Rising inequality poses risks to global stability

Rising youth unemployment, pressure on pensions and a growing gulf between rich and poor were ‘sowing the seeds of dystopia’ and putting at risk the gains from globalisation, according to the World Economic Forum’s report Global Risks:2012. The report, based on a survey of 469 experts from industry, government, academia and civil society, examines 50 global risks, their interplay and how they are likely to develop over the next ten years. In one set of scenarios considered to be a new and serious risk, the report considers how current fiscal and demographic trends could prompt ‘the emergence of a new class of critical fragile states – formerly wealthy countries that descend into lawlessness and unrest as they become unable to meet their social and fiscal obligations.’ Such states could be ‘developed economies where citizens lament the loss of social entitlements, emerging economies that fail to provide opportunities for their young population or to redress rising inequalities, or least-developed economies where wealth and social gains are declining.’

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. (p.10)

The report also notes:

Gross inequality is not a new phenomenon, but the fact that this year’s survey respondents selected severe income inequality as the most likely global risk to manifest in the next 10 years suggests that concern about its consequences is growing. (p.19)

View the full report: Global Risks 2012, Seventh Edition.