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World Economic Forum Annual Meeting 2008 The Power of Collaborative Innovation Davos, Switzerland 23-27 January
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Page 1: World Economic Forum Annual Meeting 2008

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

Page 2: World Economic Forum Annual Meeting 2008

World Economic Forum91-93 route de la CapiteCH-1223 Cologny/GenevaSwitzerlandTel.: +41 (0)22 869 1212Fax: +41 (0)22 786 2744E-mail: [email protected]

© 2008 World Economic ForumAll rights reserved.No part of this publication may be reproduced ortransmitted in any form or by any means, includingphotocopying and recording, or by any informationstorage and retrieval system.

REF: 150208

The views expressed in this publication donot necessarily reflect those of the WorldEconomic Forum.

COMMITTED TO IMPROVING THE STATE

OF THE WORLD

Page 3: World Economic Forum Annual Meeting 2008

1 | World Economic Forum Annual Meeting 2008

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

Contents

Page 4: World Economic Forum Annual Meeting 2008

2 | World Economic Forum Annual Meeting 2008

Page 5: World Economic Forum Annual Meeting 2008

3 | World Economic Forum Annual Meeting 2008

Participants in the World Economic Forum AnnualMeeting 2008 convened in Davos at a time of greatanxiety in the world. The turmoil in the financialmarkets and the continuing conflict in the MiddleEast were naturally of immediate concern.Mounting awareness of the epochal challenge ofclimate change and the looming threat of globalterrorism, two issues that were addressed in theopening plenary session, heightened our sharedsense of urgency.

In such times of stress and disquiet, we trulyunderstand the value of the Davos Spirit ofinclusiveness, openness and commitment toimproving the state of the world. The AnnualMeeting theme – The Power of CollaborativeInnovation – was a fitting focus for two reasons.First, it highlighted that a multistakeholder approachis critical for any authentic and viable solutions toglobal problems. The World Economic Forum hasunderscored that, since the first Davos meeting 38years ago, government, business and civil societymust engage each other to find effectiveapproaches to the most pressing issues. This year,we placed particular emphasis on corporate globalcitizenship, the principle that companies must beinvolved in addressing the major challenges weface today, aligning their engagement in societywith their business goals. This commitment is atthe core of what the Forum stands for.

The power of collaborative innovation was a mostapt theme for a second crucial reason. It served tounderline the need for new and imaginative ways tomitigate global risks and the importance ofachieving tangible results or value. While some maycriticize us for our continued optimism amidstgloom, we must never discard our positive attitudefor irrational pessimism.

We should be neither paralyzed by despair norcasual in our concern.

This is a time for sincere pragmatism and a newbrand of collaborative leadership to address themany priorities on the global agenda. We lookforward to continuing our collaboration withMembers and Partners at our regional meetingsand through the many Forum initiatives andindustry activities this year.

Klaus SchwabFounder and Executive Chairman

Preface

“The Davos Man and Woman are aware of allthe challenges and, in a pragmatic way, they dowhat they can to mitigate the risks and addressthe challenges. They also see the opportunitiesin the world. But if we don’t address thechallenges, even the greatest opportunities willnot be enough to guarantee the future ofhumankind.”

Klaus Schwab, Founder and Executive Chairman, World Economic Forum

Page 6: World Economic Forum Annual Meeting 2008

4 | World Economic Forum Annual Meeting 2008

The Power of Collaborative Innovation

Executive Summary

Participants in the World Economic Forum AnnualMeeting 2008 focused on the tools for addressingthe many challenges emerging as a result of theshifting power equations in the world. The Power ofCollaborative Innovation is arguably the last remedyto the stresses of intense globalization that havebeen evident in financial market volatility, wideningincome disparities, and in conflict zones around theworld. As former British Prime Minister Tony Blairobserved in the closing plenary session:“Globalization is forcing changes in how peoplecollaborate in a fundamental way.” Blair added: “Ifwe are interconnected and the world isinterconnected, the only way for the world to workis to have a set of common values. We have nooption but to work together.”

Collaborative innovation is far from the norm ininternational affairs, not least because thestructures of global governance have not evolvedfor nearly three generations. Nation states, eventhose working closely together, will not be able toaddress future global challenges if business andcivil society are not engaged at the outset. In thecurrent context, the World Economic Forumprovides a unique platform for multiple stakeholdersto address a range of global, regional and industryissues. Fostering collaborative innovation becomesall the more critical in a time of heighteneduncertainty.

“In spite of the economic crisis, can welook beyond that and view Davos as acollection of minds to address issuesthat can be addressed? My hope is thatwe are here not only with a can-dospirit, but with a must-do spirit.”

Indra K. Nooyi, Chairman and Chief Executive Officer, PepsiCo,

USA

“Globalization is forcing changes in howpeople collaborate in a fundamentalway. You need stronger and strongercollaborative political leadership. If weare interconnected and the world isinterconnected, the only way for theworld to work is to have a set ofcommon values. We have no option butto work together.”

Tony Blair, Prime Minister of the United Kingdom (1997-2007);

Member of the Foundation Board of the World Economic Forum

Page 7: World Economic Forum Annual Meeting 2008

5 | World Economic Forum Annual Meeting 2008

Among the outcomes of the Annual Meeting:

• Japanese Prime Minister Yasuo Fukuda unveileda five-year, US$ 10 billion fund to support effortsin developing countries to combat globalwarming – a move to ensure that top priority isgiven to climate change at this year’s G8 Summitin Hokkaido. In addition, Japan aims to create anew multilateral fund with the US and the UnitedKingdom to mitigate changes in the earth’sclimate as a result of global warming.

• The Bill & Melinda Gates Foundation announceda US$ 306 million package of agriculturaldevelopment grants “designed to boost theyields and incomes of millions of small farmers inAfrica and other parts of the developing world sothey can lift themselves and their families out ofhunger and poverty”.

• The World Economic Forum, Forum Membercompanies and the United Nations launchedinitiatives to facilitate broader and deeper privatesector support of humanitarian relief operations.Among the programmes established: Agility, TNTand UPS, three leading logistics and transportcompanies, are joining forces to help thehumanitarian sector with emergency response tolarge-scale natural disasters.

• The World Economic Forum launched a landmarkreport on the interfaith dialogue between Muslimand Western societies. Islam and the West:Annual Report on the State of Dialogue was theresult of in-depth research and polling in morethan 40 countries. The report is intended to bean annual global reference on the state ofdialogue among faiths that will increase interfaithcommunication and strengthen efforts to deepenunderstanding.

• The World Economic Forum released the firstpart of the most comprehensive investigation intoprivate equity: The Globalization of AlternativeInvestments Working Papers Volume 1: TheGlobal Economic Impact of Private Equity Report2008. The study focuses on the demography ofglobal private equity deals, the willingness ofprivate equity-backed firms to make long-terminvestments globally, and the impact of privateequity investments on the employment levels offirms in the US and corporate governance in theUnited Kingdom.

• The Forum’s Global Education Initiative (GEI)designated Rwanda as the launch country for apilot programme of the initiative. In partnershipwith the Education For All Fast Track Initiative(FTI) under the banner of the Global EducationAlliance (GEA), the Forum will provide theplatform to combine the strengths of the privatesector and foundations to achieve education forall in low-income countries.

“There is no time to lose in addressingclimate change. We have a readilyavailable means of taking actionwithout waiting for the agreement on apost-Kyoto framework. It goes withoutsaying that aiming at the most efficientuse of energy is now an obligationupon humanity.”

Yasuo Fukuda, Prime Minister of Japan

“I am optimistic about the future. Thequestion is if the economic growth ofIndia and China will slow down if theglobal economy slows. I don’t think theimpact on China will be very big.”

Wang Jianzhou, Chairman and Chief Executive, China Mobile

Communications Corporation, People’s Republic of China

Page 8: World Economic Forum Annual Meeting 2008

6 | World Economic Forum Annual Meeting 2008

• Mayors, regional governors and the private sectorlaunched the World Economic Forum’s SlimCityInitiative, an exchange programme between citiesand companies to support action on resourceefficiency in urban areas, focusing on energy,water, waste, mobility, planning, health andclimate change.

• British Prime Minister Gordon Brown, MicrosoftChairman Bill Gates, Irish musician Bono, H.M.Queen Rania Al Abdullah of the HashemiteKingdom of Jordan, United Nations Secretary-General Ban Ki-moon, World Economic ForumFounder and Executive Chairman Klaus Schwab,Nigerian President Umaru Musa Yar’Adua, andCisco Chairman and Chief Executive Officer JohnT. Chambers issued a joint statement vowing tomake 2008 a turning point in the fight againstpoverty. The world is facing a “developmentemergency”, they said, pledging to “worktogether to help the world get back on track tomeet the Millennium Development Goals.”

• The Forum conducted an innovative outreachexercise with the online video website YouTube,asking people from around the world to answer“The Davos Question” – What one thing do youthink that countries, companies or individualsmust do to make the world a better place in2008? More than 2 million people took part, andbusiness, government and civil society leadersfrom the Annual Meeting posted replies. Amongthose submitting video responses: PresidentShimon Peres of Israel, President AbdoulayeWade of Senegal, President Hamid Karzai ofAfghanistan, former US Secretary of State HenryA. Kissinger and Irish musician Bono. Theresulting global conversation may be viewed atwww.youtube.com/Davos

• Fourteen global CEOs and company chairmenrepresenting a range of industries and regionsissued a call to their peers to join collaborativeefforts to strengthen public governanceframeworks and institutions as a core element oftheir approach to corporate citizenship.

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

“This is not a great year in the US forfar-sighted and imaginative economicpolicies. We need to activate worldtrade talks and strengthen the globalinternational system.”

Henry A. Kissinger, Chairman, Kissinger Associates, USA

Page 9: World Economic Forum Annual Meeting 2008

7 | World Economic Forum Annual Meeting 2008

Economics and Finance: AddressingEconomic Insecurity

The unfolding financial crisis should be viewed as achapter in a much larger, more profound story – therebalancing of global wealth away from the Westand toward the emerging economies of Asia andthe Middle East.

• The shift of economic power from West to East isan epochal transformation that is taking placefaster than anticipated.

• The challenge to policy-makers andbusinesspeople is how to address the moredangerous side effects of global growth such aswidening income disparities, inflation andenvironmental degradation.

• The decoupling of global growth from the USeconomy is premature, but there is a newdynamic with the rapid growth of China and otheremerging economies shortening and softeningthe US downturn.

• Charting a more equitable and sustainablecourse for global growth will require long-terminvestments in human capital, education, healthand environmental protection.

• Greater coordination of macroeconomic policy,beyond just the G8, is needed given the limits oftraditional monetary and fiscal policy in a globaleconomy.

Geopolitics: Aligning Interests Across Divides

Collaborative innovation is the framework toaddress major global challenges linked to theintensification of globalization.

• The legacy institutions of global governance arenot capable of tackling the many interconnectedand complex challenges of a multipolar world.

• Collaboration among nation states is notsufficient to address pressing global problems.The participation of business and civil society isneeded.

• Climate change is an immediate test of whether anew brand of collaborative and pragmaticleadership can lead to real and lasting results.

• The world is in transition. The US is too strong tostand on the sidelines, but too weak to go italone. The state is no longer the most importantpoint of reference for many populations.

• There are global challenges that simply requiregreater collaboration such as the Doha Round ofTrade negotiations and the Middle East peaceprocess. And there are those that will requiregreater innovation to solve such as rapidly ageingsocieties, urbanization and food security. But themost pressing challenges for humankind, such asclimate change, terrorism and non-proliferationwill require both collaboration and innovation.

Ahead of the Annual Meeting, the World Economic Forumcreated the first-ever global video conversation betweenthe general public and the world leaders who wereparticipating in Davos. By the last day of the Meeting, theForum reached a worldwide audience of over 7 million withthe Davos Question on YouTube.

In the run-up to the Annual Meeting the Forum had askedthe Davos Question: “What one thing do you think countries,companies or individuals must do to make the world a betterplace in 2008?” Nearly 300 people, including some of theForum’s Members, sent in personal video replies. The bestwere shown during the opening and other selected plenarysessions at the Annual Meeting 2008. The topics most oftenincluded development, economics, education, environment,climate change, energy, water, governance, human rights,values and technology innovations. You can check out thebest replies on the following website:http://www.youtube.com/profile_favorites?user=thedavosquestion

In Davos, the Forum set up a special Davos Conversationcorner where all participants were encouraged to reply tothese videos uploaded by the YouTube users, or to simplyanswer the Davos Question. Over 110 participants, includingPresident Shimon Peres of Israel, President Abdoulaye Wadeof Senegal, President Hamid Karzai of Afghanistan, musicianBono and actress Emma Thompson along with numerousbusiness leaders used the special video corner to recordtheir messages. Watch the best responses here:http://www.youtube.com/view_play_list?p=749732FFD312CA7F.

“The Davos Question and the Davos Conversation videocorner were the embodiment of our Annual Meeting theme:‘The Power of Collaborative Innovation’,” said Klaus Schwab,Founder and Executive Chairman of the World EconomicForum. The Forum is currently planning to continue the videoconversation with YouTube at some of its regional meetings.

World Economic Forum Reaches Millions with the Davos Conversation

Page 10: World Economic Forum Annual Meeting 2008

8 | World Economic Forum Annual Meeting 2008

Business: Competing While Collaborating

To survive and prosper in the rapidly evolving globalmarketplace, companies must win the war fortalent and innovate rapidly but also, whereappropriate, collaborate - even with thecompetition.

• As worldwide markets reward swift and agilecompanies, mobile technology has become apowerful tool for empowering consumers andconnecting customers and clients with productand service providers.

• In addition to shifts in technology, the globalbusiness climate continues to be profoundlyaffected by shifts in power from developedeconomies to emerging markets including Brazil,Russia, India and China, which are spawningmultinational companies of their own that areeffectively competing against establishedcorporations from the West.

• Globalization is decentralizing power, whiledemographic differentials are heightening thefight for talent.

• Web collaboration is distributive; open sourceresults in robustness but not innovation. How toinnovate is less complicated than discoveringwhat to innovate.

• The practice of corporate global citizenship iscrucial for a company to succeed in this context.

Science and Technology: Exploring Nature’sNew Frontiers

Science and technology are progressing so fastthat advances are challenging our assumptionsabout the human experience. While death remainsinevitable, when and how it happens is now less ofa mystery.

• Deeper understanding of the essence of ourindividuality, DNA, may help us to be more incontrol of our health and lifespan. Meanwhile, thefinality of paralysis is being challenged bydevelopments in neurotechnology andregenerative medicine. In addition, advances ingenetics are providing new weapons againstcancer.

• These developments are changing the rules ofthe labour force, the calculus of healthcare andour concepts of age, equality and privacy.

• Highly bespoke diagnosis and treatment ischallenging the traditional assumption that eachperson needs, and is entitled to, a common slateof medical procedures. However, patients anddoctors fear that people with a geneticdisposition to disease will face discrimination andthat employers or insurers might reject them.

• While science may decrease our mortality, thetotal cost of healthcare will rise.

• Businesses are fundamentally altering the way inwhich they conduct research. They areincreasingly relying on collaborative researchrather than large-scale integrated research thatinvents a new technology from top to bottom.

Page 11: World Economic Forum Annual Meeting 2008

9 | World Economic Forum Annual Meeting 2008

Values and Society: Understanding FutureShifts

Globalization’s impact on cultures, societies andvalues must be the subject of deeper, morequalitative analysis. Increasing interconnectednesshas not always led to secularization orhomogenization. Often, in fact, it has exacerbateddivisions.

• The growth of economic opportunity as a resultof globalization must be combined with a senseof values centred on the notions of justice andfreedom to ensure its sustainability over the longrun.

• Burgeoning urban populations place enormousstrains on existing infrastructure, particularly inAsia and Latin America. Urbanization must bemade sustainable.

• While consuming less is a difficult message inmuch of the world, developing marketconsumers have the economic motivation to “getmore for less” which promotes demand forenergy-efficient products.

• It is not necessarily faith that brings people intoconflict but rather politics and the pursuit ofeconomic and military power, as well as themanipulation of ideology, whether religious orsecular.

• To foster cross-cultural understanding, public andprivate learning institutions must work to promoteempathy. The Internet can play a critical role ineducation to bridge divides.

The Forum would like to thank the distinguishedCo-Chairs of the Annual Meeting 2008, who ledmany sessions and provided valuable insights andwisdom. They were:Tony Blair, Prime Minister of the United Kingdom(1997-2007); Member of the Foundation Board ofthe World Economic ForumJames Dimon, Chairman and Chief ExecutiveOfficer, JPMorgan Chase & Co., USAK. V. Kamath, Managing Director and ChiefExecutive Officer, ICICI Bank, IndiaHenry A. Kissinger, Chairman, KissingerAssociates, USAIndra K. Nooyi, Chairman and Chief ExecutiveOfficer, PepsiCo, USADavid J. O’Reilly, Chairman and Chief ExecutiveOfficer, Chevron, USAWang Jianzhou, Chairman and Chief Executive,China Mobile Communications Corporation,People’s Republic of China

Page 12: World Economic Forum Annual Meeting 2008

10 | World Economic Forum Annual Meeting 2008

Economics and Finance:

Addressing Economic Insecurity

It might be tempting to lay the blame for theunfolding financial crisis at the feet of bankers likeJérôme Kerviel, the young trader whosemisadventures have allegedly cost SociétéGénérale US$ 7.3 billion, to castigate the supposedgreed of investment banks or to demonize thederivatives at the heart of the turmoil. But whatbecame clear during discussions at this year’sAnnual Meeting was that the sub-prime crisis roilingglobal financial markets is but a dramatic andcostly chapter in a much larger, more profoundstory - the rebalancing of global wealth away fromthe developed economies of the West towards theemerging economies of Asia and the Middle East.

“When this is over we will wake up and realize thatthe issue is that the transformation of wealth andinformation and industrial activity is taking place ata pace none of us has ever experienced,” saidMichael S. Klein, Chairman and Co-Chief ExecutiveOfficer of Markets and Banking at Citi. Or asKishore Mahbubani, Dean of the Lee Kuan YewSchool of Public Policy, put it: “We are entering acompletely new era of world history – the end ofWestern domination. In the Industrial Revolutionthere was a rapid increase in living standards of50% in one lifetime. In Asia today in one lifetimeyou will see an increase of 10,000%.”

It may not seem like it to those watching theirportfolios plummet, but this trend is not all badnews. The rising prosperity of the East is liftingmillions out of poverty and is even spreading to thepoorest corners of Africa. The challenge to policy-makers and businesspeople as the crisis subsideswill be how to alleviate the more dangerous sideeffects of global economic growth – rising inequitieswithin nations and a worsening global environment.Climate change has underscored the limits ofdevelopment: without dramatic advances inresource efficiency and reductions in emissions,universal prosperity is environmental suicide. “Ifeveryone tries to consume the way America hasconsumed, the world is not viable,” said NobelPrize-winning economist Joseph E. Stiglitz.

Source: Thomson Financial; press accounts

Jan2007

AAA

A

BBB-

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

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Largestsub-prime

lender declaresbankruptcy Two bulge-bracket

hedge funds reachcreditor settlement

Central bankscoordinate

first liquidityinjection

Fed Fundscut 25 bp

SWF’s beginbail out

of banks

Bankrun on

NorthernRock

Fed Fundscut 50 bp

Banksannouce

write-downs

US Mortgage-backed SecuritiesValue erosion

100

80

60

40

20

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sub

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ortg

age-

back

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ecur

ities

pric

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ting*

“If everyone tries to consume the wayAmerica has consumed, the world is notviable.”

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

Page 13: World Economic Forum Annual Meeting 2008

11 | World Economic Forum Annual Meeting 2008

One of the most remarkable features of the currentcrisis is how widely it was predicted. “A year agowe said there was an underpricing of risk,” recalledEuropean Central Bank President Jean-ClaudeTrichet. Indeed, participants at last year’s meetingwarned of a bubble in the US housing market andof a worrying proliferation of complex creditderivatives.

Underlying the flood of money into mortgage-backed securities was a tsunami of global capital,fuelled by growing Asian export earnings that hashelped finance America’s swelling debt and keptglobal interest rates and inflation low.

This so-called liquidity bubble was good foremerging economies, providing them with cheapcapital to pay off their debts and financedevelopment and trade. The boom in global growthand investment has surpassed the resourceindustry’s ability to supply it, sending prices forcommodities soaring. Record prices for oil, metalsand food have been a boon to nations that exportthem.

Booming markets and easy money also putpressure on financial managers to take greaterrisks, and borrow more money, in search of higherreturns. “If you are in a risk business, one of theeasiest ways to grow is to leverage up,” observedJames Dimon, Chairman and Chief ExecutiveOfficer of JPMorgan Chase & Co. The industryresponded with innovative collateralized debt

obligations, or CDOs, that allowed lenders to selltheir risks on to investors searching for yields, thequest for which fuelled a boom in lending to homebuyers with poor, or sub-prime, credit.

CDOs were repeatedly repackaged and resold toinvestors paying with borrowed funds, creating amountain of leverage that is now collapsing. Whatwas a liquidity bubble has instead become aliquidity crunch as holders of CDOs search in vainfor anyone willing to buy or lend. “It’s not mistrustthat other institutions will go bankrupt,” said WalterB. Kielholz, Chairman of the Board of Directors atCredit Suisse, “It’s mistrust that if I lend to themthey may not lend to me, so I’ll keep my money.And that was something that I in my career hadnever seen before.”

Source: World Economic Forum

1951

1956

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

Suez

Cuban MissileCrisis

Vietnam

Oil crisis 1

Oil crisis 2Falklands

Gulf war 1

Average

Gulf war 2

9/11

Asian crisis

Dot-com

1987 Crash

Sub-prime

Equity Market Volatility

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

0.023

0.021

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0.017

0.015

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15.90%

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4.40%

7.50%

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1. Recession in the United States

2. Greater Income Inequalities

3. Rise in Energy and Commodity Prices

4. Severe Global Credit Crunch

5. Mismanagement of Current Crisis

6. Broad-based Collapse of Confidence

7. Rise of Protectionism

8. Overreaction to the Threat of Recession

9. Lack of Coordinated Response/Leadership

Results of the World Economic BrainstormingThe Greatest Threat to Global Growth

Page 14: World Economic Forum Annual Meeting 2008

12 | World Economic Forum Annual Meeting 2008

Predictably, the sub-prime debacle has sparkedcalls for regulatory reform, in particular theharmonization of regulations internationally toprevent banks from “regulatory arbitrage”.“Regulation is fragmented,” said Malcolm Knight,General Manager and Chief Executive Officer at theBank for International Settlements. “There has tobe more conformity in the way these regulationsare implemented across jurisdictions.”

The US Federal Reserve and other central banksare also under scrutiny. Some argue that theirefforts to pump liquidity into money markets andlower rates to stave off recession are critical tokeep the global financial system working. Otherssay such moves only reward investors for theirexcesses and encourage continued Americanprofligacy. “The Fed’s attitude is that they are hereto clean up after bubbles burst, not prevent themfrom happening in the first place,” said Stephen S.Roach, Chairman for Asia at Morgan Stanley. “Thisis a dangerous and irresponsible and reckless wayto run the world’s largest economy.”

Now there are concerns that the sub-primemortgage crisis will spread to other credit markets– areas dependent on cash-strapped USconsumers such as auto loans, as well as marketsfor other exotic credit derivatives.

The billions in losses suffered by banks and otherinvestors could go so far as to reduce creditavailable to corporations to invest. The realquestion, however, is what impact falling housingprices will have on US consumers and the globaleconomy. While policy-makers extolled theresilience of the US economy, many economists

predict a US recession, which could lead to asharp slowdown in demand for raw materials andmanufactured exports and with it slower globalgrowth. If that happens, countries and regions withstronger fiscal positions, like China, East Asia andLatin America are likely to be able to cushionthemselves better than those with heavy overseasdebt, like Eastern Europe.

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

Perhaps the best indication of the changingbalance of economic power, though, is the list ofwho has been bailing out the big banks woundedby the sub-prime fiasco. Swollen with revenuesfrom oil, electronics and public savings, sovereignwealth funds have become the latest globalfinancial force, sparking concern that they mayhave more than profits in mind as they buy upstrategic assets in developed countries.

Bankers point out that sovereign wealth funds havebeen ideal investors, taking only small stakes andserving as silent, long-term investors. Moreover,their investments help ensure that some of themoney spent on oil and electronics finds its wayback to the US. Nonetheless, scepticism hasemerged about whether the funds’ owners –particularly those that are non-democraticgovernments – would refrain from interfering if theirnational interests were at stake.

$700

600

500

400

300

200

100

0

Largest Sovereign Wealth Funds

Over US$ 2 trillion held by the largest SWFs

Source: Standard Chartered (2007)

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“We are entering a completely new eraof world history – the end of Westerndomination. In the Industrial Revolutionthere was a rapid increase in livingstandards of 50% in one lifetime. InAsia today in one lifetime you will seean increase of 10,000%.”

Kishore Mahbubani, Dean, Lee Kuan Yew School of PublicPolicy, Singapore

Page 15: World Economic Forum Annual Meeting 2008

13 | World Economic Forum Annual Meeting 2008

Ultimately, however, the wealth of exporters alonewill not solve the enduring problems confronting theglobal economy. Charting a more equitable andsustainable course will require long-terminvestments in human capital, education, healthand environmental protection. Conventional models

of corporate investment and development are notadequate. “The world is getting better, but it’s notgetting better fast enough, and it’s not gettingbetter for everyone. We have to find a way to makethe aspects of capitalism that serve wealthierpeople serve poorer people as well,” said WilliamH. Gates III, Chairman of Microsoft Corporation. “Ifwe’re going to find a sustainable way to help thosewho can’t pay, we have to use self-interest andcaring – capitalism and philanthropy – to directattention to people who have been left behind.”

Source: Standard Chartered (2007)

Top Sovereign Wealth Funds

Str

ate

gic

Co

nve

ntio

na

l

Inve

stm

en

t a

pp

roa

ch

Level of transparencyLow High

Perceived levels of transparency and investment approaches vary

UAE (Dubai)-DIC

UAE (Abu Dhabi)-ADIABruneiOman

KuwaitTaiwanVenezuela-NDF

Russia

Kazakhstan

S Korea

Singapore-GIC

Singapore-Temasek

Malaysia

NorwayUS (Alaska)Chile

Canada (Alberta)

UAE (Dubai)-IstithmarQatar

China

Algeria

Libya

Commodity fundNon-commodity fund

Over US$ 500 billionUS$ 250-500 billionUS$ 100-250 billion<US$ 100 billion

Assets (2007):

“When this is over we will wake up andrealize that the issue is that thetransformation of wealth andinformation and industrial activity istaking place at a pace none of us hasever experienced.”

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

The rising importance of sovereign wealth funds (SWFs)received much attention at the World Economic ForumAnnual Meeting 2008, fuelling concern about theirpotential political influence. Many agreed that thegrowing financial clout of SWFs – government-controlled funds estimated at US$ 2.5 trillion in assets –should be welcomed, not opposed, by global policy-makers because:

• SWFs represent a valuable pool of stable, long-termcapital, and have reduced, rather than increased,capital market volatility.

• SWFs not only contribute to domestic economicstability but to the stability of the global economy aswell.

• There is virtually no difference between going to aSWF for investment capital and going to a statepension fund in the US.

• If high oil prices continue to channel surplus fundsinto the coffers of the major exporting countries,sovereign investments could reach US$ 15 trillionwithin the next five years. This growth will inevitablymake SWFs major players in the global capitalmarkets.

Sovereign Wealth Funds: A New Development

“So far as we can see, these investmentshave been made on commercial, notpolitical grounds. We welcome that typeof investment, whether it is from an SWFor anyone else.”

Robert M. Kimmitt, US Deputy Secretary of the Treasury.

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14 | World Economic Forum Annual Meeting 2008

Geopolitics: Aligning Interests Across Divides

Collaboration is most certainly the best way todevelop effective approaches to these many globalrisks. But cooperation among nations will beinsufficient if the responses involve obsolete tools ofdiplomacy and statecraft – commissions that reportbut do not act, resolutions and declarations with nobite, international protocols that major powersrefuse to sign, or multilateral organizations whichkey nations can opt out of or undermine with aveto or refusal of funding. The global governanceinstitutions that exist today are legacies of the post-World War age and the cold war era. They are notequipped to tackle the challenges of a multipolarworld, are simply too weak, or are hobbled by theburden of lowest denominator consensus.

“The United Nations is often a bystander ongeopolitical issues,” said Nandan M. Nilekani,Executive Co-Chairman of Indian IT group InfosysTechnologies. “The Security Council is stillstructured with members from 60 years ago. TheG8 is still not ready to expand its membership toinclude the new countries. The World Bank isfinding that its capital flows are dwarfed by privatecapital and it’s time to find a new role in this world.The IMF voting patterns are based on 60-year oldrules. The Doha Round of trade discussions hasbeen going on for the last 10 years. When we lookat every dimension of global coordination we findthat there is not enough coordination happeningand things are just falling apart.”

To prevent such a breakdown requires collaborativeinnovation. In business, “innovation”, strictlyspeaking, is the turning of a concept intocommercial value. Applying innovation ingeopolitics is the turning of an idea – a new policyor approach – into valuable results, or viablesolutions. “The power of collaborative innovation,”said former British Prime Minister Tony Blair inadvance of the Annual Meeting, “is the answer toall the big global challenges we are facing.”

The linkages among issues means that anyeffective approach to a problem will require actionacross several fronts and by many actors includingbusiness, civil society and citizens. Nobel Peace

“There is not one challenge in theworld today that will get better if weapproach it without confidence in theappeal and effectiveness of our ideals –political and economic freedom, openmarkets and free and fair trade, humandignity and human rights, equalopportunity and the rule of law.”

Condoleezza Rice, US Secretary of State

Page 17: World Economic Forum Annual Meeting 2008

15 | World Economic Forum Annual Meeting 2008

Prize laureate Al Gore and Irish musician Bonomade this point as they underscored theconnection between climate change and poverty.Gore argued that individual actions to conserveenergy were not enough to deal with the climatecrisis. “They’re important and making changes ofthose sorts can build a political consensus,” heexplained. “But, in addition to changing the lightbulbs, it is far more important to change the lawsand the treaty obligations that nations have.”

Many government leaders at the Annual Meetingincluding Blair stressed that the Israeli-Palestinianconflict and the stability of the Middle East is notsimply a matter for politicians and diplomats. Itimpinges on the rest of the world because of itsmotivational link to global terrorism and its impacton energy markets. The international businesscommunity obviously needs to support the peaceprocess for it to succeed.

It was in the series of sessions on water,particularly the WorkSpace session, that the urgentneed for collaborative and innovative approacheswas most evident. Ignorance of the many problemsassociated with water supply in the world andinaction are already having severe consequences –conflict, malnutrition, displacement, disease anddeath. “Water is today’s issue; it is the oil of thiscentury,” warned Andrew N. Liveris, Chairman andChief Executive Officer of Dow Chemical Company.Added UN Secretary-General Ban Ki-moon: “Toooften where we need water we find guns instead.”

Per Capita Water Consumption Worldwide

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

Cub

ic m

etre

s pe

r pe

rson

per

yea

r

Per capita water consumption rising in both developed and developing countries

60

50

40

30

20

10

0

Developed countries

1995 2025 1995 2025

Deveoping countries

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

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

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16 | World Economic Forum Annual Meeting 2008

But is the new brand of leadership – the kind that isfocused on finding collaborative and innovativesolutions – for real? To be sure, we have seen theapplication of collaborative innovation in the past.The creation of the UN peacekeeping forces, theestablishment of the International Criminal Court,the conclusion of landmark conventions such asthe Law of the Sea and the global banning oflandmines were collaborative innovations in theirtime. Today, it is critical to apply collaborativeinnovation to even bigger geopolitical challenges.

Two immediate tests of whether this concept ismore than a Davos ideal are the challenges ofconcluding a post-Kyoto international frameworkfor mitigating global warming and resolving theIsraeli-Palestinian conflict by the end of this year. Itis far from clear that these two goals can beachieved. What is clear is that nations arebeginning to understand that business as usual issimply unacceptable. “Globalization is forcingchanges in how people collaborate in afundamental way,” said Blair. “You need strongerand stronger collaborative political leadership.” The“good news” is this, he concluded: “If we areinterconnected and the world is interconnected, theonly way for the world to work is to have a set ofcommon values. We have no option but to worktogether.”

At the Annual Meeting, geopolitical collaborativeinnovation was very much on display in the ASEANsession, with three heads of government, sixministers and the organization’s secretary-generalon the Congress Hall stage. It was a boldstatement by 10 disparate countries that, whilethey may have different cultures, traditions andhistories, and while they may have even foughteach other on the battlefield, they share a commonfuture. Indeed, they must – and not just because byjoining forces in an ever-closer union they becomea more powerful market or a more attractivedestination for foreign direct investment, butbecause only by banding together can they fullyand effectively address the multiple risks thatthreaten the future of their people.

And it is not just nation states that have to sit at thetable. In session after session, the message ofinclusiveness was clear: business and civil societymust join with government. The only way for theideal of collaborative innovation to be a reality – asit must be – is for the international community toset common values to underpin a globalization thatis fair and just.

A group photo in Davos said more than any of thestatements the assembled public figures gave insupport of the renewed push by the United Nations

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17 | World Economic Forum Annual Meeting 2008

to achieve the Millennium Development Goals(MDGs). Together with UN Secretary-General BanKi-moon stood Nigerian President Umaru MusaYar’Adua, British Prime Minister Gordon Brown,H.M. Queen Rania Al Abdullah of Jordan, MicrosoftChairman and global philanthropist Bill Gates, Irishmusician Bono and Cisco Systems Chairman andCEO John T. Chambers. This creative coalition,they declared, was necessary to reinvigorate theinternational community’s flagging campaign. “Thegoals look like they’re not going to happen, and theG8 commitments made in 2005 look like they willnot come off,” Bono complained. “This is ascandal.”

This unprecedented gathering to rally theinternational community was emblematic of thenew geopolitics that globalization has spawned.The greater interconnectedness of the world hasbegotten a host of interconnected problems thatthe old nation-state model was never meant to dealwith. Climate change, terrorism, regional conflictand the rapid spread of infectious diseases are onlysome of the modern global challenges that requiremultiple approaches and the attention of multipleactors. As the problems have expanded in scope,so too have the number of players needed totackle them.

Cynics and devotees of zero sum diplomacy maydismiss the idea of collaborative innovation assimplistic or naïve. Certainly, the power of thisapproach will be tested in a world where recidivismlingers. At the Annual Meeting, formidable voicesspoke of the residual ills of colonialism and took ahard line on the enmities of a bygone age. History,of course, cannot be denied. But if the state of theworld is to improve, then those truly committed toimproving it cannot waste time eschewing the balmof forgiveness for the false satisfaction of revengeand the easy languor of dwelling on past injustice.Instead, to forge ahead, as South Africa did afterthe end of apartheid, they should pursue truth andreconciliation – collaborative innovation at its finest.

Water emerged as one of the dominant themes at the WorldEconomic Forum Annual Meeting 2008. No individual, firm ornation can escape the consequences of water scarcity.

“The challenge of securing safe and plentiful water for all isone of the most daunting challenges faced by the worldtoday,” said UN Secretary-General Ban Ki-moon. He toldleaders in Davos that water stress poses a risk to economicgrowth, human rights, health, safety and national security,and that water shortages can lead to conflict, such as inDarfur and other parts of the world.

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

The resource is often wasted because it has no economicvalue, despite being the most precious and scarce resourceof all, said Peter Brabeck-Letmathe, Chairman and ChiefExecutive Officer, Nestlé, Switzerland. “If we allow marketforces to play a role in how to define the value of water, wecould take a big step forward.”

Efforts to extract more and alternative energy sources suchas shale oil or biofuels only speed the depletion through theirown requirements for water. But, it was suggested thatmarket forces could work well under a cap and tradeapproach similar to those applied to carbon dioxide.

Securing Water for the Future

Page 20: World Economic Forum Annual Meeting 2008

18 | World Economic Forum Annual Meeting 2008

Business: Competing While Collaborating

French poet Paul Valéry might have beenforecasting for today’s multinational corporationwhen he said that “the trouble of our times is thatthe future isn’t what it used to be.” New mobilecommunications technology and Internetadvertising are revolutionizing the way business isdone. Economic power is shifting away from theWest, and corporations in other parts of the worldare emerging as new champions. To survive andprosper in the rapidly evolving global marketplace,companies must win the war for talent, innovaterapidly, but also, where appropriate, collaborateeffectively. Good corporate citizenship will alsoattract customers, especially if such citizenshipunderpins business models themselves.

In short, worldwide markets reward swift and agilecompanies, and those that win the race for talentand customers must be responsive to both. To betruly responsive, corporations must be good as wellas great.

Mobile technology is changing the way businessesinterface with customers, and the way customersinterface with one another. In China, home to theworld’s largest mobile network, this is particularlytrue. “On New Year’s Day, we had about 5 billionSMS New Year’s greetings,” said the man who runsthe network, Wang Jianzhou, Chairman and ChiefExecutive, China Mobile CommunicationsCorporation.

Worldwide, mobile phone owners total 3 billion andmay reach 4 billion in the next four years. “We’vebeen talking about the mobile Internet and mobilestuff for a very long time. And it’s obvious that with3 billion people and ... hundreds of millions of veryhigh-end mobile phones, that there’s going to be ahuge revolution,” said Eric Schmidt, Chairman ofthe Executive Committee and Chief ExecutiveOfficer of Google Inc.

A parallel technological revolution is taking place inadvertising, with Internet and mobile ads surging

“We’ve been talking about the mobileInternet and mobile stuff for a very longtime. And it’s obvious that with 3 billionpeople and hundreds of millions of veryhigh-end mobile phones, that there’sgoing to be a huge revolution.”

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

Page 21: World Economic Forum Annual Meeting 2008

19 | World Economic Forum Annual Meeting 2008

and traditional television ads waning. The future isparticularly bleak for old print advertising, but viralmarketing continues to grow as a cost-effectivealternative. Research is needed to determine whattypes of Internet advertising work best.

In addition to shifts in technology, the globalbusiness climate continues to be profoundlyaffected by shifts in the location of power. Theemerging markets of Brazil, Russia, India and Chinaare drawing huge capital investments, and havespawned innovative multinational corporations thatcompete on an even footing with establishedcompanies from the developed world. “We werebold, we were passionate in what we believed, wepersevered, we were committed, and underpinningall of that was a sound business strategy,” said onesuch new champion, Aditya Mittal, Chief FinancialOfficer of ArcelorMittal Limited and Young GlobalLeader.

India in particular holds the potential fortremendous growth. Since reorienting from acommand economy to one driven byentrepreneurship, India has given birth to countlessinnovations, and Indian corporations have scaledup their research and development budgetsexponentially. However, for India to sustain itsgrowth over the long term, it must make sure thatthe 550 million of its citizens under age 24 have

adequate skills training for the future. It must alsoaddress the needs of the half of the Indianpopulation that survives on less than a dollar a day.

Globalization is decentralizing power, a trend visiblenot just in the shift away from the West, but also inthe shift of influence away from CEOs and towardscustomers and employees. To survive and prosper,successful multinationals must be ready tocollaborate effectively.

The world is currently undergoing a demographicshift that amounts to an earthquake for business.With much of the planet experiencing a youthbulge, rates of mortality and fertility are falling in thedeveloped world, with average life expectancyprojected to reach 100 by the end of the century. InEurope, talent is increasingly mobile and thus toughto retain: employees between the ages of 25 and34 spend an average of just 2.9 years in a job. InAfrica, a surplus of workers is driving immigration tothe north.

To retain talent, management must demonstrateempathy for its needs and create attractiveworkplaces. Corporate boards must be diverse,and CEOs must be able to manage across politicaland cultural boundaries. Increasingly this meansrecruiting leadership from countries outside ofEurope and North America.

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20 | World Economic Forum Annual Meeting 2008

Customers are also enjoying more clout than ever,as businesses vie to learn from, and respond totheir needs. “There has been a massive shift inpower to the consumer,” said Mark G. Parker,President and Chief Executive Officer of Nike. “Andthe other thing that’s changed is the relationshipisn’t just a company like Nike just communicatingout to a consumer; it’s a dialogue.”

In an economy where a knowledge base isincreasingly replacing a manufacturing base, andwhere the Internet is breaking down corporatewalls, collaboration also means sharing information.“We have to fundamentally decide whether youwant closed networks or open networks: closed

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

Foreign-born CEOs

35%

30

25

20

15

10

5

0

Per

cent

age

of C

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200

7

FTSE 100 (UK) CAC 40 (France) Fortune 100 (US)

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

Xetra Dax (Germany)

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

The world’s top 1,250 companies spent 10% moreon research and development in 2006 than theydid in 2005; but most innovation now comesthrough collaboration with employees, customersand business partners. Still, the growing opensource community must not mean a total erosion ofintellectual property rights. Excessive IP regulationwill stifle growth; but forehanded policies thatnurture future innovation rather than protect pastmethods will make happy shareholders.

Finally, shareholders also respond to prudentialcorporate global citizenship, and companies thatsucceed must be good as well as great. Bypartnering with governments and civil societies andworking within core competencies, companies cangreatly benefit societies and improve their bottomlines. One Edelman study of 5,000 consumers in

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

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

Page 23: World Economic Forum Annual Meeting 2008

nine countries found that 70% would pay more fora socially or environmentally responsible brand. Butsuch responsibility must be integrated into theessence of the companies - and emblazoned in thehearts of its employees - for it to resonate withconsumers.

“It’s not what you do with your money after you’veearned it that matters,” said H.M. Queen Rania AlAbdullah of the Hashemite Kingdom of Jordan, aMember of the Foundation Board of the WorldEconomic Forum. “But it’s how you’ve earned themoney that determines your success and yourvalue added to society.”

Stakeholders' Impact on Corporate Responsibility

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

CEO Survey: Which of the following stakeholder groups have/will have thegreatest impact on the way your company manages societal expectations?

Note: Respondents could select as many as three stakeholders

60%

50

40

30

20

10

0

Per

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age

of r

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Em

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Con

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2008: “Make or Break” Year forDoha Trade Talks

After more than six years of stop-startnegotiations, the Doha talks between membersof the World Trade Organization (WTO) haveground to a halt. With less than a year before USPresident George Bush leaves office and withfears growing of a global economic recession,time is may be running out for reaching anagreement to reduce tariffs, subsidies andpromote freer and fairer trade.

Despite important progress on technical issuesover the past six months, trade experts at theWorld Economic Forum Annual Meeting 2008said that WTO members remain no closer to anagreement. In particular, concerns persist amongdeveloping countries that lower tariffs will unfairlyexpose poor rural farmers to global competitionand jeopardize growth that would be a potentialbuffer against a global slowdown. Not reaching adeal in 2008 would “give the wrong signals tothe global economy. And this will be detrimentalto everybody, most of all the developingeconomies,” said Celso Amorim, Minister ofForeign Relations of Brazil.

Failure in the Doha Round would also likelyincrease protectionist pressures around theworld and result in a rollback from the progressalready made towards freer global trade. PascalLamy, Director-General, World TradeOrganization (WTO), Geneva, said a failure in thetalks could exacerbate the impact of a slowingglobal economy and heighten geopoliticaltensions.

21 | World Economic Forum Annual Meeting 2008

Page 24: World Economic Forum Annual Meeting 2008

22 | World Economic Forum Annual Meeting 2008

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 commonmortality. We plan our affairs and measure oursuccess against a traditional lifespan - career,marriage, children, retirement. Our universal frailtybinds us, rich and poor, to the knowledge that atsome point we all get sick and perish. We justdon’t know how. Or when.

But in a series of off-the-record discussions withtop scientists, participants at the Annual Meetingheard about how science is progressing so fastthat it is challenging our assumptions about thehuman experience. Death remains inevitable, butthe when is being pushed out by advances inmedicine. The how, too, may now be less amystery than a probability. By unravelling the veryessence of our individuality, DNA, we may be ableto forestall the inevitable, cheat death and alterwhat we once simply accepted as grim fate.

HIV

/AID

S

OtherHeart disease

Cancer

Other

Tube

rcul

osis

Dia

bete

s

Major Causes of Death

Chronic diseases account for 60% of fatalities worldwide*

Source: WHO

Injuries

Chronicdiseases

* segment sizes indicate the share of world fatalities in 2005

Infectiousdiseases

Mal

aria

In practical terms, these developments are sure tohave a profound impact, altering the rules of thelabour force, the calculus of healthcare, ourconcepts of age, of equality and of privacy. Theywill eventually force us to consider what the humanbody is and what constitutes a full life. If nothingelse, science is outpacing the public’s ability tounderstand its accomplishments and weigh theimplications.

The finality of paralysis, for example, is beingchallenged by developments in neurotechnologythat link the brain directly to machines. Once, asevered spinal cord was irreparable. But byimplanting electrodes in the brain, doctors havebeen able to allow at least one paraplegic tooperate a robotic arm and surf the Internet withonly his thoughts. Cochlear implants can nowrestore hearing in many people. Deep brainstimulators are being used to treat epilepsy andParkinson’s disease. Retinal prostheses have beenused successfully to restore sight.

Such developments hold out the possibility thatrobotic limbs could be controlled by the wearer’sbrain to restore natural motion. Advances inbioengineering are already creating prostheses thatallow almost natural movement, and even let theirwearers regain the ability to feel pressure andweight. Soon, artificial legs will not only allowpatients to walk on the beach, but to feel the sandbeneath their feet. New biomaterials could allowdoctors to regrow nerves entirely.

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23 | World Economic Forum Annual Meeting 2008

These developments hold out hope to accidentvictims, paraplegics and amputees, as well as tovictims of diabetes and strokes. Some wonder,however, how long it will be before synthetic bodyparts become part of the cosmetic surgeon’sarsenal, allowing us to enhance not only ourappearance but also our performance.

Advances in genetics, meanwhile, are providingnew weapons in the fight against cancer.Biomarkers can now be used to identify individualsat risk and treat them. By exploring the genome,scientists expect to uncover the primary reasonsfor virtually all common diseases within the next fiveyears. Using their understanding of the genome,scientists are compiling a cancer genome atlas thatidentifies which genes control susceptibility tocertain cancers. Researchers have alreadyidentified genes that control the risk of adult-onsetdiabetes, asthma, breast cancer, hypertension,macular degeneration, prostate cancer and heartdisease.

Greater understanding of genetics promises torevolutionize medicine, allowing doctors to developtherapies that pinpoint afflicted areas - evenindividual cells in the body. Genetics already makeit possible for physicians to compile treatmentstailored to each patient - “genomic medicine”. Anaccount of the medically significant genes in aperson’s DNA is now available for about US$1,000.

Insurers and regulators expect that suchindividualized treatments will save them money,even though they are likely to cost individualpatients much more. Genomic medicine also posesa challenge to the conventional model for drugdiscovery and development: clinical trials for amarket of one are impossible and lack the scalecompanies need to justify investing in developingsuch treatments. Scientists say this is likely to forceprofound changes to the pharmaceutical industry,perhaps favouring smaller companies that can

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

Forecast Avoidable Costs of Chronic Disease

Avo

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osts

(U

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bill

ions

)

$500

400

300

200

100

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

HeartDisease

Hypertension MentalDisorders

Diabetes PulmonaryConditions

Stroke

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

Indi

rect

impa

cts

Dire

ctco

sts

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

The concept of personalized diagnosis andtreatment also challenges the traditionalassumption that each person needs, and is entitledto, certain common medical procedures. They alsopose a problem for conventional healthcaresystems, which rest on democratic principles ofequality – the expectation that all citizens should betreated the same. The value of genetic analysis liesin the fact that one patient should not be treatedlike another.

Patients and doctors fear that people with agenetic predisposition to disease will facediscrimination, that employers or insurers mightreject them. Genetic revelations also presentanother ethical dilemma: whether the knowledge ofa likely illness will improve one’s quality of life. Doesinforming a patient they are likely to develop anincurable and fatal disease within the next decadehelp them? How will it affect their role in society?

Science may ensure our lives are longer, but willthey necessarily be fruitful? By decreasing ourmortality, the total cost of healthcare will rise. As weare better able to prevent and bounce back fromacute injury and disease, health systems will needto shift attention to the rising cost of chronicdiseases such as diabetes, obesity and otherlifestyle-related diseases like lung cancer.Governments are already stepping in to limit factorscontributing to chronic disease: banning smoking,for example, or unhealthy foods. New York Citymonitors diabetics’ blood-sugar levels to reducetreatment costs, while Japan plans to require yearlymedical checkups for citizens over 50. The burdenof chronic disease is so large, many say, that itcould alter cultural traditions about whichbehaviours are private and which are the concernof society at large. Medicine may become morepersonalized, but your health will become a matterof public interest.

16%

12

8

4

0

Public and Private Health Expenditures

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

Source: WHO

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24 | World Economic Forum Annual Meeting 2008

Values and Society: Understanding Future Shifts

Shifts happen - but some shifts are easier to seethan others. We frequently study globalizationthrough such measurements as trade, capital flowsor labour movements. But globalization’s impact oncultures, societies and values calls for a muchdeeper, more qualitative analysis. While some arguethat the global marketplace tends to whitewashregional differences, increasing interconnectednessbetween cultures has not always lead tosecularization or homogenization. Often, in fact, ithas exacerbated divisions. For the next century tobe one of peace and prosperity, societies mustadapt to such trends as urbanization, and adoptnew paradigms for intercultural relations, educationand even nutrition.

The danger lies in a situation where this does nothappen, and “people see globalization assomething done to them rather than somethingthat, if it is guided by the right value system,actually can bring about a more just world,” saidformer British Prime Minister Tony Blair. “And so Ithink you have got to combine this economicopportunity with a sense of values that are aroundnotions of justice as well as notions of freedom.”

For many, principles continue to be defined by faith.“You can’t really have modernization withoutvalues,” said Theodore Cardinal McCarrick,Archbishop of Washington DC (2001-2006). “Andwhere do the values come from? They come fromour religious traditions.” While some in the 20thcentury predicted a secular future, today theopposite is true, with adherents to Islam andChristianity comprising over half of the world’spopulation. And while strife in the Middle Eastdominates headlines, war is not a necessary by-product of religious pluralism. “Very often, it is notfaith which brings us into conflict,” said AbdullahAhmad Badawi, Prime Minister of Malaysia. “It ispolitics and the pursuit of economic and militarypower, and the violent reactions they produce. It isoften the manipulation of ideology, whether religiousor secular.”

To foster cross-cultural success, both public andprivate learning institutions must promote empathyand understanding. The Internet represents thegreatest change, and holds the greatesteducational potential, as an increasing number ofstudents in the developed world are graduatingwith degrees from online programmes. The newtechnology provides great hope for democratizingaccess to education. But for the bottom billionworldwide, with no access to the Internet, evenprimary education is out of reach. Today, 800million adults cannot read, and over 200 millionchildren toil in the workplace rather than study in aschool. Government, business and civil societyshare a collective burden to ensure that no child,anywhere in the world, is left behind.

“Very often, it is not faith which bringsus into conflict. It is politics and thepursuit 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

Page 27: World Economic Forum Annual Meeting 2008

“There is no contradiction betweenmodernization and faith if they arerooted in values.”

Mahdi Hadavi, Founder and President, Porch of WisdomCultural Institution, Islamic Republic of Iran

25 | World Economic Forum Annual Meeting 2008

Worldwide, the most striking societal shifts arehappening around urban areas. Today, over half theworld lives in a city; by 2050, the fraction isexpected to top three-quarters. Making urbanenvironments safe and sustainable requires not onlyenlightened leaders but also a supportive privatesector and mobilized citizenry.

Burgeoning urban populations place enormousstrains on existing infrastructure, particularly in Asiaand Latin America. “If we think the situation is badnow,” said Terry Hill, Chairman, Arup Group of theUnited Kingdom, “we should think about what iscoming. Every city we know is experiencing stresson its infrastructure, yet everyone wants to live in acity.” Public and private sectors must work togetherto provide upgrades, understanding that a road isnot just a project but also a means to fosteraccessibility, a hospital not just a cost but also aninvestment in a healthy society.

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

>US$1 trillion

US$ 500 billion - 1 trillion

US$ 250 billion - 500 billion

Estimated GDP (US$, 2005, PPP)

2005 2010 2015 2020

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

City Economies in 2010

Urbanization must also be made sustainable. If theworld is to stem the effects of climate change, thencities must lead the way. Already, 786 mayors havesigned a “local” Kyoto Protocol, pledging to reducecarbon emissions by 20%. Some mid-sized citieshave outpaced megacities in their reforms. SanFrancisco, for example, now boasts a recycle rateof nearly 70% on all waste products. Other citiesare aiming to enhance public transportation andhave begun offering incentives for clean andefficient energy sources.

Global food chains are also evolving in tandem withthe urban landscape. New tastes, menus and dietsare pushing local food manufacturers intounsustainable monocultures. New consumer trendsburden not only national healthcare systems, but,through its supply chain, ecological systems aswell. Certain distributors are partnering with small,local farmers to provide healthy products throughsustainable agriculture. But consumers must votefor those products with their forks, if they are tomake the new supply chains viable.

Overall, while societal shifts brought on byglobalization may seem beyond our control, we canmanage change by adhering to a common set ofunderlying principles. “Globalization is a fact,”concluded Blair, “but the values that govern it are achoice.”

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26 | World Economic Forum Annual Meeting 2008

T h e W o r k S p a c eThe WorkSpace – the workshop with a difference – draws out the collective intellect and creativecapabilities 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 collaboratedto find new ways of tackling some of the most critical issues on the global agenda for 2008.

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27 | 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 fromthe WorkSpace at the Annual Meeting 2008, visit www.weforum.org/annualmeeting/workspace.

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Acknowledgements

ABBABN AMRO BankAccel PartnersAccentureAlcoaAMDAmerican International Group

(AIG)Apax PartnersArcelorMittalAT&TAudiAvayaBahrain Economic Development

BoardBain & CompanyBarclays CapitalBasic Element BombardierBooz Allen HamiltonThe Boston Consulting GroupBPBTBurda MediaCACerberus Capital ManagementChevron CorporationCisco SystemsCitiClayton, Dubilier & RiceClifford ChanceThe Coca-Cola CompanyCredit SuisseDeloitteDeutsche BankDeutsche Post World NetDubai HoldingDubai WorldDuPont

E*TRADE FINANCIALElectricité de France (EDF)Emirates GroupErnst & YoungFluor CorporationForbesGoldman SachsGoogleHeidrick & StrugglesHPHSBCInfosys TechnologiesIntel CorporationInvestorJPMorgan ChaseKPMGKudelski GroupLehman BrothersLenovoMcKinsey & CompanyManpowerMarsh & McLennan Companies

(MMC)Merck & Co.Merrill LynchMETRO GroupMicrosoft CorporationMorgan StanleyMubadala Development

CompanyNBC UniversalNestléNikeNYSE EuronextThe Olayan GroupPepsiCoPricewaterhouseCoopersReliance IndustriesRenault-Nissan

ReutersRoland Berger StrategyConsultantsSaudi Basic Industries

Corporation (SABIC)SiemensSilver Lake SK GroupStandard CharteredSwiss International Air LinesSwiss ReTravelportUBSUnileverUPSVimpelComVolkswagenVTB BankWPPXenel GroupZurich Financial Services

The World Economic Forumwould also like to thank DoganHolding, Dogus Group, Invest InFrance Agency, Koç Holding,Sabance Holding and Swarovskifor their support.

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

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Contributors

W. Lee Howell is Senior Director, Head of Asia and Global Agenda. Sheana Tambourgi isDirector, Head of Annual Meeting Team. Stephanie Janet is Director, Head of Annual MeetingOperations. 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; DorothéeOzzello, 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 statisticsunderpinning this report.

The World Economic Forum would like to express its appreciation to the summary writers fortheir work at the Annual Meeting 2008. Session summaries are available at:www.weforum.org/annualmeeting/summaries2008

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This publication is also available in electronic form on the World Economic Forum website at the followingaddress:

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 followinglinks:

Annual Meeting www.weforum.org/annualmeetingAnnual Meeting Programme www.weforum.org/annualmeeting/programmeDavos Conversation www.weforum.org/davosconversationDavos Question www.youtube.com/davosInterviews www.weforum.org/annualmeeting/interviewsKnowledge Concierge www.weforum.org/annualmeeting/knowledgeconciergeOpen Forum www.weforum.org/openforumPartners www.weforum.org/annualmeeting/partnersPhotographs www.flickr.com/photos/worldeconomicforum/setsPress releases www.weforum.org/pressreleasesSession Summaries www.weforum.org/annualmeeting/summaries2008Webcasts, Podcasts & Vodcasts www.weforum.org/annualmeeting/webcastsWorkSpace www.weforum.org/annualmeeting/workspace

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The World Economic Forum is an independentinternational organization committed to improvingthe state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.

Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World EconomicForum is impartial and not-for-profit; it is tied tono political, partisan or national interests.(www.weforum.org)


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