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January 12, 2020 Dear Mr. Chairman: As you know, the last few years have been rough. I finally persuaded the Asians to drop their boycott, and this year we're meeting in China instead of Davos. From now on it will be Switzerland every other year and Asia in the alternate years. I thought at first that I could get the Asians to back down, but they are united. Even the Japanese were not willing to bend. I'm not convinced this was all one big Chinese plot as some are charging. I'm not even sure whether the Chinese were fully in favor of it. Once it caught hold, they had to show some leadership and support Asian claims, but I think they are so confident of their current status that meeting every year in Davos did not bother them. Hosting the sessions actually puts pressure on them to make concessions and deal with some of the complaints about how they do business. This reminds me of a particular theme I've been developing in my mind as I reflect on how globalization has now evolved. At the turn of the century, we equated globalization with Americanization. America was the model. Now globalization has more of an Asian face and, to be frank, America is no longer quite the engine it used to be. Instead the markets are now oriented eastwards. That's not to say that the system runs on its own. Only after learning a couple of tough lessons did we see how much management was involved or how easily globalization could come off the rails. We business leaders have had to learn to step in more aggressively. The 9/11 tragedy was a wake-up call. Terrorism still poses a physical and strategic challenge. In order to protect ourselves, we had to put up barriers, but there was a danger that we would do so much that we would undermine the very basis of globalization—the free flow of capital, goods, people, etc. We tried to strike a delicate balance between security and openness. There's been a lot of criticism about US visa restrictions cutting back on the number of foreign students, and American scientists worried about the US's science and technology leadership slipping away to Asia. This gets me to my second point. Ten or 15 years ago we did not realize the extent to which the Asian giants were ready to take up the slack. The Chinese and Indians have really maintained the momentum behind globalization. It started out as a US-China dynamic, but now the Asian market is self-generating and not so dependent on trade with the US. Moreover, the competition between China and India over energy supplies and markets has spurred further growth and innovation. But we had a few sleepless nights over the years, particularly when China ran into financial problems. The fact that the recovery was quick was probably crucial. I think Beijing would have had trouble coping with a full-blown political crisis. Such turmoil could have stymied its economic rise for a decade or more. Fortunately that did not happen. Although the US helped, the really interesting thing was that China dug itself out without the kind of US or international help we thought it would need. Again we underestimated the extent to which China had created a domestic market that could jumpstart its economy. What the downturn unfortunately did was ignite the latent nationalism that had been lurking below the surface, again increasing tensions over Taiwan. China has been "feeling its oats" and the risk of miscalculation is growing. I'm getting more and more worried as no one—government or private sector—is stepping into the breach to head off what could be a major security and business crisis. Tensions were also on the rise between China and India and the other emerging states. The success of the Asian giants made it harder for the smaller guys to catch up. The huge pull from China and India on jobs was not just felt in the West. Now we see higher pay for China's workers finally leading to jobs being exported again to lower-wage economies. In part, this can be attributed to demographics—China is a country that is suddenly looking older, its one-child policy coming back to haunt it. Early on, the outcry in the West over outsourcing and migration could have stalled globalization, but what can we really do—hold back the "tides" of progress in some rerun of Luddite madness? I detected below the surface a strong temptation in Washington and European capitals to play off the emerging countries against China and India by giving preference to non-Chinese products. On the positive side, it was high-tech breakthroughs that put some countries on the road to sustainable economic growth. Expanded food production from biotechnology innovations and clean water from better filtration systems were boons that helped eliminate the direst poverty and start an export-driven agricultural sector. China and the US finally ganged up on Europe about GMOs. Higher commodity prices also have been a godsend—much more so than any debt forgiveness scheme. A couple of the Asian-backed energy consortiums practically run two or three of the smaller states. They're popular because they provide not only their workers but all the surrounding communities with full heath-care. Malaria and TB—not to mention AIDS—are being tackled. I'm reminded that businesses—if one thinks back to the East India Company's total rule over the subcontinent in the eighteenth century—were at the forefront when globalization first got going. Have we come full circle with business taking over again from government? We've seen some progress in the Middle East with a couple countries actually undertaking market liberalization reforms, but others are still stuck in a rut. Palestine yearns for a George Soros figure who can inject a lot of capital and develop an export outlet, but I don't see anyone willing to make the investment. Elsewhere, revenues generated by high oil prices have enabled the Saudis and others to stem what has been a plunging standard of living for most of them. That's not good in the long run. I fear there's more to this story that we may not like. Davos has done a lot, I think, in opening up the old exclusive Western club. I admit at first I did not really see it coming—the fact that China and India with their burgeoning middle classes had begun to create such large markets. In the last few years, the whole balance—as I now realize—has been shifting. Asian consumers are setting the trends, and Western businesses have to respond if they want to grow. Fifteen years ago, few of us knew anything about Asian firms. Now we have Wumart. China also got Washington's attention when it started diversifying its foreign currency holdings and the US public awakened to the fact that it had been living way beyond its means. By itself, Europe probably would have felt threatened by Asia's rapid rise, but—funny thing—a rising Asia was seen as a counterbalance to a dominant US. Asia's growth also helped Europe get out of its slump. The EU thinks it and China have a lot in common—reverence for regional institutions. China with its Shanghai Cooperation Organization, for example. I'm not so sure. By the way, I heard that your granddaughter is also spending a semester in China, learning the language. Did you know that one of my grandsons is also there? Perhaps we can get the two of them together at the Davos-in-China meeting.
"Lessons Learned" This scenario illustrates the vast changes that would be likely to result from continued robust economic growth and the stresses and strains that could derail it.
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