The state of the world is fraught with unprecendented imbalances and tremendous risks, and institutions are struggling to keep up with the changing times.
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.
In order to have an equal seat at the negotiating tables, workers need to form a global alliance, a global labor union in this modern age of global corporations.
Workers of the world need to unite. Only with worldwide solidarity can we contend with the powerful global capitalists!
One of it's products is the loss of the middle class, and a massive lowering of wages and the average standard of living. He goes on to say - "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."
Yes, there are many other stakeholders than just the shareholders of stocks. This has created a Wall Street centric world that is a false reality. Only a few benefit from it.
We need to replace the failed "free market" ideology with a real "fair market" system that works for the majority of Americans.
I'm pissed off that the type of Free Market that has been imposed on all the world's citizens has been absolutely shocking and devastating. There has been NO reason why this particular model was adopted because it took no interest in the environment or our humanity at all ... but only focused on 'stakeholders' as 'shareholders' who now are other corporations.
We are not 'stakeholders'. We are global citizens and our first responsibility is to clean up the mess!
Time for a Great Renewal.
"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."
Pursue the interests of others instead of your own, recommends the stakeholderist.
"This is true on all levels, and in any capacity in which we take decisions: family life, society, business or politics."
Thus state pursues the interests of others, id est a definition of policy corruption.
With globalization labor remains cheap, and free markets have no pressure to widely distribute income.
Under this scenario the pie cannot grow. It is in fact a case where reducing the number of billionaires does increase the pie. Or looked at the other way, decreasing the number of impoverished does increase the pie.
The West's hegemony came about because of a huge explosion of income distribution, concurrent with advances in science and production capability.
In today's global economy, there isn't a sufficient explosion of income distribution in the East, where production has exploded fueled by income from the West.
We're facing the friction of Eastern societies, (for the most part), where production has exploded but where the societies have poor methods of income distribution.
The economic pie cannot grow without wide income distribution. Not the other way around.
Think about it. Not even a liberal or progressive presidential hopeful in the US political climate would dare that.
http://fernandodesouza.wordpress.com/2011/03/21/the-new-economic-order-its-potential-impact-on-world-poverty/
Best wishes:
Fernando de Souza
Ever since the neo-cons came up with their free market ideology it has "created a huge shift in the balance of power to the shareholder and the financial community at the expense of other stakeholders."
It is a failed ideology that disrespects all other stakeholders. The sooner that can be admitted to, the sooner we can solve our problems.
My idea is to expand the power of labor unions globally. We need global labor unions, and global solidarity, in order to properly negotiate fair deals with global corporations.
I appreciate your call for cooperation and incorporating the interests of stakeholders in decision making. However, I do have some criticisms of what you are saying:
1. "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." While India and China are exceptions, the global downward trend in GDP growth rates since the 80s demonstrate the failure of market fundamentalism to achieve its purported goals. Moreover, it is now well known that IMF and World Bank-imposed neoliberalization are part of a coordinated strategy between dominant states and financial institutions to extract profit from "developing" nations with typically disastrous social and economic consequences for the victims.
2. The largest financial institutions already understand "complex and interdependent risks." Why? Because they engineered those risks in the first place. Inducing crises through neoliberalization and financial fraud is a tried and true strategy of the Washington-Wall Street-IMF complex. One only has to look at East Asia in the late 90s and the US right now to see the painfully obvious truth.
That's the crux of the matter of complexity.
Now, 98% of the ratings of CDOs and MBSs were paid for by the issuers of those securities. The rating agencies also advised said issuers on how to achieve the highest ratings. See http://www.uiowa.edu/ifdebook/issues/financial_crisis/posters/Amanda%20Final%20Draft.pdf
Now, you tell me what's going on here: a financial institution collaborates and literally pays credit rating agencies to provide high ratings on its MBSs. Said financial institution then takes short positions on the same securities, expecting their value to fall at the same time that they are marketing those securities to their clients. Said financial institution then makes billions of dollars because the MBSs they sold to their clients have collapsed in value.
The game plan is obvious.
http://itstrueitellya.blogspot.com/2011/04/corporate-acquisition-appears-imminent.html
There are plenty of signals that a breakdown in global trade as we know it and reversal of globalization is coming. At the lower levels the voices in favor of localization and sustainability are growing stronger. At the upper levels nations are moving to sign bilateral FTAs to form smaller restricted preferential trade areas in anticipation of the WTO losing relevance in world affairs. When TAFTA starts to gain traction it will pretty much be assure the era of WTO-style global trade is over. Rising energy/commodity prices will only push the move to more localization faster.
http://redwriteblue.blog.com/2011/02/11/where-are-americas-jobs