Current Global Governance Systems Seen Lacking Capacity to Deal with Global Risks

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London — January 12, 2011 —

  • Macroeconomic Risks: The global financial crisis was built on longer-term structural weaknesses in the global economy. Macroeconomic imbalances, fiscal crises in the developed economies, massive unfunded social liabilities and weak financial markets form a complex nexus of economic risk. Crisis-induced indebtedness has reduced the capacity to handle further shocks to critically low levels.Daniel M. Hofmann, chief economist with Zurich Financial Services Group of Switzerland, noted: "Current fiscal policies are unsustainable in most industrialized economies. In the absence of far-reaching structural corrections, there will be a high risk of sovereign defaults." Christian Mumenthaler, chief marketing officer for reinsurance and member of the executive committee at Swiss Re, added: "Long-term unfunded liabilities created by aging populations mean that fiscal pressures will continue to grow. It is only through true public-private partnerships that we can ensure that the related financial challenges are addressed and that increased longevity remains an entirely positive trend for society."
  • The Illegal Economy: Greater numbers of failed and fragile states, increasing levels of illicit trade, organized crime and corruption form a nexus of criminal risk. A networked world, governance failures and economic disparity create opportunities for illegality to flourish. In 2009, the value of illicit trade around the globe was estimated at $ 1.3 trillion and growing. These risks, while creating huge costs for legitimate economic activities, weaken states, threaten development opportunities, undermine the rule of law and keep countries trapped in cycles of poverty and instability. Effective international cooperation is urgently needed.
  • Resource Limits to Growth: The world faces hard limits at the most basic level in terms of water, food and energy. Rising populations and consumption and climate change drive this challenge, while interconnections between these issues make response difficult. Most interventions only create new and worse problems, or shift risk across the nexus. Shortages of core resources will only create more conflict between the social groups, nations and industries that need them. "Demand for food, water and energy resources is growing by double digits. Yet chronic fiscal deficits are threatening investments in infrastructure crucial to improving availability and access to them," said John Drzik, president and CEO of Oliver Wyman Group (Marsh & McLennan Companies). "The resulting shortages threaten global prosperity."

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  • Cybersecurity: The new frontier for controlling information, from hackers and massive service failures to the little-understood possibility of cyberwarfare between nation states.
  • High Population Growth: In fragile, resource-constrained countries, population growth may result in "population cluster bombs," increased violence and state collapse.
  • Resource Scarcity: Limits on commodities, water and energy put stringent limits on growth and create conflict hotspots.
  • Retrenchment from Globalization: As economic inequality grows, a populist backlash against globalization could fracture economic and political integration.
  • Nuclear and Biological Weapons: Proliferation threats are of renewed concern in a fragile world.