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Davos is Crony Capitalism on Steroids

"Where the elite, meet"---and reaffirm their mutual interests on either side of the revolving door.

Three days and ten thousand buzzwords later, yet another gathering of the World Economic Forum (commonly known as “Davos”) has concluded. By the time business leaders and officials pack their bags to return home to the “real world,” many powerful connections will undoubtedly be forged and reinforced.

To the vast majority of American citizens left out of the conference in Switzerland, the question naturally arises: who talked with whom, and what deals were made? Sure, conspiracy theories abound, placing President Trump with the entire Russian delegation on the snowy knoll. But for all of the conspiracy-mongering, The Independent writer Hamish McRae seems to hit closest to the mark in assessing Davos as an “informal and efficient” business meeting instead of a “temple of evil” or pro-capitalism bash.

That, ironically, makes it an even darker event than you might think.

Let’s face it: a clustering of brilliant minds with practically endless resources isn’t bad on its face—until government officials enter the equation. The repeated dalliances between business and government leaders at an event where attendance is famously restricted gives rise to a certain air of “special access” that in turn fosters concerns of cronyism and favoritism.

Nowhere is this more apparent than in the defense sphere, where the head of the Pentagon regularly rubs shoulders with top brass in weapons production and technological development. When then-defense secretary Ashton Carter crashed Davos in 2016, he met with executive after executive offering to do their part in the fight against the Islamic State.

As one senior defense official put it, “I think the secretary’s found people in the tech and business community who are just as concerned about America’s security and are just as patriotic as anybody else.” Count Meg Whitman, outgoing CEO of Hewlett Packard Enterprises (HPE), as one of these “concerned” individuals. In the months after meeting with Secretary Carter, Whitman secured some of the largest contracts that HPE has ever obtained from the federal government.

Of the 10 largest deals that the company has inked with Uncle Sam, three were signed in the three-month period following the 2016 Davos meeting. Now obviously a large agency like the Pentagon will find efficiencies in contracting with behemoths like HPE. But going with the big guy also has its disadvantages. HPE, it turns out, is also in the hunt for foreign governmental clients—including the Kremlin. In an effort to sell cyber defense software to Russia, the company shared sensitive details of source code used in a product supplied to the Pentagon. This may not be a sufficient reason to eschew HPE entirely, but it does show a kind of corporate mendacity that stems from privileged access. Longstanding ties between HPE and the government means that, regardless of careless oversights and waste, they’ll always have (at least five) seats at the Davos roundtable.

Similar examples of shenanigans show up in agriculture dealings. A darling of United State Department of Agriculture (USDA) programs, Cargill Inc., rakes in agricultural subsidies at an impressive pace. In fact, as Good Jobs First’s subsidy tracker shows, the mega-corporation garners millions a year in subsidies and loan guarantees from “Farm Bill” commodity support programs. Support also flows in via the Bioenergy Program for Advanced Biofuels (BPAB), which ironically allows Cargill and other large agribusinesses to receive support for facilities that don’t even produce advanced biofuels. Connections between Cargill leadership and former USDA secretary Tom Vilsack began when the latter worked for a law firm representing the company.

Cargill’s federal benefits climbed higher and higher as David MacLennan, Cargill CEO and regular Davos attendee, heaped praise on federal officials. There is no telling how many times MacLennan has pulled former secretary Vilsack aside to discuss “strategic partnerships” at Davos. And we’ll likely never know. We’ll also likely never know the extent of partnership between the U.S. Dairy Export Council (which Vilsack currently leads) and Cargill.

Of course none of this proves corrupt quid-pro-quo arrangements. Most high-level government officials are just trying to do their jobs, and Davos offers an opportunity to capable businesses tackling today’s leading challenges.

But good intentions shouldn’t lead to an understatement of the problem. Smaller businesses that may be even more capable are shut out of the meeting entirely, and simply don’t get the same attention and access as their bigger counterparts. Agencies like the Department of Defense simply prefer to retain the connections they already have, and that often leads to toxic relationships in which the government is virtually held hostage to a small pool of contractors who have managed to box everyone else out.

Elite convocations like Davos also help perpetuate—and reinforce—a problematic revolving door in which officials leave office to consult and lobby for industries that have business and regulatory interests in Washington. To say that Davos isn’t a sort of prom for individuals perched on either side of that door would be naive.

While there’s nothing that the World Economic Forum can do to fully address this concern, small steps matter. Making more of an effort to court small businesses would create a more-representative cross section of companies. Encouraging officials to meet with more than corporate top brass would allow for a more meaningful conference, and counter perceptions of cronyism and smoke-filled rooms. With enough effort, Davos organizers can retain the event’s efficiency and glamour, while bolstering its vibrancy.

Ross Marchand is an economics writer based out of Washington D.C., and is an alum of the Mercatus MA Program at George Mason University. He is also the policy director at the Taxpayers Protection Alliance.