Now that the 45th Davos World Economic Forum is behind us for another year, the question is: Does Davos even matter anymore?
Getting 2,500 top business and political leaders together each January in a resort in Switzerland isn’t a bad idea if they can give us outsiders an idea of how the world economy will do in the coming year. But it turns out that getting that many smart people in one place doesn’t do the rest of us much practical good. Davos didn’t warn us of the blood-curdling stock market crash of 2008 brought on by subprime mortgages. Yet, in 2009, the so-called Davos mood was so pessimistic that the consensus went too far the other way, mistakenly forecasting a worldwide Second Great Depression.
On the political front, in 2011 there was general euphoria that the Arab Spring would finally usher in an era of democracy and peace in the Middle East. We know how that turned out.
So what can we expect in the coming year? Are we in an era of continued low oil prices? Are we facing an age of global deflation, as predicted by financier George Soros? Will modern technology finally pull us out of decades of poor economic growth?
Whatever it is, these Davos “experts” may actually be sorely unqualified to answer any of our questions, as argued in the recent book, Superforecasting: The Art and Science of Prediction by Philip E. Tetlock and Dan Gardner. This isn’t because they aren’t smart or don’t know more than the rest of us, but when confronted with answering complex geopolitical questions, experts have no better than a 50-50 chance of getting it right. As Tetlock says, “It tells us something about the limits of expertise in a complex world.”
This year’s theme at Davos, for anyone who was paying attention, was The Fourth Industrial Revolution; a revolution that will finally bring together information technology with digital, physical and biological spheres. And according to “Davos Man” — an expression to describe the worldview at Davos — this latest industrial revolution is advancing at exponential speed. Just think of the advances in artificial intelligence, robotics and the Internet of Things that will kick productivity and economic growth into high gear.
Are we really on the verge of finally getting all the benefits from our information age? Or will we be disappointed again in the same way expressed by Nobel economist Robert Solow, when he said 29 years ago, “we can see the computer age everywhere but in the productivity statistics”? This productivity paradox has baffled economists for decades. Maybe Davos Man is on to something this time.
There is a strong case against the techno-optimist made in a new book The Rise and Fall of American Growth, by Robert Gordon, an economic historian at Northwestern University. Gordon argues that we aren’t likely to see the gains the U.S. experienced from 1870 to 1970 because that period was unique in human history and may never be replicated. It was a period that included the introduction of electricity, the automobile, air and rail travel, modern communication and vast improvements in public health all coming together to completely transform an economically primitive world into a modern paradise.
This article appeared in the Financial Post.