How the middle class beat the world's billionaires

If 2016 was the year that the annual World Economic Forum in Davos, Switzerland was revealed to be a failure, then 2017 is the year the reason for that failure became obvious to most of the delegates.

The broad agenda of the WEF has been reasonably effective on two fronts. Its biggest success has come for the world’s ultra-rich: the billionaires who swarm to Davos every year have seen their power and wealth increase markedly over the past 35 years. Beholden to no government in particular, flocking to the parts of the world which are friendliest to capital and capitalism, they have seen their wealth and influence multiply.

Simultaneously, the world’s poorest have also increased their wealth and health and happiness. Not all of the Millennium Development Goals were met by the 2015 deadline, but many of them have been. Global statistics on everything from child mortality to female literacy have been moving sharply in the right direction, and the AIDS crisis in Africa has been largely tamed, with an outcome few would dared to have hoped for 15 years ago.

The oligarchs in Davos can claim some credit for this. The GAVI alliance, which has helped to vaccinate much of the planet, was born in Davos, while economic globalization created hundreds of millions of jobs in poor countries, lifting families out of poverty and creating a whole new global middle class making between $10 and $20 per day, or more.

The two phenomena are linked: if you own or run a multinational corporation, you want to make as much money as possible for yourself and your shareholders, and one way to do that is to give work to the people who need it most. If a large company pays a worker in Bangalore $20 per day, they both win: the company makes more profit, because its labor is cheap, and the worker gets job security, much improved health outcomes, and even some measure of wealth.

This kind of globalism is, in many ways, the economically optimal outcome: the thing which produces the most upside for the most people. Consider two ways of spending an extra $1 billion a year. Under the Global Plan, you take 200,000 people earning $5,000 a year, and double their income to $10,000 a year. Under the American Plan, you take 100,000 people earning $50,000 a year, and increase their income by 20% to $60,000 a year. Given that choice, everybody in Davos would choose the Global Plan: it does the greatest good for the greatest number.

And globalism is exactly what Davos chose, with devastating consequences. Because the middle classes in countries like the US and the UK have always been richer than the middle classes in countries like China, India, and Brazil, it’s been extremely easy for Davos Man to pat himself on the back for improving the lot of the latter while making vague sympathetic noises in the direction of the former.

The problem is that you can’t eat vague sympathetic noises, and the middle classes in the US and UK have the ability to elect the leaders of the free world. If you ignore them, you can blow up the entire global project.

And that, of course, is exactly what has happened. Vice-President Joe Biden put it very well, in his last speech in office, which was delivered to a Davos audience stunned by the election of Donald Trump.

Here in this exclusive Alpine tower, it’s easy to embrace the intellectual benefits of a more open and integrated world. But it’s at our own peril that we ignore the legitimate fears and anxieties that exist in communities all across the developed world. The concerns of mothers and fathers: How they feel about losing that factory job that has always allowed them to provide for their families, and their expectation that their children would even have a better life. Parents who don’t believe they can give their children a better life than they had.

Good jobs—jobs which you’re not worried about losing, jobs with rising pay, jobs which provide a sense of hope for the future—these are the foundation upon which all the world’s richest companies are built. And more generally,  rising living standards make people happy, while falling living standards make people angry.

This is what Davos never really understood: amid all the concentration on the global level of well-being, it failed to do anything about the millions of people in the developed world who were perfectly well off, by global standards, but whose incomes and self-worth were stagnant at best. The message from Davos to the struggling developed-world middle classes was clear and heartless: you’re the lucky ones.

The attitude of Davos Man to voters in Lancashire or Michigan, then, was basically “think of the starving children in Africa.” Sure, they said, you might be among the losers from globalization, but looked at from a global perspective, it’s a Good Thing. And because of the natural optimism of the successful, everybody spent much more time looking at the developing-world upside than they did at the developed-world downside.

The backlash, then, came as something of a sucker punch for the global elite. As Biden put it:

These are pressures that are undermining the support for the liberal international agenda from inside. I am a strong supporter of globalization. But it has deepened the rift between those racing ahead at the top, and those struggling to hang on in the middle.

Biden’s message was clear, and has hit home: it’s not enough for the rich and the poor to get richer, everybody needs to get richer. Especially the middle classes in Europe and America. And if that means that the rate of progress for the world’s poor might have to progress at a slightly less breakneck speed, then, well, so be it. Providing a rising level of prosperity for the developed-world middle class isn’t easy, but it also might be the only way to prevent the world’s richest countries from devolving into insularity and xenophobia.

The world’s leaders, then, face an urgent new priority: to concentrate more on the developed-world middle classes, and to boost policies that will revitalize rust-belt towns across Europe and the U.S. That’s the kind of thing Davos has never been good at. The project is fundamentally provincial, in a way that doesn’t jive with the Forum’s internationalism; it’s much less emotionally rewarding than saving millions of lives in sub-Saharan Africa; and it’s not the kind of thing that is going to make vast sums of money for international billionaires.

It’s no shock that the happiest people in Davos this year are the American lobbyists. They are newly empowered, as a blank-slate new administration is promising a massive stimulus bill with no clear idea of what should be in it. The $100 million being spent on inauguration festivities is just the start: as the insular Trump era begins, it’s obvious that global companies are going to have to spend a lot more time in Washington if they’re going to be able to reap American benefits. (Exhibit A: Jeff Bezos, who refused to spend any time in Washington even after buying its hometown newspaper, spent $23 million on a grand townhouse there after Trump was elected. He knows where he needs to be now.)

The rich and powerful of the World Economic Forum have spent decades on a barbell-shaped growth strategy: they have put nearly all of their time and effort into cultivating the world’s richest and poorest, with the middle mostly ignored. That decision has had disastrous consequences, both in Britain’s decision to leave the EU and in the election of Trump.

And then there’s the smaller consequence of the failure of the Davos strategy, which is the increasing irrelevance of the conference itself. The big government leaders are staying away from Davos this year; the big corporate leaders are leaving early for the inauguration; the globalist agenda lies in tatters. The barbell has hit Davos squarely in the face, and Davos Man is down for the count.