Economic and social turmoil risk

The world’s vulnerability to further economic shocks and social upheaval

risk undermining the progress that globalization has brought, warns the

World Economic Forum in its Global Risks 2012 report, the seventh

edition, published today.

Chronic fiscal imbalances and severe income disparity are the risks seen

as most prevalent over the next 10 years. These risks in tandem threaten

global growth as they are drivers of nationalism, populism and

protectionism at a time when the world remains vulnerable to systemic

financial shocks, as well as possible food and water crises. These are

the findings of a survey of 469 experts and industry leaders, indicating

a shift of concern from environmental risks to socioeconomic risks

compared to a year ago.


“For the first time in generations, many people no longer believe that

their children will grow up to enjoy a higher standard of living than

theirs,” said Lee Howell, the World Economic Forum Managing Director

responsible for the report. “This new malaise is particularly acute in

the industrialized countries that historically have been a source of

great confidence and bold ideas.” Global Risks 2012 analyses

three major risk cases of concern globally:



1.Seeds of Dystopia

Bulging populations of young

people with few prospects, growing numbers of retirees depending on

debt-saddled states (stoking fiscal imbalances) and the expanding gap

between rich and poor are all fuelling resentment worldwide.

Collectively, these trends risk undoing the progress that globalization

has brought.


“Individuals are increasingly being asked to bear risks previously

assumed by governments and companies to obtain a secure retirement and

access to quality healthcare. This report is a wake-up call to both the

public and private sectors to come up with constructive ways to realign

the expectations of an increasingly anxious global community,” said John



2.Unsafe Safeguards
Policies, norms and institutions

from the 20th century may no longer protect us in a more complex and

interdependent world. The weakness of existing safeguards is exposed by

risks related to emerging technologies, financial interdependence,

resource depletion and climate change, leaving society vulnerable.


“We’ve seen examples of over-regulation, like the response to the

Icelandic volcanic eruptions, or under-regulation, such as the subprime

or Eurozone crises. We need to get the balance right with regulations

and, to that end, our safeguards must be anticipatory rather than

reactive. It’s equally important that regulations be made more flexible

to effectively respond to change,” said David Cole, Chief Risk Officer

at Swiss Re.



3.The Dark Side of Connectivity

Our daily lives are

almost entirely dependent on connected online systems, making us

susceptible to malicious individuals, institutions and nations that

increasingly have the ability to unleash devastating cyberattacks

remotely and anonymously.



“The Arab Spring demonstrated the power of interconnected communications

services to drive personal freedom, yet the same technology facilitated

riots in London. Governments, societies and businesses need to better

understand the interconnectivity of risk in today’s technologies if we

are truly to reap the benefits they offer,” said Steve Wilson, Chief

Risk Officer for General Insurance at Zurich.





Natural disasters also remind us of the devastating power of nature and

the limits of technology, as witnessed by last year’s Great East Japan

Earthquake and subsequent crisis at the Fukushima nuclear plant. In a

special chapter on key lessons to be gleaned from the disaster, the report stresses that

organizations are far more resilient to major shocks if they have clear

lines of communication and employees across the organization are

empowered to take decisions.



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