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World Economic Forum: Global Risks Are Outpacing Ability to Mitigate Them

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:

  • Economic

    • 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
  • Environmental

    • Climate change
    • Loss of freshwater services
    • Natural catastrophe: Tropical storms
    • Natural catastrophe: Earthquakes
    • Natural catastrophe: Inland flooding
  • Geopolitical

    • 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
  • Societal

    • Pandemics
    • Infectious diseases in the developing world
    • Chronic disease in the developed world
    • Liability regimes
  • Technological

    • 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.




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