World Economic Forum warns of dangers in growing inequality

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A chronic gap between rich and poor is yawning wider, posing the biggest single risk to the world in 2014, even as economies in many countries start to recover, the World Economic Forum said on Thursday (16 January).

Its annual assessment of global dangers, which will set the scene for its meeting in Davos next week, concludes that income disparity and attendant social unrest are the issues most likely to have a big impact on the world economy in the next decade.

The forum warned there was a "lost" generation of young people coming of age in the 2010s who lack both jobs and, in some cases, adequate skills for work, fuelling pent-up frustration.

This could easily boil over into social upheaval, as seen already in a wave of protests over inequality and corruption from Thailand to Brazil.

"Disgruntlement can lead to the dissolution of the fabric of society, especially if young people feel they don't have a future," said Jennifer Blanke, the World Economic Forum's (WEF) chief economist.

"This is something that affects everybody."

The survey of more than 700 global experts identified extreme weather events as the second most likely factor to cause systemic shocks, reflecting a perceived increase in severe conditions such as America's big freeze this winter.

The risk of precarious government finances triggering fiscal crises remains the hazard with the potential to have the biggest economic impact, but the likelihood of such fiscal blow-ups is lower now than in previous years, the report said.

Europe, in particular, is out of the immediate financial danger zone - a fact which has helped income inequality to rise up the agenda, according to David Cole, head of risk at Swiss Re (SRENH.VX), who worked on the report.

Increasing public attention to inequality, which has in fact been trending upwards since the 1980s, will require policymakers and the global elite to tread carefully, he said.

"I'm a big supporter of capitalism but there are moments in time when capitalism can go into overdrive and it is important to have measures in place - whether regulatory, government or tax measures - that ensure we avoid excesses in terms of income and wealth distribution," Cole said.

So far, the massive fiscal and monetary stimulus that has helped stabilise and revive economies has had little impact on the poor, the unemployed and the younger generation.

In the West, the WEF said young people were graduating from "expensive and outmoded" schools and colleges with high debts and the wrong skills, while in developing countries around two-thirds of them were not reaching their economic potential.

The 60-page "Global Risks 2014" report analyses 31 global risks for the next 10 years and comes ahead of the WEF's annual meeting in the Swiss ski resort of Davos from January 22 to 25, where the rich and powerful will ponder the planet's future.

Bringing together business leaders, politicians and central bankers, Davos has come to symbolise the modern globalised world dominated by successful multinational corporations.

The theme of this year's meeting is "The Reshaping of the World: Consequences for Society, Politics and Business".

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Comments

Mike Parr's picture

There are a wide range of solutions to this problem. Of course the core solution is: jobs. The question is: where will these come from. Example follows

(apologies to those of a sensitive disposition – I’m not going to mince words)
Europe pisses away energy. Taking one member state as an example - France (I’ll give the UK a rest – I like to be even handed when I dish out a good kicking) – the country tends to use electricity to heat homes. These homes for the most part have very poor (= low) thermal inertia. What this means in real terms (& admitted by an EdF suit at a capacity markets conference in Bx in December) is that when temperatures drop demand for electrical rises with very little time lag.

The con-insulatants Mckinsey produced a table much used by the Commission and member states. It shows which actions to take to decarbonize – energy efficiency leads the pack by a country mile. Readers will recall that member states heavily diluted the Energy Efficiency Directive. Member states talk about energy efficiency but do little. Kauf a German company specializing in energy efficiency products (i.e. insulation) is re-focusing on markets outside of the EU – because of lack of policy action by EU member states – such as France.

Energy efficiency has two good aspects – it generally pays for itself and the actions (e.g. install insulation) are often …. Labour intensive. Given the laughable condition of most houses in France wrt energy efficiency – the solution seems clear – implement serious energy efficiency programmes that employ young people. Problem: EdF (prop – the French state) would then sell less energy – oh dear – that would not make the suits in EdF happy.

Plenty of solutions to youth un-employment – the problem is member state politicos lack the balls, brains or simply “let’s get up and do it” attitude to address the problem. This leaves citizens. A suggestion to French citizens. Get together – go to the mayor and tell him you want a mixed renewables and energy efficiency programme at commune level within 6 months – or you will find somebody that can design and implement it & you want the programme to employ local youth. This approach may not provide a total solution – but at least it would be a start. The alternative is… waiting for the dolts in Paris? Please!

evad666's picture

"Plenty of solutions to youth un-employment – the problem is member state politicos lack the balls, brains or simply “let’s get up and do it” attitude to address the problem." How true especially as so many representatives gain so much while attending or possibly just signing in at Brussels.