Jan 25, 2020

Axios Deep Dives

By Mike Allen
Mike Allen

Hello from Davos, Switzerland, where Team Axios — Dave Lawler, Ina Fried, Bethany Allen-Ebrahimian and Alison Snyder — covered the World Economic Forum's annual meeting of heads of state, CEOs, activists and celebrities.

  • Here's what we learned:
1 big thing: China — too big to stop

Illustration: Sarah Grillo/Axios

President Trump and his administration are gearing up for a long-term confrontation with China — a rival viewed increasingly as an existential threat.

  • But a week in Davos shows that experts, executives and most world leaders agree: China is too big and advancing too fast to shun it in favor of the U.S., Dave and Alison write.

The big picture: Despite Trump playing hardball on trade, the executives we spoke to say China remains a can't-miss opportunity:

  • On 5G technology, where the U.S. has squeezed allies hard to convince them to shun China’s Huawei, the U.K. and Germany, among others, are hedging their bets, and China is using leverage of its own.
  • Electric vehicle manufacturing is just one example of an industry where it's not possible to be competitive globally without employing Chinese technology, says Adam Tooze, a historian at Columbia University.
  • The dependency goes both ways. Most consumer electronics, including nearly all computers and smartphones, are made in China, while China still relies on U.S. semiconductors and software. 

The trade war escalation provided a wake-up call to U.S. businesses about just how dependent they had become on China, Kelly Grier, U.S. chair and managing partner of Ernst & Young, says.

  • Even if Trump is only searching for short-term political advantage — he gushed about his friendship with Xi Jinping while in Davos — the Pentagon is not.

Heads of state now find themselves walking a tightrope between two giants.

  • Many, if forced, will choose China. Consider African countries dependent on Beijing for investment and infrastructure. “The pressure they’re under is not from nagging human rights defenders in the West,” says David Miliband, CEO of the International Rescue Committee. It’s from China.
  • “If you’re in the Asia-Pacific — every single country’s main source of imports is China," notes Carlos Pascual of IHS Markit and a former senior U.S. diplomat. “Are those countries going to break economic relations with China? Unlikely.”

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2. What the world's CEOs worry about
Expand chart
Reproduced from PwC's 23rd Annual Global CEO Survey. Chart: Axios Visuals

Go deeper: What's worrying the Davos set

3. Tech arms race to the bottom

Photo illustration: Sarah Grillo/Axios. Photo: Visual China Group via Getty Images

Historian and philosopher Yuval Harari urged the U.S. and China to stop AI, surveillance and biometrics from converging before it is too late, Alison writes.

The big picture: In a world that is fracturing around economics and technologies, Harari warned of a new arms race.

  • “This is the race-to-the-bottom danger. If we enter an arms race situation in fields like AI, then it almost guarantees the worst outcomes in terms of privacy and many other issues,” he told Axios in an interview.

Humanity could become entirely subject to AI and biometrics, Harari told his Davos audience, with risks including "data colonialism" and "digital dictatorships" that could imprison someone if, for example, their biological data suggests they are not sufficiently loyal.

Warning of a world where algorithms analyze our biology and humans become “hackable animals,” he floated a scenario: Some countries may adopt an AI that analyzes your entire life — the parts you control and those you don’t — for hiring. Others may resist it as dangerous, stressful and discriminatory.

  • That could create an economic imbalance, leading corporations in the second set of countries to press their governments to act.

But it’s not too late to slow down or even stop the arms race, he says. 

  • “Nothing is really inevitable.”
  • The Cold War threatened nuclear Armageddon but ended peacefully because the U.S. convinced enough people around the world to trust it had the best interests of people everywhere in mind, says Harari. 
  • “This was maybe the most powerful weapon in the American ideological arsenal.” 

Now, the U.S. and its rival powers are in every-man-for-himself mode. 

  • The risk posed by these technologies requires the restoration of trust and leadership but also philosophical answers, Harari says, though he fears the world is facing "philosophical bankruptcy."
  • “For thousands of years, philosophers have been preparing for this moment, and so to deliver, they need to engage with the new technology.”
4. The real tech agenda in Davos

Illustration: Sarah Grillo/Axios

Tech leaders once were given a free pass (literally and figuratively) as the young darlings of Davos, but they're now the established leaders, with a heightened role as well as added scrutiny, Ina reports.

  • While U.S.-China tensions were high on tech leaders' lists, they also came to push their points on climate change, antitrust and AI regulation.

The public pronouncements:

  • Salesforce CEO Marc Benioff was pushing the World Economic Forum's 1 Trillion Trees initiative, even managing to get the Trump administration committed.
  • IBM called for "targeted regulation" of AI. CEO Ginni Rometty was quick to point out that the company wants to see legislation focused on how specific technologies are used, rather than blanket bans, like Europe is considering with public use of facial recognition.
  • Google issued a broader call for regulation, including support for a temporary ban on facial recognition.
  • While other companies sought to make nice with critics, Palantir CEO Alex Karp defiantly defended his company's work with the U.S. government —including immigration agencies — in an interview with CNBC.

But tech leaders spent much of Davos behind closed doors, meeting with top officials from across the globe.

  • About three dozen tech executives met with President Trump on Wednesday, though the discussion focused largely on the friendly turf of workforce training, with Apple's Tim Cook and IBM's Rometty delivering remarks.
  • Tech leaders also met privately with top officials from Europe, which is taking the lead when it comes to regulation.
Bonus: Pic du jour

Photo: Fabrice Coffrini/AFP via Getty Images

Greta Thunberg marches during a "Friday for future" youth demonstration in Davos.

5. Capitalism v. capitalism

Illustration: Sarah Grillo/Axios

The heavyweights of Western-style capitalism in Davos don’t yet know how to deal with China's authoritarian state capitalism, Bethany writes.

The big picture: For much of the past 70 years, the behavior of Western companies has been shaped by Western laws and regulations, and by the vagaries of Western markets.

  • Now China is the first non-Western, authoritarian country with both the market size and the will to reshape the behavior of multinational companies, and even Western governments, to better fit its own interests.

Why it matters: “The fact that the Chinese are not in any way aligning with or integrating with Western-style capitalism is something that these CEOs are having a hard time coming to terms with,” said Ian Bremmer, president and founder of Eurasia Group, in an interview at Davos with Bloomberg.

Case study: China telecom giant and 5G leader Huawei has received tens of billions of dollars in various forms of government assistance, according to a Wall Street Journal report.

  • This has helped it offer its products and services below market cost — and gives it an edge over competitors that top executives at Western companies are reluctant to acknowledge.
  • The U.S. government has urged allies not to use Huawei 5G because of security problems and the company's close ties to the Chinese government, even threatening to withhold intelligence sharing.
  • Despite the warnings, the British government looks set to allow Huawei into its telecommunications network, and Germany may follow.

The bottom line: Acting against the economic interests of companies is deeply unpopular among top Davos leaders.

  • Yet, with the rise of China’s authoritarian capitalism, that may be what is required to preserve the security of critical information infrastructure — and the fundamental freedoms of liberal democracy.
6. 1 😀 thing: GDP can't buy happiness

Illustration: Sarah Grillo/Axios

At the head dinner table on Tuesday, Victor Pinchuk, a Ukrainian oligarch and the evening's host, was surrounded by dignitaries and leading experts on a controversial science: measuring happiness.

Dave was in the room ... Up for debate was whether governments should seek to make their citizens happy and whether they could satisfactorily measure their success in doing so. Axios listened intently from a corner table, accompanied by a delightful Italian red.

  • First, there was Dan Gilbert, a psychologist from Harvard, who said of course you can trust people to tell you whether they're happy — indeed, the most basic human interactions depend on it.
  • Next came Robert Shiller, a Yale economist and the evening's skeptic. He said happiness oscillates based on temporary circumstances, and he joked he'd be happier upon the arrival of dessert (pistachio ice cream with mango sorbet).
  • Anders Fogh Rasmussen, a former Danish prime minister, reflected on why his people are so happy: social mobility, environmental conservation, national culture, good governance.
  • Aleksander Kwaśniewski, a former Polish president, warned as "the only one in this room who was a member of the Communist Party" that happiness as an ideology can be dangerous.

The bottom line: Perhaps it was the wine, but I stepped out into the Alpine air convinced that in Davoses to come, there will be less about GDP and more about happiness.

Mike Allen