Widening wealth gap a growing global problem

The widening wealth gap – the difference in incomes between the richest and poorest individuals – is a risk that has the potential to cause significant damage worldwide, say more than 700 global experts who contributed to the Global Risks 2014 report, released by the World Economic Forum today.

The experts assessed 31 potential risks that could cause considerable harm across entire nations and industries if they occurred during the next ten years.

They are grouped into five categories:

  • economic,
  • environmental,
  • geopolitical,
  • societal, and
  • technological.

The were all measured according to how likely they are to occur and what their potential impact might be.

Most likely global risks – after the wealth gap, extreme weather events were seen as the global risk most likely “to cause systemic shock on a global scale.”

Then came unemployment and/or underemployment, climate change and cyber-attacks.

Global risks with potentially the worst impact – over the course of the next decade, fiscal crises are considered to potentially have the greatest impact on systems and nations.

The economic risk is closely followed by climate change, water crises, unemployment/underemployment, and critical data infrastructure breakdown.

Each risk is potentially a failure on a global scale

Jennifer Blanke, Chief Economist at the World Economic Forum, said:

“Each risk considered in this report holds the potential for failure on a global scale; however, it is their interconnected nature that makes their negative implications so pronounced as together they can have an augmented effect.”

“It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today.”

The experts also looked into three specific cases:

  • The growing risk of “cybergeddon” in global online systems.
  • As the world shifts towards a multipolar distribution of influence and power, the increasing complexity of geopolitical risk.
  • Unemployment and underemployment, specifically among young people.

Problems faced by young people today

The report looks at the dual problem faced by young people as they approach adulthood:

  • Poor job prospects.
  • The growing cost of education.

It looks at how these two factors might impact on social and political stability, and possibly economic development as well.

In some developed nations, such as Spain, more than 50% of the country’s young adults are looking for work. In developing regions, where the vast majority of young people live, the informal economy is growing.

The report shows how technological and other measures can be put in place to diminish some of the risk.

David Cole, Group Chief Risk Officer of Swiss Re, said:

“Many young people today face an uphill battle. As a result of the financial crisis and globalization, the younger generation in the mature markets struggle with ever fewer job opportunities and the need to support an ageing population.”

“While in the emerging markets there are more jobs to be had, the workforce does not yet possess the broad based skill-sets necessary to satisfy demand. It’s vital we sit down with young people now and begin planning solutions aimed at creating fit-for-purpose educational systems, functional job-markets, efficient skills exchanges and the sustainable future we all depend on.”

The consequences of Internet failure

We have become increasingly dependent on the Internet to carry out vital tasks; there are a growing number of devices, e.g. medical devices, that are connected to it. Today, and more so over the next ten years, the risk of systemic failure could have devastating consequences.

International communities are less willing to work together now to address this weakness after recent revelations of government agencies surveying people and organizations within their borders and also abroad. “The effect could be a balkanization of the Internet, or so-called ‘cybergeddon’, where hackers enjoy overwhelming superiority and massive disruption is commonplace.”

Axel P. Lehmann, Chief Risk Officer at Zurich Insurance Group, said:

“Trust in the Internet is declining as a result of data misuse, hacking and privacy intrusion. A fragmentation of the Internet itself is the wrong way to solve this issue, as it would destroy the benefits the Web provides to all of us.”

“Rather than building walled gardens, it is time to act by setting up security standards and regaining trust.”

Over the next five to ten years, four key threats each have the potential to impact global stability:

  1. Emerging market uncertainties.
  2. Friction between countries of a political and commercial nature.
  3. Proliferation of low-level conflict.
  4. Slow progress on global challenges.

John Drzik, President of Global Risk and Specialties at Marsh:

“A more fractured geopolitical environment threatens to impede progress in industries which are critical to global development, such as financial services, healthcare and energy.”

“The world needs more coordinated governance to prevent slow-burning, systemic risks from developing into full-blown crises.”

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