No one drills for oil or assembles iPods at the South Pole. But evidence that the global economy is dangerously out of kilter can be found swimming under the ice nearby. There in the frigid Antarctic seawater, tiny shrimp-like crustaceans – called krill – eke out an existence eating plankton and algae until they are eaten by seabirds, whales and other animals. Global warming is melting polar ice and reducing the krill’s habitat, causing by some estimates a 90% drop in krill populations in the past 20 years. Bad news for the penguins and, it turns out, for humans too: thanks to overfishing in the world’s oceans, mankind has moved right down to the bottom of the food chain to harvest krill alongside the seals.

The same inefficiencies and imbalances that economists say imperil trade and markets are hastening the depletion of natural resources and environmental destruction. These imbalances have so far not derailed global economic growth, but the slow destruction of our own habitat belies the conclusion that the situation is sustainable.

The most fundamental imbalance has long been the disparity of wealth between developed nations and undeveloped nations. This disparity is being slowly reduced now in what some call the most dramatic shift of wealth ever witnessed. While erosion of Socialist orthodoxy catalysed the re-emergence of China and India, their impact stems largely from their massive ranks of young workers, which have helped double the global workforce since 1990. But discrimination against women in both nations has helped give rise to vast gender disparities that are deepening emerging shortages of skilled labour. "In the developing world, there are 100 million women 'missing'," said Lawrence H. Summers, President, Harvard University, USA; Co-Chair of the Annual Meeting 2006. The developed economies, by contrast, face increasingly aged, unproductive populations.

Persistently high demand for consumer products in the US and Europe has enabled developing economies such as China to use manufactured exports as an engine of growth. The emerging skilled labour shortages in China and India have largely dispelled fears that they would export deflation. Instead, a potentially precipitous paradox has emerged in which the developing nations of Asia finance consumption of their exports by the world’s richest nation.

Asian purchases of US government bonds enable the US to run an ever-widening trade deficit, consuming more than is financially sound, without depreciation of the dollar or significantly higher inflation. US debt is rising close to 50% of GDP (See Figure 2 below), with US savings rates at their lowest since the Great Depression.

This artificial support for US deficits fuels asset price inflation, particularly housing prices. US housing prices and those around the globe have risen sharply, by 85% since 1997 (see Figure 3 above) leading some commentators to believe this is the largest bubble in history.

Economists say rising home values are largely behind the illusion of wealth that inspires US consumers to spend more than they earn. Many predict that housing prices may stop rising soon, which could chill US consumer demand for Asian exports.

With the dollar artificially overvalued and global inflation kept low, the world is flush with cash. Interest rates paid by borrowers once considered relatively risky compared to governments are historically low, making it harder for investors to earn the kind of returns needed to finance the world’s growing pension liabilities.

“Consider the dynamic that 73% of tariffs paid by developing countries are paid to other developing countries.” Peter Mandelson (webcast I session), Commissioner, Trade, European Commission Growing trade imbalances also increase the risk that politicians will grasp for protectionist solutions and halt efforts to make trade fairer through the World Trade Organization. Tariffs designed to protect agriculture in Europe and the US hinder the ability of developing nations to export their way out of poverty. But not all such barriers are from developed countries. "Consider the dynamic that 73% of tariffs paid by developing countries are paid to other developing countries,” said Peter Mandelson, Commissioner, Trade, European Commission, Brussels. Aside from feeding extremism, such inequities in global trade distort the cost of resources. Tariffs and subsidies encourage the wasteful use of land, water and oil. Oil, and our over-reliance on it as our principle source of energy, remains a problem. With China and India leading a new surge in demand, the global economy is susceptible to shocks such as those triggered by the terrorist attack on gas pipelines in Georgia, or Hurricane Katrina.

"It's actually an economic necessity, if we’re going to have enough capacity on earth to give China and India and other countries the growth which they rightfully claim is theirs.” William J. Clinton (webcast I session), Founder, William Jefferson Clinton Foundation; President of the United States (1993-2001) Policy-makers need to take steps to redress these imbalances. In particular, prices for goods and services should reflect their real cost, not only in terms of labour and capital, but also their impact on natural resources and the environment. "It's actually an economic necessity," said William J. Clinton, Founder, William Jefferson Clinton Foundation; President of the United States (1993-2001). “If we’re going to have enough capacity on earth to give China and India and other countries the growth which they rightfully claim is theirs, and revive the American economy, and provide an opportunity for Europe to continue to grow and prosper, I think we have to deal with [preserving the environment].”