WEF highlights governance gaps

Economic imbalances contain the seeds for future financial crises, says the WEF’s Global Risks 2011 report

Economic disparity and global governance failures are exacerbating and driving a range of other risks, according to the World Economic Forum.

The report identifies economic imbalances and unfunded liabilities as containing the seeds of potential future fiscal and financial crises and urges concerted coordinated action to manage them.

Global Risks 2011highlights three risk clusters of particular concern: the relationship between illicit trade, crime, corruption and state fragility; a set of interconnected risks tied to water, food and energy; and risks related to global macroeconomic imbalances.

Twentieth century systems are failing to manage 21st century risks; we need new networked systems to identify and address global risks before they become global crises,” said Robert Greenhill, Managing Director and Chief Business Officer at the World Economic Forum.

Howard Kunreuther, Co-Director of the Wharton Risk Management and Decision Processes Center, said, “If business leaders and decision-makers can overcome the behavioral biases towards immediate, short-term solutions and switch to longer term thinking, then they will have made significant progress in adopting an attitude suited to the mitigation of increasingly complex and interlinked global risks.”

Published in cooperation with Marsh & McLennan Companies, Swiss Reinsurance Company, the Wharton Center for Risk Management and Zurich, Global Risks 2011 draws on the insights of 580 expert respondents to the Forum’s Global Risks Survey 2010 across stakeholder groups and regions, measuring perceptions of risk likelihood, impact and interconnections for 37 global risks over a 10-year time horizon. The results of this survey are included in the report. Global Risks 2011 also provides insights on a number of emerging risks and outliers to this year’s global risk landscape that could surprise us in the future.

In 2007, two years ahead of the H1N1 virus spike that claimed thousands of lives throughout the world, the report warned of generalized under-preparedness to pandemics. In 2008, two years ahead Greece’s spring 2010 bail-out by the European Union and International Monetary Fund, the Forum highlighted the dangers associated with deteriorating fiscal positions in Europe.