It was a sight that many thought they would never see. On Tuesday, Chinese president Xi Jinping took to the main stage in Davos to deliver the opening plenary address of the World Economic Forum. Addressing a packed hall, the Chinese premier delivered a vigorous defence of globalisation and free trade.
In a speech packed with metaphors, he said that pursuing protectionism was “like locking oneself in a dark room: wind and rain may be kept outside, but so is light and air”.While China once had doubts about free trade, the country had chosen to swim in the “vast ocean of the global economy. It has proved to be the right strategic choice.”
The incongruity of the leader of the Chinese Communist Party holding forth on the benefits of market capitalism was not lost on the thousands of attendees at Davos. The prominence of Xi Jinping is just one of the many incongruities of this year's World Economic Forum in the Swiss mountain resort Davos.
Davos has long been self-aware of its reputation as the playground for the rich and famous. During the height of the financial crisis in 2008 and 2009, the forum was painfully aware of the discrepancy between the free-market values it sought to celebrate and the failures of market-based capitalism laid bare by the financial crisis. Hurriedly the organisers ran panels on responsible capitalism, the fight against poverty and the perennial favourite – climate change.
This year the atmosphere is different. Davos is taking place against the background of unprecedented anger towards the status quo and a visceral backlash against free trade and globalisation – the very values celebrated by the World Economic Forum.
Protectionism and closed borders
Events such as Brexit and the electoral victory of Donald Trump have made anti-globalisation a political reality – not simply a fringe ideology that can be brushed away. Statistics published by Oxfam on the eve of the summit, which found that eight individuals own the same wealth as 3.6 billion of the world's poorest people, hung heavy over the events.
Much of the concern is focusing on the United States. Donald Trump may not have been in attendance but his election has loomed large over the forum. It did not go unnoticed that it fell to China, not the United States, to articulate the benefits of free trade.
To many, the prominence of China at Davos served to underline the receding presence of the United States from the world stage economically and politically, amid fears that the Trump administration will pursue a policy of protectionism and closed borders.
But this narrative of a retreating America was refuted by Trump's man on the ground in Davos. Anthony Scaramucci, the billionaire founder of SkyBridge, has been a regular attendee at Davos. This year, the senior Trump adviser, appeared to have been sent out to bat for Trump and to communicate the incoming president's message to the business and political community at Davos, many of whom were still reeling at Trump's comments in weekend interviews with European papers, which included a description of Nato as "obsolete".
In a series of interviews, Scaramucci shed light on Trump’s policies which he said had been “misunderstood” by the media. “I want to put your mind at ease,” he said.
Crippled American working class
While China and the United States had “common cause” and would have a strong bilateral relationship, he argued that the Chinese-US trade relationship had been “asymmetrical” and more beneficial to China.
In a lengthy exposition of global trade policy since 1945, he said America had made a strategic decision to engage in global trade deals to help other countries improve their labour and living standards in the years following the second World War. But while the US had allowed goods and services to flow into the US, US goods and services had been embargoed in other countries.
“The deleterious affect of this macroeconomic plan is that it hollowed out American manufacturing, it hurt the American middle class and it crippled the American working class,” he said.
Recalling his own background, he said it was much harder for American families now to be aspirational than in the 1970s, and class mobility had become more difficult.
But while his elucidation of Trump’s economic doctrine was informative, Scaramucci didn’t assuage concerns about free trade. He told the BBC in an interview that the US would win in any trade war with China. “What are they gonna do, they gonna move against our move for fairness? That’s gonna cost them more, way more, than it is ever going to cost us, and I think they know that.”
As well as the spectre of Trumpism, much of the discussion at Davos focused on wealth distribution and the growing backlash against globalisation as a number of panels sought to make sense of the popular rejection of the principles of globalisation.
Italy's finance minister came closest to diagnosing the problem. In a panel alongside IMF chief Christine Lagarde, Pier Carlo Padoan said that dissatisfaction with what is going on had been evident for some time in Europe.
“It is about objective change in wealth and income distribution, and it is also about expectations. The middle class is disillusioned about the future, dispirited about job prospectives for their kids. They are expressing that disillusionment by saying no to what the policymakers are suggesting. The fact is that ‘Nos’ are now dominating the political landscape. It calls for a rethinking of what leadership means.”
Lessons of history
While Lagarde conceded that there was a crisis in the middle class as median incomes have decreased in advanced economies, she said that rejecting globalisation was not the answer, arguing that technological development was more to blame for the loss of certain jobs.
A similar argument was made by outgoing US vice-president Joe Biden, who said that globalisation has "not been an unalloyed good. It has deepened the rift between those racing ahead at the top and those hanging on in the middle or falling to the bottom." But he added: "We cannot undo the changes that technology has wrought in our world, nor should we try."
While contributors presented cogent analyses of the reasons behind anti-globalisation, there was little in the way of solutions.
Many spoke of the need for responsible and responsive leadership – the key theme of this year’s World Economic Forum.
Ray Dalio from Bridgewater Associates warned that, if political leaders do not start to show the middle classes that they are representing them, there is a danger that people would move further to the extreme right and left, citing the political climate of the 1930s.
Lagarde came closest to a solution by suggesting that globalisation needed to take a “new turn”, and that “asymmetry in certain cases should be rectified”, her wording perhaps giving some comfort to the incoming Trump regime which has spoken of the asymmetrical dynamic between the US and China.
But Harvard professor Lawrence Summers warned that populism, and particularly the policies offered by Donald Trump, were not the solution.
“The lesson of history is overwhelming – classic populism is invariably counterproductive for those in whose name it is offered as a policy regime. The people who will be the victims of populist parties are the lower income and middle income people in whose name the policy is offered.”
As the sun goes down behind the slopes of Davos on Saturday, many of the attendees may be asking themselves about the relevance of the world they represent. This year’s World Economic Forum saw a lot of soul-searching, as those at the top of the world’s most powerful political and financial institutions were forced to confront popular rejection of many of their values.
Over the next year it will become apparent if this threat to the post-war liberal global order is merely a blip or, as one participant put it, the beginning of the end of the era of globalisation.
