Davos looks at global risks

Participants voice concern over economic vulnerabilities.

If you leave out China and India, the subject that has received the most attention at the ongoing 36th annual meeting of the World Economic Forum here is the current nature of global risks and how business enterprises ought to face them.

Several sessions recognised how the major engines of growth in the world economy showed no sign of slowing down, but they eventually ended up highlighting the dangers arising out of different types of risks.

For instance, the session on an update on the global economy began with optimistic observations about how 2006 will fare. But soon participants began pointing out the danger signs. Stephen S Roach, chief economist of Morgan Stanley, warned that the complacency prevalent among investors at present was setting the global markets up for a shock.

The weakest link in global growth, according to Roach, was the American consumer, who had begun to cut back his expenditure. "When and if this downturn materialises, the developing countries of Asia could be in trouble since they are dependent on the US market," he said.

Min Zhu, executive assistant president of Bank of China, highlighted a different type of risk. The retail sector boom in China implied that the disparities in wealth between China's rich coastal region and the poor rural West would become much greater than previously feared.

Worse, overcapacity built in China's manufacturing sector, particularly in steel and cars, was a cause for concern and a 9 per cent growth rate was dependent only if the American consumer demand remained strong.

Jacob A Frenkel, vice-chairman of AIG, pointed out any attempt to force China to revalue the yuan had the potential to cause a ripple effect across the region.

Many participants felt political problems posed the greatest risk in 2006. Disputes in West Asia and Iran could create a shock to oil supplies, just as China's plans to reduce savings could have a serious implication for the US.

For Japan, which was recovering from a decade of "flat" growth, its ageing population posed a big challenge and its strained relations with China could be a cause for concern. In a session on the role of leadership in addressing global risks, participants generally agreed that the government and the companies needed to come together to fight terrorism.

William G. Parrett, global chief executive officer of Deloitte, said "Governments and companies need to come up with the best possible responses."

But there was considerable scepticism among some participants on whether governments can actually play that role.

"Are the governments really willing to co-operate, given their agendas?" asked Ghassan Salame, professor of the Institute d'Etudes Politques de Paris. Mercer Delta Consulting CEO, David Nadler put the ball in the companies' court by arguing that they should scan the environment consistently to determine how terrorism can affect their business.

The dangers arising out of the spread of the avian flu pandemic also came up as a risk and participants at a session were critical of the role of media in spreading unconfirmed information, magnifying the problem and thereby leading to mass panic.

"An infodemic immune system has to be developed so that people can become better consumers of information," he said. There was a suggestion to form alliances among governments, international agencies, companies, civil society and media to deal with a pandemic. Who should bear the costs of managing such risks?

This issue was discussed at another session too, where the involvement of the government in providing for insurance cover was hotly debated but no conclusions emerged.

Michael Chertoff, the US Secretary of Homeland Security, was not clear whether the government should carry the burden of damages caused by terrorist attacks, although the US government picked up the tab in the damages caused by the September 11, 2001 attacks on the World Trade Centre.

Another session discussed the measures that need to be adopted to prevent the growth of terrorism.

All the panelists attending the session agreed that there was need for collecting information on terrorism and sharing it with all agencies involved in maintaining security. Chertoff added that there was need to address the root causes of terrorism, although the US was focusing on the symptoms.