Davos Crowd Uneasy as Long-Term Risks Replace Crisis Response

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Photographer: Chris Ratcliffe/Bloomberg

A businessman stands on a snow covered outdoor terrace at the InterContinental hote in Davos, Switzerland.

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For the first time in seven years, the business and political elite gathered in Davos, Switzerland last week were able to focus on long-term challenges rather than short-term economic crisis. That didn’t make them less nervous.

Delegates at the World Economic Forum’s annual meeting departed anxious about the risk to future prosperity caused by high unemployment, social tensions that have sparked riots from Turkey to Brazil, widening income disparity and the destabilizing effects of technological change.

“With automation, you’re going to find a whole bunch of people -- a whole section of society -- out of work,” T.K. Kurien, chief executive officer of Wipro Ltd. (WPRO), India’s third-largest software exporter, said in an interview in Davos. “Long-term, I worry about the future of some countries and some societies, primarily because of this pressure.”

Attendees looked to the future having spent recent gatherings debating the immediate threats to growth posed by the financial turmoil that followed the collapse of Lehman Brothers Holdings Inc. The International Monetary Fund this month predicted the strongest world economic expansion since 2011.

Special Report: 2014 World Economic Forum in Davos, Switzerland

A poll released before the participants gathered found income inequality to be the most likely obstacle to global growth in the next decade. With unemployment, it presents a threat to business, executives say, because it could undermine future demand for consumer goods and housing, drive governments to impose tighter regulations on companies and spur civil unrest.

Poor, Poorer

Noisy takeovers of Brazilian shopping malls by youths from lower-income neighborhoods, and protests against entrenched rulers in Turkey and Ukraine were much-discussed examples at the Forum.

“The rich actually became richer and the poor became poorer” since the financial crisis, said Iyad Malas, CEO of Dubai-based real estate developer Majid al Futtaim Holding LLC.

The International Labor Organization warned this month employment isn’t expanding quickly enough to keep pace with global population growth, raising the prospect of a jobless recovery. Based on current trends, about 40 million net new jobs will be created annually until 2018, falling short of the 42.6 million people entering the labor force each year, according to the Geneva-based ILO.

Unease over unemployment is being compounded by the quickening pace of innovation, with new technologies such as 3-D printing threatening to make many jobs obsolete.

‘Defining Problem’

As positions are lost to automation, “the jobs problem is going to be the defining problem for the next two to three decades,” Google Inc. (GOOG) Chairman Eric Schmidt said.

Former U.S. Treasury Secretary Lawrence Summers repeatedly warned the conference that although technological breakthroughs are “one of the greatest things that will ever happen,” they aren’t an “unalloyed good.

‘‘There is a very difficult adjustment period,’’ he said.

Technology companies are under pressure from governments to boost hiring as some of the most successful manage with small workforces. European Commission president Jose Manuel Barroso last week unveiled a pact with firms including Facebook Inc. and Ericsson AB to create 100,000 traineeships by the end of 2015, part of a plan to reduce a euro-area unemployment rate that was at a record 12.1 percent in November.

Skills Shortage

Business leaders will still struggle to find enough staff because workers lack the necessary technical and computing skills, according to accountancy firm Deloitte.

‘‘The risk is the shortage of talent with the skills necessary as technology advances,’’ Deloitte CEO Barry Salzberg said in an interview.

Adding to the challenge, immigration is becoming more difficult amid growing opposition in countries like such as the U.K.

The ability to bring in workers to fill skilled labour shortages is ‘‘getting worse’’ across Europe, Goldman Sachs International Chairman Peter Sutherland said at a panel debate in which he branded migration curbs ‘‘ridiculous.’’

Current economic issues weren’t entirely absent from conversation in Davos. Emerging market policy makers, rattled by last week’s rout in their currencies and stocks that sent the MSCI World index down by the most in five months, acknowledged their economies were slowing and urged developed-country central banks to be careful in withdrawing stimulus. Europe was told it still needs to do more to protect its currency by fostering growth and pushing ahead with a banking union.

‘‘The experience of the marketplace this past week is going to be indicative of this entire year,” BlackRock Inc. Chief Executive Officer Laurence D. Fink, told a panel. “We’re going to be in a world of much greater volatility.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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