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The heads of banks, technology companies and multinational corporations flying to Davos this year may have suffered an unusual worry. Not about the state of the world economy or their businesses, but whether they could be arrested on their journey.
Being locked up on foreign soil used not to be a concern of executives in an age of global commerce, but it has turned into a risk for a few. Former Nissan chairman Carlos Ghosn was arrested on arrival in Japan in November. Meng Wanzhou, finance chief of Chinese technology company Huawei, was recently detained in Canada.
This is the most visible symptom of the chill that has fallen over international commerce. With President Donald Trump declaring that “trade wars are good, and easy to win” and technology companies from both the US and China losing their lustre, businesses have been caught in an upsurge in nationalism and protectionism.
It looked very different some years ago to World Economic Forum attendees. The Davos anti-globalisation protests of the turn of the millennium faded as the mood shifted towards the benefits of economies such as India and China joining a global trading system. China’s accession to the World Trade Organization in 2001 was a turning point.
The rise of China first as a workshop for global manufacturing, and increasingly as an economic power in its own right, was regarded as making the cake bigger for everyone. The emergence of Indian outsourcing companies such as Infosys showed how a global labour market operated. Before the 2008 crisis, multinational commerce seemed to go hand in hand with shared prosperity.
A decade of subdued growth and stretched public finances has undone all that. The cost of deindustrialisation and wage stagnation for workers in mid-level jobs, particularly males in unionised manufacturing who were once paid on a par with white collar staff, have helped spark populist revolts, most recently France’s gilets jaunes protests. Multinationals face rising problems in operating across borders. There is a broad questioning of their social legitimacy, particularly the priority they have given to shareholders rather than to employees or the societies in which they operate. Mr Trump’s attacks on US corporations play into worries about their loyalty to any nation.
The use by multinationals of offshore tax centres to minimise their tax payments causes resentment, particularly against big technology groups. While the likes of Facebook and Google insist that tax is fully paid on profits in the US, they have often angered the authorities of other countries where they operate.
Friction over offshoring of output and jobs has been heightened by Mr Trump’s attacks on Ford and General Motors over job cuts. Such pressure has forced Apple to show it provides blue collar, as well as professional, jobs at home. Flexible distribution of employment globally has been curtailed.
Multinationals face scrutiny over intellectual property and cyber security. Huawei has been a prime target, with the US pushing allies including the UK to remove Huawei equipment from broadband networks. To no avail, Huawei has argued it is independent of the Chinese state security apparatus. Cyber security is one way in which corporations are increasingly seen as instruments of their home countries’ political ambitions. The growth of China, along with its financial, technology and resources companies, has led to tensions, not only with the US but European countries including Germany.
China’s Belt and Road Initiative, offering up to $1tn for development in 70 countries, has created strategic competition with the US and Europe. Particularly in Africa, this has put Chinese companies in a leading position.
In all, such factors place multinationals under much greater pressure from societies and governments. The old WEF view of globalisation as a public good is no longer accepted by many.
Regaining legitimacy, and the licence to operate freely in many countries, is a big task for chief executives who are far happier dealing with financial than political problems. It needs a delicate blend of public and governmental relations, and sensitivity to how strategic and financial decisions are seen.
In theory, Davos is where such issues can be debated and consensus reached, in line with the mission set by WEF founder Klaus Schwab. But Davos is now seen as a guilty party — lampooned by the likes of Steve Bannon, the political activist and former White House official, as a gathering of globalist elites.
It is hard to imagine chief executives leaving Davos this year with concerns eased. The challenge to their companies’ legitimacy is too broad based for that. They had best listen carefully to the governments they must please.