A World Economic Forum study warns that democracy is in “deeper crisis” and champions more ‘inclusive’ growth, amid growing inequality fuelled by technological disruption.
The mood will be rather gloomy (again) this year when at least 50 heads of state and government and hundreds of business leaders meet next week (17-20 January) in Davos Switzerland.
Numerous signals indicate that global progress is off track. Globalisation is being questioned in the US and EU like never before. The economic recovery remains elusive for many, as the gap between rich and poor continues to widen. And democracy is believed to be suffering a “deeper crisis, provoked by the impact of rapid economic and technological change, the deepening of social and cultural polarisation, and the emergence of the ‘post-truth’ political debate,” warned the Forum in its Global Risks Report 2017.
“At the same time, pervasive corruption, short-termism and unequal distribution of the benefits of growth suggest that the capitalist economic model may not be delivering for people,” added Klaus Schwab, founder and head of the organisation.
Against this backdrop, the report pointed out that market capitalism must be reformed in order to better share the benefits of the globalisation because increasing the size of the cake is no longer enough to regain citizens’ support.
The study, which is the curtain-raiser of the elite gathering in the Swiss Alps, noted that Britain’s departure from the EU and the victory of Donald Trump in the US elections are clear signals of the turbulent times in which we are living.
But “across the globe, there is evidence of a growing backlash against elements of the domestic and international status quo”.
This “growing mood of anti-establishment populism” shows that it is no longer enough to create economic growth. Making it more inclusive matters, too.
For 750 businessmen and other figures interviewed to prepare the report, wealth inequality is perceived as the most important trend shaping the global developments over the next decade.
Despite the fact that low growth, free trade agreements and the influx of migrants are the usual scapegoats for worsening economic and labour conditions, the Forum warned that “technological change is a more important challenge for labour markets”.
The Davos Forum dedicated its 2016 edition to the ‘Fourth Industrial Revolution’, adding a cautious note about the risks embedded in technological progress.
This year, the topic will remain an important pillar of the sessions, grouped under the theme ‘Responsive and Responsible Leadership’.
Warnings about the “unsettling effects” of the digital revolution are even clearer in this year’s report.
Erosion of welfare state
The Fourth Industrial Revolution will destroy jobs and may create new ones, but at a slower pace. Meanwhile, the irruption of the so-called collaborative economy (Uber, Airbnb,…) and intelligent robots are reducing employer-backed social protection schemes, decreasing resources for the welfare state.
Moreover, the Forum warned that technology could exacerbate even more the anti-establishment mood, as social cohesion and welfare protection erode.
“An issue underlying the rise of disaffection with the political and economic status quo is that social protection systems are at breaking point,” the document reads.
A European Parliament report adopted in committee this week reached the same conclusion. As a solution, MEPs recommended that member states “seriously consider” a universal basic income.
The Forum report takes seriously the ‘free cash’ proposal, under which a basic income is paid to all members of society regardless of their means.
The toolkit for income distribution schemes also includes a negative income tax (people earning below a certain threshold receive a tax return from the government), and wage supplements (government makes up the difference between what a person earns and a recognised minimum income).
But technological development not only poses a threat from an economic point of view.
The World Economic Forum admitted that the global community is struggling to find the appropriate regulatory approach to deal with fast-developing technologies such as big data, biotechnology, artificial intelligence and the new generation of robots. Too much regulation could kill innovation, while the lack of a proper legal framework and incentives could exacerbate the risks and discourage potential investors.
The pre-Davos report is particularly concerned with the risks that artificial intelligence and self-learning machines could bring, even more so when this field “remains only lightly governed”.
“We need to become better at managing technological change, and we need to do it quickly,” the study concluded.
For the World Economic Forum, "Responsive and Responsible Leadership" requires recognising that frustration and discontent are increasing in the segments of society that are not experiencing economic development and social progress. Their situation will only become more uncertain with the onset of the Fourth Industrial Revolution and its impact on future employment.
The organisation adds that "Responsive and Responsible Leadership" entails a deeper commitment to inclusive development and equitable growth, both nationally and globally. It also involves working rapidly to close generational divides by exercising shared stewardship of those systems that are critical to our prosperity.
"In the end, leaders from all walks of life at the Annual Meeting 2017 must be ready to react credibly and responsibly to societal and global concerns that have been neglected for too long," the forum stated.
- 17-20 February: World Economic Forum in Davos (Switzerland).
- World Economic Forum: The Global Risks Report 2017