WEF: Global Governance Systems Failing

The world is in no position to face new, major shocks, as the financial crisis has reduced global economic resilience and governments lack the capacity to respond, according to the World Economic Forum (WEF).

The warning comes in the WEF’s Global Risks Report 2011, released ahead of the WEF annual meeting in Davos-Klosters, Switzerland, which begins January 26.

Global governance systems are failing to deal with global risks and new systems are needed, the WEF says:

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.†

The WEF also warns that economic imbalances and unfunded liabilities contain the seeds of potential future fiscal and financial crises and will require concerted coordinated action to manage them:

Savings and trade imbalances within and between countries are increasingly unsustainable while unfunded liabilities create extreme long-term pressure on fiscal positions. One way out of these imbalances would be coordinated global action but this is challenging given the conflicting interests of different states.†

The report identifies economic disparity as one of the most important risks in the coming decade. Its findings suggest economic disparity is tightly interconnected with corruption, demographic challenges, fragile states, global imbalances and asset price collapse.

According to the WEF, three risk clusters of particular concern are 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.

Other top risks identified by the WEF include: cyber-security; demographic challenges; resource security; retrenchment from globalization; and weapons of mass destruction.

Published in cooperation with Marsh & McLennan Cos, Swiss Re, the Wharton Center for Risk Management and Zurich, Global Risks 2011 draws on the insights of 580 leaders and decision makers around the world.

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