Income inequality, fiscal crisis can hit globalisation: WEF

One of the world's leading proponents of globalisation has warned that its benefits risk being undermined by rising income inequality and fiscal imbalances over the next 10 years.

Ahead of its annual summit in Davos, Switzerland later this month, the World Economic Forum warned that nationalism, populism and protectionism were being fuelled globally by “chronic” fiscal imbalances and “severe” income inequality, as the world adjusted to new economic realities.

The WEF identified 50 global risks, including economic, environmental, societal, technological, and geopolitical, putting the fiscal troubles and inequality at the top of the list. Others include rising green house gas emissions (the third most likely risk), cyber attacks and shortages of water supply, as well as volatile energy and commodity prices.

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 Mr Lee Howell, the Managing Director of the World Economic Forum responsible for the report

The WEF, which based its findings on a survey of 469 global experts, noted a distinct shift in the top concerns of those it spoke to away from environmental risks to socio economic ones.

The report pointed to specific regional risks in fast growing economies, including India and the other BRIC nations. Here the ability of countries to seize the opportunity presented by relatively young labour forces was far from guaranteed.

“Rapid economic growth in emerging economies has fuelled an impatient expectation that a rising tide will lift all boats, but social contracts may not be forged quickly enough to rectify increasingly visible economic inequalities and social inequalities.”

In the West, growing numbers of young people with few job opportunities, an increase in the number of people retiring, and a growing gap between the rich and power were stoking resentment and planting “seeds of dystopia”, worsened by the inability of nations – thanks to the fiscal crisis – to respond to their needs.

Dangers of interconnectivity

The sheer level of interconnectivity and complexity wrought across the world also exacerbated the risks, as it undermined the effectiveness of existing safeguards.

“Policies, norms, and institutions from the 20th century may no longer protect us in a more complex and interdependent world,” the report warned.

Increasing levels of connectivity had a “dark side” the report warned, making nations and people vulnerable to “malicious individuals and institutions and nations that increasingly have the ability to unleash devastating cyber attacks remotely and anonymously.”

“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 the Chief Risk Officer for general insurance at Zurich Financial Services, Mr Steve Wilson.

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