China’s economy absent from concerns on Davos panel

If policymakers and financial markets outside the Swiss alps are concerned about China’s economic outlook, those worries were missing from a panel discussion at the World Economic Forum in Davos.

If policymakers and financial markets outside the Swiss alps are concerned about China’s economic outlook, those worries were missing from a panel discussion at the World Economic Forum in Davos. While delegates to the meeting of the rich and powerful surfaced a host of challenges facing China’s new leadership later this year, the pace of growth wasn’t one of them.

The panel talked about political cronyism, pollution, and the need for a more robust safety net for migrant workers. But there wasn’t any talk of crisis or hard landing. Despite the fact that China is still very export dependent, defenders and critics at this session betrayed no concern about the impact that the euro crisis and slow U.S. growth could have on the Asian powerhouse.

Many economists expect China to grow at 8 percent or more this year, slowing from 9.2 percent in 2011, as authorities seek to avert inflation and ensure more sustainable expansion. China is comforted by having the world’s biggest foreign reserves, which lets it cope with weaker demand for its products. Li Daokui, Director of the Center for China in the World Economy in Beijing, and an advisor to the Chinese central bank, is sticking to his 8.5 percent growth projection this year and insists the economy, the world’s second largest, will grow by “at least 8 percent” in 2013.

Stephen Roach, Chairman of Morgan Stanley Asia and senior research fellow at the Jackson Institute for Global Affairs at Yale University, shared the optimism. The current five-year Chinese plan will be a “watershed”, he said. The shift from investment and exports to consumption leaves him positive further out into the future. “China has demonstrated it’s up to the task.”

Perhaps the biggest concern among panel members is the need to develop a safety net that can support the masses of migrant workers who head for China’s cities, struggling to make ends meet, and maintain social peace.  Housing has been expensive, leading to a bubble, and rental costs are dear. Roach dismissed talk of ghost towns. He recalled Shanghai in the 1990s, relatively empty then, booming today. “Ghost towns are built in anticipation of the people who come.” Housing has spooked the markets. “They’re expecting the worst,” he said. “They will be pleasantly surprised.”

Other problems: pollution, which will impact health and be a burden on the state; and what Roach describes as “the financial repression” created by a gap between deposit and lending rates.

But there was not a word about the value of the yuan, and it took until question time for this to be raised. So how would Chinese authorities respond if Mitt Romney wins the U.S. election and declares China a currency manipulator? “You can expect a strong reaction from the government,” Li said. He, in turn, countered that the yuan was fairly close to “equilibrium”.

Elsewhere in the Congress Center, Boston Consulting Group Chief Executive Hans Paul Buerkner described the top risk in China, India and other major Asian economies. “The biggest risk for Western companies,” he said, “is not to get engaged and worry too much about setbacks.”

Davos Man’s dirty secrets

When I first went to Davos in 1993, someone told me that the real mission of the Forum was simple: Don’t Offend Anyone.

It’s the time of year when everywhere I turn, I read tweets and posts about Davos, which was a huge part of my life for 10 years. I’m a long way from the mountaintop these days, but I find that too many people don’t understand some basic truths about the Annual Meeting of the World Economic Forum.

The Forum’s mission

The Forum’s often-stated mission is: “Committed to Improving the State of the World.” There were moments that a few other subversives and I used to say that it was a bit like the signs you see entering a London borough: Croydon: The Brighter Borough. Sounds nice, but it’s meaningless.

I don’t think — and, in the day, I didn’t think — that’s quite fair. The Forum is truly committed to improving the state of the world, and some of the corporations that are members are wholly on board with that mission. The problem is that, for all the good intentions, and plenty of good actions, an organization that is at heart a grouping of the world’s largest corporations isn’t necessarily in the best position to improve the state of the world, particularly in an era of the Arab Spring and Occupy.

The Forum does its best to mitigate this, inviting a decent share of civil society leaders and trade unionists. But just as the academics and Nobel laureates that grace the Forum are, as one of those distinguished attendees once told me, the dancing bears at the circus, the non-corporate leaders in Davos are on the fringe, not at the center of action.

When I first went to Davos in 1993, then-Viscount Rothermere (who was the ultimate owner of Euromoney PLC, the joint venture partner with WEF in World Link, the magazine I ran) told me that the real mission of the Forum was much simpler. Don’t Offend Anyone.

What it means for the program

If your goal is to offend no one, you have a host of problems. Some are obvious. Taiwan and Tibet shall never pass your lips (WEF is hardly alone in this constraint). Plenty of rotten presidents and prime ministers get welcomed with open arms.

That comes with the territory. More difficult is the need to put corporate leaders on panels with relatively little regard to whether they have any original ideas, or any ability to talk about them. The dark, dirty secret you learn when you run the program at Davos is that the vast majority of CEOs have nothing to say. That doesn’t mean they are bad CEOs. It’s just that there is no correlation between being a successful business leader and having interesting ideas and the ability to express them.

It isn’t just people. Offending no one also constricts the range of things you can talk about. After I left the Forum, I was still persona grata for about two years. My successors running the program would solicit ideas from me. I remember developing, with considerable enthusiasm, the idea of a session called “How Much is Too Much?” It would look at whether a cap on CEO salaries, or perhaps on the multiple of those salaries to average wages, would create healthier organizations. My contention was most CEOs were more interested in power than money. Perhaps you could posit significant salaries for top executives, but taking the CEO post would mean a reduction in salary in return for power. I think most would take that deal. The session could also examine broader issues that are big for people researching the economics of happiness. Does more money mean more happiness (after a certain point, the answer seems to be no)? Is there a point that is really too much? And so on. Lots to talk about, and it’s the kind of thing that would have created a stir. That session idea didn’t go anywhere.

Not too far ahead

It isn’t just about ruffling feathers. Part of the genius of Klaus Schwab, the founder of WEF, is to recognize that his market is actually very middle of the road. There was a lot of enthusiasm in my day for having Phil Collins come to perform. If the WEF gets too far ahead of its crowd, it falls flat. The secret is to be five minutes ahead, not five months or five years.

So fast-moving events, like the beginnings of the Arab Spring one year ago, leave the Forum flat-footed. So, too, do the kinds of faint rumblings that might just turn into something significant, but could also be a bust. The Forum isn’t about weak signals or the long tail. It navigates skillfully along the tides of conventional wisdom, but with just slight deviances in the course so that there is the appearance of freshness and discovery.

I was fortunate enough to be involved with Davos in years of plenty, when we invited around 300 so-called Forum Fellows — the academics and other experts — and really tried to push the boundaries of the program (with plenty of encouragement from Klaus). After I left, with the dotcom crash and then 9/11, the Forum decided that more sobriety was needed in the program. CEOs needed to be able to show that they were coming to Davos to discuss important things, not frivolity.

I argued unsuccessfully with my ex-colleagues that it was precisely the off-the-track ideas and sessions that were most valuable in Davos. Another session on financial architecture, the Doha round, China’s rise, or networked societies would probably add very little to the discussion. But Davos had carved out a place where CEOs were suddenly tossed into a discussion on death (my all-time favorite session), the meaning of history, or endangered languages. Perhaps those could fire some disused synapses and spark something new.

Prosperity has returned to Davos and the Forum. The staff of the Forum has grown at least threefold. There’s a decidedly engineering-like approach to building the program now, with a cascade of agenda councils and meetings. I was, and am, more attuned to artisanal production. To my eyes, all the additional resources and grand processes has just pressed the program flatter and flatter. Davos continues to attract absolutely extraordinary people. But they are forced into discussions where the unremarkable is the norm.

Outside the Congress Center

When I first became involved with Davos, Maria Livanos Cattaui was the power behind the scenes, the ferocious number two to Klaus. Maria had the licence, or so it seemed, to be tough with the corporate members. The number of events and the scale of events outside the Congress Center were strictly controlled. WEF had the conviction that once you let outside events grow, it would diminish what happened inside the Congress Center.

Maria was brutally removed in 1996 and replaced by Claude Smadja (who was brutally removed himself five years later). That tough line on outside events remained largely intact. But the tenor of the age — the go-go years of the late 1990s — began to erode that policy. Big outside parties began to proliferate. More and more started to happen outside the Congress Center. Part of the core philosophy of the Forum — that if you had a white badge, you were equal and welcome to attend everything — began to crumble.

I’m ancient history, and I haven’t been to the Annual Meeting since 2002. But friends that continue to go tell me the corporate takeover has accelerated dramatically in recent years. Bigger, more elaborate events happen outside the Congress Center. There are more and more class distinctions, even if you have a white badge.

All that said, Davos remains a wonderful privilege. If I were ever invited again, I’d be on the next plane to Zurich (fat chance, I know). I had some of the best experiences of my life working on Davos, fighting against the constraints and trying to make something out of the fantastic raw materials at hand. I recognize the limitations, but I continue to wish that WEF aimed higher.

This post originally ran on DavosNewbies.com.

Tackling healthcare for the very poor

In healthcare, new models that adapt to local conditions will be a significant part of expanding access to patients in need, especially in the developing world, where access and affordability are major issues.

This year in Davos, there is a lot of talk about transformations and new business models that will be important in our global economic recovery. In healthcare, new models will be a significant part of expanding access to patients in need. While it is clear there is lots of growth potential in emerging markets, it’s also important to address the larger societal challenges associated with this growth. This is especially true in the developing world where access and affordability are major issues.

Nearly half of the world’s population lives on less than $2 per day. I was recently in India, where I got to see firsthand what this means. According to the latest estimate from the World Health Organization, there are more than 835 million people across rural India — more than twice the entire population of the United States. Only 35 percent of these people have access to essential medicines. For those of us in the developed world, this is a seemingly unimaginable gap.

As CEO of a global healthcare company, I believe it is critically important to help improve the health of people everywhere by expanding access to medicines in a sustainable way. However, there are many obstacles to delivering care in developing countries, and overcoming them requires adapting to local needs. Poor infrastructure, poverty, inadequate sanitation systems, unclean drinking water and a lack of trained health workers all compound the problem. The question is: With problems so large, how can we be part of the solution?

At Novartis, we realized it was important to take a step back and consider not just how we can enter a market but also how we can adapt to better consider local conditions. We saw that there was a need for a new model in emerging markets like India. That is why we developed Arogya Parivar, meaning “healthy family” in Hindi. This is what we call a “social business” model, meaning it blends corporate citizenship with entrepreneurship.

While many have highlighted the cost of medicine, there is not enough emphasis on solving the associated distribution and social challenges. Arogya Parivar addresses what I believe are the two most important issues in developing countries: healthcare education and infrastructure. The program works by recruiting and training locals to become health educators and tour villages, schools, and health centers. They conduct community health meetings and talk directly to patients about disease prevention and encourage them to seek timely treatments. Also, the local teams address the infrastructure issue by organizing health camps — mobile clinics that provide access to screening, diagnosis and therapies to patients in remote villages who don’t have regular access to healthcare. In 2010, we hosted more than 3,000 health camps, reaching an estimated 140,000 people.

To make treatments more available and affordable, we also sell over-the-counter medicines in smaller packs with doses for only one to three days. While patients need to purchase the packs more frequently, one local doctor mentioned that this helps them better track a patient’s compliance and helps keep weekly out-of-pocket costs low. Importantly, this initiative turned profit-positive this year after four years of losses. This is critical for its sustainability.

Our model is based on the understanding that access to medicines in the developing world is bigger than a pricing issue. Insufficient infrastructure and lack of healthcare access are larger problems that need to be addressed. What is needed is entrepreneurship that creates jobs, expands access to health education and works closely with patients in the context of local customs. Health solutions must be tailored to meet diverse local needs.

Since launching the program in 2007, we have improved access to medicines for more than 42 million people living in 33,000 villages across 10 states in India. We are currently rolling out similar models across Asia and sub-Saharan Africa, and our aim is to reach more than 100 million people.

However, there is so much more to be done. This is a vastly untapped market with serious needs. While business models like ours can make an important difference, we have to find ways to work with governments and NGOs to improve health and infrastructure. Together, we can make a difference.

PHOTO: Javed Sheikh, 61, is helped by his daughter as he washes hands outside their house in a slum area on the outskirts of Mumbai, October 29, 2011. REUTERS/Danish Siddiqui

A Van Winkle return to Davos and to real problems

Coming back to this gathering 12 years later is a Rip Van Winklerian experience. The old world and its little worries look positively quaint.

It was well past midnight in late January 2000 when an investment banking contact called my Davos hotel room to share the latest details on Vodafone’s hostile bid for Mannesmann. That was news, but the huge hostile takeover was no longer the largest deal in history. It had been displaced a few weeks earlier by the agreed merger of AOL and Time Warner. Such was the talk of the World Economic Forum. The great and the powerful had gathered together to celebrate the success of business and, especially, of finance.

Exuberance over technology and venture capital was almost limitless back in 2000, thanks to the seemingly limitless rise of the tech stocks. Dotcom startups were all the rage. When Japanese Internet mogul Masayoshi Son finished one panel, he was assailed by a gaggle of entrepreneurs waving business plans for him to peruse. In full disclosure, this columnist two weeks later signed up to establish the online financial commentary business that eventually became Reuters Breakingviews.

Coming back to this gathering 12 years later is a Rip Van Winklerian experience. The old world and its little worries look positively quaint. Back then, at what in retrospect proved to be the height of the Great Moderation, business was booming, the Nasdaq still had another 20 percent or so to climb, companies were merging like mad; everything looked rosy. President Bill Clinton parachuted in to give a victory lap. Even the demonstrations that took place against neoliberalism and world trade now look quaint. Defacing a McDonald’s is a far cry from overthrowing governments.

The economic moderation turned out to be built on financial excess. That AOL deal – hailed as visionary by all the delegates of 2000 – has become the poster child for foolish corporate finance. The Nasdaq is a third lower than 12 years ago (before adjusting for inflation). And the banks – what can I say? From triumph to tribulation.

The political world also looks much more treacherous. Geopolitics has not yielded to the irresistible forward march of free market capitalism, and peace no longer looks like something to be taken for granted. The 9/11 attacks spawned wars in Afghanistan and Iraq – the kinds of conflicts that in 2000 were supposed to be a thing of the past.

The World Economic Forum has changed with the times. The rise of the BRICs has brought greater diversity to the audience, which is a good thing. It has also brought many more people – so many, in fact, the organizers have expanded their caste system. There is now a dizzying number of different badges, each offering differing levels of access and status. It’s much easier to be here and still be excluded from the elite – much like the feeling of many of the world’s dispossessed.

The most striking difference, though, is in the increased complexity and severity of the questions confronting the collection of top business people, politicians, investors and academics. Europe’s sovereign debt crisis keeps trundling forward, bringing to the fore thorny challenges to sovereignty, the role of central banks and the solvency of nations. Instead of Clinton smiling from the podium, this year’s keynote address came from the troubled German Chancellor Angela Merkel, the leader with the most cards at the debt crisis table.

There are still scenes of the excess and celebrity that accompany a gathering including many of the superrich. Some members of the elite have lost out in the last few years, but there is still more than enough wealth at the top to provide good times. Still, the specter of nearly a quarter-billion people around the world without gainful employment keeps a lid on the festivities.

In retrospect, the tone of triumph was not merely unjustified – it was also harmful. Many of the seeds of the economic and financial crises that followed during the next decade were sown around that gathering. It would have been a struggle in 2000 to find any delegate arguing against the deregulation of the global financial services business. Then again, everything is easy to judge in hindsight – even for a Rip Van Winkle in the Swiss Alps.

PHOTO: A participant watches a session at the World Economic Forum (WEF) in Davos, January 27, 2012. REUTERS/Christian Hartmann