Davos financial group warns of 'dystopian future'
World Economic Forum calls global austerity measures 'savage'
The World Economic Forum warned Wednesday that the financial crisis that has gripped the global economy for the past few years is fueling resentment that could lay the seeds for a rising tide of protectionism, nationalism and social unrest.
In its assessment of the risks to the global economy, the Forum flagged a "dystopian future" for much of humanity that could wipe out the gains achieved so far by globalization and undermine a nascent economic recovery.
The economic crisis, which started in 2007, has already laid siege to some of the world's biggest banks and pushed the global economy into its deepest recession since World War II. It ravaged the public finances of much of the developed world, particularly in Europe, which in turn has prompted many governments to embark on often-savage austerity measures that heighten uncertainty and do little to boost short-term economic growth.
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Though finding that the failure to address excessive government debt is perceived as the most "systematically important" economic risk, the report's authors warned of the impact of bulging populations of young people with few prospects, as well as growing numbers of retirees dependent on debt-saddled states.
"For the first time in generations, many people no longer believe that their children will grow up to enjoy a higher standard of living than theirs," said Lee Howell, the Forum's managing director responsible for the report. "This new malaise is particularly acute in the industrialized countries that historically have been a source of great confidence and bold ideas."
With that grim backdrop, the report's authors warned of an expanding gap between the rich and the poor and between the skilled and the unskilled. As a result, they urged the public and private sectors to work together to prevent a vicious cycle, whereby tough times feed disillusion and jeopardize the social contract between states and citizens.
"This report is a wake-up call to both the public and private sectors to come up with constructive ways to realign the expectations of an increasingly anxious global community," said John Drzik, chief executive officer of management consultants Oliver Wyman.
New solutions needed
Wednesday's report was the Forum's seventh assessment of the risks to the global economy, which it publishes ahead of its annual meeting in Davos, Switzerland. This year's summit begins on January 25.
The report, which was based on a survey of 469 experts from industry, government and civil society, also found that the policies and institutions that were created in the 20th century may no longer be fit for purpose in a more complex and interdependent world.
It also warned of the "dark side of connectivity," whereby societies are susceptible to "malicious" individuals, institutions and nations that "increasingly have the ability to unleash "devastating cyberattacks."
While new technology and social media helped drive the Arab Spring, the report noted that the riots in London in the summer of 2011 were largely facilitated by the same tools.
"Governments, societies and businesses need to better understand the interconnectivity of risk in today's technologies if we are truly to reap the benefits they offer," said Steve Wilson, chief risk officer for general insurance at Zurich.