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[OPINION] Davos: A changing of the guard?

In setting the theme of this year’s Davos World Economic Forum (WEF) as Responsive and Responsible Leadership, Klaus Schwab, executive chairperson of the WEF said:

The coming year will be a critical test for all stakeholders in the global society. More than ever, we will need responsive and responsible leadership to address our collective challenges, and to restore people’s trust in institutions and in one another. That duty begins with our leaders, who must begin to engage in open dialogue and a common search for solutions to the five major challenges on the horizon. If they acknowledge that ours is a global community with a shared destiny, they will have made a first – albeit modest – step in the right direction.

With that clarion call to a shared and collective leadership narrative in mind, we find it disconcerting that the leader of the US, the world’s largest economy opted to skip Davos altogether.

However Xi Jinping, president of China, will be attending. It is the first time that a Chinese leader has done so.

We could perhaps ask then whether we are seeing a changing of the geopolitical guard, with China beginning to supersede the US from a global power perspective?

It is certainly an appealing political hypothesis and here’s the evidence: since Donald Trump’s election, on the back of an 'America First' principle, Xi Jinping has been vocal in positioning China as the champion of global free trade.

On day one at Davos he countered the Trump position with the argument that no-one is a winner in a trade war, and appears willing to assume a position of global leadership.

A warning though - history tells us that the period of greatest stress to the international economic system between 1920 and 1939 was precisely when the UK was unable to stabilise the system and the US, as the next global power, was unwilling to assume that responsibility.

The eminent economic historian, Charles P Kindleberger, regarded as the founder of the Hegemonic Stability Theory, helps us to understand the importance of hegemonic power in the global economy. This theory of international relations indicates that the international system is more likely to be stable when a single nation is the dominant global power.

What we are seeing then at Davos is a complex interplay of the different strands of a global hegemonic power tussle and we should be concerned about the implications for the stability of the global economic system.

We have the US, which it appears under Trump to be increasingly unwilling to assume its responsibilities. And despite lofty talk from Mr Xi, we have a China that economically is not yet ready to assume that global responsibility.

Certainly, when global powers retreat from their responsibilities, the Aristotelian theory of “nature abhors a vacuum” becomes relevant.

We should rightfully be concerned about a responsible leadership vacuum and its economic implications.

Arno Lawrenz is head of Fixed Income Portfolio Management at Ashburton Investments.

For more news, analysis and insights on Davos 2017 go to EWN’s WEF portal in partnership with Ashburton Investments.