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World Economic Forum Under Way; U.K. in Economic Limbo

Aired January 26, 2010 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Good evening, from Davos, in Switzerland, where tonight jobs, growth and recession, are on our agenda.

Britain has emerged at last from the longest slump on record. And now the U.K. finds itself in an economic limbo, between expansion and contraction. Tonight, on this program, as you would expect, we're going to discuss whether it can find any way out.

Also, the recovery and the world at work. Employment agency Manpower is telling us what it means when it comes to job prospects.

And we have a detailed discussion on the question of trust with the top man from KPMG. On our program we discuss the business world needs to do things right. We know that much, but it is for the right reasons.

So, firstly, Britain made its economic bulletin, came as a massive disappointment to just everyone. There was growth, the first growth for more than a year and half. It was growth in name only. It was the only positive news. The economy expanded on 0.1of a percent in the final three months of the year. Yes, it couldn't really get much less than that. Anemic compared to what economists had been expecting; 6 percent of Britain's economic activity was wiped out during a year and a half of economic decay. Last year alone, GDP shrank by a whopping 4.8 percent. The worst year since the U.K. measured GDP.

You could liken it to a guest who arrives late at a party, only to find everyone else has moved on; in other words, Britain the last major economy to come out of recession. And still, the Finance Minister Alistair Darling said he was optimistic, but cautious.


ALISTAIR DARLING, FINANCE MINISTER, UNITED KINGDOM: I think today's figures give us the confidence that we are on the right path, provided we stick to the course that we set. And as the CBI said today, maintain our support for businesses and families, at the moment, but then we've got to make sure that we get through into a period of sustainable growth. Now, I'm confident we can do that, but I remain cautious, because there is lot of uncertainty around, still, right across the world.


QUEST: Alistair Darling is a member of the government that has to face the voters at some point in the next five months. The rumors are the U.K. election will around May the sixth.

Even so, when you've got this sort of news you need some expert analysis. David Buik, an experienced market watcher and friend of this program, told me how the latest numbers went down in the London's financial district of the city.


DAVID BUIK, BGC PARTNERS: Richard, I wish you had been here at 9:30 a.m., this morning. I've been in the city 47 years. I have never heard in a dealing room howls of anguish and frustration as I heard today. They just couldn't believe how fragile the U.K. economy still remains.

QUEST: What is underneath those numbers? What is preventing the U.K. from returning to growth like Germany, France and other EU countries?

BUIK: First, and foremost, unlike our European friends we don't have a balanced economy here. We focused our attention on the service sector in the last 12 years. And it paid handsome dividend for 10 of those, about 80 billion pounds. But unfortunately when you do that you neglect manufacturing output and industrial production and you pay a very heavy price for it, which is exactly what's happened.

Within those figures of the fourth quarter, we did of course see a 10 percent increase in exports, but that is from a ludicrously low level. Also, manufacturing output and industrial production, Richard, has also improved, again, from a ludicrously low level. What surprised us was the service sector only rallied by 0.1 percent, we were expecting 0.6 percent.

QUEST: If we look forward into Q1 of 2010, we've got in the U.K. a rise in VAT rates, we have a tax rises coming along later in the year. Is it possible and are people saying that the U.K. could have slipped back into recession within the first quarter?

BUIK: It is possible because to use the English vernacular, we're skinned. We spent our money at Christmas. We're obviously very, very vigilant for the fact that we could loose our jobs. And people also extremely concerned about the fact that the government refuses to take a really positive tact towards the terrible public sector shortfall and also the borrowing requirement. And we also think that if constancy of easing (ph) were to be exited sometime in the second half of 2010, we'd be in trouble.

QUEST: So, with an election coming up in May, David, in your dealing room, and the people you are talking to, is there a feeling of stagnation and kill? I don't mean economic stagnation. I mean paralysis, if you like, of policy until after the election, which is believed to be at the beginning of May.

BUIK: It is a dangerous possibility. The fact remains that, you know, I don't think that the Bank of England will be allowed by any government, Tory or Conservative, to withdraw constancy of easing. I think the economy is much too -is in much too brittle a shape to be able to allow to do that. And that will help. And also any signs of inflation, while I hope we won't be able to span it for the next six months, will have to remain in the in tray. Because what we need is a continuing massage to get what economy we have back working. There are some very good bits. It is just much too small.


QUEST: David Buik always makes common sense on these issues. Recovery is clearly underway but it is slow and for those out of work it really feels like things are not getting better at all. It is not just a U.K., as a percentage, Britain's unemployment problem isn't the world's worst, in the world, by any means. Joblessness in the U.S. hit double digits late last year, holding at 10 percent in December. That is more than 15 million people out of work. In the U.K. the jobless rates was 7.8 percent in November. Germany's labor market remains strong with 7.6 percent unemployment. That is amongst the lowest within the European Union. Spain, amongst the worst with 19.4 percent unemployment, the second highest in the European Union.

So, David Arkless now joins me to talk about it, with the employment services company Manpower.

Nice to have you here.


QUEST: You've just come from?

ARKLESS: Riyadh.

QUEST: Riyadh. You are one of these people that is sand to snow.

ARKLESS: Exactly.

QUEST: You'll be getting a bit chesty before you're finished.

ARKLESS: Just like you.

QUEST: Now, you are the president of government affairs at Manpower. Let's talk about this serious issue that we have got. The jobless numbers are grim, and they are grim, but are we seeing them getting better?

ARKLESS: All I can tell you is when you and I talked about this on your program a couple of weeks ago, and we said it was amber; which means a bit of caution, especially with the U.K. The U.K. hiring intentions are showing positive from employers, but they're holding off hiring. So that means they need to hire people but they are not quite making the decision to do so. So the U.K. is going to be, as you put it, a bit anemic for while.

QUEST: But then if you take the U.S., for example, where we are seeing the numbers coming down, just a tad, but that is not -that is a bit of statistical anomaly, isn't it? That is people falling out of it. And yet there are some countries that are cutting unemployment rates?

ARKLESS: Well, like which ones? Germany for instance, we are going to have a problem in Germany coming up soon. So that is something that you should watch out for, because the cash for clunkers have stopped and the subsidies for part-time jobs is slowing down. So, Germany, that 7 percent number you mentioned, might start to come up again. The U.S. is absolutely, though, starting to show some signs of things coming back.

QUEST: Is that because -and this is an interesting discussion on the question of is the U.S. just a more vibrant economy when it comes to creating jobs? It has less regulation, which is a good - it is, and an evil.

ARKLESS: They lay off much quicker than any other country in the world. And then they start to hire much quicker. But this time, they are taking their time in re-hiring. So the stimulus package, in itself, in the U.S. did not create jobs. But we are just starting to see a little bit more of corporate interest in rehiring now.

QUEST: Davos-what are you doing? What do you think the purpose of this year's Davos is? The one question-and I'm sure friends and colleagues of yours say, David, why do you go?

ARKLESS: Davos is the great convening location. It is as simple as that. I can see who I want, when I want, wherever I want here.

QUEST: Do you learn anything?

ARKLESS: I learn loads here. Especially from you.

QUEST: Oh-ho.


ARKLESS: The issue here is you can connect on the big issues, which we are talking about this year at Davos, which is reinvention, reengineering, and getting it right for the future. And by the way, we're not just starting to talk about this at Davos. We have been looking at global agenda issues, with the World Economic Forum, for two years. And right now, at this forum, we are going bring some of those to fruition on jobs, on employment, on job creation.

QUEST: The whole jobless question seems to be the iceberg, if you like. Everyone knows it is there, but everybody wonders when it gets better?

ARKLESS: It will get better but slowly. I'm looking into-as we discussed before, the third and fourth quarter this year, I think we are going to start to see some resilience in the recovery for jobs.

QUEST: David, many thanks, indeed. Keep warm. David Arkless joining me from Manpower. And we will always be happy to have you with us on the program.

Some positive numbers that you need to know. European stock markets closed higher for the session. The gains were fairly modest. We must not be ungrateful. They were the first plus numbers that we had in five days. A little more optimism in the air on economic matters. Look at the numbers. Germany's DAX up over half a percent, the FTSE did a third of a percent. And the CAC Currant, up half as well. Solid earnings from Novartis, here in Switzerland, helped the pharmaceutical stocks. And that was enough to offset losses in the banking sector.

Now, you are up to date with what is happening in Davos, where indeed, we actually got some snow. We'll find out the weather later in the program. Turning to more serious matters at the moment, Max Foster is at the CNN news desk.


QUEST: We thank you for that, Max Foster, in the warmth of CNN in London. The first question everyone always asks me when they see our studios: You must be a bit chilly. We'll talk about that a bit later in the program.

Also after the break, the era of slash and burn, at least for one famous name has come to an end. Ford jumps ahead of the curve as jobs cuts the world into equal thirds.


ALAN MULALLY, CEO, FORD MOTOR COMPANY: When we look out into the future, Richard, we see about one third of the market being in the Americas, about one third of the market for all of the cars going forward will be Europe and Russia, and about one third of the market will be the Asia-Pacific region.



QUEST: And extraordinarily beautiful day on the slopes in our video. And I actually managed to ski. I'll explain more about that later in the week.

Welcome back to QUEST MEANS BUSINESS coming to you live from Davos.

The only one of the big U.S. automakers that didn't go bankrupt in the downturn announced that it was hiring again. The Ford Motor Company says it is adding 1,200 staff at two plants in Chicago, to build the next generation of Explorer SUVs.

The company has invested nearly $400 million into the new production and says that the new vehicle will be 25 percent more fuel efficient than previous models. Ford hasn't commented on speculation that the new staff will be employed at lower hourly wages than other older union workers that were hired some years ago.

Ford releases its fourth quarter results later this week. Earlier the Chief Executive Alan Mulally joined me. I needed to know what about this drive for new staff. After all it is quite unusual in the auto industry at this particular time.


MULALLY: It is a very exciting development, as you pointed out. Because we are announcing today that we are going to make our brand new Explorer vehicle in Chicago and we are going to be increasing production starting in the fourth quarter of this year, and actually be offering some great opportunities for new employees. So, a very exciting development.

QUEST: These, of course, are new employees at new terms, which in today's realistic environment perhaps are not as generous as the old days, but new jobs nonetheless, which tells us something of what is happening in the auto industry.

MULLALY: Well, exactly, Richard. And you know we operate around the world, as you well know, and what we see is a gradual recovery in the economy and in new car sales, in the United States. But we are also seeing this in Europe and we also we are seeing it in Asia-Pacific. And of course, Ford's commitment is to serve all of the customers of the world with the best cars and trucks in the world, so this is a very positive development for all of us to get the economy going again.

QUEST: As you look at your Ford world, which bit of it, whether it is the U.S. or the Americas, Europe or Asia, which bit do you think is still in need of some work?

MULALLY: Well, when we look out in the future, Richard, we see about one third of the market being in the Americas, about one third of the market for all of the cars going forward will be Europe and Russia, and about one third of the market will be the Asia-Pacific region. And so we continue to operate in all those regions around the world and now we probably have the broadest family of small, medium, and large cars, utilities and trucks, all of which are best in class now to support our customers in each of those markets around the world. So, we see them all growing going forward here.

QUEST: But are you seeing a return to growth in all of those markets? Because you have said at Ford, you expect to return to solid profitability by next year. I assume that you are still hoping and on track for that. But which part of the world do you see that growth coming into?

MULALLY: Well, we see it in all of the regions around the world, Richard. Clearly, the United States and Europe are larger, more mature markets that are continuing to grow. But also Asia-Pacific is about one- third of the market and it is growing even faster. So, back to your comment about our business performance, you know, we were profitable in all of our Ford operations, all around the world, in the third quarter, of last year, 2009. We will be updating our guidance for 2010 this week, when we do our analyst call. And we absolutely believe that we are on track to be solid, profitability around the world in 2011.

QUEST: Do you believe, perhaps, that even though you may be winning awards for your vehicles, do you think you might now be at a disadvantage to your U.S. counterparts, Chrysler and GM, who managed to reduce their cost base quite considerably through bankruptcy, who have lower wage agreements, and who actually might, in the future, become more competitive?

MULALLY: I absolutely not, Richard. You know, we started on this transformation of this fabulous company three years ago and our first priority was to restructure ourselves to operate at the lower demand, worldwide, and do that profitably. Also with the changing model nexus, people move to even more, smaller vehicles. We have completed all of that restructuring, we are competitive with the best companies in the world.

And with respect to your comment about GM and Chrysler that went through bankruptcy. The only disadvantage that we have right now, clearly, is that we are paying back our debt. So we are paying a little bit more in interest than those competitors.

QUEST: Traffic light time. A red, a yellow, or a green for the automobile industry in 2010?

MULALLY: I think it is a yellow starting to turn green. And in Ford's case, you know, we clearly have a long way to go and we are going to stay laser focused on our customers, on making the best cars and trucks in the world, and every year continuing to improve our quality and productivity. And that is our promise to our consumers around the world.

QUEST: I've given you a flashing green, then, to just bridge the gap.


QUEST: Alan Mulally talking to me earlier. A green from Ford.

The Saab Motor Company, part of General Motors, looks like it has got a last-minute reprieve. GM has said it has agreed to sell its loss-making Swedish business. It is a little-known company from the Netherlands, Spyker, who is the maker of luxury sports cars. GM had already started a process of actually winding up Saab. Jim Boulden is live at CNN London.

Jim, one thing I noticed in the statement about this. They talked about them being creative in this deal. I'm wondering what sort of creativity have they come up with?

JIM BOULDEN, CNN INT'L. CORRESPONDENT: Well, I have just gotten off the call. The conference call started about 20 minutes ago and we have been listening to some of the announcement. It is a General Motors conference call, so we don't know what creative things that Spyker is going to do. We'll have to wait `til they have a conference call. But in this call GM said that it is going to get $74 million for selling Saab, and also keep more than $300 million worth of shares in Spyker.

Maybe what they are talking about is the fact that the Swedish government was in talks with Europe and the Swedish government did announce just a few moments ago that it has agreed to back a $566 million European investment bank loan. So, we are getting loan guarantees in all of this as well. So, GM seems to be very happy that they are finally getting rid of Saab after a year.

You might recall, Richard, they were winding this company down, the last few weeks they actually had a liquidator in while these talks were going on. It is extraordinary. They are shutting down a company while trying to sell it. Well, as of now it looks like it has been sold.

QUEST: I just wonder. If I remember correctly the first potential purchaser of Saab was a little luxury carmaker and that didn't-they couldn't manage to complete that. Now, there is a second little luxury carmaker. Jim the reality is Saab, it might not be Ford, but it is a volume manufacturer. So, why don't the same arguments apply?

BOULDEN: Yes, I wouldn't call it a volume manufacturer. It is just a car company that makes, what? 80,000 cars last year. Now, granted, you are right, Spyker in the first half of last year made 23 cars. Yes, 23 cars. So they are ramping up to a lot more, certainly when they are going after Saab. But we are not talking about a company that is competing with the likes of Volkswagen. So, and there are 3,000 employees in Sweden who make these cars.

GM made it very clear that even though they were winding the company down that orders were still coming in, the line was still working, the production line was still working, the new 95 cars on the works. They are going to keep the guarantees in, so people will know the car parts and the guarantees will continue as this transition is happening. So, try to make it very clear that while Spyker is slowly taking over, and they are going to call this new company, Saab Spyker Automobiles, that there will be no gaps in any way. So if somebody wanted to order this car they could continue to order this car.

QUEST: Jim, I would try and say a Spyker Saab sale-which I just managed to do, without any mishap or misfortune-Jim Boulden at CNN London.

Jim, there is a press conference, I believe, taking place by Saab, potentially. Please go and have a listen and come back and report when there is more to tell us.

As QUEST MEANS BUSINESS from the cold continues, that enough alliteration for now. Well, first the crisis, then the crack down. On the eve of the World Economic Forum, the issue of regulation and the rules of business could be about to change.

Good evening to you.


QUEST: And the first person who claims that that was me, on the ice, there will be serious trouble indeed. This year's World Economic Forum is calling for major change to the way our financial systems are regulated.

President Obama threw down the gauntlet last week. We need to put perspective on this. Joining me now, Steve Pagliuca, a managing director of the Boston-based investment firm, Bain Capital.

Steve, many thanks, indeed.


QUEST: Now let's talk first of all, there is a lot we have got to get into, but first of all, let's look at regulation, regulation of the industry. There is going to be a change taking place. How much are you guys lobbying for it to be on the lower end?

PAGLIUCA: Well, I think the industry needs change. And clearly we had so many bankruptcies and put our country in a crisis. So, the industry needs regulation. It needs change and so I think the Congress will do the appropriate thing. The president is pushing for the appropriate changes.

QUEST: Right, but is the plan that is on the table, that you see, the appropriate plan?

PAGLIUCA: Yes and no. The plan-

QUEST: Ha, the devil is in the details.

PAGLIUCA: The devil is in the detail, not a simple answer. There are two issues that have to be addressed.


PAGLIUCA: One, and I think the most important one, is having capital adequacy across the system. The system failed because there wasn't enough capital, on AIG, for example, on credit default spots. So, simply put, you shouldn't be able to write those unless you have a cushion against them. So that was the biggest problem.

The second problem is maybe the banks are in too risky businesses, but I think that is the lesser of the two.

QUEST: Steve, we are particularly pleased to have you here, because you ran in a primary for the Democratic Senate seat of Ted Kennedy, the late Ted Kennedy.


QUEST: You did. Now, the failure of the Democrats to take or to hold that seat, and Scott Brown, of the Republicans taking it, has left President Obama weakened. Would you agree?

PAGLIUCA: You know I think it was not a good dynamic, certainly, for the president and the programs that he has and I'm disappointed in the result. That being said, there is a silver lining. A clear message was sent that the country wants action. They want focus on jobs. And the president is doing that right now.

QUEST: Wednesday is the State of the Union, would you expect to see a reflection of the failure and weakened position that he might now find himself in.

PAGLIUCA: I would not. I would see a reflection of focus. What the voters wanted was focus and get things done. They wanted a reasonable health care bill done, to get costs down, to get jobs back. They want jobs programs. That is what the voters want.

QUEST: But you are obviously well tied into the Democrat Party, how did this president go so off kilter, so early on in his administration?

PAGLIUCA: Well, I think he-first of all he's only been there a year. Remember, just one year ago I was sitting in the cold like this at the inauguration, watching the president get sworn in.


PAGLIUCA: One year. So we have very short memories. He inherited an economy that went south over six or 10 years with policies that left us with to much debt. So, you can't fix everything in one year. And maybe where we went wrong is trying to do too many things. I think now the president is focusing and focused on jobs and we'll get the economy back on track.

QUEST: The weakness-and I keep-I'm aware I keep using the word weakness, not you. But the weakness that is perceived to be in the administration now, is that endangering to the potential for the economy?

PAGLIUCA: I don't think it is, because the administration has very smart people. They have a goal, the goal is to get the economy coming back, and they are going to stick to that goal. The problem in politics, and you have seen it in sports, as well, is short-term management. So, you can't react to every bump in the road. This is Massachusetts situation was definitely a bump in the road. It definitely sent a message. But you have to go back to the game plan of getting jobs back in America.

QUEST: Many thanks, Steve, for joining.

PAGLIUCA: I'm happy to be here.

QUEST: I have to tell the audience, Steve was happy to remove his coat, brave man. I was the one who pointed out, if he takes his coat off, I have to also take my coat off.

PAGLIUCA: You guys have it a little tougher in Britain. You have got to be a little tougher.


QUEST: I know the weather in Massachusetts is pretty-pretty-

PAGLIUCA: It is, it is just like this. Just like this.

QUEST: When we come back in just a moment. The silver screen has never felt more golden with the folks at IMAX, and that is largely thanks to "Avatar". In a moment or three, the IMAX chief exec Richard Gelfond, on the future of entertainment.


QUEST: Good evening.

I'm Richard Quest in Davos in Switzerland, QUEST MEANS BUSINESS.

This is CNN.

And from fantasy to three dimensional reality, one film is pulling more cinema-goers into IMAX theaters than ever before. And it's, of course, James Cameron's "Avatar".

It's the first film to sell more than $100 million worth of tickets at IMAX box offices and it's still got several weeks to run. After the last weekly numbers, it was just a sliver away from snatching the title of highest grossing film of all time. That's currently held by another James Cameron movie. You'll be aware, of course, that's "Titanic".

There are more than 400 IMAX cinemas operating in 44 countries. And despite the deep global slump, IMAX took $100 million at the box office during the final three months of 2009, a milestone for the company -- a massive 225 percent rise on the same period last year.

Richard Gelford is the CEO of IMAX.

Richard, I'm always delighted when you're with us.

RICH GELFORD, CEO, IMAX: It's great to see you, Richard.

QUEST: And absolutely, because you -- you come here and you -- I think last year, well, whenever I last spoke to you, I was rather skeptical about the -- the range and breadth of IMAX. You have the right to tell me I told you so.

GELFORD: I told you so, Richard.

QUEST: Thank you.

GELFORD: I mean it -- it's -- it's been a very good year for us. And it's not just "Avatar." Throughout the year, we had a number of hit movies. "Harry Potter" was a big success. "Transformers," "Star Trek." Our slate was great and our model is really proving itself out.

QUEST: The model may be working, but the -- how far can you extend it?

Because if I know you, Richard, you're already looking at what's next and next and next.

GELFORD: Oh, and we've got a slate this year, Richard, that includes "Alice in Wonderland" starring Johnny Depp. We've got a "How To Train Your Dragon," the new DreamWorks one, "Shrek," "Toy Story." It goes on and on.

So we feel great about our business model.

QUEST: What about a shift, though, toward 3-D television, the 3-D and IMAX use of -- of sporting events?

GELFORD: Well, I don't know whether you saw this, but we teamed up with Discovery and Sony and we announced...


GELFORD: ...a letter of intent to create 3-D television. I think the public wants 3-D. The content creators are creating 3-D.

Look, not only Jim Cameron, Steven Spielberg, you know, some of the best filmmakers in the country...

QUEST: Does it...

GELFORD: the world.

QUEST: Does it have potential for the sporting environment, as well, do you think?

GELFORD: I think it...

QUEST: Or is -- or are there more -- there are more challenges of that, in terms of live action?

GELFORD: I think what you call football and what we call soccer would work really well. I'm not sure about wider sports, like what we call football, because in soccer, you know the ball is coming toward the goal. So if you have it behind the goal, it gives you depth.

In a wider sport, I'm not sure it will work as well.

QUEST: When you're here in Davos, what is your agenda?

Because rethink, redesign -- I'm tired of hearing this redesigning and rethinking and rebuilding.

What's your agenda tonight?

GELFORD: My agenda is to find out what's going on in the world. As you said, we're in 40 countries. I want to understand what's going on in those countries, how we can develop our business in them and how we can help the world order, as well.

QUEST: You see, that's the idea of all those countries and the investment that's required within all those countries.

Since you've had the "Avatar" success, are you now finding more people wanting to shovel money at you?

GELFORD: Well, shovel may be a little hokey, but invest with us would be a better way to put it.

QUEST: But you are finding that?

GELFORD: We are finding that, for sure. What -- you know, there's nothing like success. It breeds more success. And that's what we're seeing.

QUEST: Did you ever have any doubts that the "Avatar" would do well in the IMAX?

GELFORD: Well, as I said, it's more than "Avatar" but...

QUEST: It is more than "Avatar," but we -- we're -- but that sort of is the one that we're pinning our -- you know, a lot of people have pinned themselves on.

GELFORD: Jim Cameron showed me about 20 minutes, probably three or four months ago. And once I saw it, I had no doubts. I -- it blew me away, Richard. It was like a first in life. Like you remember the first time you went to Paris, the first time you went to a sporting event?

When I saw "Avatar," it was fresh and new and I knew it would succeed.

QUEST: It gets to a little more wider (ph) here, because one of the great things about country (INAUDIBLE) is that it does bring this vast variety.

Where else are we going to meet the CEO from -- from IMAX along with a government minister from India and not one, but two.

Are you optimistic about what's happening -- what you're seeing in the global economy or do you believe that there is a potential for a second dip in the re -- in the recession?

GELFORD: I'm optimistic, Richard. I mean I'm a victim of my own business, which has had a record box office. But I'm very optimistic. I think -- I think there are challenges, but we'll get there.

QUEST: Richard, many thanks, indeed for joining us.

GELFORD: Many thanks to you.

QUEST: I appreciate it.

GELFORD: And I'll see you next year, hopefully.

QUEST: You...

GELFORD: And, hopefully, my prediction about optimism will even be right.

QUEST: We thank you for that.

And, actually, you're just -- let's have one quick traffic light. Here, on -- on this, (INAUDIBLE) your optimism. I suspect I can answer this before you -- red, you're not terribly keen on things; amber, you think things might get a little bit better; green, it's full steam ahead.

Which one is it going to be for you tonight?

GELFORD: Green for me, Richard.

QUEST: I thought it was going to be that.

Many thanks, indeed for joining us.

GELFORD: All right, thank you so much.

QUEST: Let's turn to the stock market now. And stocks are gaining this session. Investors welcoming better than expected consumer confidence reports and record earnings from Apple. Investors also keeping a close eye on the Federal Reserve's policy meeting.

Fed rates will stay where they are, at historic lows. Wall Street is waiting to know whether Congress will give Chairman Ben Bernanke, the Fed chairman, a new term in office.

This year's Davos forum comes at a crossroads for the global economy. As I stood on this spot last year, markets and governments were dealing with the direct fallout of the crisis.

Now, we must choose the right route to move forward -- or so they keep telling us. To discuss further, I asked the chairman of the global accountancy firm, KPMG, Jim Flynn, for his take on where we stand.


TIM FLYNN, CHAIRMAN, KPMG: We are moving forward. It's still very fragile, but I do believe that we are in a much better spot than we were a year ago and that we're beginning a very fragile, but, I hope, a steady, sustained recovery.

QUEST: That fragility is, by definition, a dangerous toward double dip.

Do you think there is a realistic or a real possibility of double dip?

FLYNN: You know, I think, Richard, where we are today, I don't see that. But it's a real issue on confidence and trust and it's still fragile.

So we've got to make sure that as we move out of this terrible recession and move forward, that we instill confidence and trust in all the players in the capital markets.

QUEST: That is core. Confidence, perhaps is a necessity. But trust is -- is essential. And I just wonder, there is a bankruptcy of trust, a vacuum, whatever adjective you want about trust, at the moment. People don't trust leaders.

FLYNN: And I don't care if you're in business, you're in government, you're a regulator, critically important that we act with the highest degree of trust and confidence so our people see it.

I also think that we have the ability to help people understand the importance of making highly ethical decisions, understanding not just following any of the rules, but what's right and wrong as they go forward.

What's the value system we're going to judge that against?

QUEST: How did we get it so wrong?

I know that's rearview mirror stuff. But only if we know how we got it so wrong can we hope to rebuild that trust in the future.

FLYNN: You know, a lot of people are asking that question. And -- and from my perspective, you sit back and look. How did some really well- intended people get so far across the line?

What happened?

And -- and I talk to our people about it and I talk to students. And, actually, there's really three things. It's how they made decisions.

First of all, I think people rationalize things. I'll do it just one time to get by this quarter. I won't do it again. Just let it work out this one time. So they rationalize their decision-making.

Secondly, implied permission -- they look for other people's value systems and used it instead of their own. My boss knows I'm doing this, he's not telling me to stop, it must be OK. Somebody else's value system, not their own.

And, third, fear -- fear if they raised their hand and said something, might they have lost their job?

So I tell our people who I come across with, make sure when you're making really tough decisions, you don't rationalize your answer. You don't use other people's value systems and implied permission and you don't do it based upon fear. You do the right thing for the right reasons.

QUEST: So, let's do the traffic lights on this trust question.

Where do you think the level of trust is at the moment, when it comes to the public to -- to our leaders?

FLYNN: Richard, there's a lot of upset and anger in the environment today. So I think we have to say it's red today. But I truly believe we're moving toward green and rebuilding that trust and confidence in the capital market system.

QUEST: I'm going to leave it as a red for the moment.

FLYNN: Thank you very much.

QUEST: Thank you.


QUEST: I do promise you although we've -- we've dragged the traffic lights all the way from London, I'm not going to bore you ad nauseum with them every night with every guest. But it is interesting tonight. We have, indeed, had a red, an amber and a green.

When we come back, we're going to turn our attention from snow to sand -- we're in Saudi Arabia, where spending is up.


QUEST: Now, you heard the phrase and you know all about a culture shock.

What about a real physical shock?

From Sand to Snow -- as the global competitiveness forum wraps up in Saudi Arabia, many of the participants will make the hop over to Davos. For Saudi Arabia, the forum is more than just a warm-up act.

CNN's John Defterios spoke to the head of the Saudi Arabian General Investment Authority about some of the kingdom's big economic plans.


JOHN DEFTERIOS, HOST, "MARKETPLACE MIDDLE EAST": It's not widely known, but the Middle East's largest economy, Saudi Arabia, is going through a massive spending boom right now. It's a five year plan worth up to $.5 trillion.

Perhaps even four new cities will be built from scratch. It's importing a lot of change and the man at the center of that activity is the head of their General Investment Authority, Amr Al Dabbagh.

You've had a ranking -- in the World Bank ranking -- of 13, in terms of ease of doing business. Many people remain very skeptical. They seem surprised by that ranking.

How do you try to convince people that it's for real in the business sector?

AMR AL DABBAGH, GOVERNOR OF SAGIA: When we say we are the fifteenth most competitive nation, we are the fourteenth biggest recipient of actual foreign direct investments in the world. So you cannot receive $38.2 billion and be the fourteenth globally, the number one in the region, if you are not competitive.

So the flow of FDI is a reflection of the competitiveness of the business and investment climate of Saudi Arabia.

DEFTERIOS: Is it not overly dependent on the government's spending package for fives years...

AL DABBAGH: Absolutely not. We are talking about investments in the Saudi market. We aren't talking about securing contacts as a result of government spending.

DEFTERIOS: A more sensitive question, how -- how do you close the gap between citizens of Jeddah and Riyadh, with their per capita income, and those in the outlying areas, which is probably one tenth of the per capita income to not have a tear in the social fabric?

AL DABBAGH: By introducing economic drivers in less developed regions. Take the economic city as an example. They are all located in less developed regions. And the whole idea of these economic cities is to functions -- is to function as engines of growth and as economic drivers, to create jobs where they are located, to reduce the flow of people from less developed regions to more developed regions.

DEFTERIOS: The government was able to avert a recession with massive spending plans, because of the oil reserves. But the private sector, I saw the lending was down 30 percent last year.

When do you get the Saudi business community back into the process?

AL DABBAGH: Well, I think that is happening. Then we see a number of initiatives of big scale happening in the kingdom. And this will be reflected in the numbers we're going to announce in terms of flow of domestic direct investments as well as foreign direct investments. We envisage a growth of 4 percent this year. So we are pretty optimistic.

DEFTERIOS: Once again, Governor Amr Al Dabbagh of SAGIA.

By the way, Saudi Arabia has been pushing the envelope here in terms of the World Bank survey. It's gone from 67 up to 13 in the latest report. It's hoping to get in the top 10.

John Defterios, CNN, Riyadh.


QUEST: From Sand to Snow, John Defterios has a special edition of "MARKETPLACE MIDDLE EAST," "Global Competitiveness in Saudi Arabia and The West in Switzerland."

19:45 in London; 23:45 in Abu Dhabi.

Well, of course you know that's right after QUEST MEANS BUSINESS.

Do you remember this old friend from yesterday?

Well, the fact that he's still standing and, in fact, today we could have actually increased the size of Jeff (ph), the global economic fortune, because it snowed all day. You can probably see it on the screen at the moment.

Guillermo Arduino at the World Weather Center.

I was on the slopes and it was a whiteout.

GUILLERMO ARDUINO, CNN METEOROLOGIST: Oh, did you get enough snow?

QUEST: I -- there's always room for more when it comes to skiing.

ARDUINO: Well, you're going to get it. And look at the monitor. I'm going to show you -- this is the forecast, right?

We're talking about two to four centimeters right now.

Davos is here. Now look at what happened when I activate the clicker. Boom. That's snow that you're going to get. And -- and in this case, we're talking about like 25 centimeters. It's a new system that is going to be descending starting tonight and finishing its job two days from now. And you're going to get a quarter of a meter.

So there you go. It's this low here bringing the snow in here and into Northern Germany and Poland. So those countries are going to get even more so, because they've been getting a lot of snow.

But, you, Richard, you'll get it.

So this is your official forecast. So we fly into Davos and then we see tonight, clear probably at 9:00 p.m. So it's 10 minutes from now the - - my sources are telling me that at 9:00 p.m. You'll start getting more snow.

Then on Thursday, we get more snow. On Friday, even more snow.

That doesn't come alone, because it brings, also, cold conditions. And it's minus seven, around that temperature. Because it's breezy, you may feel it a little bit more. And coming from the north, you know, along with all this.

Remember that I told you that Spain, France and England were seeing cold conditions again because the -- the cold air mass was going to stretch?

Well, it's going to retract again. So we are going to go back to better conditions in here, though Madrid has the chance of snow. You'll see that in a second.

And the biting cold continues here in Poland, in Belarus, the -- the Baltics and in Russia and Finland, unfortunately. Along that jet, we may see some bad weather popping up in Italy, later on into Greece, the Aegean Sea and Turkey. So more rough conditions into tomorrow here in the southern parts of Europe.

Temperature-wise, cold, of course. In the east, Berlin is a little bit better, but not by much, minus six; Vienna, cold, going to stay at minus 10 again; London going back to seven; Madrid, six degrees.

That's what we think is going to happen tomorrow. So Germany more snow; maybe Munich a little bit worse; Zurich and Vienna with snow; Madrid, as I told you, we may see some snow showers there. And then the breezy conditions in Barcelona and getting much better, London, Paris, Amsterdam. And that site in here is where things are going to get better.

Now, who would think here in Norway the winds are so bad that we have warnings over there, as well?

So if you are watching from those sections, we can feel your pain.

Well, South Africa, you see the rain in here, also close to Madagascar, Mauritius, Reunion. A lot of moisture. And we saw significant rain in South Africa in Twirivier (ph), 61. And they are 80 millimeters.

You know what?

Bad news, because the rain will continue.

Stay. Richard is in Davos all week and we'll go back to him after the break.


QUEST: Welcome back to Davos.

Now, imagine being in charge of all of this -- or at least being the man responsible for its very inception. Last night, we introduced you and you heard the views of Klaus Schwab, the head of the World Economic Forum. It's an organization which says it's committed to making the world a better place.

Klaus Schwab has spent his entire career doing exactly that and promoting the work of the West. Mr. Schwab was the perfect person to see exactly what he gets up to in his World At Work.


QUEST: It is the calm before the storm. Everything is just being formed.

And what are you now looking for as you go around?

KLAUS SCHWAB, FOUNDER, WORLD ECONOMIC FORUM: I -- this is probably the most quiet moment in my life because everything is now in the hands of the operational people and I am not very much involved. For me, the real work starts tomorrow. And I have doing this -- during the next six days, I have handled four different obligations.

Hi, Lucille (ph).


Good to see you.

Nice to see you again.


QUEST: What, to you, in your world at work, defines what will be a good World Economic Forum?

SCHWAB: I think you -- you can measure it in three ways. The first one is can you contribute to the dialogues which are happening at this particular moment?

The second objective is, can you make sure that people come to you afterward and say, yes, in some way, I learned something which is new.

And the third one is, did we do something which really helps people on the ground?

But one thing, it cannot come yes, yes, yes.

QUEST: Is this friend committed to improving the state of your world?

SCHWAB: I know many...


SCHWAB: you called, but...

QUEST: Some people are cynical. I'm cynical.

SCHWAB: Yes, but would you -- would you like that we write non- committed to improving the state of the world?

I think nobody -- nobody is against the slogan. The question is can you be measured against what you achieve?

QUEST: Do you still have a passion for doing this?

And if you do, what is that passion?

SCHWAB: I think my passion has never been as high as it is now.


Because I feel the world has never been in such a danger as it is now. I think we are in a tipping point of human history and if we don't take the right decisions now, then the next generations will suffer substantially.


QUEST: If there is one person who can be credited with the World Economic Forum's inception, its success and its promotion, it's Klaus Schwab and his World At Work.

And when we come back in just a moment, I will have a Profitable Moment from Davos. It's all about the question of trust.


QUEST: Tonight's Profitable Moment.

On this show, you heard the chairman of KPMG saying leaders need to regain the public's trust. He spoke eloquently of the reasons why the financial world failed us -- the rationalization of dodgy practices, acceptance of wrongdoing, fear of failure.

The trust issue is huge. It cannot be dismissed as a wooly concept. Leaders who are complacent about trust and its return will be surprised that it doesn't come back.

The fact is people don't trust government leaders. They don't trust CEOs. And, yes, journalists are in this unhappy group of mistrusted.

One might well ask why this matters?

If companies are making money, what's the relevance of trust?

A lack of trust is corrosive to society. It depreciates the work and the worth of all we do. It took longer than one bubble, boom and bust to get us in this sorry state. It will take more than a few days of hot air in Davos to put it right.

And that, as the snow is falling, is QUEST MEANS BUSINESS for tonight.

I'm Richard Quest.

Whatever you're up to in the hours ahead, I hope it's profitable.

"AMANPOUR" is after the news headlines.