Global Risks 2012

One of the more interesting items circulating around Wharton this week is the Global Risks 2012 report, co-written by the Wharton Center for Risk Management.  Though directed primarily at the financial industry, the report aggregates and analyzes the thinking of “469 experts and industry leaders” from government, corporations, NGOs, and international organizations.  It’s valuable reading for anyone who wants to know what the world’s elite is worried about in 2012.

Top 5 Global Risks Source: Global Risks 2012 report

Most interesting is the prominence of “Severe Income Disparity” as a “High Impact” and “High Likelihood” risk, along with “Chronic Fiscal Imbalances” and “Water Supply Crises.”  Even more notable is the fact that, until this year’s survey, Severe Income Disparity was not rated among even the top 5 “most likely” risks (from 2007 – 2011).  This year, it is number one.

As the Executive Summary puts it:

Case 1: Seeds of Dystopia

Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Analysis of linkages across various global risks reveals a constellation of fiscal, demographic and societal risks signalling a dystopian future for much of humanity. The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already heavily indebted governments. Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability

This case underscores the danger that could arise if declining economic conditions jeopardize the social contracts between states and citizens. In the absence of viable alternatives, this could precipitate a downward spiral of the global economy fuelled by protectionism, nationalism and populism.

As an aside, the report’s nifty data explorer feature allows you to parse responses by region and category of respondent: in so doing, for instance, you see (unsurprisingly) that NGOs are more concerned about income disparities than are businesses (but all respondents are concerned).  Give it a try.

[additional thoughts below]

I don’t want to criticize the report writers for lack of clairvoyance. After all, no one is omniscient. They’re also *aggregating* the views of business, governmental, and NGO leaders, rather than specifically forecasting. That said, it is notable to me how much the top risks are actually lagging — rather than leading — indicators. In other words, issues seem to “become” risks in the report after they have already materialized. Which doesn’t make them risks. It makes them realities.

Note, for instance, that Asset Price Collapse doesn’t appear as the #1 risk until 2008. In 2007, it barely registered as #5. By 2008 (depending on what point in the year the report was published), we were already well on our way to a full-blown collapse. Similarly, Severe Income Disparity doesn’t appear among the top 5 at all in 2011 (or earlier).

Again, this is not to suggest that the report is useless. No one can reliably predict the future. But it is a valuable reminder that, in many ways, world leaders are just as blind-sided by events as the rest of us.