World Economic Forum: Global Risks Are Outpacing Ability to Mitigate Them
15 January 2007
|Likelihood of core global risks vs. projected economic loss. Click to enlarge.|
The World Economic Forum—the organization that convenes the annual Davos meeting of global leaders—has released the Global Risks 2007 report. The report, published in cooperation with Citigroup, Marsh & McLennan Companies, Swiss Re and the Wharton School Risk Center, highlights a growing disconnect between the power of global risks to cause major systemic disruption and our ability to mitigate them.
Many of the 23 core global risks explored in the report have worsened over the last 12 months, despite growing awareness of their potential impacts, according to the report. In addition to specific risk mitigation measures, institutional innovations may be needed to create effective responses to a complex risk landscape.
The report suggests two such innovations—the appointment of Country Risk Officers and the creation of flexible coalitions around specific global risk issues, providing crucial momentum to mitigation efforts. The first would provide a focal point in government for mitigating global risks across departments, learning from private-sector approaches and escaping a silo-based approach. The second would allow mitigation strategies to emerge from dynamic interplay between governments and business, achieving a balance between inclusiveness and decisiveness.
The core risks fall into five primary categories:
- Oil price shock/energy supply interruptions
- US current account deficit/fall in US$
- Chinese economic hard landing
- Fiscal crises caused by demographic shift
- Blow up in asset prices/excessive indebtedness
- Climate change
- Loss of freshwater services
- Natural catastrophe: Tropical storms
- Natural catastrophe: Earthquakes
- Natural catastrophe: Inland flooding
- International terrorism
- Proliferation of weapons of mass destruction (WMD)
- Interstate and civil wars
- Failed and failing states
- Transnational crime and corruption
- Retrenchment from globalization
- Middle East instability
- Infectious diseases in the developing world
- Chronic disease in the developed world
- Liability regimes
- Breakdown of critical information infrastructure (CII)
- Emergence of risks associated with nanotechnology
The report recommends a number of key needs for addressing specific global risks, including:
Linking energy security with considerations on climate change.
Urgently beginning work on a successor to the Kyoto agreement with three central principles:
- Involvement of the United States and major developing countries (particularly China and India);
- Differential responsibilities for future emissions’ reduction dependent upon past emissions and stage of economic development; and,
- Common overall responsibility for climate change.
Renewing terrorism insurance schemes scheduled to sunset in 2007 in some form.
Improve framework for public-private arrangements in other countries.
In order to prepare for a pandemic, governments should increase research into the identification of critical choke-points in the supply/value chain where skill sets are rare, interdependencies are greatest and the risk of triggering systemic failure is highest.
The topics identified in the report will be at the core of the agenda for the annual meeting of the World Economic Forum taking place later this month in Davos, Switzerland.
There are problems here. Why the inclusion of "Middle East instability" and no mention of Russian, Chinese or African instability as a risk?
The inclusion of "retrenchment from globalization" as a core global risk is illuminating. These people obviously speak for the oligarchy, not the people. They fear a world with less globalization because they wrongly believe that supply chain has saved the world (while lining their pockets). Supply chain may saves a region; but it can badly harm another.
Other than "Chinese economic hard landing" and "nanotechnology risk," everything else on the list is happening. To this list, I would add overfishing, deforestation, species migration, biotechnology risk, energy inefficiency, wealth concentration, animal farming and overpopulation. What have I left out?
Posted by: JC | 15 January 2007 at 07:17 AM
Okay... So if I read well we have among top concerns:
- Oil Price Shock
- Climate Change
- Middle East Instability
What an explosive cocktail !
And why is Nanotechnology a risk ?
Posted by: Tom | 15 January 2007 at 07:45 AM
Chinese instability is reflected in China Hard landing scenareo. African instability is represented under Interstate and civil wars, Transnational crime and corruption, Climate change, Failed and failing states, Developing world disease, and Loss of freshwater services.
_The last two times we had retrenchment from globalization, the effects assisted in the developments that led to WWI and WWII.
Posted by: allen_XL_Z | 15 January 2007 at 07:51 AM
They laid out a pretty complete list, for all the good it will do. Allen Greenspan, former U.S. Federal Reserve Secretary in 2003 told Congress that natural gas shortages could and would have a serious effect on the economy. No one listened then and no one is listening now...and so it goes.
Posted by: SJC | 15 January 2007 at 08:08 AM
Just like earlier technology, nanaotech may be bused by some to do great harm. Advances in chemical engineering, and biology help lead to powerful chemical, and biological weapons. Nanomachine gray goo may be an extreme example, but you get the point. A (slightly) more likely example would be using it to turn humans (and intelligent organisms) into zombie slaves.
_More serious is the advantage developed/advances countries would have over everyone else. Specifically, nanotech enhanced computers, and robotics. They could augment themselves, and their countries, to produce astronomical increases in productivity, while decreasing negative effects (ie environmental degredation). They could run away at the top, and pull the rug out from developing countries, at the middle, and bottom of the economic/technological/industrial chain. This would create hardships in many developing economies (think post Soviet collapse Eastern Europe and FSU).
Posted by: allen_XL_Z | 15 January 2007 at 08:10 AM
The sky is falling! The sky is falling!
Posted by: Chicken Little | 15 January 2007 at 08:37 AM
No, it is most most certainly not. There are challenges on the horizon, and we must to manage them, and mitigate the negative effects.
Posted by: allen_XL_Z | 15 January 2007 at 09:04 AM
...There are challenges, here right now and on the horizon, and we must to manage them, and mitigate the negative effects.
Posted by: allen_XL_Z | 15 January 2007 at 09:05 AM
"To this list, I would add... wealth concentration"
Uh Oh. Our taxes are going up again!
Posted by: Matt Chavez | 15 January 2007 at 10:14 AM
My gut tells me that they've overstated both the risk and cost of CII failure. The worst thing I can imagine happening would be the breaking of product of primes encryption scheme. That would pretty much end on-line banking for some time.
As for asset price collapse ... bubbles grow, bubbles burst ... corrections happen and the world goes on.
The biggest risk of our time is overpopulation, resulting in food shortages, resource depletion, pollution, pandemics and political instability. ...Probability 100%
Hopefully the worlds population will peak earlier than expected and my kids will witness the decline of the world's population to something sustainable without widespread poverty.
Posted by: Neil | 15 January 2007 at 10:18 AM
It depends on how taxes go up realy. If they goup one way the rich will and can cut and run BEFORE the taxes hit. I know locals who are rather wealthy because of the dotcom era and they have it already planned to cut and run and shelter thier money outside the us. And they are far from alone.
Many are beginign to prep for a global depression.
Posted by: wintermane | 15 January 2007 at 10:41 AM
If you look at their chart, the single worst (in terms of multiplying the severity by the probability) risk, and the one with the strongest consensus, is "asset price collapse." Is this a function of baby boomers retiring all at once and trying to cash out of their 401(k)'s and expensive suburban homes?
Posted by: NBK-Boston | 15 January 2007 at 11:04 AM
"Many are beginign to prep for a global depression."
Any body ever consider birth control to help with the over population stuff?
Just a thought.
I'd be poor to if I had 6 kids.
Posted by: Sal Lami | 15 January 2007 at 11:53 AM
It strikes me as odd that this piece even made it onto GCC since these risks arise from a complex set of circumstances, of which environmental factors are not the foremost.
The risk of a collapsing asset bubble is greatest in countries such as the US, the UK and Spain where the McMansion craze of the past decade may now be coming home to roost. Living with debt necessarily means living above your current - but not future - means. More often than not, that goes hand-in-hand with higher consumption of energy incl. air travel etc.
While it is conceivable that certain areas could see property blight due to perceived (anthropogenic) climate change, overall the driver will more likely be the traditional boom-and-bust business cycle: too many bankers having granted too many loans that turn sour on them.
Btw: the US dollar is falling because OPEC members and others are slowly shifting their central banks' reserves toward Euros and Yen, to better reflect the share of global GNP those economies account for. I suspect it won't be long now before certain oil & gas products will be traded in those currencies, or else a new virtual currency computed from a suitably weighted basket of them, rather than just in US dollars. To the extent this places global trade on a more realistic and hence, stable footing, this is actually a good thing for the US.
At first, though, there will be some painful adjustment as US consumers discover their favorite gadgets can go up in price as well as down - not to mention all forms of energy imported into the US.
Posted by: Rafael Seidl | 15 January 2007 at 12:03 PM
The way to think of it is the us is an icecream manic who has been buying more and more scoops of icecream. The japanese and chinese and so on have been icecream venders and have gone to huge lengths to keep this manic buying and eating.
But global warming is gona hit and its timefor the icecream manic to take a nap.
But soo many are now investing in icecream and sprinkles and all and all the venders are deep in debt loaning money to the manic.....
When it ends everything will nelt. The us will sleep. And the world will be one sticky mess and out of a job.. Well other then the janitor...
Posted by: wintermane | 15 January 2007 at 12:19 PM
Petroleum based ice cream now on sale!
Posted by: fyi CO2 | 15 January 2007 at 12:31 PM
Global population will peak much, much below our ability to feed everybody. The only reason people are now going hungry is that they are poor. Raising the cost of food would actually help more of them eat.
Posted by: APosterFormerlyKnownAsAndy | 15 January 2007 at 02:39 PM
you say: "To this list, I would add overfishing, deforestation, species migration, biotechnology risk, energy inefficiency, wealth concentration, animal farming and overpopulation. What have I left out?"
You left out the huge increase in the average human stupidity....
Posted by: Bruno Cipolla | 16 January 2007 at 05:56 AM
The ice cream analogy had to be one of the oddest posts I have seen on here yet. Good work!
Posted by: SJC | 16 January 2007 at 07:11 AM
I live in Arizona. We like to take our Jeeps out to the desert and 4-wheel. Does anyone think they could make an electric jeep?
Posted by: Herb Sewl | 16 January 2007 at 08:28 AM
Hehehe...takes a bow;/
For some reason people use the word oddest around me alot..
Oh dont forget this report is of course based on the worries of people with MONEY and investments and such and of course assets and such are something they worry about alot.
If you asked 500 middle income people what they worried about...yes the home becoming worth less then the morgage and in fact less then the taxes is something on the list but alot of other things would also be up here too.
Stuff like when will I have to get a NEW car instead of the used ones I normaly get because the fuels change or regulations change and I cant afford to use my old car? How will I afford that change? Can I afford to stay near longdon or whatever city as they gut my pocketbook and I have no oney to buy a damn new car... What do I do if my house is old and I have no money to upgrade it and some jackarse in congress whacks me with a tax or punts my ultility bill through the roof? Or who will mke a damn fuel eff car that wont also require daily visits to the chiropractor? Or if the city wants me to commute les why the bleep did they put they put the office buldings so damn far from the homes?
Or for that matter why are congresscritters so eager to get me into a smaller car when they drive behemoths and fly in personal gets?
Or as my neighbor put it.. a dear sweet mother of 3. If they want me in a small car get the bleeping trucks off my bleeping road you bleeping bleepedity bleep bleeps or ill.......... man she was worked up and ready to guy a congresman with her teeth if need be...
In short get the damn 18 wheelers off the roads we HAVE to drive because some asshat in congress didnt keep the roads sperate.
Posted by: wintermane | 16 January 2007 at 08:42 AM
"You left out the huge increase in the average human stupidity...."
Can you feel the love tonight?
Posted by: Red Manner | 16 January 2007 at 09:20 AM
"You left out the huge increase in the average human stupidity" I must be stupid because that statement makes no sense grammatically or logically
Posted by: Jason | 16 January 2007 at 12:10 PM
For those interested in how new political developments are affecting the world of green automobiles, check out the Green Machines Road Trip (http://www.greenmachinestour.org/). It follows the story of a team of green bloggers that travel from Minnesota to Michigan writing about how fuel-efficient vehicles have been and will continue to transform America’s heartland. Also, provides links to commentary on the politics of green machines (http://www.dailykos.com/storyonly/2006/12/24/17371/067)
Posted by: Jeff G. | 22 January 2007 at 01:14 PM
Cars running on water are the trend of the future. This seems a lot better than ethanol or electric hybrids.
Posted by: Newport | 15 December 2007 at 05:21 PM