Davos and Stakeholder Capitalism 2.0
When Klaus Schwab founded the World Economic Forum in 1971, his goal was to enhance corporate management so that all stakeholders, and not just shareholders, would come together to envision paths to longer-term growth. Nearly five decades since then, the Forum’s flagship annual event at the Swiss ski resort of Davos has undoubtedly been a huge success as a multi-stakeholder magnet. Its ability to attract titans of industry, world leaders, celebrities, and the hyper-wealthy is second to none. From its conception, Davos was never about a social revolution. Rather, it shifted the way of networking and defining the Establishment. Yet for all the success of the WEF to attract the global elite and the international media’s attention, the 81-year-old Schwab himself has become a critic of the current winner-takes-all growth model.
In this month’s Foreign Affairs, Schwab argued that “in its current form, capitalism has reached its limits. Unless it reforms from within, it will not survive.” The founder of the Davos forum listed the multitude of challenges facing global growth including the widening income divide and increased strains on the environment, concluding that businesses have an obligation to be part of the solution to such ills, rather than being part of the problem.
Pointing out the weaknesses in the existing model of growth is all too easy. The real challenge though is looking to solutions.
It is not simply capitalism and corporate governance, however, which are facing greater scrutiny even from its traditional supporters. Rules of economic engagement, especially trade, are coming under attack even from those who have arguably benefitted the most from the prevailing system and the liberal international order at large. Pointing out the weaknesses in the existing model of growth is all too easy. The real challenge though is looking to solutions.
Some of the answers may actually come from Asia. Most East Asian countries to date have largely been immune from the wave of anti-globalization and protests against the current economic model. Certainly, there remains a fundamental belief in the powers of export-led growth. Even in a country like Japan where the export of goods is accounting for less and less of GDP, the basic assumption remains that free trade is a net positive for the nation and that there can be new opportunities from exports to grow.
Japan’s experience of dealing with over-expansion and asset price inflation, and its ability to avert collapse and keep irreversible social fragmentation may well prove to be a good example for the world facing seismic changes today.
In fact, Tokyo’s strength may well be its ability to weather systemic change. Following the burst of the bubble economy in the early 1990s after three decades of dizzying growth, Japan saw the value of its asset prices plunge, GDP growth dwindle, real wages stagnate, and confidence tumble. Yet such drastic changes did not lead to massive layoffs or irreversible social unrest. To be sure, Japan’s experience of dealing with over-expansion and asset price inflation, and its ability to avert collapse and keep irreversible social fragmentation may well prove to be a good example for the world facing seismic changes today.
As Davos looks to redefine who is a stakeholder and how their voices may be better reflected in corporate governance, Asia’s experiences over the past decades may well provide some of the answers the global elite are looking for.
Follow Shihoko Goto, deputy director for geoeconomics and senior associate for Northeast Asia, on Twitter @GotoEastAsia.
The views expressed are the author's alone, and do not represent the views of the U.S. Government or the Wilson Center. Copyright 2019, Asia Program. All rights reserved.
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