Global Risks

The risks that just won't die

Inequality is part of a web of social, political and economic risk

Inequality is part of a web of social, political and economic risk

Aengus Collins
Head, Economic Growth, Revival and Transformation, World Economic Forum
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One of the key findings of this year’s Global Risks Report is that inequality and polarization are now ranked in the top three as underlying drivers of global risks.

In any circumstances, that would represent a stark assessment of the social, economic and political challenges that the world faces. In the wake of a particularly charged year for global politics in 2016, however, the stakes are especially high. Elections are being won and lost on the basis of rising frustration with and declining trust in politicians and political institutions. The risk is growing that public disaffection with the political process will impair decision-making at the national level around the world and hamper collaboration at the global level.

Recent developments should not surprise us

The findings of this year’s Global Risks Report have resonated particularly strongly against the backdrop of Donald Trump’s inauguration as US president and the UK’s preparations for leaving the EU. But the findings are not a radical departure from what we have been saying in previous editions. The Global Risks Report has been highlighting a persistent cluster of social, economic and political fragilities for many years now.

In 2007 and 2008, for example, the Report’s rankings showed deglobalization in advanced economies as tied for the risk with the highest impact; in 2011, the Report focused on “economic disparity and global governance failures”; in 2014 it highlighted “societal concerns includ[ing] the breakdown of social structures, the decline of trust in institutions, the lack of leadership and persisting gender inequalities”; in 2015 it observed that “the fragility of societies is of increasing concern” and cautioned against excessive economic optimism, noting that it might “reflect a false sense of control, as history shows that people … are often taken by surprise by the same risks”; last year, it focused on the paradox of “the (dis)empowered citizen.”

Looking back at the evolution of global risk

Each year, we assess 30 separate global risks as well as 13 underlying trends or drivers. The risks are divided into five categories: economic, environmental, geopolitical, societal and technological. If we look at the evolution of the top five risks by perceived impact and likelihood in the chart below, we can see a clear pattern, with economic risks dominating initially before fading in prominence as other risk categories – particularly the environment – move to the fore.

This shift hinges on 2012, which was a crucial year for the world’s response to the financial crisis. This was when Mario Draghi, the president of the European Central Bank, promised to do “whatever it takes” to prevent the collapse of the euro. These words from Mr Draghi are frequently seen as marking the end of the acute phase of the global crisis, but they certainly shouldn’t be seen as ushering in an era free of economic risks. Even if economic risks have faded from the top-five lists in recent years, they remain a pivotal element of the interconnections and spillovers that characterise the global risks landscape.

Spillover risk is on the rise

Take the last two years as an example, which between them have only one blue economic risk in the chart above. Does that mean that economic risks did not matter in the last two years? Absolutely not. In both years inequality was ranked as the most important driver of global risks. And in both years the most important pairing of interconnected risks was that of unemployment and social instability.

The global risks landscape remains shot through with economic considerations, not least in terms of their lagged impact on the political process. This is why one of the first things we discuss in this year’s Report is the need for policy-makers to do much more on the economic front: boosting growth but also reforming market capitalism to help to mend the increasingly pronounced fractures that can be seen in many societies.

There is an understandable temptation to view each edition of the Global Risks Report in isolation, focusing on which individual risks are moving up and down the rankings. This is an important part of the analysis contained in the Reports, but just as important, if not more so, are the connections that must be drawn between the various risks, and how these patterns change year by year. Only by grappling with the irreducibly interconnected nature of the global risks landscape will we be able to bolster the world’s resilience.

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Global RisksGeo-Economics and Politics
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