Although this year’s meeting in Davos was less focused on economic crisis than previously, it highlighted some of the economic challenges of Russia and other countries.
The 2014 Davos summit shifted focus from economic issues to “softer” subjects such as health, environment and social technology issues. Photo: weforum.org
The premier gathering of the world’s movers and shakers at the World Economic Forum’s Annual Meeting in Davos has once again come to a close, leading to the perennial question: “what was accomplished this year?” With the meetings in Davos now approaching middle age (having first been convened in 1971), there is a rich history of accomplishments, from the declaration in 1988 that averted a war between Turkey and Greece to the meeting of the Russian oligarchs in 1996 that helped win an election for Boris Yeltsin.
However, for 2014 there were no such earth-shattering events. Instead, many observers marveled at the World Economic Forum’s shift away from its core competency, which is, was, and should be, economics. A cautious optimism on the world economy’s prospects meant that the global financial crisis, for so long on the minds of policymakers, could finally take a backseat to other subjects. Instead of handwringing about “negative interest rates” or “aggregate demand,” there was a definite shift to “softer” subjects such as health, environment and social technology issues.
Sigh of Relief?
This doesn’t mean that economics was neglected. Indeed, a key standout from the economics sessions was the overall positive sentiment about the world economy (Martin Wolf of the Financial Times characterized this year as “the sigh-of-relief Davos”). But for many observers, including myself, this optimism is still unfounded.
More importantly, the mood in Davos was quite a contrast to elsewhere in the world: at the American Economic Association (AEA) annual meetings just three weeks earlier in Philadelphia, a panel of luminaries including former U.S. Treasury Secretary Larry Summers, former Undersecretary for International Affairs (and Stanford Professor) John B. Taylor, and Harvard Professor Martin Feldstein all agreed that the U.S. is not in any sort of recovery (and being economists, they all disagreed on why).
With Europe still faltering and the BRICS countries showing anemic growth, there is little real hope for believing that the worst is over.
Japanese Prime Minister Shinzo Abe, whose country continues to stagnate and most likely will continue to stagnate under his new set of “reforms,” noted the tensions between his country and China on a whole host of issues, including economic and geopolitical ones. Abe said that the current situation was not unlike that between Britain and Germany before World War One.
Given that the First World War unleashed some of the most destructive forces in the history of humanity and directly or indirectly led to the deaths of hundreds of millions of people, Abe’s musings made the world sit up and take notice. It also signaled that, whether in economics or politics, the world is still a dangerous place.
Did Russia have a “Successful” Davos?
Turning to Russia, the country’s initiatives unveiled at Davos were overshadowed not only by larger geopolitical issues, but by two specific regional issues: the economic slowdown in Russia itself and the continuing instability in Ukraine. As already noted, the BRICS countries are all displaying low rates of growth and the threat of “stagflation,” as Central Bank of Russia First Deputy Head Kseniya Yudaeva noted in Moscow.
And while Russia wields nowhere near as much economic heft as China, the reality of slowing growth at a time when Russia has everything working in its favor (sustained oil prices, an upcoming Olympics, and expanding markets in Asia) is still disconcerting.
The 2014 Davos summit. Photo: weforum.org
Indeed, the acknowledgement of Russia’s difficulties in so public a forum as Davos (even Minister for Economic Development Aleksey Ulyukaev admitted that the slowdown is a problem) showed perhaps that the government is going to turn its attention to the economic malaise in the country and build on successful initiatives from within Russia; for example, a session on the Russian regions highlighted the improving business climate in Tatarstan, Kaluga and Ulyanovsk.
Establishing such a session at Davos was possibly a sign that the Russian government understands the issues it has yet to overcome.
Or possibly not. While then-Ukrainian Prime Minister Azarov was disinvited from speaking at Davos due to his role in the violence surrounding protests in Kiev, Moscow was at the same time announcing a further $2 billion Eurobond purchase as part of the $15 billion bailout of the Yanukovych regime.
With protests continuing, the opposition gaining momentum, and President Viktor Yanukovych increasingly isolated, Ukraine is showing itself to be a broken state; it perhaps is not the best use of Russian taxpayer dollars to try and prop up a country that desperately needs real reforms. At Davos, US Secretary of State John Kerry spoke for many of the attendees when he said, “We will stand with the people of Ukraine." How the situation in Ukraine plays itself out will undoubtedly have economic effects on Russia, but in Davos at least, it appeared that Moscow had chosen against the people.
It was not all doom and gloom for Russia, however. While Russia continues its own drive for Eurasian Integration, it was clear at Davos that Russia and the U.S. need not be mutually exclusive. In particular, the announcement by Arkady Dvorkovich and US Trade Representative Michael Froman of U.S.-Russia trade talks showed that the two countries have a mutual interest in broadening economic ties.
As they announced, the proposed agreement would be designed to create an "economic base" that would be impervious to political relations, focusing on protection of investments, phytosanitary controls, customs issues and encouragement of U.S. investment in the regions. Such an agreement would be one that could be beneficial for both countries, and, more importantly, show they could be governed by the head rather than the heart.
This year’s meeting in Davos was perhaps less focused on economic crisis than in previous years, but still was able to highlight some of the economic issues facing Russia and the other BRICS countries. And while Russia’s problems may have overshadowed its successes, on the whole, the emphasis on success in the regions, coupled with the announcement of the U.S.-Russia treaty talks, may show that there is hope in the medium-term.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.