Top business executives are split over the benefits of globalisation, but most remain “extremely positive” in their growth forecasts, a PwC survey shows.
A total of 1,379 chief executive officers were interviewed in 79 countries to prepare the study, presented in Davos on Monday (16 January).
The report was unveiled as the World Economic Forum opened in the Swiss Alps resort.
Following in the footsteps of the World Economic Forum report on global risks, the study underlined that declining living standards for most of the population in industrialised countries, and growing distrust of political and business elites are putting the economic and political status quo at risk.
Despite the predominantly gloomy general atmosphere, a slim majority of business leaders (51%) reported feeling “extremely positive” about long-term growth prospects for their companies, compared to only a third two decades ago when the survey was first published.
Moreover, 38% of top executives said they were positive about their companies’ outlook for the next 12 months, compared to 35% last year.
The survey found that leaders were broadly adapting to the uncertainty that continues to dominate business life. Besides, they learned how to seize the opportunities brought by turbulent times.
Britain’s exit from the European Union and the victory of Donald Trump in the US election revealed widespread discontent over job losses in some sectors and rising income inequality in Western societies. Globalisation and technology have fuelled those trends, together with profound mistrust of “the establishment”, the report said.
Branko Milanovic, an economist and professor at the City University of New York Graduate Center, showed that “the biggest gains of globalisation have gone to a small, increasingly rich elite in the industrialised nations and to Asia’s rising middle class, while the main losers have been lower-income people in developed countries”.
Against this backdrop, CEOs were split over the benefits of globalisation.
On the bright side, trade quadrupled over the last two decades and internet traffic increased by a factor of 17.5 million. This alliance of globalisation and technological progress narrowed the income gap between countries and lifted a billion people out of extreme poverty, mainly in China.
But the system failed to bring prosperity to many within developed nations, who were the early adopters of globalisation, bringing social unrest in the Western world. Tellingly, a total of 44% of CEOs believe that globalisation has failed to close the gap between rich and poor.
A CEO based in the UK interviewed for the survey warned, “The whole [capitalist] system will be put under pressure from the working population [which] will no longer accept the wealth differential created today.”
In a separate report, the World Economic Forum showed that median incomes have declined by 2.4% on average in more than 50 countries, at around $2,500 average per household.
“This is at the heart of public discontent,” said Gemma Corrigan, a researcher at the Forum.
Despite rhetorical aspirations for inclusive growth, Richard Samans, a member of the managing board of the World Economic Forum, lamented the lack of “practical consensus” among policy-makers and business leaders on how to achieve it.
Bob Moritz, the CEO of PwC, was a bit more optimistic, telling reporters that 2017 may be the year when words turn into actions. He said business leaders and decision-makers were now “actually listening” to citizens’ concerns.
Thanks to social media, a “growing awareness” exists “like never before”, he added.
As a first step, the World Economic Forum proposes adopting a new Inclusive Development Index as an alternative indicator to Gross Domestic Product. Based on 12 metrics, median household income will be “at the core” of the new development index, Samans explained, saying the new index would more accurately reflect economic development.
The PwC study warned that “public discontent isn’t just a danger to growth; social well-being and equality are vital in driving long-term economic performance”.
In this context, uncertain economic growth has now become the top risk for CEOs, displacing over-regulation.
US surpasses China
Despite the challenging political context and the uncertainty around the new Trump administration, the US surpassed China this year as the most important potential source of economic growth over the coming year, according to top executives.
Moreover, the UK was more popular among businessmen this year than in 2016, despite the uncertainty emerging from the Brexit negotiations.
Trump’s unsettling words about some of the United States’ main trading partners have been coupled with the promise of a new fiscal stimulus in the form of infrastructure spending and tax cuts.
These promises have clearly boosted CEOs’ optimism about their prospects of doing businesses in the US.
The report came on the eve of Chinese President Xi Jinping’s visit to Davos. He is expected to position China as the defender of globalisation when he addresses the elite today (17 January).