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Quo Vadis World Economy – I: White Darkness at Davos

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A gloomy mood marked this year’s meeting at the rich club Davos. Women were told to take care owing to the explosion of “sex tourism” in Davos, and many millionaires who advocated for vegetarianism and gender equality flew private planes to Switzerland.

Nevertheless, the atmosphere there was dark. Annually released around the time of the Davos Summit, the World Economic Forum (WEF) Global Risk Report presented shocking findings. We are expected to witness social and environmental crises; the cost of living is ranked as the most severe crisis, and “biodiversity loss and ecosystem collapse” is viewed as one of the fastest deteriorating global risks.

Inflation could lead to stagflation, the socioeconomic consequences of which could be severe, given an unprecedented interaction with historically high public debt levels. Global economic fragmentation and geopolitical tensions could also contribute to widespread debt distress.

As if that wasn’t bad enough, the report went on to predict that technology would worsen inequality, food and fuel crises exacerbate societal vulnerabilities, and declining investments in human development erode future resilience.

Is there any cause for optimism in this dark scenario? For the WEF, there is.

‘Stakeholder capitalism’

“What kind of capitalism do we want?” was asked by Klaus Schwab, a WEF founder, in his 2019 Davos keynote.

Schwab thinks there are three models/answers to address the crisis.

The first is ‘shareholder capitalism,’ embraced by Western corporations. In this model, a corporation’s primary goal is to maximize its profits.

The second model is “state capitalism,” which entrusts the government with setting the economy’s direction and has risen to prominence in many emerging markets, not least China.

Third, of course, is the way Schwab also proposes, ‘stakeholder capitalism.’ In Schwab’s own words, it is a model he proposed half a century ago, positioning private companies as ‘trustees of society.’

The WEF founder argues that the single-minded focus on profits caused capitalism to become increasingly disconnected from the ‘real economy.’ This form of capitalism is no longer sustainable. Instead, large corporations must cultivate ‘stakeholder capitalism’ along with governments and multilateral organizations.

When discussing the transition from shareholder capitalism to stakeholder capitalism, Schwab emphasized the significance of the ‘Greta Thunberg effect.’ For him, the Swedish climate activist has reminded us that adherence to the current economic system represents a betrayal of future generations. Moreover, Generation Z no longer wants to work for, buy from, or invest in companies that lack values beyond ‘shareholder values.’

Now some facts

The WEF-painted bleak picture and its calls for ‘sustainable’ capitalism are close to the truth.

The 2022 Global Wealth Report by Credit Suisse estimates that global wealth will have increased to $463.6 trillion by the end of 2021. This is almost 4.5 times the total worldwide output.

Furthermore, international wealth climbed by 9.8 percent in 2021, much higher than the average growth rate of 6.8 percent witnessed since the turn of the century.

Behind this enormous jump are rising real estate prices and stock market growth fueled by credit expansion. That is to say, a significant portion of the rise in wealth can be explained by the enrichment of the richer in the world.

Indeed, the report estimates that by 2020, a mere one percent of the global population (56 million individuals) possessed 45.8% of all wealth, while the other 2.9 billion owned just 1.3%. This ratio changed as follows in 2021: What one percent of the population now owns rose to 47.8 percent of all the wealth. The richest 13% has 86 percent of the total wealth.

According to the inequality report by Oxfam, just four cents in every dollar of tax revenue collected globally came from taxes on wealth.

Income tax collection from the wealthiest in OECD countries has decreased from 58 percent (in 1980) to 42 percent now.

This rate drops to 31 percent when the number of countries in the sample is expanded to 100. In the same sampling set, tax on capital income, one of the significant sources of wealth for the top 1%, has an average rate of just 18 percent. Only three countries have a higher tax rate on capital income than on wages.

International institutions are also pessimistic

The warnings of IMF Director Kristalina Georgieva before Davos are worth remembering. According to Georgieva, a third of the world will face a recession in 2023.

The OECD revised down the IMF’s forecast for global GDP growth from 2.7% to 2.2%. Arguing that the growth ‘has lost its momentum,’ the OECD noted that risks are skewed to the downside.

The World Bank went even further, projecting the global growth rate to be at 1.7 percent and growth in per capita income in all regions of the world to be lower than in the pre-COVID decade.

According to the World Bank, by the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below the levels expected before the pandemic.

In the WEF’s Chief Economists Outlook survey, economists are even more pessimistic. 18% of polled chief economists in public and private sectors said that experiencing a global recession this year is ‘extremely likely.’

One-third of economists expect a global recession and anticipate that the United States and Europe will maintain their tight monetary policies.

All surveyed chief economists predict Europe to grow ‘weakly or very weakly’ in 2023. For the US, 91% forecasted ‘weak or very weak growth.’

In last year’s survey, these rates were 86 percent (for Europe) and 64 percent (for the United States).

Nine out of ten respondents agreed that corporations would feel the effects of low demand and high financing costs. At the same time, six out of ten underscored the rising input prices. For these reasons, many chief economists expect multinational corporations to reduce operational costs to cut expenses.

Huge dismissals at tech giants

What the economists polled by the WEF thought about multinational corporations has taken place for a while.

Having seen exorbitant stock rises and announced huge profits during the pandemic, technology giants began to ‘update’ their operational expenses due to the severe drops in their balance sheets last year.

Expanding their workforces in tandem with the growth of online activities during the pandemic period, American multinational monopolies, such as Alphabet (Google), Meta, Amazon, and Microsoft, started laying off employees as a primary measure against the shrinking industry.

The number of layoffs in the IT industry has reportedly reached 200,000 since the beginning of 2022, according to the website layoffs.fyi, which tracks releases in the technology sector.

In 2023, 67,268 people would have lost their jobs in this industry. About 51,000 people have been dismissed in the previous several weeks by Meta, Amazon, Microsoft, and Google alone. The only giant in the industry that has not announced a layoff so far is Apple.

The tech monopolies, on the other hand, are wallowing in money. Recently, Microsoft announced its profit for 2022 Q3 as $16 billion. If federal regulators had not stepped in to block the deal, Microsoft would have acquired the video game producer Activision Blizzard last year for $69 billion.

Meta reported a profit of $4.4 billion in the third quarter of 2022, although reporting a 52% decrease compared to last year.

Amazon also announced a decline in profits, but the company still made almost $3 billion in the latest quarter.

Layoffs spread across all industries

However, Silicon Valley giants are not an exception in dismissals.

Software giant SAP of Germany has announced it would lay off 3,500 staff, while chemical conglomerate Dow will fire 2,000 workers. Executives at Dow have said that they will cut costs by $1 billion this year.

3M, another American multinational giant, will reduce its staff by 2,500 on the pretext of falling customer demand.

The toys company Hasbro will lay off 1,000 workers, equal to 15% of its current workforce.

10% of employees will be dismissed at Salesforce, 6% at Spotify, 11% at Vimeo, 3% at BlackRock, and 7% at Goldman Sachs.

In the following articles, I will focus on the situation in the USA and Europe.

America

Pentagon and Justice Department form joint task force to combat media leaks

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US Secretary of Defense Pete Hegseth announced on Monday that the Department of Defense and the Department of Justice have established a joint task force as part of efforts to prevent the unauthorized disclosure of sensitive information to the public.

Hegseth stated that the Office of the General Counsel (OGC) of the Department of Defense will have the authority to request and receive all information, support, and records across the Pentagon related to media leak investigations.

The Defense Secretary noted that all departments and personnel within the ministry will prioritize these requests. He added that a complete and comprehensive response to any instruction issued by the OGC under this authority must be provided within two days of the submission of the request.

“Leaked information risks lives. These new tools and processes will greatly assist us in protecting our collective strength. Our nation’s security cannot be a bargaining chip for those chasing instant headlines,” Hegseth said in an approximately two-and-a-half-minute video message published on the social media platform X.

Hegseth also stated, “Access to classified and confidential information is a sacred trust, and those who betray this trust will face the full force of the law.”

The announcement of the task force came a few days after the Department of Justice issued subpoenas to four New York Times reporters. The journalists, summoned to testify before a federal grand jury, had reported on security concerns regarding President Donald Trump’s flight to Türkiye for a NATO summit on an aircraft donated by Qatar.

The subpoenas drew sharp criticism from The New York Times and press freedom advocates. Opponents argue that the government is attempting to intimidate news organizations.

“Our journalists report the facts and defend the American public’s right to know how their government operates and how taxpayer dollars are spent,” New York Times attorney David McCraw said in a statement. “This brazen action is nothing less than an attempt to deter journalists from doing their jobs, thereby preventing the public from learning what is happening in the country.”

Hegseth has been taking steps to prevent leaks to the press since the beginning of his tenure at the Pentagon. Last year, the department launched investigations into personnel alleged to have leaked classified information to the media and threatened to administer polygraph tests.

Leak allegations were also directed at some of Hegseth’s advisers last year. Former senior adviser Dan Caldwell and former deputy chief of staff Darin Selnick are among those individuals. Caldwell, Selnick, and Colin Carroll, the former chief of staff to Deputy Secretary of Defense Stephen A. Feinberg, were first suspended and subsequently dismissed from their positions and removed from the Pentagon as part of the internal leak investigation.

A government official, speaking to The Hill in mid-March, stated there was no evidence that Caldwell, who began working at the Office of the Director of National Intelligence (ODNI) earlier this year, had leaked information from the Pentagon.

Defense Secretary Hegseth has previously been the target of criticism himself for allegedly sharing sensitive information. Last year, Hegseth discussed planned US strikes against the Houthis in Yemen in a Signal group chat to which an editor of The Atlantic magazine had been mistakenly added. A report published in December by the Pentagon’s Office of the Inspector General determined that Hegseth had compromised military security and violated department policy by using the Signal application on his personal mobile phone.

“It is highly ironic that Hegseth himself shared sensitive national defense information with his wife over Signal last year and faced no consequences, yet now speaks of the need to protect this information,” said former Pentagon spokesperson John Ullyot. “In 2012, CIA Director David Petraeus resigned from his post for a similar situation involving his girlfriend, and was sentenced in federal court to two years of probation and a $10,000 fine.”

Ullyot, who also served as the spokesperson for the National Security Council during Trump’s first term, told The Hill on Monday: “The President deserves better from his national security leaders. Hegseth should start holding himself accountable before holding others accountable.”

Reporters have been largely blocked from entering the Pentagon after Hegseth revoked access to most of the facility. Pentagon correspondents returned their press credentials in October, refusing to sign a new media policy that required a commitment not to solicit unauthorized materials.

Hegseth and his supporters argue that the policy will protect national security by preventing the leak of classified information. Press freedom groups and critics, conversely, characterize the practice as a violation of the constitutional rights of journalists.

Most recently, the department further restricted press access by declaring the Pentagon building a classified space and banning journalists from entering.

Offering historical references in his statement on Monday, Hegseth said, “Leaking sensitive national defense information and secrets is a betrayal of the men and women who wear the uniform of our country. This is a principle as old as the history of warfare, reaching back to the founding of our republic in the United States. George Washington himself combated leaks, insider threats, and espionage.”

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SpaceX shares fall 40% from peak to approach IPO floor as regulatory scrutiny weighs

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Shares of the American aerospace company SpaceX fell to as low as $136.78 at the trough of the trading session on Monday, July 13, representing a 5.87% decline compared to the close of trading on July 10. According to data from the US-based NASDAQ exchange, this retreat marks a depreciation of approximately 40% from the company’s historic peak of $225.64, which was recorded on June 16. With this latest decline, the company’s shares have approached their initial public offering (IPO) price threshold of $135.

As of 21:25 Moscow time on the trading day in question, the shares continued to trade at $137.4, down 5.4%.

The downward trend in the shares was driven by reports that the US Federal Aviation Administration (FAA) had concluded its investigation into the emergencies and malfunctions during the May 22 launch of Starship, the largest and most powerful rocket model developed by SpaceX.

According to CNBC, the agency reviewed and approved the findings and corrective measures submitted by the company following its internal investigation into the incident.

The Starship project, a massive, reusable rocket designed to carry crew and cargo to the Moon and Mars and to perform other space missions, is considered one of the most critical elements of Elon Musk’s space program.

In a statement issued by the FAA, it was noted that following the approved corrective actions, SpaceX is permitted to begin preparations for the Starship Flight 13 flight, provided that the company meets all safety requirements and licensing conditions.

The FAA had previously issued a statement regarding the malfunction during the launch attempt at the end of May. The statement noted: “The anomaly occurred during the Super Heavy booster’s flip maneuver over the Gulf of America.”

The region referred to as the Gulf of America by US authorities in official correspondence is commonly known as the Gulf of Mexico.

According to official data, the booster parts fell within the boundaries of pre-established hazard areas. Six flights were delayed and five aircraft remained in holding patterns for a period due to the incident, though no changes were made to flight routes.

SpaceX shares, which began trading on the NASDAQ exchange at the beginning of June, gained 25% at the opening. As part of the initial public offering, the company offered 555.6 million shares for sale at a fixed price of $135 per share.

The SpaceX IPO was recorded as the largest initial public offering in financial history. The company initially raised $75 billion, and the total funds raised reached $85.7 billion after consortium members exercised their over-allotment option to purchase an additional 83.3 million shares.

In a statement to his employees, company founder Elon Musk stated that going public was necessary to generate capital during a phase of rapid growth. It was announced that the proceeds would be used to complete the development process of the Starship rockets, bring them to commercial readiness, and expand the Starlink satellite network.

The post-IPO surge in SpaceX shares had briefly made Elon Musk the world’s first trillionaire. Bloomberg had estimated Musk’s wealth at $1.05 trillion, while Forbes valued it at $1.1 trillion.

However, with the decline in share prices and the company’s market value that began in late June, Musk lost his trillionaire title after holding it for 12 days.

According to an analysis by Bloomberg, the decline was driven by SpaceX’s preparations to issue at least $20 billion in bonds to finance artificial intelligence projects, alongside the signing of a multi-billion-dollar agreement with AI startup Reflection AI to provide computing resources.

Assessments by S&P Global projected that SpaceX will continue to incur expenditures without generating revenue until at least 2029.

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Trump notifies Congress of renewed war with Iran, resetting War Powers clock

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US President Donald Trump has formally notified lawmakers that the country is back at war with Iran, according to an official notification sent to Congress over the weekend.

In the letter dated July 10 and obtained by Politico, Trump stated that airstrikes beginning on July 7 constituted “military actions consistent with my responsibility to protect Americans and US interests both at home and abroad.”

The notification triggers a new 60-day statutory window under which the US administration can utilize military force in the region without prior congressional approval.

The conflict, which has repeatedly paused and restarted over control of the Strait of Hormuz—a crucial chokepoint for global energy supplies—has become a persistent challenge for the Trump administration.

Trump has expressed frustration over the failure to secure a peace agreement with Iran, while congressional Republicans remain concerned about being blamed for rising fuel prices ahead of the upcoming midterm elections.

On Monday, Trump intensified military pressure on Tehran, declaring that the US would reimpose a blockade on the region, seize control of the Strait of Hormuz, and levy fees on transiting vessels.

Ceasefire process officially ends

The notification to Congress follows Trump’s announcement that a two-month-old ceasefire with Iran has officially ended.

The ceasefire, originally declared in April, had been fragile from the outset due to reciprocal attacks by both nations. Despite the friction, the Trump administration had previously maintained that a full-scale war had not resumed.

Officials from US Central Command (CENTCOM) announced that US forces have struck more than 300 Iranian military targets over the past week in retaliation for Tehran’s hostile actions in the Strait of Hormuz.

On Monday, CENTCOM released a statement confirming that US forces had conducted additional airstrikes against Iran “at the direction of the Commander-in-Chief.”

“These strikes will continue to impose heavy costs on Iranian forces, degrading their capability to attack innocent civilians and commercial shipping in the Strait of Hormuz,” the statement read.

War powers debate

Trump had previously notified Congress that the war, which began in February, had “ended” in May, thereby resetting the 60-day statutory clock that would otherwise require the cessation of military operations without congressional authorization.

With the April ceasefire intended to run indefinitely, the White House argued that the timeline mandated by the War Powers Act had been paused.

However, anti-war lawmakers in Congress challenged this interpretation. They argued that the government was misapplying the law, noting that even when major combat operations subsided, the US Navy maintained its blockade to exert pressure on Tehran.

The new notification complicates ongoing efforts within Congress to limit military action against Iran. Last month, the Senate passed a symbolic resolution calling for an end to the hostilities, signaling waning support for Trump’s military campaign against Tehran.

The resolution, which passed 50 to 48 after four Republican senators voted with Democrats, sought to make congressional approval a requirement for continued military operations.

A similar measure had previously passed the House of Representatives by a vote of 215 to 208, also drawing the support of four Republicans.

The legislative impact of these measures remains limited, however, as joint resolutions are not sent to the president for signature, and any bill seeking to restrict executive war powers would face a certain White House veto.

In his letter to Congress, Trump emphasized that US military forces remain deployed to counter threats against allies.

“United States Armed Forces remain postured to take additional steps, as necessary and appropriate, to address further threats or attacks against the United States, its allies, or its partners, and to ensure that the Government of the Islamic Republic of Iran ceases to pose a threat to the United States and its partners,” Trump wrote.

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