News: Analysis & Commentary: LETTER FROM DAVOS
BIGWIGS, BIG IDEAS, HOT DEBATE, HILLARY, AND SWELL CAVIAR
The buzz at this year's World Economic Forum
Call them Davos moments. Billionaire speculator George Soros and labor leader John J. Sweeney teaming up to argue that the Asian economic meltdown is really a crisis of global capitalism. Newt Gingrich dancing the night away--with his wife--at the "in" Mexican theme party of the conference following a skillful defense of Congress to a thousand skeptical Europeans. Then there was the high-level French official lambasting a famous U.S. journalist--as the two devoured Russian caviar--for obsessing over President Clinton's sex life. And Hillary Rodham Clinton giving the best speech of her life--ranging from free markets to business support for congressional funding of the International Monetary Fund to civil society to children--without notes or a teleprompter. Finally, a surprise: Bill Gates, the high-tech superstar of last year's World Economic Forum, was subdued.
What's the buzz from Davos? Europe is back, Asia is not, and the U.S. holds the best hand for the 21st century--if it chooses to play it.
Europe is the biggest surprise. With three years of solid corporate earnings behind them and the prospect of a single European currency straight ahead, Euro ceos were strutting. Apparently, they've found the wiggle room in Europe's highly regulated system to shed labor, cut costs, and raise productivity. Voila: The continent is running a fat current-account surplus. Then there were all those great digital mobile phones Europeans were carrying, which inspired envy among Washington policymakers and American chief executives.
The big question for Europe is whether the experiment in one currency will lead to unexpected chaos. It all starts in 12 months, yet no one knows who will lead the new European central bank or what its monetary policies will be. A strong euro could attract a huge flood of footloose capital, and there is no regulatory system in place to deal with it. Sound like Asia? You bet. Unless national labor, tax, and spending policies converge fast, there could be big trouble. European markets are hitting new highs, but the smart set is looking beyond to potential problems ahead.
Many at Davos were also wary of Asia. Horror stories about economic decimation abounded. One European apparel mogul told how his longtime Asian sportswear supplier, a Chinese Indonesian, simply disappeared. The word over coffee at the conference was that Indonesia was going to blow. Divisions within the Indonesian military, some pro- and some anti-Suharto, are widening. Kids from prominent ethnic Chinese families are being sent to Vancouver. One big worry is what China will do if Indonesian Chinese are targeted as economic scapegoats and slaughtered. The last time this happened, in the '60s, Beijing sent boats to pick people up. This time, will China send warships?
WEAK YUAN. Singaporeans wondered if China will challenge the U.S. navy's control of the vital straits in the area, through which all oil to Japan flows. Singapore has quietly encouraged the U.S. fleet to use its harbor facilities precisely because it wants to keep China in check.
Don't bet on China shying away from devaluation, either. It seems the head of the central bank has promised not to devalue the yuan for only one year. The word at Davos from a senior Beijing economist and others was that China will start a slow devaluation in 1999 to regain competitiveness. If growth drops below 6% and unemployment leaps, the yuan could be cut sharply to promote exports. There goes the Hong Kong dollar peg.
"Globalization" and "hegemony" were everyone's favorite words. Soros, Sweeney, and Japan's Eisuke Sakakibara all argued that unchecked globalization is leading to a crisis of capitalism. There was much talk of balancing the market with more social safety nets and more regulation--and a call for a new imf to stem the rush of money across borders. "Market fundamentalism" was a neat Sorosism to describe excessive free-market fanaticism.
And yes, there were complaints that a new U.S. hegemony was running--and ruining--the world. And grumblings that the U.S. wasn't doing enough to lead the world. As for the Clinton scandal, Europeans and Asians at the conference dropped their usual patronizing chuckles about American puritanism. Instead, they showed serious anger: With so much world economic volatility and military danger, particularly with Iraq, this is no time to weaken the Presidency, especially over such a private matter. Got all that? Now, please pass the caviar.By Bruce Nussbaum