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Insight Report The Global Risks Report 2017 12th Edition
The Global Risks Report 2017, 12th Edition is published by the World Economic Forum within the framework of The Global Competitiveness and Risks Team. The information in this report, or on which this report is based, has been obtained from sources that the authors believe to be reliable and accurate. However, it has not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. In addition, the statements in this report may provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or a current fact. These statements involve known and unknown risks, uncertainties and other factors which are not exhaustive. The companies contributing to this report operate in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on these statements. The companies contributing to this report undertake no obligation to publicly revise or update any statements, whether as a result of new information, future events or otherwise and they shall in no event be liable for any loss or damage arising in connection with the use of the information in this report. World Economic Forum Geneva World Economic Forum® © 2017 – All rights reserved. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Forum. ISBN: 978-1-944835-07-1 REF: 050117 The report and an interactive data platform are available at http://wef.ch/risks2017 World Economic Forum 91-93 route de la Capite CH-1223 Cologny/Geneva Switzerland Tel.: +41 (0) 22 869 1212 Fax: +41 (0) 22 786 2744 contact@weforum.org www.weforum.org
Figure 1: The Risks-Trends Interconnections Map Source: World Economic Forum Global Risks Perception Survey 2016 Note: Survey respondents were asked to select the three trends that are the most important in shaping global development in the next 10 years. For each of the three trends identified, respondents were asked to select the risks that are most strongly driven by those trends. The global risks with the most connections to trends are spelled out in the figure. See Appendix B for more details. To ensure legibility, the names of the global risks are abbreviated; see Appendix A for the full name and description
Figure 2: The Evolving Risks Landscape, 2007-2017
Top 5 Global Risks in Terms of Likelihood
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Breakdown of Asset price Asset price Asset price Storms and Severe income Severe income Income disparity Interstate conflict Large-scale Extreme weather
1st critical information collapse collapse collapse cyclones disparity disparity with regional involuntary events
infrastructure consequences migration
Breakdown of critical information infrastructure
Chronic disease Middle East Slowing Chinese Slowing Chinese Flooding Chronic fiscal Chronic fiscal Extreme weather Extreme weather Extreme weather Large-scale
2nd in developed instability economy (Figure 3: The Global Risks Landscape 2017 Source: World Economic Forum Global Risks Perception Survey 2016 Note: Survey respondents were asked to assess the likelihood of the individual global risk on a scale of 1 to 7, 1 representing a risk that is not likely to happen and 7 a risk that is very likely to occur. They also assess the impact on each global risk on a scale of 1 to 5 (1: minimal impact, 2: minor impact, 3: moderate impact, 4: severe impact and 5: catastrophic impact). See Appendix B for more details. To ensure legibility, the names of the global risks are abbreviated; see Appendix A for the full name and description
Figure 4: The Global Risks Interconnections Map 2017 Source: World Economic Forum Global Risks Perception Survey 2016 Note: Survey respondents were asked to identify between three and six pairs of global risks they believe to be most interconnected. See Appendix B for more details. To ensure legibility, the names of the global risks are abbreviated; see Appendix A for the full name and description
The Global Risks Report 2017 12th Edition Strategic Partners Marsh & McLennan Companies Zurich Insurance Group Academic Advisers National University of Singapore Oxford Martin School, University of Oxford Wharton Risk Management and Decision Processes Center, University of Pennsylvania
Contents
4 Preface
By Klaus Schwab
5 Foreword
6 Executive Summary
8 Introduction
10 Part 1: Global Risks 2017
– Economy: Growth and Reform
– Society: Rebuilding Communities
– Technology: Managing Disruption
– Geopolitics: Strengthening Cooperation
– Environment: Accelerating Action
22 Part 2: Social and Political Challenges
23 2.1 Western Democracy in Crisis?
29 2.2 Fraying Rule of Law and Declining Civic
Freedoms: Citizens and Civic Space at Risk
35 2.3 The Future of Social Protection Systems
42 Part 3: Emerging Technologies
43 3.1 Understanding the Technology Risk Landscape
48 3.2 Assessing the Risk of Artificial Intelligence
53 3.3 Physical Infrastructure Networks and the Fourth
Industrial Revolution
58 Conclusion
60 Appendices
Appendix A: Description of Global Risks, Trends and
Emerging Technologies 2017
Appendix B: Global Risks Perception Survey 2016 and
Methodology
68 AcknowledgementsPreface As in previous years, the analysis
contained in this Report builds on the
annual Global Risks Perception Survey,
completed by almost 750 members of
the World Economic Forum’s global
multistakeholder community.
The year 2017 will present a pivotal
moment for the global community. The
threat of a less cooperative, more
inward-looking world also creates the
opportunity to address global risks and
the trends that drive them. This will
require responsive and responsible
leadership with a deeper commitment
to inclusive development and equitable
growth, both nationally and globally. It
The year 2016 has seen profound will also require collaboration across
shifts in the way we view global risks. multiple interconnected systems,
Societal polarization, income inequality countries, areas of expertise, and
and the inward orientation of countries stakeholder groups with the aim of
are spilling over into real-world politics. having a greater societal impact. We
Through recent electoral results in G7 hope that The Global Risks Report
countries, these trends are set to have 2017 and the subsequent deliberations
a lasting impact on the way economies at the World Economic Forum’s Annual
act and relate to each other. They are Meeting 2017 will contribute to a
also likely to affect global risks and the debate about pragmatic solutions.
interconnections between them.
Against the background of these
developments, this year’s Global Risks
Report explores five gravity centres
that will shape global risks. First,
continued slow growth combined with
high debt and demographic change
creates an environment that favours
financial crises and growing inequality. Klaus Schwab
Founder and Executive Chairman
At the same time, pervasive corruption,
World Economic Forum
short-termism and unequal distribution
of the benefits of growth suggest that
the capitalist economic model may not
be delivering for people. The transition
towards a more multipolar world order
is putting global cooperation under
strain. At the same time, the Fourth
Industrial Revolution is fundamentally
transforming societies, economies,
and ways of doing business. Last but
not least, as people seek to reassert
identities that have been blurred by
globalization, decision-making is
increasingly influenced by emotions.
In addition to these gravity centres, this
year’s Global Risks Report presents
deep-dive discussions of risks posed
by ongoing political and societal
transformations, including challenges
to democracy, closing space for civil
society, and outmoded social
protection systems. It also discusses
risks related to emerging technologies
of the Fourth Industrial Revolution and
the associated governance challenges.
4 The Global Risks Report 2017Foreword
As one of the Forum’s flagship reports, University Center for Cyber and
The Global Risks Report has been a Homeland Security; Naomi Oreskes,
collaborative effort since its first edition Harvard University; Jonathan Ostry,
in 2006. It draws on the unique International Monetary Fund; Nouriel
expertise available within the Forum Roubini, New York University; John
itself and its different communities and Scott, Zurich Insurance Group; Richard
knowledge networks. It also builds Smith-Bingham, Marsh & McLennan
firmly on the Forum’s ongoing Companies; Michelle Tuveson, Centre
research, projects, debates and for Risk Studies, University of
initiatives. As well as reflecting the Cambridge Judge Business School;
views of leaders from our various Ngaire Woods, University of Oxford;
communities through the Global Risks and Sandra Wu Wen-Hsiu, Japan Asia
Perception Survey, the insights Group Limited.
presented here are the result of
numerous discussions, consultations, We are also grateful to Aengus Collins,
and workshops. Practice Lead, Global Risks for his
leadership of this project and the Global
With this in mind, we would like to Risks 2017 core project team members
thank our Strategic Report Partners, Ciara Browne, Nicholas Davis, Attilio Di
Marsh & McLennan Companies and Battista, Daniel Gomez Gaviria, Thierry
Zurich Insurance Group, represented Geiger, Gaëlle Marti, Thomas Philbeck,
on the Steering Board by John Drzik, Katharine Shaw, and Stéphanie Verin
President, Global Risk and Specialties, for their contributions to this Report.
Marsh; and Cecilia Reyes, Group Chief
Risk Officer, Zurich Insurance Group. Last but not least, we would like to
Furthermore, Professor Schwab is thank the Global Risks Perception
grateful to our Academic Advisers the Survey 2016 review group, respondents
National University of Singapore, who completed the Global Risks
Oxford Martin School at the University Perception Survey and the participants
of Oxford, and the Wharton Risk in the Global Risks workshops.
Management and Decision Processes
Center at the University of
Pennsylvania.
The Report has greatly benefited from
the dedication and valuable guidance
of the members of the Global Risks
2017 Advisory Board. Members are Margareta Drzeniek Hanouz
Rolf Alter, Organisation for Economic Head of Competitiveness and Risks and
Member of the Executive Committee
Co-operation and Development
(OECD); Sharan Burrow, International
Trade Union Confederation (ITUC);
Winnie Byanyima, Oxfam International;
Marie-Valentine Florin, International
Risk Governance Council (IRGC); Al
Gore, Generation Investment
Management; Donald Kaberuka, Richard Samans
Harvard University; Steven Kou, Head of the Centre for the Global Agenda,
National University of Singapore; Julian Member of the Managing Board
Laird, Oxford Martin School; Pascal
Lamy, Jacques Delors Institute; Ursula
von der Leyen, Federal Minister of
Defence of Germany; Maleeha Lodhi,
Ambassador and Permanent
Representative of Pakistan to the
United Nations; Gary Marchant,
Arizona State University; Erwann
Michel-Kerjan, Wharton Risk
Management and Decision Processes
Center, University of Pennsylvania;
Nicolas Mueller, Federal Chancellery of
Switzerland; Moisés Naím, Carnegie
Endowment for International Peace;
Kirstjen Nielsen, George Washington
The Global Risks Report 2017 5Executive
For over a decade, The Global Risks five. Hence the next challenge: facing
Report has focused attention on the up to the importance of identity and
evolution of global risks and the deep community. Rapid changes of
Summary interconnections between them. The attitudes in areas such as gender,
Report has also highlighted the sexual orientation, race,
potential of persistent, long-term trends multiculturalism, environmental
such as inequality and deepening protection and international cooperation
social and political polarization to have led many voters – particularly the
exacerbate risks associated with, for older and less-educated ones – to feel
example, the weakness of the left behind in their own countries. The
economic recovery and the speed of resulting cultural schisms are testing
technological change. These trends social and political cohesion and may
came into sharp focus during 2016, amplify many other risks if not resolved.
with rising political discontent and
disaffection evident in countries across Although anti-establishment politics
the world. The highest-profile signs of tends to blame globalization for
disruption may have come in Western deteriorating domestic job prospects,
countries – with the United Kingdom’s evidence suggests that managing
technological change is a more
vote to leave the European Union and
important challenge for labour markets.
President-elect Donald Trump’s victory
While innovation has historically created
in the US presidential election – but
new kinds of jobs as well as destroying
across the globe there is evidence of a
old kinds, this process may be slowing.
growing backlash against elements of
It is no coincidence that challenges to
the domestic and international status
social cohesion and policy-makers’
quo. legitimacy are coinciding with a highly
disruptive phase of technological
change.
The Global Risks
Landscape The fifth key challenge is to protect
and strengthen our systems of
One of the key inputs to the analysis of global cooperation. Examples are
The Global Risks Report is the Global mounting of states seeking to withdraw
Risks Perception Survey (GRPS), which from various international cooperation
brings together diverse perspectives mechanisms. A lasting shift in the
from various age groups, countries and global system from an outward-looking
sectors: business, academia, civil to a more inward-looking stance would
society and government. be a highly disruptive development. In
numerous areas – not least the ongoing
This year’s findings are testament to crisis in Syria and the migration flows it
five key challenges that the world now has created – it is ever clearer how
faces. The first two are in the economic important global cooperation is on the
category, in line with the fact that rising interconnections that shape the risk
income and wealth disparity is rated by landscape.
GRPS respondents as the most
important trend in determining global Further challenges requiring global
developments over the next 10 years. cooperation are found in the
This points to the need for reviving environmental category, which this year
economic growth, but the growing stands out in the GRPS. Over the
mood of anti-establishment populism course of the past decade, a cluster of
suggests we may have passed the environment-related risks – notably
stage where this alone would remedy extreme weather events and failure of
fractures in society: reforming market climate change mitigation and
capitalism must also be added to the adaptation as well as water crises – has
agenda. emerged as a consistently central
feature of the GRPS risk landscape,
With the electoral surprises of 2016 and strongly interconnected with many
the rise of once-fringe parties stressing other risks, such as conflict and
national sovereignty and traditional migration. This year, environmental
values across Europe and beyond, the concerns are more prominent than
societal trends of increasing ever, with all five risks in this category
polarization and intensifying national assessed as being above average for
sentiment are ranked among the top both impact and likelihood.
6 Global Risks 2015Social and Political Managing the Fourth
Challenges Industrial Revolution
After the electoral shocks of the last The final part of this Report explores
year, many are asking whether the the relationship between global risks
crisis of mainstream political parties in and the emerging technologies of the
Western democracies also represents Fourth Industrial Revolution (4IR). We
a deeper crisis with democracy itself. face a pressing governance
The first of three “risks in focus” challenge if we are to construct the
considered in Part 2 of the Report rules, norms, standards, incentives,
assesses three related reasons to think institutions and other mechanisms that
so: the impacts of rapid economic and are needed to shape the development
technological change; the deepening of and deployment of these technologies.
social and cultural polarization; and the How to govern fast-developing
emergence of “post-truth” political technologies is a complex question:
debate. These challenges to the regulating too heavily too quickly can
political process bring into focus policy hold back progress, but a lack of
questions such as how to make governance can exacerbate risks as
economic growth more inclusive and well as creating unhelpful uncertainty
how to reconcile growing identity for potential investors and innovators.
nationalism with diverse societies.
Currently, the governance of emerging
The second risk in focus also relates to technologies is patchy: some are
the functioning of society and politics: it regulated heavily, others hardly at all
looks at how civil society organizations because they do not fit under the remit
and individual activists are increasingly of any existing regulatory body.
experiencing government crackdowns Respondents to the GRPS saw two
on civic space, ranging from emerging technologies as being most
restrictions on foreign funding to in need of better governance:
surveillance of digital activities and even biotechnologies – which tend to be
physical violence. Although the stated highly regulated, but in a slow-moving
aim of such measures is typically to way – and artificial intelligence (AI) and
protect against security threats, the robotics, a space that remains only
effects have been felt by academic, lightly governed. A chapter focusing on
philanthropic and humanitarian entities the risks associated with AI
and have the potential to erode social, considers the potential risks associated
political and economic stability. with letting greater decision-making
powers move from humans to AI
An issue underlying the rise of programmes, as well as the debate
disaffection with the political and about whether and how to prepare for
economic status quo is that social the possible development of machines
protection systems are at breaking with greater general intelligence than
point. The third risk in focus analyses humans.
how the underfunding of state systems
is coinciding with the decline of The Report concludes by assessing
employer-backed social protection the risks associated with how
schemes; this is happening while technology is reshaping physical
technological change means stable, infrastructure: greater
long-term jobs are giving way to interdependence among different
self-employment in the “gig economy”. infrastructure networks is increasing
The chapter suggests some of the the scope for systemic failures –
innovations that will be needed to fill the whether from cyberattacks, software
gaps that are emerging in our social glitches, natural disasters or other
protection systems as individuals causes – to cascade across networks
shoulder greater responsibility for costs and affect society in unanticipated
associated with economic and social ways.
risks such as unemployment,
exclusion, sickness, disability and old
age.
The Global Risks Report 2017 7Introduction 8 The Global Risks Report 2017
This 12th edition of The Global This year’s Global Risks Report takes
Risks Report is published at a time as its starting point the societal and
of heightened political uncertainty, political polarization that besets an
following a year of unexpected electoral increasing number of countries and
results, particularly in the United States that looks set to be a determining
and the United Kingdom. Polarized feature of the political landscape not
societies and political landscapes just for the next few years but for the
are taking centre stage in many next few electoral cycles. In Part 1, the
countries, with deepening generational Report draws on the trends and risks
and cultural divisions amplifying highlighted in the latest GRPS to outline
the risks associated with sluggish the key challenges that the world now
economic recovery and accelerating faces: reviving economic growth;
technological change. reforming market capitalism; facing
up to the importance of identity and
These tensions have been building community; managing technological
for some time, and over the past change; protecting and strengthening
10 years a nexus of social, political our systems of global cooperation; and
and economic fragilities has been a deepening our efforts to protect the
consistent focus of The Global Risks environment.
Report. The events of 2016 should
serve as a wake-up call and prompt us Part 2 explores three social and
to reassess our preparedness in the political risks in greater depth. The
face of an evolving risk landscape. first chapter considers whether recent
political trends amount to a crisis
While we should be wary of attributing of Western democracy. It looks at
too much influence to a series of underlying patterns that have led to a
very recent electoral results, the weakening of democratic legitimacy
consequences of which are still and points to three strategies that
unknown, major unexpected events might help to restore it. The second
can serve as inflection points. Long- piece highlights the importance of civil
term trends – such as persistent society in mitigating risks and assesses
inequality and deepening polarization, trends towards the curtailment of
which ranked first and third in civil society organizations’ freedom
perceived importance in the Global to operate. The final chapter in this
Risks Perception Survey (GRPS) this part of the Report looks at one of the
year – can build to a point at which gravest long-term challenges facing
they become triggers for change. This the world: how to build systems of
kind of change might involve risks social protection that can cope with the
intensifying or crystallizing, but it is seismic demographic, economic and
important to recognize that shocks and other changes that have transfigured
releases of tension might also lead to social structures and individual lives
a brightening of the risk outlook. We over the last three decades.
are in a period of flux; paradoxically this
is therefore a time when things could Part 3 turns towards technology, which
improve. is at once a source of disruption and
polarization and an inevitable part of
The world is undergoing multiple whatever responses to these trends
complex transitions: towards a lower- we choose to pursue. Informed by the
carbon future; towards technological results of a special GRPS module on
change of unprecedented depth and emerging technologies, the urgency
speed; towards new global economic of the governance challenge in this
and geopolitical balances. Managing area is stressed. This is followed by
these transitions and the deeply two in-depth assessments of specific
interconnected risks they entail will technological risks: first, in relation to
require long-term thinking, investment artificial intelligence, and second, in
and international cooperation. It will relation to our rapidly changing physical
also require policy-makers to bring infrastructure needs and vulnerabilities.
voters with them – one of the lessons
of 2016 is that we are very far from
consensus on how to proceed.
The Global Risks Report 2017 9Part 1
Part 1: Global
Risks 2017
Part 2
Part 3
10 The Global Risks Report 2017Part 1
Years of building pressure in many – revitalizing global economic impact and likelihood of individual risks,
parts of the world, at least since the growth, the survey asks ask them to consider
global financial crisis,1 crystallized – recognizing the importance of the influences and interconnections
into dramatic political results during identity and inclusiveness in that shape the risk landscape. Here
2016 as public disaffection with the healthy political communities, the economy is paramount. “Growing
status quo gained traction. In the income and wealth disparity” is seen
– mitigating the risks and exploiting
West, consensus expectations were
Part 2
by respondents as the trend most likely
the opportunities of the Fourth
defied by the United Kingdom’s to determine global developments over
Industrial Revolution, and
decision to leave the European Union, the next 10 years (see Table 1.1), and
by President-elect Donald Trump’s – strengthening our systems of when asked to identify interconnections
victory in the United States and by the global cooperation. between risks, the most frequently
Italian electorate’s rejection of Matteo mentioned pairing was that of
Renzi’s constitutional reforms. The The remainder of Part 1 looks at unemployment and social instability
implications of results such as these each of these challenges, drawing (see Table 1.2 and Appendix A).
are potentially far-reaching – some on the latest Global Risks Perception
people question whether the West has Survey (GRPS) to identify potential
Table 1.1: Top 5 Trends that
Part 3
reached a tipping point and might now trigger points that might create new
risks, exacerbate existing risks or Determine Global Developments
embark on a period of deglobalization.2
But the uncertainty and instability that – an under-appreciated possibility
characterized 2016 are not Western – provide opportunities to do things 1 Rising Income and wealth disparity
phenomena alone: we saw variations differently in a way that mitigates risks.
2 Changing climate
of them in countries across the world, Part 1 concludes with a reflection
including Brazil, the Philippines and on environmental risk, which again 3 Increasing polarization of societies
Turkey. stands out in the GRPS as a source
4 Rising cyber dependency
of concern, and which would be
These developments should not particularly vulnerable to any loss of 5 Ageing population
surprise us. Over the past decade momentum in global cooperation.
The Global Risks Report has drawn
Source: World Economic Forum Global Risks
attention each year to a persistent Perception Survey 2016.
cluster of economic, social and
geopolitical factors that have helped
Economy: Growth and
Reform Globally, inequality between countries
shape the global risks landscape.
has been decreasing at an accelerating
In 2007 and 2008, for example,
Despite unprecedented levels of pace over the past 30 years.4 Within
The Global Risk Report’s rankings
peace and global prosperity, in many some countries, however, the data tell
showed deglobalization in advanced
countries a mood of economic malaise a different story. Inequality had been
economies as tied for the risk with the
has contributed to anti-establishment, falling consistently in the industrialized
highest impact; in 2011, the Report
populist politics and a backlash against world since the beginning of the 20th
focused on “economic disparity and
globalization. The weakness of the century, but since the 1980s the
global governance failures”; in 2014
economic recovery following the global share of income going to the top 1%
it highlighted “societal concerns
financial crisis is part of this story, has increased in the United States,
includ[ing] the breakdown of social
but boosting growth alone would not United Kingdom, Canada, Ireland and
structures, the decline of trust in
remedy the deeper fractures in our Australia (although not in Germany,
institutions, the lack of leadership and
political economy. More fundamental Japan, France, Sweden, Denmark or
persisting gender inequalities”; and in
2015 it observed that “the fragility of reforms to market capitalism may the Netherlands).5 Reasons include
societies is of increasing concern” and be needed to tackle, in particular, an skill-biased technological change6
cautioned against excessive economic apparent lack of solidarity between – which increases the returns to
optimism, noting that it might “reflect a those at the top of national income and education – combined with scale
false sense of control, as history shows wealth distributions and those further effects as markets became more
that people … are often taken by down. interconnected, increasing global
surprise by the same risks.”3 competition for talent. Among
Economic concerns pervade the latest other things, this has led to an
That discontent with the current GRPS results. This is not immediately increase in CEO compensation as
order has now become an election- evident from the evolution of the top- firms have become larger.7 Global
winning proposition clearly increases five risks by impact and likelihood, communications have also driven
the urgency of understanding and as illustrated in Figure 2 (inside front up returns for individuals who can
responding to these global risks. The cover), which shows economic risks successfully cater to a global audience
World Economic Forum has identified fading in prominence since the height – what Sherwin Rosen described as
five key challenges that will require of the global financial crisis, and “the economics of superstars”.8
greater global attention and action: missing entirely for the first time in the
– fostering greater solidarity and latest survey. However, in addition
long-term thinking in market to asking respondents to assess the
capitalism,
The Global Risks Report 2017 11Part 1
Figure 1.1: The Pace of Global Recoveries since 1975
OECD real GDP; seasonally adjusted; rebased to 100 at trough of each slowdown
125
120
Part 2
1975
115
1982
110
1991
105 2001
2009
100
95
Part 3
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Number of quarters after trough
Source: OECD Quarterly National Accounts Dataset.
In advanced economies, the incomes speed,12 they have not been immune legacy of the pre-crisis boom, weighing
of the traditionally well-off middle to rising public discontent – evident, on growth by diverting income towards
classes have grown at a comparatively for example, in large demonstrations debt servicing rather than fresh
slower pace9 – and slower also than against corruption across Latin consumption or investment.
the incomes of the emerging middle America. Larrain et al. argue that rising
classes of countries in Latin America, prosperity and a growing middle class Is it time for the pendulum to swing
Africa, and particularly Asia.10 The lead to greater demands for better from monetary to fiscal policy? In
slow pace of economic recovery since government and public goods, which the United States, President-elect
2008 has intensified local income governments across the developing Trump campaigned on the promise
disparities,11 with a more dramatic world have been unable to meet.13 of increased infrastructure spending,
impact on many households than and globally there is tentative evidence
aggregate national income data would In the wake of the financial crisis, of a gradual move towards fiscal
suggest. This has contributed to anti- economic policy-making has been loosening.17 This presents its own
establishment sentiment in advanced predominantly monetary rather than risks: borrowing costs for governments
economies, and although emerging fiscal. Unorthodox countercyclical have been exceptionally low in recent
markets have seen poverty fall at record policies such as quantitative easing – years, but if investors were to re-price
large-scale purchases of government risk sharply, the adjustment this would
Table 1.2: Most Important Risks’ bonds by central banks – have evolved require from high-deficit countries could
Interconnections into enduring features of economic have significant economic and political
policy frameworks. And although consequences. However, it is not only
evidence points to positive impacts on concerns about market responses
Unemployment and growth and employment,14 quantitative that shape governments’ reluctance to
1 underemployment easing has also exacerbated income turn to fiscal policy. Policy preferences
Profound social instability inequality by boosting returns enjoyed matter too. In the Eurozone, for
Large-scale involuntary by the owners of financial assets,15 example, governments have been slow
2 migration while workers’ real earnings have been to respond to repeated exhortations
growing very slowly.16 from Mario Draghi, the president of
State collapse or crisis
the European Central Bank, to find
Failure of climate-change This is not the only source of concern more space for fiscal loosening.18
3 mitigation and adaption about exceptional monetary policies. Using Organisation for Economic
Water crises Sustained low interest rates can Co-operation and Development
distort the financial mechanisms that (OECD) data, Figure 1.2 illustrates the
Failure of national governance underpin healthy economic activity: divergence of fiscal trends in the United
4 they make it unusually cheap for States and Eurozone since 2015.
Profound social instability
struggling companies to roll over their
Interstate conflict with regional
debts, inhibiting the process of re- Beyond monetary policy and fiscal
consequences
allocating resources from inefficient to stimulus, productivity growth has also
5 Large-scale involuntary more innovative parts of the economy. been slow to recover from the crisis.
migration This in turn complicates the process Structural rates of unemployment
of clearing the debt overhangs that in remain high, particularly among young
Source: World Economic Forum Global Risks many countries remains an unresolved people in Europe, and the United States
Perception Survey 2016.
12 The Global Risks Report 2017Part 1
Figure 1.2: Fiscal Balances 2009–2018 political identity in increasingly assertive
General government balance; % of GDP foreign policy stances.23 Globally,
politics is increasingly defined by the
2009 10 11 12 13 14 15 16 17 18 rise of charismatic “strongman” national
0 politicians and emotive political debate:
“post-truth” was the Oxford English
-2
Part 2
Dictionary’s word of the year.24
-4
In the latest GRPS, respondents
-6 ranked “increasing polarization” as
the third most important trend for
-8 the next 10 years – it was cited by
-10
31% of respondents, with “increasing
national sentiment” cited by 14%. The
-12 survey recorded an increase in the
perceived impact of “failure of national
Part 3
-14 governance” but, perhaps surprisingly,
United States Euro–zone “profound social instability” dropped
in the rankings for both perceived
Source: OECD Economic Outlook 100 database likelihood and impact. One possibility
is that the global decision-makers
has seen a marked slump in labour The combination of economic who mostly comprise the GRPS panel
participation rates. And in contrast inequality and political polarization have not been sufficiently attuned to
with the pre-crisis era, when China’s threatens to amplify global risks, fraying this risk. Another way of interpreting
rapid expansion bolstered overall the social solidarity on which the the GRPS, however, is to focus on
growth rates, there is no emerging- legitimacy of our economic and political the underlying trends rather than the
market game-changer on the horizon.19 systems rests. New economic systems risks. By placing both polarization and
China is in a gradual slowdown as and policy paradigms are urgently intensifying national sentiment among
its economy transitions from an needed to address the sources of the top five trends (see Table 1.1),
investment-led to a consumption- popular disenchantment.20 These could GRPS respondents have highlighted
led growth model, and many other include more effective human capital long-term patterns that, if they persist,
emerging markets are undergoing policies, to enable more people to are likely to continue to amplify a range
a traumatic adjustment to the end benefit from skill-biased technological of social and political risks.
of a commodities super-cycle that change; better public goods (whether
underpinned much of their growth so publicly or privately provided) to In the West, decades of rapid social
far this century. address the ambitions of the growing and economic change have widened
middle class around the world; and generation gaps in values, disrupted
In sum, it is difficult to identify routes more responsive governance systems traditional patterns of affiliation and
that will lead back to robust global rates to empower individuals at the local level community, and eroded the support
of economic growth. However, growth without sacrificing the many benefits of of mainstream political parties.25 Early
is now only part of the challenge policy- globalization. analysis by political scientists Ronald
makers need to address. Concerns Inglehart and Pippa Norris points to
over income and wealth distribution are the populism behind the victories of
becoming more politically disruptive,
and much greater emphasis is needed Society: Rebuilding Brexit and President-elect Trump as
being driven more by demographics
on the increasing financial insecurity Communities and cultural factors than income
that characterizes many people’s inequality:26 a backlash among older
lives. As socio-economic outcomes Issues of identity and culture were and less-educated voters who “feel
are increasingly determined globally, central to the two most dramatic that they are being marginalized within
popular frustration is growing at the Western political results of 2016, in the their own countries” by changing
inability of national politics to provide United Kingdom and the United States. values in areas such as gender, sexual
stability. Economist Dani Rodrik coined This is part of a broader trend affecting orientation, race, multiculturalism,
the phrase “the globalization trilemma” both international and domestic environmental protection and
to capture his view that, among politics. Across the European Union, international cooperation. Pew
democracy, national sovereignty and parties stressing national sovereignty research found stark divisions in the
global economic integration, only and/or values have prospered,21 self-described values of supporters of
two are simultaneously compatible – boosted in part by migration flows that President-elect Trump and Democrat
and recent events in Europe and the GRPS respondents continue to point to candidate Hillary Clinton: for example,
United States suggest an appetite for as a major geopolitical risk. Outside the 72% of President-elect Trump’s
rebalancing towards democracy and European Union, polarization in Turkey supporters described themselves as
national sovereignty. has deepened since 2010,22 while “traditional”, versus 31% of Clinton
Russia has been expressing its national supporters; other big differences
The Global Risks Report 2017 13Part 1
Figure 1.3: Populist Voting in Europe Technology: Managing
Disruption
14
Evidence suggests that technological
13.2%
12 change provides a better explanation
than globalization for the industrial
Part 2
10 decline and deteriorating labour-market
Mean vote share (%)
prospects that have catalyzed anti-
8 establishment voting in many of the
world’s advanced economies. Today’s
6 world is one in which production,
mobility, communication, energy
4 5.1% and other systems are changing with
unprecedented speed and scope,
2 disrupting everything from employment
patterns to social relationships and
Part 3
0 geopolitical stability. Driven by the
1970s 2000s convergence between digital, biological
and physical technologies, the Fourth
Industrial Revolution (4IR) is creating
new global risks and exacerbating
Source: Adapted from Inglehart and Norris (2016), drawing on Döring and Manow (2016). Parliaments and
government database (ParlGov) ‘Elections’ dataset. existing risks.
Note: Vote shares of populist-right parties in national parliamentary and European parliamentary elections in 24
European countries. Perhaps because of the increasing
ubiquity of innovative technology,
respondents to the GRPS have tended
included “honor and duty are my Dramatic events can have complex not to include technological risks
core values” (59% vs 35%); “typical effects on the risk landscape. They can among the most impactful or the most
likely to occur. This can be seen in
American” (72% vs 49%), “feminist” trigger new risks or exacerbate existing
the comparatively few technological
(5% vs 38%) and “supporter of LGBT ones, but they can also open the way
risks that appear in the evolving risk
rights” (24% vs 66%).27 to responses that mitigate risks. As
matrix (Figure 2, inner cover). There
many of the West’s democracies face
are possible signs of change, however.
Many established political parties up to the growing electoral influence
The year 2014 was the first in which
are ill-equipped to respond to voters’ of traditionalist political identities,
two technological risks made it into
placing greater emphasis on culture there are potential gains for social
the evolving risk matrix, and this year,
and values, because the parties have solidarity and democratic legitimacy
although only one is included (“massive
shifted towards the centre of the if processes of political debate and
incident of data fraud/theft”), another
political spectrum and a managerial compromise re-connect with the older,
(“large-scale cyberattacks”) came sixth
or technocratic style of politics.28 They less-educated and predominantly male
in the list of risks most likely to occur in
have lost touch with their traditional voters who currently feel excluded.
the next 10 years.
core constituencies, particularly those However, it will be challenging to find
with class-based roots.29 In 2013, political narratives and policies that can According to the economists Michael
political scientist Peter Mair wrote that repair decades-long cultural fault-lines Hicks and Srikant Devaraj, 86% of
political parties’ failure to engage voters while preserving, for example, gender manufacturing job losses in the United
meant democracy was starting to and minority rights. Failure could States between 1997 and 2007
buckle as electorates “are becoming further undermine social and cultural were the result of rising productivity,
effectively non-sovereign”.30 Events cohesion: Daron Acemoglu, author with compared to less than 14% lost
last year suggest that verdict may James Robinson of Why Nations Fail, because of trade. Most assessments
have been premature. Both the Brexit has cautioned that current divisions suggest that technology’s disruptive
and President-elect Trump victories in the United States risk undermining effect on labour markets will accelerate
featured (1) outsiders to major party not just the electoral process but the across non-manufacturing sectors in
politics (2) successfully engaging institutions and norms on which it is the years ahead, as rapid advances in
traditionalist voters with (3) appeals to founded.32 robotics, sensors and machine learning
sovereignty rooted in national identity enable capital to replace labour in an
and pride. Unusually, older voters were expanding range of service-sector
in the vanguard of these disruptive job. Estimates of the number of jobs
movements – and with populations at risk to technological displacement
ageing, the pendulum may not swing vary: a frequently cited 2013 Oxford
back towards the younger generation’s Martin School study has suggested
views for some time.31 that 47% of US jobs were at high risk
from automation; in 2016 an OECD
14 The Global Risks Report 2017Part 1
working paper put the figure lower, Such regulatory delays can mean social and Investment Partnership also carries
at 9%.33 In 2015 a McKinsey study and economic benefits are missed – geopolitical significance.
concluded that 45% of the activities but when health, the environment and
that workers do today could already broader social impacts are at stake, In Syria, the drawn-out nature of the
be automated if companies choose to a cautiously deliberative approach war indicates how the absence of a
do so.34 As discussed in Chapter 3.1, is prudent. How best to strike this great-power accord handicaps the
respondents to this year’s GRPS rate balance is currently causing debate, United Nations, compounding the
Part 2
artificial intelligence and robotics as the for example, in efforts to accelerate difficulties of brokering a settlement to
emerging technology with the greatest the regulation of self-driving vehicles.41 a conflict with multiple stakeholders at
potential for negative consequences Although populist movements have global, regional and non-state levels, or
over the coming decade. recently tapped public hostility to even organizing a limited intervention
globalization more than to technology, to facilitate humanitarian relief or
Technology has always created there is still the risk of backlash against protect civilians. The death toll among
jobs as well as destroying them, but technological change. For example, non-combatants – including from
there is evidence that the engine of public concerns about genetically chemical weapons – has been met
technological job creation is sputtering. modified foods have consistently with despairing rhetoric but no effective
Part 3
The Oxford Martin School estimates exceeded scientific assessments of action to enforce long-standing
that only 0.5% of today’s US workforce the risks associated with them, and humanitarian laws and norms.
is employed in sectors created since concerns about climate change have
2000, compared with approximately not precluded public opposition to wind In parallel to their withdrawal of support
8% in industries created during the farms.42 for collective solutions, major powers
1980s.35 Technological change is now openly trade accusations of
shifting the distribution of income We are in a highly disruptive phase of undermining international security or
from labour to capital: according to technological development, at a time interfering in their domestic politics. For
the OECD, up to 80% of the decline of rising challenges to social cohesion years President Putin has accused the
in labour’s share of national income and policy-makers’ legitimacy. Given United States of seeking to undermine
between 1990 and 2007 was the the power of the 4IR to create and global stability and Russian sovereignty,
result of the impact of technology.36 At exacerbate global risks, the associated and in 2016 the US National Security
a global level, however, many people governance challenges are both huge Agency blamed Russia for interference
are being left behind altogether: more and pressing, as further discussed in in the presidential election. Tensions
than 4 billion people still lack access to Part 3. It is critical that policy-makers rose between the United States and
the internet, and more than 1.2 billion and other stakeholders – across China over freedom of navigation in the
people are without even electricity.37 government, civil society, academia South China Sea and the deployment
and the media – collaborate to create of US missile defence systems to the
We can shape the dynamics of the more agile and adaptive forms of local, Republic of Korea, which led to Beijing
4IR. Careful governance can guide national and global governance and risk warning the United States not to “harm
the distribution of benefits and management. China’s strategic security interests”.
impact on global risks, because the
evolution of new technologies will In response to the general loss of faith
be heavily influenced by the social Geopolitics: Strengthening in collective security mechanisms,
norms, corporate policies, industry regional powers and smaller nations are
standards and regulatory principles Cooperation increasingly exploring the acquisition of
being debated and written today.38 new conventional weapons capabilities,
Unfortunately, however, current legal, In a worrying sign of deteriorating offensive cyber weapons and even
policy-making and standard-setting commitment to global cooperation, nuclear ones. Notwithstanding the
institutions tend to move slowly. For states are stepping back from normative and practical obstacles
example, the US Federal Aviation mechanisms set up to underpin confronting a state seeking nuclear
Authority took eight months to grant international security through mutual capability, political leaders in nuclear
Amazon an “experimental airworthiness accountability and respect for common and non-nuclear weapons states alike
certificate” to test a particular model of norms. For example, 2016 saw Russia, have increasingly made reference to
drone, by which time the model was South Africa, Burundi and Gambia the utility of nuclear weapons in the
obsolete;39 Amazon conducted its trials withdraw from the International context of changing threat perceptions
in Canada and the United Kingdom Criminal Court, and China reject the and wavering confidence in alliance
instead. In 2015, the US Food and verdict of the international tribunal on structures. If this rhetoric turns into
Drug Administration (FDA) approved the South China Sea. At the time of policy, it could entail a huge diversion
an application by AquaBounty writing, the incoming US president of resources into a new nuclear arms
Technologies for regulatory approval is considering withdrawal from the race and a jump in the risk of pre-
of genetically modified salmon – an recent Joint Comprehensive Plan of emptive strikes aimed at preventing an
application made in 1995. The salmon Action (Iran nuclear deal) and the Paris adversary gaining nuclear capability.
still cannot be sold in the United Climate Change agreement. The exit
States, pending an update to labelling of major stakeholders from economic In summary, developments in 2016
regulations.40 agreements such as the Trans-Pacific present numerous reminders that
Partnership and Trans-Atlantic Trade international security requires collective
The Global Risks Report 2017 15Part 1
commitments and investment to define quadrant. Environmental risks are also November 2016; it is now ratified by
a positive vision, as well as political closely interconnected with other risk more than 110 countries;
will to make responsible trade-offs categories. Four of the top ten risk – a strong signal of support for
and commit resources (Box 1.1). As interconnections in this year’s GRPS implementing the Paris Agreement
technological, demographic and involve environmental risks, the most was made by 196 governments,
climate pressures intensify the danger frequently cited of these being the including China, at the Marrakesh
Part 2
of systems failure, competition among pairing of “water crises” and “failure Climate Conference in late
world powers and fragmentation of of climate change mitigation and November 2016;43
security efforts makes the international adaptation”.
– the International Civil Aviation
system more fragile, placing collective
Organisation agreed a “market-
prosperity and survival at risk. This shows that ineffective
based measure” that will ensure
management of the “global commons”
no net growth in aviation emissions
– the oceans, atmosphere, and climate
after 2020 – this is significant
Environment: Accelerating system – can have local as well as
because international aviation, like
global consequences. For example,
Action changing weather patterns or water
shipping, falls outside the scope of
Part 3
the Paris Agreement; and
crises can trigger or exacerbate
As Figure 2 (inside front cover) geopolitical and societal risks such – also in October, parties to the
illustrates, a cluster of interconnected as domestic or regional conflict and Montreal Protocol on ozone-
environment-related risks – including involuntary migration, particularly in depleting substances agreed an
extreme weather events, climate geopolitically fragile areas. important amendment that could
change and water crises – has help avoid an additional 0.5°C of
consistently featured among the top- Further progress was made during warming by 2050 through reducing
ranked global risks for the past seven 2016 in addressing climate and other the use of hydrofluorocarbons
editions of The Global Risks Report. environmental risks, reflecting firm (HFCs), which have an extremely
Environment-related risks again stand international resolve on the transition to high global warming potential.44
out in this year’s global risk landscape a low-carbon global economy and on
(see Figure 3 (inside rear cover), with building resilience to climate change: The year 2016 also saw positive
every risk in the category lying in empirical evidence that the transition to
– The Paris Agreement on climate
the higher-impact, higher-likelihood a low-carbon economy is underway:
change entered into force on 4
Box 1.1: Five Factors Exacerbating Geopolitical Risks
Five factors aggravate the impact on global risks of the current geopolitical atmosphere of rising competition, loss of trust and
heightened suspicion:
First, international cooperation is giving way to unilateral or transactional approaches to foreign policy just as a host of issues –
such as global growth, debt and climate change – demand urgent collective action. If allowed to fester, such issues could spawn
a range of new problems with costs falling disproportionately on fragile communities.
Second, the inter-connected nature of the global system produces cascading risks at the domestic level. In Syria, for example,
failures of governance have produced civil conflict, driving migration that transfers economic, social and political pressures into
countries already experiencing frustrations with low growth and rising inequality, fuelling radicalization and acts of violence.
Third, a declining sense of trust and mutual good faith in international relations makes it harder to contain the resulting pressures
through domestic policy. The current climate of mutual suspicion can exacerbate domestic political tensions through
accusations of outside actors interfering to shape popular perceptions via proxy forces, media manipulation or threatening
military gestures.
Fourth, technological innovation exacerbates the risk of conflict. A new arms race is developing in weaponized robotics and
artificial intelligence. Cyberspace is now a domain of conflict, and the Arctic and deep oceans are being opened up by remote
vehicle access; in each case, there is no established system for policing responsible behaviour. Because research and
development of “dual-use” technologies takes place largely in the private sector, they can be weaponized by a wider range of
state and non-state actors – for example, the self-proclaimed “Islamic State” has used commercial drones to deliver bombs in
Syria, and open-source technology could potentially create devastating biological weapons. Existing counter-proliferation
methods and institutions cannot prevent the dissemination of technologies that exist in digital form.
Fifth, while risks intersect and technologies develop quickly, too often our institutions for governing international security remain
reactive and slow-moving.
16 The Global Risks Report 2017Part 1
– Bloomberg New Energy Finance months have been in the whole 137 over Arctic drilling plans.56 Meanwhile,
reported that global investment in year record.49 the US Environmental Protection
renewable energy capacity in 2015 Agency (EPA)’s Clean Power Plan is
was US$266 billion, more than The Emissions Gap Report 2016 being challenged in court and has
double the allocations to new coal from the United Nations Environment divided the electricity industry: coal
and gas capacity;45 and Programme (UNEP) shows that even if miners, some labour unions, and 27
countries deliver on the commitments states support the challenge while the
Part 2
– the International Energy Agency
(IEA) reported that the total – known as Nationally Determined renewable energy industry, leading tech
generation capacity of renewable Contributions (NDCs) – that they made firms, and 18 states are supporting the
energy now exceeds coal-fired in Paris, the world will still warm by 3.0 EPA’s legislation.57
power plants for the for first to 3.2°C.50 To keep global warming
time, and for the past two years to within 2°C and limit the risk of As warming increases, impacts grow.
greenhouse gas emissions have dangerous climate change, the world The Arctic sea ice had a record melt in
been de-coupled from economic will need to reduce emissions by 40% 2016 and the Great Barrier Reef had
growth.46 to 70% by 2050 and eliminate them an unprecedented coral bleaching
altogether by 2100.51 While attention event, affecting over 700 kilometres
Part 3
will be focused on China, the United of the northern reef.58 The latest
However, the pace of change is not States, the European Union, and India – analysis by the UN High Commissioner
yet fast enough. Global greenhouse which collectively comprise more than for Refugees (UNHCR) estimates
gas (GHG) emissions are growing, half of global emissions – all countries that, on average, 21.5 million people
currently by about 52 billion tonnes will need to ratchet up their action in have been displaced by climate- or
of CO2 equivalent per year,47 even order to limit warming to 2°C. weather-related events each year
though the share from industrial and since 2008,59 and the UN Office for
energy sources may be peaking as Increasingly, legal action is being Disaster Risk Reduction (UNISDR)
investment and innovation in green taken against national governments reports that close to 1 billion people
technology accelerates (see Box 1.2). in an attempt to force action on were affected by natural disasters
The year 2016 is set to be the warmest environmental issues. The United in 2015.60 Communities from Alaska
on the instrumental record according Kingdom is being sued for failing to deal to Fiji and Kiribati have already been
to provisional analysis by the World with a “national air pollution crisis”,52 relocated or are making plans to do so
Meteorological Organisation.48 It and it has also been threatened with because the rising sea level threatens
was the first time the global average legal action if it fails to reduce its their lands.61 The World Bank forecasts
temperature was 1 degree Celsius or greenhouse emissions;53 a group of that water stress could cause extreme
more above the 1880–1999 average. teenagers has challenged the US societal stress in regions such as the
According to the National Oceanic and government for not protecting them Middle East and the Sahel, where the
Atmospheric Administration, each of from climate change;54 the Netherlands economic impact of water scarcity
the eight months from January through has been ordered by a court to cut its could put at risk 6% of GDP by 2050.62
August 2016 were the warmest those emissions;55 and Norway is being sued The Bank also forecasts that water
availability in cities could decline by as
Figure 1.4: Projected Global Greenhouse Gas Emissions, 2025–2030 much as two thirds by 2050, as a result
of climate change and competition
from energy generation and agriculture.
65
The Indian government advised that at
least 330 million people were affected
by drought in 2016.63 The confluence
55 of risks around water scarcity, climate
change, extreme weather events
GtCO2e/year
and involuntary migration remains a
potent cocktail and a “risk multiplier”,
45
especially in the world economy’s
more fragile environmental and political
contexts.
35
2025 2030 With power and influence increasingly
2005 baseline Current policy trajectory distributed, however, there is a
Unconditional INDCs Conditional INDCs growing recognition that the response
2°C scenario 1.5°C scenario to environmental risks cannot be
delivered by international agencies
Source: UNEP 2016a.
and governments alone. It requires
new approaches that take a wider
Notes: (1) The 2005 baseline scenario assumes no additional climate policies put in place from 2005; (2) the two “systems view” of the interconnected
INDC (Intended Nationally Determined Contributions) scenarios assume implementation of commitments made
in Paris: “unconditional” assumes only unconditional commitments are implemented, while “conditional” challenges, and that involve a larger
assumes that commitments with conditions attached are also implemented; (3) the 1.5°C and 2°C scenarios and more diverse set of actors.
represent least expensive paths with a greater than 50% likelihood of limiting warming to below 1.5°C and 2°C
respectively.
Some promising recent examples
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