Extract from The Guardian
Rising income inequality and the polarisation of societies pose a
risk to the global economy in 2017 and could result in the rolling back
of globalisation unless urgent action is taken, according to the World
Economic Forum.
Before its annual meeting in Davos next week, the WEF said the gap between rich and poor had been behind the UK’s Brexit vote and Donald Trump’s election victory, and it warned that there were new threats to social cohesion from the robotics and artificial intelligence revolution. The organisation added that fundamental reform of capitalism may be needed to tackle the public anger.
The WEF’s annual global risks report – culled from 700 experts – found that rising income and wealth disparity and increasing polarisation of societies were ranked first and third among the underlying trends that will determine the shape of the world in the next decade.
Climate change was considered the second most important underlying trend, with the WEF noting that environmental concerns were more prominent in the report than ever before.
Trump’s inauguration coincides with next week’s Davos meeting and the founder of the WEF, Klaus Schwab, said that 2017 would be 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,” he said.
The WEF said the growing mood of anti-establishment populism meant economic growth was no longer enough to mend fractured societies and that “fundamental reforms of market capitalism” would now be needed.
The global risks report said Brexit, the US presidential election result and the referendum defeat suffered by former Italian prime minister Matteo Renzi last month meant some people were now questioning whether “the west has reached a tipping point and might now embark on a period of deglobalisation”.
The US economist Dani Rodrik has coined the phrase “the globalisation trillema” to capture the idea that countries cannot have democracy, national sovereignty and globalisation; they can only ever have two out of the three. The WEF said recent events in Europe and the US suggested an “appetite for rebalancing towards democracy and national sovereignty”.
The WEF said it had been pointing out the dangers of rising inequality and political polarisation for more than a decade, but that the slow pace of recovery from the deep recession of 2008 had intensified income gaps within countries.
Emergency measures such as quantitative easing – the creation of money by central banks – had become permanent features of economic policy, and had exacerbated inequality by boosting the returns of those holding financial assets.
It added that the trends of recent years had come into sharp focus in 2016 with rising discontent and disaffection evident in the UK referendum and in the US with Trump’s victory over Hillary Clinton.
“Urgent action is needed ... to overcome political or ideological differences and work together to solve critical challenges,” said Margareta Drzeniek-Hanouz, head of global competitiveness and risks at the WEF.
“The momentum of 2016 towards addressing climate change shows this is possible and offers hope that collective action at the international level aimed at resetting other risks could also be achieved.”
The report warned that society was not keeping pace with technological change. It found that of 12 emerging technologies artificial intelligence and robotics had the greatest potential benefits but also contained the greatest negative threats.
“Technology has always created jobs as well as destroying them, but there is evidence that the engine of technological job creation is sputtering,” the report said, citing evidence that only 0.5% of the current US workforce was employed in sectors created since 2000 compared with approximately 8% in industries created in the 1980s.
“Technological change is shifting the distribution of income from labour to capital: according to the Organisation for Economic Cooperation and Development, up to 80% of the decline in labour’s share of national income between 1980 and 2007 was the result of the impact of technology.”
Since the 1980s, the share of income going to the top 1%
wealthiest citizens has increased in the UK, the US, Canada, Ireland and
Australia – though not Germany, France, Japan or Sweden – says the WEF.
This group has shielded itself from austerity and the worst of the
post-financial crash recession. Investments in new technology put a
premium on workers with higher education and better skills, leaving the
unskilled to languish on low pay, while globalisation has raised the
incomes of the world’s poorer workers at the expense of those in the
west. The discontent this brings about “has now become an
election-winning proposition” that demands action, says the WEF.
Before its annual meeting in Davos next week, the WEF said the gap between rich and poor had been behind the UK’s Brexit vote and Donald Trump’s election victory, and it warned that there were new threats to social cohesion from the robotics and artificial intelligence revolution. The organisation added that fundamental reform of capitalism may be needed to tackle the public anger.
The WEF’s annual global risks report – culled from 700 experts – found that rising income and wealth disparity and increasing polarisation of societies were ranked first and third among the underlying trends that will determine the shape of the world in the next decade.
Climate change was considered the second most important underlying trend, with the WEF noting that environmental concerns were more prominent in the report than ever before.
Trump’s inauguration coincides with next week’s Davos meeting and the founder of the WEF, Klaus Schwab, said that 2017 would be 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,” he said.
The WEF said the growing mood of anti-establishment populism meant economic growth was no longer enough to mend fractured societies and that “fundamental reforms of market capitalism” would now be needed.
The global risks report said Brexit, the US presidential election result and the referendum defeat suffered by former Italian prime minister Matteo Renzi last month meant some people were now questioning whether “the west has reached a tipping point and might now embark on a period of deglobalisation”.
The US economist Dani Rodrik has coined the phrase “the globalisation trillema” to capture the idea that countries cannot have democracy, national sovereignty and globalisation; they can only ever have two out of the three. The WEF said recent events in Europe and the US suggested an “appetite for rebalancing towards democracy and national sovereignty”.
The WEF said it had been pointing out the dangers of rising inequality and political polarisation for more than a decade, but that the slow pace of recovery from the deep recession of 2008 had intensified income gaps within countries.
Emergency measures such as quantitative easing – the creation of money by central banks – had become permanent features of economic policy, and had exacerbated inequality by boosting the returns of those holding financial assets.
It added that the trends of recent years had come into sharp focus in 2016 with rising discontent and disaffection evident in the UK referendum and in the US with Trump’s victory over Hillary Clinton.
“Urgent action is needed ... to overcome political or ideological differences and work together to solve critical challenges,” said Margareta Drzeniek-Hanouz, head of global competitiveness and risks at the WEF.
“The momentum of 2016 towards addressing climate change shows this is possible and offers hope that collective action at the international level aimed at resetting other risks could also be achieved.”
The report warned that society was not keeping pace with technological change. It found that of 12 emerging technologies artificial intelligence and robotics had the greatest potential benefits but also contained the greatest negative threats.
“Technology has always created jobs as well as destroying them, but there is evidence that the engine of technological job creation is sputtering,” the report said, citing evidence that only 0.5% of the current US workforce was employed in sectors created since 2000 compared with approximately 8% in industries created in the 1980s.
“Technological change is shifting the distribution of income from labour to capital: according to the Organisation for Economic Cooperation and Development, up to 80% of the decline in labour’s share of national income between 1980 and 2007 was the result of the impact of technology.”
The WEF’s top five risks to the global economy for 2017:
- Rising income and wealth disparity
Since the 1980s, the share of income going to the top 1%
wealthiest citizens has increased in the UK, the US, Canada, Ireland and
Australia – though not Germany, France, Japan or Sweden – says the WEF.
This group has shielded itself from austerity and the worst of the
post-financial crash recession. Investments in new technology put a
premium on workers with higher education and better skills, leaving the
unskilled to languish on low pay, while globalisation has raised the
incomes of the world’s poorer workers at the expense of those in the
west. The discontent this brings about “has now become an
election-winning proposition” that demands action, says the WEF.2 Changing climate
Climate
change is ranked as the second biggest risk for this year, due in part
to the increasingly frequent extreme weather that it heralds. While the
end of the cyclical global weather phenomenon El Niño means 2017 is
unlikely to top 2016 as the hottest on record, the Met Office forecasts
it will still globally be one of the warmest ever. The heat is also
likely to be cooler in political circles after last year, which saw the Paris climate agreement
ratified at breakneck speed and several other climate deals agreed.
This year governments must get on with actually delivering the carbon
curbs they promised at Paris – as the WEF points out, the pace at which
emissions are being cut is not yet fast enough to avoid dangerous global
warming.
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