Davos—Nice But Not Real

A light snow is falling and the streets are full of a special breed of humans known as Davos Man. Of course, women are present also, but they are subsumed in the use of the term Man as meaning Mankind.

A Davos Man is either very rich, very famous, very intelligent, or all three. He is a great luncheon or dinner partner. The best food, best wine, and the best conversation is always freely available. The skiing at Davos is actually not so great, and the village, an old town where those suffering tuberculosis came in the early part of the twentieth century, is small. The meeting has spilled out of the original village to include several surrounding villages, but a real Davos Man like say George Soros or Angela Merkel lodges in Davos.

Ancient lore has it that World Economic Forum founder Klaus Schwab honeymooned in Davos and fell in love not only with his wife but also with the town. Thus he chose it as the location in 1971 for the first convention of what he called the World Economic Forum. Initially it was a small group of mostly European businessmen whom the 32 year old Schwab had gathered to learn better business at the feet of some Harvard Business School professors whom Schwab had promised a free winter vacation in return for helping to educate the Europeans on how to do real business. Schwab, being a German academic, had earned not only a German PhD, but also an MBA at Harvard.

Over time, the meeting graduated from being primarily a set of business school lectures to something more encompassing. Big name government leaders like Bill Clinton, Angela Merkel, Xi Jinping and more were put on the menu. The WEF began to commission and then to direct its own studies of big international issues. It rated the “competitiveness” (whatever that is) of each country each year. Thus, in 2022, the world’s most competitive country was said by the WEF to be Denmark, followed by Switzerland, Singapore, Sweden, Hong Kong, Netherlands, Taiwan, Finland, Norway, and finally in the number 10 position, the United States. Then came Ireland, the UAE, and Luxembourg.

Seriously? You have to be really inventive to find a way for the most competitive top nine countries to have less than the GDP of a medium sized U.S. state. But Schwab is nothing if not inventive. He managed to make himself the King of Globalization. As readers may know meetings with high ranking officials are sometimes called “bi-laterals”, meaning that the two people meeting are of equal and high rank. Schwab’s assistant once announced to me that he had had five “bi-laterals” on that particular day. So in her mind, and I guess in Schwab’s too, the WEF obviously ranked as a nation-state with Schwab as its President. One wonders where it ranks on the international competitiveness list.

What is particularly striking about the Davos meeting this year is that it is hardly being covered by the international press. In past years, publications like The Financial Times would have virtually all their top reporters and columnists in Davos and the front page would be wall to wall Davos. New York Times uber columnist Tom Friedman would be talking about the annual “hero” typically emerging in Davos, and the Wall Street Journal would be publishing the interviews of its top staff with global CEOs. This would all be front page. This year, you wouldn’t know there was a Davos meeting if you just scanned the front pages.

What’s going on?

Globalization has turned out to be a fairy tale. That’s what. Indeed, it’s worse than a fairy tale. Fairy tales can be disappointing but they don’t really hurt you. Globalization, on the other hand, is turning out to have been very costly and damaging not only economically, but also and especially dangerous to democratic values, to human rights, and, indeed, to human life.

Globalization made possible the Russian attack on Ukraine. The globalists thought it was perfectly safe for Germany and much of the rest of Europe to become heavily dependent on Russian natural gas. Indeed, they thought this would tend to democratize and liberalize Russia. They thought that investment in China, transfer of technology to China, and the transfer of jobs to inexpensive Chinese laborers would liberalize China both economically and politically and make it into a “ responsible stakeholder in the liberal, rules based, global order.” according to former U.S. Trade Representative, former Deputy Secretary of State, and former World Bank President Robert Zoellick. They also thought that these transfers of jobs, skills, investment, and technology to China would not only have no negative impact on the U.S. economy, but would actually be good for it. If you lost your job at Ford, because it switched its production to Mexico or China, not to worry. There would be plenty of jobs in Silicon Valley. Of course, dog houses there go for $1 million a pop, but hey, the weather is warmer than in Michigan.

The hard cold facts are that the globalists have been mostly wrong for the past fifty years. The econometric models that top economists like Paul Krugman, Larry Summers, Jason Furman and all the rest of big leaguers were and are based on assumptions that are in cloud cuckoo land. Perfect competition (no industries dominated by two or three big corporations), eternal full employment, no economies of scale (the more steel you make the less the cost of each new unit), no cost for opening or shutting down a business, fixed exchange rates (they have all been floating for the past fifty years). All nonsense, but the Nobel Prize committee gave awards to the people who preached the nonsense. So they kept on preaching. Until now, that the global supply chains have collapsed, that the guys in Michigan had to take unemployment pay or jobs at Walmart, that the skills they once honed have been largely lost to the nation, that Apple has become a hostage of Communist China rather than a model of the modern, globalist corporation.

Here are some of the things that Davos Man completely missed. Long, complex supply chains must inevitably carry the risk of possible break down. Break downs can be quite expensive. That potential expense should have been included in the going in cost estimates and actual investment. But it was not. Now the cost is proving even higher than any imagined.

Last night’s television showed that the City of Miami, Florida will be under twenty two feet of water by the end of this century. This, of course, is due to global warming which in turn is due to greenhouse gas emissions on an enormous, global scale. Globalization dramatically increased that scale and those emissions. Ships and airplanes account for about 15 percent of global greenhouse gas emissions. If you make everything in China which has little or no greenhouse gas emissions regulation and ship everything from China around the world, you are dramatically increasing greenhouse gas emissions and contributing to more and more global warming. This is especially true if you do not count the cost of these emissions and add it to the cost of shipping and the cost of finished goods If you act as if there is no cost, Miami may find itself under 30 feet of water instead of 22.

If you encourage your leading technology companies like Intel, Boeing, General Electric, and Apple to transfer their technology to China and to invest heavily in production in China and to transfer technology to China, whose civil-military fusion policy means that whatever you have in China can and will eventually wind up in the Peoples Liberation Army (which by the way is not the national army of China but the private army of the Chinese Communist Party) you will pay a huge price. Yet that price has not been included in any calculation of the pros and cons of globalization.

Former Chairman of the Council of Economic Advisers to the President, Michael Boskin stoutly denies making the statement: “potato chips computer chips what’s the difference they are all chips.” But if he didn’t make it he should have because the statement perfectly captures the underlying thinking of free trade economists for the past sixty or seventy years.

It is encouraging and also interesting to note that the Biden administration, has finally recognized that computer chips are really a lot more important than potato chips. But America and the free world have paid and will continue to pay a high, uncounted price for believing in this false doctrine for such a long time.

When one adds all the uncounted costs, Davos Man and his Globalization have turned out to be hugely wrong and expensive.

BLOG DISCLOSURE: This website blog is published and provided for informational and entertainment purposes only.  The information in the blog constitutes the content creator or guest blogger’s own and it should not be regarded as a description of services provided by Sowell Management. The opinions expressed in the blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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