WEF risk report

In the run-up to this year's World Economic Forum (WEF) meeting in Davos, Switzerland, WEF on Thursday published its annual Global Risks Report (GRR). Now in its 11th edition, the 98-page report summarized the views of 750 leading business executives, economists and political analysts from a wide range of countries and areas of expertise on what they see as the biggest global risks over a 10-year horizon.

The experts were asked to rank risks in two ways: Which categories of damaging events would have the most severe impacts if they were to occur? And which categories of risks are most likely to occur?

Survey respondents ranked the "failure of climate change mitigation and adaptation" as the risk that would have the most severely disruptive impacts if it came to pass. Ranked second was the use of weapons of mass destruction; third, water crises; fourth, large-scale involuntary migrations; and fifth, severe energy price shocks - whether increases, which can hurt economies dependent on energy imports, or decreases, which can cause instability in countries whose economies are too reliant on income from oil or gas exports.

In contrast, the type of disruptive event the survey respondents thought was most likely to actually occur was "large-scale involuntary migration." This was followed in order of likelihood by extreme weather events, the failure of climate change mitigation and adaptation, interstate conflict with regional consequences, and major natural catastrophes.

Dangers rising, risks manifesting

Several of these "risks" are already happening, of course, including large-scale refugee flows, so it isn't surprising the experts surveyed assigned "involuntary migration" a top ranking. But GRR's experts believe the world is only at the beginning of these dangerous trends. It's expected that they'll intensify.

"The year 2016 marks a forceful departure from past findings, as the risks about which the report has been warning over the past decade are starting to manifest in new, sometimes unexpected ways and harm people, institutions and economies," it said.

Translated into plain English, GRR said that the mud has finally hit the fan. Experts are concerned that disruptions caused by climate change are now showing serious effects on populations and economies, with much worse to come.

Risk cascades

Survey respondents identified interrelated or "cascading" risks that could make each other worse through feedback effects. Three emerged particularly strongly.

"The potential for climate change to exacerbate water crises... , the global refugee crisis... and the risks around the Fourth Industrial Revolution and how this transition will impact countries, economies and people at a time of persistently sluggish growth."

The term "fourth industrial revolution" refers to the increasing use of data, communications, automation and robotics in production systems. This is expected to make very large numbers of workers redundant in future, leading to a situation of permanently high underemployment and unemployment rates and an increasingly severe concentration of wealth in the hands of those who own automated production systems.

This, in turn, will cause a dearth of money in the hands of consumers to buy the products made in automated factories. Wealthy people save rather than spend most of their income, whilst the poor and middle classes spend nearly every dollar they have coming in. That means increasing joblessness and ever greater concentration of money in the hands of a small elite actually reduces economic activity.

Resilience

GRR's authors issued a call to build resilience in the face of the certainty of coming powerful disruptions, under the catch-phrase "resilience imperative." The report outlined some priorites, such as making large-scale investments to improve water and food security, and modifying financial systems to "unleash climate-resilient, low-carbon investments."

"Despite increasing recognition of the economic risks, global financial systems are yet to incoporate [incentives for climate-smart investment] into financial decision-making," the report found.

Unstable societies

GRR's experts were also concerned that an era of social instability and loss of trust in states and institutions could emerge - in part because of improved communications technologies.

"Key to building resilience is the stability of societies," the report said. It examined the phenomenon of the "(dis)empowered citizen... as technology empowers citizens to find information, connect with others and organize, those citizens feel disenfranchised by distant elites."

The WEF report pointed to a "risk of social instability if governments and business embark on either repressive actions or non-action out of uncertainty about how to deal with a more informed, connected and demanding citizenry," as well as "the benefits governments and business stand to gain by proactively looking for ways to engage with concerned citizens."

All in all, this year's GRR marks a sobering turn in the views of a broad sample of some of the planet's smartest smart money.