CAIRO: Global governance is increasingly unequipped to curb an array of arising risks, warned the “Global Risks 2011” report, issued by the World Economic Forum last week.
“The benefits of globalization seem unevenly spread — a minority is seen to have harvested a disproportionate amount of the fruits,” the report warned, adding that “there is evidence that economic disparity within countries is growing.”
Such risks, the report states, are “central” risks in the global landscape, which are spurring a range of others risks.
The report also warns that while the world is becoming increasingly interdependent and interconnected, “signs of resurgent nationalism and populism as well as social fragmentation…[and] growing divergence of opinion between countries on how to promote sustainable, inclusive growth” are raising the barriers toward reaching concrete solutions.
To illustrate, the report notes the failings of the Doha Development Round of the World Trade Organization (WTO), the nearly consistent lack of concrete agreements following each United Nations conferences on climate change as well as the G20, while it has been “most hopeful development” in global governance, its efficiency is being strongly questioned.
Against this backdrop, the report identifies three central risk areas.
First macroeconomic risks that result from macroeconomic imbalances, fiscal crises in advanced economies, “massive” underfunded social liabilities and weak financial markets are identified.
On this particular risk, Christian Mumenthaler, chief marketing officer, reinsurance and member of the executive committee, Swiss Re, Switzerland, mentioned, “It is only through true public-private partnerships that we can ensure that the related financial challenges are addressed and that increased longevity remains an entirely positive trend for society.”
Global Risks 2011 also highlights the illegal economy as a second pillar for risk, which, in 2009, was valued at $1.3 trillion.
The consequence of this dynamic, the report claims, is the huge cost generated for legitimate economic activities, states are thereby weakened along with development opportunities, and the rule of law is undermined, thus keeping affected countries “trapped in cycles of poverty and instability.”
In conjunction with the first two risks, the report notes that dwindling natural resources will stifle growth: “Shortages of core resources will only create more conflict between the social groups, nations and industries that need them.”
Across the 2011 global landscape, the report selected fiscal crises, geopolitical conflicts, and climate change as being the three most onerous dynamics that will impact the global economy, costing nearly a trillion dollars each to the global economy.
Interestingly, the report found that respondents from the public sector noted societal risks as being highest, while for academia environmental risks ranked at the top and business, clearly, focused on economic risks as being its greatest concern.
What is more, from a geographical perspective, respondents from Europe pointed to societal risks as being their main concern, whereas for Asian and North America environmental risks were most important.
In addition to the three core risks, the report identifies cybersecurity, high population growth, resource scarcity, growing rejection of globalization and the looming threat of biological and nuclear weapons use as “risks to watch.”
The report determined that, due to their “high level of uncertainty,” space security, a slowing Chinese economy, ocean governance and threats from new technologies as being outlier threats that “could move rapidly to the center of the risk landscape.”
Facing a score of issues of such a severe nature and magnitude, managing director and chief business officer at the World Economic Forum, Robert Greenhill, stated: “we need new networked systems to identify and address global risks before they become global crises.”
To bring these problems and their solutions to the fore, on Jan. 26-30, the World Economic Forum will launch a new Risk Response Network at the World Economic Forum Annual Meeting 2011, Davos-Klosters, Switzerland.
The report was published in cooperation with Marsh & McLennan Companies, Swiss Reinsurance Company, the Wharton Center for Risk Management and Zurich.
Based on the insights of 580 expert respondents to the Forum’s Global Risks Survey 2010 across stakeholder groups and regions, it measured perceptions of risk likelihood, impact and interconnections for 37 global risks over a 10-year time horizon.
