Global Risks: Experts Focus on Two Key Challenges

Two of the most significant risks that could affect the world in the next 10 years - given their high degrees of impact and interconnectedness - are economic disparity and global governance failures, according to a survey seeking the opinion of hundreds of experts, business leaders and policy makers.

Economic disparity describes wealth and income differences between fellow citizens in a country and between nations.

Global governance failures concern the weakness of global organizations, networks, or institutions comprised of country leaders to make progress on dealing with issues such as climate change, world trade, poverty reduction, international security, and nuclear issues.

[The report] aims to equip institutions to understand and respond to global risks and to embrace change as a source of innovation, said Klaus Schwab, the head of the World Economic Forum, a non-profit, Switzerland based group.

The report came ahead of the WEC's launch this week of its Risk Response Network of risk officers from corporations, governments and international organizations.

The findings are a part of the Global Risks Report 2011 by the World Economic Forum. The report includes results from a perception survey created from 580 valid responses across 37 global risks and 5 categories, the WEC said.

The 5 risk categories are: Economic, Environmental, Societal, Geopolitical, and Technological. Their likelihood and perceived impact in terms of dollars, as well as strength of interconnection among risks was also assessed.

The survey attempted to combat perception biases by taking a 10 year perspective, encouraging debate and challenging of each person's assumptions by focusing on risk interconnectedness and trade-offs involved in risk response.

Economic Disparity

Globalization has generated sustained economic growth for a generation. It has shrunk and reshaped the world, making it far more interconnected and interdependent, the report states.

But the benefits of globalization seem unevenly spread - a minority is seen to have harvested a disproportionate amount of the fruits.

The survey respondents assessed what other risks economic disparity is interconnected with, how it influences other risks, what risks influence it, and what risks reinforce it.

Respondents said that economic disparity - a part of the Societal Risks category - was tightly interconnected with various other risks, including corruption, demographic challenges and fragile states as well as global imbalances and asset-price collapse.

Respondents perceived economic disparity as influencing other risks such as chronic and infectious diseases, illicit trade, food security, terrorism, and weapons of mass destruction.

Respondents saw economic disparity as influenced by climate-change related risks and global governance failures.

The data indicated that economic disparity and geopolitical conflict reinforce one another.

The WEC cites a 2008 analysis by the Organization for Economic Cooperation and Development (OECD) titled Growing Unequal? Income Distribution and Poverty in OECD Countries.

That 2008 analysis found that the gap between rich and poor has grown in more than three-quarters the more than 30 nations belonging to the OECD.

The report also found that in some countries, such as Canada, Finland, German, Italy , Norway and the United States, the gap also increased between the rich and middle class.

Income inequality as measured by the Gini Index over the last decade has also increased rapidly in emerging economies such as India, China or Indonesia, the WEC report notes.

While there are some disputes about those studies and disagreement over their findings. the risk of rising economic disparity even in terms of perception alone, is concerning, the WEC report states.

Economic disparities are also seen as contributing to a broader process of global social fragmentation. Globalization has led to different groups within countries having divergent economic interests, undermining a sense of broader national solidarity, the WEC states.

Global Governance failures

The report noted various major economic and political risks, but also a failure to deal with them effectively in the various global forums of leaders meant to deal with them.

To meet these challenges, improved global governance is essential. But this is another 21st century paradox: the conditions that make improved global governance so crucial - divergent interests, conflicting incentives and differing norms and values - are also the ones that make its realization so difficult, complex and messy, the report states.

Global governance failures concern the weakness of global organizations, networks, or institutions comprised of country leaders to make progress on dealing with issues such as climate change, world trade, poverty reduction, international security, and nuclear issues.

Respondents said issues interconnected with global governance were regulatory failures, corruption and economic disparity,

Respondents saw retrenchment from globalization and global governance failures were as being mutually reinforcing.

Some examples of failure cited include: failed UN climate change talks, uncompleted world trade talks (Doha Development Round of trade negotiations), lack of progress on poverty-reduction goals (Millennium Development Goals), stalled reforms to the United Nations' peace and security body (UN Security Council), challenges to nuclear-proliferation agreements.

The current governance frameworks will be unable to keep pace with global challenges unless big changes are made, the WEC report states, citing conclusions reached by US and EU government strategists.

Meanwhile emerging economies increasingly feel they don't have enough influence in international institutions as currently designed, the report states.

Yet there is uncertainty over the ability and willingness of rising powers to shoulder a greater share of global responsibilities, as well as reluctance on the part of established powers to recognize the limits of their own power, the report adds.

The future of global governance is uncertain. It's unclear whether global governance will muddle along, or become more agile or explore new forms of cooperation, or be discarded entirely, the report finds.

A counterbalance would be a well-informed and well-mobilized global public opinion sharing norms and values of global citizenship, but this is not yet fully developed, the report states.