The founder of the World Economic Forum shares what he sees as the biggest threat to the global economy

  • Economist Klaus Schwab is the founder and executive chairman of the World Economic Forum which will be holding it's Annual Meeting in Davos, Switzerland January 22-25, 2019.
  • Schwab explains the theme of this year's meeting, "Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution."
  • When asked if we were currently in a trend of deglobalization he said no, "we have to make a differentiation between globalization, which is a fact, and globalism."
  • He says the biggest threat to economic stability is the imbalances in the world.
  • Schwab says he believes trade imbalances are a problem. He is not an unconditional advocate for free trade, which he says is great but only if there is equality.

Sara Silverstein: This year's theme for 2019 for the meeting is Globalization 4.0 and shaping the architecture of the Next Wave of Globalization which is the industrial revolution, the fourth industrial revolution, which you've literally wrote a book on. Can you tell me what makes up the fourth industrial revolution?

Klaus Schwab: We are living in a time of multiple technological innovations. I just mentioned artificial intelligence, blockchain, you could add and add, and all those technologies together will fundamentally transform the world, not just business models but economies, society, politics and so on. So when we speak about globalization 4.0, we want to address the global architecture which is needed in this new context of the fourth industrial revolution.

4thIndustrialRevolution&quotThe Fourth Industrial Revolution" by Klaus Schwb.Amazon

Silverstein: And what was the issue with the last wave of globalization?

Schwab: We see it already now so so many issues like inequality, trade wars, and I could go on and on. The danger is that we deal with those issues, we address those issues with patchwork policies. We try to find simple solutions for very complex issues so what we want to do is to show, no. The whole complexity has to be addressed and the new context has to be addressed.

Silverstein: This isn't a new problem. You wrote about this in 1996, the backlash against globalization. So what solutions do we have now that will make this round better?

Schwab: We don't know actually. We know, for example, that the first industrial revolution has a tendency to favor innovation, to favor capital at a detriment of labor. So we have to think how we can create a better equilibrium, for example, through new tax systems, through incentives, and particularly through education re-scaling and up-scaling to prepare the people for the skills which are needed tomorrow.

Silverstein: And you think blockchain will be a big part of that?

Schwab: We don't know yet. The last verdict is out. We know it's very fashionable but I have my doubts in many respects.

Silverstein: Are there any other technologies that will help lessen the economic inequality?

Schwab: Of course, if you look at the new possibilities in communications combined with artificial intelligence, just think of the new ways we have in education. So we can give access to the best knowledge, to the best training, to people somewhere in the far-out corner of Africa for example. So those technologies could help to bridge the gap, those technologies could also very much widen the gap if we do not take the necessary measures today. That's the idea of Davos next year.

Silverstein: We're talking about the next wave seem to be in a down trend of a deglobalization right now. What is responsible for that?

Schwab: I would reject this argument. I think we have to make a differentiation between globalization, which is a fact, and globalism.
I think we have to make a differentiation between globalization, which is a fact, and globalism.

Let me come first to globalization. I think the world of tomorrow will be even more globally integrated because we are moving much more into a digital world and to a richer world, and digital flows do not know borders. They don't have to cross borders, so we speak about global integration.

Globalism is something different. Globalism means that all our policies should be subject to the so-called neoliberal forces of global markets and here, I think the experience which we have seen is that of course, we have to have a multilateral open rules-based world but we also have to make sure that we not destroy national social coherence because national social coherence is the prerequisite for democracies.

Silverstein: what do you think is the biggest threat to global economic stability right now?

Schwab: I think it's the imbalances which we have and it's not only the imbalance in the trade sector. We have imbalances, for example, in the financial system, with 250 trillion plus credits. We have imbalances certainly also related to technological progress and I could go on and on. And a system, and globalization is a system, it's a global system to prepare together the future. We have to address those imbalances. We have to particularly, we have to address the imbalance of let's say the social gap, inequality.

Silverstein: And you mentioned trade imbalances. Are trade imbalances a problem?

Schwab: Yes, they are a problem. Not as such but if trade balances get into a dimension which stretches the system and which creates, let's say, risks, then I think we have to rebalance the situation, and that's the whole question of trade wars at the moment.

Silverstein: And is that, are we moving in the right direction of rebalancing with what's happening now?

Schwab: No, we will see. In the economy, you have sometimes the notion of disruptive innovation. And I see in some countries an element of disruptive innovation and we see a lot of disruption. We don't see yet the innovation. How do we replace, let's say, an unbalanced system by a system where really everybody profits from and where we again, in a good exchange of global goods, not only physical goods but I'm thinking also of intellectual property, I'm thinking of e-commerce and so on. We have to integrate, trade much more into an overall system.

I know I'm not a unconditional advocate of just free trade because if you look what happen now in many countries is we see a rebellion of those who have been left behind.

Take what has happened in the election in Mexico. Take what has happened in the election of Brazil. Of course, it was a different group who at the end, came into government but both were driven very much by those parts of population which have been left out in the globalization process. So we have to find this balance between keeping an open world, and on the other hand, keeping our national contracts alive and to make sure that we maintain social cohesion inside a given country.

Silverstein: But how do you do that?

Schwab: I think it needs no corrective measures. It needs proactive measures, for example, education giving everybody equal chances in the professional life, having a high gender parity, all those issues contribute to a stronger social cohesion.

Silverstein: And if you have all those things, then free trade is great.

Schwab: Yes, then free trade is great but you may hear also in what we see, for example, in Europe, is the concern that the cultural tissue of the different countries is undermined. So you have not only to look at the social dimension, you also have to look at the cultural dimension because the cultural dimension provides the identity to some people.

That's the reason why migration is such a sensitive issue because people feel not so much that it takes away the jobs. I think if they feel it takes away their cultural identity.

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