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World Economic Forum

It can only get a lot worse

PUBLISHED : Tuesday, 17 January, 2012, 12:00am
UPDATED : Tuesday, 17 January, 2012, 12:00am


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The word of the year for 2011, chosen by the American Dialect Society, was 'occupy', though some radical spirits recommended 'a**holocracy', which they defined as rule by multi-millionaires. The Japanese, more optimistically, chose 'kizuna', meaning 'bond', referring to people coming together in the face of the triple economic disasters of earthquake, tsunami and nuclear plant meltdown at Fukushima.

But business and political leaders of the world should beware - the word of the year for 2012 or 2013 could be 'dystopia' unless they get their act together and do something to ameliorate the dangerously growing risks of an unequal world.

'Dystopia' is a good word for business, political and opinion leaders to consider as they pack their warm woolly underwear and snow boots for the annual pilgrimage to Davos to give their opinions to the World Economic Forum (WEF) and the world next week.

It is appropriate because 'dystopia' is the key word in the 'Global Risks 2012' report just issued by the WEF. It is even more apposite because there is something highly dystopian about this year's annual meeting, given that many of the political figures attending are in danger of losing their jobs or disappearing into irrelevance.

This year's Davos get-together precedes presidential elections in France and the US, which may change the political landscape. In China, President Hu Jintao and Premier Wen Jiabao are about to hand over to new leaders whose views and policy prescriptions are largely unknown, but talk from Beijing of the dangers of a looming 'new cold war' does not suggest that Sino-US relations are going to get any easier.

In Russia, the known unknown in the shape of Vladimir Putin will become president again, but even he may face protests against corruption and the dead hand of government that have spread across the Middle East. Such unrest may also infect Europe if its leaders cannot be more imaginative and positive in their economic policies.

The main message of the WEF risks report is that economic turmoil, financial stringency and social upheaval could not only roll back the gains the world has made from globalisation but could lead to a 'dystopian future for much of humanity.'

The report explains: 'Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope.' The risks are not single, but come from the 'constellation of fiscal, demographic and societal risks ... The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already indebted governments.'

It gets worse: 'Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability.' This could jeopardise the social contracts between states and citizens and then, 'in the absence of viable alternatives, this could precipitate a downward spiral of the global economy, fuelled by protectionism, nationalism and populism'.

But that is only one set of risks. Another set comes under the headline, 'How safe are our safeguards?' The report judges that, 'the constellation of risks arising from emerging technologies, financial interdependence, resource depletion and climate change exposes the weak and brittle nature of existing safeguards - the policies, norms, regulations or institutions which serve as a protective system. Our safeguards may no longer be fit to manage vital resources and ensure orderly markets and public safety.'

'Global Risks 2012' is based on a survey of 469 experts from industry, government, academia and civil society who examine 50 global risks across five categories. This year, the top two risks in terms of likelihood are economic, as are three of the top five in terms of impact.

In too many places the report reads as if it has been written by risk assessment geeks - as indeed it has. In contrast to a report by economists - where if you laid all the economists in the world end to end, they wouldn't reach a conclusion - this report positively blooms with risks. It contains diagrams of ornate spiders' webs of interconnected risks, artistic to look at, but complicated to follow. The central 'map' (as WEF calls it) has global governance failure at the centre. Some of the outlying, though connected, risks are too hard to read because the print is small and grey.

The WEF report sets out the risks but has no answer to the central challenge facing the world. How do you persuade political leaders to tackle serious problems when they are behaving like squabbling children in a playground? The world is a dangerous place, but business and political leaders seem unable to get together to tackle clear and obvious problems, let alone interconnected ones or constellations of risks.

This was seen over the weekend. Reports from London said that Barclays Bank CEO Bob Diamond, dubbed 'the unacceptable face of capitalism', is in line to collect a ?10 million (HK$118.85 million) bonus.

The fallout continued after Standard & Poor's took away France's triple-A rating and downgraded other euro-zone countries. Supposedly responsible adults in charge of the French government yelled that Britain too should be downgraded. How is that going to help?

Meanwhile, Germany's chancellor, Dr Angela Merkel, repeated her message that austerity was the only way out of crisis. Across the world, Japan's prime minister, Yoshihiko Noda, has got religious about the need to raise consumption tax. He and his finance minister repeated their determination to ram through a tax rise in the face of public opposition - 75 per cent against, according to weekend polls - to save Japan's credit rating and damn the economy.

Dystopia may not be the worst of the perils facing the world. The WEF risk experts list a string of 'X factors', the dark matter somewhere beyond the 'world of unknown unknowns and known unknowns', including the dangers of constant connectivity, miseducation, misinformation, neotribalism and volcanic winter. Since our leaders haven't a clue, perhaps prayer is the only salvation.


Share of the world's wealth which the top 0.5 per cent of the global population owns. The WEF warns such inequality is a key risk