Altitude Sickness

Why does Davos so often get the world's big questions wrong?

The World Economic Forum (WEF) meeting -- aka Davos -- is upon us again. I, like all foreign policy fashion mavens, am looking forward to seeing which fleece vest Thomas Friedman will showcase on the ski slopes this year. But the substance of Davos is a different matter altogether. The cycle of reaction to it has yinged and yanged over the years. Some commentators take it very seriously and see the elite meeting as a threat to national identity or democratic politics. At the same time, it's been pretty hard to take the event seriously as of late. When the Arab Spring erupted while Davos was taking place in 2011, it signaled that perhaps the center of gravity in world politics wasn't necessarily on the Swiss ski slopes. Individual commentators also go through their own cycles, starting with fascination and then -- after repeatedly not getting invited -- turning to mockery of the confab of world leaders, multinational CEOs, and Bono.

With this kind of variation, it's difficult to get a grip on what to think about Davos. For every insufferable tweet from an attendee, there's the occasional story that makes you think more positively. So here's a simple rule of thumb: the World Economic Forum matters only when its attendees collectively get something wrong. Which is surprisingly often.  

According to official Davos lore, Klaus Schwab started the group in 1971 to create a forum for businesses to be accountable to stakeholders as well as shareholders. As a result, according to the website, Davos, has "considerable impact in improving political, economic and social awareness, acting as a catalyst for major bridge-building efforts." Indeed, as a focal point for having the world's movers and shakers in the same place, Davos probably offers some limited utility -- though far less than it used to. In the pre-Internet, Cold War era, one could see the value-added of getting people in the same room to power schmooze. In the current era, however, these benefits are significantly reduced. Davos is merely one of a cornucopia of elite summits that take place each year. There is no longer a shortage of opportunities for corporate and political leaders to find ways to chat.

On the other hand, none of these other summits are quite as large as Davos -- and therein lies the problem. In getting such a large number of elites in the same place, the opportunities to inculcate global groupthink becomes more likely. Everyone get exposed to the same kernels of insight from speakers and fellow attendees. In an ideal world, these insights are correct, which means that Davos attendees get useful information to form political and corporate strategies. This sounds great, but if you think about it for a second, it's also superfluous. One is hard-pressed to believe that either Goldman Sachs or the People's Republic of China will acquire some nugget of data at Davos that their information-gathering apparatuses somehow missed.

In the world we live in, the likelier outcome is that the collective schmoozing leads to something more pernicious -- the development of collective misperceptions about the state of the world. This is certainly a live possibility. As Chrystia Freeland has documented, the thing about Davos is how its attendees are more likely to identify with each other than ever before. Psychology 101 says that people are more receptive to believe information they acquire from like-minded people. As a result, it becomes easy for one anecdote about a Chinese nationalist at a dinner party or a comment to a Financial Times columnist to metastasize into the collective belief that war is just around the corner in the Pacific Rim.  

How often can this really happen, though? If attendees get invited to Davos because they've succeeded in their chosen field, then surely they're less likely to develop ill-informed impressions of the state of the world, right?

Hardly. A glance at the World Economic Forum's own outputs suggest that the worst kind of groupthink is, in fact, quite likely. Consider that in 2009, the overarching concerns were a hard landing for China and a further collapse in asset prices -- neither of which happened. In 2010, the WEF harped on fiscal unsustainability in the developed world -- not Greece, mind you, but that the United States and Britain needed to get their deficits in order. In 2011, the WEF's big Global Risk report failed to identify the imminent Arab Spring. The WEF's 2012 report stressed the problem of macroeconomic imbalances as the biggest risk -- and yet, a year later, the McKinsey Global Institute reported that those balances had declined by more than a third over the previous five years. One could argue that these problems ceased to be crises because of the siren song of Davos -- except that both the U.S. federal budget deficit and macroeconomic imbalances were already trending counter to the WEF's warnings. Furthermore, ever since the 2008 financial crisis, the WEF's risk reports have consistently underestimated the economic capabilities of the United States and overestimated the gridlock in global governance -- when a closer look reveals the resilience of U.S. hegemony and the functionality of multilateral institutions.

This year is little better; indeed, the message from Davos is becoming more incoherent. Klaus Schwab warned about the dangers of further quantitative easing from the Federal Reserve, noting that "its downsides are now apparent." At the same time, however, he lamented that "inflation is too low and unemployment is too high" in the United States. This adds up to a rather contradictory kind of Schwabian economics -- how the U.S. should simultaneously curtail quantitative easing while boosting the inflation rate is a challenge that would baffle most economists.

The WEF's emphasis on fiscal and monetary austerity in recent years is troubling. If Davos reinforced the push toward austerity in the developed world, then it exacerbated a mistaken and damaging consensus about the virtues of such policies in the wake of a financial crisis. Of course, such policies likely would have been advocated anyway. But Davos didn't help matters -- it hurt. Which is probably a slightly different legacy than Klaus Schwab and the World Economic Forum intended. In this, the Davos elites are no worse than the other financial and populist groups that pushed for these counterproductive policies. But the Davos elites are no better, either.



Accentuate the Positive

Why undervaluing the potential upsides to a deal with Iran is just bad business.

The debate on Iran continues apace, with the White House complaining about pro-war members of Congress and hawks accusing the administration of talking while Iran quietly builds. A striking feature of recent exchanges on this issue is the tendency for both sides to focus almost entirely on various negative outcomes and to devote little attention to the potential upside of a deal. The result is a skewed discussion: If we lose sight of all the benefits from a comprehensive deal -- including the possibility of a fundamentally different relationship with Iran -- we'll undervalue the payoff diplomacy might yield and be less likely to stay the course when the bargaining gets tough.

Those who favor diplomacy warn that failure to reach a comprehensive agreement will leave Iran's nuclear program unconstrained, undermine the existing sanctions regime, strengthen the hands of Iranian hardliners, and perhaps leave the United States with no choice but to use military force. (That last point is wrong, by the way; the use of force is always a choice.) They oppose new sanctions today because such a step would derail the talks and leave the United States in a worse position. I think they're right, but notice that they are focusing solely on the bad things that will happen if we lose patience and let hardliners blow the deal.

Similarly, those who are wary of diplomacy and inclined to favor the use of force warn darkly that Iran is using the talks to expand its nuclear program, and they fear Iran will eventually break out and acquire the bomb anyway. They maintain a nuclear-armed Iran would be highly aggressive and this development would have far-reaching negative consequences for the region and the world. Once again, the focus is relentlessly negative; it's about all the scary outcomes that we can supposedly avoid only by continuing to turn the screws on Tehran.

When trying to make their case, in short, both sides tend to focus solely on the downside. But what about the potential benefits of a successful negotiation? To judge the pros and cons of diplomacy properly, we have to consider not just the downside of failure, but also the potential upside of success. And I don't mean just the possibility of limiting Iran's nuclear program (a desirable goal in itself), but also the more important possibility of putting U.S.-Iranian relations on a fundamentally different path (which is what AIPAC, et al are really worried about).

But apart from irritating AIPAC, just consider what the potential benefits might be.

Cash money
First and most obviously, the United States will make money. We tend to focus on the costs that economic sanctions have imposed on Iran, conveniently forgetting that sanctions also impose costs on us. Americans pay more for oil and gas because Iranian oil isn't flowing to world markets, and U.S. firms are barred from making lucrative investments in Iran's economy. Remember that the U.S. oil firm Conoco won a big oil development deal back in 1995 -- in part because Iran was trying to signal its interest in better relations -- but President Bill Clinton succumbed to pressure from AIPAC and canceled the deal. Remember also that notorious appeaser Dick Cheney used to give speeches railing against America's "sanctions happy" foreign policy when he ran Halliburton, an oil services company. Bottom line: A better relationship with Iran would be good for the U.S. economy. That's not sufficient reason to cut a deal by itself, but it is an obvious benefit that it would be foolish to forget.

Regional warming
Second, ending the U.S.-Iranian deep freeze would make it easier for Washington and Tehran to cooperate on issues where our interests are, in fact, aligned. Such issues include stabilizing Afghanistan and preventing a new Taliban takeover, dealing with narcotics trafficking in Central Asia, and yes, even trying to find some sort of solution to the continuing carnage in Syria. (The latest kerfuffle over whether Iran should or should not be invited to the upcoming Geneva talks is just another manifestation of the vast gulf of suspicion between the two countries; if the two countries had a more normal relationship, Iran's attendance wouldn't be so controversial and it might be easier to paper over the current differences in the interest of getting a ceasefire and saving Syrian lives.)

Spoiler alert
Third, a better relationship with Iran might also be the best way to deal with issues where U.S. and Iranian interests are not in synch, such as Tehran's support for groups such as Hezbollah and its position on the Israeli-Palestinian conflict. For starters, as Trita Parsi has shown, Iran's support for Islamic Jihad and other extremist groups was at least partly motivated by its desire to remind the United States that it could not be excluded or marginalized in Middle East affairs. Given the current frigid relationship with the West, Iran has little to lose from playing the spoiler and thus little reason not to back these groups. But if we get a nuclear deal and relations begin to thaw, Iran's leaders will face an awkward choice between continuing to back these groups and enjoying the potential stream of economic and other benefits that improved ties with the West could bring.

Nobody knows how Iran's leaders would respond to that tradeoff, but forcing them to think about it could be both revealing and potentially revolutionary. And, by the way, if by some miracle we did make some progress on Israeli-Palestinian peace, a better relationship with Iran might get us some buy-in from them, which could in turn make the deal easier to implement. After all, Iranian officials have previously said they would support any deal that the Palestinian leadership accepted. It would be nice to put that assertion to the test.

Think of the children
Fourth, if you're not a fan of the clerical regime, you might want to consider killing it with kindness instead of bolstering it with belligerence. More than half of Iran's population is under 35, and many are eager for better relations with the outside world (including the United States). Making it easier for Iranians to travel, get educated in the United States, and get exposed to the rest of the outside world will put those aging mullahs in a very awkward position. Have we learnt nothing from the failed Cuban embargo, which has helped keep the Castro Bros. in power for half a century? If we really believe in the transformative power of markets, Hollywood, hip-hop, the Internet, democracy, and free speech, let's turn ‘em loose on Tehran. If your goal is a more moderate Iran, that approach is likely to work a lot better than ostracism, covert action, and repeated threats of military force, which merely galvanize Iranian nationalism and help justify continued repression by hardliners.

They're democrats, too
Fifth, a better relationship with Iran could help advance the cause of democracy in the Middle East. Iran's political system still has powerful authoritarian elements, but Rouhani's election -- and yes, it was a real election -- showed it is responsive to public opinion and capable of change. For all of its flaws, it's a lot closer to U.S. ideals than the Arab regimes that we have backed with enthusiasm for decades. (Nor is Iran committed to a prolonged and illegal effort to colonize another people and deprive them of all political rights, as is a certain other U.S. ally.) If you're genuinely interested in encouraging representative government, in short, the possibility of a better relationship with Iran ought to intrigue you. A lot.

Balancing power
Finally, as I've noted previously, a better relationship with Iran would increase America's overall influence throughout the region. Preserving a regional balance of power is the main U.S. strategic interest in the Middle East, and that goal is facilitated when we can play different states and/or groups against each other. Washington loses diplomatic leverage when it gets too closely tied to one state, one faction, or one coalition, especially given the multi-dimensional turmoil that is now buffeting the region. A businesslike -- if not close -- relationship with Tehran would discourage other U.S. allies from taking Washington's support for granted and encourage them to do a bit more to keep us happy. Sounds good to me.

* * *

Is this analysis overly optimistic? Very possibly. There's no guarantee that any of these benefits would be realized and it would be naïve to count on them. Building a more constructive relationship after a successful nuclear negotiation will not be easy, and there will be plenty of tough bargaining and shrewd judgment needed as the relationship develops. But the optimistic upside sketched above is more plausible than the far-fetched scenarios that opponents of diplomacy have been conjuring up for years (such as the goofy idea that Iran will get the bomb and immediately commit an act of national suicide by striking Tel Aviv). If skeptics can try to scuttle diplomatic progress by outlining preposterous worst-case scenarios like that, then advocates should remind them that the benefits from a thaw with Tehran could be significant and are far more likely.

So why aren't more people talking about the upside? I suspect it's because they don't want to sound naïve or be accused of advocating "appeasement." Iran has been effectively demonized over the past 30 years, which makes it hard for many people to acknowledge the possibility of a different relationship. And make no mistake: Cutting through three decades of entrenched suspicion and resentment won't be easy for either country. Moreover, at this stage, Washington doesn't want to sound too willing to mend fences with Iran, because excessive eagerness would undercut its bargaining position in the nuclear talks and in any subsequent diplomatic exchanges. But we should not lose sight of the many benefits that a better relationship with Iran might -- repeat might -- produce, and the headaches we are likely to face if the two countries remain deeply at odds for another decade or more.