Watch out for the next crisis, gloomy Davos report tells leaders

Human development is “at risk” and the current economic recovery may be hiding the roots of the next big crisis, including persistent inequality, in particular between men and women’s salaries, the World Economic Forum (WEF) warned in its annual Global Risks Report presented on Wednesday (17 January).

The economy has stopped functioning as the emotional metronome of world affairs. Global output has improved over recent years, and the recovery continues at a strong pace in all the major economies ten years after the financial crisis began. Business and consumer sentiment is robust.

Still, the mood will be rather gloomy again this year in Davos, the Swiss resort where 2,500 leaders from business and politics, including 70 heads of state and government, will meet next week (23-26 January).

Over the last couple of years, the elite was concerned about the potential risks emerging from the ongoing digital revolution and the flaws of globalisation.

Both phenomena are weighing on the equality between nations and within nations.

Amid the popular discontent and uncertainty fuelled by these forces, the forum called last year for “fundamental reforms to market capitalism”, just days before Donald Trump’s inaugural speech.

This year’s Global Risks Report insists that “systemic challenges have, if anything, intensified amid proliferating indications of uncertainty, instability and fragility.”

The document points out that people across the globe are enjoying the highest standards of living in human history after successfully overcoming the worst financial crisis since World War II.

But today’s world is incapable of dealing with complex challenges, fast-paced changes and risks in cascade.

“The acceleration and interconnectedness in every field of human activity are pushing the absorptive capacities of institutions, communities and individuals to their limits. This is putting future human development at risk,” the report says.

The reason is the lack of collaboration to deliver the systemic change required to address this ‘new normal’. Trump’s “America First” doctrine represents the best example of the isolationism and nationalism eroding global collaboration.

The US president would try to convince the Davos audience next Friday of the benefits of his approach based on zero-sum exchanges among strong nations.

Gender gap

Many things have happened since the tycoon arrived at the White House exactly one year ago, but the reduction of inequality, one of the major issues coming up last year in the Swiss resort, is not one of them.

“Rising income and wealth disparity” continues to rank third in the report as a driver of global risks over the next decade.

Moreover, the global gender parity gap across health, education, politics and the workplace widened in 2017 for the first time since the WEF began measuring it in 2006.

The average gap in these areas increased to 32% in 2017, compared to 31.7% the previous year.

In light of this persistent inequality, the adverse consequences of the digital revolution, high structural unemployment and the spread of underemployment, and the high level of indebtedness, especially in China, the report warns that “greater attention should be paid to the risks of another crisis erupting”.

One of the issues the report touched upon is the looming pension crisis, as inadequate savings would not meet the needs of the ageing population.

The organisers warned that the gap between projected savings and what would be needed by 2050 will be 400 trillion dollars, five times the size of the global economy.

The forum also points at new challenges, such as the limited policy firepower in the event of a new crisis or more protectionist pressures “against a backdrop of rising nationalist and populist politics”.

“Our first response must be to develop new models for cooperation that are not based on narrow interests but on the destiny of humanity as a whole,” Klaus Schwab, founder and executive chairman of WEF, warned last September when he introduced this year’s topic.

A message that would strongly resonate within the US government delegation.