Here are the top three risks facing the world

January 8, 2013

From the people at the World Economic Forum, the wonky global thinkers responsible for the yearly Davos conference, comes a new report that reinforces many of the world's greatest worries over the past year: The rich are getting richer, the poor are getting poorer, public debt is at catastrophic levels and weather is getting weirder.

For the second year in a row, the biggest global risks are income inequality, government debt and rising greenhouse gases, according to the panel of 1,000 industry and government experts the WEF interviewed. But the risks that will have the most impact are systemic financial failure, government debt and crises in the water supply:

World Economic Forum
World Economic Forum

Two of those risks are interrelated. Although many say a total eurozone destruction is now not likely, the prospect of its collapse was sparked by one of the other WEF risks, a "failure to redress excessive government debt obligations," as Forum puts it.

Though the risks mostly stayed the same from last year's report, respondents this year saw them as more likely to happen and as having a higher impact.

"Two storms -- environmental and economic -- are on a collision course," said John Drzik, the head of Oliver Wyman Group and one of the experts surveyed for the report.

Water risk made headlines during the drought that scorched countries around the world last summer, but it's actually a much broader issue that causes unique problems in different countries, according to Rob Kimball, an associate at the World Resources Institute, an environmental think tank.

"For some communities it's as basic as drinking water availability, or unsustainable groundwater extraction leading to the intrusion of saltwater, particularly in coastal areas like those near California and the Gulf of Mexico" he said. "But drinking water is just a tiny bit of the puzzle - 70 percent of the water we consume around the world is used for agriculture."

Elsewhere, water risks touches everything from shipping to electricity production. The Mississippi River, for example, is already so low after this year's drought that there's a chance cargo vessels soon won't be able to navigate a section of it, which could potentially affect even global commodity markets. In India, low rainfall reduced hydroelectric capacity and increased pressure on the electric grid, contributing to widespread blackouts over the summer.

"It's a reminder that our huge global economy is still constrained by the limits of our natural resources," Kimball said. 

The report also quotes the IMF as singling out Greece, Japan and Italy, among other countries, for debt reduction, but it warns that austerity could also lead to the election of "rejectionist" governments who could lead to further economic paralysis. In Italy, this is playing out with the resurgence of Silvio Berlusconi, the prospect of which has caused widespread concern that a new era under the Bunga-Bunga-prone former prime minister would undo the economic good that Mario Monti orchestrated.

Ongoing economic crises also distract governments from working on other, longer-term challenges, such as investment projects or climate change.

"This persistent global economic fragility continues to divert our attention from longer-term solutions by...generating greater caution in use of scarce funds for strategic investment projects," the authors write.

Meanwhile, "mismanagement of an aging population" is one risk that increased from last year in both likelihood and impact -- a sign of the challenges countless countries will face as their birth rates plummet

Even more depressingly, the Forum said most countries haven't made strides toward mitigating the risks. 

"There is a feeling that we are not making progress," Lee Howell, the report's editor, said at the launch of the report in London. "We are not seeing the state leadership necessary to tackle these risks."

The report also mentions five "game-changers" world leaders should be on the lookout for. They mostly read like the ends of disaster movies, but they're still an interesting look at where we might be headed:

Developed in partnership with the editors of Nature, a leading science journal, the chapter on “X Factors” looks beyond the landscape of 50 global risks to alert decision-makers to five emerging game-changers:

  • Runaway climate change: Is it possible that we have already passed a point of no return and that Earth’s atmosphere is tipping rapidly into an inhospitable state?
  • Significant cognitive enhancement: Ethical dilemmas akin to doping in sports could start to extend into daily working life; an arms race in the neural “enhancement” of combat troops could also ensue.
  • Rogue deployment of geoengineering: Technology is now being developed to manipulate the climate; a state or private individual could use it unilaterally.
  • Costs of living longer: Medical advances are prolonging life, but long-term palliative care is expensive. Covering the costs associated with old age could be a struggle.
  • Discovery of alien life: Proof of life elsewhere in the universe could have profound psychological implications for human belief systems.

The findings show how much the world has changed since pre-recessionary 2007, when the most frequently cited risks were a breakdown of critical information infrastructure, chronic disease in developed countries, an oil price shock, a hard landing in China and an asset price collapse.

Here's a matrix of all of the risks, based on how likely they are to occur in the next 10 years and how much impact they would have:

World Economic Forum
World Economic Forum
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Max Fisher | January 8, 2013