Power to Truth: Elite Networks and the Dangers of Echo Chambers

What really happens behind the scenes at the World Economic Forum in Davos, Switzerland, where billionaires and global leaders gather each year? In this episode of the “Power to Truth” series, Anat Admati, Professor of Economics and Finance at Stanford University Graduate School of Business, and Peter Goodman, the global economics correspondent for the New York Times, explore the dynamics among the world's richest and most influential figures.

The discussion centered around Goodman's highly acclaimed book, Davos Man: How the Billionaires Devoured the World. Goodman dispelled the myth of Davos as a secretive global government, describing it as a grand spectacle where influential business leaders and heads of state dominate. While the event features numerous panels on critical global issues, he noted that the most powerful figures are often absent from these public discussions.

“They don't go to seminars on the future corporate governance, how to deal with climate change or the challenges of migration. They sit in private rooms, and they do deals with one another.”

Admati, who has attended Davos twice, corroborated Goodman's observations, noting that academics and other public speakers serve as part of the event's "entertainment."  They both agreed the public sessions offer valuable insights.

“People like me could then run into people like you, and I could actually learn something about financial regulation,” Goodman remarked. “I have learned a great deal from lots of intelligent people who are influential at Davos over the years. But we shouldn't delude ourselves; the real stuff is happening where we can't see it.”

Admati questioned the nature of the relationships formed at Davos, highlighting the event’s appeal to government officials and other influential figures. Goodman described these interactions as "cozy," emphasizing the potential pitfalls for journalists and academics in such an environment.

Goodman pointed out that as a journalist, it’s crucial to remain aware of the influence wielded by those who are readily accessible, such as lobbyists and corporate representatives. These individuals, while often helpful in providing information, have their own agendas that shape the narrative they present.

“The danger for people who spend their time just going from places like the Aspen Ideas Festival to Davos to the Munich Security Conference to a million other smaller events around the world is that there is this kind of self-reinforcing bubble.”

The challenge, Goodman noted, lies in seeking out diverse viewpoints and engaging with ordinary people who are outside the typical circles of influence. This effort is essential for providing a more balanced and accurate understanding of policy issues. However, the insular nature of events like Davos can make it difficult for attendees to step outside this bubble and engage critically with the ideas and narratives being presented.

Admati reflected on the reluctance within her own academic profession to challenge those in power, underscoring a desire to belong rather than confront. Another obstacle to questioning those in power is the narratives that portray the powerful as benevolent forces seeking to help rather than harm.

Goodman agreed saying, “The central artifice of Davos is if you're there, then you're a participant in progress because the official mantra you see on banners all over Davos is, committed to improving the state of the world.”

Goodman expanded on this idea, recounting an incident from 2017 involving pharmaceutical executives amid widespread outrage over price gouging. Despite the egregious actions of some in the industry, like Martin Shkreli, who was sentenced to seven years in prison for security fraud and conspiracy, the discussions at Davos centered around finding the right model rather than acknowledging the inherent profit-driven motives behind the problem. Admitting to these motives, Goodman suggested, would be deemed impolite in the carefully curated environment of Davos.

Goodman also shared a notable moment from 2018 when Dutch anthropologist Rutger Bregman, at a panel on universal basic income, pointed out the hypocrisy of the attendees not paying taxes. His blunt statement went viral, highlighting a taboo truth rarely addressed at Davos.

Admati highlighted the skillful framing of discussions at Davos, where attention is directed away from the accountability of the elite, portraying them as well-intentioned problem-solvers. She likened this to the unseen "sausage-making" process, questioning who brings these influential figures together and who funds the event.

Shifting the conversation to his recent book about the supply chain crisis, Goodman explored the underlying causes of global shortages exacerbated by the pandemic. His book, How the World Ran Out of Everything: Inside the Global Supply Chain, examines the multifaceted nature of these disruptions. Goodman highlighted systemic mistreatment of labor and the devaluation of critical jobs such as warehouse workers and truck drivers. The pandemic revealed how fragile the supply chain had become, with severe shortages of the most basic materials.

“One of the reasons why we have an affordable housing crisis in the US is because it's so hard to build. And one of the reasons it's so hard to build is people are still waiting for basic things like doorknobs and shades of paint. Plywood is still difficult to get.”

Goodman also pointed to the monopolistic power of certain industries, noting that the concentration of market control today surpasses that of the robber baron era. He critiqued the "just-in-time" delivery model, which, while initially sensible, was exploited by financial consultants to boost stock prices at the expense of inventory resilience.

“So instead of spending all this money to keep parts in a warehouse as a hedge against some problem, just close your warehouse. Live on the edge, and then take the extra money, give it to yourself, with executive compensation, give it to the shareholders through dividends and share buybacks and you know that works great, until it doesn't.”

Both Admati and Goodman emphasized the need to challenge comforting but false narratives.  Admati pointed out that these stories make powerful individuals feel good and worthy, diverting attention from their actual responsibilities. Goodman criticized the idea that billionaires, simply by their wealth, are inherently wise and altruistic. This narrative, he argued, serves as a "prophylactic against change," convincing the public that the elite will solve problems without needing regulation or taxation, thus maintaining the status quo.

That led Admati to ask, “How do we encourage skepticism or how do we educate people about truth so that we give more power to truth?” 

Goodman acknowledged this as a crucial issue of our time, particularly for journalists.

“We have to hold the powerful to account. We have to square their public statements with their actions. We have to follow the money. We have to show how ordinary people are affected by policies and by the activities of the people who control the money.”

The conversation then turned to the risks of "capture" within their respective sectors—media and academia—and the implications for truth and accountability. Admati pointed out that just as media can become part of the problem, academia can also fall prey to a desire to belong to elite circles, as highlighted in a previous Power to Truth conversation with fellow academic Luigi Zingales.

Goodman elaborated on the concept of "Davos Man," a term he adapted from Samuel Huntington to describe a tribe of super-wealthy individuals who prioritize their interests over national ones while presenting themselves as benefactors. He cited figures like Larry Fink of BlackRock, who promote deregulation as innovation-friendly while exploiting political systems to distort free markets. “There is no free market without rules,” he emphasized.

Admati agreed, adding, “When you don't have the rules, then power rules.”