Why there’s no original thinking in Davos
By DAN HANNAN • 1/25/16 12:01 AM
Here’s my fact of the week: Companies whose CEOs attend the World Economic Forum in Davos — in full swing as I write — underperform the stock exchange.
That annual schmooze-fest represents everything that people dislike about the capitalist system: the cronyism, the name-dropping, the mutual favors, the snobbery, the contempt for public opinion. Whenever I look at the delegates, I am reminded of Ayn Rand’s description of a company board in Atlas Shrugged: “Men whose careers depended on keeping their faces bland, their remarks inconclusive and their clothes immaculate.”
This year, David Cameron went to ask for help in keeping Britain in the European Union. He could hardly have picked a more sympathetic audience. The lobbyists and corporate affairs types who filled the room adore the EU, intuiting that it was designed by and for people like them.
In Brussels, as at Davos, the constant unvoiced assumption is that voters are too dumb to know what’s good for them. Ordinary people are despised for their atavism, their prejudice, their patriotism. As Samuel Huntington once put it, the delegates “view national boundaries as obstacles that thankfully are vanishing, and see national governments as residues from the past whose only useful function is to facilitate the elite’s global operations.”
But here’s the thing. On almost every issue where the Davos elites and the general public have differed, Davos Man has been wrong. He supported the Exchange Rate Mechanism, an attempt to peg Europe’s currencies in the 1980s. That system exploded disastrously in 1992 but, undeterred, he then pushed for the euro. That, too, turned out to be calamitous. The eurozone’s economy is, incredibly, no larger now than it was in 2008.
Davos Man went on to cheer the bailouts seven years ago. It is harder to prove definitively that he got this one wrong, since we can’t know for sure how the alternative would have done. But it’s equally hard to think of how things could have been much worse. More than a trillion dollars were given to banks, and no one seems able to say where it went. One country which allowed its banks to fail was Iceland, and it has bounced back spectacularly. The last of Iceland’s bank debts was paid off last month without the taxpayer having contributed a penny.
Why do such clever people keep getting it wrong? Two reasons. First, because putting a bunch of people with the same educations and the same assumptions together in a room tends to lead to a collective departure from reality. Elitism is, in a sense, the opposite of crowdsourcing. It’s the old encyclopedia model, not the new Wiki model. Which would you turn to?
Precisely because they are smart and qualified, the WEF delegates tend to overvalue their prejudices. When they are surrounded by people who share those prejudices, they reinforce each other, becoming less amenable to new thinking. Experts are more prone to groupthink than non-experts, often with disastrous results.
But there is more to it than that. The lobbyists, politicians and pundits are there, alongside the businessmen, to promote their own interests, not anyone else’s. And they know how to do each other favors.
The mega-banks and multinationals that descend on that gorgeous Alpine resort have learned how to profit from state subsidies and regulation. All companies, once they get to a certain size, develop monopolistic ambitions. They employ teams of lobbyists to persuade officials to impose more rules and raise their respective industries’ barriers to entry. They don’t put it in those terms, obviously. They prefer to talk in terms of promoting social standards or protecting the environment. But the agenda is always the same: to create compliance costs that they can easily afford, but that will prevent start-ups from competing with them.
Sometimes the effects can be dreadful: Thousands of people died needlessly in Europe because, unlike in the U.S. and Japan, regulators were determined to promote diesel engines, which emit 22 times as many noxious particulates as gas engines. Why? At the time, it was sold as part of the fight against climate change, but we now know that Volkswagen and other manufacturers wanted a protected market for their product. Lobbyists one, democracy nil.
This is the first year that anti-capitalist protesters have not picketed the Davos chalets. Perhaps they have finally worked out that the people inside are a lot closer to them than they had realized in their support for state intervention. The real question is why free-marketeers don’t protest in the slush. Because we have jobs, I guess.
Dan Hannan is a British Conservative MEP.