Basix

Soccer crowds in England like to abuse match referees by chanting: “You don’t know what you’re doing.” If protesters had been able to get near the World Economic Forum in Davos last week, they could justifiably have aimed the same chant at the world leaders who assembled in the Alps.

These people are meant to be the “masters of the universe”: presidents, prime ministers, bankers, billionaires. If anybody can make sense of world events, it should be them. But the air of confusion in Davos was both palpable and alarming.

The meeting took place against a background of crashing stock markets, panicky interest-rate cuts and a massive bank fraud. The global financial system is now so complicated that nobody really knows how deep its problems run. This central “known unknown” means that all the subsequent big questions are much harder to answer. Will America face a serious recession? It all depends. How bad will the knock-on effects be for the rest of world? Search me. How should politicians and regulators react? Difficult to say.

At Davos a year ago, the business and finance crowd were still full of the joys of globalisation, while it was the people dealing with international politics who were spreading alarm and despondency. This year the roles were reversed. While the financiers are frightened, the politicians and diplomats are going through a relatively calm period.

Without a big short-term crisis to distract them, the international politics crowd were able to look at longer-term trends. They too are trying to understand the consequences of globalisation. But while the bankers grapple with the top end of the process – the movement of billions of dollars around the world financial system – the political analysts are increasingly preoccupied by the way globalisation is affecting people at the bottom of the pile.

The costs of food and energy are rising fast. The availability of water is also becoming an issue, from Australia to Africa. The struggle for these three basic commodities – food, energy and water – came up repeatedly in Davos.

Globalisation – in particular the rise of China and India – is driving a lot of these changes. The world oil price has risen by 80 per cent over the past 12 months and – since 2001 – China alone has accounted for about 40 per cent of the increase in oil demand. Global food prices have gone up by about 50 per cent this year. There are short-term reasons for this, such as a drought in Australia and pig disease in China. But the biggest long-term driver of increased prices is growing wealth in China and India.

Urbanisation and industrialisation are both increasing demand for water, at a time when climate change is disrupting supply. The rains in China are moving north and becoming more intense. The level of the Yangtse river is falling. Other important rivers around the world are suffering in the same way: the Murray in Australia, the Colorado in the US, the Tagus in Spain and Portugal. Businessmen can see the problem growing. Andrew Liveris, chairman of Dow Chemical told the Davos meeting that: “Water is ... the oil of the 21st century.”

The food, energy and water problems all touch on each other. America’s pursuit of alternatives to oil has led to massive investment in biofuels made from maize. That in turn has cut the amount of maize being used for food production and so contributed to rising food prices. The production of biofuels is also very water-intensive. Meanwhile, increased demand for agricultural land to grow more food is leading to the clearing of forest in Brazil – which could worsen global warming – leading to further stress on the world’s water supplies.

The potential for political conflicts increases along with the rise in food, energy and water prices. Ban Ki-Moon, the United Nations secretary-general, told the Davos meeting that water shortages had helped to cause the conflict in Darfur.

Jami Miscik, head of global sovereign risk at Lehman Brothers, points to a series of less dramatic events, which highlight the political strains caused by rising food and energy prices: riots in Mexico last summer, after sharp increases in the price of maize flour; mass protests in Indonesia this month, provoked by the rising price of soyabeans; a deadly stampede in western China last November, caused by a rush for subsidised cooking oil; a food-price freeze in Russia, introduced just ahead of the parliamentary elections in December; gas and petrol rationing in Iran; blackouts in Argentina and South Africa.

This month Hugo Chávez, the president of Venezuela, raised milk prices by 37 per cent and threatened military intervention and nationalisation if food producers did not sell more to the government.

All of these examples are confined within national boundaries. But competition for food, water and energy could also provoke conflict between countries. One session at Davos was devoted to the prospect of drilling for oil and gas in the Arctic. It heard that military activity in the area is increasing, as eight rival countries – including Russia, the US, Canada and Norway – gear up to assert their claims over the fossil fuels that lie beneath the melting Arctic ice.

The theme of this year’s World Economic Forum was meant to be “collaborative innovation”. It is difficult to think of anything less collaborative or innovative than a new era of resource wars.