Klaus Schwab 2013-05-22T22:05:19-04:00 Klaus Schwab http://www.huffingtonpost.com/author/index.php?author=klaus-schwab Copyright 2008, HuffingtonPost.com, Inc. HuffingtonPost Blogger Feed for Klaus Schwab Good old fashioned elbow grease. The Re-emergence of Europe: Rebuilding Europe's Global Brand tag:www.huffingtonpost.com,2013:/theblog//3.2489831 2013-01-21T08:01:30-05:00 2013-03-23T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ At a time when Europe seems divided, lacking vision and, according to some pundits, on the point of collapse, how can we reignite that shared vision and enthusiasm its founders had? How can we rebuild Europe as global brand capable of competing with the rest of the world?



A first response should be to remind people all that the Europe Union has achieved so far: peace, freedom, prosperity and social security. It is all too easy, especially among the young, to take these hard-won achievements for granted. The extension of democracy to Eastern Europe, the reunification of Germany and the enshrining of commonly held values and human rights in law should also be celebrated. Polls show that Europeans hold free speech, peace and social equality as core, commonly held values that the EU embodies.



Europe has grown to 27 member states, encompassing an amazing diversity and richness. Some argue this is part of the problem: Europe is simply too big and culturally disparate to be managed properly. But look to India for an example of how social unity can be forged within a culturally, linguistically and ethnically complex nation. Diversity does not preclude political stability.



But Europe must change, and leaders cannot pretend this will not be painful. The overly generous welfare states of some countries, such as France and Greece, will have to be reformed along more Nordic lines, where the principles of inclusivity and redistribution co-exist within a model that favours adaptation and flexibility. Public debts have to be reduced to sustainable levels that do not stifle economic growth.



Importantly, political leaders must do a much better job of explaining why such measures need to be taken. They need to find a compelling, positive long-term narrative that citizens can "buy into" and a vision of reform that people not only accept, but embrace.



Europe is undoubtedly on a road leading to further economic and political integration. This inevitably means a progressive transfer of sovereignty from individual nation states to the EU. Electorates need to be convinced that such a quantum leap makes sense. They need to be shown what they have to lose if they decide, through referenda, to opt out.



We need an aspirational and inspirational message that transcends narrow national interests. We need to emphasize the benefits, namely that further integration will enhance the well-being, economic stability and collective competitiveness of all EU member states. We need to show how citizens can be given wider participation in Europe's decision-making processes, and how the "democratic deficit" can be reduced by giving greater powers to the European Parliament.



The EU needs to reform its institutions to make them more transparent and accountable to Europe's citizens. It needs to display greater policy cohesiveness on the world stage through a strengthened common defence policy, for example. It needs to develop more Europe-wide initiatives, such as a European border police and an internal energy market.



Economically, Europe still has some way to go to recover. But internal devaluation, whereby spending is brought back into line with income, is working, even if an improvement in growth has not followed yet. Labour costs are falling in the highly indebted nations such as Ireland, Portugal and Spain, leading to rising exports and even current account surpluses.



These improvements need to be reinforced with structural change to improve competitiveness for the long-term. National debt levels still need to be reduced. Meanwhile internal consumption remains weak as EU recession continues. Further euro depreciation against other world currencies would certainly help exports, and a general global economic upturn would also stimulate EU economic growth. Neither of these can be guaranteed, however.



My prudent prognosis for Europe is that it will survive, the euro will remain intact, and the region will re-emerge stronger, more integrated and economically successful than before. Of course, risks of political and societal backlash remain, as austerity measures bite and resentment grows. The road to further integration will be painful and arduous.



But after a healthy period of creative destruction, a new Europe will emerge in which the values of entrepreneurship happily coexist with those of sustainability, solidarity and inclusion. There are enough people who believe that the European idea constitutes hope not only for this old continent, but ultimately for humankind as a whole.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.

]]> The Re-emergence of Europe: Tackling Europe's Youth Unemployment tag:www.huffingtonpost.com,2013:/theblog//3.2489823 2013-01-20T10:00:22-05:00 2013-03-22T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ The European debt and banking crises have had a devastating impact on youth unemployment across the region. Millions of young people today face the prospect of becoming a lost generation living through a lost decade, and many worry that they have no future. Their trajectory, in contrast to that of their parents and grandparents, is defined not by hope, but fear.



The media report that Europe's youth unemployment figure of over 22 percent makes it one of the worst regions in the world. The International Labour Organization has warned that the Eurozone risks losing a further 4.5 million jobs over the next four years, primarily among young people, unless it shifts its policies towards job creation.



But despite the frightening speed at which young people have been expelled from the labour market, it is important to note that Europe has coped with high youth unemployment for many years. For example, Spain's youth unemployment figures were similarly high in the mid-1980s and mid-1990s, research shows.



And unemployment estimates can be deeply misleading. Reports that youth unemployment in Spain and Greece is nearing 50 percent make the situation seem far worse that it is. This is because young people who attend university or vocational training programmes are not considered part of the labor force. So the 50 percent figure does not refer to all young people, just thoseactively looking for a job.



A far better indicator is the youth unemployment ratio, which measures the number of unemployed against the total number of young people aged 16 to 24. These figures, while still serious, seem far less doom-laden. For example, the youth unemployment rate for the 27 countries of the European Union has risen from 20.1 percent to over 22 percent since 2009, while the youth unemployment ratio has risen from 8.7 percent to over 9 percent. Greece's youth unemployment rate may be approaching 50 percent, but its youth unemployment ratio is 13 percent.



This is not to make light of the situation, but it is important not to be alarmist. And some research suggests that Europe's youth unemployment level is actually better on average than it is in the US.



Mitigating these figures somewhat is the "boomerang" phenomenon -- young people aged 25 to 34 who left home only to return to live with their parents for economic reasons. This is a widely accepted custom for unmarried children in southern Europe. Roughly 70 percent of Italian men aged 25 to 34 live with their mothers, for example.



But there is no getting away from the fact that unemployment has a very negative and even devastating effect on the lifetime earnings and career paths of young people. This is known as the "scarring effect" in economic jargon.



So what can be done? Here are a few suggestions from a World Economic Forum and ManpowerGroup report:



· Higher participation in career guidance programmes for school children



· Better career and labour market information for young job seekers



· A more positive image for vocational education



· Better training



· Investment in entrepreneurship education



One of the reasons why Germany has a youth unemployment ratio of just 4.5 percent is its relentless focus on training and vocational education. Talent is a by-product of education; the quality of a country's human capital depends on it. Four of the 12 pillars that determine the World Economic Forum's measure of competitiveness relate directly to education: health and primary education; higher education and training; technological readiness; and innovation.



If we want to create more jobs, Europe has to invest heavily in the growth sectors of the future, be they genetics, nanotechnology or digitalization. This can only be done by strengthening research and innovation throughout the EU.



Technology is going to revolutionize almost every sector, leading to the demise of many traditional professions. Economic and political power will be determined less by a country's size than by its technological superiority. To benefit from this new reality we need to foster a culture of entrepreneurship throughout Europe, investing in innovation hubs for example.



Young people will have to realize that jobs will no longer be handed to them on a plate; they will have to create them for themselves.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.

]]> The Re-emergence of Europe: Why Exiting the Euro Is a Bad Idea tag:www.huffingtonpost.com,2013:/theblog//3.2489812 2013-01-19T09:30:16-05:00 2013-03-21T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ At the height of Europe's debt and banking crisis it seemed temptingly easy to simply jettison the euro altogether and opt for national devaluation.



Sometimes, if a country's currency is overvalued in real terms and it looks like the current account is going to be in deficit for the foreseeable future, devaluation can make sense. But the fallacy put about was that this process would be relatively easy and could be done without too much collateral damage to the rest of Europe. This fallacy only served to exacerbate the crisis in 2010 and 2011, creating unnecessary, time-wasting and distracting noise around the policy options.



An overwhelming number of economists, international civil servants and policy-makers argue that a fragmentation of the Eurozone would cause a new depression and massive wealth destruction around the world. It would also end the period of economic integration that has characterized world politics since the end of the Cold War.



All banks that have looked at the implications of a euro break-up reach roughly similar conclusions. For example, Swiss bank UBS estimates that it would cost each southern European economy up to 40 percent of their gross domestic product (GDP) in the first year. And ING predicts that the Eurozone as a whole, including Germany, could see a 9 percent drop in GDP in the first year following break-up.



In short, the cost of devaluation would far exceed the supposed benefits. Here is why:



If even one country, large or small, were to leave the euro, the Eurozone would effectively rupture. The important founding notion of solidarity would be broken. Old rivalries could be reignited. If a highly productive economy such as Germany were to exit, it would mark the end of a 60-year commitment to a stable Europe. If a less productive economy exited, it would almost instantly become a pariah, exporting its pain to its neighbours.



Switching back to an old currency would also be a technical challenge and have to be done quickly. Who would set the exchange rate? New coins would have to be minted, new currency printed and new interest rates set by the central bank. Everything that was paid in euros -- from national debt to teachers' salaries -- would have to be switched back as quickly as possible to avoid financial chaos.



Unravelling a system that took three years to put in place would be much harder than people think. There would probably be a run on the banks, as depositors stampeded to withdraw their money, fearing for the value of their savings. Governments would be forced to impose withdrawal limits. Legal challenges and a likely credit crunch would follow, if Argentina's forced devaluation in 2002 is anything to go by. Investors would sell off assets and dump the country's bonds.



In addition, the government would almost certainly default on its foreign euro-denominated debt, leading to possible bank collapses at home and across the rest of Europe; such is the interdependence of the banking system. Access to international capital markets would be denied -- possibly for years -- forcing the country to bring its budget into balance immediately. The one potential advantage is that its debt, now redenominated in the new currency, might be significantly lower.



But while a devalued currency might make exports cheaper and therefore more attractive to foreign buyers, imports would become more expensive and cause a decrease in real incomes. It may improve the current account position temporarily, but it will not necessarily lead to longer term growth. Devaluation does not address the fundamentals of competitiveness. Restructuring the economy over the long term cannot be avoided.



Apart from all this, there is no legal framework for a member country to re-establish its own currency or for one member to expel another. Leaving would have far-reaching implications for a country's politics, finances, economy, society and future.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.

]]> The Re-emergence of Europe: Europe's Credibility Gap tag:www.huffingtonpost.com,2013:/theblog//3.2489800 2013-01-18T08:03:33-05:00 2013-03-20T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ Have Europe's citizens lost faith in the European project? If so, why, and what could we do to reignite a sense of common purpose?



For many years prior to the 1990s, European integration was embraced and supported by a large majority of citizens. A united Europe, bound by commonly-held democratic values, was perceived as an essential and effective buffer against the Soviet empire. A united Europe made a repeat of the first and second world wars almost unthinkable. It is not for nothing that the EU was recently awarded the Nobel Peace Prize.



But attitudes changed with the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union. The Maastricht Treaty of 2002 was perceived by many as being driven by the elites for the elites and devoid of common values.



The idea of a "democratic deficit" began to take hold, as the founders' ideal of one person, one vote, got lost in the bureaucracy of byzantine institutions whose decision-making seemed opaque and remote. Europe, whose members had increased from six to 27 states since 1951, seemed faceless; the governance of its political economy weak.



The public voice -- Walter Bagehot's idea of democracy as "government by discussion" -- was silenced while Europe's technocrats seemed to treat it with disdain. Disillusionment set in and distrust of politicians grew.



Institutional failure has only exacerbated the problem. The European Council is collectively accountable to no one. The European Parliament does not represent its citizens equally, cannot initiate legislation, and has no control over financial and other important executive decisions. The European Commission, while accountable to the Parliament, has often been sidelined.



This lack of legitimacy and democratic accountability has left the ground open for extremists, populists and radical nationalists to exploit. In just one example, Italy's newly created Five Star Movement, led by Beppe Grillo, who rejects the euro, austerity and the political establishment, won about 10 percent of votes in participating provincial capitals in local elections in 2012 (twice as many as in the regional elections held in 2010), and received more than 18% of votes in Sicily's regional elections in October 2012. There are many other examples illustrating this trend across Europe. Narrow nationalism and a new sense of global citizenship are jointly subverting the European ideal and a sense of European identity.



Europe's credibility gap also extends to the rest of the world as well as its own citizens. Europe has never had a single or unified voice in world affairs; a common foreign policy. It has often appeared to be rudderless and unable to make quick decisions when faced with economic crises, presenting instead an image of division and hopelessness.



Only 17 of its 27 members have joined the euro, and the United Kingdom is thinking of loosening its ties even further. There are concerns that we are heading for a "two-speed Europe," and, if even one country were to leave the euro, possible disintegration. The union looks far from united.



So we need a new, shared vision for Europe, a stronger voice for its citizens, and more democratically accountable and influential institutions adopting more streamlined decision-making processes.



The European Central Bank (ECB) has already gone a long way towards saving the euro and preventing the collapse of the Eurozone's monetary union. It is also in the forefront of moves to create a banking union with the ECB as central regulator. Now we need fiscal union, convergence in competitiveness and political union too if Europe is to emerge from this crisis stronger more united and more globally competitive. But we will not achieve this unless can close the credibility gap.



National parliaments must create much stronger ties with a strengthened and more influential European parliament. Members could hold seats simultaneously in both institutions, for example. A European Commission president could be directly elected and given powers to appoint the members of a European government. There are many other ideas circulating to address the democratic deficit.



But one thing is for sure, member states will have to start putting the interests of Europe first, before their own.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.

]]> The Re-emergence of Europe: Restoring Europe's Competitiveness tag:www.huffingtonpost.com,2013:/theblog//3.2489766 2013-01-17T08:20:47-05:00 2013-03-19T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ The European Union, which comprises 27 member states, currently suffers from "competitiveness deficit" compared to other advanced economies. It has lagged behind the U.S. for the last two decades and, if we look at gross domestic product per capita, the gap has actually widened over that period.



Why is this and what can be done to improve the region's competitiveness?



The EU clearly struggles to match the U.S.'s efficient labor markets and its capacity to innovate. One reason for this is the severe disparity between northern countries and those of the south, central and eastern parts of Europe. In this sense, "union" is a misnomer.



According to the World Economic Forum's Global Competitiveness Report 2012-2013, which ranks 144 countries according to their productivity and competitiveness, countries like Finland, Sweden, the Netherlands and Germany occupy positions three to six on the report's Global Competitiveness Index, whereas Romania and Greece occupy positions 78 and 96, respectively.



One exception to this broad north/south divide is France, currently lagging other northern economies by some way at 21 in the table. While it has an excellent human capital base and a good propensity for technological adoption, France's businesses are saddled with an extremely rigid labour market and an often difficult regulatory environment. The country stands at a fork in the road. Will the economy become more "northern" or more "Mediterranean"?



We define competitiveness broadly as "the set of institutions, policies and factors that determine the level of productivity of a country". As well as macroeconomic stability, northern Europe receives a much stronger assessment for the quality of its institutional environment, the efficiency of markets, its propensity for technological adoption and innovation, among other factors.



Productivity drives prosperity, growth, return on investment and rising living standards. So it is clear that we need to narrow the productivity gaps between member states if the euro is to survive and Europe as a whole is to become more competitive.



But how? Previous attempts have been less than successful. The Lisbon Strategy, launched in 2000, sought to make Europe "the most competitive and dynamic knowledge-based economy" by 2010. It failed because the remit was too broad and there was no compliance regime to make it stick.



Its replacement, the Europe 2020 Strategy, has the similar aim of creating jobs through sustainable, inclusive and innovation-driven growth. Seven major initiatives are underway, covering research and innovation, youth education and employment, high-speed Internet and the digital single market, the shift towards a low-carbon economy, creating a better business environment, up-skilling labour markets, and fostering social cohesion through poverty reduction.



But by the European Commission's own admission, the strategy has achieved disappointing results so far. A protracted debt and banking crisis has not helped.



In the World Economic Forum's view, these aims can be achieved by: reforming labor markets; encouraging competition and entrepreneurship; reducing government spending; restoring macroeconomic stability by reforming the banking system; and investing in the growth-enhancing areas of education, technology and innovation.



There are reasons for optimism. Greece's debt-reduction and labour reform programme, while manifestly unpopular with the electorate, has convinced the EU authorities to release the next tranche of bail-out money. Other southern countries are engaged in a broad range of structural reforms, as well as the widely-publicized fiscal austerity measures.



Many polls and surveys show that a majority of European citizens -- particularly in southern Europe -- appreciate the need for reform, despite the pain. These changes should eventually narrow the competitiveness gap within Europe and therefore the gap between Europe and other more advanced economies.



Fiscal discipline and economic growth do not have to be mutually exclusive, so long as spending cuts are not so sudden and drastic that they put the economy into cardiac arrest. Getting the balance right is undoubtedly difficult -- we do not have space here to revisit the arguments between Keynesian and liberal economists -- but the Baltic states in particular have demonstrated that austerity and growth are possible.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.]]> The Re-emergence of Europe: The Fallout From Europe's Debt and Banking Crisis tag:www.huffingtonpost.com,2013:/theblog//3.2485923 2013-01-16T07:35:44-05:00 2013-03-18T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ How did the European debt and banking crises arise? And what are the consequences? One reason some European countries got themselves so heavily into debt was the robustly enforced anti-inflationary stance of the European Central Bank (ECB). Interest rates fell across the board as a consequence and it became so cheap to borrow; almost everyone did, in the public and private sectors alike.



From 2000 to 2008, government expenditure as a proportion of real gross domestic product (GDP) rose on average by 12 percentage points in Ireland and by 3.8 points in Greece, Italy, Portugal and Spain. It was, as historian Timothy Garton Ash put it, "the mother of all binges."



Now Ireland, Portugal, Italy and Greece find themselves saddled with gross government debt of above 100 percent of GDP, but the Eurozone as a whole (the 17 countries that adopted the euro currency in 1999) has a gross government debt figure of below 100%, lower, in fact, than that of the US and Japan.



The big, some might say catastrophic, mistake the debt markets made was assuming all Eurozone bonds were equally risky, no matter which country issued them. This was profoundly wrong. The underlying risk associated with southern European countries in particular, was not accurately reflected in the interest rates of their bonds.



Why? The markets had been lulled into a false sense of security by monetary union, despite the fact that the earlier Maastricht Treaty of 1992 specifically prohibited one member state bailing out another. The so-called union was, economically speaking, nothing of the sort, with a mismatch emerging between the reasonably healthy fiscal positions of countries in the North and the riskier, high-deficit positions of countries in the South.



The usual link between fiscal deficits and bond interest rates had been broken, leading to excessive lending and borrowing. Risk had not been assessed correctly. When the markets realized their mistake in late 2009, interest rates on the sovereign debts of Greece, Italy and Spain began to rise. This put into motion an "adverse feedback loop." Rising bond interest rates increased government borrowing costs to almost unsustainable levels. This led to downgrades by credit ratings agencies which only increased interest rates further, pushing some countries to the brink of insolvency.



This in turn, led to a banking crisis, as many large national banks, particularly in Italy and Spain, had huge exposure to government debt -- debt which increasingly looked like it might not be repaid. Seemingly safe bonds had revealed themselves to be risky, poor-quality bonds. What looked like valuable assets on bank balance sheets were now a lot less valuable.



The problem was exacerbated by the fact that regulators had allowed the banks to buy as many sovereign bonds as they liked, without putting aside any equity capital. Sovereign default had then seemed unthinkable. Excessive lending to the private sector, encouraged by low interest rates and the misreading of bond risk, led to a real estate bubble. When the bubble burst in 2008-2009, banks were faced with huge levels of toxic debt. Politicians could not countenance runs on banks or bank closures and decided, rightly or wrongly, to bail them out. This further increased public debt and further reduced the value of government bonds, resulting in another adverse feedback loop.



Banks were then forced to strengthen their balance sheets by taking fewer risks, lending less and selling off as many non-core assets as they could. Depositors, worried that banks could go bust, began withdrawing funds -- in effect, a slow-motion run.



So how can we restore stability to the European banking system? A banking union is the only solution, including bank deposit insurance to protect savers' assets and a central regulator, the European Central Bank.



And what about the economy? Bank of International Settlements economists concluded that when debt -- be it government, corporate or household -- exceeds about 85 percent of GDP, it becomes a drag on growth. And when countries stop growing, the only way to reduce debt is to cut spending, hence the unpopular austerity measures being imposed in many European countries.



We need growth and debt reduction.



This post is part of a series by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, based on his book The Re-emergence of Europe.

]]> Europe Has Nothing to Fear But Fear Itself tag:www.huffingtonpost.com,2012:/theblog//3.2292072 2012-12-13T18:00:00-05:00 2013-02-12T05:12:01-05:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
Europe's leaders must see that the drawbridge has been lifted behind them. They cannot back out of this, and thus must steel themselves for the journey ahead. Moreover, they must also realize that for the European project to succeed -- which it must -- monetary union must be accompanied by four other kinds of union: a banking union; a fiscal union; a "competitiveness" union, or convergence; and, to all intents and purposes, a political union. And to be sustainable over the long term, the continent's political economy must be capable of reintegrating its youth and present an ideal worth fighting for.

This is a long and ambitious list, but the deeper one thinks about the European situation, the more inevitable these conclusions become.

Ever closer European integration, since Belgium, France, West Germany, Italy, Luxembourg and the Netherlands signed the Treaty of Paris in April 1951, has been of enduring benefit to generations. Can we imagine a European history without the development of institutions designed to bring European countries together under shared values and common ideals? It is unthinkable.

The euro itself has provided major economic rewards: it eliminated exchange risk, lowered inflation, increased trade across the eurozone, and more tightly integrated European financial markets. More generally, the single currency has contributed to an underlying culture of monetary stability and predictability within the eurozone, a critical point often forgotten in today's discussions.

The crisis, however, surfaced critical flaws in the eurozone's structure. Europe lacked a strong and common fiscal policy; divergence in competitiveness between the northern and southern economies created a risk of default that had gone unrecognized; and the absence of a banking union created intolerable systemic risks. Adding fuel to the fire, the complexity of European political institutions, and the increasing democratic deficit that it represents in the view of the public, has led to an "executive deficit": an inability to make real decisions.

What is clear is that the euro must survive in more or less its current form, but the deficiencies in the institutions that surround it must be addressed. The first is a banking union: an absolute prerequisite for a monetary union to succeed. A robust banking union must have shared bank supervision, a shared bank recapitalization mechanism and a shared bank deposit guarantee. The good news is that the first of these was put in place on 12 September with the proposal of a single supervisory mechanism under the ECB. The two other items are destined to follow, with the ever present caveat in Europe that negotiations will be complex and will take years to resolve.

As the talks of a banking union drag on, they will inevitably lead to discussion of a fiscal union, as the different pieces are intertwined and complement each other -- the idea of a banking union without a fiscal backstop makes little sense. There will be three parts to any kind of fiscal union in Europe: a programme of direct bank recapitalization -- in Europe's case, by the European Stability Mechanism; an EU-wide system of deposit insurance that both prevents a run on banks in weaker countries and reduces moral hazard; and some form of debt mutualization.

Before the anti-federalists recoil in dismay, it is important not to fall prey to binary thinking - it is not "everything or nothing". Between no fiscal union of any kind and a fully-fledged "United States" or Swiss-style confederation, many possible intermediate states exist that would contribute to a much greater sense of fiscal solidarity and discipline.

Reform of European financial governance is a necessary but not sufficient condition for success. It will not be able to gloss over the major issue at the centre of the crisis: the competitiveness gap between Europe's north and its south. Fixing the EU banking system and regaining macroeconomic stability will do a lot to help southern countries increase their productivity but, importantly, these countries will need to engage in a long-term project to increase their labour market flexibility, foster competition and competitiveness, and make more and better investments in growth-enhancing areas such as education, technology and innovation.

A crucial consequence of all these reforms must be the injection of entrepreneurial energy into the continent's "lost generation". Youth unemployment is a cancer at the heart of the European economy, stealing its future and sapping its growth potential for decades to come.

The good news is that reforms are underway. Despite slow progress in implementation, the "Europe 2020" strategy is designed to kick-start competitiveness in the region. I believe that the path ahead is clear, that Europe's leaders will begin to look forward with hope and optimism and not backward with fear, and that Europe is more likely to confound the pessimists as the year ahead unfolds.

The continent's optimism will strengthen as leaders recognize that Europe stands together or falls apart. There is no country on the continent sheltered from the pain of this crisis. What is crucial now is that the continent's polity is able to envision the gain that will emerge from the pain, and is able to articulate this in a way that pulls them towards their shared future.

Professor Klaus Schwab is Founder and Executive Chairman of the World Economic Forum. His e-book, The Re-Emergence of Europe, will be published on 14 December and available free of charge at http://www.weforum.org/re-emergence-europe]]> The End of Capitalism -- So What's Next? tag:www.huffingtonpost.com,2012:/theblog//3.1423311 2012-04-13T09:45:47-04:00 2012-06-13T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
The reports about capitalism's imminent demise may be somewhat exaggerated, as the ideology of a free but socially committed and fairly regulated market economy was never questioned in Davos. However, there was some discussion as to whether capitalism in its present form serves or undermines the free market economy. A clear distinction needs to be made in this regard between the ideology of a social market economy based on individual responsibility on the one hand, and the term capitalism as such on the other. Over the course of the past 200 years a range of different interpretations of capitalism have emerged as a reaction to industrialization. In historical terms, the transition from manual trades to machines required an ever increasing degree of investment, and therefore the provision of capital. In this sense, capitalism is not an ideology as such, but an applied theory of the creation and efficient deployment of capital as a factor of production. In its genuine sense, capitalism is therefore the component of an economic system that relates to the capital market, enshrined in the principles of a free market and guaranteed ownership. However, these principles are part of a more comprehensive ideology.

Unfortunately, in today's parlance this free market ideology has been equated with "capitalism" as a technical component. As a result, it is easy to gain the impression that the free market economic system founded on individual freedom and, at the same time, social responsibility, is to blame for the excesses of a capitalism that has lost its equilibrium. This is clearly incorrect. The subject of intense debate in Davos was not, therefore, the end of capitalism as an ideology, but the issue of how capitalism's technical components -- which have come off the rails -- can be reformed.

One of the criticisms of capitalism centers on the widening gap between winners and losers due to the so-called turbocapitalism that is a result of global competition. In this context, the so-called Nordic model demonstrates that a high degree of labor market flexibility and social welfare systems do not have to be mutually exclusive -- indeed, they can actually be combined to very good effect. This type of economic policy also enables countries to invest in innovation, childcare, education and training. The Scandinavian countries, which underwent a similar banking crisis in the 1990s to that which we are now experiencing in other Western economies, have shown that by reforming regulation and social welfare systems, flexible labor and capital markets really are compatible with social responsibility. So it is no coincidence that these countries are now among the most competitive economies in the world.

Other aspects of the criticism of capitalism that are worthy of serious consideration are excessive bonuses, the burgeoning market in alternative financial instruments and the imbalance that has emerged between finance and the real economy. However, we do see some progress in these areas thanks to mounting pressure from the general public, governments and also the market.

So even though capitalism was not laid to rest in Davos, it is fair to say that capital is losing its status as the most important factor of production in our economic system. As I outlined in my opening address in Davos, capital is being superseded by creativity and the ability to innovate -- and therefore by human talents -- as the most important factors of production. If talent is becoming the decisive competitive factor, we can be confident in stating that capitalism is being replaced by "talentism." Just as capital replaced manual trades during the process of industrialization, capital is now giving way to human talent. I am convinced that this process of transformation will also lead to new approaches within the field of economics. It is indisputable that an ideology founded on personal freedom and social responsibility gives both individuals and the economy the greatest possible scope to develop.

To ensure that this capacity for development is fair, better regulation and safeguards are required -- above all for capital markets -- which also necessitate global coordination. In this sense, capitalism is now called upon to make the necessary adjustments for it to remain a key pillar of our free market economic system, but also for it to adapt to today's circumstances and to be the servant rather than the master of a socially responsible market economy.

Ultimately, it is a question of returning to the stakeholder principle which I developed and presented in a book published in 1971 and which is now undergoing a renaissance under the name of "shared value creation" thanks to Harvard professor Michael Porter. In an age when social networks are enabling greater participation and transparency, companies will only be able to achieve economic success if they can generate long-term benefits not just for their shareholders, but also for the common good.

Dr. Klaus Schwab is the founder and executive chairman of the World Economic Forum.]]> Beating the Burnout tag:www.huffingtonpost.com,2012:/theblog//3.1205315 2012-01-23T08:18:22-05:00 2012-03-24T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
After a year characterized by major upheavals, many feel like we are watching a global system disintegrate: financial and debt crises, unemployment, political paralysis, social inequality, food and energy crises, and the list goes on. Faced with so many simultaneous and interrelated problems, our leaders are stretched to their limits. At the same time, the systems and safeguards that underpin our existence as a global community are struggling to cope with today's complex set of risks.

The usual reaction to all this is to call for stronger leadership. Yet events during the past year have shown, time and again, the limits of leadership in its traditional form. Preoccupied with domestic concerns, rushing from one crisis to the next, leaders have made little tangible progress. Instead, we have mainly witnessed short-term fixes in a rapidly unravelling world. No wonder, then, that ordinary people are losing trust in our leaders. The various "Occupy" and "Spring" movements around the world are signs of this understandable frustration and distress.

There is an urgent need to act. As well as finding new models to collaboratively address all our global challenges, we also need to form a new model of leadership that is effective in the modern world: leadership that emphasizes both vision and values in order to overcome the current challenges. It is this combination that can provide leaders with a compass to guide their decision-making.

Vision is needed to interpret and deal effectively with a globalized world. Technological progress, interconnectivity and the dispersion of power have all contributed to a complex new reality, which requires clear sightedness. Vision is also vital to enable leaders to glimpse the opportunities that lie ahead and rigorously pursue them, rather than succumbing to the paralysis of burnout.

Values are needed to create trust and underpin any action taken. But the values of true leadership must go deeper than short-term shareholder profit or the next election poll; only then will there be a real connection, and meaningful interaction, between the people and their leaders. In today's world, both power and information are widely dispersed, and therefore decisions can only be implemented if people understand the rationale behind them. Vision provides the long-term reason and values provide direction and purpose.

It is telling that, despite the dire economic outlook, we have reached record participation numbers for our 2012 Annual Meeting in Davos. This demonstrates the fact that leaders feel the need to come together in order to collectively and collaboratively address the daunting global challenges that lie ahead of us. Davos provides a real opportunity for leaders from business, government and civil society to hone a collective vision and build collaborative values. This Annual Meeting in particular will be important if we are to replace our current radar system of short-term, situational crisis management, with a compass providing clear direction and guidance based on long-term values.

The main topic on the top of everyone's minds in Davos will inevitably be the rebalancing and deleveraging that is reshaping the global economy. But let us not forget that the purpose of the Annual Meeting is also to ensure that leaders exercise their responsibilities with moral integrity, and that the entrepreneurial spirit is harnessed for the public interest. The theme of this year's Annual Meeting is "The Great Transformation: Shaping New Models", precisely because we are in an era of profound change that urgently requires new ways of thinking instead of just more business-as-usual.

Leadership based on vision and values will go a long way to regaining trust and beating the burnout, but only if leaders themselves can prove through concrete actions that social responsibility and moral obligations are not just empty words.

Klaus Schwab, Founder and Executive Chairman, World Economic Forum.]]> Remembering Tragedy and Human Solidarity tag:www.huffingtonpost.com,2011:/theblog//3.951908 2011-09-07T09:07:58-04:00 2011-11-07T05:12:02-05:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
On 11 September, I left the hotel for a meeting shortly before 9 am. The taxi driver told me that "something" had happened in lower Manhattan. Listening to the radio, we suddenly heard the broadcaster cry out "Oh no! A plane has hit the second tower!"

At 9:30 my meeting stopped as the assistant of my discussion partner rushed in to announce that the World Trade Center had collapsed.

I immediately walked back to the hotel to learn more and to see my wife. Crossing Fifth Avenue and looking down the street, I could see and smell the enormous cloud of dust and smoke over lower Manhattan.

I will never forget the psychological tension and fear of not knowing what had really happened. The worst was to see the cloud of smoke and rubble and to know what terrible tragedy was unfolding behind that dust at the tip of Manhattan.

What impressed me most during the next days in the city was the great feeling of human solidarity in the face of such a horrible tragedy.

Immediately on our return to Switzerland I announced the move of our Annual Meeting 2002 from Davos to New York to show our own solidarity with the city and its people.

Our "Davos in New York" in January 2002 reminded all our participants of the strength and courage of New Yorkers. In the meantime, our second largest office has opened and a hundred World Economic Forum colleagues work in the heart of the city.

On this anniversary, New York's friends around the world remember the bravery and determination of its people and extend sympathy once again to all those who lost loved ones.


Klaus Schwab, Founder and Executive Chairman, World Economic Forum]]> Survival in the Age of Complexity tag:www.huffingtonpost.com,2011:/theblog//3.895615 2011-07-12T11:26:02-04:00 2011-09-11T05:12:02-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ The advent of technology has fundamentally changed our lives, but one thing is for sure: the velocity of technological change will accelerate in an exponential manner with significant ramifications for all of us. Just imagine: over half of the scientists and engineers who have ever lived are alive today. China adds about 6.5 million graduates every year, half of them engineers and scientists. It is not only the sheer number of "innovators" who will push the boundaries of science, technology and ultimately life-change but also the greater degree of interconnectivity which accelerates the generation of knowledge and creates a much more entrepreneurial environment for innovation and change.



What is particularly striking is this dimension of change. Today's technological evolution no longer solely affects what we are doing, but also who we are. Of course, the Internet is in many ways still a tool, but it has also become part of our DNA. This is true for governments (just think of Wikileaks), for businesses and for individuals. In some way, we are "outsourcing" parts of ourselves -- and this raises the question: who owns our 'inner most' self -- our desires or our mobile phone records, capturing where we are going and with whom are we meeting. Is it technology companies, our local phone providers, or is it still us?



This new dimension of technological progress and societal change is in its infancy. The other waves of forthcoming technological evolutions in genetics, in stem cell technology, in nano-technology, in neuroscience, will all provide opportunities and threats of "alternation" of our selfs. As an example, a recent piece of cognitive research published in The Journal of Neural Engineering reported that scientists have designed a brain implant capable of restoring lost memory function and strengthening information recall in rats -- a critical first step in showing that the cognitive function can be improved with neuroprosthetics and one which raises profound moral and ethical issues.



Global cooperation is only feasible if underpinned by shared values. After World War II, and with the establishment of the United Nations, a principal framework for shared values was created with the Universal Declaration of Human Rights. But time has shown how fragile this consensus is, particularly with the rise of ethnic, religious and other tensions. The new dimension of innovation, which further explores the essence of human nature, the relation between moral reasoning and moral intuition, and the underpinning of modern institutions, will likely intensify conflicts in values and undermine the establishment of shared values for the new reality.



It is not only the velocity and nature of change, but also the increasing multiplicity of actors which characterizes the world of today and tomorrow. Ten years ago, the Group of Eight countries (G-8) represented more than 60% of the world's economic power. Today, much more than half of the world's economic growth is produced by so-called emerging countries. This multiplicity of actors not only highlights the geographic expansion and the extension of multi-stakeholder impact, but it also underscores the fact that power is shifting from the top down and from the center to the periphery -- leaving almost 7 billion people who want to have their say and the capability to do so.



The geoeconomic and geopolitical power shifts taking place will fundamentally change our lifestyles -- equally, so too will the cultural seismic shifts that are occurring. Going forward, prevailing Western values will have to increasingly accommodate Asian values, and vice versa. By 2025, four of the five largest economies in the world will be non-Western and close to half of the Fortune 500 companies will originate in emerging countries. This will have a direct impact on all of us in terms of new brands, new lifestyles and new industrial ownership structures.



All of these accelerated trends -- velocity, multiplicity, interconnectivity -- are creating a completely new world in which the mastering of complexities will be the key challenge. Of course, the more complex the system is, the greater the risk of systemic breakdowns.



When we look at our governance systems, above all global governance, we see the stress symptoms of leaders who are having difficulty in coping with the complexities of today's world. The sub-prime and Euro economic crises are primary examples of the unintended consequences resulting from actions taken in unchartered territories. Today, the whole world, inclusive of the Group of Twenty (G-20) countries, is consumed by fire-fighting rather than fire prevention and mitigation. But there's a tipping point where velocity, interconnectivity and complexity become so pervasive that the whole system collapses, regardless of whether certain elements at the surface of the system are fixed. We may not have the foresight and collaborative spirit to shape our global future, but at least we should have the survival instinct to move from pure urgency-driven risk management to much more collaborative efforts aimed at strengthening our risk resilience.



This implies a multistakeholder effort by governments, business, science and civil society to create a much more appropriate global rules-bases system. This should at best guarantee that the complexity of the system is not exploited for the individual gain to the detriment of global society.



This post originally appeared on the World Economic Forum website.

]]> Challenge for Global Cooperation tag:www.huffingtonpost.com,2011:/theblog//3.864179 2011-05-20T08:55:45-04:00 2011-07-20T05:12:01-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
From a lack of progress on international trade and climate change negotiations to challenges involved in meeting energy and food security and the Millennium Development Goals, we are witnessing a number of failures in international governance. Moreover, the 2008-2009 global financial crisis starkly illustrated the systemic nature of risks, demonstrating how the integration of financial and trade markets quickly transmit turbulence in one economy regionally and internationally.

A major reason for the recent crisis was the belief that evolved in the exuberant economic climate beforehand, where free markets can self-regulate and that the purpose of business is purely to make a profit. This belief has created a huge shift in the balance of power to the shareholder and the financial community at the expense of other stakeholders.

While globalization has brought vastly improved economic welfare for hundreds of millions of people, billions more are still being left behind as economic inequality reaches epic proportions. Today, about 1.75 billion live in what the UN calls "multidimensional poverty", with acute deprivation in health, education and standard of living. Such inequities are not sustainable without social repercussions. We need to devise a way to address the social impacts of globalization. We must demonstrate that the free flow of goods and capital does not develop to the detriment of the most vulnerable segments of the population.

Although as a global society we have never been more interlinked and interdependent, there is a paradox in how the more globalized our world and systems have become, the more "localized" and self-centered we have become. What we are experiencing is not only a wake-up call to rethink our global institutions and systems but, above all, our ability to think long term and not just to the next quarterly report.

We must rethink our traditional notions of economic growth and global competitiveness by not only focusing on growth rates and market penetration, but equally, if not more importantly, assessing the quality of economic growth. How is growth achieved? How sustainable is it and at what cost to the environment? How are the gains distributed? And, as a consequence of such growth, what has become of the family and community fabric as well as the society's culture and heritage? The time has come to embrace a more holistic approach to global economic development.

China's "harmonious society" has reflected this approach, which shifts the country's primary focus from a purely economic growth model to a more balanced one that addresses such social issues as the gap between rich and poor, widespread environmental degradation, and government and corporate corruption. China's growth not only has lifted hundreds of millions of people out of poverty in a relatively short period of time, but also has emerged as the world's second largest economy, with its foreign exchange reserves topping $3 trillion.

But with China's newly found position as well as the rise of other emerging economies comes new responsibilities and the urgent need for better cooperation, especially when it comes to such transnational problems as resource and energy scarcity, climate change and environmental degradation; all are interdependent and inter-related.

The world has become more interconnected than ever before, linked through information and communication technologies and increased movement of people as well as economically through record trade and capital flows. Our systems -- from financial to communications to supply chains -- are also increasingly intertwined. As a result, global challenges cannot be met by individual governments, businesses or any other organizations alone. In a complex, fast-driven, interconnected world, we need a platform for cooperation involving all stakeholders of global society to work together.

The most decisive success factors to accomplish this will be the ability to anticipate, manage and mitigate risk. To respond better to global risks, the World Economic Forum has created a Risk Response Network based on the knowledge and partnerships my organization has created over the years. The network is a unique platform for global decision-makers to better understand, manage and respond to complex and interdependent risks. It will bring a rigorous approach to understanding the complexity of risks that face corporate, government and civil society leaders, and will provide tools enabling them to better mitigate risks and capture associated opportunities.

Our only way out is the stakeholder concept. This means that the pursuit of our own interests can only be substantially realized by incorporating the interests of all those with whom we have a mutually dependent relationship. This is true on all levels, and in any capacity in which we take decisions: family life, society, business or politics.

Klaus Schwab is the Founder and Executive Chairman of the World Economic Forum.
]]> The Titanic Syndrome and Frontier Risks tag:www.huffingtonpost.com,2011:/theblog//3.837645 2011-03-18T13:12:00-04:00 2011-05-25T18:40:24-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/ Titanic, went down on its maiden voyage.

The Titanic did not sink because White Star Line, its owner, disregarded safety issues. On the contrary, the Titanic had the most advanced safety features of its time: a multi-compartmented hull, sophisticated wireless communications and full compliance with maritime safety regulations. Both its owner, J. Bruce Ismay, and the ship's builder, Thomas Andrews, were aboard. It was the existence of these safety features that made the captain comfortable in trying to cross the frontier of high-speed transatlantic travel, with tragic consequences.

The Titanic Syndrome occurs when companies engaged on the frontiers of new technologies believe in good faith that they have covered the key risks, but have not. Fukushima Daiichi power station, the subprime mortgage crisis and the Deepwater Horizon oil spill are all recent examples of the great challenges in trying to manage risk effectively at the frontier -- and the enormous costs of getting it wrong.

Each of these examples involved highly competent engineering organizations with dedicated teams committed to safety or -- as in the case of Lehman Brothers for subprime mortgages -- effective risk management. All believed that their product had been tested to the farthest necessary edges of the event distribution.

These organizations were pushing the frontier in ways that, at the time, were seen as advantageous for society. However, they were working with regulations that were insufficient because human ingenuity had outstripped them -- the Titanic's 16 lifeboats met 15-year-old regulations enacted when ships were smaller. As a result, less than one-third of its passengers survived.

All were brought down by a combination of multiple risks or failures occurring at the same time, combined with human error. Most importantly, in all cases, their failures had systemic costs that went far beyond their own companies.

However talented and committed, a company's engineers, scientists and managers are unable to understand, assess and address key frontier risks by themselves. Their desire to succeed and their commitment to their work -- so critical to entrepreneurial success -- may unconsciously limit their ability to assess all risks. The complex nature of frontier risk is likely beyond the understanding of any one organization, however sophisticated. The broad regional, or even global, implications of failure mean that the responsibility for addressing these risks cannot rest with the company alone.

Shifting the responsibility to regulators alone is not the answer, as governments often have less experience with the relevant issues than the companies. Nor can we halt our exploration into frontier technologies. The present deadlock over GMOs is an example: foods that could help millions are rejected because the companies proffering them are not trusted. Simply turning our back on nuclear power without the right debate would take away an important instrument to fighting global climate change. Dealing with frontier risks requires a neutral platform where best practices and insights from around the world can be brought to bear and where all voices, positive and negative, find a hearing.

The only way to approach multifaceted risk in a complex and interconnected world is to develop spaces where all stakeholders are able to come together in a neutral environment where the interests of the world as a whole are put first, not the self-interest of any individual member. Helping companies, governments and society address these frontier issues together in an effective and credible way will reduce the incidence and consequence of the Titanic Syndrome. More importantly, it will unlock the door to a new wave of job-creating and life-improving innovation.]]> Accelerating the Path to Gender Parity tag:www.huffingtonpost.com,2011:/theblog//3.829311 2011-03-08T09:00:33-05:00 2011-05-25T18:35:25-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
First, we must build an effective case for gender parity. Girls and boys, women and men, should have the right to equal access to security, freedom, resources and opportunities. Complementing this values-based argument is an immense set of literature around the economic case for gender parity. Some of the earliest research in this area demonstrated that investment in female education has a significant multiplier effect on fertility rates, infant mortality rates, maternal mortality rates and women's labour force participation and income.

The World Economic Forum's research has demonstrated a strong positive correlation between closing gender gaps and country competitiveness. Other studies have shown a positive correlation between gender diversity on organizational leadership teams and financial results, while others have found that more diverse teams make better informed decisions, leading to less risk taking and more successful outcomes. There is also new research on the growing "power of the purse" and how female spending priorities may lead to rising household savings rates and shifting spending patterns in emerging markets.

Second, in order to address the problem efficiently, it is imperative that we measure the magnitude of the issue, set benchmarks and track progress against targets. The World Economic Forum produces an annual Global Gender Gap Index, ranking economies according to how well they are distributing opportunities and resources between women and men, regardless of the overall level of resources. The United Nations Development Programme, the Economist Intelligence Unit, UN Women, the Gender Equality Project and several other organizations provide various tools for assessing aspects of gender equality. Governments and business now have a large variety of instruments and methodologies at their disposable for measuring gender parity, setting credible targets and tracking progress against those targets.

Third, for a growing number of organizations, the question is not why or where, but how to close the gender gap. To do this, we must explore the policy design choices available and implement those that best fit specific countries, companies and organizations. Different forms of mentorship, communication, quotas, diversity training, financial incentives, parental leave benefits, recruiting practices, work-life balance measures, taxation and other policies, have been successfully implemented by different organizations and governments. However, information on best practices tends to be fragmented and organizations and governments often tend to have to learn by doing, slowly, rather than being able to learn from and build upon the experience of others. The Global Gender Parity Group - a community of organizations committed to gender parity - recently launched a project to accumulate and share best practices from businesses. These businesses have successfully impacted gender parity, within their internal structures, through changes to their supply and distribution chains and in their individual communities. Additionally, in the next Global Gender Gap Report, the World Economic Forum will release a new dataset on existing government practices that facilitate women's integration into the workforce.

Once the process of change starts, it will lead to very rapid progress. We have seen this at the Forum. In 2010, we introduced a new policy requiring the companies that are most closely engaged with the Forum to bring at least one female executive among five delegates attending Davos. The number of mixed-gender delegations doubled. In 2009, the Forum announced a target of gender parity for our Young Global Leaders community to be achieved within the next five years - the 2011 class will be composed of 44 percent women. Within our internal structure, in 2005, the percentage of women among our director-level positions was less than 15 percent; today, almost 50 percent of these positions are occupied by women.

In this era of growing access to information, the tools, the reasoning and the solutions for gender parity are increasingly available to many of us. It is imperative that each organization, government, company and individual use this knowledge to implement tailored policies to help close gender gaps well before the next 100 years go by. The future prosperity of the world - not just one half of it - depends on how effectively we accelerate the pace of gender parity.

Saadia Zahidi is the director of the Women Leaders and Gender Parity Programme at the World Economic Forum. Klaus Schwab is the Founder and Executive Chairman of the World Economic Forum.]]> Shared Norms for the New Reality tag:www.huffingtonpost.com,2011:/theblog//3.813413 2011-01-26T07:03:00-05:00 2011-05-25T18:25:24-04:00 Klaus Schwab http://www.huffingtonpost.com/klaus-schwab/
As we begin the second decade of the 21st century, humanity is at a cross-roads. We can either continue to work as lobbyists for our narrowly defined self-interests and keep doing the same old things that got us into the crisis in the first place. Or we can act together as true global leaders, with the long term global public interest in mind and at heart.

Following the economic crisis of the past two years, we have now entered a new era of austerity and greater modesty. In this new reality, collective sacrifices must be made to safeguard and enhance our future. While a total collapse of the global financial system was averted, governments around the world have gone into huge debts to do so. In the short term, this is leading to higher taxes, reductions in social and public health systems, as well as reduced investments in education and infrastructure.

As the economic center of gravity continues to move to the East and to the South, it will create political, economic and social shock waves in the process. And new global players -- in particular non-state actors -- are emerging at an unforeseen pace. This new fluid global power structure, marked by greater expressions of national interests, may lead countries to look primarily inward when attempting to solve any problem.

Looking ahead, the new reality will also be characterized by growing resource scarcity, and this has serious implications on energy, food and water security. The traditional borders between business and government will continue to erode as neither governments nor civil society alone can confront the complexity of global challenges that confront us.

All these dimensions of the new reality require first and foremost a common approach: basic values and shared norms to be turned into positive forces driving our future. It also requires a new sense of "global togetherness."

This is why we will focus on shared norms for the new reality as the theme at this year's Annual Meeting of the World Economic Forum in Davos. Norms are vital for providing fundamental guidance to decision makers who operate in this new reality, which still lacks an effective formal and globalized legal infrastructure. They also provide the compass which can guide the decision-making of leaders and help ensure inclusive rather than exclusive outcomes. Without such shared norms, our efforts of reforming global systems will lack direction and, in the worst case, prove to be ineffective. Shared norms will also help to define a common vision for the future that we want to create.

International cooperation is everybody's business now. More than ever, the new reality underscores the need to create new bonds rather than new boundaries. We need new partnerships and alliances between public, private and civic life to tackle the problems that lie ahead. We are more likely to succeed in managing global challenges if we take a practical, multifaceted approach, focusing at least as much on the "how" as the "what." It will force us to set aside our immediate short-term interests and take the long-term global public interest to heart.

This may prove to be difficult. But one thing is certain: We can't keep doing the same old thing in a new era that requires new responses.]]>