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Income disparity tops global risks

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Income inequality, climate change and societal polarization are key risk trends that will affect global developments over the next 10 years, according to the World Economic Forum’s Global Risks Report 2017 released on Wednesday.

The report, which is produced with support from Marsh & McLennan Cos. Inc. and Zurich Insurance Group Ltd., said the top five trends that determine global developments are:

  1. Rising income and wealth disparity

  2. Changing climate

  3. Increasing polarization of societies

  4. Rising cyber dependency

  5. Ageing population

Rising income and wealth disparity and the increasing polarization of societies triggered political change last year and could exacerbate global risks in 2017 if urgent action is not taken, according to the survey in which roughly 750 experts assessed 30 global risks and 13 underlying trends.

One potential strategy to reduce the risk, according to the report, would be to generate more inclusive economic growth, including supporting displaced workers. In addition, labor and employment contracts should be overhauled to prevent contract workers from being left out of government welfare schemes and to ensure that governments continue to receive contributions needed to maintain the programs. 

Climate change and five environmental risks identified in the survey all ranked both high risk and high likelihood for the first time, with extreme weather events emerging as the single most prominent global risk, according to the report. Despite the progress by countries in reaching and ratifying the Paris climate agreement, political changes in Europe and North America put this progress at risk, according to the report.

“Urgent action is needed among leaders to identify ways to overcome political or ideological differences and work together to solve critical challenges,” Margareta Drzeniek-Hanouz, head of global competitiveness and risks for the World Economic Forum in Cologny, Switzerland, said in a statement. “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.” 

Society is also not keeping pace with technological change, with the surveyed experts finding that artificial intelligence and robotics have the greatest potential benefits, but also the greatest potential negative effects and need for better governance, according to the report.

“We live in disruptive times where technological progress also creates challenges,” Cecilia Reyes, chief risk officer of Zurich Insurance, said in a statement.

“Without proper governance and reskilling of workers, technology will eliminate jobs faster than it creates them. Governments can no longer provide historical levels of social protection and an anti-establishment narrative has gained traction, with new political leaders blaming globalization for society’s challenges, creating a vicious cycle in which lower economic growth will only amplify inequality. Cooperation is essential to avoid the further deterioration of government finances and the exacerbation of social unrest,” Zurich-based Ms. Reyes said.