Special Report Podcast: Lee Howell - managing director of the World Economic Forum
ALEC HOGG: It’s Friday April 13 2012 and in this Boardroom Talk special podcast, Lee Howell, the managing director of the World Economic Forum, joins us out of Switzerland today. Well, Lee, the Global Confidence Index has just been released, it’s fascinating insights but perhaps we can go back a little to get some context, when was it started?
LEE HOWELL: Well, it started, actually this is the third quarter report, so you have to go back nine months ago, in the autumn, when we started the first confidence survey.
ALEC HOGG: And the reason for it?
LEE HOWELL: Well, the reason for it is the genesis for it was the fact that increasingly much of our national and regional issues are really tied to the state affairs globally. Unfortunately most of our political leaders [UNCLEAR 0:53] really focused primarily on local and national news and we thought that it was important to have some sense of where this sentiment is globally but not necessarily from a [1:05 UNCLEAR] approach of people on the web but focusing on real experts who spend day to day really working on global issues. We’re fortunate in two ways, we have a network of 1200 experts who are members of our Global Agenda Councils and they focus on over 70 different global issues and they come from business, they come from academia, they come from government, international organisations. So they’re committed to these issues and obviously very much on bringing through state of the art thinking and technology and how they monitor these issues. The second piece is that we have the publication of a global risk report where we categorise really the 50 most systemic global risks in five different categories. We thought…we actually surveyed those experts to produce that report and we thought this is a great opportunity to take it further and just have them give their sense of where the next 12 months are. The global risk report looks at a ten year forecast but we thought maybe we could take the same group of people very interested in global affairs and focused on key challenges related to the global system and have them really give their sense of where the direction of the world is on a quarterly basis and that’s really the background for the index.
ALEC HOGG: It’s young still but so far have the consequences of the research that you do or the engagement that you do with these members of the Global Agenda Councils in putting together this index, has it been accurate?
LEE HOWELL: It has, I think one of the interesting things here is the fact that really perception shapes reality, as you know, and particularly the notion of reflexivity that’s well known in the market. I think people, the great treasures like George Soros have always spoken about this and there’s an element of that. We know that the fact that when people [UNCLEAR 2:58] perceive, how they perceive the future will obviously impact their day to day behavior and their direction. I say that because we purposely use the word confidence index because there are, of course, in many, almost all major economies, very important business and consumer confidence indices and we know that that’s a very good indicator to know really the direction of the macroeconomic health of an economy when we see changes, inflections or drops or sharp rises and those indices. I think we find that in this short period of doing this in three quarters that indeed it tracks very well with some of the…where really political attention and some degrees business attention is going to with respect to where the sentiment lies. We will go back to the last quarter, there’s very big concern about an economic disruption and that was very much toed to really in a way a lack of confidence in what’s happening in the eurozone. But that result in December where we were I think at a low point about how that both the ECB and the IMF were going to approach crisis. Obviously in this latest results confidence has improved a bit because we’ve actually gone through and we…though we’re not out of the woods yet with regards to what’ s happening in Europe, still it’s a sense that at least that attention, leadership attention was drawn to that issue, there was some action taken and we’re a little more confident about the future prognosis of that particular problem. But, of course, it doesn’t discount the fact that there might be another big, major global economic concern that might pop up and rear its head.
ALEC HOGG: There’s no doubt that these are much more positive results than we had three months ago. Perhaps take us through some of the…because there are some significant changes when you start off on the economic side, the economic disruption side, the numbers you use are from 63% who feared that there would be a major disruption, down to 46%. Is that in a statistical universe a very significant change?
LEE HOWELL: Well, again, what I can go back to, obviously this is more of a qualitative survey I speak ofbecause we were measuring perception but I think it is significant but we have to be very careful there and what I mean by that the elements that we look for, that we poll about, global economic shocks, as well as geopolitical shocks, actually the assumption in the design of the survey is that they’re indeed linked. So we shouldn’t…it would be naïve to say, okay, we now feel that the eurozone is past us and there’s less likelihood of a major economic shock but not to anticipate that there could be another disruption, tsunami, earthquake or even a geopolitical crisis that wouldn’t obviously adversely impact the global economy. The danger of this is that indeed I think where we thought there might be small fires burning into big blazes in the economic sphere, we feel that’s been managed, we need to pay attention to the house next door, which is if you looked at the results, as you know, on the geopolitical side there’s more concern there, in fact. One could say, well, if there’s concern there, what could be the source of that concern. If you take something like the challenges in the Middle East, either on Iran context or Syria context, really something there could obviously have a very strong impact on confidence in the global economy. So what we’re trying to highlight here is that these elements that we measure in terms of confidence, indeed they tell us something and in a certain context and moment of time but the big lesson we’re trying to impart here is that they’re actually linked.
ALEC HOGG: Lee, if one then steps back a little, it appears that the latest results are telling us that the eurozone crisis perhaps not as bigger concern as it was three months ago but that the attention is now or risk area has turned perhaps, as you mentioned, to Iran and the Middle East, would that be accurate?
LEE HOWELL: It would be accurate to say the geopolitical piece is a big concern because I wouldn’t want to also point out that it’s all about the Middle East. As you know today we’ve just learned that there was a failed ballistic missile launch or satellite test in North Korea but there was grave concern about really what was the real nature of that and what would be the outcome of that failure. So there’s a lot of possibility of geopolitical disruption, significant geopolitical disruption happening in other parts of the world. But yeah, I do feel that clearly and people are taking these surveys obviously, they’re clear experts in their domain but they’re also citizens of the world and they’re very much tracking and following what’s happening in the news and right now at this very moment, indeed, I think the Middle East is a concern.
ALEC HOGG: The other area of risk, which is rising, is what you call societal disruption; just unpack that for us, if you would.
LEE HOWELL: Well, I think societal disruption, if you look at geopolitical and say that’s really about traditional international affairs dealing with political military security issues and maybe intrastate conflict. When we talk about the societal piece I think what’s evident is that we’re really looking at the political situations in many of the largest economies and countries in the world. By that I think it’s hardly unpacked because we really just ask where do you see the disruption but I think it’s not too hard to imagine great concern that the current high unemployment in many of the industrialised economies is a concern because it’s very structural in origin, it’s not typically a cyclical problem but it really is structural. Second, there is also growing concern that the traditional remedies for that, and that’s a real source of social disturbance obviously, are really limited because in many instances the fiscal and monetary tools have been used to their fullest at the moment, there’s really not much more fiscal stimulus if you’re in a highly indebted situation, let’s say Greece or Italy. But certainly on the monetary side in the United States, how much lower can you reduce the interest rate. So I think there’s concern that that unemployment that structure also becomes chronic and, of course, no society is stable if you have high unemployment, particularly high unemployment of the youth and that’s a big concern. The other element is I think embedded in that is that we know, we’ve known specifically for the last few years that income and inequality and disparity is really growing across really all economies of various shape and sizes.
ALEC HOGG: So there doesn’t seem to be much room for optimism in all of this. The word, I guess, that could describe the results the way you’ve explained them is fragile.
LEE HOWELL: It’s very fragile. Where would I say there’s room for optimism, one of the areas is that we also ask about confidence levels with regards to global governance and actually global governance the level of confidence is low and it’s partly because I think a realisation that many of the institutions that we have today to deal with global issues are really products of the twentieth century. Yet we have a twenty-first century context where maybe some of these institutions where not fit for purpose. The second element is that I also think that there’s a concern that most leaders, political leaders today, are very much captured by domestic issues and cannot really give attention or much political capital to global challenges, even though their country’s fate is very much linked to the resolution or management of these global issues. Now that’s not positive and what’s positive then? There’s the notion that global cooperation though is steady and is growing that people feel there’s confidence that you could still, despite, despite lack of confidence in the governance institutions, the, I suppose the pragmatist in all of us sees that there’s still [UNCLEAR 1:18] problem that institutions be it public-private partnerships between businesses/ government will be willing or even civil society generally will spur us to cooperate. So the one thing I take out of it is that in our confidence survey is that the experts in the world although they may have growing concerns about geopolitics, lessened concerned about geo-economics shocks and certainly maintained scepticism about global governance institutions. By and large they continue to feel that global cooperation which can happen and they’re more confident in that element and I think that’s very important to appreciate that at the end of the day if the problem is going to impact us all, as humans we’re all social animals in that we will come together and somehow find a way to work together. I find that, at least in my view, that’s what reassures me that people haven’t lost faith in the fact that we could still cooperate despite the economic, political or governance challenges.
ALEC HOGG: And I guess we have the tools now in social media to be able to do just that?
LEE HOWELL: You hit it right on the nose there, I think the notion that you can cooperate and really self-organise so quickly I suppose in some quarters that’s quite frightening but in other quarters it’s quite…it’s a wonderful development because it’s empowering and, again, it lets you cooperate outside of structures that may impede that cooperation. But the minimum it builds awareness and if you know something and you know something and you don’t act on it that you can’t claim ignorance of the fact. I think it does stir people to do something if they know that something is not going the right direction. That whole social media phenomena in its various forms and [UNCLEAR 3:04] around the different regions of the world is, I think, quite powerful in that regard.
ALEC HOGG: Lee Howell is the managing director of the World Economic Forum.
And the term ‘golden years’ banned.