and government profit,” said Bill Owens, Governor of Colorado, USA, intrusion loom large, and striking the right balance “companies are increasingly moving towards what is between regulation and freedom will be a critical good for the public.” The role of government in challenge in the next decade. But with new balancing business interests with those of the nation problems also comes new opportunities. is a tendentious issue as was demonstrated by the Technology, like education, is vital to the war on CNOOC Limited bid to acquire Unocal Corporation, terror, as it can facilitate the collection and sharing and the American political climate which sunk the of information among nations and international deal. security organizations. Christopher Murray, Director, Global Health Initiative, Harvard University; Jens Stoltenberg, Prime Minister of Norway; William H. Gates III, Chairman and Chief Software Architect, Microsoft Corporation; Gordon Brown, Chancellor of the Exchequer of the United Kingdom; Olusegun Obasanjo, President of Nigeria; Fareed Zakaria, Editor, Newsweek International; Giulio Tremonti, Vice-President of the Council of Ministers and Minister of Economy and Finance of Italy, during the session “Not Gone, but Almost Forgotten” 15 World Economic Forum Annual Meeting 2006
  17. 17. Creating Future Jobs “In my 30 years “The focus is on training experience I have never people to be adaptable, seen such an incredible flexible and able to shortage of talented change quickly with the people – whether it is in times, because it is Germany, Brazil, China, impossible to predict what India or Kansas.” we will need in the future.” Samuel A. DiPiazza Jr Global Chief Executive Officer, Nandan M. Nilekani PricewaterhouseCoopers President, Chief Executive Officer and Managing Director, Infosys Technologies • Hundreds of millions of new jobs will be Business in the developed and developing world needed over the next 20 years to avoid could not face more divergent labour markets. massive increases in global unemployment. “In developed countries, the question is not where the jobs will come from but where will the • This requires new attitudes towards supporting workers come from,” said Donald J. Johnston, innovation, entrepreneurship, risk taking and Secretary-General, Organisation for Economic encouraging creativity. Co-operation and Development (OECD), Paris. Min Zhu, Executive Assistant President, Bank of • The ability to start a business will need to be China, People’s Republic of China, has no such made much simpler, quicker and cheaper in problem: “We have to understand that labour is many countries and the benefits of a resource not a burden. So it is labour-intensive entrepreneurship widely publicized and taught manufacturing which makes China a formally. powerhouse in the world with a 10% growth rate.” • Numerous educational systems will need to be restructured if they are to meet future skill In developed countries with ageing populations requirements and must include broad-based there will clearly be a boom in healthcare skills so that future workers find it far easier to employment. Companies which understand the switch between different occupations. added consequences, such as a sharp boost in the number of people who are time rich and cash poor, will be able to create further jobs. A time bomb relating to work is ticking. “The implications of people getting older means Registered world unemployment reached 187.7 a complete shift in consumerism as people will million in 2004, according to the International buy differently,” insisted Sir Digby Jones, Labour Organization. Over 80 million new jobs Director-General, Confederation of British will be needed by 2020 to keep the Arab world Industry (CBI), United Kingdom. “Where they go, alone at its current level of 16% unemployment. the need to heat their homes more, and they will The entry of so many workers into the global want to pay lower prices.” market economy will have a dramatic effect on the worldwide ratio of labour to capital with a Businesses in the Middle East, however, will only consequent downward pressure on wages. This be able to start creating the work needed by situation can be expected to last for at least 25 tens of millions of Arab youths if, at the very years and will require fresh, collaborative ideas to least, there is a far greater regional openness in provide solutions. the trade of goods, services and labour. Ahmed Mahmoud Nazif, Prime Minister of Egypt, for 16 World Economic Forum Annual Meeting 2006
  18. 18. Creating Future Jobs example, needs to create 750,000 jobs a year to country’s regulations, the availability of funding, keep unemployment at the same levels. “Part of employment, taxation, and the time and cost of the answer is related to growth, particularly in starting a new business. Crucially policy-makers tourism which is important to Egypt and creates should also emphasize the importance of more jobs than industry.” changing mindsets in those countries where entrepreneurial failure is considered For much of commerce, the way to create new unacceptable and which effectively disqualify risk jobs is globalization, although this is being takers from making further attempts. restricted by skill shortages at the white collar level. “In my 30 years experience I have never Educational systems in many countries need seen such an incredible shortage of talented overhauling to overcome a fundamental people – whether it is in Germany, Brazil, China, mismatch between the skills taught and the India or Kansas,” said Samuel A. DiPiazza Jr, future skills needed. This disparity is increased in Global Chief Executive Officer, developed countries by students’ perceptions of PricewaterhouseCoopers, USA. “There is this what constitute worthwhile occupations. “We war for talent and we are not just talking about have to persuade children that, in the future, the top 5%. It is an issue even in countries with getting a vocational degree will be as important good population growth and education.” as getting a university qualification,” insisted David Arkless, Executive Board Member, These skill shortages need to be tackled with Manpower, USA. “We need electricians, increased efforts by business to release plumbers, infrastructure workers and higher-level underutilized assets into the labour market production workers. We have to make these through improved childcare services, wage sorts of jobs, which make cities work, look equality and greater education opportunities. valuable and feel valuable.” ”We do not have enough urgency about innovation,” declared Ben J. Verwaayen, Chief At the same time, educational systems will need Executive Officer, BT, United Kingdom, “not in to become more broad-based so that people the R&D sense, but in terms of job creation, find it easier to switch between jobs. “Trying to getting women involved, getting minorities plan for specific shortages in the long term is not involved.” The success of such initiatives can that useful,” declared Jagdish Bhagwati, provide further new opportunities for Professor, Columbia University, USA. employment as unpaid work becomes paid “Uncertainty comes in no matter how hard you work. “In Scandinavia so many of the workforce try. You can only make broad statements like skill are now in employment that a lot of housework shortages will happen.” This is also the view of has effectively become paid work as others are Nandan M. Nilekani, President, Chief Executive paid to do it,” said Neil Kearney, General Officer and Managing Director, Infosys Secretary, International Textile, Garment and Technologies, India, who finds that college Leather Workers’ Federation, Brussels. recruits do not have the right skills. “We have our own finishing school to get them ready for our Creating new jobs that are needed on the business. The focus is on training people to be massive scale means that most will have to adaptable, flexible and able to change quickly come from the private sector and will require a with the times, because it is impossible to fundamental change in attitude to business and predict what we will need in the future.” public sector support for innovation, entrepreneurship and risk taking. Indices of Equally important is that educational systems competitiveness, which look at the cost and recognize that 85% of job skills are not specific difficulties of starting a business in various to a particular task but include work habits, countries, should be expanded and used to project management, teamwork, communication, praise the best and “name and shame” the time management and punctuality. worst nations while examining in depth each 17 World Economic Forum Annual Meeting 2006
  19. 19. Regional Identities and Struggles “Right now, no one “Regionalism is the right knows if Iran is trying to way forward for the cross the weapons mutually-beneficial threshold.” advance of the states involved, as the EU and Kenneth M. Pollack ASEAN have showed.” Director of Research, Saban Center for Middle East Policy, Pervez Musharraf The Brookings Institution President of Pakistan • Empowering poorer countries to close the argued Lawrence H. Summers, President, income gap with the rich, thus boosting their Harvard University, USA; Co-Chair of the Annual potential as consumer markets, is in the long- Meeting 2006. term interests of industrialized nations. Regional cooperation agreements, targeted Formal regional agreements on trade, like infrastructure investment, easier access to NAFTA, and political-commercial pacts capital and removing farm subsidies in the underpinning groupings like the EU and ASEAN, richer nations can help achieve this end. have raised living standards in their member states. However, non-formal cooperation • Iran’s nuclear ambitions are the biggest between countries through free movement of immediate concern for the international capital and goods are achieving similar ends. community in the Middle East region, “Regionalism is the right way forward for the overshadowing Iraq and the Israel-Palestine mutually-beneficial advance of the states conflict despite the election victory of Hamas. involved, as the EU and ASEAN have showed,” While there is no consensus on whether said President Pervez Musharraf of Pakistan. Tehran really wants nuclear weaponry, high- pressure diplomacy is the only effective way to Helping Africa, and other poorer regions, to help handle the issue. A military attack would be themselves by developing infrastructure can be dangerously counterproductive for the West. inspiring. “Making money and doing real cool stuff at the same time is a magical formula. Business needs to talk less and do more,” Despite the fact that hundreds of millions have commented Hugh Grant, Chairman, President been lifted out of abject poverty over the past and Chief Executive Officer, Monsanto Company, decades, income disparities between world USA. “There are a billion people who cannot be regions and within nations are growing. “Global business consumers unless they are helped to imbalances are deepening, and that has serious climb out of poverty,” argued Antony Burgmans, consequences for developing countries like Chairman, Unilever, Netherlands. But as India,” warns Palaniappan Chidambaram, Chidambaram warned, “Developed countries Minister of Finance of India. Yet, it is in the longer must show much more concern for the capital term interests of the richer powers, and their requirements of developing countries.” business communities, to narrow the divide and Certainly, business can more actively press major help create populations of consumers within the governments to remove trade barriers with poorer countries rather than see armies of the poorer countries, and especially to remove farm desperate surging across borders in the hope of subsidies. Africa “can only grow when it is finding a better life. “The integration of the four- allowed to trade freely and openly and fairly. That fifths of the world that is poor with the one-fifth means these trade-distorting subsidies must be that is wealthy has the potential to be one of the removed by 2010,” said Niall Fitzgerald, two or three most important economic Chairman, Reuters, United Kingdom; Member of developments of the past millennium, along with the Foundation Board of the World Economic the Renaissance and the Industrial Revolution,” Forum. 18 World Economic Forum Annual Meeting 2006
  20. 20. Regional Identities and Struggles Jack Straw, Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom; Barham Salih, Minister of Planning and Development Cooperation of Iraq; Ahmed Chalabi, Deputy Prime Minister of Iraq; Robert B. Zoellick, US Deputy Secretary of State; Hajim Alhasani, President of the Iraq National Assembly; John McCain, Senator from Arizona (Republican), USA; Sheikh Hamam Hammoudi, President, Constitutional Drafting Council, Iraq; and Amre Moussa, Secretary-General, League of Arab States, during the session “What Is at Stake in Iraq?” But the greatest will in the world to remove trade There is consensus that the response should be barriers will fail if the global geopolitical “carrot-and-stick” diplomacy. However, the West environment remains volatile. The West’s nuclear may have to make more generous offers – stand-off with Iran bears the seeds of a grave including economic cooperation that involves crisis affecting much of the world. If Tehran halts investment and trade – to persuade Tehran to oil exports, or they are halted by Western military play ball. Richard N. Haass, President, Council action, prices will likely soar well beyond their on Foreign Relations, USA, said: “I don’t see that current highs and the repercussion on key there is enough on the (negotiating) table at the Western economies, and global markets, will be moment.” dramatic. Certainly, there is little enthusiasm for an attack The real aims of Iran’s nuclear programme are on Iran’s nuclear centres. A common view is that unclear. One view is that serious economic this would spark a huge geopolitical crisis in the problems and a rapidly growing population are region and far beyond, and only delay Iranian pushing it towards diversifying its energy arms development while pushing the population resources. Others think differently. “Right now, to more radical political positions. no one knows if Iran is trying to cross the weapons threshold,” said Kenneth M. Pollack, The electoral victory by Hamas, seen as linked to Director of Research, Saban Center for Middle Iran and viewed officially as a terrorist East Policy, The Brookings Institution, USA. “But organization by many Western governments, it is prudent to believe that they are developing a adds a further complicating factor. Should the nuclear weapons capacity,” said Jack Straw, reaction of the West be to isolate or engage? Secretary of State for Foreign and “We all have a difficult time managing risk. We Commonwealth Affairs of the United Kingdom. live in a polarized world in which the risks have “There is no threat (to Iran) from anyone in that increased colossally,” said 2005 Nobel Peace region,” argued Saxby Chambliss, Senator from Prize winner Mohamed M. ElBaradei, Director- Georgia (Republican), USA. Motivation for any General, International Atomic Energy Agency, weapon development could therefore only be Vienna. “If you fix the Middle East, North Korea offensive. and South Asia, you would fix 90% of our problems.” 19 World Economic Forum Annual Meeting 2006
  21. 21. Responding to Global Challenges Responding to the five challenges that were the The Three Responses focus of the Annual Meeting 2006 will require global policy-makers and stakeholders to develop Describing the specific policies required to manage solutions in three broad, interrelated areas: these forces of change is a task of almost hopeless complexity. However, the agenda for this year’s Annual Meeting reflected an assumption that global Rebuilding trust in public and private leaders must articulate and implement policy institutions: In virtually every region and responses in three broad areas: country, opinion surveys reveal declining public confidence in governments, • Rebuilding trust in public and private institutions: corporations and multinational There is growing awareness among elites and organizations. publics alike that the institutions of the post-World War II order – national governments, multinational corporations, international organizations – no Effective leadership in managing longer function well. In the developing world, global risks: New mechanisms need to corruption and inefficiency threaten to overwhelm identify and – where possible – mitigate trust (and institutions) altogether. In the industrial threats such as terrorism, environmental countries, economic change spurs fears of a degradation, natural disaster and broken social contract. Unless these trends are economic instability. reversed, global leaders face the prospect of a political backlash that could wreck decades of prosperity, integration and global accommodation. Innovation, creativity and design strategy: The obsolescence of many • Effective leadership in managing global risks: 20th century structures compels leaders Theory holds that as markets become more to develop fresh concepts, new flexible and barriers reduce, economic systems institutional models and more flexible gain stability. However, unwise policies or processes for serving diverse incomplete adjustments can produce unexpected populations. volatility. Likewise, modern infrastructures offer unparalleled speed and convenience – but may be While all three responses are crucial, the last one vulnerable to terrorism or natural disaster. Leaders may hold the key to the first two. Numerous must improve early warning systems, and develop sessions and workshops highlighted the need to better tools for defining, controlling and – not least reward innovation, encourage unconventional – allocating risk. thinking and promote cultural cross-fertilization in every region and at every level of society. • Innovation, creativity and design strategy: In a “flat” world – one approximating the textbook Change – both sweeping and fundamental – definition of market efficiency – constant appears to be the one constant as the world moves innovation is the only guarantee of competitive deeper into the 21st century. Political, corporate advantage. This applies as much to institutional and social leaders no longer have the option (if they cultures and structures as to new technologies ever did) of relying on inertia and habit to carry them and products. But the sources of innovation are through the currents of global integration. They not well understood and financial markets are must respond – often in real time – to powerful often unprepared to reward long-term innovation forces that cut not just across national borders, but strategies as opposed to short-term gain. This across cultures, markets and technologies. position requires leaders to experiment boldly with incentives and work life arrangements. 20 World Economic Forum Annual Meeting 2006
  22. 22. Responding to Global Challenges To avoid being trapped in a zero sum game, “But the process [of global companies and societies alike will need to use integration] doesn’t have to their increased productivity to create new be smooth. Along with integration we face the risk products, anticipate new needs, new markets, of disintegration – failed new technologies and – most of all – new jobs to states, struggling middle replace those that have been lost. Populations classes caught in binds that until now have been excluded from the everywhere. These forces progress of globalization – or made more are of equal importance.” vulnerable by it – will need to be brought into the Lawrence H. Summers mainstream, in ways that respect their human President, Harvard University dignity and worth. “We won’t have a creative and flourishing world without bringing everyone into the global economy,” contended Jacqueline These key themes become vital when Novogratz, Founder and Chief Executive Officer, considering the growing importance of the Acumen Fund, USA. world’s great cities as incubators for innovation, or creating new markets for pricing and trading However, such ambitions can only be realized if insurance risks – including personal economic existing leadership institutions – the massive risks such as unemployment or loss of income. public and private bureaucracies inherited from This gives rise to growing awareness that the hierarchical 20th century – can be renovated. globalization has reached a crossroads, one that Here, too, though, progress is being made, albeit could determine whether the integration process often too slowly (see Figure 4). Daniel Vasella, continues, or gives way to a new era of regional Chairman and Chief Executive Officer, Novartis, fragmentation and conflict. Switzerland, noted the growing consensus in the corporate world on the need for greater “But the process [of global integration] doesn’t transparency and accountability. Now business have to be smooth. Along with integration we leaders need to take that message to their face the risk of disintegration – failed states, employees, shareholders and customers. “We struggling middle classes caught in binds need to make an effort to communicate what we everywhere. These forces are of equal do and how we do it,” he said. importance,” noted Lawrence H. Summers, President, Harvard University, USA; Co-Chair of Figure 4: Trust in Institutions the Annual Meeting 2006. Trust The Next Wave Until now, globalization has been about economic efficiency – expanding trade, slashing labour costs and maximizing comparative advantage through the creation of global production chains. These strategies, however, have reached the point of diminishing returns Distrust and “knowledge” is rapidly becoming a commodity. Cost efficiencies are now easily replicable, meaning they provide no lasting advantage. They have become a necessary, but Average of 14 Tracking countries - based on a global public opinion poll involving a not sufficient, condition for success. total of 20,791 interviews conducted between June and August 2005 21 World Economic Forum Annual Meeting 2006
  23. 23. Responding to Global Challenges A World of Opportunities also to inhabitants of the informal shanty towns that surround it. “We wanted the poor to see that we It would be a mistake, however, to view the next were building the nicest public buildings in the phase simply in terms of risks and looming crises. poorest neighbourhoods,” he explained. “The Tremendous opportunities are also on the horizon – message we are trying to send is that there is not least for the global business community. For hope.” example, the demand for environmentally-sensitive, energy-efficient products and services: While some Can the creative imperative win the race with the anxiously watch the rise of China and foresee a spectres of political disintegration, economic resource catastrophe, architects, engineers and dislocation and ecological collapse? Thinkers have urban planners are already at work designing the been arguing the question at least since Thomas Chinese cities of tomorrow, featuring rooftop farms, Malthus and David Ricardo debated the future of sewage treatment plants that produce more energy the industrial revolution. There is no guarantee that than they consume and the construction of solar mankind’s ingenuity will continue to trump its knack power collectors on a massive scale. “We believe it for self-destructive behaviour. But given the is possible to create a virtuous cycle in both our innovative thinking on display at this year’s Annual ecological and our social systems,” said William Meeting, it still looks like the smart bet. McDonough, Chairman, William McDonough + Partners Architecture and Community Design / MBDC, USA. Likewise, the problems of poverty and marginalization, while formidable, are not deterring local leaders from inventing – or emulating – solutions. Sergio Fajardo Valderrama, Mayor of Medellin, Columbia, explained how his city is delivering educational and cultural services to the poor, following trailblazing urban planning efforts in the Brazilian city of Curitiba. Medellin, he noted, recently built five large cultural complexes on the outskirts of the city, each combining a public library, an outdoor movie theatre and a public park. These centres are accessible not only to city residents, but 22 World Economic Forum Annual Meeting 2006
  24. 24. The Creative Imperative – Responses “... it's important for you, as “The Forum is here to help us business leaders, to say where to find out what the main do you think the responsibility issues are and then it is up to lies? Perhaps the responsibility us to act individually.” for education and training lies with the government. What Peter Brabeck-Letmathe Chairman and Chief Executive about the responsibility for Officer, Nestlé pensions and healthcare? What about the responsibility of paying a living wage?” Laura D. Tyson Dean, London Business School This year at the Annual Meeting 2006, of knowledge sharing through discussion helped participants prioritized 11 questions during the launch new initiatives and expanded current Big Debate. They continued to gather ones to continue addressing some of the world’s knowledge, opinions and data during 240 most pressing issues and further will help shape sessions, including the CEO series, and the agenda for the Forum’s regional and industry culminated in a targeted workshop to consider events during 2006. the priorities for the coming year. This vast array 23 World Economic Forum Annual Meeting 2006
  25. 25. The Creative Imperative – Responses The World Economic Forum Annual Meeting 2006 Recommendations from the Annual closed with participants supporting the project Meeting: expansions in health, education, hunger and public-private partnerships as well as • Prepare for future jobs: Realign the global recommending broad action areas that private and education system to meet future demand public institutions should undertake. for skill sets, particularly in vocational occupations 1. Health Initiative launches global Stop TB campaign • Restore balance in the global economy: The Forum’s Global Health Initiative helps Develop policies for greater savings in the companies design workplace health programmes US and consumption-led growth in China for prevention and treatment of HIV/AIDS, TB and malaria. Having reached over 10 million employees • Sustain growth in China and India: Build with such programmes, the initiative continues to support for business education and expand efforts to assist companies extend entrepreneurship programmes throughout their supply chains, targeting rapidly growing economies like China • Protect the environment through better and India. During the Annual Meeting, the global resource management: Expand water Stop TB campaign was launched with US$ 1.2 management initiatives to address urban billion committed by core partners. and agricultural use, especially in developing markets 2. Global Education Initiative expands to Palestinian Territories and Egypt • Mitigate the impact of an increasingly fluid The Global Education Initiative launches labour market: Improve social security collaborative public-private partnerships to when changing jobs improve education systems. In Jordan, with the direct support of the King and Queen, it has • Manage disruption: Develop models to engaged over 45 public and private partners to design, build and implement more quickly transform curricula, teaching and IT infrastructure for 50,000 schoolchildren. The programme is now underway in Rajasthan, focusing on 100 girls’ schools, and during the Annual Meeting work was initiated in the Palestinian Authority and Egypt. 3. Disaster relief platform formed Following the major natural disasters of 2005, the Forum was asked to serve as a major platform for engaging private sector support for relief efforts, building on and expanding its Disaster Resource Network through planning that took place at the Annual Meeting. 4. New Hunger Initiative launched Under the leadership of the Forum’s food and beverage company members, business and public leaders developed a business-led action plan to help reduce hunger in Africa and discussed it with UN Secretary-General Kofi Annan. The group has recommended that the Forum serve as a platform for putting this plan into action during 2006. 24 World Economic Forum Annual Meeting 2006