Can world economy be managed?

The world faces huge risks over the next decade. But the most important question is whether our world has become so complex — and our attempts at global governance so inadequate — that constructive solutions may not be possible. If so, we face increased chaos and heightened risks of destructive decline.

The world faces huge risks over the next decade. But the most important question is whether our world has become so complex — and our attempts at global governance so inadequate — that constructive solutions may not be possible. If so, we face increased chaos and heightened risks of destructive decline.

With world population now about seven billion people, and heading to about nine billion people by 2050 — with another 700 million people by 2022 — and the growing demand for food, energy resources, minerals and water, a big increase in the number of mega-cities, the intensifying competition for jobs, rising inequality and accelerating pressures on the environment, including climate change, the potential for conflict can only grow unless the world can find the will and the ways to better manage the challenges it faces.

For the seventh year, the World Economic Forum has published its report on the big global risks we face over the next decade. It is a sobering document.

At the top of the risks it outlines are severe economic inequality, chronic fiscal imbalances, rising greenhouse gas emissions, cyber-attacks and water supply crises.

The first two threaten the global economy because they are drivers of protectionism, nationalism and populism at a time when our vulnerability to systemic financial shocks, an oil shock, and possible food and water crises are all high.

Not surprisingly, many people believe their children face a lower standard of living than they enjoy; this is especially true in North America and Europe.

The report, based on a survey of 469 experts from around the world, highlights five risk categories: Economic, environmental, geopolitical, societal, and technological. But failure of global governance connects many of the risks that the experts have highlighted.

In the economic sphere, the greatest risks over the coming decade are chronic fiscal imbalances as Europe and the U.S. in particular struggle with huge budget deficits, a major systemic financial failure, severe income disparities and extreme volatility in energy and food prices.

In the environmental sphere, rising greenhouse gas emissions, the failure of climate change adaptation efforts, land and waterway systems mismanagement and the failure to properly address the growth of major cities are the leading risks.

Among geopolitical risks, the greatest are seen to be the failure of global governance, for example through the G-20, the United Nations, institutions such as the International Monetary Fund, the growth of critical fragile states including in the developed world, the impact of pervasive entrenched corruption and terrorism. The leading societal risks include unsustainable population growth, a backlash against globalization, mismanagement of population aging, water supply crises and rising religious fanaticism.

In technology, the greatest risks come from the failure of critical systems since the world has become increasingly dependent on the Internet and the use of communications systems to manage electricity grids and power systems, water systems, security, banking, air transportation and many other aspects of life, cyber-attacks, mineral resource supply vulnerability, a massive incident of data fraud or theft, and massive digital misinformation.

Underlying all of the main risks — 50 are identified — are what the report calls “constellations of risks that present a very serious threat to our future prosperity and security.” One of these it calls “the seeds of dystopia.”

Dystopia occurs when “attempt to build a better world unintentionally go wrong.”

For example, current fiscal and demographic trends could reverse the gains achieved through globalization. Societies with growing numbers of young people with few prospects, elderly people who find debt-straddled governments cannot deliver pensions and health care and growing inequality between rich and poor “can expect greater social unrest and instability in the years to come.”

As Occupy Wall Street shows, even the U.S. may not be immune to greater unrest.

Our own government’s foreign policies don’t help because they reflect narrow domestic or partisan political interest rather than a willingness to help achieve global solutions. Its disdain for the United Nations. Rather than trying to improve its capabilities, its trade policy has focused on opportunistic bilateral trade deals rather than trying to make the Doha Round of the World Trade Organization a success.

We have earned the reputation of a pariah in negotiations to deal with climate change.

And for domestic political reasons we have ceased to have a role to play in pursuing peace in the Middle East.

Yet a future world of peace, prosperity and sustainability depends on constructive co-operation with others, not how many F-35 aircraft we buy.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.

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