Davos Report

Angel Cabrera. Dean. Instituto de Empresa

19 February 2004

Back in Madrid from the World Economic Summit, even before his nose had time to thaw out, the Dean’s students began asking him about the talking points in Davos this year.

As businessman Martín Varsavsky told me, at Davos the most improbable conversations take place among the most improbable people. It’s not unusual to find yourself in the middle of a debate on development with a Nobel Peace Prize winner, a dotcom entrepreneur and the president of a major oil company. In Davos people talk about trends, opportunities and growth, but also about risks, inequality and poverty. After several days however, some conversations seemed to repeat themselves persistently in my head. It’s as if the collective conscience were striving to make itself heard, warning us about upcoming issues and drawing our attention to things that should matter most. This year, one topic was clearly more audible than the rest: China.

China still has a low per-capita income, with an enormous pool of qualified and non-qualified, low-cost workers. It is attracting an extraordinary influx of investment and foreign currencies, and nobody can even begin to guess at the possible limits to this growth. The Chinese are no longer satisfied with the “one-euro shop" sector; they are proving they can manufacture whatever is thrown at them. They are like a sponge with an unlimited capacity for absorbing not only foreign investment, but also the technology associated with it.

In Spain, we like to discuss rival competences (e.g.; who should be responsible for collecting which tax, who should direct which police force or manage which hospital). The Chinese, curiously enough, prefer to talk about competitiveness (how to attract new investment, how to create jobs or continue growing faster than anybody else). If these conversations do reflect collective priorities, my impression is that the Chinese are much more focused on their future than we are on ours.

I heard recently that Philips will close its light-bulb factory in Catalonia and that the Generalitat (regional government) is absolutely fuming over it. Company bosses say that since the Generalitat never bought any light bulbs from them, they cannot understand its histrionics. Obviously, governments are not in the business of providing charity to companies. Using taxpayers’ money, they must buy the cheapest light bulbs they can find.

But it is equally true that companies are not in business to be charitable to governments with their shareholders’ money. And if the books don’t balance, the most responsible thing they can do is to take their wares elsewhere. A government’s obligation is to provide firms with a raft of reasons for setting up locally. It is not to seek confrontation with them when they decide to leave. If more firms pull out than enter the region, it is just possible that something isn’t being done right. I would love to witness one of those improbable conversations at Davos between someone from China, a Spaniard and the Harvard Professor Michael Porter. Who would have thought China would one day be giving us lessons in competitiveness?

The Spanish situation

Technology was another hot issue at Davos this year. There is a new wave of innovation on the way, in telecommunications, biotechnology and nanotechnology. The United States still leads the world in the number of patents registered. India, Mexico, Singapore and Korea show greatest growth in patent numbers. Spain at the moment does not appear on any of these honor lists. In terms of GDP percentage invested in R&D, Spain still languishes at the bottom of the European Union league table, with figures similar to Hungary, Poland or Portugal. We should start asking ourselves what we are going to export when the rest of our light bulb and automobile plants have also moved to China.

Ironically, there is one area where our exports do not seem to be doing so badly. I am referring to brains. Here in Europe we have a unique capacity for selecting talented researchers, investing considerably in their preparation, then amiably handing them over to the Americans, who really know how to put them to good use. In Davos there was talk of this brain drain. But I don’t believe we let the brains drain out of Europe. We plainly push them out.

The Davos summit also addressed international subcontracting, or as somebody called it, “worldsourcing.” This is not a new question, but its scope and extent are new. For some time, following their mandate to maximize returns for their investors, companies have been manufacturing where it makes most economic sense - whether this be due to labor costs, workforce quality, logistics or ease at accessing markets. Now this is being compounded by a renewed craze for subcontracting non-strategic activities (outsourcing) that goes beyond the manufacturing process. Functions such as accounting, logistics, or information systems are being left to external (and foreign) suppliers.

India is becoming the international provider of professional services. They are the new source of accountants and programmers for the world. Besides having an abundant population and increasingly better universities, they also speak English well. I didn’t hear about any new threats to the global economy. We discussed again the Mideast powder keg, the difficult task of building democracy out of a postwar institutional wasteland, hope of sanity in Kashmir, the backdrop of terrorism we have become accustomed to and the interminable AIDS drama. The most oft repeated number was about how over one billion people have to live on less than a euro a day. How is it possible that we can send people to Mars, and yet have no clue how to tackle these truly lamentable issues?

But one must also pay attention to what one doesn’t hear. Silence can speak louder than words. In Davos there was little talk about Latin America. There were negative jibes at Europe – most often on its inflexibility, lethargy and hypocrisy on international trade questions. Spain went unnoticed, except for a speech of gratitude by U.S. Vice President Cheney. In all the years I have been attending this meeting, I cannot recall ever having seen so few Spaniards: Solana, Palacio, Rato, Maragall and Pujol, some journalists, a couple of academics and three or four business leaders were all. I have not yet found a reasonable explanation for this lack of interest in Davos. I don’t know if it was the Alpine chill, the Real Madrid football match, anti-globalization ideology, or even that - unlike the Indians - we Spanish are not very good at speaking English. What does trouble me though is the fact that nobody seemed to miss us much.

This year it looks like the world is going well – better for some than for others, but in general and in economic terms, reasonably well. China is consolidating its position as the world’s factory, India is providing the accountants and programmers, and the United States is still its research laboratory. We in Spain should start thinking seriously about what we want to do when we grow up in this interconnected and interdependent worldwide scheme of things. Selling sun and surf is not bad, but I doubt it will put bread on everyone’s table in the long run.

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