World Economic Forum: Power seesaws in the snowy alps

ONE way to think about the World Economic Forum, which kicks off today in the Swiss ski resort of Davos, is to focus on the final scene of The Italian Job.

The classic British caper movie, which celebrates its 40th anniversary this year, is rarely used as a metaphor for the global economic crisis, despite an arguable aptness. So, banish all images of grey men in pin-striped suits, neat rows of parked Lear jets and Bono schmoozing with Alan Greenspan, and picture instead a bus packed with gold, teetering on the edge of a precipice with Michael Caine precariously balanced and crying out: "Hang on lads, I've got a great idea."

Over the next five days, 41 heads of state, 60 ministers, ten ambassadors and 1,400 chairmen and chief executives will try to come up with a "great idea" to prevent the global economy from falling any further down the cliff-face and maybe even find a way to grind the gears into reverse and find a way back out.

The conference's official title is "Shaping the Post-Crisis World". As Robert Greenhill, the forum's chief business officer, said: "People are coming to compare notes on what they need to do to emerge from a serious crisis."

Yet just as the bus in The Italian Job rocked back and forth as the position of those on board changed, so the Davos conference has shifted seriously in the past year. Power in previous forums has been held by the biggest names in international finance, such as Dick "the Gorilla" Fuld of Lehman Brothers, or circulated alongside the champagne flutes at the annual Goldman Sachs party, previously the hottest ticket in town. This year, Mr Fuld will not be attending, although his company's demise will be the subject of a panel discussion. The Sachs party, meanwhile, has been cancelled as a nod to these new straitened times.

Instead, the power will rest with the politicians and the financial regulators, who must figure out how to fix the broken gears of the international banking system and start the financial engine that moves money around the world to companies and businesses in the form of loans and credit.

"In a time of crisis, governments matter more than ever, as do relationships between governments and the private sector," said Mr Greenhill. "This will be a hard-working, roll-up-your-sleeves event."

So what will some of these "great ideas" be? Two years ago anyone uttering the words "state" and "regulation" in the same sentence would have been sneered at in the high-powered banking circles gathered by the ski slopes. Now, more than 18 months into the biggest financial upheaval in the past 80 years, those bank executives who still have jobs are preparing to swallow large doses of regulatory medicine to help calm a crisis they are accused of causing.

With bank lending still frozen, the world sliding into recession and more than 300,000 finance jobs gone so far, policymakers are replacing bankers in the driving seat.

"Two years ago nobody could see the problems and the risks," said Marc Weil, head of Emea Financial Services at the consultancy firm Oliver Wyman, which is publishing a report on the state of the global financial services industry this week. "It is clear now that the financial services industry is like no other and anyone who poses systemic risks needs tighter regulation."

This may include increased balance sheet transparency, a raising of bank capital requirements and a co-ordinated effort to bring banks back towards what they used to know best: lending.

Another idea circulating is the creation of "bad banks". After a second round of cash injections, some countries are mulling the possibility of creating these banks to relieve other banks of illiquid assets and allow them to concentrate on lending. Switzerland led the way in October, with its central bank agreeing to take on up to £42 billion of bad assets from its flagship bank UBS, which had come to the brink of collapse.

A second shift in power at this year's forum is not only from bankers to politicians but from west to east. This is illustrated by the absence of Hollywood celebrities such as Angelina Jolie and Brad Pitt and the presence of Jet Li, the Chinese actor, and Amitabh Bachan, the Bollywood star. Today Wen Jiabao, the Chinese premier, and Vladimir Putin, the Russian prime minister, are due to speak, with delegates more interested in Chinese whispers than the Russian bear's roar.

The reason is that many in the world hope China, with its massive economy and cash reserves, will help to drag western countries out of recession by continuing to buy their goods and products. Yet even China is suffering, with annual growth cut from 12 per cent to just 5 per cent as exports begin to slump, bringing political problems.

One fear China shares with some other nations is a return to protectionist practices, whereby each country attempts to guard its home markets behind a barbed- wire fence of tariffs and import taxes. As Lionel Barber, the editor of the Financial Times , explained in a recent discussion: "It will be important to listen to how optimistic (Wen Jiabao] is about the Chinese economy in 2009, and whether he puts tremendous emphasis on exports and says there must be no protectionism. Because, of course, if there isn't the demand in countries like the US, there won't be room for Chinese exports."

Attendees will also be interested in the tone of Mr Putin's keynote speech. In previous visits, he has used his addresses as a clarion call to draw investors into the Russian economy. But given a problematic previous nine months which involved a war with Georgia, the collapse of the Russian stock market and a economy now on the wobble, his tone may change.

There have been other changes. Former prime minister Tony Blair had been expected to attend a session entitled "Meet the Peacemakers", but he is now appearing alongside religious leaders instead. The number of social events appears to have been slashed. Stephen Roach, the chairman of Morgan Stanley Asia, has reportedly said parties at Davos this year "will be few and far between".

Mr Roach was quoted as saying: "We're at an unbelievably critical juncture in the global economy debate. This will not be a normal year at Davos."

However, other regular attendees are less sure. "It's Davos," said one. "These people are rich. Of course there will be parties."

BACKGROUND

SIR Fred Goodwin will not be attending Davos, nor will any representative of RBS be sipping hot chocolate and crunching through the snow at today's World Economic Forum.

Meanwhile, Bob Diamond, the president of Barclays Bank and the head of its investment banking arm, has become the latest banker to decide not to go to the World Economic Forum.

Gordon Brown, the Prime Minister, and Alastair Darling, the Chancellor, are both expected to make an appearance, as will Lord Mandelson, the Business Secretary, and Boris Johnson, with the London Mayor flying the once-bright, but now shredded flag of the City of London.

The fact that Bono will not be attending is a strong indicator of the seriousness of the global economic crisis. The lead singer of U2 is having to go back to work and finish recording the band's new album.

Indeed, celebrities are thin on the snowy ground, with the Hollywood A-listers absent, replaced by the Chinese star Jet Li and the Bollywood legend Amitabh Bahan.

Other cultural ambassadors include Peter Gabriel, the new age author Paulo Coelho and the world chess champion, Viswanathan Anand, who will be able to advise politicians if the economy has reached Zugzwang, where any move will worsen the player's overall position.