World Economic Forum highlights key weaknesses of global economy

Global leaders are presiding over a period of mounting international crises, according to research released at the 2018 Davos summit. Current economic models seem increasingly unsustainable, at both the social and environmental level, while international security has come under strain from cyber-attacks as well as an elevated threat of nuclear war.

While still broadly functional, the world is on the brink of possible disaster, with the scientific community, intellectual and even the business community, increasingly concerned about the direction of society as a whole. To better understand the risks resulting from a history of unsustainable economic activity, the World Economic Forum (WEF) has published the 13th edition of its Global Risks Report, at the 2018 Davos summit. This year’s conference saw 2,500 of the world’s most powerful people in attendance, including 340 key political figures – among them, the Prime Minister of the UK Theresa May, German Chancellor Angela Merkel , and US President Donald Trump.

The report, which was produced in collaboration with WEF Strategic Partners Marsh & McLennan Companies, focuses on the most significant risks to the globe, as assigned by 1,000 global leaders. Following the pulling out of the US administration from the Paris Accord last year, climate change continues to dominate this year’s risk report, followed by technological concerns and social outcomes. However, the research also notes that there is a relatively strong interdependence between many of the most likely risks, which are by and large the result of human economic activity.

In terms of concrete risks, extreme weather events are deemed the most likely, while they have the second most impact, after the use of weapons of mass destruction, although this is deemed significantly less likely. Natural disasters take the number two spot in terms of likelihood, and the number three in terms of impact.

Cyberattacks and data fraud or theft follow, to round of the top five in terms of likelihood, while failure of climate-change mitigation and adaption and a water crisis round off the top five in terms of impact. These risks, in terms of likelihood, come in at six and seven respectively.

Risk web

Building on this, the WEF’s web of risks highlights the continued impact of a changing climate and degrading environment on the one side and wider social risks on the other. However, in the long-term, these risks are likely to see convergence, with an increasingly harsh environment placing strains on financial and geopolitical stability, and a breakdown increasingly likely, the impact of which could see the end of civilisation as we know it.

Aside from concerns around environmental degradation and climate change, the current economic environment contains a variety of risks, with automation likely to further offset the bargaining power of labour, while tax receipts for governments are likely to decline on the back of poor tax governance across increasingly global and amoral super-entities. The report also highlights that growing inequality could create conditions for profound social instability, as automation, increased dependency on computers and changes in demographic combine with increased polarisation within societies to create a toxic mix.

The risk to global economies from latent risks in current economic theory, as well as various market bubbles – and a lack of effective tools to deal with a crisis – mean that a new economic crisis could result in a deep and protracted period of decline – with interstate conflicts also increasingly cited as risks, particularly in periods of crisis, whether engineered or natural in origin.

Mass destruction

Grave concerns were increasingly voiced in the report around the maturity of human societies to wield the kind of destructive tools currently in possession, and those being developed. The report shows that, as it stands, the current direction of human development is increasingly likely to end in disaster, and with capital continuing to call the shots, the direction is unlikely to shift in the favour of sustainable economic development; with risks, from AI to corrosive political leadership and corrupt laws, likely to further shift the world towards the abyss.

Alison Martin, Group Chief Risk Officer, Zurich Insurance Group commented, "Extreme weather events were ranked again as a top global risk by likelihood and impact. Environmental risks, together with a growing vulnerability to other risks, are now seriously threatening the foundation of most of our commons. Unfortunately, we currently observe a “too-little-too-late” response by governments and organisations to key trends such as climate change. It’s not yet too late to shape a more resilient tomorrow, but we need to act with a stronger sense of urgency in order to avoid potential system collapse."