Philip Booth: Last week should be the last Davos

Professor Philip Booth is Editorial Director at the Institute of Economic Affairs.

Apparently, the World Economic Forum – a pre-skiing holiday talking shop for many of its attendees - exists as “an independent international organization committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas”.

If some global business people, journalists and academics wish to waste their own money attending this conference, then I guess we would have nothing to complain about. However, the World Economic Forum, which deliberated last weekend, is also a huge magnet for politicians and public intellectuals to make grand-stand speeches and for politicians to mix with and exchange ideas with major business leaders. It is, in other words, a perfect environment for “crony capitalism” to flourish. Will small businesses be there to make the case against the expansion of regulation such as the EU temporary workers directive? Of course not. They will be hard at work trying to make a living in an increasingly hostile economic climate. David Cameron says that he wants to root out crony capitalism. He should therefore have boycotted Davos.

But, the main objection to Davos must surely be the hubris of those involved. We do not need the “global industry agenda” shaping by self-appointed experts. Industry is shaped by the dispersed decisions of seven billion consumers and millions of businesses. Industry is shaped from the bottom up and not from the top down. Davos attendees would do well to take note of Hayek’s appeal to economists: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design”. How little we know is perhaps indicated by the Davos Reports on risk at the 2007 meeting. I could not find any concern about risks within the banking system – bird flu was the main worry.

What is the major risk today? It is probably sovereign debt and its impact on the banking system. We do not need a World Economic Forum to tell us that countries have borrowed too much money at the expense of future generations. With the EU, BIS, IMF, OECD, UN, WTO and World Bank, how many more international talking shops do we need? As Thomas Sowell said: “The first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” The huge levels of government borrowing and inter-generational transfers via welfare systems mean that the first lesson of economics has finally caught up with politicians – across the world.

Our message to politicians returning from Davos should be that they should never go back and that they should stay at home and reflect on the first lesson of economics. Escapism in skiing resorts might make them feel better, but there is urgent action to be taken in the form of reducing politicians’ role in economic life. Talking about how to shape the global industry agenda is not something politicians should be doing.