The Highlander

This past Sunday marked the closing of the World Economic Forum's Annual Meeting in Davos, Switzerland. According to its website, the World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. It was incorporated into a foundation in 1971. The focus of this year's annual meeting was "The Creative Imperative." It comes at a time of imbalance within the global economy and that of the world's largest economy, the United States.

While the gathering at Davos released exciting new initiatives, the United States faced some serious economic news at home. In the Washington Post's Nell Henderson wrote that the U.S. economy slowed sharply in the last three months of 2005 to the weakest pace in three years. Consumers, businesses and government all pulled back on spending, the Commerce Department reported yesterday, raising concerns about the strength of the expansion this election year. 4th Quarter GDP rose just 1.1%. Clearly the effects of a ferocious hurricane season and its impact on energy prices were factors, but what about longer-term vulnerabilities? "I think it's the beginning of a prolonged slowdown, but not a recession," said Richard Yamarone, director of economic research at Argus Research Corp., of the economy's fourth-quarter performance.

The slowdown raises concerns over inflation. The Commerce Department report stated that consumer prices, excluding food and energy items, rose at a 2.2 percent annual rate in the last quarter, up from a 1.4 percent pace in the third quarter. White House economist Ben Bernanke will likely be confirmed Tuesday by the Senate to become the new Chairman of the Federal Reserve replacing Alan Greenspan. According to Kevin Hall of the Miami Herald, "Greenspan's final official act is expected to be presiding over a 14th consecutive quarter-point interest rate hike, bringing to 4.5 percent the benchmark federal-funds rate that banks charge each other for overnight loans, which directly affects consumer loans." Bernanke became Chairman of the President's Council of Economic Advisers in June 2005. He will have to face the hard reality that comes from decision-making by the Bush Administration.

According to Former Treasury Secretary Robert Rubin, "In January 2001, the nonpartisan Congressional Budget Office projected a ten-year federal government surplus of $5.6 trillion. By September 2003, after two rounds of tax cuts, Goldman Sachs estimated a ten-year deficit of $5.5 trillion, a swing of $11.1 trillion." Clearly the Bush Administration has faced a range of challenges, but instituting dramatic tax-cuts combined with massive increases in federal spending carries long-term consequences.

American industry hasn't fared much better. Following Mark Fields' ascension to President of Ford Motor Company in October, he developed a team to examine just what defines the brands of Ford, Lincoln, and Mercury which comprise the company. Out of this effort came the most recent restructuring plan. According to the Associated Press the plan calls for cutting up to 30,000 jobs and closing 14 plants by 2012 in an effort to bring Ford's North American division to profitability by 2008. With tighter energy markets can American automakers and their bulky vehicles compete with fuel-efficient imports? According to Joann Muller of Forbes, "We have GM launching a slew of mammoth sport utilities like the Chevrolet Suburban and the Tahoe (and bragging that they get 20 miles per gallon), while Japanese automakers are rolling out cute, fuel-efficient subcompacts that get 40 miles per gallon. Large SUV sales, the main source of profit for Detroit automakers in the 1990s fell 21% in 2005."

The difficult, long-term challenges the American economy faces should advise us to the changing reality of globalization. Clyde Prestowitz, President of the Economic Strategy Institute, writes in Newsweek, "For most of the last 50 years, globalization has been a win-win proposition, making America richer while lifting hundreds of millions in the developing world out of poverty and despair. Recently, however, it has begun to operate differently, undermining U.S. welfare while creating imbalances likely to end in a global economic crisis."

This year's meeting of the World Economic Forum reflected the shift in power to the East. The focus was on the nations of China and India with their combined population of well over 2 billion people. India mounted an impressive campaign to raise its profile. The Indian delegation of 150 people included three cabinet ministers and forty-one chief executives. According to Mark Landler of the New York Times, the Indian efforts are led by Ajay Khanna, the chief executive of the India Brand Equity Foundation and the cost is an estimated $5 million. Mr. Khanna told the Times, "The last two years, we felt there was too much about China, and India wasn't being heard. This year, we decided to make a major effort to give India a voice."

Clearly China is a force to be reckoned with and this month it surpassed Great Britain as the world's fourth largest economy. According to Trudy Rubin of the Philadelphia Inquirer, "So far, China is growing faster than India, attracts 10 times the foreign direct investment, and has proved far more successful at building infrastructure to get goods to market." India knows it is competing with China and in Davos advertised itself as the world's "fastest-growing free-market democracy." Nandan M. Nilekani, who is the Chief Executive of Infosys, told the New York Times, "We're going to showcase the arrival of the global Indian entrepreneur." India still has significant challenges to tackle in its development of democracy, but its profile continues to rise with Mukesh Ambani, Chairman and Managing Director of Reliance Industries serving as a Co-Chair for this annual meeting at Davos.

The World Economic Forum should reinforce the idea that the U.S. cannot afford to be complacent in an international system undergoing a significant transfer of power to the East. According to David Ignatius of the Washington Post, "Davos has come to symbolize the dominant force of our time -- the wealth-creating, job-destroying whirlwind of the global economy. Each year I come here I marvel at the reach and leveling power of this economic hurricane. There are more Chinese, Indians and Arabs every year, and less of an American presence." Generations Y will face significant challenges if they are to attain a higher standard of living than their parents. To start, Americans should revisit the "Protestant" work ethic that was responsible for the incredible economic expansion that made the 20th an American Century.

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