World Economic Forum Annual Meeting 2007

Annual Meeting 2007 Shaping the Global Agenda: The Shifting Power Equation Davos, Switzerland 24-28 January

The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (www.weforum.org)

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Contents

© 2007 World Economic Forum All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying and recording, or by any information storage and retrieval system.

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Page 3 Preface Page 4 Executive Summary Page 8 Economics: New Drivers Page 14 Geopolitics: The Need for Fresh Mandates Page 18 The Davos WorkSpace – CEO and Future Series Page 20 Business: Leading in a Connected World Page 26 Technology and Society: Identity, Community and Networks Page 30 Acknowledgements

Preface

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We are living in an increasingly schizophrenic world where economies are booming and global signs are promising but underneath are economic, political and social risks as well as imbalances and inconsistencies.

Klaus Schwab Founder and Executive Chairman of the World Economic Forum

The World Economic Forum Annual Meeting again offered participants – both those in Davos and those joining us through the Internet – the opportunity to examine the many critical forces affecting the global agenda, gain a deeper understanding of these pressing issues and create fresh ways to meet the challenges ahead. The theme of the Annual Meeting 2007, Shaping the Global Agenda: The Shifting Power Equation, struck a chord with participants, reflecting the unease we all feel living in times that both inspire great optimism and raise grave concerns. Positive sentiment about the vibrant global economy and the prospects for continued growth was matched by persistent anxiety about ongoing shifts in the geopolitical landscape and the difficulty of addressing such complex problems as poverty in Africa and instability in the Middle East. The growing economic and strategic importance of emerging economies and resource-rich nations, the recognition of the urgent need to address climate change, and the exciting but sometimes disquieting implications of new community models, often virtual in nature, gave the assembled business, government and civil society leaders much to discuss, digest and act upon.

The focus on the shifting power equation across economic, political and social relationships served to highlight how the thinking of leaders has evolved over the past years. Whether on the G8 agenda, or that of business, not only did participants agree on priorities – climate change and the need for sustainable development were certainly at the forefront – but they also formed a consensus on the shape any response must take: the only way to create effective solutions is through the combined effort of leaders from business, government and civil society to identify problems clearly, discuss the relevant issues and understand the trade-offs. The World Economic Forum Annual Meeting 2007 drew leaders from business, government, international institutions, non-governmental organizations, universities and other communities. Together with our Members and Partners, we renewed our commitment to driving the global agenda forward through consensus building and meaningful action. We look forward to continuing the conversations and exchange of ideas that began in Davos at our regional meetings and through Forum initiatives and industry activities over the coming year.

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The Shifting Power Equation – Executive Summary

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Perspectives are changing. The fact is that a completely new global balance of power is being created.

Globalization is the single greatest economic engine of our time

Angela Merkel Federal Chancellor of Germany

The theme of the World Economic Forum Annual Meeting 2007 – Shaping the Global Agenda: The Shifting Power Equation – underscored the particular challenge of this period of rapid globalization. “We are living in an increasingly schizophrenic world where economies are booming and global signs are promising but underneath are economic, political and social risks as well as imbalances and inconsistencies,” said Klaus Schwab, the Forum’s Founder and Executive Chairman. “We want to make sense of this world and shape the global agenda, taking into consideration the fragilities of global development and global systems. This is the unique contribution we make each year – to analyse the state of the world, the challenges, risks and opportunities. We sort out our priorities and come out with solutions to our problems.”

Michelle Guthrie

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The rise of China, India and other countries in Asia is not a threat but an opportunity. When you see the incredible consumer market opportunity for global businesses, it is quite extraordinary. The shifting power equation does not have to mean that there are winners and losers.

Tony Blair Prime Minister of the United Kingdom

Davos, as E. Neville Isdell, Chairman and Chief Executive Officer of The Coca-Cola Company, put it, is the “epicentre of engagement.” The Meeting’s outcomes amply illustrated the unique approach that the Forum brings to the global agenda through participating government, business, media, academic and civil society leaders from across countries, continents and cultures. It was precisely because of this potent mix of actors that, at this Meeting more than any previous one, the Davos community defied the risks, concerns and lingering doubts to move from awareness and commitment to concrete action on climate change and sustainability. Among the outcomes of the Annual Meeting: • Decision by 30 trade ministers to restart the Doha

Round of global trade negotiations at the subministerial level which subsequently led to a full resumption of the talks • Formation of the Climate Disclosure Standards Board, a new international partnership to establish a generally accepted framework for climate riskrelated reporting by corporations • Establishment of a joint Israeli-Palestinian business council to encourage and facilitate cooperation between Israeli and Palestinian business leaders and to reinforce economic relationships and help peace building efforts • Creation of an alliance of leading companies to bring power to villages in sub-Saharan Africa

• Agreement among four global accounting firms to

work with the World Economic Forum Partnering Against Corruption Initiative (PACI) to support the fight against corruption • Renewed affirmation of support for the PACI from the heads of the World Bank, the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development and the International Finance Corporation • Release by the World Economic Forum and the Reinventing Bretton Woods Committee of the final report on a two-year, public-private review of the international monetary system in cooperation with G20 governments Another notable outcome from Davos was the recognition that the Forum and its partners in the business community and civil society have a responsibility to promote open discussion of globalization, both its advantages and disadvantages, how those benefits can best be enhanced and shared, and how the negative effect can be reduced and those affected helped. “Most people who are hurt or think they are hurt by globalization know it,” said Renault President and Chief Executive Officer Carlos Ghosn, who is also the President and Chief Executive Officer of Japanese automaker Nissan. Added Unilever Group Chief Executive Officer Patrick Cescau: “Globalization is worth defending. It is also worth being explained.”

The Annual Meeting agenda was designed to help the 2,400 participants in Davos and those outside who joined the conversation through the Internet – perhaps through their Second Life avatars – to understand the many aspects and implications for business and societies of globalization and the shifting power equation. The programme was organized under four sub-themes – Economics: New Drivers; Geopolitics: The Need for Fresh Mandates; Business: Leading in a Connected World; and Technology and Society: Identity, Community and Networks.

The Forum would like to thank the distinguished Co-Chairs of the World Economic Forum Annual Meeting 2007, each of whom provided invaluable support to the proceedings and brought their considerable experience and wisdom to the discussions. Michelle Guthrie, Chief Executive Officer, Star Group, Hong Kong SAR E. Neville Isdell, Chairman and Chief Executive Officer, The Coca-Cola Company, USA Sunil Bharti Mittal, Chairman and Group Managing Director, Bharti Enterprises, India James J. Schiro, Group Chief Executive Officer and Chairman of the Group Management Board, Zurich Financial Services, Switzerland Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer, Google, USA

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Carlos Ghosn

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Most people who are hurt or think they are hurt by globalization know it. Most people who benefit do not know it. What we need to do is come in with concrete cases and messages.

Carlos Ghosn President and Chief Executive Officer, Renault, France; President and Chief Executive Officer, Nissan, Japan

Economics: New Drivers

From left to right: Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer, Google, USA; E. Neville Isdell, Chairman and Chief Executive Officer, The Coca-Cola Company, USA; James J. Schiro, Group Chief Executive Officer and Chairman of the Group Management Board, Zurich Financial Services, Switzerland; Michelle Guthrie, Chief Executive Officer, Star Group, Hong Kong SAR; Sunil Bharti Mittal, Chairman and Group Managing Director, Bharti Enterprises, India

Geopolitics: The Need for Fresh Mandates

Business: Leading in a Connected World

Technology and Society: Identity, Community and Networks

While globalization has resulted in an unprecedented expansion of global trade and investment that has spurred the world economy to grow at its fastest pace in three decades, lifting hundreds of millions out of poverty, the benefits are not evenly shared. Renewed efforts are needed to mitigate the negative effects of globalization.

The international community’s capacity to handle the complex and fast-changing global agenda is hampered by the sometimes perplexing shifts in power relationships that are playing out, particularly the emergence of new poles of influence and nonstate actors.

• Growing unease, in particular about job creation

• While the US remains the dominant world power, its

The proliferation of technology, global risks and the multiplying pressures from rapid globalization have increased the responsibilities of companies and their leaders, challenging them to find new and innovative approaches to doing business. Chief executives must now look beyond shareholder interests and cater for the needs and concerns of a wider group of stakeholders.

and security, could lead to political backlash. To counter this, both government and business have to better communicate the benefits of globalization. More measures must also be taken to insulate workers from the negative effects of competition in the increasingly global labour market. • Greater attention must be paid to the impact of the rising tide of capital flooding through the world’s financial markets and the fact that financial innovations are deepening the connections among global markets. • Urgent steps must also be taken to combat the negative effects of increased industrialization and energy consumption related to rising living standards. Because of the difficulty in forging a global consensus on an approach to climate change, nations should undertake unilateral efforts to limit carbon emissions and support international mitigation efforts, such as carbon trading programmes. • Efforts are also required to plan for coming demographic imbalances, focusing on job creation for the young and pension and healthcare reforms to address ageing populations.

position is increasingly challenged or constrained by new emerging players such as China and resourcerich Russia, as well as states with nuclear capabilities and ambitions such as North Korea and Iran. • This new world order requires a fresh, pragmatic approach to global governance and management of the global agenda, including the reform of international institutions and agreements to rebalance relationships in the world to acknowledge power shifts. • The ultimate power shift is the rise of non-state actors – no longer a term that instantly connotes malevolence as it had in the past. Grassroots movements, communities, civil society and companies are forging novel partnerships to develop new solutions and tackle global challenges such as climate change.

The rapid convergence of telecommunications, cable television and the World Wide Web is driving the growth of new services that blur the line between audience and producer, resulting in an explosion of user-generated information, entertainment and services. The impact of this power shift is affecting everything from corporate communications to elections, from the way companies conduct R&D to the social behaviour and privacy of individuals.

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• The CEO’s main task is to enhance collaboration

and develop new partnerships to address everything from the challenge of research and development to strategic issues such as climate change. Companies cannot rely on old command-andcontrol models. • Companies also face rising pressures from technology-empowered consumers, employees who want to work for socially responsible enterprises, and shareholders who demand greater transparency and better governance. • The expanding role of emerging markets both as a destination for investment and as a source of investor capital is raising difficult questions about everything from national security to clashing cultures. In emerging markets, CEOs must also address the particular challenge of human resource management. • Intense scrutiny and stress on the management of public companies are increasing interest in privatization and fuelling in part the rapid expansion of private equity investment. But private ownership does not shield companies from the pressures to which they must respond.

• The expansion of customer-generated content and

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online communities on popular websites such as YouTube and Second Life have perplexed incumbents but opened tantalizing new business opportunities. As they develop in quality, virtual worlds could become the common interface for all Internet usage. The growth of online communities is spurring debate about the ability of the Internet to break down barriers based on geography, nationality, sex or appearance. The practice of using avatars is also raising questions about the impact on social interaction and psychological health. Grave concerns about privacy, security and online fraud threaten to derail the future of Internet commerce. IT advances are changing the way institutions and companies collaborate within their organizations and with each other, particularly in R&D.

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Economics: New Drivers

Sunil Bharti Mittal

Laura D. Tyson Professor of Economics, University of California, Berkeley, USA

The United States is still an economic powerhouse, but it has been largely supplanted at the forefront of growth by China and India and other emerging economies. “The world is no longer as dependent on a single locomotive,” said Economics Professor Laura D. Tyson. Even the once-moribund economies of Europe and Japan are enjoying growth as China and India provide new sources of labour and consumer demand that are helping to keep the cost of capital low as global incomes rise.

This astonishing growth in global wealth is creating its own problems, however. Widespread pollution is wreaking havoc on the environment, causing changes to the climate that sustains life itself. Booming demand for resources has created shortages of raw materials, sending commodity prices up and thrusting resource-rich nations into disproportionate positions of influence (see Figure 1). Figure 1

World Commodity Prices and Demand from BRIC Nations

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Source: Datastream; International Iron & Steel Institute; World Bureau of Metal Statistics

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E. Neville Isdell

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In short, this new period of global growth is producing many of the same imbalances and inequities that during the Industrial Revolution gave rise to nationalism, fascism and communism. Many fear that similar reactionary or even retrogressive forces could again be rising. Heading off the political backlash will require a concerted effort by both governments and business to better publicize the benefits of globalization. “Most people who are hurt or think they are hurt by globalization, know it. Most people who benefit do not know it,” said Carlos Ghosn, who heads Renault and Nissan. “What we need to do is come in with concrete cases and messages.”

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Sunil Bharti Mittal Chairman and Group Managing Director, Bharti Enterprises, India

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Insecurity threatens globalization and the growth that we are enjoying today. There is a danger that some societies will look inward.

Perhaps the biggest challenge stems from the uneven distribution of surging global wealth. Millions are being lifted out of poverty, it is true. Rising fortunes are spawning a new cosmopolitan class of global superrich – free to roam where taxes are lowest. Yet incomes among the politically powerful middle class that they leave behind are rising more slowly – so slowly that to many it seems as though they are standing still or even slipping behind. “They have a diminishing sense that we are all in the same boat,” said former US treasury secretary Lawrence H. Summers, now the Charles W. Eliot University Professor at Harvard.

As the developing world consumes more metals, prices are rising

Index (100=1996)

Since the opening of China and the fall of the Soviet bloc, the ideological shackles of the cold war have been cast aside, reuniting the world’s biggest markets and ushering in a gilded age of growth, the likes of which has not been seen since the Industrial Revolution.

Montek S. Ahluwalia Deputy Chairman, Planning Commission, India

Min Zhu Group Executive VicePresident, Bank of China, People's Republic of China

The mountains of wealth are exerting new and little understood pressures on financial markets. Prosperity has created a demographic paradox: lower birth rates that are leaving the wealthiest nations short of new workers to help finance the rising cost of healthcare and retirement among older generations.

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Let’s face it: to manage globalization in developing countries a huge amount of energy has to be put politically – at least in an open society – on arguing these issues and educating the public. You need a comparable debate in the wealthy countries that isn’t happening. Montek S. Ahluwalia

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Laura D. Tyson

India is a willing partner on climate change, but clearly it’s not a willing punching bag because it has its limitations. A billion people are going to be consuming a lot of services and goods that will create emissions. We will need technology; we will need money. But India will be willing to align with the world.

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I worry about how the US responds to the fact that its hyperpower status in terms of wealth has to be reduced. It doesn’t mean that the US is any worse off but the US response is something that the world has to worry about.

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From left to right: Gloria Macapagal Arroyo, President of the Philippines; Felipe Calderón-Hinojosa, President of Mexico; John McCain, Senator from Arizona (Republican), USA; Paul D. Wolfowitz, President, World Bank, Washington DC; Ellen Johnson Sirleaf, President of Liberia

Urgent steps also need to be taken to mitigate the negative side effects of globalization. Climate change is an especially critical global priority. While developed countries to date have the highest carbon emissions, fast-growing developing economies are rapidly catching up (see Figure 2). China is expected to surpass the US as the top producer of greenhouse gases by 2009. Figure 2

Developed vs Developing World Carbon Emissions Developed world countries are major emittors of carbon dioxide, to date 30

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programmes, even in the absence of a global consensus on what form those efforts should take. Some also argue that, because a multinational solution is unlikely to emerge in time to reverse climate change, efforts must be made to prepare for the inevitable impact of it. Another vexing issue is the rising tide of capital flooding through the world’s financial markets, though it is not clear if anything can or needs to be done to address this development. Cheap capital has been a boon to developing nations, lowering their financing costs and enabling them to dig their way out of debt. But to compensate for low interest rates, investors are taking advantage of cheap funding costs to make more leveraged investments. An increasing amount of public pension funds and private savings are flowing into hedge funds (see Figure 3) and private equity funds, which in turn use unconventional investments to generate higher returns.

Source: World Resources Institute

Figure 3

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Hedge Fund Assets Hedge funds manage 30 times more assets today than they did in 1990 $1,400

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While efforts are being made to improve energy efficiency in China and India, breakneck economic growth is taking a devastating toll on the environmental health of these nations. Despite the recent jump in oil prices, research for greener energy by the world’s largest polluter, the United States, has been shrinking. Given the rising costs associated with climate change, it has become clear that nations should undertake unilateral efforts to limit their own carbon emissions and to support international efforts to reduce emissions, such as carbon trading

While most funds do not disclose their portfolios, many have been investing increasingly in sophisticated and little understood instruments such as credit derivatives. With multilayered, leveraged investments including funds of funds, institutional funds and hedge funds, bankers and regulators worry that the impact of any financial shock could be amplified. “Countries need to do their homework to reduce the risks of these instruments and investing habits. We need to improve documentation and address legal issues,” said Chilean Central Bank President Vittorio Corbo.

Ultimately, the negative impact of a rapidly globalizing labour market will increasingly affect workers in developed countries, which could lead national politicians to promote greater insulation of domestic employment and protectionism. How can this be avoided? Some suggest a kind of universal tax on the “cosmopolitan” class – those who can most benefit from globalization – or at least some form of international tax harmonization. Others believe the answer may lie in shifting the burden of health insurance to the state and beefing up public unemployment insurance. “We have to move the social protections from the basis of the corporation to the basis of society,” said Columbia University Economics Professor Joseph E. Stiglitz. “The recognition of that is a change in mindset.”

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On the penultimate day of the World Economic Forum Annual Meeting 2007, World Trade Organization (WTO) Director-General Pascal Lamy told participants that the discussions among the 30 trade ministers in Davos had given new impetus to the stalled Doha Round. “Today’s ministerial meeting has put quite a lot of energy into the notion that the landing zone is in sight,” said Lamy. Added Kamal Nath, India’s Minister of Commerce and Industry: “Despite the cold outside, we have been able to defreeze the talks that were frozen.” Days later, negotiators at the WTO in Geneva agreed that full talks to set a framework for concluding the Round would resume. The negotiations were suspended in July 2006 largely due to disputes over agricultural tariffs and subsidies.

Estimates of Potential World Gains from Doha Will they be enough to persuade governments to incur relevant costs?

Estimate of potential gains in global income (US$, billions)

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Likely Doha scenario*/Central Doha scenario**

* World Bank likely Doha scenario entails reducing agricultural tariffs 44% by developed countries and 21% by developing countries, and manufactures tariffs by 50% by developed countries and 33% by developing countries ** The Carnegie Endowment central Doha scenario entails agricultural ad valorem equivalents (AVEs) reduced by 36% by developed countries and 24% by developing countries (excluding LDCs), and manufactures AVEs reduced by 50% by developed countries and 33% by developing countries (excluding LDCs).

Source: World Bank, Carnegie Endowment

Earlier, the World Economic Forum’s International Business Council (IBC) of leading CEOs from both developed and developing countries had called for a revival of the Round. “The impasse with the Doha Round threatens to undermine growth and the spread of economic opportunities to all,” the IBC warned in a statement. “Trade is the most effective means we can offer to the members of the global community struggling to lift themselves out of poverty.”

It has to be more than a lowest-commondenominator deal that doesn’t generate trade flows.

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Susan Schwab US Trade Representative

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The World Economic Forum and the Reinventing Bretton Woods Committee (RBWC) issued at the World Economic Forum Annual Meeting 2007 the final report of a two-year review of the international monetary system conducted in cooperation with the Group of 20 (G20) governments. Entitled The International Monetary System, the IMF and the G20: A Great Transformation in the Making?, the report concludes that a critical mass of governments appears ready to try to adapt international financial institutions to a world characterized by increasingly large cross-border private capital flows, wider geographic distribution of economic activity and deepened regional macroeconomic and international trade policy coordination. From 2004 to 2006, the Forum and the RBWC organized a series of public-private roundtables on different aspects of the international financial architecture in cooperation with selected finance ministries and central banks of the G20. Seven different G20 governments hosted these discussions – co-chairing them with the Forum and the RBWC – supported by a research programme in which leading public, private and academic experts prepared more than 50 discussion papers.

The report includes a selection of the papers prepared for the project that offer specific proposals for reform in such areas as strengthening the international adjustment process, improving crisis prevention and resolution instruments, and modernizing and rationalizing the governance of the system’s principal institutions. Among the notable proposals is one presenting a new “business model” for the IMF. Another outlines significant yet feasible improvements in the exchange rate system that could help prevent large, persistent economic imbalances of the kind that threaten world financial stability today.

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An important transformation of the international monetary system appears to have begun in which the Group of 20, by virtue of its relatively informal and representative nature, may well prove to be the crucible in which its primary features are forged. Richard Samans Managing Director, World Economic Forum

We are now in the endgame. Either way, this is going to end in success or failure in the next two to three months. It would be a terrible misjudgement if we allow what we have now to slip away.

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Reshaping the International Monetary System

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Getting the Doha Round Back on Track

Peter Mandelson Commissioner, Trade, European Commission, Brussels

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Geopolitics: The Need for Fresh Mandates

Micheline Calmy-Rey President of the Swiss Confederation and Federal Councillor of Foreign Affairs, Switzerland

Timothy Garton Ash Professor of European Studies, University of Oxford, United Kingdom

The fickle weather in Davos during the week of the World Economic Forum Annual Meeting was oddly appropriate. The initial warmth and lack of snow were naturally a palpable reminder of global warming, a priority issue this year, while the on-off precipitation and up-down temperatures that gave way to steady sun on the final day reflected the unpredictability of world events and how quickly situations can change. As sessions began, participants were digesting US President George W. Bush’s announcement in his State of the Union address that the US would reduce oil dependency by 20% over the next 10 years. During the Meeting, reports that American military forces were targeting alleged Iranian agents in Iraq raised concerns about a potential conflict between the US and Iran. By the traditional farewell lunch on the sunny Schatzalp, many were talking about the decision the day before by 30 trade ministers assembled at Davos to restart the Doha Round of global trade negotiations.

The world has a lot on its plate. The global agenda in this world of rapid globalization – for good or ill – runs long with issues demanding constant attention. Among the most pressing: instability in the Middle East, particularly Iraq; communal strife in Africa, notably Darfur; the threat of terrorism; the proliferation of materials and weapons of mass destruction; public health crises stemming from the spread of infectious diseases; energy security worries, coupled with the need for urgent action on climate change; the consequences of the economic and political rise of large emerging markets, including China and India (emerging markets now constitute half the world economy); and the struggle to conclude the multilateral trade talks.

Insecurity exists everywhere – in the East and West. We have to think about common goals and looking for the proper solutions in all cultures to find common ground, fight extremism and insecurity, and then we may hope for a better future.

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Mohammad Khatami

The international community must focus on these and other problems even as shifts in the geopolitical landscape make it even more difficult to do so. Consider the arrival of new centres of power, nations or regions made influential by commercial clout, energy resources and nuclear capabilities. For example, the renaissance of Asia to a large extent on the back of surging economic growth in China and India, each with a population of more than one billion, is steadily pulling the geopolitical centre of gravity across the Pacific Ocean. The new power players challenge and, in some cases, constrain US dominance.

Meanwhile, the quest for energy security is driving the foreign policy strategies of many countries and leading to new international alliances. Resource-hungry China has been busy forging relations in Africa, and elsewhere, to secure its energy needs (see Figure 4), taking a value-neutral, non-judgemental approach that can be a welcome alternative to countries tired of hectoring by the West about governance reform and human rights. In addition, the world has awakened to the threat from rogue states and failed states that could become havens for militant extremists. Finally, non-state actors both benign and malevolent – from committed NGOs and popular bloggers to terrorist groups and unknown viruses that could spawn pandemics – have also emerged as influential players. “The power equation is becoming a more complex differential equation,” said Oxford University Professor Timothy Garton Ash. “Power is being diffused horizontally and vertically to make power more multilevel and multipolar.” Figure 4

Africa's Trade with China

China has become an important strategic partner $25,000

Trade (US$, millions)

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The power equation is becoming a more complex differential equation. Power is being diffused horizontally and vertically to make power more multilevel and multipolar.

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We, as representatives of the states, cannot solve everything alone and cannot solve anything at all unless we rapidly improve our partnerships with business, academia and society as a whole.

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What this means is that old attitudes and ways of thinking have to be discarded. Ideology-driven, cold war-era approaches can no longer address the more fluid and complex problems of the world. “Perspectives are changing,” said German Chancellor Angela Merkel. “The fact is that a completely new global balance of power is being created.” East-West, North-South, left-right – the adversarial or competitive paradigms of the past century no longer apply. Instead, in this age of heightened risks, what is required to confront the many challenges facing the international community is a new pragmatism that is based on a willingness to take a fresh look at issues, to adopt new ways of governance, to look for commonalities rather than focus on differences with other countries, to implement new mechanisms for cooperation that involve business and civil society, to institutionalize new power relationships, and to manage a fair rebalancing of the global power equation. In his address at the closing plenary, Tony Blair called for just such adjustments that would aim at creating a “more muscular” multilateralism. “A key part of our international dialogue must now be strengthening the instruments and institutions – those between governments but also those within civic society – that can build capacity,” said the prime minister. “We need new networks, new relationships between countries and between people that mobilize the practical means of effecting change.” Blair proposed that the United Nations Security Council be expanded, that UN structural and administrative reforms push ahead, that

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Such pragmatic approaches are already in progress. Pascal Lamy, Director-General, World Trade Organization (WTO), Geneva, reminded participants that the Doha Round is all about “rebalancing” the global trading system in favour of developing economies. At a session reviewing the progress over the past 40 years of the 10-member Association of South-East Asian Nations, the leaders of Malaysia, the Philippines and Vietnam stressed the significance of ASEAN’s decision in December 2006 to draft a charter that would create by 2015 an EU-style union, once considered impossible for the region. These are bold steps for treacherous times. It was, however, the final session of the Annual Meeting, focusing on the theme of human dignity, that brought home the boldest message of the Meeting. Social entrepreneurs, civil society leaders and representatives of the Young Global Leaders Community gave testimony to the power of responsible individual and group action to make a difference. The ultimate power swing was undeniably clear: people are taking a stand and demanding action. It is the mandate of voters, households, communities, shareholders, stakeholders and organizations driving commerce and social development that bestows legitimacy. “We, as 16 | World Economic Forum Annual Meeting 2007

The Business of Peace

representatives of the states, cannot solve everything alone and cannot solve anything at all unless we rapidly improve our partnerships with business, academia and society as a whole,” said President Micheline Calmy-Rey of the Swiss Confederation.

The launch of this business initiative took place against the backdrop of intensifying diplomatic efforts to restart negotiations to end the Israeli-Palestinian conflict. In a session at the Annual Meeting in Davos in which they participated together, Palestinian Authority President Mahmoud Abbas and Israeli Vice-Prime Minister and Minister of Foreign Affairs Tzipi Livni reiterated the commitment of both sides to resuming talks. “The Middle East is in dire need of peace and the Palestinian-Israeli conflict is one of the most serious conflicts that requires a solution,” Abbas said. Added Livni: “We must stick to the vision of two states living side by side, together in peace.”

The global networks of individuals, civil society and companies are driving enormous power shifts. This is especially true on climate change and sustainability where novel partnerships have been formed to move forward where governments have lagged. Companies understand that sustainable practices are profitable and responsible. Just before the Annual Meeting, three US energy companies – General Electric, Alcoa and Duke Energy – announced their support for a “cap-and-trade” system and the setting of targets to reduce greenhouse gases by as much as 30% within 15 years. “It’s about time to get moving,” said Alcoa’s Chairman and CEO Alain J. Belda. At Davos, a consortium of companies and NGOs agreed to set up the Climate Disclosure Standards Board that will coordinate carbon emission requests and standardize information received from companies. It was Jordan’s King Abdullah II who best summed up the importance and urgency of questioning the existing geopolitical power equations. “World-shaping events and changes are not just challenges; they are choices,” he observed in an address to participants. “We have the power to shift the equations – whether it is peace and war, or poverty and prosperity – by what we do together to understand and take action. Now is not the time to isolate good ideas in professional silos. Nor can we accept walls between different peoples and faiths.” As UK Chancellor of the Exchequer Gordon Brown put it: “We are shaping the agenda in a new way. The age of the smoke-filled rooms is over.”

At the World Economic Forum Annual Meeting 2007, the Forum announced the decision by 14 Israeli and Palestinian chief executives in Davos to create an Israeli-Palestinian business council. They had agreed to establish the group as an initiative of the World Economic Forum with the mission “to encourage and facilitate constructive cooperation between Israeli and Palestinian business leaders to reinforce their economic relationship and to help peace building efforts.” The council, which will bring together some 200 Palestinian and Israeli CEOs, is to hold its inaugural assembly during the World Economic Forum on the Middle East at the Dead Sea in Jordan on 18-20 May 2007.

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Peace should be done in a double helix: a line of politics and a line of economy – inseparable, parallel but not dependent. Shimon Peres Vice-Prime Minister of Israel

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the International Monetary Fund and the World Bank consider merging, and that the G8 plus Five (Brazil, China, India, Mexico and South Africa) become institutionalized. The basis for regional blocs including the European Union (EU), now unwieldy with 27 members, must be revised to make them more effective, Blair added. Weak groups such as the African Union should have a stronger voice.

Abdullah Ahmad Badawi Prime Minister of Malaysia

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Mohammad Khatami President of the Islamic Republic of Iran (1997-2005)

The real threat to mankind is ignorance, poverty and illiteracy. Abdullah Ahmad Badawi Prime Minister of Malaysia

17 | World Economic Forum Annual Meeting 2007

WorkSpace

The Davos CEO and Future Series

This year the World Economic Forum expanded the highly successful WorkSpace concept, offering both the CEO series and the Future series. The first series allowed participants to address a number of strategic business challenges in a hands-on manner. The second considered potential societal and technological changes and their implications for the individual and for business. Using the dynamic environment and dedicated design team, the resulting sessions produced some of the most forward-looking and stimulating moments at Davos. The following are abbreviated summaries of three workspace sessions.

Visualizing the Successful Enterprise Participants walking into the Studio WorkSpace did not expect to find bags of bricolage on the tables. But creating useful tools and sturdy structures from everyday objects allowed them to consider how they would design new organizational models and approaches for their businesses and lives. During two hours of brainstorming, they came up with ideas, including proposals for new products. The common denominator was that the starting point for each concept was a set of values.

Living in the Connected World of 2015 Walking in the shoes of fictional characters, participants considered how they would get on in a future world. Groups were predictably creative. For example, “Dan”, the San Francisco activist, would use his cobbledtogether virtual network (acquired both legally and illegally) to further his green causes. His motto: “Liberation through flexibility”. “Toshiko”, meanwhile, would not leave home unless she wanted to; the world would come to her. She would work as a marketing representative for products targeted at local senior citizens. Watching over her children virtually as they make their way between home and school, most of her meetings with friends and colleagues would happen via hologram. One group dreamed up a gadget that delivers multimedia (music, art, entertainment) in ways that positively stimulate the brain to entice people to be happy and do good works. Another group predicted that there would be healthcare for all based on an all-inclusive understanding of a person’s medical history, habits and practices. Most participants emphasized that secure universal online access in local languages would be required to make any of the visions of a better world emerging from this session happen. 18 | World Economic Forum Annual Meeting 2007

Many participants also stressed the importance of the customer – in the broadest meaning of the term, not just clients and buyers but also employees, suppliers and even competitors. One group, whose jerry-rigged model literally imploded, found that that their “volcano of ideas” grew too quickly – a problem mirrored in real-life start-ups. They retooled and added organizational elements to their product offering to make the rebuilt model more robust. It remained standing! Finding Future Talent Recognizing the increasingly fierce competition to attract the best and brightest, participants at this workshop discussed how to create and adopt strategies that take into account the motives of high-flyers from different cultures and generations. With those aged between 22 and 30, for example, a good education, upward mobility, digital and technical skills are a given. They have huge ambition and know-how to work collaboratively; they want to get rich quick. The 30 to 50 year olds, by contrast, are looking for employers that offer psychological as well as financial rewards; those over 50 typically want to give something back to their community, are less controlling and more humorous but at the same time more sceptical. Participants also considered cultural variations – how the distinctive practices and perspectives typical of, for example, Chinese firms differ from those of Europe or India. Sometimes proximity does not mean affinity, they learned. One Indian CEO observed that his British operations seem to be more in tune with his home unit than with his German division. Clearly, common values and challenges link companies across the world – in particular the need to offer real opportunities for career development. But many participants argued that the talent problem in Asia is unique, requiring solutions specific to the region. 19 | World Economic Forum Annual Meeting 2007

Business: Leading in a Connected World

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Saeed Al Muntafiq Chairman, Tatweer, United Arab Emirates

A decade ago, the to-do list of a typical company chief was already long. Yet, that was before the Internet and other new technologies had seriously begun to reshape business models; before major scandals in companies in the US, Europe and Asia led to heightened disclosure rules and transparency standards; before 9/11 and the SARS virus and bird flu underscored how global terrorism and public health crises could disrupt commerce; and before the movement against globalization and the drive for greater corporate social responsibility gained traction on the streets and in boardrooms. Today, the CEO’s life is much more complex. Looking out for shareholders is not enough; a progressive corporation must also consider its stakeholders, the wider community of those with a legitimate interest in an enterprise’s business and its impact on people and the environment. Leading a company is naturally much more challenging. Technological advances, the expansion of global trade and trading regimes, demographic trends, the changing geopolitical landscape and shifting social norms have rendered many classical ways of doing business insufficient, inefficient or even obsolete. “We haven’t abandoned leadership, but we’ve given leadership more information about what it needs to respond to,” said Goldman Sachs Group Chairman and CEO Lloyd C. Blankfein.

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We understood very early on that the only assets we have are our brand and the trust of our customers.

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Eric Schmidt Chairman of the Executive Committee and Chief Executive Officer, Google, USA

But the proliferation of information is only one factor. The proliferation of pressure points and the globalization of business are driving companies to restructure and revise their operating methods. Topdown hierarchies are giving way to fresh ways of collaboration and innovative partnerships both within and between companies, across borders and cultures, and among the private sector, government and civil society. “The CEO is no longer the master of the universe,” said Cristóbal Conde, President and Chief Executive Officer of SunGuard. “The number one operating job is to keep, maintain and enhance the collaborative systems where people share know-how and work together on common programmes. That’s the role of the CEO in the new world.” Common endeavours may range from research and development to long-term strategic planning. Climate change is an example. This year’s Annual Meeting signalled that, in the absence of strong and cohesive global political leadership on the issue, business is squarely leaping from awareness to action. As energy costs have mounted, public attention has focused on environmental degradation. For successful enterprises, practising sustainability has become more than savvy public relations; it is a business imperative, even a matter of profitability, in both emerging and established markets.

This requires inventive thinking – new carbon trading programmes are an example – and a willingness by incumbents to work with rivals and unfamiliar players. The recent decision by major US energy companies to create a “cap-and-trade” system aimed at reducing greenhouse gas emissions by as much as 30% within 15 years and the launch at Davos of the Climate Disclosure Standards Board may in future be regarded as landmark steps in the business community’s acceptance that on this crucial global challenge they must lead. Indeed, CEOs today function less as architects of rigid policies and guardians of orthodoxy and are more and more “meaning makers” who build adaptive, innovative cultures. Top managers cannot rely on old command-and-control techniques to respond to the growing power of tech-empowered consumers and the increasing demands of investors and employees. Take the pressures from customers. That the consumer is the central focus of business is not new, said Coca-Cola International’s President and COO Muhtar A. Kent. “Our business is always driven by the consumer.” What has changed in recent years is the

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The CEO is no longer the master of the universe. The number one operating job is to keep, maintain and enhance the collaborative systems where people share know-how and work together on common programmes. That’s the role of the CEO in the new world.

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If companies think the market for talent is competitive now, they’d better watch out. It will be a lot more competitive in 10 years.

Cristóbal Conde President and Chief Executive Officer, SunGuard, USA

20 | World Economic Forum Annual Meeting 2007

increasing ability of users, consumers and citizens to articulate preferences and shape business. In some markets, they can literally make or break a brand overnight. “We understood very early on that the only assets we have are our brand and the trust of our customers,” explained Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer of Google. Technology has obviously played a major role in the empowerment of the consumer. Web 2.0 – Internet platforms such as Facebook.com and MySpace.com in which users determine their own environment and create not just their own content but their own communities – is perhaps the newest driver of rising consumer power. Users no longer depend on companies to determine their Web experience, but instead can customize the products and services they use or create blogs that challenge the very legitimacy of a company they might choose to take on. Businesses also face increasing pressure from shareholders through regulatory requirements such as the disclosure rules under the Sarbanes-Oxley Act in the United States. Though filing procedures are burdensome, the result for business is not necessarily negative. K. V. Kamath, Managing Director and Chief Executive Officer of India’s ICICI Bank, explained that his company tightened procedures to meet SarbanesOxley standards. “The pluses outweigh the minuses,” he argued. For other public companies, however, the pressure of these regulations and the demands of shareholder accountability have spurred them to consider going private.

21 | World Economic Forum Annual Meeting 2007

Increasingly, these constituencies are in communities that may be far removed from a company’s nominal base. The globalization of business through direct investment and mergers & acquisitions has meant that companies must now cater to stakeholders across the world in both established and emerging markets (see Figure 5). This has led to controversies over national security, the use of state money by enterprises purchasing stakes abroad, and the economic consequences of cross-border takeovers including job losses and cultural differences.

22 | World Economic Forum Annual Meeting 2007

$450 400

Deal value (US$, billion)

But at Davos, there were voices questioning whether private investors who may have a keen eye on the bottom line give appropriate consideration to hidden costs – and necessary goals – such as environmental sustainability. Public companies may be feeling more pressure from these newly powerful market players, and managing boards may be driven to consider “buyout scenarios” and the potential benefits of being privately held. Yet public or private, companies today are subject to extraordinarily diverse pressures and demands to which they must respond. These include the need for transparency in a world of empowered consumers and employees, the growing acceptance that sustainability means profitability and a corporation’s responsibility towards multiplying stakeholder groups.

such as Sarbanes-Oxley. New ownership allows struggling companies to reinvent their images for a more competitive market. Private owners offer more unified input, in comparison to scattered shareholders. Private finance fuels innovation, with private equity backing roughly half of all IPOs in the US last year alone.

M&A Acquirers Are Increasingly Sourced in Emerging Markets

350 300 250 200 150 100 50 0 1992

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Figure 6

Private Equity: A Major Force in Global M&A

Steady growth over 45 years

*through 3 November

Emerging markets acquirors

30%

These concerns have underscored the challenge of human resources management, particularly in fastgrowing emerging markets. In hyper-growth companies with up to triple-digit growth rates, attracting and retaining talent is enormously difficult. Turnover rates for these companies can run as high as 100%. “If companies think the market for talent is competitive now, they’d better watch out,” said Saeed Al Muntafiq, Chairman of Tatweer. “It will be a lot more competitive in 10 years.” With all these management challenges and the proliferation of risks that the CEO must keep on top of, it is no wonder that private equity investment has exploded in recent years (see Figure 6). Private equity accounted for roughly 20% of global merger & acquisition activity in 2006, up from 3% nearly a decade ago. Private investment certainly offers advantages over public ownership in today’s business environment. Managers can focus on direct operation of the business rather than regulatory requirements

Private equity as a percentage of global M&A deal value

Source: Thomson Financial

US 20 Europe Global 10

0 1995

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2002

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2006

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Source: Thomson Financial; Bain analysis

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We haven’t abandoned leadership, but we’ve given leadership more information about what it needs to respond to.

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Many businesses have shifted away from hierarchical organization models to looser networks of collaborators, Harvard Business School Professor Rakesh Khurana argued. “We are at an inflection point where the right organizational model is up for grabs.” The net effect of these shifts is that the traditional topdown business organization tends to be less efficient. Meanwhile, companies must be increasingly responsive to their constituencies.

Figure 5

Lloyd C. Blankfein Chairman and Chief Executive Officer, Goldman Sachs Group, USA

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We have to move the social protections from the basis of the corporation to the basis of society.

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Finally, employees are increasingly another source of pressure on management. They not only possess new technologies for organizing but are also amassing new bargaining strength due to what many business leaders perceive is an international shortage of talented workers. Participants offered anecdotal evidence of the strengthened role of employees. One company adopted environmentally progressive policies due to grassroots organizing by employees. Another posted its entire employee manual online as a “wiki” online document so that any member of the company could modify procedures.

Joseph E. Stiglitz University Professor, Columbia University, USA

23 | World Economic Forum Annual Meeting 2007

Technology and Innovation in Financial Services: Scenarios to 2020 Technology and Innovation in Financial Services: Scenarios to 2020

Next Frontier TRULY OPEN, GLOBAL FS MARKETS

Global Ivy League

INCREMENTAL INNOVATION PRIMARILY DRIVEN BY INCUMBENT, GLOBAL FS PROVIDERS

FUNDAMENTAL INNOVATION PRIMARILY DRIVEN BY NEW ENTRANTS AND SPECIALIZED PLAYERS

Innovation Islands

Leapfrogging

LOCAL FS MARKETS

Business as usual

Carbon Reporting: A New Standard

Understanding the Future of Financial Services and the Financial Markets

1. The degree of consumer trust in digital transactions cannot be taken for granted. How identity security is resolved will substantially shape which technologies consumers will demand to access financial services. 2. Robust strategies are needed to drive financial inclusion for the next one billion; these strategies need to be original and correspond to specific, local needs. The World Economic Forum is working with the government of India, IDRC and others on a draft proposal.

private equity investment in recent years has triggered a global debate about the transparency and accountability of privately held companies. To better understand these trends, the World Economic Forum Investors Industry Partnership announced the launch of the Globalization of Alternative Investments (GAI) project. Supported by investor groups, this initiative aims to collect information on, and deepen understanding of, corporate ownership models that offer alternatives to classic public ownership. Working through the Forum’s Global Competitiveness Network and Global Risk Network, participants in the GAI will engage policy-makers, academics and regulators to assess accurately the investment environment in various countries and the real impact of alternative investments on global and regional financial systems. The Globalization of Alternative Investments’ first project will study the global economic impact of private equity investment. This will include roundtable discussions within the investor community and with key policymakers and experts.

High-tech, telecoms and healthcare now represent a third of total deal value $500

Other Metal & Steel

400

24 | World Economic Forum Annual Meeting 2007

CDSB members have agreed to align their core requests for information from companies to ensure that they report climate change-related information in a standardized way that facilitates easier comparative analysis by investors, managers and the public. The focus will be on the disclosure of the following key climate issues in company annual reports: Total emissions Assessment of the physical risks of climate change Assessment of the regulatory risks of climate change Strategic analysis of climate risk and emissions management

A Sectoral View of Private Equity Deals

450

Similarly, uncertainty surrounding the huge growth in alternative investments such as hedge funds and private equity vehicles has sparked political calls for greater regulation and scrutiny. Hedge funds manage 30 times more assets today than they did in 1990 and private equity accounted for about one-fifth of global merger and acquisition activity in 2006, up from 3% nearly a decade ago. Indeed, the sharp growth of

The World Economic Forum launched an international partnership of seven organizations to establish a generally accepted framework for climate risk-related reporting by corporations. Founding members of the Climate Disclosure Standards Board (CDSB) include the California Climate Action Registry, Carbon Disclosure Project, Ceres, The Climate Group, International Emissions Trading Association, World Economic Forum Global Greenhouse Gas Register and World Resources Institute.

Finance Food & Beverage

350

Construction/Building Consumer Products

300

Utility & Energy Chemicals

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Dining & Lodging 200

Real Estate/Property Transportation

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Professional Services Retail

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Healthcare Telecommunications

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Computers & Electronics

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Climate change and the implications on business process and disclosure are finally becoming the topic of discussion that they deserve to be. We are enthusiastic and supportive participants in this dialogue.

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Increasing Internet access, the rise of mobile technologies and digital security concerns have fuelled questions as to how technology and innovation could shape the future of financial services. Thus, 56 partners of the World Economic Forum from the IT and FS sectors, together with experts from across the world, collaborated to produce three contrasting worlds: one dominated by a small number of global universal banks; another with many highly specialized, interconnected service providers; and a third where regional blocs innovated at different speeds. These scenarios have provoked much interest in follow-up work, especially around the following points:

Although in recent years awareness of the importance of climate-related disclosure has risen sharply among corporations and their boards and shareholders, reporting of comparable information in annual reports remains the exception rather than the rule. The CDSB will convene an advisory committee to include industrial, financial services and accounting firms as well as other key stakeholders. In preparation, CDSB members met in Davos with representatives of Alcan, American International Group (AIG), Capital Group, Duke Energy Corporation, Ernst & Young, Royal Dutch Shell, JPMorgan Chase, PricewaterhouseCoopers, SUN Group, Swiss Re and Tokyo Electric Power Company. They also conferred with UK Secretary of State for Environment, Food and Rural Affairs David Miliband, California State Assembly Speaker Fabian Núñez, and UN Environment Programme Executive Director Achim Steiner.

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This is a welcome effort to streamline the growing demands on companies and to improve objectivity for disclosure of climaterelated information.

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Back to the past

Jorma Ollila Chairman, Royal Dutch Shell, Netherlands

Paul J. Ostling, Global Chief Operating Officer, Ernst & Young, United Kingdom, and Willem Bröcker, Global Managing Partner, PricewaterhouseCoopers, Netherlands 25 | World Economic Forum Annual Meeting 2007

Technology and Society: Identity, Community and Networks

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The virtual world will grow up to be a ‘low-res’ version of reality.

Mitchell Kapor President, Kapor Enterprises, USA

Technology is the handmaiden of globalization, yielding economies of scale, flattening supply chains and increasing the mobility of manufacturing, services and capital. In the past decade, however, no technology has had the impact that information technology has. The spread of high-speed digital technology and the Internet protocol is fuelling the convergence of telecommunications, cable television and the World Wide Web, and with them the entertainment and communications industries. New services have emerged that blur the line between audience and producer, spawning user-generated information, entertainment and services. From the loneliest blog to popular websites like YouTube, Flickr, Facebook and Second Life, the Internet has become host to a brave new world of services that use the network as a canvas upon which customers create their own masterpieces, establish new identities and carve out new communities that transcend geography. “It changes how we view human interaction,” said John Gage, Chief Researcher and Vice-President at Sun Microsystems.

But for many, these new arenas represent a tantalizing new business opportunity – a virtual marketplace where one can generate very real revenues and profits. According to some estimates, revenues tied to user-generated video alone are expected to exceed US$ 850 million by 2010. Real businesses now use virtual markets to advertise and sell their goods and services; likewise, members of virtual communities have learned how to earn real money selling virtual goods. There is now a billion-dollar-a-year market for products that exist only in online games such as Second Life. Some 100,000 people in China meanwhile are playing World of Warcraft in 12-hour shifts, then selling their hard-won game assets and powers to clients. Many predict that such virtual worlds will eventually become the common interface for all Internet communications. “The virtual world will grow up to be a ‘low-res’ version of reality,” said Mitchell Kapor, President of Kapor Enterprises. Figure 7

Download Times and Bandwidth As bandwidth grows, video download times will lower dramatically

20,000

Forecast

5,000

Minutes to download

For industry incumbents, this is a confusing new landscape, with shifting consumer patterns; no one is sure whether it is best to concentrate on providing infrastructure, content or both. The music industry has been perhaps most profoundly affected, thanks to the portability of digital recordings. As faster network speeds become more common, television and film are undoubtedly the next in line for the Internet invasion (see Figure 7).

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Figure 8

Largest Social Networks Approaching Page Views of Major Portals

Social networking universe features a few large players (eg, MySpace, Facebook) and many smaller players 40

Yahoo (CAGR: 23%)

Monthly page views (millions)

Vinton G. Cerf Chairman of the Board, Internet Corporation for Assigned Names and Numbers (ICANN), USA

30

MySpace (CAGR: 249%) 20

MSN (CAGR: -1%) Google (CAGR: 67%)

10

Facebook (CAGR: 230%) 0 August 2005

Scene from the Second Life Congress Centre

In the same way that the spread of e-mail, chat rooms and the Web did a decade ago, the growth of online communities (see Figure 8) is spawning interesting debates about the ability of the Internet to break down barriers based on geography, nationality, sex or appearance. The Internet’s capacity as a limitless warehouse for information and user-generated encyclopaedia – or “wiki” – has made tracing an individual’s past as simple as a Google search, turning almost everyone into a public figure. No longer can one escape his past by moving to a new town, or even a new country. “With technology comes the long tail of infamy,” noted Young Global Leader Shai Agassi, President of the Product and Technology Group at SAP

August 2006

Source: comScore, Hitwise US Consumer Generated Media Report (Nov 06), Bear Stearns, eMarketer, News Corp, Bain analysis

Conversely, the ability to take on an anonymous identity using an avatar can be liberating. But the increasingly real social interactions afforded by online venues such as Second Life are also causing debate on the impact of these virtual communities on our psychological health and community life. One-third of those who play the online game Second Life report that they spend more time in the game than in the real world. “We should be aware that we may be modifying ourselves as well as our online personas,” said Baroness Susan Greenfield, Director, The Royal Institution of Great Britain.

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The operating systems of the computers we’re using are so vulnerable…. We need to get the people who make the cars not to leave the keys in the car.

With technology comes the long tail of infamy. Shai Agassi

0.01 1993 28.8K Modem

1997 56K Modem

1998 1.5 Mbps Cable Modem

2004 3 Mbps Cable Modem

2005 6 Mbps Cable Modem

2006F 30 Mbps Verizon Fios

2015F

Source: Nielsen Net Ratings; Communications Engineering & Design; Frost and Sullivan; Morgan Stanley; TiVo; Bain analysis

26 | World Economic Forum Annual Meeting 2007

27 | World Economic Forum Annual Meeting 2007

Step Up Action on Education

The spread of collaborative knowledge building among online communities was an unexpected part of the Internet’s evolution, even if in hindsight it seems an inevitable progression of the Internet’s original function of exchanging information among scientific researchers. Now, the ability to facilitate borderless collaboration is altering the very concept of how institutions and companies conduct R&D. Companies, and even financial institutions, can now spread problem solving across a broad universe of diverse intelligence. How such collaborative models of innovation will shape the world of patents and intellectual property rights is still unclear. But companies are already trying to devise new commercial techniques for harvesting and mining the wealth of information that exists on the Internet.

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We should be aware that we may be modifying ourselves as well as our online personas.

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Grave concerns about privacy, security and online fraud threaten to derail the very future of Internet commerce. The explosion of unwanted spam e-mail is a vivid example of how online miscreants are jeopardizing the future of this new sector. Most spam is generated by malicious programs that enter personal computers over the Internet and then surreptitiously collect and disseminate private information from e-mail addresses to bank account passwords. Linked together over the Internet, these remote spy programs form virtual computing networks that can be used to commit even more sophisticated crimes. Companies registering domain names need to make greater efforts to ensure that they know the true

identity of their owners. And computer operating systems should be reconstructed so that the information received over the Internet cannot also be used to execute programs. “The operating systems of the computers we’re using are so vulnerable,” said Vinton G. Cerf, Chairman of the Board of Internet Corporation for Assigned Names and Numbers (ICANN). “We need to get the people who make the cars not to leave the keys in the car.”

Baroness Susan Greenfield

28 | World Economic Forum Annual Meeting 2007

Given that basic education is a right for every child, there is a compelling moral, social and economic case for setting education as the top priority on the development agenda. This is the motivation behind the World Economic Forum Global Education Initiative (GEI). At the World Economic Forum Annual Meeting 2007, key stakeholders met privately to step up efforts to meet the considerable challenges in education, notably the Millennium Development Goal of universal primary education. Among the leaders participating in the discussions were Prime Minister Ahmed Mahmoud Nazif of Egypt, UK Chancellor of the Exchequer Gordon Brown, H.M. Queen Rania of the Hashemite Kingdom of Jordan, as well as the leaders of several international and donor organizations and the CEOs of companies that are partners in the Forum’s Global Education Initiative (GEI) including Cisco, Intel and Microsoft. Young people from around the world gave their views in a session on youth. “We challenge you, the economic powerbrokers, to put your words and our hopes into action,” said Yoo-Sun Andrea Choi, a student from South Korea.

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Building on the success of the Jordan Education Initiative, launched during the Annual Meeting 2003, and similar initiatives in Egypt and the Indian State of Rajasthan, the meetings on education at Davos signal the start of the second phase of the GEI. The partnerships between government, civil society and the private sector at the local and international levels have been catalysts for education reform. They have also demonstrated how effective multistakeholder collaboration can be. This has widened interest in expanding the model to other sectors such as healthcare. At the Annual Meeting, for example, Tarek Kamel, the Egyptian Minister of Communications and Information Technology, led preliminary discussions to establish the Egyptian Health Initiative. A cornerstone of the second stage of the Global Education Initiative will be a new partnership with UNESCO, which was launched during the Annual Meeting 2007. Business leaders stressed the importance of moving quickly to ramp up efforts. An immediate outcome will be a major conference between leading donor countries and organizations this year. Key agenda items will include how to secure long-term sustainable funding for education reform and the role of multistakeholder partnerships.

For the millions of children whose voices are not being heard, let us commit to take a stand, and take a step, and make real strides for child survival and education.

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Online anonymity can also harbour malicious intentions, sexual predators, white-collar criminals and even terrorists. The rise of online crime has sparked calls for a system that tracks the real identity and even location of anyone using the Internet. “The police will love it and we will love it. It will be a business opportunity,” said John Gage, Sun Microsystems’ Chief Researcher and Vice-President. Opponents of such a system argue that it would only reduce online privacy, giving authorities too much control over public communications and reduce the Internet’s power as an outlet for political dissidence and uncensored debate. Many already fear that the growing amount of information we supply over the Internet, or to devices that connect to it, are creating a virtual surveillance network that could be abused by governments or hijacked by criminals.

H.M. Queen Rania of the Hashemite Kingdom of Jordan

29 | World Economic Forum Annual Meeting 2007

Acknowledgements

The World Economic Forum would like to thank its Partners for their valuable support of the World Economic Forum Annual Meeting 2007:

Strategic Partners ABB ABN AMRO Bank Accel Partners Accenture Alcan Alcoa AMD American International Group (AIG) Apax Partners Audi Avaya Bahrain Economic Development Board Bain & Company Barclays Bombardier Booz Allen Hamilton The Boston Consulting Group BP BT CA Cisco Citigroup The Coca-Cola Company Credit Suisse Deloitte Deutsche Bank Deutsche Post World Net Dubai Holding E*Trade Ernst & Young Fluor Corporation Goldman Sachs Google HP HSBC Infosys Technologies Intel Corporation JPMorgan Chase KPMG Kudelski Group

Annual Meeting Partners Lehman Brothers McKinsey & Company Manpower Marsh & McLennan Companies (MMC) Merck & Co. Merrill Lynch METRO Group Microsoft Corporation NASDAQ Nestlé Nike NYSE Group PepsiCo PETRONAS Pfizer PricewaterhouseCoopers Qatar Airways Reliance Industries Reuters Saudi Basic Industries Corporation (SABIC) Siemens SK Group Swiss Re UBS Unilever VimpelCom Volkswagen WPP Xenel Group Zurich Financial Services

30 | World Economic Forum Annual Meeting 2007

Agility Arcelor Mittal Steel Company Barco Burda Media DuPont Electricité de France (EDF) Gallup International Invest in France Agency LUKOIL Oil Company MasterCard Moore Capital Management Morgan Stanley Nomura Holdings Saudi Arabian General Investment Authority (SAGIA) SICPA St Paul Travelers Swiss International Air Lines

The World Economic Forum would also like to thank MTV, Swarovski and Warner Music Group for their support.

Contributors

Ged Davis is Managing Director at the World Economic Forum. Jonathan Schmidt is Director, Head of Global Agenda. Sheana Tambourgi is Director, Head of Annual Meeting Team. Stephanie Janet is Principal, Head of Annual Meeting Operations.

This publication is also available in electronic form on the World Economic Forum website at the following address: www.weforum.org/pdf/summitreports/am2007

The Annual Meeting Programme is prepared by Gregory Bernarda, WorkSpace; Irene Casanova, Economics; Nathalie Cerutti, Faculty Management; Kali Galanis, WorkSpace; Annabel Hertz, Global Governance; Paola Hjelt, Values, Arts and Culture; Nour-Eddine Iguimdrane, WorkSpace; Emma Loades, WorkSpace; Katherine Milligan, Geopolitics; Stephanie Nassenstein, Team Coordination; Anand Phanse, Business; Hui Wang-Haymoz, WorkSpace; Christian Zellner, Science and Technology Vidhi Tambiah is Associate Director, Content Development, at the World Economic Forum. Samantha Tonkin is Senior Media Manager at the Forum. They worked with Mary Bridges, Wayne Arnold and Alejandro Reyes to produce this report. Associate Principal, Editing: Nancy Tranchet Design and Layout: Kamal Kimaoui, Associate Principal, Production and Design Photographs by swiss-image.ch and Richard Kalvar/Magnum Special thanks to PricewaterhouseCoopers for their help in preparing data and statistics underpinning this report.

The World Economic Forum would like to express its appreciation to the summary writers for their work at the World Economic Forum Annual Meeting 2007. Session summaries are available at: www.weforum.org/annualmeeting/summaries2007 All session summaries from both the CEO and Future series can be downloaded from: www.weforum.org/annualmeeting/workspace

The Report is also available as a PDF at: www.weforum.org/pdf/summitreports/am2007.pdf

Other specific information on the World Economic Forum Annual Meeting 2007 can be found on the following links: Annual Meeting Programme Themes Participants Partners Open Forum WorkSpace Issues in Depth (Interviews) Session Summaries Webcasts, Podcasts & Vodcasts Photographs Press releases Weblog Davos Conversation

www.weforum.org/annualmeeting www.weforum.org/annualmeeting/programme www.weforum.org/annualmeeting/themes www.weforum.org/annualmeeting/participants www.weforum.org/annualmeeting/partners www.weforum.org/openforum www.weforum.org/annualmeeting/workspace www.weforum.org/annualmeeting/indepth www.weforum.org/annualmeeting/summaries2007 www.weforum.org/annualmeeting/webcasts www.swiss-image.ch/Y249M7AC/INDEX.htm www.weforum.org/pressreleases www.forumblog.org www.weforum.org/davosconversation