Assessing the forces shaping global risk

Business and political leaders across the world are about to descend on the Swiss resort of Davos, where the World Economic Forum (WEF) will host its four-day annual meeting commencing January 17. The Geneva based non-profit foundation has worked to fulfil its motto “committed to improving the state of the world” since its establishment 36 years ago.

Ahead of the event the WEF has released the 12th edition of its Global Risks Report; an annual publication that offers an assessment by experts of top global risks in terms of likelihood and potential impact over the coming 10 years.

The latest report, produced by the WEF with strategic partners Zurich Insurance Group and the Marsh & McLennan Companies, the risk advisory and insurance broking giant, was launched in London this week. Its central message is that rising income inequality and social polarisation, the main triggers for political change in 2016, could exacerbate global risks in the year ahead unless global action is taking.

The launch saw presentations from Margareta Drzeniek-Hanouz, the WEF’s head of global competitiveness and risks and Richard Samans, a member of its managing board as well as Cecilia Reyes, Zurich’s chief risk officer and John Drzik, president, global risks and specialties at Marsh.

The 2017 report highlights five key challenges faced by the world in shaping global developments over the next 10 years. Two reflect a fact evidenced by the election surprises of 2016 on both sides of the Atlantic; firstly that rising income and wealth disparity emphasises the need to revive economic growth; secondly that increasing polarisation and intensifying nationalist sentiment makes reforming market capitalism a further priority.

Ominously, the report’s authors observe that stronger economic growth alone is probably no longer enough as “the growing mood of anti-establishment populism suggests we may have passed the stage where this alone would remedy fractures in society”. It has not been helped by the weakness of economic growth since the 2008 financial crisis and a resulting unevenness in the recovery.

Other challenges highlighted in the report are managing technological change, as innovation may no longer ensure that new jobs are created to offset the old kinds being destroyed; protecting and strengthening systems of global co-operation as some nations move from an outward-looking stance to one that is inward; and ensuring recent progress in tackling environment-related risks is maintained.

Polarisation, the environment and technology

In her introduction, Drzeniek-Hanouz highlighted the report’s three main messages:

  • Widening inequality and polarisation are driving global risk.
  • Although solid policy progress has been achieved in recent years in reducing harmful emissions, the environment-related risks facing the world are still acute.
  • Greater interconnectedness around the globe is creating resilience challenges, particularly those relating to the disruptive technology dubbed the ‘Fourth Industrial Revolution’, although the resulting changes are not only creating problems but also solutions.

She warned that rebuilding social cohesion will not prove easy, as it is clear that high unemployment in many regions has created instability, while older voters feel increasingly marginalised. Other worrying trends include the weakening of collaboration and cooperation that include countries withdrawing from global pacts and the failure to agree a policy for ending the conflict in Syria.

A more positive sign is that the challenges posed by technological disruption are offset by optimism that emerging technologies can be harnessed to positive effect, although Drzeniek-Hanouz stressed that “the Fourth Industrial Revolution requires much more agile and adaptive governance.”

In October 2016 the WEF opened a Centre for the Fourth Industrial Revolution, located appropriately close to Silicon Valley in the city of San Francisco. The Centre “will be dedicated to advancing the global conversation on science and technology governance for the benefit of society at large”, the WEF declared.

Marsh’s Drzik noted that new technologies are also opening up new paths of cyberattack, which until recently was the top risk on the US only but has risen up the risk agenda in other major world economic powers such as Japan and Germany. Artificial intelligence (AI) has “opened up a broader attack surface for stealing data and disrupting businesses”, he said.

The advance of AI allows opens up new uncertainties on the associated legal liabilities, such as those relating to driverless cars with machine error likely to be much less readily forgiven than human error. Companies will also need to “think carefully” about their deployment strategy; for example mining giant Rio Tinto now employs self-driving trucks for their Australian operations, but the s cope for companies to cut jobs when harnessing AI is becoming a politically volatile campaigning issue.

Discussion points

Samans said that delegates assembling this week in Davos will focus their discussions on the following areas in particular:

Accelerating economic growth, with the issue of a new growth framework that includes a broader base on which to develop it.

Introducing more inclusivity to market-based economics, with a revised corporate governance framework for the creation of long-term value. “We need a different mix of economic priorities as monetary policies are clearly running up against limitations,” Samans added.

An updated best practice handbook for corporates and their boards of directors.

Making global cooperation more effective, with the aim to create a better balance between sustainability and growth. This will, in part, be achieved through a refitting of existing infrastructure where appropriate, in addition to new sustainable infrastructure and “unblocking impediments” to private-public blended finance for sustainable developments.

In answering questions from the floor, Samans was diplomatic when asked how he assessed the likely impact of the forthcoming Trump presidency, noting that as a successful businessman the new US president “has experience in thinking and negotiating for the long haul.”

Drzik added that Trump’s election victory reflected a general trend evident at the ballot box towards “more lateral, nationalist solutions”, when addressing global risk demands a multilateral approach.

 

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