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Author: Leslie Budd

Double-dipping in and out of network economics

Updated Thursday, 3rd February 2011

As the big beasts of the world economy try to predict the future at Davos, does all that networking do anything beyond protect their positions?

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Davos Man was out in force last week (despite attempts to involve a few more women over and above those serving food and drinks), as the World Economic Forum in the eponymous Swiss ski resort went through its rituals.

The networking of global business and political leaders - with the Fourth Estate (a posh term for journos) often acting as cheerleaders like World Cup WAGs - was hardly the stuff of mounting the Olympian heights of the world economy.

Preparations for the 2011 World Economic Forum at Davos
Preparing the stage for the World Economic Forum

There was a little frisson on the menu when George Soros, the man who triggered economic recovery in 1992 by forcing the exit of sterling from the forerunner of the Euro, pointed out that the economics of austerity was damaging growth in the UK.

The quarterly growth rate for the UK was minus 0.5% in contrast to the US where growth increased by 0.8% with Tim Geithner, the US Treasury Secretary appearing to be at odds with his British counterparts in his approach to economic recovery.

The Chief Executive Officers (CEOs) on show at the Davos fora tend to undermine their business authority when they venture into discussing global economic issues, with a very few notable exceptions.

In most cases, CEO should stand for Confused Economic Obscurantist. The economics and politics of austerity across both sides of the Atlantic shows that the relationship of CEOs to economics is a bit like that of one current Olympic event, Synchronised Swimming, and one potential one, Yoga.

In the former case, they are distracted by the surface movement without thinking of the dangers that may lurk beneath, forever dipping their toes in and out of the water.

The developed economies of the world may face a double-dip recession but the networks of business leaders seem unprepared for the swimwear they may need to be ready for the plunge.

In the case of yoga, it is proposed that participants go through a three-minute routine of poses: not unlike that of Davos.

Whether yoga will contribute to the sporting legacy of the Olympics is an open question.

The contribution of the World Economic Forum to the public understanding of economics, however, is hardly Olympian and especially so when it comes to forecasting the future. One only has to look at the claims made for the world economy on the eve of the financial crisis which began in late 2007.

Dimitry Medev delivers the opening address at the 2011 World Economic Forum in Davos
Russian President Dimitry Medev delivers the 2011 World Economic Forum opening address

Forecasting what will happens to economies in the next five years is a tricky business and economic models are often as useful as throwing a dart at a board with random numbers on it.

Keynes stated the past is a bad guide to the future and you don’t have to be a philosopher to realise that the future is the past lived in the present. It is remarkable that most pundits share the same perspective: all you need is technology, innovation, entrepreneurship and release the creativity of young people to drag an economy out of its doldrums.

These conditions have appeared in just about every economic strategy promulgated by regional development agencies in Europe since the 1980s. There is also a fixation on the size of economies and growth rates.

The essential problem is that if every citizen of China consumes a can of some beverage every day it would be the biggest economy in the world. Size doesn’t matter: it’s about productivity and living standards per head that determine the performance of an economy.

The other populist claim is that the twenty-first century will be the Chinese or Indian one, following the 20th century being the American one.

We have been here before: in the late 1970s the US government was concerned about the potential economic threat of the Soviet Union, because of its lead in fifth generation computers.

By the mid 1980s, it had switched to Japan with a major report on its threat to the US economy undertaken by academics at the Harvard Business School, including the now celebrity academic, Michael Porter.

My advice to any apprentice economic forecaster is to go and watch the film Citizen Kane, directed by Orson Welles. At the end of the film the eponymous central character, played by Welles himself, on his deathbed grasps a glass ornament which is filled with fake snow. He shakes it to reveal the name “Rosebud”.

Our putative forecaster should go out and buy one of these ornaments and shake it. It just might be that some crucial future number about the economy will be revealed to them and the world, which brings us to networking.

Davos might be a more interesting experience if the participants and protagonists played the snowy ornament game. Instead of networking they should all stand round shaking them to reveal what is beneath the fake snow.

 Networking should be called notworking as we get more and more seduced about the global utility of social networking. Facebook and Twitter, among others, are just speeded up and virtual versions of, say, old school associations and so on.

Are speed dating and book clubs networking? Or are they a chance to meet other people for some social, and possibly sexual, communion?

In the past the old boys’ networks were blamed for the poor performance of the British economy. Yet the networks of Oxbridge alumni and the mediocre white boys still dominate so much of the economy and society in the United Kingdom.

These are networks of power and influence and no amount of networking at public events will allow you enter the portals of the elite if you are an outsider. The other advanced economies are no different, especially the US, to which the British writer Christopher Hitchens directed his attention in his book Blood, Class and Nostalgia: Anglo-American Ironies.

The point is that networking is frequently a ritual without the courtly manners of the past as cards are exchanged and temporary synchronised alliances are formed, usually over alcohol.

Networking delegates are frequently on the move as they try to position themselves with more and more powerful partners as they dance around each other. The problem is that when it comes to our latter day CEOs, of the first and second variety, double dipping in and out of economics networks leaves them frequently out of their depth.

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