Global Risks Ranked—And Global Leaders Need to Get on Them

Income inequality and societal polarization. We’ve been hearing much about these issues lately, and anyone paying attention—or living them—has been painfully aware of their pernicious spread for years or even decades.

But will they adversely affect global economic recovery and risks associated with rapid technological advancements? What about the propagation of misinformation campaigns (fka fake news) and the various effects of climate change? What about the advent of artificial intelligence and proliferation of robotics? While these things can make life easier, can they also cause problems?

The answer to all of these is “yes”—these are all factors contributing to global risk. That’s according to The Global Risks Report 2017 from the World Economic Forum and its strategic partners Marsh & McLennan Companies and Zurich Insurance Group.

 “These trends came into sharp focus during 2016, with rising political discontent and disaffection evident in countries across the world,” the report reads. “The highest-profile signs of disruption may have come in Western countries—with the United Kingdom’s vote to leave the European Union and [President] Donald Trump’s victory in the U.S. presidential election—but across the globe there is evidence of a growing backlash against elements of the domestic and international status quo.”

“Against a backdrop of mounting political disaffection and disruption across the world,” the World Economic Forum said in announcing the report, three findings emerged:

Patterns persist. Rising income and wealth disparity and increasing polarization of societies were ranked first and third, respectively, among the underlying trends that will determine global developments in the next 10 years. Similarly, the most interconnected pairing of risks in this year’s survey is between high structural unemployment or underemployment and profound social instability.

The environment dominates the global risks landscape. Climate change was the number two underlying trend this year. And for the first time, all five environmental risks in the survey were ranked both high risk and high likelihood, with extreme weather events emerging as the single most prominent global risk.

Society is not keeping pace with technological change. Of the 12 emerging technologies examined in the report, experts found artificial intelligence and robotics to have the greatest potential benefits, but also the greatest potential negative effects and the greatest need for better governance.

The World Economic Forum added that there has been progress in fighting climate change, but political shifts in Europe and North America show that global leaders will have their hands full trying to tackle our most pressing economic and societal challenges.

Trends such as rising income inequality and societal polarization triggered political change in 2016, and could exacerbate global risks in 2017 if urgent action is not taken, according to the Global Risks Report 2017.

Key drivers of risks can be arrested or reversed through building more inclusive societies, for which international cooperation and long-term thinking will be vital.

Climate change ranks alongside income inequality and societal polarization as a top trend for 2017, with all five environmental risks featured for the first time among the most likely and most impactful risks before the world.

 “Urgent action is needed among leaders to identify ways to overcome political or ideological differences and work together to solve critical challenges. The momentum of 2016 towards addressing climate change shows this is possible, and offers hope that collective action at the international level aimed at resetting other risks could also be achieved,” said Margareta Drzeniek-Hanouz, head of Global Competitiveness and Risks for the World Economic Forum.

The organization added that “although 2016 will be remembered for dramatic political results that broke with consensus expectations, warning signs that a persistent cluster of societal and economic risks could spill over into real-world disruption have been reported in the Global Risks Report regularly during the past decade . . .  In 2006, Global Risks warned that the elimination of privacy reduces social cohesion—at the time, this was classified as a worst-case scenario, with a likelihood of below 1 percent . . .  In 2013, long before “post-truth” became the 2016 word of the year, Global Risks highlighted the rapid spread of misinformation, observing that trust was being eroded and that better incentives were needed to protect quality-control systems.”

“Collaborative action by world leaders will be urgently needed to avert further hardship and volatility in the coming decade,” the organization warned.

Cecilia Reyes, chief risk officer of Zurich Insurance Group, highlighted the downside to the incredible technological advancements the world is experiencing. “Without proper governance and re-skilling of workers, technology will eliminate jobs faster than it creates them. Governments can no longer provide historical levels of social protection, and an anti-establishment narrative has gained traction, with new political leaders blaming globalization for society’s challenges, creating a vicious cycle in which lower economic growth will only amplify inequality. Cooperation is essential to avoid the further deterioration of government finances and the exacerbation of social unrest.”

John Drzik, president of Global Risk & Specialties at Marsh added another technological wonder to the risk mix.

Artificial intelligence has the potential to deliver dramatic benefits in sectors from manufacturing and transportation through to financial services and healthcare. However, increased reliance on AI will create new threats and amplify existing ones, such as cyber and social instability, making the parallel development of risk governance just as crucial.

[Editor’s note: This 76-page report was based on the input of 750 experts in many categories. You can download the report here: http://reports.weforum.org/global-risks-2017. This piece was edited for the LexisNexis Corporate Law Advisory by Tom Hagy, Managing Director of HB Litigation Conferences and former editor and publisher of Mealey’s^® Litigation Reports.]