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Mark Carney sees more problems than solutions emerge from Davos
Davos is a good place to recognize problems but not such a good place to solve them, according to Lord Mark Malloch Brown, a British politician and diplomat who was in the Swiss Alps this month. “A new generation of modest, listening and empathetic leaders is needed – the antithesis of Davos Man,” he tweeted.
The World Economic Forum has steered so far to the north of public opinion that it is now being used as a punchline – the New York Times noted that “the Davos Consensus” is now a counter-indicator of what is likely to happen. “Trump is already the president at Davos — which is a good thing because the Davos consensus is usually wrong,” said Alex Soros, son of George and chair of the Open Society Foundation, on a panel at this year’s forum.
Yet, there is a reason why 3,000 of the world’s most powerful people make the mid-winter trek to Switzerland every year and line up in the cold to pass through security outside the Grandhotel Belvédere: It’s valuable to understand what the global elite is thinking and to recognize the many problems the world is facing.
GZERO Media caught up with Mark Carney, former governor of the Bank of England and Bank of Canada, who now serves as chair of Brookfield Asset Management and Bloomberg Inc. (as well as acting as a UN special envoy on climate change), to hear what he picked up in Davos.
Economic optimism
On the global economy, the general feeling was of a resilient US economy contrasting with a stagnant Europe, particularly as Germany goes through a historical industrial restructuring moving away from a model built on cheap gas from Russia and exports to China.
The general outlook for China was bearish, with the downside of its ongoing real estate adjustment outweighing the boost from China’s growing competitiveness in electric vehicles and clean energy and its efforts to rebuild exports at a time when supply chains are being “de-risked.”
Premier Li Qiang told Davos that China’s economy is open for business, but Reuters reported that investors who attended a closed-door lunch with him remained skeptical about China’s charm offensive.
This points to more stimulus, Carney said. Indeed, Bloomberg reported last week that the Chinese government is considering a rescue package for slumping stock markets (the CSI 300 was down 11.4% last year, its third year of negative growth, while Hong Kong’s Hang Sen was down 14% in 2023).
On monetary policy, Carney said the expectation among many attendees was that interest rates have peaked but that there was only limited appreciation that the pace of reductions may be slower than the market has been pricing. During Davos, market expectations were that the Fed would begin cutting in March and then cut again another four or five times this year. But Carney believes the Fed will probably wait until June to begin cutting, followed by another one or two cuts this year. “However, if that’s because the US economy is stronger than expected, it would be net positive,” he said.
Global crises
Geopolitics weighed heavily in the Swiss Alps. While US-China relations appear to have stabilized in the short term, the Middle East conflict was widening alarmingly. Reuters reported that there were no practical advances on a Palestinian state, or even a cease-fire, at Davos.
The head of the Palestinian Investment Fund estimated that $15 billion would be needed just to rebuild houses in Gaza. Arab states said they would not fund reconstruction until there was a lasting peace, by which they meant a Palestinian state.
Yemeni and Iranian officials told Davos audiences the attacks in the Red Sea would not stop until Israel ended the war in Gaza. The CEO of oil giant Saudi Aramco warned that the world might see a shortage of oil tankers if the attacks continue, forcing shippers to choose longer alternative routes.
Bankers warned that increased shipping costs and the possibility of an oil price rise could prove inflationary. And attendees took note of the comments of Saudi Arabia’s Prince Turki al Faisal that “the present leadership of Hamas, the PLO, and of Israel should be excluded from any participation in any future political role.”
Good AI vs. Bad AI
AI was everywhere, with businesses focused on how to implement it, first in basic administration and more profoundly in re-engineering the production, sales, and marketing. The core question of whether workers will benefit — and when — was more hotly debated. Some, including the IMF, saw widespread disruption to jobs (up to 40% according to the Fund). The techno-optimists pointed to the ability of AI to re-skill workers rapidly and past experiences with major technological changes that belied the ‘lump of labor fallacy.”
Carney felt that AI would begin to have major impacts on productivity and growth by the end of the decade and that, history teaches, it would take a comprehensive response of business, government, and academia to ensure that workers share in the benefits.
Climate change
Coming less than two months after what was regarded as a business-heavy, successful COP28 in Dubai and with AI dominating much of the discussion, the climate change debate was relatively muted. But Carney said it would be a mistake to consider that the transition has been relegated down the agenda.
He said that it is now so core to the fundamental business model of most companies that it has become embedded as a driver of competitiveness.
Carney noted that five years ago, $500 billion was invested in the transition; last year, that number was $1.8 trillion, nearly double what was invested in oil and gas. The challenge is that this number needs to more than double again to about $4 trillion by the end of the decade.
He said that the transitions toward clean energy and AI actually work in tandem since, while AI is relatively capital-light, it requires a lot of data and computing power, which in turn requires clean energy. And AI solutions will help with optimizing grids, heating and cooling systems, and even supply chains.
It was noticeable that the backlash against Environmental, Social, and Corporate Governance, or ESG, meant it was rarely mentioned in Davos. Attendees like Canadian Deputy Prime Minister Chrystia Freeland were more focused on the new buzzwords – “supply chain resilience” – trying to convince investors that Canada has the critical minerals and clean energy they need, as businesses try to diversify sources away from China.
Sustainability is now about “resiliency building” that contributes to profitability, not just altruism.
Milei’s message
Javier Milei, the new Argentinian president, burst onto the main stage at Davos like an arsonist with a blowtorch, lambasting the proponents of state intervention and concluding with the rallying cry: “Long live freedom, damn it.” He said the Western world is facing a significant threat because its leaders have been co-opted by a worldview that leads to socialism and economic deprivation.
“We are here to tell you that collectivist experiments are never solutions to the problems that affect citizens. Trust me, no one is better than Argentina to provide testimony on this,” Milei said.
At the time of Milei’s inauguration, annual inflation stood at 143%, the currency had plunged, and four out of 10 Argentines were living in poverty. He has promised radical reforms, including deregulation and devaluation of the currency, and there was no evidence that he was prepared to dilute his agenda in his speech.
He was scathing about “neo-Marxists” who have “co-opted the common sense of the Western world” when it comes to the climate change agenda and said he considered all talk of “market failure” to be an oxymoron.
Carney has considerable experience in navigating market failures, having been in the Cash Room meeting in the US Treasury as Bank of Canada governor during the financial crisis, alongside other G7 finance ministers and central bankers, when the decision was reached to backstop the banking system with liquidity to prevent a repeat of the Great Depression.
“All ideologies are prone to extremism, and capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith,” he wrote in his book, “Values.” “There are no libertarians in a financial crisis.”
But he said he found Milei’s speech to be entertainingly provocative. “It was good theatre and raised some important issues,” he said, particularly his praise for entrepreneurs and his assertion that state control does not depend solely on owning the means of production but can include regulation. Carney noted, however, that Milei appeared oblivious that he was speaking to some of the world’s most successful entrepreneurs (such as Bill Gates), few of whose actions echo the “Atlas Shrugged” school of poverty elimination.
Carney concluded that, “where you stand depends on where you sit,” and that Milei’s vehemence was undoubtedly influenced by a long history of high levels of state intervention and indebtedness in Argentina.
After his speech, Milei sat down with International Monetary Fund Managing Director Kristalina Georgieva to discuss Argentina’s debt problems. He remained defiant: “Free enterprise capitalism is the only tool we have to end hunger and poverty,” he said.
Milei will have to face down entrenched opposition from those who rely upon rents from the state apparatus if he is to rid his country of the unwanted tag of the “Argentina paradox,” the world’s most glaring example of a developed economy that went backward.
Residents of Avellaneda protest against the DNU (Decree of Necessity and Urgency) and the Omnibus Law promoted by the government of Javier Milei.
The masses test Milei with major protest
Starting mid-day Wednesday, Argentina’s most powerful unions will stop work to demonstrate against the financial overhauls proposed by new President Javier Milei, as his omnibus spending bill works its way through Congress. An impressive turnout is expected for the march to the national Congress in Buenos Aires, with smaller solidarity protests across the country. Workers everywhere – from banks to domestic airlines to those informally employed – say they will join the strike.
Union leaders recognize the need for economic reform (with 211% inflation rates and 40% of Argentines living in poverty, who wouldn’t?) but object to the working class being tasked with carrying so much of the burden. Milei has already used his executive powers to slash subsidies for transport and energy, among other areas, but his administration says increases to childcare and food aid benefits are meant to prevent catastrophe for impoverished citizens. The radical cuts proposed in the omnibus bill are all but certain to be moderated in Congress, where Milei’s party holds only a small minority of seats — but no one expects a painless experience.
Is Milei’s honeymoon period ending? It’s one thing to wave a chainsaw around and yell about the “communist shits” in power, but it’s quite another to reverse Argentina’s century-long economic decline. A strong turnout against the cuts could put pressure on lawmakers to ease up, but don’t expect a collapse of the overhaul effort even in the case of a massive showing. The economic situation demands change – even unpopular change – and Milei’s rivals from former President Cristina Fernández de Kirchner’s party are only too happy to let Milei’s approval rating take a beating before they make their move.10 images that captured 2023
With 2023 in our rearview mirror, here are some of the images that defined the tumultuous year: from Fulton County, Georgia to Gaza City,
Feb. 5: Spy Balloon Downed
Credit: Sipa USA via Reuters
Sailors assigned to Explosive Ordnance Disposal Group 2 recover a Chinese high-altitude surveillance balloon off the coast of Myrtle Beach, South Carolina, Feb. 5, 2023.
Feb. 10: Earthquake shakes Turkey and Syria
Credit: Umit Bektas/Reuters
An aerial view shows damaged and collapsed buildings in the aftermath of a deadly earthquake in Hatay, Turkey February 10, 2023.
March 23: France protests pension changes
Credit: Alain Pitton/NurPhoto via Reuters
Riot policemen stands amid clouds of tear gas as more than 70,000 people protest in Toulouse against French President Emmanuel Macron’s attempt to raise the national retirement age and change pension benefits. March 23th 2023.
May 6: King Charles III coronated
Credit: Stefan Rousseau/Pool via REUTERS
King Charles III waves as he leaves the balcony of Buckingham Palace, London, following his coronation, May 6, 2023.
Jun. 7: Canadian wildfires
Credit: REUTERS/Andrew Kelly
People ride bicycles at 6th Avenue as haze and smoke caused by wildfires in Canada blanket New York City, New York, U.S., June 7, 2023.
Aug. 24: Trump mugshot
Credit: Reuters
Former U.S. President Donald Trump in a police booking mugshot released by the Fulton County Sheriff's Office, August 24, 2023.
Sept. 25: Milei’s chainsaw
Credit: REUTERS/Cristina Sille
Argentine presidential candidate Javier Milei holds a chainsaw next to Carolina Piparo, candidate for Governor of the Province of Buenos Aires, during a campaign rally, in Buenos Aires, Argentina September 25, 2023.
Oct. 7: Noa Argamani kidnapped
Nova music festival attendee Noa Argamani reaches out to her boyfriend, Avinatan Or, as they are kidnapped by Hamas terrorists on Oct. 7, 2023.
Oct. 9: Gaza’s children bombed
Credit: IMAGO/Medhat Hajjaj/apaimages via Reuters
A child at Shifa Hospital in Gaza City rests after surgery, having been wounded in an Israeli attack. October 9, 2023.
Oct 23: Afghanistan's historic Cricket World Cup win
Credit: ANI via Reuters
Hashmatullah Shahidi celebrates Afghanistan's victory against Pakistan. Oct 23, 2023
What will 2024 bring? Make sure to subscribe to the GZERO Daily newsletter to keep up.
Javier Milei, president of Argentina, reacts during a plenary session in the Congress hall as part of the 54th annual meeting of the World Economic Forum, WEF, in Davos, Switzerland, on Jan. 17, 2024.
Milei makes fiery Davos debut
Javier Milei’s first foray onto the international stage wasn’t so much to deliver a maiden speech as to give a “brazen hussy of a speech,” to use Winston Churchill’s memorable phrase.
The newly elected Argentinian president blazed into Davos like a comet and delighted libertarians around the world with his unabashed advocacy of free markets. He concluded with a rallying cry for the world’s wealth creators: “Long live freedom, dammit!”
The Western world is facing a significant threat because its leaders have been coopted by socialism, which leads to poverty and economic deprivation, he said. Motivated by good intentions, or the desire to belong to a “privileged caste,” leaders have abandoned the model of freedom for different versions of collectivism.
“We are here to tell you that collectivist experiments are never solutions to problems that affect citizens,” he said. “Trust us, no one is better than us Argentinians to provide testimony on these issues.”
Milei was elected to power at a time when inflation in Argentina is running at 140% annually and GDP is forecast to shrink 2.5% this year. The South American country defaulted on its debt in 2020. Milei has promised radical reforms, including deregulation and devaluation of the currency.
There was no evidence that he is prepared to dilute his agenda in his speech in Davos on Wednesday.
Social justice is not just, he said, and does not contribute to the well-being of the country. The state is financed by coercion, in the form of taxes. “The higher the tax burden, the higher the coercion.”
Milei outlined his version of libertarianism as comprising private property markets free from state intervention, regulation, and “the radical feminist agenda.”
He was scathing about “neo-Marxists” who have “coopted the common sense of the Western world” when it comes to the climate change agenda. “Fortunately, there are more and more of us who are daring to make our voices heard because we see that if we don’t truly, decisively fight against these ideas, the only possible fate is for us to have increasing levels of state regulation, socialism, poverty, and less freedom, and therefore worse living standards.”
“The market is a discovery process in which capitalists will find the right path as they move forward,” he continued, arguing that states should not interfere in the discovery process of capitalists. Punishing them “will produce less, and the (economic) pie will be smaller,” he said, calling successful entrepreneurs “social benefactors” for contributing to society’s well-being. “Ultimately, a successful entrepreneur is a hero.”
Perhaps not surprisingly, this argument had Davos billionaires rattling their Rolexes in agreement.
GZERO 2023 music playlist
It was a bumpy year, so bump and groove your way into the New Year with our 2023 playlist! We scoured the charts from Buenos Aires to Beijing for songs that captured the zeitgeist, from Ice Spice to Fela Kuti — and make you wanna boogie.
Playlist tracks
Inflation - “Expensive shit” by Fela Kuti
French protests – “Paris is a bitch” by Biga*Ranx
West African coups - “Soldier Take Over” by Yellowman
Milei elected - “Desesperada” by Sara Hebe
European migration - “Desaparecido” by Manu Chao
Politics in general - “Liar’s Dub” by Max Romeo
Climate change failure - “Sogno otro mundo” by Apres la classe and Manu Chao
Struggle between Mexico government and drug cartels - “La People” by Peso Pluma
Nigerian election - “I Told Them” by Burna Boy
Xi Jinping wins historic third term as Chinese president - “Paint the Town Red” by Doja Cat
25th anniversary of Good Friday agreement - “Jackie Down the Line” by Fontaines DC
War in Ukraine - “Heart of Steel” by Tvorchi
Power Barbie - “Barbie World” by Nicki Minaj & Ice Spice
George Santos - “Banned in DC” by Bad Brains
UAW/SAG strikes - “Never Cross a Picket Line” by Billy Bragg
China economic weakness - “Made in China” by Higher Brothers and Famous Dex
Ukraine - “Running Up That Hill” by Kate Bush
Rise of AI - “Yoshimi Battles the Pink Robots Pt. 1” by The Flaming Lips
Colombia’s new drug policy – “Don’t Sniff Coke” by Pato Banton
US telling on India for killing Hardeep Singh Nijjar – “Exposing me Remix” by FBG Duck
Elon Musk unravels – “Where Is My Mind?” by Pixies
Chinese spy balloon – “Somebody’s Watching Me” by Rockwell
Biden-Xi meeting – "Bad Idea Right" by Olivia Rodrigo
The Black Sea grain deal – "Is It Over Now? (Taylor's Version) by Taylor Swift
Biden runs for president (again) – “Never Gonna Give You Up” – By Rick Astley
Putin survives Prigozhin revolt -- "Houdini" by Dua Lipa
Putin to Lukashenko – “Lil Boo Thang” by Paul Russell
North Korea fires more missiles for attention – “I’m Just Ken” by Ryan Gosling
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FILE PHOTO: Brazilian president Lula da Silva hugging Ursula von der Leyen the President of the European Commission at the 3rd EU-CELAC Summit in Brussels, Belgium on 17 July 2023.
EU and Mercosur near trade deal (at last)
It has been a long four years since the free trade deal between Brussels and Latin America’s largest trade bloc was agreed in principle, but all sides now, finally, look close to signing on the dotted line.
European Commission President Ursula Von der Leyen and Brazilian President Luiz Inácio Lula da Silva plan to meet on the sidelines of the COP28 summit in Dubai to push through the final hurdles. If all goes well, the European Commission’s vice president for trade may attend the Mercosur summit in Rio de Janeiro on December 7 and bring an early Christmas present home for EU exporters.
The deal would create an integrated market of over 780 million consumers, one of the largest in the world. The European Commission estimates it will save over $4.4 billion in tariffs alone, and give Europe better access to minerals crucial for renewable energy applications. Farmers in Mercosur countries meanwhile – that’s Brazil, Argentina, Paraguay, and Uruguay, with Venezuela suspended, and Bolivia joining soon – are expected to get a nice boost, too, especially for their exports of beef, coffee, and soybeans to the EU.
So what’s the holdup? Environmental concerns, mostly. Some European member states have pushed for stricter external monitoring and protections against Amazon deforestation than Brasilia can stomach.That said, Lula has signaled he is ready to compromise in order to make good on his earlier pledges to revitalize Mercosur as a formidable trade power.
And Brussels has its own reasons to be flexible: after failing to land big potential deals with India and Australia, a third major trade failure could pose problems for the centrist coalition presently in charge as it tries to fend off surging right-wing challengers in upcoming EU parliamentary elections.
The effort could still fall short, but Eurasia Group expert Julia Thomson says all sides are aware the moment of opportunity is ephemeral.
“Even if they can't get everything they're expecting,” she says, “negotiators will try to advance the deal.”
But if they don’t, she warns, “it will probably go back into the fridge and take ages to be rediscussed.”
Argentina's economy will get a lot worse before it gets better
Ian Bremmer shares his insights on global politics this week on World In :60.
Will Israel and Hamas finally reach a hostage deal?
We keep hearing about this deal. We're now saying it's imminent, but imminent doesn't mean announced. And, you know, things can go wrong at the last minute still, where the details make it seem like this is going to happen. And what that means is not only we're going to see at least a few dozen Israeli women and children released and some Palestinians, also mostly women, it looks like, released as well from Israel, but that you'll get a temporary ceasefire in three days, five days, and maybe that leads to more diplomacy. It doesn't lead to Israel no longer attacking Hamas. Let's be clear. It's not an actual ceasefire, but it creates more space for people to be talking, especially talking with the Israelis, major leaders in the region. That is something we'll be watching very closely.
What does Javier Milei’s election mean for the future of Argentina?
Well look, it means that the Argentines were absolutely sick of the country falling apart and they were voting between a guy who said he was going to dollarized and get rid of a lot of the government and someone who represented economic policies that have driven the country into a ditch, 140% inflation and massive poverty and, you know, nobody investing and close to a default from the IMF. So, I mean, all of this is a disaster. But Milei, he doesn't have a single governor. He won't have a majority in Congress. He doesn't have an economic team. And his economic plans are mostly vaporware. So, I mean, this is not a country that has the ability to screw around for an awful lot. It's not like the United States in Afghanistan or Iraq. You make mistakes. But the economy is still great. Argentina is not Afghanistan, but they are in serious, serious trouble. And so, yeah, the economy is going to get a lot worse before it gets better. And we'll watch that. It's very expensive to dollarize by the way. And so that means you got to have to print a lot more. I suspect that this is going to be a lot more hardship on the backs of a lot of Argentines. Okay.
Happy Thanksgiving! What world leader has the most to be thankful for this holiday season?
What a hard thing. I mean, all leaders should be thankful because, you know, in principle, they're doing a hell of a lot better because they're representing their people and they should appreciate that and they should take that seriously. And a lot of them don't. But I guess I probably say Modi. Narendra Modi in India, because I mean, he is a very popular leader of the world's largest democracy, 1.4 billion people, the most populous country in the world, is pretty democratic. It's growing economically. It is a leader of the Global South, but it's also with increasingly stable relations with the United States, with Japan and with Europe. And Modi has accomplished a lot of that. So he has a lot to be thankful for. And he is not going anywhere anytime soon. So there's that.
Candidate Javier Milei greets his supporters as he arrives at the school where he votes, in Buenos Aires, Argentina, on Nov. 19, 2023.
Milei’s victory plunges Argentina into uncharted waters
Far-right libertarian Javier Milei is set to become president of Argentina after defeating Economy Minister Sergio Massa in Sunday’s runoff election. With over 90% of the ballots counted, Milei leads the vote count 56% to 44%, and Massa has conceded defeat.
Milei’s campaign promises: A self-described anarcho-capitalist, Milei has pledged to cut public spending by 15%, abolish Argentina’s central bank, ditch the peso, and make the US dollar the country’s legal currency.
Despite Milei’s extreme campaign pledges, it seems that voters just couldn’t stomach elevating an economy minister who had delivered inflation north of 140% to the presidency. Two in five Argentines are living in poverty on Massa’s watch.
Milei's party, however, only controls about a small fractions of seats in each house of Congress, which will make passing legislation a major challenge.
What's more, dollarizing the economy is no panacea. True, countries like Zimbabwe and Ecuador have used the tactic to remove the government’s ability to print money (and thereby drive inflation) — but Argentina ain’t Zimbabwe. Unilaterally handing the US Federal Reserve control of monetary policy in a $622 billion economy is absolutely unprecedented.
The dollarization of an economy this large and signaled this far in advance may actually drive up inflation. To fully dollarize, Milei would need to buy enough dollars to convert all the pesos in circulation and convert all contracts and assets into dollars. Buenos Aires is already having a hard time buying dollars because the peso is so weak, and the lack of foreign reserves to back its nominal value means a significant devaluation of the currency is expected before Milei takes office on Dec. 10.
Because the peso will soon be even weaker, Milei will probably need to print more pesos just to begin the dollarization process. But in doing so, he’s likely to trigger another round of hyperinflation, which could quickly eat away at his political popularity.