Worsening wealth gap seen as biggest risk facing the world in 2014

The chronic gap between the incomes of the richest and poorest citizens is seen as the risk most likely to cause serious damage globally in the coming decade, according to more than 700 global experts that contributed to the World Economic Forum’s Global Risks 2014 report.

Taking a ten-year outlook, the report assesses 31 risks that are global in nature and have the potential to cause significant negative impact across entire countries and industries. The risks are grouped under five classifications – economic, environmental, geopolitical, societal and technological – and measured in terms of their likelihood and potential impact.

After income disparity, experts see extreme weather events as the second most likely global risk to cause systemic shock on a global scale. This is followed by unemployment and underemployment, climate change and cyber attacks.

Fiscal crises feature as the global risk that experts believe has the potential to have the biggest impact on systems and countries over next ten years, which is followed by economic risk, climate change and water crises, unemployment and underemployment, and fifth critical information infrastructure breakdown.

“Each risk considered in this report holds the potential for failure on a global scale. However, it is their interconnected nature that makes their negative implications so pronounced as together they could have an augmented effect. It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today” says Jennifer Blanke, chief economist at the World Economic Forum.

In addition to measuring the seriousness, likelihood and potential impact of these 31 global risks, Global Risks 2014 includes special investigations into three specific cases: The increasing risk of ‘cybergeddon’ in the online world; the increasing complexity of geopolitical risk as the world moves to a multi-polar distribution of power and influence; and youth unemployment and underemployment.

In particular, the report considers the twin challenges facing those coming of age in the current decade of reduced employment opportunity and the rising cost of education, and considers the impact on political and social stability, as well as economic development. With more than 50 per cent of young people in some developed markets currently looking for work and rising informal employment in developing regions where 90 per cent of the world’s youth live, the report offers insight into how technological and other measures can be deployed to mitigate some of this risk.

David Cole, group chief risk officer of Swiss Re, says: “Many young people today face an uphill battle. As a result of the financial crisis and globalisation, the younger generation in the mature markets struggle with fewer job opportunities and the need to support an ageing population. While in the emerging markets there are more jobs to be had, the workforce does not yet possess the broad based skill-sets necessary to satisfy demand. It’s vital we sit down with young people now and begin planning solutions aimed at creating fit-for-purpose educational systems, functional job-markets, efficient skills exchanges and the sustainable future we all depend on.”

The deepening reliance on the internet to carry out essential tasks and the massive expansion of devices that are connected to it, make the risk of systemic failure – on a scale capable of breaking systems or even societies – greater than ever in 2014, according to the report. Recent revelations on government surveillance have reduced the international community’s willingness to work together to build governance models to address this weakness. The effect could be a balkanisation of the internet, nick-named ‘cybergeddon’, where hackers enjoy overwhelming superiority and massive disruption is commonplace.

“Trust in the internet is declining as a result of data misuse, hacking and privacy intrusion,” says Axel P. Lehmann, chief risk officer at Zurich Insurance Group. “A fragmentation of the internet itself is the wrong way to solve this issue, as it would destroy the benefits the web provides to all of us. Rather than building walled gardens, it is time to act by setting up security standards and regaining trust.”