Something unexpected happened at Davos this year. The conventional wisdom took some tentative steps toward the right.
Since the financial crisis of 2008-09, the “global conversations” that take place among business, political and social leaders at the World Economic Forum each year have trended left. Elite Western opinion seemed destined to move toward more faith in state planning and less in the power of markets.
There were reasons for the shift. China’s economic success seemed to vindicate central planning. People believed massive state intervention would promote a fast, cheap and effective transition to a net-zero world. The economic crisis seemed to demonstrate that American-style “cowboy capitalism” was a flop. “Stakeholder capitalism” and environmental, social and governance investing would, backers promised, be at least as profitable and considerably more popular than the old-fashioned kind.
These ideas—that China’s economic model was sound, that American-style capitalism had failed, that governments could plan a successful energy transition at a reasonable cost, that business needed to move beyond profit-seeking to embrace a variety of social goals, and that pursuing a radical social agenda was a good business decision—had congealed into the new conventional wisdom.
Twenty twenty-four could be the beginning of the backlash.
There were no marches for Adam Smith or posters of Milton Friedman at Davos this year, but the applause for the combative defense of free markets by Argentina’s new libertarian President Javier Milei was more than polite. Citing the contrast between ages of stagnation and the miracle of accelerating progress in the modern era, Mr. Milei reminded his audience that “far from being the cause of our problems, free-trade capitalism as an economic system is the only instrument we have to end hunger, poverty and extreme poverty across our planet.”
His words resonated because, as one heard in panel after panel, the empirical foundations of the fashionable statist view appear to be crumbling. For now at least, the China miracle seems to be over. Beijing isn’t only suffering one economic shock after another. Its worst problems—demographic decline, a property bubble, overinvestment in manufacturing, and fear of arbitrary state actions against both foreign and domestic businesses—are the result of government planning gone wrong. As China doubles down on repression, its economic problems get worse.
Fifteen years after the financial crisis, meanwhile, tightly regulated Europe has fallen behind the U.S. Using chained 2015 dollars to minimize the effect of currency fluctuations, total European Union gross domestic product in 2008 was 81% that of the U.S. In 2022 it was 73%, hardly an argument for the European way.
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The global energy transition is in trouble. It isn’t simply Fox News-watching Americans who have turned against green bureaucrats and their economic ambitions. Dutch, Romanian, German and French farmers are all in revolt against policy changes that threaten their way of life. This is a dramatic turn. In the past, European farmers have supported green policies, in part because they protected European agriculture from competition by “factory farms” in places like the U.S. But the EU’s grand plans to become “climate neutral” by 2050 must, to succeed, make fuel for farm vehicles and fertilizers for crops dramatically more expensive.
Other green ideas that looked great on PowerPoint are running into trouble in the real world. The transition to electric vehicles is becoming a nightmare for European car companies. Green demands to force German households to install heat pumps generated what Germans call ein S—storm (it’s an English loanword) when voters added up the costs. Energy costs are soaring to levels likely to drive key industries out of Europe.
Meanwhile, businesses on both sides of the Atlantic are discovering that ESG investing and stakeholder capitalism work much better with zero interest rates than in a world where money doesn’t grow on trees. Companies like Anheuser-Busch and
Disneylearned that trumpeting “progressive” social values can have unanticipated costs.
Another factor is at work. The war in Ukraine, the conflicts in the Middle East and the specter of turmoil in the Far East have reminded the Davoisie that everything they value ultimately depends on American power and the readiness of Americans to defend the common good.
The Davos consensus remains strongly anti-Trump, but there is real doubt about whether left-liberal governance can keep him out of the White House—or stop the global drift toward disorder and great-power war. Davos Man is becoming uncomfortably aware of how dependent the global system is on the leadership that only a prosperous and self-confident America can provide. We aren’t there by a long shot, but if the pendulum of Davos conventional wisdom continues to swing, Reagan nostalgia may yet find a home in the Swiss Alps.