World Economic Forum Annual Meeting 2008

World Economic Forum Annual Meeting 2008 The Power of Collaborative Innovation Davos, Switzerland 23-27 January

COMMITTED TO IMPROVING THE STATE OF THE WORLD

The views expressed in this publication do not necessarily reflect those of the World Economic Forum. World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0)22 869 1212 Fax: +41 (0)22 786 2744 E-mail: [email protected] www.weforum.org

© 2008 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.

REF: 150208

Contents

Page 3 Preface Page 4 Executive Summary Page 10 Economics and Finance: Addressing Economic Insecurity Page 14 Geopolitics: Aligning Interests Across Divides Page 18 Business: Competing While Collaborating Page 22 Science and Technology: Exploring Nature’s New Frontiers Page 24 Values and Society: Understanding Future Shifts Page 26 The WorkSpace Page 28 Acknowledgements 1 | World Economic Forum Annual Meeting 2008

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Preface “The Davos Man and Woman are aware of all the challenges and, in a pragmatic way, they do what they can to mitigate the risks and address the challenges. They also see the opportunities in the world. But if we don’t address the challenges, even the greatest opportunities will not be enough to guarantee the future of humankind.” Klaus Schwab, Founder and Executive Chairman, World Economic Forum

Participants in the World Economic Forum Annual Meeting 2008 convened in Davos at a time of great anxiety in the world. The turmoil in the financial markets and the continuing conflict in the Middle East were naturally of immediate concern. Mounting awareness of the epochal challenge of climate change and the looming threat of global terrorism, two issues that were addressed in the opening plenary session, heightened our shared sense of urgency. In such times of stress and disquiet, we truly understand the value of the Davos Spirit of inclusiveness, openness and commitment to improving the state of the world. The Annual Meeting theme – The Power of Collaborative Innovation – was a fitting focus for two reasons. First, it highlighted that a multistakeholder approach is critical for any authentic and viable solutions to global problems. The World Economic Forum has underscored that, since the first Davos meeting 38 years ago, government, business and civil society must engage each other to find effective approaches to the most pressing issues. This year, we placed particular emphasis on corporate global citizenship, the principle that companies must be involved in addressing the major challenges we face today, aligning their engagement in society with their business goals. This commitment is at the core of what the Forum stands for.

The power of collaborative innovation was a most apt theme for a second crucial reason. It served to underline the need for new and imaginative ways to mitigate global risks and the importance of achieving tangible results or value. While some may criticize us for our continued optimism amidst gloom, we must never discard our positive attitude for irrational pessimism. We should be neither paralyzed by despair nor casual in our concern. This is a time for sincere pragmatism and a new brand of collaborative leadership to address the many priorities on the global agenda. We look forward to continuing our collaboration with Members and Partners at our regional meetings and through the many Forum initiatives and industry activities this year. Klaus Schwab Founder and Executive Chairman

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The Power of Collaborative Innovation Executive Summary

“In spite of the economic crisis, can we look beyond that and view Davos as a collection of minds to address issues that can be addressed? My hope is that we are here not only with a can-do spirit, but with a must-do spirit.” Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo, USA

Participants in the World Economic Forum Annual Meeting 2008 focused on the tools for addressing the many challenges emerging as a result of the shifting power equations in the world. The Power of Collaborative Innovation is arguably the last remedy to the stresses of intense globalization that have been evident in financial market volatility, widening income disparities, and in conflict zones around the world. As former British Prime Minister Tony Blair observed in the closing plenary session: “Globalization is forcing changes in how people collaborate in a fundamental way.” Blair added: “If we are interconnected and the world is interconnected, the only way for the world to work is to have a set of common values. We have no option but to work together.”

Collaborative innovation is far from the norm in international affairs, not least because the structures of global governance have not evolved for nearly three generations. Nation states, even those working closely together, will not be able to address future global challenges if business and civil society are not engaged at the outset. In the current context, the World Economic Forum provides a unique platform for multiple stakeholders to address a range of global, regional and industry issues. Fostering collaborative innovation becomes all the more critical in a time of heightened uncertainty.

“Globalization is forcing changes in how people collaborate in a fundamental way. You need stronger and stronger collaborative political leadership. If we are interconnected and the world is interconnected, the only way for the world to work is to have a set of common values. We have no option but to work together.” Tony Blair, Prime Minister of the United Kingdom (1997-2007); Member of the Foundation Board of the World Economic Forum

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Among the outcomes of the Annual Meeting: • Japanese Prime Minister Yasuo Fukuda unveiled a five-year, US$ 10 billion fund to support efforts in developing countries to combat global warming – a move to ensure that top priority is given to climate change at this year’s G8 Summit in Hokkaido. In addition, Japan aims to create a new multilateral fund with the US and the United Kingdom to mitigate changes in the earth’s climate as a result of global warming. • The Bill & Melinda Gates Foundation announced a US$ 306 million package of agricultural development grants “designed to boost the yields and incomes of millions of small farmers in Africa and other parts of the developing world so they can lift themselves and their families out of hunger and poverty”.

“I am optimistic about the future. The question is if the economic growth of India and China will slow down if the global economy slows. I don’t think the impact on China will be very big.” Wang Jianzhou, Chairman and Chief Executive, China Mobile Communications Corporation, People’s Republic of China

• The World Economic Forum, Forum Member companies and the United Nations launched initiatives to facilitate broader and deeper private sector support of humanitarian relief operations. Among the programmes established: Agility, TNT and UPS, three leading logistics and transport companies, are joining forces to help the humanitarian sector with emergency response to large-scale natural disasters.

“There is no time to lose in addressing climate change. We have a readily available means of taking action without waiting for the agreement on a post-Kyoto framework. It goes without saying that aiming at the most efficient use of energy is now an obligation upon humanity.” Yasuo Fukuda, Prime Minister of Japan

• The World Economic Forum launched a landmark report on the interfaith dialogue between Muslim and Western societies. Islam and the West: Annual Report on the State of Dialogue was the result of in-depth research and polling in more than 40 countries. The report is intended to be an annual global reference on the state of dialogue among faiths that will increase interfaith communication and strengthen efforts to deepen understanding. • The World Economic Forum released the first part of the most comprehensive investigation into private equity: The Globalization of Alternative Investments Working Papers Volume 1: The Global Economic Impact of Private Equity Report 2008. The study focuses on the demography of global private equity deals, the willingness of private equity-backed firms to make long-term investments globally, and the impact of private equity investments on the employment levels of firms in the US and corporate governance in the United Kingdom. • The Forum’s Global Education Initiative (GEI) designated Rwanda as the launch country for a pilot programme of the initiative. In partnership with the Education For All Fast Track Initiative (FTI) under the banner of the Global Education Alliance (GEA), the Forum will provide the platform to combine the strengths of the private sector and foundations to achieve education for all in low-income countries.

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• Mayors, regional governors and the private sector launched the World Economic Forum’s SlimCity Initiative, an exchange programme between cities and companies to support action on resource efficiency in urban areas, focusing on energy, water, waste, mobility, planning, health and climate change. • British Prime Minister Gordon Brown, Microsoft Chairman Bill Gates, Irish musician Bono, H.M. Queen Rania Al Abdullah of the Hashemite Kingdom of Jordan, United Nations SecretaryGeneral Ban Ki-moon, World Economic Forum Founder and Executive Chairman Klaus Schwab, Nigerian President Umaru Musa Yar’Adua, and Cisco Chairman and Chief Executive Officer John T. Chambers issued a joint statement vowing to make 2008 a turning point in the fight against poverty. The world is facing a “development emergency”, they said, pledging to “work together to help the world get back on track to meet the Millennium Development Goals.”

“This is not a great year in the US for far-sighted and imaginative economic policies. We need to activate world trade talks and strengthen the global international system.” Henry A. Kissinger, Chairman, Kissinger Associates, USA

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• The Forum conducted an innovative outreach exercise with the online video website YouTube, asking people from around the world to answer “The Davos Question” – What one thing do you think that countries, companies or individuals must do to make the world a better place in 2008? More than 2 million people took part, and business, government and civil society leaders from the Annual Meeting posted replies. Among those submitting video responses: President Shimon Peres of Israel, President Abdoulaye Wade of Senegal, President Hamid Karzai of Afghanistan, former US Secretary of State Henry A. Kissinger and Irish musician Bono. The resulting global conversation may be viewed at www.youtube.com/Davos • Fourteen global CEOs and company chairmen representing a range of industries and regions issued a call to their peers to join collaborative efforts to strengthen public governance frameworks and institutions as a core element of their approach to corporate citizenship.

The Annual Meeting agenda was organized under five sub-themes – Economics and Finance: Addressing Economic Insecurity; Geopolitics: Aligning Interests Across Divides; Business: Competing While Collaborating; Science and Technology: Exploring Nature’s New Frontiers; and Values and Society: Understanding Future Shifts.

World Economic Forum Reaches Millions with the Davos Conversation Ahead of the Annual Meeting, the World Economic Forum created the first-ever global video conversation between the general public and the world leaders who were participating in Davos. By the last day of the Meeting, the Forum reached a worldwide audience of over 7 million with the Davos Question on YouTube. In the run-up to the Annual Meeting the Forum had asked the Davos Question: “What one thing do you think countries, companies or individuals must do to make the world a better place in 2008?” Nearly 300 people, including some of the Forum’s Members, sent in personal video replies. The best were shown during the opening and other selected plenary sessions at the Annual Meeting 2008. The topics most often included development, economics, education, environment, climate change, energy, water, governance, human rights, values and technology innovations. You can check out the best replies on the following website: http://www.youtube.com/profile_favorites?user=thedavosquestion

Economics and Finance: Addressing Economic Insecurity The unfolding financial crisis should be viewed as a chapter in a much larger, more profound story – the rebalancing of global wealth away from the West and toward the emerging economies of Asia and the Middle East. • The shift of economic power from West to East is an epochal transformation that is taking place faster than anticipated. • The challenge to policy-makers and businesspeople is how to address the more dangerous side effects of global growth such as widening income disparities, inflation and environmental degradation. • The decoupling of global growth from the US economy is premature, but there is a new dynamic with the rapid growth of China and other emerging economies shortening and softening the US downturn. • Charting a more equitable and sustainable course for global growth will require long-term investments in human capital, education, health and environmental protection. • Greater coordination of macroeconomic policy, beyond just the G8, is needed given the limits of traditional monetary and fiscal policy in a global economy.

In Davos, the Forum set up a special Davos Conversation corner where all participants were encouraged to reply to these videos uploaded by the YouTube users, or to simply answer the Davos Question. Over 110 participants, including President Shimon Peres of Israel, President Abdoulaye Wade of Senegal, President Hamid Karzai of Afghanistan, musician Bono and actress Emma Thompson along with numerous business leaders used the special video corner to record their messages. Watch the best responses here: http://www.youtube.com/view_play_list?p=749732FFD312CA7F. “The Davos Question and the Davos Conversation video corner were the embodiment of our Annual Meeting theme: ‘The Power of Collaborative Innovation’,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. The Forum is currently planning to continue the video conversation with YouTube at some of its regional meetings.

Geopolitics: Aligning Interests Across Divides Collaborative innovation is the framework to address major global challenges linked to the intensification of globalization. • The legacy institutions of global governance are not capable of tackling the many interconnected and complex challenges of a multipolar world. • Collaboration among nation states is not sufficient to address pressing global problems. The participation of business and civil society is needed. • Climate change is an immediate test of whether a new brand of collaborative and pragmatic leadership can lead to real and lasting results. • The world is in transition. The US is too strong to stand on the sidelines, but too weak to go it alone. The state is no longer the most important point of reference for many populations. • There are global challenges that simply require greater collaboration such as the Doha Round of Trade negotiations and the Middle East peace process. And there are those that will require greater innovation to solve such as rapidly ageing societies, urbanization and food security. But the most pressing challenges for humankind, such as climate change, terrorism and non-proliferation will require both collaboration and innovation.

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Business: Competing While Collaborating To survive and prosper in the rapidly evolving global marketplace, companies must win the war for talent and innovate rapidly but also, where appropriate, collaborate - even with the competition. • As worldwide markets reward swift and agile companies, mobile technology has become a powerful tool for empowering consumers and connecting customers and clients with product and service providers. • In addition to shifts in technology, the global business climate continues to be profoundly affected by shifts in power from developed economies to emerging markets including Brazil, Russia, India and China, which are spawning multinational companies of their own that are effectively competing against established corporations from the West. • Globalization is decentralizing power, while demographic differentials are heightening the fight for talent. • Web collaboration is distributive; open source results in robustness but not innovation. How to innovate is less complicated than discovering what to innovate. • The practice of corporate global citizenship is crucial for a company to succeed in this context.

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Science and Technology: Exploring Nature’s New Frontiers Science and technology are progressing so fast that advances are challenging our assumptions about the human experience. While death remains inevitable, when and how it happens is now less of a mystery. • Deeper understanding of the essence of our individuality, DNA, may help us to be more in control of our health and lifespan. Meanwhile, the finality of paralysis is being challenged by developments in neurotechnology and regenerative medicine. In addition, advances in genetics are providing new weapons against cancer. • These developments are changing the rules of the labour force, the calculus of healthcare and our concepts of age, equality and privacy. • Highly bespoke diagnosis and treatment is challenging the traditional assumption that each person needs, and is entitled to, a common slate of medical procedures. However, patients and doctors fear that people with a genetic disposition to disease will face discrimination and that employers or insurers might reject them. • While science may decrease our mortality, the total cost of healthcare will rise. • Businesses are fundamentally altering the way in which they conduct research. They are increasingly relying on collaborative research rather than large-scale integrated research that invents a new technology from top to bottom.

Values and Society: Understanding Future Shifts Globalization’s impact on cultures, societies and values must be the subject of deeper, more qualitative analysis. Increasing interconnectedness has not always led to secularization or homogenization. Often, in fact, it has exacerbated divisions. • The growth of economic opportunity as a result of globalization must be combined with a sense of values centred on the notions of justice and freedom to ensure its sustainability over the long run. • Burgeoning urban populations place enormous strains on existing infrastructure, particularly in Asia and Latin America. Urbanization must be made sustainable. • While consuming less is a difficult message in much of the world, developing market consumers have the economic motivation to “get more for less” which promotes demand for energy-efficient products. • It is not necessarily faith that brings people into conflict but rather politics and the pursuit of economic and military power, as well as the manipulation of ideology, whether religious or secular. • To foster cross-cultural understanding, public and private learning institutions must work to promote empathy. The Internet can play a critical role in education to bridge divides.

The Forum would like to thank the distinguished Co-Chairs of the Annual Meeting 2008, who led many sessions and provided valuable insights and wisdom. They were: Tony Blair, Prime Minister of the United Kingdom (1997-2007); Member of the Foundation Board of the World Economic Forum James Dimon, Chairman and Chief Executive Officer, JPMorgan Chase & Co., USA K. V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank, India Henry A. Kissinger, Chairman, Kissinger Associates, USA Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo, USA David J. O’Reilly, Chairman and Chief Executive Officer, Chevron, USA Wang Jianzhou, Chairman and Chief Executive, China Mobile Communications Corporation, People’s Republic of China

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Economics and Finance: Addressing Economic Insecurity

Joseph E. Stiglitz, University Professor, Columbia University, USA

It might be tempting to lay the blame for the unfolding financial crisis at the feet of bankers like Jérôme Kerviel, the young trader whose misadventures have allegedly cost Société Générale US$ 7.3 billion, to castigate the supposed greed of investment banks or to demonize the derivatives at the heart of the turmoil. But what became clear during discussions at this year’s Annual Meeting was that the sub-prime crisis roiling global financial markets is but a dramatic and costly chapter in a much larger, more profound story - the rebalancing of global wealth away from the developed economies of the West towards the emerging economies of Asia and the Middle East. “When this is over we will wake up and realize that the issue is that the transformation of wealth and information and industrial activity is taking place at a pace none of us has ever experienced,” said Michael S. Klein, Chairman and Co-Chief Executive Officer of Markets and Banking at Citi. Or as Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy, put it: “We are entering a completely new era of world history – the end of Western domination. In the Industrial Revolution there was a rapid increase in living standards of 50% in one lifetime. In Asia today in one lifetime you will see an increase of 10,000%.” 10 | World Economic Forum Annual Meeting 2008

US Mortgage-backed Securities Value erosion US sub-prime mortgage-backed securities prices, by rating*

“If everyone tries to consume the way America has consumed, the world is not viable.”

100 AAA Banks annouce write-downs

80

Fed Funds cut 25 bp

60

Largest sub-prime lender declares bankruptcy

40

A

Two bulge-bracket hedge funds reach creditor settlement Central banks coordinate first liquidity injection

20

Bank run on Northern Rock

BBBSWF’s begin bail out of banks

Fed Funds cut 50 bp

0 Jan 2007

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

* ABX series 06-2. The ABX are credit default swaps based on sub-prime mortgage securities.

Source: Thomson Financial; press accounts

It may not seem like it to those watching their portfolios plummet, but this trend is not all bad news. The rising prosperity of the East is lifting millions out of poverty and is even spreading to the poorest corners of Africa. The challenge to policymakers and businesspeople as the crisis subsides will be how to alleviate the more dangerous side effects of global economic growth – rising inequities within nations and a worsening global environment. Climate change has underscored the limits of development: without dramatic advances in resource efficiency and reductions in emissions, universal prosperity is environmental suicide. “If everyone tries to consume the way America has consumed, the world is not viable,” said Nobel Prize-winning economist Joseph E. Stiglitz.

Results of the World Economic Brainstorming The Greatest Threat to Global Growth 1. Recession in the United States

15.90%

2. Greater Income Inequalities

2.20%

3. Rise in Energy and Commodity Prices

5.70%

4. Severe Global Credit Crunch

11.00%

5. Mismanagement of Current Crisis

18.10%

6. Broad-based Collapse of Confidence

16.70%

7. Rise of Protectionism

4.40%

8. Overreaction to the Threat of Recession

7.50% 18.50%

9. Lack of Coordinated Response/Leadership

Crash of 1987 stands out as the most volatile S&P500 event over the past 55 years 0.023 1987 Crash

0.021 0.019

Gulf war 2 0.017 Dot-com Asian crisis

Oil crisis 1

0.015 0.013 0.011

Suez

Cuban Missile Crisis

Falklands Oil crisis 2

9/11

Gulf war 1 Sub-prime

Vietnam

0.009 Average 0.007 0.005

2006

2001

1996

1991

1986

1981

1976

1971

1966

0.003 1961

Booming markets and easy money also put pressure on financial managers to take greater risks, and borrow more money, in search of higher returns. “If you are in a risk business, one of the easiest ways to grow is to leverage up,” observed James Dimon, Chairman and Chief Executive Officer of JPMorgan Chase & Co. The industry responded with innovative collateralized debt

Equity Market Volatility

1956

This so-called liquidity bubble was good for emerging economies, providing them with cheap capital to pay off their debts and finance development and trade. The boom in global growth and investment has surpassed the resource industry’s ability to supply it, sending prices for commodities soaring. Record prices for oil, metals and food have been a boon to nations that export them.

CDOs were repeatedly repackaged and resold to investors paying with borrowed funds, creating a mountain of leverage that is now collapsing. What was a liquidity bubble has instead become a liquidity crunch as holders of CDOs search in vain for anyone willing to buy or lend. “It’s not mistrust that other institutions will go bankrupt,” said Walter B. Kielholz, Chairman of the Board of Directors at Credit Suisse, “It’s mistrust that if I lend to them they may not lend to me, so I’ll keep my money. And that was something that I in my career had never seen before.”

1951

Underlying the flood of money into mortgagebacked securities was a tsunami of global capital, fuelled by growing Asian export earnings that has helped finance America’s swelling debt and kept global interest rates and inflation low.

obligations, or CDOs, that allowed lenders to sell their risks on to investors searching for yields, the quest for which fuelled a boom in lending to home buyers with poor, or sub-prime, credit.

S&P 500 volatility (12 month std dev)

One of the most remarkable features of the current crisis is how widely it was predicted. “A year ago we said there was an underpricing of risk,” recalled European Central Bank President Jean-Claude Trichet. Indeed, participants at last year’s meeting warned of a bubble in the US housing market and of a worrying proliferation of complex credit derivatives.

Source: World Economic Forum

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predict a US recession, which could lead to a sharp slowdown in demand for raw materials and manufactured exports and with it slower global growth. If that happens, countries and regions with stronger fiscal positions, like China, East Asia and Latin America are likely to be able to cushion themselves better than those with heavy overseas debt, like Eastern Europe.

Now there are concerns that the sub-prime mortgage crisis will spread to other credit markets – areas dependent on cash-strapped US consumers such as auto loans, as well as markets for other exotic credit derivatives. The billions in losses suffered by banks and other investors could go so far as to reduce credit available to corporations to invest. The real question, however, is what impact falling housing prices will have on US consumers and the global economy. While policy-makers extolled the resilience of the US economy, many economists

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Largest Sovereign Wealth Funds Over US$ 2 trillion held by the largest SWFs $700 600 500 400 300 200 100

Oman

UAE (Dubai)-DIC

Chile

UAE (Dubai)-Istithmar

Taiwan

Kazakhstan

Canada (Alberta)

Malaysia

Venezuela-NDF

Brunei

S. Korea

Qatar

US (Alaska)

Russia

Singapore-Temasek

Kuwait

China-CIC

0

Norway

The US Federal Reserve and other central banks are also under scrutiny. Some argue that their efforts to pump liquidity into money markets and lower rates to stave off recession are critical to keep the global financial system working. Others say such moves only reward investors for their excesses and encourage continued American profligacy. “The Fed’s attitude is that they are here to clean up after bubbles burst, not prevent them from happening in the first place,” said Stephen S. Roach, Chairman for Asia at Morgan Stanley. “This is a dangerous and irresponsible and reckless way to run the world’s largest economy.”

Perhaps the best indication of the changing balance of economic power, though, is the list of who has been bailing out the big banks wounded by the sub-prime fiasco. Swollen with revenues from oil, electronics and public savings, sovereign wealth funds have become the latest global financial force, sparking concern that they may have more than profits in mind as they buy up strategic assets in developed countries.

Singapore-GIC

Predictably, the sub-prime debacle has sparked calls for regulatory reform, in particular the harmonization of regulations internationally to prevent banks from “regulatory arbitrage”. “Regulation is fragmented,” said Malcolm Knight, General Manager and Chief Executive Officer at the Bank for International Settlements. “There has to be more conformity in the way these regulations are implemented across jurisdictions.”

UAE (Abu Dhabi)-ADIA

Kishore Mahbubani, Dean, Lee Kuan Yew School of Public Policy, Singapore

Assets, 2007 (US$, billions)

“We are entering a completely new era of world history – the end of Western domination. In the Industrial Revolution there was a rapid increase in living standards of 50% in one lifetime. In Asia today in one lifetime you will see an increase of 10,000%.”

But a sharp debate took place between those who say the world still depends on US demand and those who believe that the emerging markets’ boom has produced enough momentum that, combined with Europe and Japan, the world is less reliant on the US. “When the US catches a cold, maybe the rest of the world catches a sniffle, but certainly not pneumonia,” noted C. Fred Bergsten, Director of the Peterson Institute for International Economics. On the contrary, Bergsten argued that the world may experience its first episode of “reverse coupling” in which reasonably rapid growth in China and other economies softens and shortens the US downturn.

Source: Standard Chartered (2007)

Bankers point out that sovereign wealth funds have been ideal investors, taking only small stakes and serving as silent, long-term investors. Moreover, their investments help ensure that some of the money spent on oil and electronics finds its way back to the US. Nonetheless, scepticism has emerged about whether the funds’ owners – particularly those that are non-democratic governments – would refrain from interfering if their national interests were at stake.

Sovereign Wealth Funds: A New Development The rising importance of sovereign wealth funds (SWFs) received much attention at the World Economic Forum Annual Meeting 2008, fuelling concern about their potential political influence. Many agreed that the growing financial clout of SWFs – governmentcontrolled funds estimated at US$ 2.5 trillion in assets – should be welcomed, not opposed, by global policymakers because: • SWFs represent a valuable pool of stable, long-term capital, and have reduced, rather than increased, capital market volatility. • SWFs not only contribute to domestic economic stability but to the stability of the global economy as well.

• There is virtually no difference between going to a SWF for investment capital and going to a state pension fund in the US. • If high oil prices continue to channel surplus funds into the coffers of the major exporting countries, sovereign investments could reach US$ 15 trillion within the next five years. This growth will inevitably make SWFs major players in the global capital markets.

“So far as we can see, these investments have been made on commercial, not political grounds. We welcome that type of investment, whether it is from an SWF or anyone else.” Robert M. Kimmitt, US Deputy Secretary of the Treasury.

of corporate investment and development are not adequate. “The world is getting better, but it’s not getting better fast enough, and it’s not getting better for everyone. We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well,” said William H. Gates III, Chairman of Microsoft Corporation. “If we’re going to find a sustainable way to help those who can’t pay, we have to use self-interest and caring – capitalism and philanthropy – to direct attention to people who have been left behind.”

Ultimately, however, the wealth of exporters alone will not solve the enduring problems confronting the global economy. Charting a more equitable and sustainable course will require long-term investments in human capital, education, health and environmental protection. Conventional models

Strategic

Perceived levels of transparency and investment approaches vary

UAE (Dubai)-DIC

Malaysia

UAE (Dubai)-Istithmar Qatar

Investment approach

Michael S. Klein, Chairman and Co-Chief Executive Officer, Markets and Banking, Citi, USA

Top Sovereign Wealth Funds

Singapore-Temasek

China Libya

Singapore-GIC S Korea

UAE (Abu Dhabi)-ADIA Brunei Oman Kuwait Algeria Taiwan

Conventional

“When this is over we will wake up and realize that the issue is that the transformation of wealth and information and industrial activity is taking place at a pace none of us has ever experienced.”

Norway

Venezuela-NDF Kazakhstan Russia Low

Level of transparency

Assets (2007):

Over US$ 500 billion US$ 250-500 billion US$ 100-250 billion
US (Alaska) Chile Canada (Alberta) High

Commodity fund Non-commodity fund

Source: Standard Chartered (2007)

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Geopolitics: Aligning Interests Across Divides

“There is not one challenge in the world today that will get better if we approach it without confidence in the appeal and effectiveness of our ideals – political and economic freedom, open markets and free and fair trade, human dignity and human rights, equal opportunity and the rule of law.” Condoleezza Rice, US Secretary of State

Collaboration is most certainly the best way to develop effective approaches to these many global risks. But cooperation among nations will be insufficient if the responses involve obsolete tools of diplomacy and statecraft – commissions that report but do not act, resolutions and declarations with no bite, international protocols that major powers refuse to sign, or multilateral organizations which key nations can opt out of or undermine with a veto or refusal of funding. The global governance institutions that exist today are legacies of the postWorld War age and the cold war era. They are not equipped to tackle the challenges of a multipolar world, are simply too weak, or are hobbled by the burden of lowest denominator consensus.

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“The United Nations is often a bystander on geopolitical issues,” said Nandan M. Nilekani, Executive Co-Chairman of Indian IT group Infosys Technologies. “The Security Council is still structured with members from 60 years ago. The G8 is still not ready to expand its membership to include the new countries. The World Bank is finding that its capital flows are dwarfed by private capital and it’s time to find a new role in this world. The IMF voting patterns are based on 60-year old rules. The Doha Round of trade discussions has been going on for the last 10 years. When we look at every dimension of global coordination we find that there is not enough coordination happening and things are just falling apart.” To prevent such a breakdown requires collaborative innovation. In business, “innovation”, strictly speaking, is the turning of a concept into commercial value. Applying innovation in geopolitics is the turning of an idea – a new policy or approach – into valuable results, or viable solutions. “The power of collaborative innovation,” said former British Prime Minister Tony Blair in advance of the Annual Meeting, “is the answer to all the big global challenges we are facing.” The linkages among issues means that any effective approach to a problem will require action across several fronts and by many actors including business, civil society and citizens. Nobel Peace

Andrew N. Liveris, Chairman and Chief Executive Officer, Dow Chemical Company, USA

Prize laureate Al Gore and Irish musician Bono made this point as they underscored the connection between climate change and poverty. Gore argued that individual actions to conserve energy were not enough to deal with the climate crisis. “They’re important and making changes of those sorts can build a political consensus,” he explained. “But, in addition to changing the light bulbs, it is far more important to change the laws and the treaty obligations that nations have.” Many government leaders at the Annual Meeting including Blair stressed that the Israeli-Palestinian conflict and the stability of the Middle East is not simply a matter for politicians and diplomats. It impinges on the rest of the world because of its motivational link to global terrorism and its impact on energy markets. The international business community obviously needs to support the peace process for it to succeed.

It was in the series of sessions on water, particularly the WorkSpace session, that the urgent need for collaborative and innovative approaches was most evident. Ignorance of the many problems associated with water supply in the world and inaction are already having severe consequences – conflict, malnutrition, displacement, disease and death. “Water is today’s issue; it is the oil of this century,” warned Andrew N. Liveris, Chairman and Chief Executive Officer of Dow Chemical Company. Added UN Secretary-General Ban Ki-moon: “Too often where we need water we find guns instead.”

Per Capita Water Consumption Worldwide Per capita water consumption rising in both developed and developing countries 60

Cubic metres per person per year

“Water is today’s issue; it is the oil of this century.”

50

40

30

20

10 1995

2025

1995

2025

0 Developed countries

Deveoping countries

Source: IFPRI and IWMI, "Global Water Outlook to 2025: Averting an Impending Crisis" (2002)

15 | World Economic Forum Annual Meeting 2008

But is the new brand of leadership – the kind that is focused on finding collaborative and innovative solutions – for real? To be sure, we have seen the application of collaborative innovation in the past. The creation of the UN peacekeeping forces, the establishment of the International Criminal Court, the conclusion of landmark conventions such as the Law of the Sea and the global banning of landmines were collaborative innovations in their time. Today, it is critical to apply collaborative innovation to even bigger geopolitical challenges. Two immediate tests of whether this concept is more than a Davos ideal are the challenges of concluding a post-Kyoto international framework for mitigating global warming and resolving the Israeli-Palestinian conflict by the end of this year. It is far from clear that these two goals can be achieved. What is clear is that nations are beginning to understand that business as usual is simply unacceptable. “Globalization is forcing changes in how people collaborate in a fundamental way,” said Blair. “You need stronger and stronger collaborative political leadership.” The “good news” is this, he concluded: “If we are interconnected and the world is interconnected, the only way for the world to work is to have a set of common values. We have no option but to work together.”

16 | World Economic Forum Annual Meeting 2008

At the Annual Meeting, geopolitical collaborative innovation was very much on display in the ASEAN session, with three heads of government, six ministers and the organization’s secretary-general on the Congress Hall stage. It was a bold statement by 10 disparate countries that, while they may have different cultures, traditions and histories, and while they may have even fought each other on the battlefield, they share a common future. Indeed, they must – and not just because by joining forces in an ever-closer union they become a more powerful market or a more attractive destination for foreign direct investment, but because only by banding together can they fully and effectively address the multiple risks that threaten the future of their people. And it is not just nation states that have to sit at the table. In session after session, the message of inclusiveness was clear: business and civil society must join with government. The only way for the ideal of collaborative innovation to be a reality – as it must be – is for the international community to set common values to underpin a globalization that is fair and just. A group photo in Davos said more than any of the statements the assembled public figures gave in support of the renewed push by the United Nations

Securing Water for the Future Water emerged as one of the dominant themes at the World Economic Forum Annual Meeting 2008. No individual, firm or nation can escape the consequences of water scarcity. “The challenge of securing safe and plentiful water for all is one of the most daunting challenges faced by the world today,” said UN Secretary-General Ban Ki-moon. He told leaders in Davos that water stress poses a risk to economic growth, human rights, health, safety and national security, and that water shortages can lead to conflict, such as in Darfur and other parts of the world.

The resource is often wasted because it has no economic value, despite being the most precious and scarce resource of all, said Peter Brabeck-Letmathe, Chairman and Chief Executive Officer, Nestlé, Switzerland. “If we allow market forces to play a role in how to define the value of water, we could take a big step forward.” Efforts to extract more and alternative energy sources such as shale oil or biofuels only speed the depletion through their own requirements for water. But, it was suggested that market forces could work well under a cap and trade approach similar to those applied to carbon dioxide.

Many participants, however, agreed that the water challenge could be solved, using collaborative approaches, political will, market mechanisms and innovative technology like those which arose in response to global warming.

to achieve the Millennium Development Goals (MDGs). Together with UN Secretary-General Ban Ki-moon stood Nigerian President Umaru Musa Yar’Adua, British Prime Minister Gordon Brown, H.M. Queen Rania Al Abdullah of Jordan, Microsoft Chairman and global philanthropist Bill Gates, Irish musician Bono and Cisco Systems Chairman and CEO John T. Chambers. This creative coalition, they declared, was necessary to reinvigorate the international community’s flagging campaign. “The goals look like they’re not going to happen, and the G8 commitments made in 2005 look like they will not come off,” Bono complained. “This is a scandal.”

Cynics and devotees of zero sum diplomacy may dismiss the idea of collaborative innovation as simplistic or naïve. Certainly, the power of this approach will be tested in a world where recidivism lingers. At the Annual Meeting, formidable voices spoke of the residual ills of colonialism and took a hard line on the enmities of a bygone age. History, of course, cannot be denied. But if the state of the world is to improve, then those truly committed to improving it cannot waste time eschewing the balm of forgiveness for the false satisfaction of revenge and the easy languor of dwelling on past injustice. Instead, to forge ahead, as South Africa did after the end of apartheid, they should pursue truth and reconciliation – collaborative innovation at its finest.

This unprecedented gathering to rally the international community was emblematic of the new geopolitics that globalization has spawned. The greater interconnectedness of the world has begotten a host of interconnected problems that the old nation-state model was never meant to deal with. Climate change, terrorism, regional conflict and the rapid spread of infectious diseases are only some of the modern global challenges that require multiple approaches and the attention of multiple actors. As the problems have expanded in scope, so too have the number of players needed to tackle them.

17 | World Economic Forum Annual Meeting 2008

Business: Competing While Collaborating

“We’ve been talking about the mobile Internet and mobile stuff for a very long time. And it’s obvious that with 3 billion people and hundreds of millions of very high-end mobile phones, that there’s going to be a huge revolution.” Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer, Google, USA

French poet Paul Valéry might have been forecasting for today’s multinational corporation when he said that “the trouble of our times is that the future isn’t what it used to be.” New mobile communications technology and Internet advertising are revolutionizing the way business is done. Economic power is shifting away from the West, and corporations in other parts of the world are emerging as new champions. To survive and prosper in the rapidly evolving global marketplace, companies must win the war for talent, innovate rapidly, but also, where appropriate, collaborate effectively. Good corporate citizenship will also attract customers, especially if such citizenship underpins business models themselves.

18 | World Economic Forum Annual Meeting 2008

In short, worldwide markets reward swift and agile companies, and those that win the race for talent and customers must be responsive to both. To be truly responsive, corporations must be good as well as great. Mobile technology is changing the way businesses interface with customers, and the way customers interface with one another. In China, home to the world’s largest mobile network, this is particularly true. “On New Year’s Day, we had about 5 billion SMS New Year’s greetings,” said the man who runs the network, Wang Jianzhou, Chairman and Chief Executive, China Mobile Communications Corporation. Worldwide, mobile phone owners total 3 billion and may reach 4 billion in the next four years. “We’ve been talking about the mobile Internet and mobile stuff for a very long time. And it’s obvious that with 3 billion people and ... hundreds of millions of very high-end mobile phones, that there’s going to be a huge revolution,” said Eric Schmidt, Chairman of the Executive Committee and Chief Executive Officer of Google Inc. A parallel technological revolution is taking place in advertising, with Internet and mobile ads surging

and traditional television ads waning. The future is particularly bleak for old print advertising, but viral marketing continues to grow as a cost-effective alternative. Research is needed to determine what types of Internet advertising work best. In addition to shifts in technology, the global business climate continues to be profoundly affected by shifts in the location of power. The emerging markets of Brazil, Russia, India and China are drawing huge capital investments, and have spawned innovative multinational corporations that compete on an even footing with established companies from the developed world. “We were bold, we were passionate in what we believed, we persevered, we were committed, and underpinning all of that was a sound business strategy,” said one such new champion, Aditya Mittal, Chief Financial Officer of ArcelorMittal Limited and Young Global Leader. India in particular holds the potential for tremendous growth. Since reorienting from a command economy to one driven by entrepreneurship, India has given birth to countless innovations, and Indian corporations have scaled up their research and development budgets exponentially. However, for India to sustain its growth over the long term, it must make sure that the 550 million of its citizens under age 24 have

adequate skills training for the future. It must also address the needs of the half of the Indian population that survives on less than a dollar a day. Globalization is decentralizing power, a trend visible not just in the shift away from the West, but also in the shift of influence away from CEOs and towards customers and employees. To survive and prosper, successful multinationals must be ready to collaborate effectively. The world is currently undergoing a demographic shift that amounts to an earthquake for business. With much of the planet experiencing a youth bulge, rates of mortality and fertility are falling in the developed world, with average life expectancy projected to reach 100 by the end of the century. In Europe, talent is increasingly mobile and thus tough to retain: employees between the ages of 25 and 34 spend an average of just 2.9 years in a job. In Africa, a surplus of workers is driving immigration to the north. To retain talent, management must demonstrate empathy for its needs and create attractive workplaces. Corporate boards must be diverse, and CEOs must be able to manage across political and cultural boundaries. Increasingly this means recruiting leadership from countries outside of Europe and North America.

19 | World Economic Forum Annual Meeting 2008

“There has been a massive shift in power to the consumer.”

Foreign-born CEOs One-third of FTSE 100 CEOs were born outside of the UK

Mark G. Parker, President and Chief Executive Officer, Nike, USA

35%

Percentage of CEOs who are foreign-born, as of 12 Dec 2007

30 25 20

networks are islands,” said Schmidt, while “an open Internet produces more content, more users, more revenue, more competition, more choices, more growth.”

15 10 5 0 FTSE 100 (UK)

CAC 40 (France)

Xetra Dax (Germany)

Fortune 100 (US)

Source: New York Times; London Chamber of Commerce and Industry; press reports; company websites

Customers are also enjoying more clout than ever, as businesses vie to learn from, and respond to their needs. “There has been a massive shift in power to the consumer,” said Mark G. Parker, President and Chief Executive Officer of Nike. “And the other thing that’s changed is the relationship isn’t just a company like Nike just communicating out to a consumer; it’s a dialogue.” In an economy where a knowledge base is increasingly replacing a manufacturing base, and where the Internet is breaking down corporate walls, collaboration also means sharing information. “We have to fundamentally decide whether you want closed networks or open networks: closed

20 | World Economic Forum Annual Meeting 2008

The world’s top 1,250 companies spent 10% more on research and development in 2006 than they did in 2005; but most innovation now comes through collaboration with employees, customers and business partners. Still, the growing open source community must not mean a total erosion of intellectual property rights. Excessive IP regulation will stifle growth; but forehanded policies that nurture future innovation rather than protect past methods will make happy shareholders. Finally, shareholders also respond to prudential corporate global citizenship, and companies that succeed must be good as well as great. By partnering with governments and civil societies and working within core competencies, companies can greatly benefit societies and improve their bottom lines. One Edelman study of 5,000 consumers in

nine countries found that 70% would pay more for a socially or environmentally responsible brand. But such responsibility must be integrated into the essence of the companies - and emblazoned in the hearts of its employees - for it to resonate with consumers. Stakeholders' Impact on Corporate Responsibility CEO Survey: Which of the following stakeholder groups have/will have the greatest impact on the way your company manages societal expectations?

2008: “Make or Break” Year for Doha Trade Talks After more than six years of stop-start negotiations, the Doha talks between members of the World Trade Organization (WTO) have ground to a halt. With less than a year before US President George Bush leaves office and with fears growing of a global economic recession, time is may be running out for reaching an agreement to reduce tariffs, subsidies and promote freer and fairer trade.

60%

40

Now Next 5 years

Percentage of respondents

50

30 20 10

Suppliers

Organized labour

Investment community

Boards

NGOs

Regulators

Media/opinion leaders

Local communities

Governments

Consumers

Employees

0

Note: Respondents could select as many as three stakeholders

Source: Feb 2007 McKinsey survey of 391 CEOs whose companies participate in the UN Global Compact

“It’s not what you do with your money after you’ve earned it that matters,” said H.M. Queen Rania Al Abdullah of the Hashemite Kingdom of Jordan, a Member of the Foundation Board of the World Economic Forum. “But it’s how you’ve earned the money that determines your success and your value added to society.”

Despite important progress on technical issues over the past six months, trade experts at the World Economic Forum Annual Meeting 2008 said that WTO members remain no closer to an agreement. In particular, concerns persist among developing countries that lower tariffs will unfairly expose poor rural farmers to global competition and jeopardize growth that would be a potential buffer against a global slowdown. Not reaching a deal in 2008 would “give the wrong signals to the global economy. And this will be detrimental to everybody, most of all the developing economies,” said Celso Amorim, Minister of Foreign Relations of Brazil. Failure in the Doha Round would also likely increase protectionist pressures around the world and result in a rollback from the progress already made towards freer global trade. Pascal Lamy, Director-General, World Trade Organization (WTO), Geneva, said a failure in the talks could exacerbate the impact of a slowing global economy and heighten geopolitical tensions.

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Science and Technology: Exploring Nature’s New Frontiers

We are born, we die. For the duration of our lives, we share this assumption about our common mortality. We plan our affairs and measure our success against a traditional lifespan - career, marriage, children, retirement. Our universal frailty binds us, rich and poor, to the knowledge that at some point we all get sick and perish. We just don’t know how. Or when. But in a series of off-the-record discussions with top scientists, participants at the Annual Meeting heard about how science is progressing so fast that it is challenging our assumptions about the human experience. Death remains inevitable, but the when is being pushed out by advances in medicine. The how, too, may now be less a mystery than a probability. By unravelling the very essence of our individuality, DNA, we may be able to forestall the inevitable, cheat death and alter what we once simply accepted as grim fate. Major Causes of Death

In practical terms, these developments are sure to have a profound impact, altering the rules of the labour force, the calculus of healthcare, our concepts of age, of equality and of privacy. They will eventually force us to consider what the human body is and what constitutes a full life. If nothing else, science is outpacing the public’s ability to understand its accomplishments and weigh the implications. The finality of paralysis, for example, is being challenged by developments in neurotechnology that link the brain directly to machines. Once, a severed spinal cord was irreparable. But by implanting electrodes in the brain, doctors have been able to allow at least one paraplegic to operate a robotic arm and surf the Internet with only his thoughts. Cochlear implants can now restore hearing in many people. Deep brain stimulators are being used to treat epilepsy and Parkinson’s disease. Retinal prostheses have been used successfully to restore sight.

HIV/A IDS Tub erc ulos is Ma lar ia

Chronic diseases account for 60% of fatalities worldwide*

Infectious diseases

Heart disease Other

Chronic diseases Cancer

Diabe

tes

Injuries Other

* segment sizes indicate the share of world fatalities in 2005

Source: WHO

22 | World Economic Forum Annual Meeting 2008

Such developments hold out the possibility that robotic limbs could be controlled by the wearer’s brain to restore natural motion. Advances in bioengineering are already creating prostheses that allow almost natural movement, and even let their wearers regain the ability to feel pressure and weight. Soon, artificial legs will not only allow patients to walk on the beach, but to feel the sand beneath their feet. New biomaterials could allow doctors to regrow nerves entirely.

serve in a role akin to Hollywood producers, assembling different scientific actors and specialists to crack a specific medical problem.

Forecast Avoidable Costs of Chronic Disease In the US, the avoidable indirect impacts (ie, productivity losses) of chronic disease are four times as high as the direct costs

400

300

Indirect impacts

200

100

Direct costs

Avoidable costs (US$, billions)

$500

0 Cancer

Heart Disease

Hypertension

Mental Disorders

Diabetes

Pulmonary Conditions

Stroke

Note: Avoidable costs are those that could be eliminated by reasonable improvements in behaviour and treatment. Direct costs are treatment costs. Indirect impacts are losses in output due to absenteeism, “presenteeism” and other productivity reductions

The concept of personalized diagnosis and treatment also challenges the traditional assumption that each person needs, and is entitled to, certain common medical procedures. They also pose a problem for conventional healthcare systems, which rest on democratic principles of equality – the expectation that all citizens should be treated the same. The value of genetic analysis lies in the fact that one patient should not be treated like another.

Source: The Milken Institute, “An Unhealthy America: The Economic Impact of Chronic Disease" (2007)

These developments hold out hope to accident victims, paraplegics and amputees, as well as to victims of diabetes and strokes. Some wonder, however, how long it will be before synthetic body parts become part of the cosmetic surgeon’s arsenal, allowing us to enhance not only our appearance but also our performance. Advances in genetics, meanwhile, are providing new weapons in the fight against cancer. Biomarkers can now be used to identify individuals at risk and treat them. By exploring the genome, scientists expect to uncover the primary reasons for virtually all common diseases within the next five years. Using their understanding of the genome, scientists are compiling a cancer genome atlas that identifies which genes control susceptibility to certain cancers. Researchers have already identified genes that control the risk of adult-onset diabetes, asthma, breast cancer, hypertension, macular degeneration, prostate cancer and heart disease. Greater understanding of genetics promises to revolutionize medicine, allowing doctors to develop therapies that pinpoint afflicted areas - even individual cells in the body. Genetics already make it possible for physicians to compile treatments tailored to each patient - “genomic medicine”. An account of the medically significant genes in a person’s DNA is now available for about US$ 1,000.

Patients and doctors fear that people with a genetic predisposition to disease will face discrimination, that employers or insurers might reject them. Genetic revelations also present another ethical dilemma: whether the knowledge of a likely illness will improve one’s quality of life. Does informing a patient they are likely to develop an incurable and fatal disease within the next decade help them? How will it affect their role in society? Science may ensure our lives are longer, but will they necessarily be fruitful? By decreasing our mortality, the total cost of healthcare will rise. As we are better able to prevent and bounce back from acute injury and disease, health systems will need to shift attention to the rising cost of chronic diseases such as diabetes, obesity and other lifestyle-related diseases like lung cancer. Governments are already stepping in to limit factors contributing to chronic disease: banning smoking, for example, or unhealthy foods. New York City monitors diabetics’ blood-sugar levels to reduce treatment costs, while Japan plans to require yearly medical checkups for citizens over 50. The burden of chronic disease is so large, many say, that it could alter cultural traditions about which behaviours are private and which are the concern of society at large. Medicine may become more personalized, but your health will become a matter of public interest. Public and Private Health Expenditures

16%

Private

12

8

Public

Health expenditure as a percentage of GDP, 2004

Healthcare spending was over 15% of GDP in the US in 2004

Insurers and regulators expect that such individualized treatments will save them money, even though they are likely to cost individual patients much more. Genomic medicine also poses a challenge to the conventional model for drug discovery and development: clinical trials for a market of one are impossible and lack the scale companies need to justify investing in developing such treatments. Scientists say this is likely to force profound changes to the pharmaceutical industry, perhaps favouring smaller companies that can

4

0 China

India

Japan

France

US

Source: WHO

23 | World Economic Forum Annual Meeting 2008

Values and Society: Understanding Future Shifts

“Very often, it is not faith which brings us into conflict. It is politics and the pursuit of economic and military power, and the violent reactions they produce. It is often the manipulation of ideology, whether religious or secular.” Abdullah Ahmad Badawi, Prime Minister of Malaysia

Shifts happen - but some shifts are easier to see than others. We frequently study globalization through such measurements as trade, capital flows or labour movements. But globalization’s impact on cultures, societies and values calls for a much deeper, more qualitative analysis. While some argue that the global marketplace tends to whitewash regional differences, increasing interconnectedness between cultures has not always lead to secularization or homogenization. Often, in fact, it has exacerbated divisions. For the next century to be one of peace and prosperity, societies must adapt to such trends as urbanization, and adopt new paradigms for intercultural relations, education and even nutrition. The danger lies in a situation where this does not happen, and “people see globalization as something done to them rather than something that, if it is guided by the right value system, actually can bring about a more just world,” said former British Prime Minister Tony Blair. “And so I think you have got to combine this economic opportunity with a sense of values that are around notions of justice as well as notions of freedom.”

24 | World Economic Forum Annual Meeting 2008

For many, principles continue to be defined by faith. “You can’t really have modernization without values,” said Theodore Cardinal McCarrick, Archbishop of Washington DC (2001-2006). “And where do the values come from? They come from our religious traditions.” While some in the 20th century predicted a secular future, today the opposite is true, with adherents to Islam and Christianity comprising over half of the world’s population. And while strife in the Middle East dominates headlines, war is not a necessary byproduct of religious pluralism. “Very often, it is not faith which brings us into conflict,” said Abdullah Ahmad Badawi, Prime Minister of Malaysia. “It is politics and the pursuit of economic and military power, and the violent reactions they produce. It is often the manipulation of ideology, whether religious or secular.” To foster cross-cultural success, both public and private learning institutions must promote empathy and understanding. The Internet represents the greatest change, and holds the greatest educational potential, as an increasing number of students in the developed world are graduating with degrees from online programmes. The new technology provides great hope for democratizing access to education. But for the bottom billion worldwide, with no access to the Internet, even primary education is out of reach. Today, 800 million adults cannot read, and over 200 million children toil in the workplace rather than study in a school. Government, business and civil society share a collective burden to ensure that no child, anywhere in the world, is left behind.

City Economies in 2010 Eight cities join the ranks of urban economic powerhouses, half from the US and half from developing countries

“There is no contradiction between modernization and faith if they are rooted in values.” Mahdi Hadavi, Founder and President, Porch of Wisdom Cultural Institution, Islamic Republic of Iran

Estimated GDP (US$, 2005, PPP) >US$1 trillion US$ 500 billion - 1 trillion 2005

2010

2015

2020

US$ 250 billion - 500 billion

Source: "Which are the largest city economies in the world and how might this change by 2020?", PricewaterhouseCoopers

Worldwide, the most striking societal shifts are happening around urban areas. Today, over half the world lives in a city; by 2050, the fraction is expected to top three-quarters. Making urban environments safe and sustainable requires not only enlightened leaders but also a supportive private sector and mobilized citizenry. Burgeoning urban populations place enormous strains on existing infrastructure, particularly in Asia and Latin America. “If we think the situation is bad now,” said Terry Hill, Chairman, Arup Group of the United Kingdom, “we should think about what is coming. Every city we know is experiencing stress on its infrastructure, yet everyone wants to live in a city.” Public and private sectors must work together to provide upgrades, understanding that a road is not just a project but also a means to foster accessibility, a hospital not just a cost but also an investment in a healthy society.

Urbanization must also be made sustainable. If the world is to stem the effects of climate change, then cities must lead the way. Already, 786 mayors have signed a “local” Kyoto Protocol, pledging to reduce carbon emissions by 20%. Some mid-sized cities have outpaced megacities in their reforms. San Francisco, for example, now boasts a recycle rate of nearly 70% on all waste products. Other cities are aiming to enhance public transportation and have begun offering incentives for clean and efficient energy sources. Global food chains are also evolving in tandem with the urban landscape. New tastes, menus and diets are pushing local food manufacturers into unsustainable monocultures. New consumer trends burden not only national healthcare systems, but, through its supply chain, ecological systems as well. Certain distributors are partnering with small, local farmers to provide healthy products through sustainable agriculture. But consumers must vote for those products with their forks, if they are to make the new supply chains viable. Overall, while societal shifts brought on by globalization may seem beyond our control, we can manage change by adhering to a common set of underlying principles. “Globalization is a fact,” concluded Blair, “but the values that govern it are a choice.” 25 | World Economic Forum Annual Meeting 2008

The

WorkSpace

The WorkSpace – the workshop with a difference – draws out the collective intellect and creative capabilities of participants to explore concrete opportunities for improving the state of the world.

The WorkSpace put the Annual Meeting theme – The Power of Collaborative Innovation – into action. Participants collaborated to find new ways of tackling some of the most critical issues on the global agenda for 2008.

26 | World Economic Forum Annual Meeting 2008

Below are insights from just four of a series of sessions in the WorkSpace. To view all photos, graphics and summaries from the WorkSpace at the Annual Meeting 2008, visit www.weforum.org/annualmeeting/workspace.

27 | World Economic Forum Annual Meeting 2008

Acknowledgements

The World Economic Forum would like to thank its Strategic Partners for their valuable support of the World Economic Forum Annual Meeting 2008:

ABB ABN AMRO Bank Accel Partners Accenture Alcoa AMD American International Group (AIG) Apax Partners ArcelorMittal AT&T Audi Avaya Bahrain Economic Development Board Bain & Company Barclays Capital Basic Element Bombardier Booz Allen Hamilton The Boston Consulting Group BP BT Burda Media CA Cerberus Capital Management Chevron Corporation Cisco Systems Citi Clayton, Dubilier & Rice Clifford Chance The Coca-Cola Company Credit Suisse Deloitte Deutsche Bank Deutsche Post World Net Dubai Holding Dubai World DuPont

E*TRADE FINANCIAL Electricité de France (EDF) Emirates Group Ernst & Young Fluor Corporation Forbes Goldman Sachs Google Heidrick & Struggles HP HSBC Infosys Technologies Intel Corporation Investor JPMorgan Chase KPMG Kudelski Group Lehman Brothers Lenovo McKinsey & Company Manpower Marsh & McLennan Companies (MMC) Merck & Co. Merrill Lynch METRO Group Microsoft Corporation Morgan Stanley Mubadala Development Company NBC Universal Nestlé Nike NYSE Euronext The Olayan Group PepsiCo PricewaterhouseCoopers Reliance Industries Renault-Nissan

28 | World Economic Forum Annual Meeting 2008

Reuters Roland Berger Strategy Consultants Saudi Basic Industries Corporation (SABIC) Siemens Silver Lake SK Group Standard Chartered Swiss International Air Lines Swiss Re Travelport UBS Unilever UPS VimpelCom Volkswagen VTB Bank WPP Xenel Group Zurich Financial Services

The World Economic Forum would also like to thank Dogan Holding, Dogus Group, Invest In France Agency, Koç Holding, Sabance Holding and Swarovski for their support.

29 | World Economic Forum Annual Meeting 2008

Contributors

W. Lee Howell is Senior Director, Head of Asia and Global Agenda. Sheana Tambourgi is Director, Head of Annual Meeting Team. Stephanie Janet is Director, Head of Annual Meeting Operations. Stéphanie Nassenstein is Senior Team Coordinator, Global Agenda. The report writers were Wayne Arnold, Alejandro Reyes and E. Benjamin Skinner. The Annual Meeting Programme is prepared by Irene Casanova, Economics; Nathalie Cerutti, Faculty Management; Agustina Ciocia, Global Competitiveness; Lena Hagelstein, Geopolitics; Paola Hjelt, Values, Arts and Culture; Nour-Eddine Iguimdrane, WorkSpace; Jasmin Lamrani, Partnering Against Corruption; Emma Loades, WorkSpace; Kali Galanis, WorkSpace; Dorothée Ozzello, Public-Private Partnerships; Pearl Smandari, Global Competitiveness; Tiffany West, Business; and Christian Zellner, Science and Technology. Associate Director, Editing: Nancy Tranchet Design and Layout: Kamal Kimaoui, Associate Director, 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 Annual Meeting 2008. Session summaries are available at: www.weforum.org/annualmeeting/summaries2008

30 | World Economic Forum Annual Meeting 2008

This publication is also available in electronic form on the World Economic Forum website at the following address: www.weforum.org/pdf/summitreports/am2008 The Report is also available as a PDF at: www.weforum.org/pdf/summitreports/am2008.pdf

Other specific information on the World Economic Forum Annual Meeting 2008 can be found on the following links: Annual Meeting Annual Meeting Programme Davos Conversation Davos Question Interviews Knowledge Concierge Open Forum Partners Photographs Press releases Session Summaries Webcasts, Podcasts & Vodcasts WorkSpace

www.weforum.org/annualmeeting www.weforum.org/annualmeeting/programme www.weforum.org/davosconversation www.youtube.com/davos www.weforum.org/annualmeeting/interviews www.weforum.org/annualmeeting/knowledgeconcierge www.weforum.org/openforum www.weforum.org/annualmeeting/partners www.flickr.com/photos/worldeconomicforum/sets www.weforum.org/pressreleases www.weforum.org/annualmeeting/summaries2008 www.weforum.org/annualmeeting/webcasts www.weforum.org/annualmeeting/workspace

31 | World Economic Forum Annual Meeting 2008

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)