1. The European Crisis. German Chancellor Angela Merkel talked about a coordinated Europe having more power. “We need more steps of integration in the interests of competitiveness… We need structural reforms leading to new jobs…We should have a common foreign policy and binding agreements on the debt levels allowed... Just because we have been at the top for the past 50 years, we cannot take competitiveness for granted.” Mrs. Merkel’s vision of a Europe working collectively on foreign and fiscal policy is bold but at odds with hundreds of years of national independence. The key question is whether the austerity measures in government spending can pivot to a discussion of private-sector growth spurred by labor market reform and tax reduction. Institutional investors are likely to reach agreement with Greece on the mark down of the country’s debt, financial executives told me, but it remains to be seen whether the Greek government can cut spending enough to persuade EU member states to finance the debt rollover come March.

2. Arab Spring. A 26-year-old Facebook activist named Amira Yahyaoui was the most inspirational person I met and was part of a group called the Young Global Shapers, which had a strong presence at Davos this year. “Kids do not need hierarchies,” Yahyaoui said. “We can organize ourselves without an organization.” She sat on a panel with a fundamentalist Islamic politician from Tunisia and the two leading candidates for the Egyptian presidency—Hazem Salah Abu Ismail and Amre Moussa. Egypt welcomes outside investors, Moussa said. “We will protect companies from problems because we need change … But to get investor confidence, we need to get to the end of the transition, to declare the Second Republic.” Ismail said the patriarchal society is over and denied any contradiction between Islam and democracy, noting that Egypt will “free the state from religion.” Mideast experts, however, are concerned that democratic reform could founder under the weight of joblessness. “The US and other democracies cannot give aid as we did in Eastern Europe in 1989 or to Greece and Turkey under the Marshall Plan post WWII,” said one US policymaker. “If the new democracies cannot deliver the jobs people want, there will be trouble.”

3. Energy. In the wake of Fukushima, the nuclear industry must establish credible standards for reactors with a transparent decision-making process to reassure stakeholders, said Yorikho Kojima, chairman of the board of Mitsubishi Corporation. Shell is going to publish its principles for fracking for production of natural gas. “We are clear that the chemicals used should be public,” said the company CEO, Peter Voser. Fred Krupp, the head of the Environmental Defense Fund, praised Shell’s decision, but pointed to the 3-5% leak rate that undermines shale gas’s edge over coal. “The industry must get the leak rate down in production and distribution.” A Saudi oil executive suggested that a price of $100 per barrel of oil was realistic for the coming year and would promote development of alternative energy. The price of solar panels, currently one-tenth of what it was a decade ago, is dropping at a rate of 15% per year, according to Jifan Gao of Trina Solar China.

4. Population Growth. Educating girls is the way to stem population growth, which depending on your calculations could reach between eight to 10 billion by 2050. “Education will determine whether we will get a demographic dividend or disaster from our youthful 1.2 billion population,” said N.K. Singh, a member of Indian Parliament. The issue of food security was a natural byproduct of the population discussion. “If we have a 50% increase in population, we will need a doubling of farmland as most productive land is already in use,” cautioned Michael Mack, CEO of Syngenta International. All agreed that without population control, there can be no progress on sustainability and that educating young girls is the engine of good development.

5. Aging Population. The CEO of Takeda Pharmaceuticals, Yasuchika Hasegawa, presented the other side of the problem for mature economies such as Japan where the average life span is 85 to 88. “We need to raise the retirement age and reduce the benefit. In Japan, a retiree now gets $300,000 more than he has contributed in his working life. We are now shifting money from the low income youth to the higher income older people via health spending.”

6. Sustainable Consumption. With 800 different types of labels in the US and 600 in Europe, all with green claims, consumers don’t have a standard by which to make the right choice. Ian Cheshire of Kingfisher, an international retailer in home improvement, said we have to get consumers in developing countries past wanting the “American Dream of more.” Green products should be linked to images of family health and mutual respect. Cheshire said that only three percent of global forests are covered by the Forest Stewardship Council tag, despite 30% year on year growth for forest products. “Most consumers don’t care about the tag because we present sustainability as a negative (carbon footprint) instead of the positive side which is the notion … that I am a good person who can make a difference.”

7. The Content Economy. The high speed Internet creates 2.6 jobs for every job it eliminates, according to a McKinsey study. In the US, however, a full third of people with access to broadband don’t use it. Digital literacy must increase. Design has an increasingly important role. People who understand creative and engineering will have job opportunities (think of a Facebook product manager). The main thing is to couple the engineering passion of a graduate from India with the design talent of a graduate from Sweden. According to the development minister of Indonesia, growth of that country’s content economy is spurred by a 75% drop in the price of mobile telephones. “The key opportunity is how social media can help other industries to grow. We will need these jobs for the unemployed youth,” she said.

8. China. Fifteen to 20 million are moving from the countryside to the cities every year, putting the urban share of population at more than 50 percent. The cost of housing is a challenge for Chinese new to cities. “This is causing real social discontent,” said Steve Roach of Morgan Stanley, who cited government’s push for supplementary public housing. He predicted that the Chinese stock market would perform much better in 2012 than in 2011. The country’s economic strategy will not be as export reliant (it was 36% of GNP in 2008). China needs higher per capita wages and a better social safety net to increase private consumption (currently at 50% of GNP). The value of the RMB will continue to rise relative to the dollar and euro. The civil society sector will undergo reform in the wake of the Chinese Red Cross scandal. State-owned enterprises need to be partially privatized but there is rumbling in the Chinese social media about “stealing state assets.”

9. Trust. I moderated two sessions on Trust. One thing is clear, business can no longer drive right up to the guardrails. When it comes to leadership, it must operate in a more values-based manner than rules-based and do what’s right for shareholders and society. Dominic Barton of McKinsey said that the Milton Friedman approach for business is no longer applicable given the need for long term capitalism. Christophe de Margerie of Total said that the first responsibility of the CEO is to his company, especially the employees, then customers, and only third to the government regulators. Bob Diamond of Barclay’s suggested that companies explain how they contribute to economic growth and job creation. “We also must take accountability for what we did wrong in order to have permission to go forward,” he said. Ashwani Kumar, minister of planning for the government of India, described a distrust of those in positions of political and business powers. “There is a definite link to compensation, with entrepreneurs more trusted than corporate executives on the basis that they have earned their pay,” Kumar said.

As always, I leave Davos inspired, exhausted, and eager to share what I have learned.

Posted by Edelman at 11:17 AM | Comments (0) | TrackBack (0) |

January 25, 2012

2012 Trust Barometer: Business Can Earn the License to Lead

In 2008-2009, in the wake of a recession that saw large, global companies such as Lehman Brothers and AIG collapse, trust in business imploded. Government stepped in with bailouts and new regulations. But in 2011, government became paralyzed by the politics of extremism and endless haggling – and the public lost confidence.