On Wednesday, the World Economic Forum will gather on a pretty mountain in the Swiss village of Davos. Immortalized as the Magic Mountain in Thomas Mann’s classic novel about a tuberculosis sanatorium, Davos today attracts those who seek a more ambitious type of healing. Their official objective: To improve the state of the world by engaging business, political, academic and other leaders of society to shape global agendas.
One might well wonder if global agendas are what are most needed right now. There are dangers whenever elite policymakers gather in lofty places to contemplate the future. Whether they are heads of state, central bankers, corporate chief executives, the G20 or the shadowy Bilderberg group, big thinkers are inexorably drawn to the Big Picture. And all too often that favors highly centralized solutions to problems and overly abstract debates – whether management structures should be vertical or horizontal, for example.
This may only be a manifestation of the general preference nowadays for theory and abstraction, rather than roll-up-the-sleeves, hands-on work. Consider Bank of America’s recent earnings, for instance. The Bank’s results were a lot better than expected – except for the banking. Shouldn’t companies master their actual businesses, or is that a touch vulgar, sort of like being in trade?
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Anyone who has watched a lot of old movies immediately recognizes this syndrome: The French generals in World War One devising intricate counterattacks over snifters of cognac in Paris as the front collapses and the trenches are overrun. Or the captain of the foundering ocean liner barking orders from the bridge to an engine room that is empty and already waist-deep in water.
In fact, we can see the limitations of this approach in two of the biggest top-down policies today:
The European Central Bank can’t hold down interest rates everywhere. The ECB has been pouring out hundreds of billions of euros, trying to prop up European banks and bond markets and keep interest rates as low as possible. This has worked up to a point in Italy and Spain, especially for debt issues that mature in two or three years. But it hasn’t been able to bring interest rates down to tolerable levels in the most financially troubled countries. Annual yields on 10-year bonds in Greece are 33%, in Portugal 14%, and in Ireland more than 8%. Hungary, which is not in the Eurozone but would still cause big problems if it defaults, has yields above 9%. Persistent yields above 8% typically mean a country is headed for eventual default.
U.S. stimulus programs can’t create enough jobs. The Federal government is spending so fast that it’s piling up debt at three times the rate of four years ago. And the Federal Reserve is pumping money into the economy at a rapid rate, too. While it’s true that the stimulus has brought unemployment down a bit, it can’t do anything about the least employable. What is most shocking today is that despite high unemployment, many companies are unable to find people qualified to fill available jobs – not only relatively skilled ones, such as sophisticated machine tool operators, but also more basic trades.
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What both these examples illustrate is that highly centralized solutions fail when they run up against the worst problem cases. Moreover, the success such programs do have can only be achieved by burning through money at a staggering rate – a rate that is simply unsustainable for any length of time. In the January issue of Vanity Fair, Joseph Stiglitz offered a fresh analysis of the causes of the Great Depression and concluded: “The inability of monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s. The problem today, as it was then … is the so-called real economy. It’s a problem rooted in the kinds of jobs we have, the kind we need, and the kind we’re losing, and rooted as well in the kind of workers we want and the kind we don’t know what to do with.”
In short, the economic troubles that have become so serious in Europe and the U.S. are the result of a welter of interconnected, practical problems that need to be solved. Among them, we need to:
- Redo banking regulation in a way that will not be primarily punitive but rather focus on making the system safer and more stable.
- Sort through all forms of regulation to see what is truly essential and where business and job creation is being stifled unnecessarily.
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- Reconfigure the tax system so that it is raises necessary revenue but is simpler, fairer and less intrusive.
- Re-examine labor laws to see how workforces can be made more flexible without infringing on anyone’s rights.
- Redesign benefit and entitlement programs so that they are on a sound financial footing.
- Reconstruct the health-care system so that costs will not keep rising at an unmanageable rate.
- And above all, refocus the education system to ensure that children learn skills that will make them employable in a 21st Century economy.
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That’s quite a daunting set of tasks. And they will require a huge amount of detailed analysis as well as a lot of deft political skill. But it is a to-do list, not a grand strategic vision. What’s actually needed now is good management, hard work and maybe even a little self-sacrifice. If you like, you can call what needs to be done a national agenda, if not quite a global one. Musing about the Big Picture may be a lot more gratifying than focusing on the details of the specific policies that aren’t working. Only trouble is, if you want to break up a logjam, you have to get out on the logs and start pulling them apart. And that can’t be done gazing serenely down from atop a Magic Mountain.