The Elite in the Mountain

The knives are out for Davos Man. But the alternative is much more alarming

by Timothy Garton Ash

The biggest danger is not a surfeit of the globalism embodied by this forum, but the strengthening of economic nationalism

Davos Man, "the most highly evolved mammal on the planet", should say sorry for the economic mess he's got us into, according to a trenchant little piece in the Times by the Conservative MP and journalist, Michael Gove. Scanning the list of participants in this year's annual meeting of the World Economic Forum, I notice the name of the Conservative party leader, David Cameron. If memory serves, Cameron was a Davos Man last year too. So clearly Gove is calling on his party leader to say sorry.

There is something both predictable and ridiculous about the blame game being played, with politicians blaming bankers, bankers blaming regulators, regulators blaming politicians, and so on. If, as Barack Obama famously remarked to Joe the Plumber, we need to spread the wealth around a bit more, we also need to spread the blame around a bit more - and more discriminatingly.

Those of us who are not financial experts are only beginning to understand what went wrong in what George Soros has described as a super-boom followed by a super-bust. (If you want a crash course - the term is doubly apt - I recommend a special report on finance in the latest Economist and a recent lecture by the head of Britain's Financial Services Authority, Adair Turner, available on the FSA website.) On the evidence we have so far, the following could plausibly be asked to interrogate themselves on their share of the responsibility. With the exception of the first and last categories, the words "some of the" should be inserted before each heading. My list is, of course, merely indicative.

Crooks. Bernie Madoff was (it appears, subject to the finding of the courts) a crook, a fraudster and a confidence trickster. His like will always be with us. The relevant question is how he was able to get away with it for so long and on such a scale.

Bankers. Some highly respected and law-abiding bankers took huge gambles and made horrible miscalculations at our expense, themselves walking off with multimillion bonuses while leaving shareholders and taxpayers to pick up the tab. Others did not.

Regulators. There's a lot of failure to go around in this category. "Is that a typo?" one official at the US Securities and Exchange Commission was said to have asked, when faced with the $50bn estimate for Madoff's losses. "Isn't that number meant to be $50m?"

Politicians. It's all very well for politicians to rail against "Wall Street" and the "banksters", but this happened on George Bush's and Gordon Brown's watch. "The cheerleaders of finance," writes the Economist's Edward Carr in his report, "were unwilling to admit that houses were too expensive and risk too cheap." Yes, but so were the cheerleaders of British and American politics.

Economists. Here's a guild from which we might usefully hear a little more self-criticism - especially from the quantitative economists whose mathematical models helped to lead investment bankers astray. In what sense can economics still claim to be a science if its predictive capacity is so low? Imagine Newtonian physics when apples start going upwards.

Journalists. Yes, a few warned, as did a few exceptional economists like Nouriel Roubini; but it's only now that your average reader of the business pages is in a position to understand how risky his or her investments were. Did business journalism fail us?

We, the people. Some of us, anyway: piling up household debt, especially in Britain and America, on the back of inflated house prices that gave the illusion of security; not asking sufficiently probing questions about where our pension funds were invested.

The system. Blanket charges against some denatured, depersonalised "system" usually betray incoherence wrapped in indignation. But there is a sense here of a global financial system that had become so large, complex and untransparent that it was beyond the capacity of even the largest actor in the markets to understand, let alone control. And one in which apparently rational decisions by most individual participants produced a result collectively damaging for all.

The first conclusion that I draw is about knowledge and transparency. What many of these categories have in common is that those involved, whether bankers, regulators, politicians, journalists or ordinary pension fund-holders, did not see and understand enough about what was really going on. There were too many black boxes and unopened Russian dolls - such as those repeatedly repackaged "collateralised debt obligations". Even Soros, the legendary master investor, is said to have been wary of derivatives because he didn't "really understand how they work". Now you may say: "Well, if Soros couldn't understand, how on earth do you expect me to?" But you can also turn that round the other way and say: "Follow the Soros rule - don't invest in anything you don't understand." If enough individual and institutional investors made that paradigm shift, this would have the beauty of using market mechanisms to discipline markets. Offer more transparency or you don't get my money. This is not a substitute for better regulation by national governments and international institutions, but would be a formidable complement to it.

My second conclusion brings us back to Davos Man, a term of art coined by the late Samuel Huntington to describe a member of a new global elite, liberated from national loyalties and contemptuous of national boundaries - a kind of ruthless cosmopolitan. Davos Man was always what social scientists call an "ideal type". In practice, Davos is a meeting place of diverse business, political and media elites. Many of the multinational companies, banks and media concerns represented here do have global business plans and strategies, yet even they often remain rooted in a national business or media culture. CNN is global but also very American; BBC World is global but also quite British, Nestlé is global and thoroughly Swiss.

As for the political leaders who come to Davos, most of them are still firmly based in national politics. Up here, on the magic mountain, they present their national views and interests to an international audience in the most cosmopolitan terms - as the Chinese premier Wen Jiabao and the Russian premier Vladimir Putin did yesterday. But they always remain acutely conscious of how their words will play through national media to national publics back home.

The biggest danger to the world's economic system is not a surfeit of Davos-type internationalism; it's the strengthening of economic nationalism. Davos has always been a small part of a larger effort not to supplant international competition but to place it within a stronger framework of international co-operation.

Now we are at a crossroads. One road leads back to economic nationalism, protectionism and beggar-thy-neighbour policies. Another leads forward to more international co-operation, including more regulation and transparency. Without a conscious effort, the dynamics of both democratic and undemocratic politics, which remain national, will lead us down the former road. Inside Davos Man, there is his predecessor and possible successor always struggling to get out. If you don't like what you've seen of Davos Man, wait till you see Nationalist Man get to work.