WEF: Economic Game Changers

"Cometitiveness" dominates talks in Vienna during the World Economic Forum on Europe and Central Asia

News | Cristina Rotaru | July / August 2011

It seemed oddly fitting that on the 50th anniversary of the East-West Summit between John F. Kennedy and Nikita Khrushchev, Vienna’s Hofburg would once again play host to  the World Economic Forum on Europe and Central Asia. June 8 and 9 was an assessment of just how far constellations have shifted since – with a Berlin Wall rising and falling, and the Soviet system vanishing from the world stage. The penetrating light of U.S. power has also dimmed a bit, and at this occasion, kept its glimmering shine in the background.

As the Forum opened heads of states and governments gathered to meet face to face with over 500 entrepreneurs, business titans and prominent media and academia leaders from 67 nations for talks about the future of economic risk management and social security.

It was indeed a challenging position for the men and women behind the myth, often accused of wallowing in money themselves, to try to hedge deals between the ever so conflicting public and private systems, and still remain impartial to the inherent conflicts of interest that discussions on such large scales often bring about.

The regional Forum, affiliated with the Geneva-based World Economic Forum in Davos, had announced its goals of devising successful strategies for innovation, critical for the region in times of recession, and designing new models of partnership between decision making institutions. But where exactly does cooperation fit into the dominating scheme that seems to be on everybody’s agenda these days – competitiveness? This seems to be a question that has endured throughout most of the neo-liberalist market development, challenging both theorists and practitioners alike.

Despite the precarious financial conditions that framed this year’s meeting of the Forum and the growing pessimism that surrounds the recovery of Europe and Central Asia’s economies, Klaus Schwab, Founder and Executive Chairman of the WEF, urged all participants to look to the East for business inspiration, and to the host city of Vienna.

Austria, with its long history of successes, serves as a "role model for Europe," Schwab said, and it is important that everyone be reminded of its strategic gateway position that will grant access not just to Eastern Europe but also to new, largely untapped markets of Central Asia. These countries have undoubtedly moved from the periphery to the center of the equation, and will play a deciding role in designing the world’s new economic architecture.

Panels at the WEF also featured talks regarding the internal organization of the market. The Head of the Sberbank, Herman Gref, announced the privatization of the Savings Bank of the Russian Federation, confirming his interest to Volksbank and its Eastern European branches.

Resource Diversification 

Throughout discussions, diversification prevailed as the central aspect of European energy policy-making. Mykola Azarov, Prime Minister of Ukraine, criticized Russia’s total control over the country’s oil and gas supplies, stating that such dependence led to a doubling of the oil prices in the past year, which aggravated the already troubling debt rate. Drifting away from Russia’s protectionism is a deciding step for Ukraine, but it seems that, with Europe backing up the plan and Central Asia providing the goods, it is one need taking.

"The cooperation of Europe with Central Asia is crucial," agreed Michael Spindelegger, Austria’s Minister of Foreign Affairs, "as Black Sea resources will most likely run out in 20 years time, and our affluent society will call for alternatives." To loosen ties with Russian energy suppliers, Europe now depended on the implementation of the Nabucco Project, a natural gas pipeline from Turkey to Austria, by route of Bulgaria, Romania and Hungary. If built, the pipeline is expected to operational in 2017, with Iraq as the main distributor in close cooperation with Azerbaijan, Turkmenistan and the whole Caspian region ensuring wider diversification.

A range of proposals was made for developing a sustainable energy infrastructure that is both viable and would address energy-poor areas. However, the main problem in the existing paradigm was not scarcity, but resource distribution. In dealing with this matter "we cannot count nuclear out," insisted Lady Barbara Judge, Chairman of the UK Atomic Energy Authority, despite the natural gas renaissance that had attracted wide-spread support. Even in light of recent events of Fukushima, this was all old news.

No one was really relying on Central Europe for nuclear support, and that Austria, Switzerland, Italy and ultimately even Germany were positioning themselves against it didn’t nearly come as a shock. Countries like the UK, France and Turkey- that had announced their commitments to build nuclear power plants long ago, were expected to keep to them and all would be business as usual. After all, in terms of efficiency and security, nuclear still counted as the backbone of modern energy aggregation, Lady Judge said, and this time it was Asia, not Europe, that set the odds.

Europe a threat

In fact, even from a more centralist point of view, Europe’s general picture was bleak. Deficient institutional participation was subjected to severe criticism, arguably because it affects the very core of the democratic principles it takes pride in tendering.

Particularly in the light of the ongoing economic distress, European governments, faced with both banking and legitimacy crises, need to target benefits of stability, not independence, experts said. But the EU, as the most powerful economy in the world of over €60 billion, faces an acute lack of political engagement and seems weary of the struggle for power.

"Of course, this harms the overall integrationist project," said Mark Leonard, Director of the European Council on Foreign Relations.

The recent prospect of creating a centralized European treasury raises many questions, especially for a country like Germany, which has invested more in the Euro-project than any other.

The problem, Leonard argued, is that Europe has focused more on its "existential crisis" than its economic one, and this has gravely damaged its credibility, as politicians used the opportunity to promote their own nationalist agendas. But if voters were to be presented with real options, such as that if the euro zone would default, Germany would lose 30% of its GDP in one shot, as opposed to the 5% it has lost as of yet, they would surely vote accordingly.

With the raising markets of China, India and Brazil, Europe was described as needing to make more short and mid-term investments, while at the same time, depending on governmental regulation in the process. But the private and public sector had not communicated successfully in the past ten years, participants said, and unemployment rates were still on an alarming rise, despite stringent demands for qualified workforce.

Hungarian Prime Minister Viktor Orban blamed this imbalance on the education system, stating that there were more than 1 million "uneducated gypsies" in Hungary living off social welfare. When asked if his party’s nationalist views might have influenced this situation, he addressed the established welfare system as in danger of dissolving.

"We need to restructure it completely, otherwise it will kill us," he said.

However, John Evans, General Secretary of the Trade Union Advisory to the OECD, believed that the skill mismatch among the 24 million unemployed Europeans – most young adults – is not a problem of the labor market, but of economic policy.

He said he believed the key was to create a balance between public strategy and building a resilient workforce that would endure throughout all labor market cycles and were willing to invest in the future of Europe – rather than emigrating to countries considered less risky, like India or Brazil, where companies might be investing in employee training.

In order to reassert itself as an active global player among such promising new markets, Europe needed to stop taking its status quo for granted, he said, and start taking competition more seriously. Among an increasingly aging population and entrepreneurs fleeing to the East the only feasible option was to invest in promising industries, an initiative that should to be set in motion sooner rather than later in order to avoid a much more dangerous prospect than stagflation and becoming economically obsolete.

Impacts of the Arab Spring

Recent turmoil in Tunisia, Libya and Egypt had resonated across the world, opening up new opportunities for partnership and trade, both economic and political, between East and West.

"Transition to democracy seems to be only a question of time at this point," said Mustapha Kamel Nabli, Governor of the Central Bank of Tunisia, even though the paradox between people’s expectations and the present state of the economy had already begun triggering tensions. The reason, he argued, was that the revolution, provoked and sustained by new media, hadn’t found the support it needed, with responses from the US and Europe he considered inadequate.

"What we hear from Europe is that ‘money is not a problem, but we need to make sure it goes to the right place,’" Nabli argued. Instead, the country is in need of real, tangible aid, and people who are "willing to bet on the success of the revolution."

Corruption has indeed been part of the transitory process, and people are talking of "leaderless revolutions."  Yet after 60 years of rulership, not leadership, it seems only justifiable that they are reluctant to appoint anyone responsible.

"We have been in bed with the government, it was the only way to survive" admited Bahraini businessman Rashad Janahi. But now more than ever, he believed in his country, insisting that instead of turning to the European Bank for Reconstruction and Development for assistance, local financial communities should be investing in their own markets. "Arab money should stay in Arab countries, but I’m afraid we are not confident enough yet to make investments of such proportions," Janahi concluded.

With Turkey as a secular republic serving as the prime example for a shift in paradigm, the Arab transition seemed that it ought to be able to weather any difficulties. But this also precipitated a number of controversial questions regarding the existence of a Christian democracy as opposed to an Islamic one. And although most officials refrained from commenting on the subject, it was still a concept that defined East and West relations.

By the end of the summit it was agreed that, in order to mobilize the public – the most valuable resource of all – all countries must actively contribute to a sustainable platform for communication on every level, between corporations and governments, enterprisers and investors, and even administrations themselves.

With innovation taking place at such break-neck speed and all players trying to keep their pawns on the board, participants said, it seemed only natural that cooperation has become a much desired asset of the game. To build a resilient and enduring model that met everyone’s demands would prove a heavy task over the next decade. Yet it was one that would fall in the hands of financial moguls and small scale investors alike.

Stephen Kinnock, Head of Europe and Central Asia World Economic Forum, defined this goal as "a matter of the head and the heart." Although Europe must be hard-headed and take initiative to tackle challenges, it was important that it remember that these challenges were common ones, shared by all parties, and not neglect the emotional connection to what had already been achieved.

An appealing proposition, but it remained to be seen if Europe and Central Asia would in fact have to cooperate rather than compete.

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