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Davos – What Questions Were Raised And Were There Answers?
Econowatch, Tradeable | 30 January 2013
By: Simeon Ang
Articles (125) Profile

“The need for global cooperation has never been greater” declared Klaus Schwab, Founder and Executive Chairman of the World Economic Forum during the opening of the meeting in Davos, Switzerland. This year, some 2,500 business leaders, international political leaders, intellectuals and journalists huddled together to discuss critical issues faced by the world. This year’s theme, “Resilient Dynamism” spoke of both the hurdles and the opportunities that thought and opinion leaders feel the world is currently facing.

In its closing debate entitled “The Global Agenda 2013”, the co-chairs of the meeting debated about emerging issues of 2013 as well as their implications for the global economy and their industries.

Two key risks were highlighted during the debate: 1. Economic Disparity and 2. Fiscal Imbalances.

Economic Disparity
During the debate, Huguette Labelle, chair of Transparency International put it aptly, “In some countries, the population of people aged below 30 are 60 to 70 percent. Imagine if half of them are unemployed.”

Photo: Huguette Labelle speaking at the final debate of the World Economic Forum. The debate was entitled, “The Global Agenda 2013”.

Here in Singapore, we might be relatively sheltered in terms of youth unemployment. Latest figures from the Ministry of Manpower showed that Singapore continues to enjoy low unemployment rates with the latest figure (3Q12) reading the rate at 1.9 percent. The youth (aged 30 and below) unemployment rate, although slightly more elevated, is still at a low of 4.5 percent (3Q12).

The main issue concerning Singaporeans with regard to economic disparity however, is the rising inequality of incomes. This was also a rising theme at Davos. As Rana Foroohar of Time puts it, “companies are actually talking more constructively about jobs and the skills gap than politicians are, and some of the big blue chips are actually beginning to get into the education game themselves, partnering with community colleges or setting up schools in the developing world”.

Perhaps, when it comes to income inequality, leaders seem to think that continued education is vital to shift the poor into the middle class.

Fiscal Imbalances And Central Banks
At Davos, new concerns have been raised regarding unconventional monetary policies. Central banks are flooding the markets with liquidity. The Bank of England, which is currently undergoing a leadership change, heightened expectations of further monetary easing when incoming governor, Mike Carney noted that monetary policy was far from “maxed out” and more should be done. Cast this alongside the Outright Monetary Transaction by the European Central Bank, Quantititave Easing 3 by the Federal Reserve and the recent unlimited open market purchases by the Bank of Japan, and we have a seemingly endless amount of cash flowing into financial markets.

Already, economists are seeing the ramifications of such policies. Asset prices have shot up globally. Singapore is not an exception. The main issue with this is that while asset prices go up, only asset owners get richer, while those who do not own assets remain poor. This also drives up economic disparity that was mentioned earlier. The asset price distortions of everything from stocks to bonds to real estate could also possibly lay the foundations of the next crisis.

During the debate, Axel Weber of UBS noted that expectations of the role of the central bank are getting too high. He noted that the unconventional measures taken by central banks lately were in a bid to buy time for governments to fundamentally restructure their economies. This kind of restructuring would be painful but necessary.

Perhaps one of the best answers that have come out from Davos, stems from the idea of disruptive innovation. Harvard Business School Professor Clayton Christensen puts forward the notion of innovation that is disruptive, changes that lead to fresh markets, products and jobs. Professor Christensen notes that part of our problem today is that leaders are risk-averse, seeking short-term returns through efficiency-enhancing innovations (which by the way, reduces employment). Disruptive innovation, which gave birth to computers, mobile devices such as the smartphone and tablet is less common now, and this trend needs to be immediately reversed.

Here’s a compilation of some of the noteworthy statements made during the final debate at Davos.

With so many questions but so few answers, it does seem that 2013 will indeed be a year where uncertainty could once again rear its ugly head.

Editor’s note:
Have any thoughts/comments or feedback regarding this article? Reach out to me on my twitter account, @Tradeable. I will also discuss and tweet about various other investment and economic related news in Singapore and beyond, there.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

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