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.
