Speaking to journalists as he unveiled the line-up for next week's meeting in the Alpine resort, Klaus Schwab said "new models" must be developed and that there was an urgent need to revive a sense of social responsibility.
"Capitalism in its current form, has no place in the world around us," Schwab told reporters at the forum's headquarters near Geneva.
"We have failed to learn the lessons of the financial crisis of 2009. A global transformation needs to take place urgently and it must begin by restoring a form of social responsibility."
Schwab revealed that German Chancellor Angela Merkel would give the keynote opening speech when the 42nd WEF begins on January 25th.
This year's forum comes as even Germany, the continent's economic powerhouse, has had to lower its growth forecast in the wake of the eurozone debt crisis.
Other leaders due to attend the five-day meeting are British Prime Minister David Cameron and Nigerian President Goodluck Jonathan, while the Treasury Secretary Timothy Geithner will represent the United States government.
The new head of the International Monetary Fund Christine Lagarde, European Central Bank president Mario Draghi and World Trade Organisation chief Pascal Lamy will also attend.
Organisers have also invited some of the world's newest leaders, such as Tunisia's new Prime Minister Hamadi Jebali and his Thai counterpart Yingluck Shinawatra, as they seek to bridge a generational gap.
Schwab noted that talent and not capital will become determining factors in driving future economies where he believed free enterprise is still vital.
"We are in danger of completely losing the confidence of future generations," said Schwab.
Representatives of Burma's government will also attend for the first time in many years in another sign that it is losing its pariah status as it embarks on a series of political reforms.
Organisers however have not invited representatives from anti-capitalist groups such as Occupy Wall Street although they did say they would in future be prepared to engage with such groups.
The "Occupy WEF" movement has begun building igloos in Davos and plans to hold protests against the annual gathering.
"The WEF is a forum of self-appointed elites. It is important to mobilise against them," David Roth, president of the Swiss Socialist Youth, told AFP.
Security will be tight with some 5,000 security personnel on hand.
More than 2,600 businessmen, politicians, leaders of non-governmental organisations or scientists and hundreds of journalists from around the globe pack the tiny resort each year, despite the hefty participation cost.