Moneycontrol Pro Weekender: The downsizing of Davos Man

Dear Reader,

In 2004, the American political scientist Samuel P Huntington wrote a paper titled ‘Dead Souls: The Denationalization of the American Elite’, containing the first reference to ‘Davos Man’. This wondrous creature flourished during the high noon of globalization in the nineties and noughties. With the end of the Cold War and the dawn of economic liberalisation in countries like India, markets became global, spawning a transnational business elite. It was this elite that rubbed shoulders with powerful politicians in the schmoozefest at Davos every year, under the auspices of the World Economic Forum (WEF). Footloose capital, financialisation, the death of distance due to low communications and transport costs, and supply chains that snaked around the globe were the conditions that Davos Man thrived in.

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Huntington wrote, “The rewards of an increasingly integrated global economy have brought forth a new global elite. Labelled 'Davos Men', 'gold-collar workers' or 'cosmocrats', this emerging class is empowered by new notions of global connectedness… these transnationalists have little need for national loyalty, view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite's global operations.” The Dead Souls in the article’s heading came from Walter Scott’s famous poem:

‘Breathes there the man, with soul so dead,

Who never to himself hath said,

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This is my own, my native land!’

The system had many redeeming features. Not only did it create wonderful new opportunities for capital accumulation for the elites in the developed economies and in the Global South, but some of the moolah trickled down to the masses in countries such as China and India, lifting millions out of poverty.

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But that world has gone. The first jolt was given by the Global Financial Crisis (GFC), which exposed the cracks in the edifice. The masses had never bought into Davos Man’s transnational fakery. And while global capital helped emerging markets, the working classes in the developed world resented jobs disappearing over the border. The lack of growth after the financial crisis proved to be the final straw. That led to Trump, protectionism, and the eclipse of the once powerful World Trade Organisation. Globalisation was already in decline when the war in Ukraine and the economic wars with Russia and China administered the coup de grace.

In fact, there were always stresses and strains within globalisation, as multinationals jockeyed for markets, backed by their respective governments. But this was papered over by unquestioned US hegemony. Indeed, at one point, the US was so bereft of worthy enemies that they had to invent the War on Terror.

While the masses in the developed nations increasingly questioned the logic of globalisation, that could have easily been ignored by Davos Man and his ilk. What rocked the boat was the ascent of China. As long as the Chinese played second fiddle to US corporate power and remained content with exporting low-cost consumer goods to the US, as long as they remained hewers of wood and drawers of water, they were welcome. The trouble started after the GFC, when they started moving up the value chain and competing against US companies, with the full backing of the Chinese state. President Obama complained to Hu Jintao, then Chinese president, about the unfair treatment of US companies in China. Things got worse when Chinese overcapacity in industries led Xi Jinping to launch his Belt and Road Initiative to create markets to export that overcapacity. As Ho-fung Hung, a sociologist at Johns Hopkins University, wrote, “Chinese state-owned companies were squeezing out American companies in the Chinese market, and now they were squeezing out American companies in the international market in the developing world.” The final insult was the Chinese catching up in technology, as seen from the likes of Huawei.

Huntington was wrong. Far from being shackled by national boundaries, the globalists needed the backing of their respective nation states. Globalisation and free trade were underwritten by American Cruise missiles. The myth of a global capitalism that can break free of the nation state has exploded. Today, there is no conflict of ideologies and capitalism reigns supreme, but it’s a world of clashing capitalisms. As Hung says, it is inter-capitalist rivalry that is at the root of the Sino-US conflict. All the talk of democracy versus autocracy is just a smokescreen, although Martin Wolf has a superb essay on the enduring value of democratic capitalism.

Today, globalisation is in danger of coming apart at the seams, thanks to geopolitics. The theme of the Davos bash this year is ‘Co-operation in a fragmented world’. That’s a far cry from the pre-GFC meet in January 2008, whose confident theme was ‘The Power of Collaborative Invention’ or even the 2013 hopeful theme of ‘Resilient Dynamism’. To be sure, the WEF has been desperately trying to reinvent itself, but Davos Man’s heydays are behind him. The jamboree at Davos will continue, for hot air has a special attraction among the snows. But shorn of its global pretensions, its glory days are over.

If a parallel needs to be found, today’s geopolitics best resembles the world before the First World War, when competing capitalisms, backed by their nations’ gunboats, divided the world among themselves. Indeed, protectionist ideas seduced even the liberal economist John Maynard Keynes. In 1933, the year when Hitler came to power, he wrote an article titled ‘National Self-Sufficiency’ in which he said, “I sympathise, therefore, with those who would minimise, rather than with those who would maximise, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel -- these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national.”

We all know where such ideas led. Mussolini’s March on Rome happened in 1922. Today, his admirer heads the Italian government. As Davos Man stumbles towards his exit, we can only hope that we do not sleepwalk down the disastrous path the world took a hundred years ago.

Cheers,

Manas Chakravarty

Here are some of the stories and insights we published this week, apart from our technical picks in the equity, forex and commodity markets:

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Fourteen hand-picked stocks for the Budget

DMart, Wipro, HDFC Bank, GM Breweries, Federal Bank, Atul, ICICI Lombard, ICICI Prudential, IndusInd Bank, Delta Corp, stocks that can ride the EV theme, Weekly tactical pick, HUL, AU Small Finance Bank, Asian Paints, L&T Technology Services, Rallis India, Metro Brands