[Viewpoint] A gloomy cloud over Davos

The annual World Economic Forum at the Davos Swiss ski resort has long prided itself on gathering the world’s elite group of “1 percenters” supposedly authorized to foretell the economic trend of the year and set the agenda for global political and economic affairs. It is an annual networking event comprised of leading entrepreneurs, politicians, journalists and economists. Having visited Davos over the last five years, I can feel anxiety looming over what had once been a self-indulgent and light-hearted gathering. In short, the party is over.

Even as subprime mortgage bubble showed ominous signs of bursting, participants in January 2008 remained mostly unconcerned. They had confidence in capitalist markets and Uncle Sam’s affordability.

But in August, Lehman Brothers collapsed, sending the global economy into the worst financial panic since the Great Depression. Capitalists were attacked as greedy scoundrels who ruined the world economy to fatten their wallets.

In 2010, the Davos forum reached the consensus that more government interventions were needed to fix market follies. It called for increased state financing to boost consumption, aggressive subsidies in the financial sector and stronger financial oversight. It was a dramatic shift from the World Economic Forum’s long-standing tradition of advocating for free markets with minimum government interference.

The following year, the forum emphasized stronger international cooperation through Group of 20 leadership and suggested state and international governance take control of the market system. The “visible hand,” or regulatory authority, had been called upon to save capitalism from drowning.

But more disillusionment panned out when European economies were one by one forced to the brink of bankruptcy. With the European Union agonizing over rescuing ailing member states, the viability of the entire euro zone is now being questioned. The desperate calls by prominent leaders like German Chancellor Angela Merkel and French President Nicolas Sarkozy have yielded little response. Even the G-20 Summit is no longer relied upon to generate a collaborated front to help stabilize the global economy and toughen financial regulations.

The stifling air in Davos owes to a loss of faith in the market and international governing capabilities. The worsening global economy; insecure and unreliable financial industry; frustrated and weary populace amid deepening income inequalities and chronic joblessness, corruption and impotent politics; and nationalism are undermining and jeopardizing the international network as well as the global capitalist system. The rage of the “99 percent” masses, corporate uneasiness due to prolonged uncertainties and unresolved political dilemmas are the fallouts of a failed capitalist model.

The Davos meeting this year sang a new version to the song, but few could find the right and persuasive pitch. Just a few were hopeful that the current crisis will pass and the market will soon regain its self-regulatory function.

Some said capitalism must collapse for the birth of a new model by citing the “creative destruction” theory of Joseph Schumpeter. Others suggested the Chinese adaptation of a state-capital hybrid economy as the alternative. Others want to side with economist Anatole Kaletsky in his prediction of a capitalist evolution into a more balanced 4.0 version.

But what is certain is, as Davos forum founder Klaus Schwab declared, the traditional sense of capitalism is out of whack, incapable of meeting the new challenges of today’s age. Karl Polanyi in his celebrated book “The Great Transformation” intuitively pointed out that the “self-regulatory market system” was only a delusion and that society must intervene in the market because the system is an instrument, not an end, for human happiness.

Clear awareness in the weaknesses of the free market and enterprise should come first before trying to rebuild confidence in the market, state and international governance capabilities. Faith would only grow once the market becomes morally balanced and restrained, governments demonstrate wisdom to address weaknesses, and states execute collaborated actions to battle the inefficiencies and inequalities.

Let’s just hope that opportunities lie in this crisis and that hope itself can be reborn from despair.

Translation by the Korea JoongAng Daily staff

*The author is a political science professor at Yonsei University.

by Moon Chung-in