WEF Annual Meeting 2010 in Davos – Part 4: The Real Fun of the Davos Conference

I woke with a feeling of discomfort in my stomach. It was probably because I drank everything at the wine tasting event last night. They were the highest-class wines, so I don’t have a hangover, but I drank a lot, which probably caused the languor.

Today was the day of the important, pre-Davos Conference that I would be co-chairing. I was scheduled to take the podium for the Breakfast Meeting, which was the first of a series of meetings that would last for half a day.

The program had stated, “The panelists will divide into Advanced Nations and Developing Nations and debate the issues faced by each group of nations.” I was assigned as a panelist for the Advanced Nations. There were only two panelists, including myself, so it was a major responsibility.

I always prepare thoroughly whenever I’m asked to speak from a podium. That way, I can heighten my understanding of the issue and topic, and the more I prepare, the more confidence I have in what I am communicating.

Aware of the discomfort in my stomach, I began thinking about the issues faced by advanced nations, particularly Japan. Below are the five issues I came up with. I e-mailed the memo to my secretary and received a printout via fax, and then headed to the meeting venue. I was not intending to read from the memo, so it didn’t need to be written in proper sentences; it only needed to be in note form. The important thing was to take a moment to think about the issue in detail and put it down in words, rather than taking time perfecting the writing.

5 Issues Facing Developed Countries.

1) Aging population:

Japan has reached its peak population. The population has been decreasing since 2007. This is the first time that the Japanese population has decreased except in times of war. The work force is also shrinking.
Most of the advanced nations are facing this issue with the simple exception of the U.S. Aging is putting pressure on healthcare and pension systems.
Also, a decreasing population is dragging the growth of the market.

2) Huge Government Debt:

Japan’s budget is projected to have more than half of its shortfall in tax income to be covered by debt.
Roughly US$500 billion in bonds (10% of GDP) has to be issued to support this deficit. The national debt is now closer to 200% of GDP ($10 trillion). Even though Japan has vast household assets of US$15 trillion, and most of the debt is supported domestically, this is not sustainable.
Similar situations are happening in the U.K and the U.S.

3) Disparity in income is pressuring center-left populist governments to adopt some of the more socialist measures.

This is happening globally. The U.K., France, the U.S., Japan, and most of other advanced nations have center-left governments who tend to take populist measures.
This includes putting restrictions on banks, taxing bonuses – which may disincentivize vigorous leaders, and, on the other hand, introducing unrealistic social welfare policies with more unemployment benefits and more public assistance for social security. This policy not only makes governments bigger, more inefficient, and puts pressure on them, it also disincetivizes people to work harder.
Moral Hazard is happening.

4) More Competition with Emerging Countries:

The U.S., Japan, and Europe are being challenged by Korea, China and India. The combined market capitalization of 9 major companies (Sony, Hitachi, Toshiba, Panasonic, etc.) is less than Samsung alone. The shipping industries have already been taken over by Korea and now it is China coming in. The automobile industry is being challenged by Hyundai. Cheaper products which are not so different in quality are pushing Japanese industries to think differently.

5) The Lost Direction of Youth and the Country:

Japan used to be hungry, wanting to become like the U.S in wealth and lifestyle. 
Now that Japan has become rich, we have lost the visions and hunger. This same sense of loss prevails in our youth. There is no need to read the newspaper, no need to own a car, and no need to become richer; there are more people working to become social entrepreneurs.
However, there is also hope.

In anticipation of the question, “So, what should Japan do?” I also prepared an improvement plan of my own before heading to the meeting venue.

I shared the above issues after the moderator introduced the first topic. I believe that the most important thing when communicating something is to speak clearly and with confidence. I kept that in mind as I presented my five points, glancing at the memo.

The moderator posed the following question: “Considering Japan’s experience, what do you see in the economic future of Europe and the United States?” I replied, “Although I can’t provide a uniform answer for both Europe and the United States since they differ in terms of population growth or decline and social dynamism, I personally think that Europe will take a similar path to Japan. The U.S. economy will remain sluggish for three to five years, but will then enter a growth phase.”

Then someone in the audience asked, “What should Japan do about it?” and I responded with my own view as follows:

“I think the case of JAL clearly represents the circumstances faced by Japan. JAL kept running debts and increasing them without attempting any drastic reforms. The company is now under the Corporate Rehabilitation Law and has commenced reforms through a process that will affect almost all companies and people involved (stakeholders), including banks, shareholders, business partners, employees and pension beneficiaries. I see this road to reform in a positive light.

“This is because it’s presenting a way toward a better direction. Ignoring the situation and not doing anything is the worst possible stance to take. I think that many Japanese citizens today still haven’t really experienced the crisis yet. I feel that the majority of the population is still taking the groundless, optimistic view that everything will be okay. That’s why they can’t enter the road of reform. They are headed more towards rejecting the direction that [former Japanese Prime Minister] Koizumi and [former Minister of Internal Affairs and Communications] Takenaka paved.

“The important thing is for the government to exercise strong leadership, share its awareness of the crisis with its citizens, and enter the painful reform process. But, unfortunately, people won’t be able to share the same level of awareness of the crisis until things reach the extreme. Owing to the significant wealth within this country, Japan can somehow withstand a level of debt that is equivalent to 200% of its GDP.

“Yet, while market and economic circumstances may take a turn for the worse, I’m not sure whether that would cause businesses to suffer a decline. A Financial Times article at the end of the year included an interesting graph. Titled “Looking back from 2019,” it showed Japan’s stock market as having doubled, the stock market of the U.S. as having leveled out, and those of developing nations as having declined. I stared at the graph, thinking, ‘What could possibly make this happen?’

“It just might be time for Japanese businesses to discard the Japanese market and the production base of Japan. If the population decline causes the Japanese market to contract, and the government continues enforcing counter-corporate policies such as prohibiting worker staffing and maintaining elevated corporate taxes, Japanese businesses will discard the Japanese market and expand their outlook abroad in ways such as moving factories out of Japan. If companies give up on Japan and find a path to survival overseas, Japan may cease its inward thinking, and Japanese businesses could possibly double their value, as predicted.

“But to do this, Japan must train its human resources to enter the global marketplace. On the other hand, the Japanese market and economy would be left in an unstable state. This, in itself, might lead to another opportunity for reform.

“Thinking in these terms, the current direction in which Japan is headed may not be so bad after all. Japan has a wonderful culture that should enable it to see the situation in a positive light.” With these words, I ended my statement.

That was when the lively discussions began. “European governments are only taking steps to soften the pain. That won’t initiate any reforms,” said a former prime minister of Finland, whereas one U.S. CEO commented,”The problem ultimately lies in Obama’s populist policies.” Each country has its own issues. Competent brains and leadership would resolve those issues. The real problem is that not enough people share the same awareness of the crisis.

The time was up, so we moved on to the next session. What interested me in the discussions was the change in how people now viewed China. It was interesting to discover that everyone was cynical with regard to issues that are not normally discussed, such as human rights oppression, rising nationalism, issues of bribery and unethical contacts, lack of morality, issues of currency manipulation, and problems regarding freedom of speech, which probably all came out due to the closed nature of the session. Particularly memorable was the claim by the commentator who said that his view on China, with which he had maintained a relationship since 1969, had changed dramatically in the previous two weeks. With China’s issues last year, such as its uncooperative behavior in Copenhagen, the arrest of Australian Rio Tinto employees, and cyber-attacks on Google, it seems as if the world is showing signs of saying, “That’s enough, China.”

Because I had made a strong impression on many of the participants in the beginning, I was able to comment freely. I was also able to provide a summary of the final session, which was on “The Future of Capitalism.” It’s a long story, so I’ll wait for another opportunity to write what I said.

So that’s how my pre-Davos Conference ended, without issue. Since I had checked out of the hotel during the break, I simply picked up my bags at the front desk and left the airport hotel. I walked up to the Davos Service Center in the airport’s arrival hall, and checked in for the 2 pm bus. I relaxed until its departure, snacking on sandwiches in the airport cafe.

Boarding a small bus, I headed to Davos. I made sure I slept for the entire trip. I needed to preserve my stamina, so it was crucial that I be able to rest effectively during my leisure hours. I had begun to acquire the skill of falling asleep instantly during my usual busy days of work, so I decided to put that skill into effect on this bus.

Each time I woke up, the view outside the bus was different. At first, there was only snow in some parts of the hilly scenery, but the next time I awoke the entire landscape was covered with snow, and the final time, the bus was passing a valley between some mountains. We were already in the heart of the Alps. I was able to spot the occasional Swiss chalet here and there. The bus cleared the last pass and drove into Davos.

Several cars were waiting at the bus stop, and everyone was divided into groups depending on hotel location and driven to their destination. The networking was already starting in these cars. I rode with two other participants. One was a former British Minister of Health, and the other was a Russian banker. I had brought two boxes of business cards with me, and I was planning to give out as many of them as possible. Business cards are marketing tools, so my policy was to use them lavishly and enthusiastically.

I checked in to the hotel, dropped off my bags and left the hotel again immediately. I picked up my name card, program and participant list at the registration area and headed to the main venue. I noticed that security was tighter than ever.

In the cloakroom, I met Yukei Matsunaga, the High Priest and President of Koyasan Shingon Buddhism. I was a big fan of Kukai, and the High Priest’s book on Kukai, Dai-uchuu ni Ikiru (“Living in the Grand Universe”) was one of my favorites. Since there were no Buddhist participants from the religious circle, I had heard rumors that Matsunaga-san would come. I immediately introduced myself, and we headed to the Congress Hall together for the opening events. Unfortunately, however, the hall was already full and we couldn’t get in, so we decided to watch the live video broadcast from another venue.

After speeches by Klaus Schwab and the President of Switzerland, the highlight of the event came with the appearance of President Nicolas Sarkozy. Apparently this was the first time a French president had spoken at the Davos Conference. President Chirac had been scheduled to attend in 2004, but since his helicopter was not able to fly due to bad weather, he made his speech via live video broadcast. This time, Sarkozy was here, live.

What Sarkozy said can probably be found on the web, so I won’t go into detail here. My point, though, is that his ability to communicate is among the greatest of all political leaders I’ve ever seen. And that’s my understanding from hearing his speech in French via an interpreter. Even with the handicap of seeing him as a video image on a screen, his passion, body language, the pauses he makes when he asks a question, and his range of expressions are all impeccable.

Once, when I heard Bill Clinton speak on the Davos stage, I described it as being like hearing classical music. What I meant was that it resembled a classical symphony in the way it started slowly in the first movement, picked up the tempo and increased or decreased the volume in the middle, and built to the exciting finale in the fourth and final movement. Sarkozy’s ability to communicate was dynamic, along the lines of Clinton and Tony Blair. In addition, the content of the speech was ambitious and daring. He touched upon a revision of the accounting system, and while he didn’t specify the fixed currency system of China, he raised it as an issue. He made tough demands on the banks in terms of how they do things, and called upon businesses to return to the basics. I felt that his messages were comprehensible and were supported by his firm beliefs. He even declared powerfully, “In 2011, France will chair the G8 and G20 meetings, at which point I will demonstrate strong leadership and put everything I have just mentioned into practice.” His charm, charisma, philosophy and communication skills – all were of superior quality.

As his speech ended, a quarter to one-third of the audience gave him a standing ovation. The bank officials who had been presented with a challenge obviously didn’t stand up, but that aside, it was an excellent speech. It directly communicated the French people’s strong sensitivity to language, philosophical values, and dignity as one of the five global superpowers.

While the venue was still buzzing, I met and talked with many people, and then went to the dinner venue. The dinner reception I attended was held under the theme of “The Art and Science of Imagination.” The lecture on the source of imagination was enjoyable. I happened to be sitting at the same table as the CEO of 20th Century Fox, the producer of the highly successful Avatar. He shared his story of how they had made a huge investment in James Cameron, which was extremely memorable.

As soon as the dinner ended, I left immediately to avoid the rush. On the way out, I met the CEO of IDEO, with whom I exchanged greetings and business cards. I wanted to make sure I could contact him in the event that our school studied his company in our Innovation curriculum someday.

I boarded the shuttle, and the venture capitalist who had organized the Wine Forum happened to be in the same vehicle. He said that he had just attended a dinner reception for the IT industry. Networking and information exchanges can even occur inside a shuttle.

That is the real fun of Davos.

January 29, 2010
At a hotel in Davos,
Yoshito Hori