Axios AM Deep Dive: Cold War Davos

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The premise of the World Economic Forum is that if you bring powerful people together across borders, they can solve some of the world's thorniest problems.

But if this year's forum is any indication, the biggest geopolitical players can't even gather in the same room anymore.

The big picture: The world is splitting into opposing camps, and the "globalist elite" — as Davos attendees are often described — are not immune.  

At Davoses past, Russian oligarchs like Oleg Deripaska threw lavish parties and vodka flowed at the Russia House, centrally located on the Promenade.

This year, Russian companies were banned, Deripaska is sanctioned, and the Russia House was converted into the Russian War Crimes House.

Chinese participants had taken on increasingly prominent roles at recent forums, but there was little Chinese participation this year, due in part to the onerous COVID restrictions on travel to and from China. 

The buzz: With the autocratic powers absent, Davos felt like a trans-Atlantic lovefest. Panel topics included "European unity" and "the resurgence of the West." 

Russia's invasion of Ukraine dominated those discussions and most others around the forum.

"Nothing binds you more than a common adversary," says Samir Saran, president of Observer Research Foundation, a think tank based in Delhi. "Lo and behold, you have that, and you have this renaissance in the Atlantic order, which was flailing in some sense."

"We've had this holiday from history for 30 years, right? And Davos has been very much a part of that," former Finnish Prime Minister Alexander Stubb tells Axios, referring to the post-Cold War decades in Europe in which walls came down and war seemed distant.

The forum's idealism about power and globalization can feel like a relic of a time when supply chains were expanding, the connective force of the internet felt boundless, and the U.S.-led liberal order stood preeminent.

"The things that were supposed to bring us together are actually driving us apart at the moment, because everything can be weaponized," Stubb says.

But if the world is again breaking down into blocs, many countries remain non-aligned.

On one panel otherwise dominated by hawkish appeals for arms and sanctions from U.S. and Ukrainian participants, Bangladeshi State Minister for Foreign Affairs Shahriar Alam raised the grain shortages and political instability the war was unleashing in South Asia. "We want it to end, right away," he said. 

Like Bangladesh, India has called for an end to the war without condemning Russia for launching it. Most of the world is not willing to simply line up with the West against Russia, let alone China.

What to watch: While Russia is out of the Davos club, China — given its massive market and geopolitical weight — is still being cautiously courted, including by western officials and executives.

"Decoupling [from China] is totally unrealistic," an executive at a global tech giant confided over coffee at one of the ubiquitous pop-up pavilions on the forum's periphery. "We're all caught between China and the U.S. government."

Before U.S. climate envoy John Kerry appeared alongside his Chinese counterpart — the only time officials from the two superpowers shared a stage — Axios overheard him discussing how to handle it with his team: "Do I say I'm happy to be here with my friend?"

Kerry did use that word in the end, before noting "the serious disagreements between our countries."

1. Cold War Davos

The world is splitting into opposing camps, and Davos is not immune.

Illustration of two businesspeople back to back in the center of concentric circles made out of international currency. 

Deep Dive - Davos 2022

The premise of the World Economic Forum is that if you bring powerful people together across borders, they can solve some of the world&#x27;s thorniest problems.<ul><li>But if this year&#x27;s forum is any indication, the biggest geopolitical players can&#x27;t even gather in the same room anymore.</li></ul>

China is becoming the most formidable rival America has faced, and the risk of confrontation with Russia, North Korea or Iran still looms. Authoritarians are rising, the chaotic Afghanistan exit revealed the limits of U.S. power, and the pandemic, climate change and other critical challenges continue to pose grave threats.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Ukraine dominated many of the panel discussions, speeches from world leaders, and even the evening entertainment in Davos. 

And no one set the tone more than Ukrainian President Volodymyr Zelensky, who didn't step foot in Davos but was easily the star of the show. 

Zelensky appeared via videolink for an Axios interview and opened the forum with an impassioned address. Even with a slimmed-down crowd in Davos this year, we'd never seen the hall so full.

A dozens-strong Ukrainian contingent did travel to Davos to lobby for more weapons, seek investment to rebuild the country and urge the VIP audience not to look away. 

Tuesday night's offerings included a concert for Ukraine, with Yo-Yo Ma performing, and a dinner for Ukraine, hosted by Ukrainian oligarch Victor Pinchuk. 

Yo-Yo Ma and Emanuel Ax perform at a Ukraine solidarity concert in Davos

Yo-Yo Ma performs at a Ukraine solidarity concert in Davos

Cellist Yo-Yo Ma and classical pianist Emanuel Ax perform at a Ukraine solidarity concert in Davos. Photos: Ina Fried/Axios

The dinner quickly turned somber as several Ukrainian attendees were introduced, including the mayor of Bucha, the Kyiv suburb that has become synonymous with mass graves, and a doctor from Mariupol, where thousands of civilians have died and a maternity hospital was bombed.

After the mayor of Russian-occupied Melitopol rose to speak, another Ukrainian attendee unveiled a battle-damaged flag from "our boys on the front lines." Everyone rose for an impromptu rendition of the national anthem.

It was not a normal Davos dinner. But with a full-scale war raging on the European continent, it was not a normal Davos. 

Axios Twitter video on how Ukraine shaped Davos

Watch Zelensky's full interview with Jonathan Swan

2. Ukraine dominates Davos

It was the theme of many of the panel discussions, speeches from world leaders, and even the evening entertainment.

Photo illustration of Ukainian President Volodymyr Zelensky surrounded by circles of worldcurrency 

Photo illustration: Sarah Grillo/Axios. Photo by Ronaldo Schemidt/AFP via Getty Images

Ukraine dominated many of the panel discussions, speeches from world leaders, and even the evening entertainment in Davos. <ul><li>And no one set the tone more than Ukrainian President Volodymyr Zelensky, who didn&#x27;t step foot in Davos but was easily the star of the show. </li></ul>

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"We don't have to worry about the f---ing monkeypox, do we?"

Al Gore, overheard in the Davos conference center

At the first annual meeting since the pandemic brought the global economy to its knees, COVID-19 was largely ignored as a clear and present risk to the assembled delegates and hangers-on. 

Delegates trusted that their mRNA boosters and the testing protocols would protect them, along with modern therapeutics, should they end up catching the virus.

The backstory: The World Economic Forum doesn't have the best track record when it comes to gauging the risks of pandemics.

COVID-19 was a distant concern at the 2020 meeting, which might itself have been a superspreader event. The pandemic was then responsible for the cancellation of two successive scheduled meetings.

The big picture: The main venue for the annual meetings is a warren-like and largely windowless conference center, divvied up into small, airless rooms.

Dozens of delegates would file into such spaces for panels, press conferences, and the like — and almost none of them were wearing masks.

The Davos nightlife similarly picked up where it left off pre-pandemic, with loud and crowded venues, free-flowing alcohol, and people shouting to be heard over the din.

At such events, masks were worn only by servers. Any delegates with COVID worries didn't even bother showing up. 

People who were tested at the center ended up mixing with other people in Davos who hadn't been tested, then returned to the center where few people wore masks.

The bottom line: Some of Davos's biggest parties were canceled, but others replaced them. The Chainsmokers, for instance, performed at a tiny, packed bar on Wednesday night. 

It's therefore an open question as to whether Davos 2022 will turn out to be a superspreader event.

3. Davos ignores the pandemic

Delegates were broadly complacent when it came to COVID.

Illustration of a covid particle under a pattern if international currency shaped like concentric circles and a no-sign over the particle.

<blockquote>&quot;We don&#x27;t have to worry about the f---ing monkeypox, do we?&quot;</blockquote><cite>— Al Gore, overheard in the Davos conference center</cite>At the first annual meeting since the pandemic brought the global economy to its knees, COVID-19 was largely ignored as a clear and present risk to the assembled delegates and hangers-on. <ul><li>Delegates trusted that their mRNA boosters and the testing protocols would protect them, along with modern therapeutics, should they end up catching the virus.</li></ul>

The U.S. faces a range of health care flashpoints — unaffordable drugs, opioids, vaping — as we debate whether to adopt universal care. For now, the Affordable Care Act is the law of the land, but Republicans want to issue it a final death blow.

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Frayed supply chains and U.S.-China tensions were on the minds of many tech executives in Davos for the World Economic Forum this week.

Why it matters: Nearly every tech company is dealing with the one-two whammy of a global semiconductor shortage combined with COVID-related disruptions in China and elsewhere.

Long supply chains have always been somewhat vulnerable to disruptions, but the pandemic caused multiple failures, changing the calculus for many in tech.

China-U.S. tensions also appear likely to permanently change the equation.

"There's now a recognition that long supply chains aren't resilient enough," the University of Cambridge's Jagjit Singh Srai, who previously spent 17 years running manufacturing and supply chain operations for Unilever, told Axios during a shuttle ride in Davos.

The big picture: All companies are feeling the heat to greater and lesser degrees. Even Apple, which has been able to better withstand past shocks, says the constraints will dent revenue this quarter on the order of $4 billion to $8 billion.

There are countries that one can't obtain goods from and routes that are now blocked. "That's driving the change," said Singh Srai.

Apple, for example, is considering shifting additional manufacturing out of China to other locations, including India and Vietnam, per Barron's.

Justin Hotard, who runs the unit that builds supercomputers at Hewlett Packard Enterprise, said his unit is affected just like other segments of the tech. "Ultimately, the parts are all the same," he told Axios in an interview in Davos.

Still unclear is just how significantly the tech industry will change to address the current capacity issues combined with U.S.-China tensions. The big question, Hotard said, is whether it will move to "a segregated, more localized supply chain."

Yes, but: Fixing the problem is more complicated than a company just setting up more of its own factories.

"You might regionalize, but if your company's suppliers are still global, you really haven't changed," Singh Srai said.

Between the lines: The notion of economies of scale, which have long dictated how companies evaluate what setup makes the most sense for manufacturing, appears to be changing. In the past, bigger was always better.

That often meant locating factories where there was cheap labor, which often produced marginal cost benefit. The gains were linked to currencies and labor costs, not to performance, but the human cost could be huge when those factors shifted.

Factories are often located not in urban centers but in modest towns where the factory is the major employer and driver of the rest of the economy.

"The factory is the heart of the town. If you take the factory out, there is a lot of devastation," said Singh Srai.

Go deeper: Davos crowd sees power and perils of data

4. CEOs fret over frayed supply chains

"There's now a recognition that long supply chains aren't resilient enough."

Illustration of a supply ship surrounded by rectangles made of international currency. 

Frayed supply chains and U.S.-China tensions were on the minds of many tech executives in Davos for the World Economic Forum this week.Why it matters: Nearly every tech company is dealing with the one-two whammy of a global semiconductor shortage combined with COVID-related disruptions in China and elsewhere.

From the Valley to D.C., Big Tech players like Facebook, Google and Amazon are under more scrutiny than ever as new technology develops and privacy and antitrust concerns grow in lockstep with companies’ ambitions.

Technology

Wherever the world's attention might be focused right now, it's not Davos, Switzerland.

Driving the news: When a major new trade pact was announced on Monday — encompassing 13 countries including the U.S., Japan, India, South Korea, and Australia — it was at a summit in Tokyo, 6,000 miles from Davos.

Heads of state including President Biden, Japanese Prime Minister Fumio Kishida, and Indian Prime Minister Narendra Modi gathered there to discuss supply chains, pandemics, and the war in Ukraine. 

In Davos, the U.S. delegation was threadbare, with the highest-profile attendee being Commerce Secretary Gina Raimondo. Never mind Biden being absent; there was no Kamala Harris, no Janet Yellen, no Jerome Powell. 

Even private-sector regulars like JPMorgan Chase CEO Jamie Dimon decided to sit this Davos out. 

Context: Klaus Schwab, the founder of the World Economic Forum, rode the jet stream of globalization for decades, creating an annual alpine conclave designed to drive a truly global agenda.

This year, Omicron pushed the meeting back by four months and slashed the number of Chinese delegates attending. Then, Putin invaded Ukraine. 

Overnight, Russians went from being Davos's most generous delegates — perennial providers of conviviality and caviar — to being the undisputed common enemy.

The big picture: During major global upheavals, Davos delegates have a tendency to become slack-jawed onlookers rather than geopolitical power brokers. 

During the Arab Spring, they gathered impotently around TV screens; this year, they dutifully filed into a cavernous hall to give a standing ovation to Ukrainian president Volodymyr Zelensky, a man who has survived multiple Russian assassination attempts. 

The bottom line: Switzerland, proudly neutral for 500 years, lends itself well to creating and strengthening international ties of commerce, friendship, and familiarity. (The first time I came to Davos, I had a fascinating half-hour conversation with an Iranian ayatollah.)

In an era of everyone picking sides, however, Davos has much less to offer.

5. Diminished Davos

A threadbare U.S. delegation and a major new trade pact announced in Tokyo, 6,000 miles away.

Wherever the world&#x27;s attention might be focused right now, it&#x27;s not Davos, Switzerland.Driving the news: When a major new trade pact was <a class="gtmContentClick" data-vars-link-text="announced" data-vars-click-url="https://www.axios.com/2022/05/23/biden-launches-indo-pacific-trade-pact" data-vars-content-id="55e51521-6991-482e-aae0-3cb1a56bb777" data-vars-headline="Diminished Davos" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/23/biden-launches-indo-pacific-trade-pact" target="_self">announced</a> on Monday — encompassing 13 countries including the U.S., Japan, India, South Korea, and Australia — it was at a summit in Tokyo, 6,000 miles from Davos.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

Davos has discovered biodiversity — which means it has discovered frogs.

Why it matters: Counting frogs is a great way to judge the health of a forest. So the accounting firm EY has created a challenge to develop an AI-based frog-counting tool.

The team with the greatest accuracy will win $10,000.

What they're saying: "Currently, species distribution models for frogs are poor for a variety of reasons," says EY spokesperson Konstantinos Makrygiannis. "With the challenge, we are aiming to improve the existing process."

6. 1 fun thing: Using AI to count frogs

An accounting firm launches a contest to develop an AI-based frog-counting tool.

Illustration of a frog surrounded by a burst of star shapes filled with international currencies

Davos has <a class="gtmContentClick" data-vars-link-text="discovered biodiversity" data-vars-click-url="https://www.axios.com/2022/05/26/biodiversity-new-net-zero" data-vars-content-id="c12273af-e5c6-42d3-b4d5-799cc191750b" data-vars-headline="1 fun thing: Using AI to count frogs" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/05/26/biodiversity-new-net-zero" target="_self">discovered biodiversity</a> — which means it has discovered frogs.Why it matters: Counting frogs is a great way to judge the health of a forest. So the accounting firm EY has created a <a class="gtmContentClick" data-vars-link-text="challenge" data-vars-click-url="https://challenge.ey.com/challenges/level-3-frog-counting-tool" data-vars-content-id="c12273af-e5c6-42d3-b4d5-799cc191750b" data-vars-headline="1 fun thing: Using AI to count frogs" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://challenge.ey.com/challenges/level-3-frog-counting-tool" target="_blank">challenge</a> to develop an AI-based frog-counting tool.

Ominous forecasts about the impact of climate change serve as the backdrop for the world — led by U.S. lawmakers and companies — to debate big action on the problem, which could upend energy systems and our way of life.

Energy & Environment

CEOs fret over frayed supply chains

 Illustrated collage of a handshake surrounded by rectangles made from international currency.