(EnergyAsia, January 25 2012, Wednesday) — The world’s vulnerability to further economic shocks and social upheavals is undermining the past gains of globalisation, said the World Economic Forum (WEF) in its Global Risks 2012 report, the seventh edition.

It marked chronic fiscal imbalances and severe income disparity as the most prevalent risks over the next decade. Together, these risks drive nationalism, populism and protectionism just as the world grows more vulnerable to systemic financial shocks along with possible food and water crises.

The WEF revealed these findings from its latest survey of 469 experts and industry leaders, indicating a shift of concern from environmental risks to socioeconomic risks compared to a year ago.

“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 WEF’s managing director responsible for the report.

“This new malaise is particularly acute in the industrialised countries that historically have been a source of great confidence and bold ideas.”

Global Risks 2012 cited the three biggest risks facing the world.

1.    Seeds of Dystopia

Bulging populations of young people with few prospects, growing numbers of retirees depending on debt-saddled states (stoking fiscal imbalances) and the expanding gap between rich and poor are all fuelling resentment worldwide. Collectively, these trends risk undoing the progress that globalization has brought.

John Drzik, CEO of Oliver Wyman Group (Marsh & McLennan Companies), said:

“Individuals are increasingly being asked to bear risks previously assumed by governments and companies to obtain a secure retirement and access to quality healthcare. 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.”

2.    Unsafe Safeguards
Policies, norms and institutions from the 20th century may no longer protect us in a more complex and interdependent world. The weakness of existing safeguards is exposed by risks related to emerging technologies, financial interdependence, resource depletion and climate change, leaving society vulnerable.

David Cole, Chief Risk Officer at Swiss Re, said:

“We’ve seen examples of over-regulation, like the response to the Icelandic volcanic eruptions, or under-regulation, such as the subprime or Eurozone crises.

We need to get the balance right with regulations and, to that end, our safeguards must be anticipatory rather than reactive. It’s equally important that regulations be made more flexible to effectively respond to change.”

3.    The Dark Side of Connectivity

Our daily lives are almost entirely dependent on connected online systems, making us susceptible to malicious individuals, institutions and nations that increasingly have the ability to unleash devastating cyberattacks remotely and anonymously.

Steve Wilson, Chief Risk Officer for General Insurance at Zurich, said:

“The Arab Spring demonstrated the power of interconnected communications services to drive personal freedom, yet the same technology facilitated riots in London. 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.”

Natural disasters are reminders of the devastating power of nature and the limits of technology, as witnessed by last year’s Great East Japan Earthquake and subsequent crisis at the Fukushima nuclear plant.

In a special chapter on key lessons to be gleaned from the disaster, the report said organisations are far more resilient to major shocks if they have clear lines of communication and employees across the organization are empowered to take decisions.

The report describes 50 global risks and groups them into economic, environmental, geopolitical, societal and technological categories. Within each category, the most significant systemic risk is singled out.

The report also highlights “X Factors” – emerging concerns with still unknown consequences that warrant more research. These include a volcanic winter, cyber neotribalism and epigenetics.

Published in cooperation with Marsh & McLennan Companies, Swiss Re, The Wharton Center for Risk Management and Zurich, Global Risks 2012 is the flagship initiative of the World Economic Forum’s Risk Response Network.