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February 9, 2009
Wharton at Davos 2009
Financial Crisis Sets the Tone for Discussions at World Economic Forum
Uncertainty and ambiguity defined the World Economic Forum (WEF) 2009 Annual Meeting, held in Davos, Switzerland from January 27 to February 1. Wharton Professor Michael Useem, who has attended the Davos meetings as far back as 1997, described the mood among the 2,500 participants as "distressed, stunned, shocked."
"No one knows what will work," said Wharton Vice Dean of Global Initiatives Harbir Singh, who made up the Wharton delegation with Useem, Wharton Professor Howard Kunreuther, Dean Thomas Robertson, Wharton Professor Eric K. Clemons, and Erwann Michel-Kerjan, managing director of the Wharton Risk Center and a WEF Young Global Leader. "The difference with the WEF is that the discussion is not just an intellectual one. Some of the members –- business leaders, political figures, professors -- are involved in making decisions and moving the resources that can make a difference."
"The financial crisis clearly overlaid a lot of what other discussions covered. It was front and center, but there was a feeling that we don’t really know how we’re going to deal with it," said Kunreuther, an expert on risk and Useem’s co-chair on the WEF’s Global Agenda Council on Mitigation of Natural Disaster.
A thread that ran through discussions was whether economies could survive without state regulation and supports -- even whether economics itself would survive as a discipline.
In the one-on-one interview with CNN’s Christiane Amanpour, Gordon Brown, Prime Minister of the United Kingdom, said of the crisis, "We are learning all the time how to deal with the real problems." He said the international financial system must be rebuilt, partly to prevent problems from cascading from one country to another, and that "not everything can be left to the market."
Writing for Knowledge@Wharton, Useem cited Brown’s exhortation to reward responsible risk taking, not irresponsible risk taking. He quoted Brown, "We want free markets but we don't want value-free markets."
Assessing What Went Wrong
The real challenge is how to deal with the unwillingness of countries and individuals to perceive the real risks, both of climate change and of extraordinary events, said Kunreuther, who spoke on the panels "Controlling Climate Change" and "Hurricanes, Heatwaves, and High Seas." Kunreuther co-authored WEF’s report, Global Risks 2009, which identifies deteriorating fiscal positions, a hard landing in China, a collapse of asset prices, gaps in global governance and issues relating to natural resources, and climate as the pivotal risks facing the world this year. The 2008 report accurately warned of an imminent systemic crisis in the financial sector, as well as volatility in the energy market and food shortages.
Author of the best-selling The Black Swan, Nassim Nicholas Taleb, WG’83, Professor, New York University Polytechnic Institute, and Principal, Universa Investments was one of the analysts who had anticipated an economic crisis.
"Models killed Wall Street," said Taleb. In the panel, "36 Hours in September, What Went Wrong?" moderated by Michel-Kerjan, Taleb noted that excessive reliance on mathematical models without understanding their limitations was a major cause of the crisis. But, as moderator Michel-Kerjan pointed out, the question is not about forecasting the problem, but why so many failed to pay attention to the warnings. Said Taleb, "We don’t have a good handle on rare events… we don’t know how consequential they can be."
Kunreuther added, "I think that if there’s anything that came out of this meeting in Davos it is that coordination and cooperation are needed on all of these issues, not just the financial crisis. If anything, this has been accelerated in a way that would not have been possible if we had not been facing this crisis."
Jean-Pierre Rosso, WG’67, chairman of WEF’s Centre for Global Initiatives, chairman of the Lauder Institute Board of Governors, and a Wharton Overseer, concluded at a session on Global Industry Outlook, "This crisis is transformational and those countries that capitalize on this will be the winners."
Wharton’s contribution to the World Economic Forum will continue June 29, when members of the World Economic Forum’s Young Global Leaders will come to Philadelphia for a leadership program with Executive Education. Each year the World Economic Forum identifies a new class of Young Global Leaders, 200 to 250 extraordinary individuals under the age of 40 who share a commitment to shaping the global future.
Read Professor Mike Useem’s report on the WEF 2009 in Knowledge@Wharton’s Snapshots from Davos: Seeking Opportunity in Crisis.
