World Economic Forum Annual Meeting 2006

WORLD ECONOMIC FORUM

Annual Meeting 2006

The Creative Imperative
Davos, Switzerland 25-29 January
INSIGHTS

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Contents

Preface 3

Foreword 4

The Emergence of China and India 7

The Changing Economic Landscape 10

New Mindsets and Changing Attitudes 14

Creating Future Jobs 16

Regional Identities and Struggles 18

Responding to Global Challenges 20

The Creative Imperative – Responses 23

Acknowledgements 25

1
World Economic Forum Annual Meeting 2006

Preface

The World Economic Forum Annual Meeting 2006 offered participants a great opportunity to
better understand those issues influencing society and business over the year ahead – and
beyond.

Starting from the premise that the world community is at a turning point given the pace of
change, the global nature of the challenges we face and the need for new responses, the
theme “The Creative Imperative” provided this Annual Meeting with a solutions-driven
impetus.

Participants discussed how the assumptions, tools and frameworks that business,
government and civil society leaders have employed to make decisions over the past decades
now appear inadequate. Be it to address income disparities, climate change, job creation or
to build design strategy in organizations, discussions centred on how leaders and their
institutions can adopt more collaborative approaches to resolving issues – and the need to
improve the capacity to adapt to a new emerging environment. Moreover, it was agreed that
to successfully meet the challenges we face will require greater emphasis on human
imagination, innovation and creativity.

Once again, the Meeting drew leaders from business, government, international institutions,
non-governmental organizations, universities and other communities. This year’s Meeting also
saw valuable and innovative contributions from a strong contingent of Young Global Leaders.
Together with our Members and Partners, we look forward to continuing to drive the Global
Agenda forward in a creative and constructive fashion, taking up the findings from Davos in
our regional meetings, through Forum initiatives and industry activities over the coming year.

Klaus Schwab
Founder and Executive Chairman

The Forum would once again like to take this opportunity to thank the Annual Meeting
Co-Chairs, each of whom provided invaluable support to the proceedings, bringing a
distinguished background in business and public service to the discussions. They were:

Mukesh D. Ambani, Chairman, Reliance Industries Limited, India
Peter Brabeck-Letmathe, Chairman and Chief Executive Officer, Nestlé, Switzerland;
Member of the Foundation Board of the World Economic Forum
Sir Martin Sorrell, Group Chief Executive, WPP, United Kingdom
Lawrence H. Summers, President, Harvard University, USA

3

Foreword – The Creative Imperative

“We need to remove obstacles. We have to open the windows; we have to breathe deeply the
fresh air. And we have to seize the opportunities.”
Angela Merkel, Federal Chancellor of Germany

The confluence of mood and world events, made discussions at this year’s Annual
Meeting even more focused than usual. With over 240 sessions covering eight sub-
themes and involving leaders from business, government, international
organizations and many other communities, participants sought to apply fresh
thinking to pressing global challenges.

The eight sub-themes of the Annual Meeting 2006 comprised five challenges and
three responses. The challenges include the Emergence of China and India, the
Challenging Economic Landscape, New Mindsets and Changing Attitudes, Creating
Future Jobs, and Regional Identities and Struggles. The responses include Building
Trust in Public and Private Institutions, Effective Leadership in Managing Global
Risks and Creativity, Design Strategy. In this foreword, we highlight key messages
emerging from participants on these eight sub-themes. Following this, we further
delve into each theme concerning each of the five challenges and then separately
consider the three responses.

The Emergence of China and India The Changing Economic Landscape

“The story has moved “Two things move the world, and
beyond GDP growth rates… two things move economies: hope
the emergence of China and and fear. In the short run in financial
India gives the world an markets I fear that we have too
opportunity to experiment much hope and too little fear.”
and make sure that there is Lawrence H. Summers, President,
equitable wealth Harvard University
generation.”
Given US influence on the
Mukesh D. Ambani, Chairman
global economy, its current
and Managing Director,
account deficit of 5.7% of
Reliance Industries Limited
GDP in 2004 or US$ 666
These two very billion, continues to concern
different, yet rapidly policy-makers in Washington DC and abroad.
growing countries face enormous challenges as China’s economy is still too small to counter a
they restructure and integrate their economies into possible US slowdown, and Europe and Japan,
the global system. For China to continue to grow it while perhaps improving, are currently too slow-
must expand domestic demand, reduce its reliance growing to drive the global economy forward.
on exports and foreign direct investment for growth Moreover, the major economies are struggling to
and further reform financial systems so consumers keep fiscal promises as their pension and healthcare
can spend some of their savings and privately held bills grow. Inequities in trade and increased
businesses can finance their growth. Consequently, competition for natural resources mean risk is rising
the government will need to find a balance between – especially to the environment. While the world
structural reforms, social equity and statist control. economy has proven resilient enough to absorb a
India continues to face poor infrastructure, sustained US$ 60 a barrel for oil, participants were
deregulation and bureaucratic corruption. It may be quick to agree, if prices rise further and stay high,
the “fastest growing free market democracy” the the effects will hurt.
world has ever known, but its leadership must
respond rapidly to create jobs and reduce income
disparities.
4


New Mindsets and Changing Attitudes The challenge for many countries is not only
what new jobs they create, but also how these
jobs translate into livelihoods. And with the total
“I have been seeking to
global workforce having doubled over the last
change … the mindset
five years, pressure on wages is likely to
that international
continue. So where are the jobs of the future?
relations are nothing
With fiscal budgets already stretched, they are
more than relations
unlikely to come from the public sector. But
between states, and the
policy-makers can play an important role in
United Nations is little
providing the environment for the private sector
more than a trade union
to create jobs. More generally, both developed
for governments.”
and developing countries will need to re-examine
Kofi Annan, Secretary-
education strategies to build the skills necessary
General, United Nations
for the future.
The 21st century will
be about managing the implications of a
shrinking yet more fragmented and complex Regional Identities and Struggles
world. Individual states have less influence than
in the past and are subject to the wider interests “The challenge that has
of regional or economic groupings. Institutional dominated the headlines
frameworks designed to respond to cold war is … a minority group of
threats are not appropriate to deal with global extremist Muslims who
warming, international terrorism or poverty have taken upon
reduction. Leaders themselves will need to learn themselves to distort
or re-learn skills if they are to drive organizations Islam in order to justify
to innovate and adopt new ideas. For policy- violent action… And I
makers in the developed and developing world think this has led the
the challenge will be to create educational Muslim world to a very
curricula that will provide today’s youth with the critical crossroads of
tools they will need tomorrow. self-evaluation and self-
definition and to really
look at what it is that we stand for. And this has led to a
Creating Future Jobs reaffirmation of the basic principles of Islam.”
H.M. Queen Rania of the Hashemite Kingdom of Jordan
“Cities like Shanghai are
Closing regional income gaps will require regional
saying, ‘We need 20,000
cooperation, coordination and compromise.
experts right now and if
Trade is key but targeted investment in
you can find them abroad,
infrastructure, education and easier access to
we’ll give them work
capital are also important concerns. But, without
permits’. They are doing
geopolitical stability, regional cooperation efforts
the first – that I’ve seen
will be hampered. The Hamas election victory
worldwide – rigorous
sparked reactions from many, though some saw
forecasting of skill
this as a moment to trigger change. However,
requirements and …
Iran, whose absence from the meeting served to
channelling people into the
accentuate the gravity of the current situation,
right vocational skill lines
drew most attention. Experts warned that,
for future requirements.”
whatever the outcome, the consequences for
David Arkless, Executive Board Member, Manpower
the region and the international community will
be significant.

5


And from Where Will Responses Come? “Do we need to worry? Of
course we need to worry ...
… Through Building Trust in Public and Private We know that terrorists are
Institutions highly sophisticated and are
interested in acquiring
“The unfortunate thing is nuclear weapons or nuclear
that companies haven’t material ... What you have to
done a good job of building do is simply to cross your
the [public’s] trust by fingers and prioritize.”
managing themselves in a Mohamed M. ElBaradei, Director-
positive way.” General, International Atomic
Michael E. Porter, Bishop Energy Agency
William Lawrence University
Professor, Harvard Business
School
… Through Innovation, Creativity and Design
Evidence shows public Strategy
disenchantment and
mistrust of institutions and business is growing. In “Today, if you don’t innovate,
the developing world, corruption and inefficiency you’re just going to die.”
threaten to overwhelm trust. In industrial countries, Barry S. Sternlicht, Chairman and
economic change spurs fears of a broken social Chief Executive Officer, Starwood
contract. If not addressed through truly collaborative Capital Group
solutions, global leaders face a potential political
backlash. Finally, the frameworks
and assumptions upon
which leaders in
… Through Effective Leadership in Managing business and
Global Risks government have long
depended to make
decisions are no longer
“The basic ingredient of a
adequate. The economic and political context in
leader, I personally feel, is
which businesses and government institutions seek
that he should never panic…
to compete or otherwise serve their constituents
whatever the problems,
has fundamentally altered; new models, new leaders
whatever the
and new mindsets are necessary. As the world
circumstances…”
reacts to a new emerging architecture and creativity
Pervez Musharraf, President of
increasingly drives the economy, tomorrow’s leading
Pakistan
companies and institutions will be those who seize
In a globalized world, the courage and capability to adapt.
risks cannot be dealt
with in isolation.
Despite increased
attention and some success in mitigating, if not
preventing calamity, new risk frameworks are still in
their infancy. Recent natural disasters in Asia or the
US and public concern about pandemics, are
further proof that today’s international institutions
and frameworks are not designed to respond to the
nature, or the frequency, of the risks that lie ahead.
What is clear is that the way in which organizations
mitigate, manage and respond to risk is a source of
differentiation.
6

The Emergence of China and India

“China cannot achieve
development in isolation of
the rest of the world, and
the world needs China for
development.”

Zeng Peiyan
Vice-Premier of the People’s
Republic of China

China and India are at inflection points in their Participants went beyond conventional wisdom to
development requiring them to sustain economic consider long-term problems for China and India
development, in particular to manage natural that require innovative solutions, namely the quality
resource consumption and environmental and sustainability of growth models, creating jobs,
degradation. maintaining stability, eradicating corruption and
better integrating into the global system.
• China is focusing more on stimulating domestic
demand and reducing its reliance on exports These issues are closely connected. Better
and foreign direct investment to drive growth. integration with the rest of the world will enable
both to achieve more balanced, diversified growth
• India must deal with structural problems such as and transform them into more efficient economies,
poor infrastructure, deregulation and more inclusive societies, and more responsible
bureaucratic tangles that could hamper its and responsive members of the international
ambitions to achieve growth at par with China. community. Adopting sustainable development
policies to promote social equity, a cleaner
• Retail and manufacturing sectors are in need of environment and economic stability will naturally
attention. deepen their integration with the global economy.
“China cannot achieve development in isolation of
• Failure to address obstacles to sustainability, the rest of the world, and the world needs China
stability and global integration will not only set for development,” said China’s Vice-Premier Zeng
China and India back but will also aggravate Peiyan. His statement could equally apply to India.
global imbalances.
Comparing China and India, however, pits apples
against oranges. Yes, they have similarities, but
That China and India have emerged as drivers of there are even more crucial differences that are
global growth is nothing new. These economies widely recognized – the makeup of their
each with one-billion-plus populations are set to economies; depth of integration with global supply
grow by over 6% and 8% a year respectively for chains; share of global trade, notably exports (see
the near to medium term. China is already an Figure 1); and workforce skill levels, not to mention
integral part of the global supply chain; India has obvious and significant divergences in their political
become a dominant player in outsourcing services. system, rule of law, infrastructure and level of
development.

7


Figure 1: China and India Exports to the Rest of the World
US$ TN US$ TN

Source: Thomson Datastream

In China, domestic consumption must increase; The complacent and fearless may cling to one-
China must lower its reliance on exports and dimensional high-growth stories. But it is time to
foreign direct investment (FDI) to drive growth. take in the bigger picture. The tricky shifts that
Chinese officials including Vice-Premier Zeng China and India are trying to pull off as they
emphasized that the new five-year plan to be implement complex reforms will prove more
approved in March should set a “moderate” painful than anything they have so far achieved.
growth target of 8% to allow for greater focus on Turning an economy driven by exports and FDI
social programmes and initiatives for sustainable into a consumption-led one cannot be easy for a
development. society still nominally steeped in central planning.
Moreover, China must create a system of
India’s delegation delivered its own stark rationally allocating finance (i.e. reform the
message: While India has arrived on the world banking system) so long constrained by political
stage, it has a raft of urgent problems to tackle, interference. As Morgan Stanley Chief Economist
including poor infrastructure, widespread poverty Stephen Roach said, “switching from an
and widening income disparities particularly investment-led economy to a consumer-led one
between urban and rural areas, limited is more art than science. A consumer culture is
manufacturing capabilities and deficiencies in the DNA of market-based capitalism and this is
education. The self-styled “fastest growing free not in the experience set of China’s
market democracy in the world” is proving that macroeconomic managers.”
pluralism and growth are compatible. While China must balance bold structural
“Democracy is going to be a source of reforms with statist controls to avoid destabilizing
competitive advantage for us,” predicted Nandan social tensions, India inches forward gingerly, its
M. Nilekani, President, Chief Executive Officer revolutionary reform ambitions tempered by a
and Managing Director, Infosys Technologies. much admired, yet constraining devotion to
Indian Minister of Commerce and Industry Kamal democracy and social heritage. Bridging
Nath added: “As the world’s perception of India significant gaps of poverty, empowering women
changes, India’s perception of itself changes. through education and addressing infrastructure
The Indian electorate is realizing more and more deficiency are enormous tasks that lie ahead.
that a more liberalized economy is what is driving
growth.”

8


“As the world’s perception
of India changes, India’s
perception of itself
changes. The Indian
electorate is realizing more
and more that a more
liberalized economy is
what is driving growth.”

Kamal Nath
Minister of Commerce and
Industry of India

All this suggests that China and India could each rights including intellectual property protection
hit a wall, forcing them to scramble to generate through available legal channels, adhering to
new models of growth. And in the case of China, transparent and ethical conduct, and requiring
we need no reminders that not a single country the same of partners and contractors. The
in the post-World War II period has undertaken leaderships of both countries are struggling to
banking reform the likes of which China is stay far enough ahead on the reform curve to
attempting absent a significant financial crisis. prevent human resources and infrastructure
There are many plausible negative scenarios: constraints from damaging critical labour cost
rising protectionism stemming from advantages.
disillusionment with multilateral trade
negotiations, social tensions resulting from rising China and India’s developments are unparalleled
expectations and uneven development, disputes transitions with profound consequences and
with rivals over natural resources, diplomatic opportunities for the world at large. Conditions
friction over ties to potentially destabilizing change quickly; objectives once considered
regimes such as Iran, and falling FDI due to incongruent can swiftly turn into complements.
frustration with the shaky rule of law and thin Environmental protection and economic growth
profit margins in China or India’s infrastructure are a prime example. As US architect William
deficiencies and bureaucratic bottlenecks. McDonough, Chairman, William McDonough +
Partners Architecture and Community Design /
Business must consider the implications of the MBDC, who is designing cutting edge eco-
transformations underway and adopt risk friendly cities in China, concluded: “The Chinese
strategies accordingly. At the same time, have the ability to go to scale with velocity.”
Chinese companies are venturing overseas to While India may move more slowly, its impact on
acquire management expertise, technology and the global economy is likely to be as great as
brand-building savvy to apply them at home. China’s, particularly as life sciences and other
Boardrooms in Europe and the US are having to services are outsourced to India. As many
consider new potential emerging competition. participants put it, as go China and India, so
goes the world.
Chinese and, to a lesser extent, Indian firms are
building resource supply networks and strategic
business relationships in Africa, Latin America
and other emerging markets. Global companies
that source products from China and India are
beginning to apply environmental best practices
standards to suppliers. Companies are bolstering
the rule of law by asserting their commercial

9

The Changing Economic Landscape

• The global economy is beset with inefficiencies news for the penguins and, it turns out, for
and imbalances that threaten to derail growth humans too: thanks to overfishing in the world’s
and halt efforts to bring prosperity to the oceans, mankind has moved right down to the
world’s poorest corners. bottom of the food chain to harvest krill
alongside the seals.
• Massive US deficits and yawning Asian
surpluses, inequities in trade and the The same inefficiencies and imbalances that
increasingly heated race for natural resources economists say imperil trade and markets are
pose risks. hastening the depletion of natural resources and
environmental destruction. These imbalances
• The brunt of these imbalances, however, is have so far not derailed global economic growth,
being borne by the environment, which looms but the slow destruction of our own habitat
above all else as a risk to the well-being of the belies the conclusion that the situation is
planet. sustainable.

No one drills for oil or assembles iPods at the The most fundamental imbalance has long been
South Pole. But evidence that the global the disparity of wealth between developed
economy is dangerously out of kilter can be nations and undeveloped nations. This disparity
found swimming under the ice nearby. There in is being slowly reduced now in what some call
the frigid Antarctic seawater, tiny shrimp-like the most dramatic shift of wealth ever witnessed.
crustaceans – called krill – eke out an existence While erosion of Socialist orthodoxy catalysed
eating plankton and algae until they are eaten by the re-emergence of China and India, their
seabirds, whales and other animals. Global impact stems largely from their massive ranks of
warming is melting polar ice and reducing the young workers, which have helped double the
krill’s habitat, causing by some estimates a 90% global workforce since 1990. But discrimination
drop in krill populations in the past 20 years. Bad against women in both nations has helped give

10


rise to vast gender disparities that are deepening
emerging shortages of skilled labour. “In the
developing world, there are 100 million women
‘missing’,” said Lawrence H. Summers,
President, Harvard University, USA; Co-Chair of
the Annual Meeting 2006. The developed
economies, by contrast, face increasingly aged,
unproductive populations.

Persistently high demand for consumer products
in the US and Europe has enabled developing
economies such as China to use manufactured
exports as an engine of growth. The emerging
skilled labour shortages in China and India have
largely dispelled fears that they would export
deflation. Instead, a potentially precipitous
paradox has emerged in which the developing
nations of Asia finance consumption of their
exports by the world’s richest nation.

Asian purchases of US government bonds
enable the US to run an ever-widening trade
deficit, consuming more than is financially sound,
Min Zhu, Executive Assistant President, Bank of China; Laura D. Tyson, Dean,
without depreciation of the dollar or significantly
London Business School; Peter Gumbel, Senior Writer, Business, Time
higher inflation. US debt is rising close to 50% of
Magazine; Michael J. Elliott, Editor, Time International; Stephen S. Roach, Chief
Economist, Morgan Stanley; and Jacob A. Frenkel, Vice-Chairman, American
GDP (See Figure 2), with US savings rates at
International Group (AIG), during the session “Update 2006: Global Economy”
their lowest since the Great Depression.

Figure 2: US Debt and Budget Balance

Source: Thomson Datastream

11


This artificial support for US deficits fuels asset- With the dollar artificially overvalued and global
price inflation, particularly housing prices. US inflation kept low, the world is flush with cash.
housing prices and those around the globe have Interest rates paid by borrowers once
risen sharply, by 85% since 1997 (see Figure 3) considered relatively risky compared to
leading some commentators to believe this is the governments are historically low, making it
largest bubble in history. harder for investors to earn the kind of returns
needed to finance the world’s growing pension
Economists say rising home values are largely liabilities.
behind the illusion of wealth that inspires US
consumers to spend more than they earn. Many
predict that housing prices may stop rising soon,
which could chill US consumer demand for
Asian exports.

Figure 3: Global House Price Rises (1997-2005)
Percentages

Source: The Economist

12


“Consider the dynamic ”It’s actually an economic
that 73% of tariffs paid necessity, if we’re going to
by developing countries have enough capacity on
are paid to other earth to give China and
developing countries.” India and other countries
the growth which they
Peter Mandelson rightfully claim is theirs.”
Commissioner, Trade,
European Commission William J. Clinton
Founder, William Jefferson
Clinton Foundation; President
of the United States (1993-
2001)

Growing trade imbalances also increase the risk Policy-makers need to take steps to redress
that politicians will grasp for protectionist these imbalances. In particular, prices for goods
solutions and halt efforts to make trade fairer and services should reflect their real cost, not
through the World Trade Organization. Tariffs only in terms of labour and capital, but also their
designed to protect agriculture in Europe and the impact on natural resources and the
US hinder the ability of developing nations to environment. “It’s actually an economic
export their way out of poverty. But not all such necessity,” said William J. Clinton, Founder,
barriers are from developed countries. “Consider William Jefferson Clinton Foundation; President
the dynamic that 73% of tariffs paid by of the United States (1993-2001). “If we’re going
developing countries are paid to other to have enough capacity on earth to give China
developing countries,” said Peter Mandelson, and India and other countries the growth which
Commissioner, Trade, European Commission, they rightfully claim is theirs, and revive the
Brussels. American economy, and provide an opportunity
for Europe to continue to grow and prosper, I
Aside from feeding extremism, such inequities in think we have to deal with [preserving the
global trade distort the cost of resources. Tariffs environment].”
and subsidies encourage the wasteful use of
land, water and oil.

Oil, and our over-reliance on it as our principle
source of energy, remains a problem. With China
and India leading a new surge in demand, the
global economy is susceptible to shocks such as
those triggered by the terrorist attack on gas
pipelines in Georgia, or Hurricane Katrina.

13

New Mindsets and Changing Attitudes

programmes to encourage tolerance and diversity
“Adaptation of technology,
along with economic and prevent growing extremism that can lead to
growth and education, is
terrorism. Besides, economies that aim for a fully
one of the essential
functioning modern democracy will need to foster
components of
critical thinking, knowledge of the market economy,
modernism.”
gender acceptance and racial diversity. More
Hamid Karzai
focused education programmes will make such
President of Afghanistan
attributes more likely, especially if combined with the
intelligent use of technology.

“Adaptation of technology, along with economic
growth and education, is one of the essential
• With technology advancing rapidly and components of modernism”, said Hamid Karzai,
globalization a fact of life, “new mindsets” President of Afghanistan. But new technology also
inevitably collide with old ways of thinking. poses critical challenges for businesses and
Government, business and civil society all play a governments alike. Will these new technologies
role in ensuring that these new mindsets bring the advance accountability, destroy privacy, or both?
greatest good to the greatest number of people. How will old brands weather the storm of new
media?
• The most critical goals involve fortifying and
expanding educational systems to spread the In the fields of marketing and news media, the
benefits of growth and to stem extremism, Internet has been nothing short of a sea change.
harnessing new technologies to solve old Consumers of news, an essential pillar of a
problems – particularly poverty, unaccountability of
public and private sector officials, and health
crises – and creating constructive synergy
between governments, NGOs and businesses.

Expanding education to benefit the largest number
of people remains a critical challenge. Participants
voted a “global educational framework that fosters
inclusivity” – a priority for several well-established
reasons. For example, educated societies tend to
be more productive, rich and happy. As Jiro
Nemoto, Honorary Chairman, Nippon Yusen
Kabushiki Kaisha, Japan put it, “Human
development must be the foundation for economic
development.” Educated societies also tend to be
healthier; combating ignorance – in the form of
testing and information on prevention – is an
essential weapon in the fight against diseases such
as HIV/AIDS.

However, participants also recognized that in
today’s society, education is important to tackle
some of the world’s more pressing issues, like
extremism. For example, many understand that
generally exchanging knowledge prevents ignorance
and alienation. Nations with significant immigrant
populations or large ethnic, religious or linguistic
sub-communities need proactive education
14

New Mindsets and Changing Attitudes

functioning democracy, increasingly rely on blogs or Breaking down the barriers between governments,
online versions of print newspapers. Many in the NGOs and businesses holds the potential to foster
media expressed concern that such trends would cooperation and growth within and between
mean the erosion of responsible journalism, but nations. “My objective has been to persuade both
publishers such as Arthur Sulzberger Jr, Chairman the member states and my colleagues in the
and Publisher, The New York Times, USA, Secretariat that the United Nations needs to engage
expressed guarded optimism “that the need and not only with governments, but with people,” said
desire for quality, trustworthy journalism would keep Kofi Annan, Secretary-General, United Nations, New
the old media brands afloat.” But change is York.
undeniable. “The consumer has been empowered,”
said Frederick Kempe, Assistant Managing Editor How private-public engagements occur remains an
and Columnist, Wall Street Journal, USA, “the essential question. Generally, business is better than
Internet is a democratizing force.” government at changing the behaviour of
individuals. “Where there is opportunity for more
Privacy issues such as ID theft and government profit,” said Bill Owens, Governor of Colorado, USA,
intrusion loom large, and striking the right balance “companies are increasingly moving towards what is
between regulation and freedom will be a critical good for the public.” The role of government in
challenge in the next decade. But with new balancing business interests with those of the nation
problems also comes new opportunities. is a tendentious issue as was demonstrated by the
Technology, like education, is vital to the war on CNOOC Limited bid to acquire Unocal Corporation,
terror, as it can facilitate the collection and sharing and the American political climate which sunk the
of information among nations and international deal.
security organizations.

Christopher Murray, Director, Global Health Initiative, Harvard University; Jens Stoltenberg, Prime Minister of Norway; William H. Gates III,
Chairman and Chief Software Architect, Microsoft Corporation; Gordon Brown, Chancellor of the Exchequer of the United Kingdom;
Olusegun Obasanjo, President of Nigeria; Fareed Zakaria, Editor, Newsweek International; Giulio Tremonti, Vice-President of the Council
of Ministers and Minister of Economy and Finance of Italy, during the session “Not Gone, but Almost Forgotten”

15

Creating Future Jobs

“In my 30 years “The focus is on training
experience I have never people to be adaptable,
seen such an incredible flexible and able to
shortage of talented change quickly with the
people – whether it is in times, because it is
Germany, Brazil, China, impossible to predict what
India or Kansas.” we will need in the
future.”
Samuel A. DiPiazza Jr
Global Chief Executive Officer, Nandan M. Nilekani
PricewaterhouseCoopers President, Chief Executive
Officer and Managing Director,
Infosys Technologies

• Hundreds of millions of new jobs will be Business in the developed and developing world
needed over the next 20 years to avoid could not face more divergent labour markets.
massive increases in global unemployment. “In developed countries, the question is not
where the jobs will come from but where will the
• This requires new attitudes towards supporting workers come from,” said Donald J. Johnston,
innovation, entrepreneurship, risk taking and Secretary-General, Organisation for Economic
encouraging creativity. Co-operation and Development (OECD), Paris.
Min Zhu, Executive Assistant President, Bank of
• The ability to start a business will need to be China, People’s Republic of China, has no such
made much simpler, quicker and cheaper in problem: “We have to understand that labour is
many countries and the benefits of a resource not a burden. So it is labour-intensive
entrepreneurship widely publicized and taught manufacturing which makes China a
formally. powerhouse in the world with a 10% growth
rate.”
• Numerous educational systems will need to be
restructured if they are to meet future skill In developed countries with ageing populations
requirements and must include broad-based there will clearly be a boom in healthcare
skills so that future workers find it far easier to employment. Companies which understand the
switch between different occupations. added consequences, such as a sharp boost in
the number of people who are time rich and
cash poor, will be able to create further jobs.
A time bomb relating to work is ticking. “The implications of people getting older means
Registered world unemployment reached 187.7 a complete shift in consumerism as people will
million in 2004, according to the International buy differently,” insisted Sir Digby Jones,
Labour Organization. Over 80 million new jobs Director-General, Confederation of British
will be needed by 2020 to keep the Arab world Industry (CBI), United Kingdom. “Where they go,
alone at its current level of 16% unemployment. the need to heat their homes more, and they will
The entry of so many workers into the global want to pay lower prices.”
market economy will have a dramatic effect on
the worldwide ratio of labour to capital with a Businesses in the Middle East, however, will only
consequent downward pressure on wages. This be able to start creating the work needed by
situation can be expected to last for at least 25 tens of millions of Arab youths if, at the very
years and will require fresh, collaborative ideas to least, there is a far greater regional openness in
provide solutions. the trade of goods, services and labour. Ahmed
Mahmoud Nazif, Prime Minister of Egypt, for

16

Creating Future Jobs

example, needs to create 750,000 jobs a year to country’s regulations, the availability of funding,
keep unemployment at the same levels. “Part of employment, taxation, and the time and cost of
the answer is related to growth, particularly in starting a new business. Crucially policy-makers
tourism which is important to Egypt and creates should also emphasize the importance of
more jobs than industry.” changing mindsets in those countries where
entrepreneurial failure is considered
For much of commerce, the way to create new unacceptable and which effectively disqualify risk
jobs is globalization, although this is being takers from making further attempts.
restricted by skill shortages at the white collar
level. “In my 30 years experience I have never Educational systems in many countries need
seen such an incredible shortage of talented overhauling to overcome a fundamental
people – whether it is in Germany, Brazil, China, mismatch between the skills taught and the
India or Kansas,” said Samuel A. DiPiazza Jr, future skills needed. This disparity is increased in
Global Chief Executive Officer, developed countries by students’ perceptions of
PricewaterhouseCoopers, USA. “There is this what constitute worthwhile occupations. “We
war for talent and we are not just talking about have to persuade children that, in the future,
the top 5%. It is an issue even in countries with getting a vocational degree will be as important
good population growth and education.” as getting a university qualification,” insisted
David Arkless, Executive Board Member,
These skill shortages need to be tackled with Manpower, USA. “We need electricians,
increased efforts by business to release plumbers, infrastructure workers and higher-level
underutilized assets into the labour market production workers. We have to make these
through improved childcare services, wage sorts of jobs, which make cities work, look
equality and greater education opportunities. valuable and feel valuable.”
”We do not have enough urgency about
innovation,” declared Ben J. Verwaayen, Chief At the same time, educational systems will need
Executive Officer, BT, United Kingdom, “not in to become more broad-based so that people
the R&D sense, but in terms of job creation, find it easier to switch between jobs. “Trying to
getting women involved, getting minorities plan for specific shortages in the long term is not
involved.” The success of such initiatives can that useful,” declared Jagdish Bhagwati,
provide further new opportunities for Professor, Columbia University, USA.
employment as unpaid work becomes paid “Uncertainty comes in no matter how hard you
work. “In Scandinavia so many of the workforce try. You can only make broad statements like skill
are now in employment that a lot of housework shortages will happen.” This is also the view of
has effectively become paid work as others are Nandan M. Nilekani, President, Chief Executive
paid to do it,” said Neil Kearney, General Officer and Managing Director, Infosys
Secretary, International Textile, Garment and Technologies, India, who finds that college
Leather Workers’ Federation, Brussels. recruits do not have the right skills. “We have our
own finishing school to get them ready for our
Creating new jobs that are needed on the business. The focus is on training people to be
massive scale means that most will have to adaptable, flexible and able to change quickly
come from the private sector and will require a with the times, because it is impossible to
fundamental change in attitude to business and predict what we will need in the future.”
public sector support for innovation,
entrepreneurship and risk taking. Indices of Equally important is that educational systems
competitiveness, which look at the cost and recognize that 85% of job skills are not specific
difficulties of starting a business in various to a particular task but include work habits,
countries, should be expanded and used to project management, teamwork, communication,
praise the best and “name and shame” the time management and punctuality.
worst nations while examining in depth each

17

Regional Identities and Struggles

“Right now, no one “Regionalism is the right
knows if Iran is trying to way forward for the
cross the weapons mutually-beneficial
threshold.” advance of the states
involved, as the EU and
Kenneth M. Pollack ASEAN have showed.”
Director of Research, Saban
Center for Middle East Policy, Pervez Musharraf
The Brookings Institution President of Pakistan

• Empowering poorer countries to close the argued Lawrence H. Summers, President,
income gap with the rich, thus boosting their Harvard University, USA; Co-Chair of the Annual
potential as consumer markets, is in the long- Meeting 2006.
term interests of industrialized nations.
Regional cooperation agreements, targeted Formal regional agreements on trade, like
infrastructure investment, easier access to NAFTA, and political-commercial pacts
capital and removing farm subsidies in the underpinning groupings like the EU and ASEAN,
richer nations can help achieve this end. have raised living standards in their member
states. However, non-formal cooperation
• Iran’s nuclear ambitions are the biggest between countries through free movement of
immediate concern for the international capital and goods are achieving similar ends.
community in the Middle East region, “Regionalism is the right way forward for the
overshadowing Iraq and the Israel-Palestine mutually-beneficial advance of the states
conflict despite the election victory of Hamas. involved, as the EU and ASEAN have showed,”
While there is no consensus on whether said President Pervez Musharraf of Pakistan.
Tehran really wants nuclear weaponry, high-
pressure diplomacy is the only effective way to Helping Africa, and other poorer regions, to help
handle the issue. A military attack would be themselves by developing infrastructure can be
dangerously counterproductive for the West. inspiring. “Making money and doing real cool
stuff at the same time is a magical formula.
Business needs to talk less and do more,”
Despite the fact that hundreds of millions have commented Hugh Grant, Chairman, President
been lifted out of abject poverty over the past and Chief Executive Officer, Monsanto Company,
decades, income disparities between world USA. “There are a billion people who cannot be
regions and within nations are growing. “Global business consumers unless they are helped to
imbalances are deepening, and that has serious climb out of poverty,” argued Antony Burgmans,
consequences for developing countries like Chairman, Unilever, Netherlands. But as
India,” warns Palaniappan Chidambaram, Chidambaram warned, “Developed countries
Minister of Finance of India. Yet, it is in the longer must show much more concern for the capital
term interests of the richer powers, and their requirements of developing countries.”
business communities, to narrow the divide and Certainly, business can more actively press major
help create populations of consumers within the governments to remove trade barriers with
poorer countries rather than see armies of the poorer countries, and especially to remove farm
desperate surging across borders in the hope of subsidies. Africa “can only grow when it is
finding a better life. “The integration of the four- allowed to trade freely and openly and fairly. That
fifths of the world that is poor with the one-fifth means these trade-distorting subsidies must be
that is wealthy has the potential to be one of the removed by 2010,” said Niall Fitzgerald,
two or three most important economic Chairman, Reuters, United Kingdom; Member of
developments of the past millennium, along with the Foundation Board of the World Economic
the Renaissance and the Industrial Revolution,” Forum.
18

Regional Identities and Struggles

Jack Straw, Secretary of State for Foreign and Commonwealth Affairs of the United Kingdom; Barham Salih, Minister of Planning and Development
Cooperation of Iraq; Ahmed Chalabi, Deputy Prime Minister of Iraq; Robert B. Zoellick, US Deputy Secretary of State; Hajim Alhasani, President of the
Iraq National Assembly; John McCain, Senator from Arizona (Republican), USA; Sheikh Hamam Hammoudi, President, Constitutional Drafting Council,
Iraq; and Amre Moussa, Secretary-General, League of Arab States, during the session “What Is at Stake in Iraq?”

But the greatest will in the world to remove trade There is consensus that the response should be
barriers will fail if the global geopolitical “carrot-and-stick” diplomacy. However, the West
environment remains volatile. The West’s nuclear may have to make more generous offers –
stand-off with Iran bears the seeds of a grave including economic cooperation that involves
crisis affecting much of the world. If Tehran halts investment and trade – to persuade Tehran to
oil exports, or they are halted by Western military play ball. Richard N. Haass, President, Council
action, prices will likely soar well beyond their on Foreign Relations, USA, said: “I don’t see that
current highs and the repercussion on key there is enough on the (negotiating) table at the
Western economies, and global markets, will be moment.”
dramatic.
Certainly, there is little enthusiasm for an attack
The real aims of Iran’s nuclear programme are on Iran’s nuclear centres. A common view is that
unclear. One view is that serious economic this would spark a huge geopolitical crisis in the
problems and a rapidly growing population are region and far beyond, and only delay Iranian
pushing it towards diversifying its energy arms development while pushing the population
resources. Others think differently. “Right now, to more radical political positions.
no one knows if Iran is trying to cross the
weapons threshold,” said Kenneth M. Pollack, The electoral victory by Hamas, seen as linked to
Director of Research, Saban Center for Middle Iran and viewed officially as a terrorist
East Policy, The Brookings Institution, USA. “But organization by many Western governments,
it is prudent to believe that they are developing a adds a further complicating factor. Should the
nuclear weapons capacity,” said Jack Straw, reaction of the West be to isolate or engage?
Secretary of State for Foreign and “We all have a difficult time managing risk. We
Commonwealth Affairs of the United Kingdom. live in a polarized world in which the risks have
“There is no threat (to Iran) from anyone in that increased colossally,” said 2005 Nobel Peace
region,” argued Saxby Chambliss, Senator from Prize winner Mohamed M. ElBaradei, Director-
Georgia (Republican), USA. Motivation for any General, International Atomic Energy Agency,
weapon development could therefore only be Vienna. “If you fix the Middle East, North Korea
offensive. and South Asia, you would fix 90% of our
problems.”

19

Responding to Global Challenges

Responding to the five challenges that were the The Three Responses
focus of the Annual Meeting 2006 will require global
policy-makers and stakeholders to develop Describing the specific policies required to manage
solutions in three broad, interrelated areas: these forces of change is a task of almost hopeless
complexity. However, the agenda for this year’s
Annual Meeting reflected an assumption that global
Rebuilding trust in public and private leaders must articulate and implement policy
institutions: In virtually every region and responses in three broad areas:
country, opinion surveys reveal declining
public confidence in governments, • Rebuilding trust in public and private institutions:
corporations and multinational There is growing awareness among elites and
organizations. publics alike that the institutions of the post-World
War II order – national governments, multinational
corporations, international organizations – no
Effective leadership in managing longer function well. In the developing world,
global risks: New mechanisms need to corruption and inefficiency threaten to overwhelm
identify and – where possible – mitigate trust (and institutions) altogether. In the industrial
threats such as terrorism, environmental countries, economic change spurs fears of a
degradation, natural disaster and broken social contract. Unless these trends are
economic instability. reversed, global leaders face the prospect of a
political backlash that could wreck decades of
prosperity, integration and global accommodation.
Innovation, creativity and design
strategy: The obsolescence of many • Effective leadership in managing global risks:
20th century structures compels leaders Theory holds that as markets become more
to develop fresh concepts, new flexible and barriers reduce, economic systems
institutional models and more flexible gain stability. However, unwise policies or
processes for serving diverse incomplete adjustments can produce unexpected
populations. volatility. Likewise, modern infrastructures offer
unparalleled speed and convenience – but may be
While all three responses are crucial, the last one vulnerable to terrorism or natural disaster. Leaders
may hold the key to the first two. Numerous must improve early warning systems, and develop
sessions and workshops highlighted the need to better tools for defining, controlling and – not least
reward innovation, encourage unconventional – allocating risk.
thinking and promote cultural cross-fertilization in
every region and at every level of society. • Innovation, creativity and design strategy: In a
“flat” world – one approximating the textbook
Change – both sweeping and fundamental – definition of market efficiency – constant
appears to be the one constant as the world moves innovation is the only guarantee of competitive
deeper into the 21st century. Political, corporate advantage. This applies as much to institutional
and social leaders no longer have the option (if they cultures and structures as to new technologies
ever did) of relying on inertia and habit to carry them and products. But the sources of innovation are
through the currents of global integration. They not well understood and financial markets are
must respond – often in real time – to powerful often unprepared to reward long-term innovation
forces that cut not just across national borders, but strategies as opposed to short-term gain. This
across cultures, markets and technologies. position requires leaders to experiment boldly with
incentives and work life arrangements.

20


To avoid being trapped in a zero sum game,
“But the process [of global
companies and societies alike will need to use
integration] doesn’t have to
their increased productivity to create new
be smooth. Along with
integration we face the risk products, anticipate new needs, new markets,
of disintegration – failed new technologies and – most of all – new jobs to
states, struggling middle
replace those that have been lost. Populations
classes caught in binds
that until now have been excluded from the
everywhere. These forces
progress of globalization – or made more
are of equal importance.”
vulnerable by it – will need to be brought into the
Lawrence H. Summers
mainstream, in ways that respect their human
President, Harvard University
dignity and worth. “We won’t have a creative
and flourishing world without bringing everyone
into the global economy,” contended Jacqueline
These key themes become vital when Novogratz, Founder and Chief Executive Officer,
considering the growing importance of the Acumen Fund, USA.
world’s great cities as incubators for innovation,
or creating new markets for pricing and trading However, such ambitions can only be realized if
insurance risks – including personal economic existing leadership institutions – the massive
risks such as unemployment or loss of income. public and private bureaucracies inherited from
This gives rise to growing awareness that the hierarchical 20th century – can be renovated.
globalization has reached a crossroads, one that Here, too, though, progress is being made, albeit
could determine whether the integration process often too slowly (see Figure 4). Daniel Vasella,
continues, or gives way to a new era of regional Chairman and Chief Executive Officer, Novartis,
fragmentation and conflict. Switzerland, noted the growing consensus in the
corporate world on the need for greater
“But the process [of global integration] doesn’t transparency and accountability. Now business
have to be smooth. Along with integration we leaders need to take that message to their
face the risk of disintegration – failed states, employees, shareholders and customers. “We
struggling middle classes caught in binds need to make an effort to communicate what we
everywhere. These forces are of equal do and how we do it,” he said.
importance,” noted Lawrence H. Summers,
President, Harvard University, USA; Co-Chair of Figure 4: Trust in Institutions
the Annual Meeting 2006.
Trust
The Next Wave

Until now, globalization has been about
economic efficiency – expanding trade, slashing
labour costs and maximizing comparative
advantage through the creation of global
production chains. These strategies, however,
have reached the point of diminishing returns Distrust

and “knowledge” is rapidly becoming a
commodity. Cost efficiencies are now easily
replicable, meaning they provide no lasting
advantage. They have become a necessary, but Average of 14 Tracking countries - based on a global public opinion poll involving a
not sufficient, condition for success. total of 20,791 interviews conducted between June and August 2005

21


A World of Opportunities also to inhabitants of the informal shanty towns that
surround it. “We wanted the poor to see that we
It would be a mistake, however, to view the next were building the nicest public buildings in the
phase simply in terms of risks and looming crises. poorest neighbourhoods,” he explained. “The
Tremendous opportunities are also on the horizon – message we are trying to send is that there is
not least for the global business community. For hope.”
example, the demand for environmentally-sensitive,
energy-efficient products and services: While some Can the creative imperative win the race with the
anxiously watch the rise of China and foresee a spectres of political disintegration, economic
resource catastrophe, architects, engineers and dislocation and ecological collapse? Thinkers have
urban planners are already at work designing the been arguing the question at least since Thomas
Chinese cities of tomorrow, featuring rooftop farms, Malthus and David Ricardo debated the future of
sewage treatment plants that produce more energy the industrial revolution. There is no guarantee that
than they consume and the construction of solar mankind’s ingenuity will continue to trump its knack
power collectors on a massive scale. “We believe it for self-destructive behaviour. But given the
is possible to create a virtuous cycle in both our innovative thinking on display at this year’s Annual
ecological and our social systems,” said William Meeting, it still looks like the smart bet.
McDonough, Chairman, William McDonough +
Partners Architecture and Community Design /
MBDC, USA.

Likewise, the problems of poverty and
marginalization, while formidable, are not deterring
local leaders from inventing – or emulating –
solutions. Sergio Fajardo Valderrama, Mayor of
Medellin, Columbia, explained how his city is
delivering educational and cultural services to the
poor, following trailblazing urban planning efforts in
the Brazilian city of Curitiba. Medellin, he noted,
recently built five large cultural complexes on the
outskirts of the city, each combining a public library,
an outdoor movie theatre and a public park. These
centres are accessible not only to city residents, but

22

The Creative Imperative – Responses

“... it's important for you, as “The Forum is here to help us
business leaders, to say where to find out what the main
do you think the responsibility issues are and then it is up to
lies? Perhaps the responsibility us to act individually.”
for education and training lies
with the government. What Peter Brabeck-Letmathe
Chairman and Chief Executive
about the responsibility for
Officer, Nestlé
pensions and healthcare?
What about the responsibility
of paying a living wage?”

Laura D. Tyson
Dean, London Business School

This year at the Annual Meeting 2006, of knowledge sharing through discussion helped
participants prioritized 11 questions during the launch new initiatives and expanded current
Big Debate. They continued to gather ones to continue addressing some of the world’s
knowledge, opinions and data during 240 most pressing issues and further will help shape
sessions, including the CEO series, and the agenda for the Forum’s regional and industry
culminated in a targeted workshop to consider events during 2006.
the priorities for the coming year. This vast array

23

The Creative Imperative – Responses

The World Economic Forum Annual Meeting 2006
Recommendations from the Annual
closed with participants supporting the project
Meeting:
expansions in health, education, hunger and
public-private partnerships as well as
• Prepare for future jobs: Realign the global
recommending broad action areas that private and
education system to meet future demand
public institutions should undertake.
for skill sets, particularly in vocational
occupations
1. Health Initiative launches global Stop TB
campaign
• Restore balance in the global economy:
The Forum’s Global Health Initiative helps
Develop policies for greater savings in the
companies design workplace health programmes
US and consumption-led growth in China
for prevention and treatment of HIV/AIDS, TB and
malaria. Having reached over 10 million employees
• Sustain growth in China and India: Build
with such programmes, the initiative continues to
support for business education and
expand efforts to assist companies extend
entrepreneurship
programmes throughout their supply chains,
targeting rapidly growing economies like China
• Protect the environment through better
and India. During the Annual Meeting, the global
resource management: Expand water
Stop TB campaign was launched with US$ 1.2
management initiatives to address urban
billion committed by core partners.
and agricultural use, especially in
developing markets
2. Global Education Initiative expands to
Palestinian Territories and Egypt
• Mitigate the impact of an increasingly fluid
The Global Education Initiative launches
labour market: Improve social security
collaborative public-private partnerships to
when changing jobs
improve education systems. In Jordan, with the
direct support of the King and Queen, it has
• Manage disruption: Develop models to
engaged over 45 public and private partners to
design, build and implement more quickly
transform curricula, teaching and IT infrastructure
for 50,000 schoolchildren. The programme is now
underway in Rajasthan, focusing on 100 girls’
schools, and during the Annual Meeting work was
initiated in the Palestinian Authority and Egypt.

3. Disaster relief platform formed
Following the major natural disasters of 2005, the
Forum was asked to serve as a major platform for
engaging private sector support for relief efforts,
building on and expanding its Disaster Resource
Network through planning that took place at the
Annual Meeting.

4. New Hunger Initiative launched
Under the leadership of the Forum’s food and
beverage company members, business and public
leaders developed a business-led action plan to
help reduce hunger in Africa and discussed it with
UN Secretary-General Kofi Annan. The group has
recommended that the Forum serve as a platform
for putting this plan into action during 2006.

24

World Economic Forum Annual Meeting 2006

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