Global Risks 2019
Out of control
Is the world sleepwalking into a crisis? Global risks are intensifying but the collective will to tackle them appears to be lacking. Instead, divisions are hardening. The world’s move into a new phase of state-centred politics, noted in last year’s Global Risks Report, continued throughout 2018. The idea of “taking back control”—whether domestically from political rivals or externally from multilateral or supranational organizations—resonates across many countries and many issues. The energy now being expended on consolidating or recovering national control risks weakening collective responses to emerging global challenges. We are drifting deeper into global problems from which we will struggle to extricate ourselves.
The following sections focus on five areas of concern highlighted in this year’s Global Risks Perception Survey (GRPS), which frame much of the analysis in subsequent chapters: (1) economic vulnerabilities, (2) geopolitical tensions, (3) societal and political strains, (4) environmental fragilities, and (5) technological instabilities.
Geo-economic tensions ratcheted up during 2018, as discussed in Chapter 2 (Power and Values). GRPS respondents were concerned in the short term about the deteriorating international economic environment, with the vast majority expecting increasing risks in 2019 related to “economic confrontations between major powers” (91%) and “erosion of multilateral trading rules and agreements” (88%).
Last year’s report advised caution about broader macroeconomic fragilities, even at a time of strengthening growth. Economic risks have since moved into sharper focus. Financial market volatility increased in 2018, and the headwinds facing the global economy intensified. The rate of global growth appears to have peaked: the latest International Monetary Fund (IMF) forecasts point to a gradual slowdown over the next few years.1 This is mainly the result of developments in advanced economies, where the IMF expects real GDP growth to decelerate from 2.4% in 2018 to 2.1% this year and to 1.5% by 2022. However, while developing economies’ aggregate growth is expected to remain broadly unchanged, projections of a slowdown in China—from 6.6% in 2018 to 6.2% this year and 5.8% by 2022—are a source of concern. High levels of global indebtedness were one of the specific financial vulnerabilities we highlighted last year. These concerns have not eased. The total global debt burden is now significantly higher than it was before the global financial crisis, at around 225% of GDP.2 In its latest Global Financial Stability Report, the IMF notes that in countries with systemically significant financial sectors, the debt burden is higher still, at 250% of GDP—this compares with a figure of 210% in 2008.3 In addition, a tightening of global financial conditions has placed particular strain on countries that built up dollar-denominated liabilities while interest rates were low. By October last year, more than 45% of low-income countries were in or at high risk of debt distress, up from one-third in 2016.4
Inequality continues to be seen as an important driver of the global risks landscape. “Rising income and wealth disparity” ranked fourth in GRPS respondents’ list of underlying trends. Although global inequality has dipped this millennium, within-country inequality has continued to rise. New research published last year attributes economic inequality largely to widening divergences between public and private levels of capital ownership over the past 40 years: “Since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries”;5(see Figure 1.1).
Figure 1.1: Private Gains
Net private and public wealth 1970–2015 (% of national income)
Source: World Inequality Database. https://wir2018.wid.world
Coupled with political polarization, inequality erodes a country’s social fabric in an economically damaging way: as cohesion and trust diminish, economic performance is likely to follow.6 One study attempts to quantify by how much various countries’ per capita income would hypothetically increase if their levels of trust were as high as they are in Sweden.7 Even in richer developed countries, the estimated gains would be significant, ranging from 6% in the United Kingdom to 17% in Italy. In some other countries they are much greater: 29% in the Czech Republic, 59% in Mexico and 69% in Russia. Given these results, it is sobering that the 2018 Edelman Trust Barometer categorizes 20 of the 28 countries surveyed as “distrusters”.8 Beyond economic impacts, eroding trust is part of a wider pattern that threatens to corrode the social contract in many countries. This is an era of strong-state politics, but also one of weakening national communities.
Interest is increasing in approaches to economics and finance that draw on moral theory and social psychology to reconcile individual and communitarian goals. For example, more attention is being paid to economist and philosopher Adam Smith and to placing his work on the “invisible hand” of market capitalism in the context of his ideas on moral obligation and community. Some argue that too much emphasis has been placed on “the ‘wants’ of The Wealth of Nations” over “the ‘oughts’ of The Theory of Moral Sentiments.”9 There are no easy remedies: the moral psychology of partisan differences is not conducive to compromise on values,10 while the geopolitical divergences discussed in Chapter 2 (Power and Values) will complicate any attempt to find consensus on bold attempts to rethink global capitalism. However, that is the new challenge, and it is one to which the World Economic Forum will devote itself at its Annual Meeting 2019 in Davos.
Last year saw rising geopolitical tensions among the world’s major powers. These mostly played out in the economic field, as discussed in Chapter 2 (Power and Values), but more fundamental spillovers are possible. The respondents to this year’s GRPS are pessimistic: 85% said they expect 2019 to involve increased risks of “political confrontations between major powers” (see Figure 1.2).
Figure 1.2: Short-Term Risk Outlook
Percentage of respondents expecting risks to increase in 2019
Source: World Economic Forum Global Risks Perception Survey 2018–2019.
Note: For details of the question respondents were asked, see Appendix B.
Polarization and weak governance raise serious questions about many countries’ political health
The evolving China-US relationship is part of the emerging geopolitical landscape described in last year’s Global Risks Report as “multipolar and multiconceptual”. In other words, the instabilities that are developing reflect not just changing power balances, but also the fact that post-Cold War assumptions—particularly in the West—that the world would converge on Western norms have been shown to be naïvely optimistic. As Chapter 2 (Power and Values) discusses, differences in fundamental norms are likely to play an important role in geopolitical developments in the years and decades ahead. These differences will affect the global risks landscape in significant ways—from weakening security alliances to undermining efforts to protect the global commons.
With multilateralism weakening and relations between the world’s major powers in flux, the current geopolitical backdrop is inauspicious for resolving the many protracted conflicts that persist around the world. In Afghanistan, for example, civilian deaths in the first six months of 2018 were the highest in 10 years, according to the UN, while the share of districts controlled by the United States–supported Afghan government fell from 72% in 2015 to 56% in 2018.11 In Syria, multiple states are now embroiled in a civil conflict in which hundreds of thousands have died. And in Yemen, the direct casualties of war are estimated at 10,000 and as many as 13 million people are at risk of starvation as a result of disruptions to food and other supplies, according to a UN warning in October 2018.12
One positive geopolitical development since the last edition of this report has been an easing of tensions and volatility related to North Korea’s nuclear programme, following increased diplomacy involving the United States, South Korea and North Korea. This may have played a part in a sharp fall—from 79% to 44%—in the proportion of the survey respondents expecting the risk of “state-on-state military conflict or incursion” to increase over the next year. Nonetheless, for the third year running, weapons of mass destruction ranked as the number one global risk in terms of potential impact.
Around the world, mounting geopolitical instabilities are matched—and frequently exacerbated—by continuing domestic political strains. GRPS respondents ranked “increasing polarization of societies” second only to climate change as an underlying driver of developments in the global risks landscape. Many Western democracies are still struggling with post-crisis patterns of political fragmentation and polarization that have complicated the process of providing stable and effective governance. But this is a global issue, not just a “first-world problem”. In the World Economic Forum’s inaugural Regional Risks for Doing Business report, published last year, “failure of national governance” ranked second globally and first in Latin America and South Asia, based on a survey of around 12,000 business leaders covering more than 130 countries.13
Polarization and weak governance raise serious questions about numerous countries’ political health. In many cases, partisan differences are deeper than they have been for a long time. A vicious circle may develop in which diminishing social cohesion places ever-greater strain on political institutions, undermining their ability to anticipate or respond to societal challenges. This problem is even more acute when global challenges require multilateral cooperation or integration: weaker levels of legitimacy and accountability invite an anti-elitist backlash. So too do failures of multilateral policy and institutional design. For example, it is now widely acknowledged that more should have been done to provide protection or remedies to the losers from globalization.14 It should not have taken a crisis to recognize this. In the GRPS, 59% of respondents said they expect risks associated with “public anger against elites” to increase in 2019. Chapter 3 (Heads and Hearts) looks at the causes and potential consequences of rising levels of anger, along with other forms of emotional and psychological distress.
Identity politics continue to drive global social and political trends, and immigration and asylum policy raise fundamental questions about control over the composition of political communities. Migration has triggered political disruption in recent years, ranging from Asia and Latin America to Europe and the United States. Global trends—from demographic projections to climate change—practically guarantee further crises, and some leaders are likely to take a tougher line in defence of dominant national cultures. In the GRPS, 72% of respondents said they expect risks associated with “populist and nativist agendas” to increase in 2019. In some countries, efforts to secure recognition and equality for a widening range of minority social groups—defined by characteristics such as race, ethnicity, religion, gender identity or sexual orientation—have become increasingly electorally significant. In the United States, for example, attitudes towards identity politics mark increasingly bitter divisions between Republican and Democratic voting blocs.15 November 2018’s mid-term Congressional elections saw a record number of women and non-white candidates elected.
There has been a period of renewed politicization around gender, sexism and sexual assault in the United States. The #MeToo movement, which began in October 2017, continued in 2018 and has also drawn attention to—and in some cases amplified—similar campaigns against sexual violence.16 The increased attention being paid globally to violence against women was also reflected in the Nobel Peace Prize going to Nadia Murad and Denis Mukwege for their work to end the use of sexual violence as a tool of conflict. Beyond being directly targeted with violence and discrimination, women around the world are also disproportionately affected by many of the risks discussed in the Global Risks Report, often as a result of experiencing higher levels of poverty and being the primary providers of childcare, food and fuel. For example, climate change means women in many communities must walk farther to fetch water. Women often do not have the same freedom or resources as men to reach safety after natural disasters—in parts of Sri Lanka, Indonesia and India, men who survived the 2004 tsunami outnumbered women by almost three to one.17 According to the International Monetary Fund (IMF), women are also more likely than men to have their jobs displaced by automation.18
Environment-related risks dominate the GRPS for the third year in a row, accounting for three of the top five risks by likelihood and four by impact (see Figure IV). Extreme weather is again out on its own in the top-right (high-likelihood, high-impact) quadrant of the Global Risks Landscape 2019 (see Figure I).
Environment-related risks account for three of the top five risks by likelihood and four by impact
The year 2018 was another one of storms, fires and floods.19 Of all risks, it is in relation to the environment that the world is most clearly sleepwalking into catastrophe. The Intergovernmental Panel on Climate Change (IPCC) bluntly said in October 2018 that we have at most 12 years to make the drastic and unprecedented changes needed to prevent average global temperatures from rising beyond the Paris Agreement’s 1.5ºC target. In the United States, the Fourth National Climate Assessment warned in November that without significant reductions in emissions, average global temperatures could rise by 5ºC by the end of the century.20 GRPS respondents seem increasingly worried about environmental policy failure: having fallen in the rankings after Paris, “failure of climate-change mitigation and adaptation” jumped back to number two in terms of impact this year. And the most frequently cited risk interconnection was the pairing of “failure of climate-change mitigation and adaptation” and “extreme weather events”.
The accelerating pace of biodiversity loss is a particular concern. The Living Planet Index, which tracks more than 4,000 species across the globe, reports a 60% decline in average abundance since 1970.21 Climate change is exacerbating biodiversity loss and the causality goes both ways: many affected ecosystems—such as oceans and forests—are important for absorbing carbon emissions. Increasingly fragile ecosystems also pose risks to societal and economic stability. For example, 200 million people depend on coastal mangrove ecosystems to protect their livelihoods and food security from storm surges and rising sea levels, as discussed in Chapter 5(Fight or Flight).22 One estimate of the notional economic value of “ecosystem services”—benefits to humans, such as drinking water, pollination or protection against floods—puts it at US$125 trillion per year, around two-thirds higher than global GDP.23
In the human food chain, loss of biodiversity affects health and socio-economic development, with implications for well-being, productivity and even regional security. Micronutrient malnutrition affects as many as 2 billion people. It is typically caused by a lack of access to food of sufficient variety and quality.24 Nearly half the world’s plant-based calories are provided by just three crops: rice, wheat and maize.25 Climate change compounds the risks. In 2017, climate-related disasters caused acute food insecurity for approximately 39 million people across 23 countries.26 Less obviously, increased levels of carbon dioxide in the atmosphere are affecting the nutritional composition of staples such as rice and wheat. Research suggests that by 2050 this could lead to zinc deficiencies for 175 million people, protein deficiencies for 122 million, and loss of dietary iron for 1 billion.27
As environmental risks crystallize with increasing frequency and severity, the impact on global value chains is likely to intensify, weakening overall resilience. Disruptions to the production and delivery of goods and services due to environmental disasters are up by 29% since 2012.28 North America was the region worst affected by environment-related supply-chain disruptions in 2017; these disruptions were due notably to hurricanes and wildfires.29 For example, in the US automotive industry, only factory fires and company mergers caused more supply-chain disruptions than hurricanes.30 When the disruptions are measured by the number of suppliers affected rather than the number of individual events, the four most significant triggers in 2017 were hurricanes, extreme weather, earthquakes and floods.31
Upheavals in the global waste disposal and recycling supply chain during 2018 may be a foretaste. China banned the import of foreign waste, including almost 9 million tons of plastic scrap, to reduce pollution and strain on its national environmental systems.32 This ban exposed weaknesses in the domestic recycling capacity of many Western countries. Plastic waste built up in the United Kingdom, Canada and several European states. In the first half of 2018 the United States sent 30% of the plastic that would previously have gone to China to landfill,33 and the rest to other countries including Thailand, Malaysia and Vietnam. However, all three of those countries have since announced their own new restrictions or bans on plastic imports. In sum, as the impact of environmental risks increases, it will become increasingly difficult to treat those risks as externalities that can be ignored or shipped out. Domestic and coordinated international action will be needed to internalize and mitigate the impact of human activity on natural systems.
Technology continues to play a profound role in shaping the global risks landscape for individuals, governments and businesses. In the GRPS, “massive data fraud and theft” was ranked the number four global risk by likelihood over a 10-year horizon, with “cyber-attacks” at number five. This sustains a pattern recorded last year, with cyber-risks consolidating their position alongside environmental risks in the high-impact, high-likelihood quadrant of the Global Risks Landscape (Figure I). A large majority of respondents expected increased risks in 2019 of cyber-attacks leading to theft of money and data (82%) and disruption of operations (80%). The survey reflects how new instabilities are being caused by the deepening integration of digital technologies into every aspect of life. Around two-thirds of respondents expect the risks associated with fake news and identity theft to increase in 2019, while three-fifths said the same about loss of privacy to companies and governments. The potential psychological effects of the increasing digital intermediation of people’s lives is discussed in Chapter 3 (Heads and Hearts).
Malicious cyber-attacks and lax cybersecurity protocols again led to massive breaches of personal information in 2018. The largest was in India, where the government ID database, Aadhaar, reportedly suffered multiple breaches that potentially compromised the records of all 1.1 billion registered citizens. It was reported in January that criminals were selling access to the database at a rate of 500 rupees for 10 minutes, while in March a leak at a state-owned utility company allowed anyone to download names and ID numbers.34 Elsewhere, personal data breaches affected around 150 million users of the MyFitnessPal application,35 and around 50 million Facebook users.36
Cyber vulnerabilities can come from unexpected directions, as shown in 2018 by the Meltdown and Spectre threats, which involved weaknesses in computer hardware rather than software. They potentially affected every Intel processor produced in the last 10 years.37 Last year also saw continuing evidence that cyber-attacks pose risks to critical infrastructure. In July the US government stated that hackers had gained access to the control rooms of US utility companies.38 The potential vulnerability of critical technological infrastructure has increasingly become a national security concern. The second most frequently cited risk interconnection in this year’s GPRS was the pairing of cyber-attacks with critical information infrastructure breakdown.
Machine learning or artificial intelligence (AI) is becoming more sophisticated and prevalent, with growing potential to amplify existing risks or create new ones, particularly as the Internet of Things connects billions of devices. In a survey conducted last year by Brookings, 32% of respondents said they view AI as a threat to humanity, while only 24% do not.39 IBM last year revealed targeted AI malware that can “hide” a well-known threat—WannaCry—in a video-conferencing application, activating only when it recognizes the face of the intended target.40 Similar innovations are likely to occur in other fields. For example, Chapter 4 (Going Viral) highlights the potential for malicious actors in synthetic biology to use AI to create new pathogens. One of this year’s Future Shocks (Chapter 6) considers the potential consequences of “affective computing”—referring to AI that can recognize, respond to and manipulate human emotions.
Among the most widespread and disruptive impacts of AI in recent years has been its role in the rise of “media echo chambers and fake news”, a risk that 69% of GRPS respondents expect to increase in 2019. Researchers last year studied the trajectories of 126,000 tweets and found that those containing fake news consistently outperformed those containing true information, on average reaching 1,500 people six times more quickly. One possible reason cited by researchers is that fake news tends to evoke potent emotions: “Fake tweets tended to elicit words associated with surprise and disgust, while accurate tweets summoned words associated with sadness and trust.”41 The interplay between emotions and technology is likely to become an ever more disruptive force.