How the high hopes of harmony turned into a great divide

David Wighton and Gary Duncan

The theory was that politicians and business leaders would come together at the World Economic Forum in Davos to forge a common approach to “shaping the post-crisis world”. The reality was that the crisis has splintered the Davos consensus and the attempt to forge a common approach often came close to common abuse.

The Russians attacked the Americans, Turkey had a bust-up with Israel, the globalisers took on the protectionists, casual dressers sneered at tie-wearers and everyone had a go at the bankers.

Davos itself had a crisis when Recep Tayyip Erdogan, the Turkish Prime Minister, stormed out of a debate on the Middle East, outraged at what he saw as a snub by the moderator. Mr Erdogan had wanted to reply to a wildly long and impassioned speech by Shimon Peres, the Israeli President, defending Israel's actions in Gaza. When the moderator, Washington Post journalist David Ignatius, did not allow Mr Erdogan to reply, he blew a fuse. Later he warned that if such treatment was repeated “we won't really get out of Davos what we all come here to get out of Davos, and it would cast a shadow over efforts to reach peace”.

The idea that some botched moderating at Davos could affect the prospects for peace in the Middle East would seem to underline the status of the event. But Mr Erdogan rather spoilt the effect by declaring that he would not be coming again.

There are likely to be other no-shows next year, particularly among the bankers. A number of high-profile names pulled out at short notice this time - including Bob Diamond, of Barclays Capital, and John Thain, after he lost his job at Merrill Lynch - and some banks said they would be cutting back their presence next year for cost reasons.

The new US Administration was poorly represented, because of pressing matters at home, while David Miliband, the Foreign Secretary, also failed to make it. The organisers could perhaps make up the numbers next year with some celebrities, who were very thin on the ground this time.

The vilification that the bankers received will hardly encourage them to write the cheques for next year.

Klaus Schwab, who runs the World Economic Forum, urged delegates to see bankers not just as “part of the problem” but also “part of the solution”. Bill Gates, the Microsoft founder, said the blame game was unhelpful.

But others could not resist. Indra Nooyi, chief executive of Pepsico, accused Wall Street of infecting Main Street, while John Neill, chief executive of Unipart, said bankers who sold toxic debt should be punished as harshly as people who peddle any other toxic product. His attack was greeted with a round of applause from the Davos crowd.

There was some contrition from the bankers. Gary Cohn, president of Goldman Sachs, said: “I'm not sitting up here on my high horse saying I had nothing to do with this.” But he slightly blunted the impact by adding that everyone had something to do with it, including “the individual home buyer buying a home they couldn't afford”.

Bill Clinton, the former US President, did not join in the sport, but he did issue a veiled attack on the well-heeled delegates for cutting back on their funding of charities, particularly those focused on the developing world. Referring to the fleets of private planes that ferry the rich to Davos, he said: “The interdependent world is pretty good to us or we couldn't afford to be here. Those of us who can do more, should.”

Delegates came under ferocious attack from union leaders who accused governments, regulators and banks for creating a crisis that would put more than 50 million out of work.

The mood at Davos may have been more sombre than usual and there were some cutbacks in entertainment - including the widely reported scrapping of the Goldman Sachs drinks party. But it was hardly a frugal affair. Champagne flowed freely at dozens of parties around the town, including one bash given by a well known consulting firm where delegates danced along to a 12-piece band flown in from New York.

For the Russians, the concern was not the cost of the parties, but the cost of the bailout of the American banking system. In a far from fraternal speech, Vladimir Putin, the Russian Prime Minister, mocked the American delegates and accused the US of running an “unsustainable” economy. Igor Yurgens, a top adviser to Dmitry Medvedev, the Russian President, criticised the size of the US financial rescue package, saying it would drain liquidity from other global markets.

Ernesto Zedillo, the former Mexican President, echoed the concern about the flood of government bonds that the US will have to issue to fund the package. “We, as developing countries, need to know we won't be crowded out of the capital markets, which is already happening.”

Developing countries also warned of the risk of protectionism in the West, while Gordon Brown urged the world to fight against a trend towards “deglobalisation”.

Sir Martin Sorrell, head of WPP, the advertising giant, agreed that there had been not enough attention paid to how the West was going to pay for the bailout of their economies, other than by printing money and letting inflation deal with the debts.

Some found the mood in Davos much too downbeat, claiming that it seemed to have turned into a pessimism contest. Richard Lambert, the head of the Confederation of British Industry, yesterday declared the official end to the “who can be gloomiest at Davos week”.

For some, the number of people wearing ties provided the most striking contrast with previous years. This used to be frowned upon and delegates who ignored the informal dress code were asked to pay a fine. Even some Google executives were sporting ties, though not co-founder Larry Page, who expressed concern at the trend. Ties constrain the flow of blood to the head, he explained.

Angela Merkel, the German Chancellor, said later that the global economic crisis could lead to the creation of a UN Economic Council, modelled on the United Nations Security Council. In comments that could provoke further tensions between Europe and the United States, both Mrs Merkel and Mr Brown said that new global rules for financial markets were now needed. “These need to be laid down in the form of a charter for the global economic order,” Mrs Merkel said.

Perhaps enforcing the dress code could help restore harmony next year.

What a difference a year makes

Klaus Schwab
President and Founder of the World Economic Forum