Governance Failures & Economic Disparity: WEF Global Risks Report 2011

The Global Risks Report 2011 from the World Economic Forum highlights two primary megatrends with the potential to inject significant disruption into global systems. From the report:

Two risks are especially significant given their high degrees of impact and interconnectedness. Economic disparity and global governance failures both influence the evolution of many other global risks and inhibit our capacity to respond effectively to them.

In this way, the global risk context in 2011 is defined by a 21st century paradox: as the world grows together, it is also growing apart.

It is worth noting how inter-related these two megatrends are as wealth consolidation into an elite class enables them to further deconstruct global governance mechanisms. This has been a feedback loop for at least the past 40 years, if not longer, as western growth fueled the rise of non-state economic bodies & super-empowered individuals who then lobbied against regulatory measures that would aim to keep their rise in check and mitigate the risk of disparity. Elites consolidate more money & power, further driving disparity and eroding governance. What results is an interstitial vacuum where corporate intervention fails to see any profit motive and where state intervention lacks the funds or will to govern effectively.

In effect, the combination of super-empowered non-state actors, failures of state governance, and widespread economic disparity undermines the Rule of Law by releasing elites from accountability and driving the underclass deeper into criminality.

Within these megatrends they cite three important risk factors:

The “macroeconomic imbalances” nexus: A cluster of economic risks including macroeconomic imbalances and currency volatility, fiscal crises and asset price collapse arise from the tension between the increasing wealth and influence of emerging economies and high levels of debt in advanced economies.

The “illegal economy” nexus: This nexus examines a cluster of risks including state fragility, illicit trade, organized crime and corruption. A networked world, governance failures and economic disparity create opportunities for such illegal activities to flourish. In 2009, the value of illicit trade around the globe was estimated at US $1.3 trillion and growing. These risks, while creating huge costs for legitimate economic activities, also weaken states, threatening development opportunities, undermining the rule of law and keeping countries trapped in cycles of poverty and instability.

The “water-food-energy” nexus: A rapidly rising global population and growing prosperity are putting unsustainable pressures on resources. Demand for water, food and energy is expected to rise by 30-50% in the next two decades, while economic disparities incentivize short-term responses in production and consumption that undermine long-term sustainability.

These risk factors are certainly of concern but it’s worth looking at how they represent symptoms of an underlying current. Macroeconomic imbalances & illegal economies are two sides of the same coin, both indicating that the fundamental truths of economics are no longer applicable to the current global system. The territory has shifted but the map has yet to be effectively updated. The legacy code of macroeconomics is far too simplistic to contain the realities of the modern globalized marketplace.

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