Wharton Faculty in the Global Classroom Learning from the 38th World Economic Forum in Davos
Bill Gates thinks that business and government can do more to help the world’s poor. In his plenary address on January 24 at the World Economic Forum in Davos, Switzerland, Gates offered his expanded version of corporate social responsibility, which would harness the self-interest of free markets to benefit the world’s neediest people. Gates calls his new idea “creative capitalism.”
Listening to Gates’ speech that day were Wharton professors Howard Kunreuther and Michael Useem, who joined more than 2,000 of the world’s leading business and political figures at the 38th annual WEF meeting on January 23-27, 2008.
“The annual meeting of the World Economic Forum has come to serve as one of globalization's best classrooms,” said Useem. “For me and many others, Davos constitutes an unrivaled personal window into the global issues of the moment.”
At the WEF, Useem moderated a session on "The Rising Influence of Minority Shareholders" and served on a panel on "The DNA of Effective Boards." Kunreuther participated in three panels -- “The Threats of Biotechnology,” “Global Risk,” and “Organizational Risk and Resiliency.”
Read Michael Useem’s account of his Davos experience in Knowledge@Wharton.
Assessing Global Risk
Based on their seminal research at Wharton’s Risk Management and Decision Processes Center, Kunreuther and Erwann Michel-Kerjan, managing director of the Risk Center and a WEF Young Global Leader, along with Wharton professor Witold Henisz, were asked to develop risk scenarios for the WEF’s Global Risk Report 2008. This is the third consecutive WEF global risk report to which the Wharton Risk Center has contributed.
“The WEF is interested in mitigating global risks –- in preventing the domino effect of a catastrophic event,” says Kunreuther. “Because of interdependencies between nations and industries, catastrophic hazards are only going to get worse.” Using the Risk Center’s methodologies, the Global Risk Report presents a global risk matrix for helping to identify and attempting to manage risk.
The Wharton Risk Center’s studies look at sustainable strategies for reducing disaster losses and providing financial support to victims. In its most recent report to be issued in February 2008, Managing Large-Scale Risks in a New Era of Catastrophes, the Risk Center examines two principles: risk-based premiums and dealing with equity and affordability issues to examine alternative programs for reducing losses from future natural disasters.
“Since 9/11, we’ve been looking at catastrophic events and the interdependencies that can trigger other events,” says Kunreuther. “An example would be the effect on oil distribution from the Gulf of Mexico after Hurricane Katrina.”
Creative Capitalism Takes Root
“The Forum is also looking for better ways to encourage industry to be involved in dealing with the inequalities of risk management,” says Kunreuther. “How do you deal with problems of social justice?”
An expert in the insurance industry, Kunreuther sees ways that Gates’ creative capitalism idea can be applied to risk management, and he spent some of his time at Davos making connections that could help these ideas gain traction. Among others, Kunreuther spoke with Michael Chertoff, director of U.S. Department of Homeland Security, and Julie Gerberding, the director of the Centers for Disease Control and Prevention with whom he served on “The Threats of Biotechnology.”
In particular, Kunreuther is eager to explore ideas for the insurance industry. He explains, “Suppose states levied a tax on insurers and utilized these additional revenues to provide insurance stamps (like food stamps) to low-income residents in high-hazard areas to assist them in purchasing insurance. Then insurers would be making a contribution to the social justice problem. In return state regulators would permit insurers to charge premiums that reflect risk rather than restricting them in their rate-setting process as is often done today. This quid pro quo would be in the spirit of Gates’ concept of creative capitalism.”
Read Howard Kunreuther’s opinion editorial in Forbes.com.
