»The Honest Truth by Ajit Dayal

Should Davos trigger a revolution?
31 JANUARY 2011

Tunisia was run by a dictator.
The Jasmine revolution ended that.

Egypt is still being run by one - at least at the time of writing this.
And there is a revolution there.

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There are many countries run by dictators or run in closed political systems.
The self-appointed leaders of these countries are probably watching the events with nervousness.
China has reportedly blocked the search word "Egypt" from the internet.
Maybe something will happen in such countries. Or maybe life will go on.

And there are countries, like the USA and India, where the governments are of the people and by the people - but not always working for the people. These countries are constantly bombarded with mini-revolutions and multiple protests. Some of them die out and fade away. Some win. But the results are not always what the revolutionaries fought for. Witness the platform of "change" that President Obama promised and won on. The only "change" that seems to have prevailed is the dejection of those who voted for Obama: from a saviour, he is now being seen as a failing President.

The Silent Revolution
Closer to home, Rahul Gandhi was seen as an agent of change (I confess I was in that camp) and maybe taking the Congress Party to a new level of cleanliness. Somehow the leader of the Young Turks has killed such expectations with his deafening silence on all the scandals and corruption charges flying around. Maybe the Congress Party needs a name change to the "Con"-gress Party.

In India, we live with our own discussions and inconsistencies. We have discussed corruption. And discussed it every few months. Forgotten about it - then discussed it again.
And after our dinner table discussions, we go through the red light and bribe the policeman.
Or willingly pay the government official what he wants and shrug on with life.

So, what can we revolt against?
Are you going to revolt against the politician who is corrupt? Well, are you clean?
Are you going to complain about the large businessmen who give the bribes? Well, have you paid a bribe?

A revolution requires an alternative.
An untried option.
So what exactly do you plan to revolt against?

Well, to set the ball rolling, I am planning a revolution. Or should I say a second revolution. The Quantum Mutual Fund was the first revolution: we proved that a mutual fund house can refuse to be part of an opaque distribution system and still have a great performing fund that any investor can be a part of. Needless to say, you must read the Offer Documents and ensure that the Quantum Long Term Equity Fund (with its steady, solid long term performance) is what you really need.

But here is a second revolution. We have four Nano cars in Bombay driven by my colleagues at Quantum. And we have the Quantum Mutual Fund jalopy. So, we will drive these cars within their lanes, stop at red lights, and not blow our horn. In short, we will follow the rules. And if we were to break a red light, we will not pay a bribe. Could you try that when you drive your vehicle? If you do make it a habit of such a basic activity, it should go a long way in making the roads safer - and quieter. Then we have an alternative. Then protests on dusty streets could be an alternative.

Banging the drums at Davos
Meanwhile, far from the dusty streets of Tunisia and Egypt, was a different kind of crowd. Making a different kind of noise. Nested in the eastern corner of Switzerland is the ski resort town of Davos whose claim to fame is the annual World Economic Forum, a foundation set up by Klaus Schwab, a professor of business at the University of Geneva.

According to Wikipedia: "The foundation is funded by its 1,000-member companies, the typical company being a global enterprise with more than five billion dollars in turnover, although the latter can vary by industry and region. In addition, these enterprises rank among the top companies within their industry and/or country and play a leading role in shaping the future of their industry and/or region. As of 2005, each member company pays a basic annual membership fee of CHF 42,500 and a CHF 18,000 annual-meeting fee which covers the participation of its CEO at the annual meeting. Industry Partners and Strategic Partners pay CHF 250,000 and CHF 500,000, respectively, allowing them to play a greater role in the foundation's initiatives....Industry Partners come from a broad range of business sectors, including construction; aviation; technology; tourism; food and beverage; engineering; and financial services. These companies are alert to the global issues that most affect their specific industry sector."

Davos, by any stretch of the imagination, is not an ordinary street gathering.
It is a meeting of the successful and the well-connected banks and multinationals who meet with heads of global institutions and governments to discuss topics that are of interest to them. Yes, there is the presence of the NGOs but the TV channels and reporters covering Davos don't meet the noisy tin-bangers. They are there to cover the money-clinkers.

And this year the money-clinkers were happy. According to Bloomberg.com, "as the Wall Street chief executive officers flock to the World Economic Forum will be breathing a sigh of relief along with the Swiss mountain air: There are no panels on compensation or redesigning financial regulation. After spending much of last year's meeting defending the industry and debating proposed rules, bankers plan to focus on wooing clients and winning business, according to executives at three Wall Street companies, who spoke anonymously because they weren't authorized to comment publicly. The bankers will be coming to Davos, Switzerland, with a renewed sense of confidence. JPMorgan Chase & Co.'s profits last year were the highest in the bank's history, and Citigroup returned money to the U.S. Treasury and reported its first full- year profit since 2007. Governments have so far opted against breaking up or levying extra taxes on banks deemed too big to fail, and the Basel Committee on Banking Supervision, which sets global financial-regulatory guidelines, isn't requiring lenders to meet new capital standards until 2015."

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Watching and listening to some of the sessions of the World Economic Forum at Davos on their web site is indeed disarming. I happened to hear Chanda Kochhar, the CEO of ICICI, talk about not only redistribution of wealth but also giving the opportunity for others to earn their own wealth. The 12 million people coming into the job market every year need to get educated and get a job - a point that readers of the Honest Truth are aware of. A gentleman from the University of Michigan said that "Davos is a collection of grey men, in grey suits, with grey hair" but he was impressed that there was an unusual panel discussion he was attending (founders of NGOs talking about inspiration). The founder, chairing the session, was happy with that comment but confessed that "in Davos we have to deal with economic issues and financial issues."

This year the focus on Davos has been "inclusive growth". In the past, Davos has discussed climate change. Davos has discussed "sustainable growth". Davos has discussed "corporate governance". Davos has discussed the financial crisis and the role of the banks and Wall Street.
Davos has discussed and discussed.
But every year the bigger companies get bigger and more powerful.
They grey suits get greyer and the world hurtles onwards towards economic inconsistency.

Is there an alternative? Sure is.
Break the comfortable friendships between companies, regulators, and governments.
Let the benefit of the consumer, the depositor, and the investor be the focal point of any decision.

If governments and regulators focused on that, the grey suits at Davos would be in sombre and sober moods. Companies would still earn profits - and they should. But the aam aadmi would be able to afford the membership fees to get ringside seats into this exclusive club and ensure that they do not carve out global resources and global opportunities in private friendships.

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Quantum Liquid Fund
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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.