Every year, business leaders, billionaires and politicians gather in Davos, Switzerland under the banner of creating connections that can help solve global problems.
It’s a flashy exercise that’s often criticized as untouchable. It also looks increasingly dated as Europe’s biggest war since 1945 turbocharges the world economy.
This year’s World Economic Forum, which has been held in the Alpine ski town since the early 1970s, begins on Monday. It is expected to attract a record 2,700 attendees, including German Chancellor Olaf Scholz, European Commission President Ursula von der Leyen, Chinese Vice Premier Liu He, South Korean President Yoon Suk-yeol and US climate envoy John Kerry.
Nevertheless, the first winter meeting of the WEF in Davos since 2020 it comes as economic heavyweights play by different rules, with companies moving supply chains closer to home, strategic stockpiling picking up pace, and corporate executives who once extolled free trade increasingly wary of growing geopolitical risks.
“I think Davos is completely irrelevant,” said Rana Foroohar, a columnist for the Financial Times, whose book “Homecoming” argues that the new shift toward localization is displacing the forces of globalization that have dominated the past half century.
The WEF claims its conference allows decision-makers to zoom out and collaborate, a challenge while simultaneously grappling with crises such as pandemics, skyrocketing living costs, climate change, food insecurity and war.
“Only personal interaction creates the necessary level of trust, which we so desperately need in our divided world,” said WEF Chairman Klaus Schwab, the event’s founder, at a press conference last week. This year’s theme is “Cooperation in a fragmented world”.
Schwab’s vision of a progressively interconnected global economy that also spreads democracy around the world has been under threat since at least the 2008 financial crisis. World Bank data show that global trade in goods and services as a percentage of total economic output peaked that year. Cross-border investment outflows reached a high level in 2007.
But the damage done to the Davos mission has accelerated over the past 12 months.
Russia’s invasion of Ukraine destroyed what columnist Thomas Friedman once called the “golden arches theory of conflict prevention,” which argued that two countries with McDonald’s restaurants would not go to war with each other. Since the invasion, more than 1,000 Western companies have restricted business in Russia, and Europe has quickly cut ties with what was once its main energy supplier despite high costs. The WEF itself had to freeze relations with Russia after hosting its politicians and oligarchs for years.
Tensions between the world’s two largest economies, the United States and China, are now even higher, especially as Beijing steps up military exercises aimed at threatening Taiwan. China’s tough approach to containing Covid-19 has also spooked companies and investors. Many remain cautious even as restrictions are quickly lifted.
This is forcing companies and governments to rethink supply chains for key products, as reducing vulnerability and protecting national interests takes precedence over maximizing cost savings.
While former US President Donald Trump advocated the “America First” trade policy, US Treasury Secretary Janet Yellen emphasized “friendshoring”, i.e. strengthening trade ties with countries like India, a neighboring democracy. Apple ( AAPL ) is looking to move much of its manufacturing out of China, whose labor market once served as the engine of its success. The European Union is reportedly drawing up plans to stockpile rare drugs to avoid future shortages.
At the same time, the United States is pushing forward with a strong industrial strategy aimed at strengthening its power in manufacturing everything from computer chips to parts for electric vehicles. This has sparked a dispute with Europe, which worries that the new subsidies will put its companies at a disadvantage.
“This is really a paradigm shift at this point,” said Jeffrey Sonnenfeld, a Yale management professor who regularly talks to many famous executives. He said that they are increasingly talking about doing deals and investing using this new book.
Meanwhile, nationalism and populism — which can prompt leaders to criticize tenets of a globalized economy such as porous borders and lower trade barriers — remain powerful forces. Just look at the new Italian Prime Minister, Giorgia Meloni, who was installed in October. Her party’s program is rooted in skepticism towards the European Union and anti-immigration policies.
The consequences of this transition are still being felt. While the trend toward deglobalization is expected to have some negative consequences, such as increasing inflation, Foroohar sees an opportunity to revive communities that lost jobs during the free trade bonanza, reduce the carbon footprint of supply chains, and alleviate global inequality.
Over the past two years, the richest 1% have acquired almost twice as much new wealth as the rest of the world, according to an Oxfam report released ahead of Davos.
“Economic pendulums swing throughout history,” said Foroohar, who is also a CNN analyst. “Every time the pendulum swings too far, which it clearly has, it starts to swing back a little bit.”
Some key elements of globalization remain intact. The digital transformation of economies facilitates the movement of money and ideas across borders. Unfortunately, the same applies to viruses and other diseases. International cooperation is essential to address food shortages and keep important climate goals within reach.
“It’s basically too simplistic to say it’s an age of globalization or an age of deglobalization,” said Markus Kornprobst, professor of international relations at the Vienna School of International Studies. “It’s an in-between period.”
But even the Davos organizers seem aware of the changing tides. Panels on the agenda include sessions titled “De-Globalization or Re-Globalization?” and “Keeping the Lights on amid Geopolitical Fracture.”
The forum will continue to attract big names. CEOs such as Jamie Dimon of JPMorgan Chase ( JPM ), Satya Nadella of Microsoft ( MSFT ), Dara Khosrowshahi of Uber ( UBER ), and Bernard Looney of BP ( BP ) are on the list of attendees; Scholz, von der Leyen and Spanish Prime Minister Pedro Sánchez will give speeches from the main stage.
However, there will be significant absences. Among those who skipped the gathering this year are US President Joe Biden, China’s Xi Jinping, Indian Prime Minister Narendra Modi, French President Emmanuel Macron and British Prime Minister Rishi Sunak. That raises questions about whether Davos can maintain its reputation as an important event for the rich and powerful.
— Hanna Ziady contributed reporting.