23 Jan 2014

Why ‘Davos Man’ pontificates about inequality over canapes and fine wine

Post-crisis, or post the “death phase” of the financial crisis, everybody is talking about spreading the proceeds of growth. There are many, judging by my Twitter stream, who find it grotesque that many of the supposed “masters of the universe” that proved pitiful at creating a safe world finance system can now pass judgement over income distribution and the squeezed middle.23_davosfais_r

I attended a thronged “philanthropy roundtable” hosted by a Ukrainian billionaire featuring Blair, Branson, Gates and Nobel-prize winning founder of the Grameen Bank Muhammad Yunus. Matt Damon was in the audience, as was Lord Mandelson, Bob Diamond was in the queue (he has quite a philanthropic foundation, but I should say he may have attended a different reception from the same queue).

And here is the big thing. The spread of capitalism HAS been a force for poverty alleviation for hundreds of millions, most notably in China. As Bill Gates continually says, malnutrition rates, mortality rates, illiteracy rates in developing countries are going down. The use of US-style philanthropy is changing the reality of, for example, the pharma industry, creating a market for treatment of disease that affects the world’s poorest.

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But, the spread of global markets and world trade has not been so good for the unskilled in the richer west. And in the aftermath of the financial crisis, that group has included large parts of the middle class suffering from stagnant wages, high unemployment or both. Davos Man has contributed too, through the spread of markets in bringing many in Asia out of abject poverty into a new global middle class. But that same process has impacted the existing middle in the richer countries.

A car company executive put it to me like this: we need middle classses with disposable income to buy cars. A recovery for the super-rich is not what we want.

The financial crisis is over. Spain is raising money in jumbo government bond sales at well under 4 per cent. So is Ireland. Both are attracting extensive international investments. But as one top adviser to an EU leader told me: “We have a problem with messaging the optimism message. It goes down very badly at home. But we are swamped by international investors.”

So while the crisis in the government bond markets has lifted, it is being paid for, in the eurozone at least, by an extreme social crisis in the austerity afflicted-eurozone periphery. Do these quintessential global citizens keen to flash their development credentials really have the solution to the stagnation of their own middle classes? Or will 2014 mark a profound backlash, beginning with the European Parliament elections?

Follow @faisalislam on Twitter.