Saturday, January 28, 2017

World Economic Forum sees five main risks for global economy in 2017

The World Economic Forum (WEF) claims that rising inequality and polarisation within societies could result in the reversal of globalization without urgent action taken to address problems.

The WEF said before its meeting in Davos that the gap between rich and poor had been a priime causeof the recent U.K. Brexit vote and Donald Trump's election victory in the U.S. The group warned that there would be new threats to social cohesion from a revolution in robotics and artificial intelligence (AI). The group, with reports from 700 experts, even suggests that a fundamental reform of capitalism may be needed to address the problems that are arising.
There is a definite irony in the topics discussed at Davos in that the gathering is in a luxurious resort and comprises important people from many countries who in fact support the very policies that have brought about the global situation that they now decry and want to reform. A Guardian article notes:It’s that time of the year when the world’s financial and business “elite” gather in an expensive Swiss ski resort to drink champagne and declare that they are terribly worried about global inequality. This parody-defying event is the World Economic Forum in Davos and, to create the correct veneer of earnest contemplation, the organisers publish an assessment of the risks they think the world faces.
In the past, economic growth has often been the solution to discontent with capitalism but the group claim there is a "growing mood of anti-establishment populism" that may not be assuaged just by economic growth but may require a reform of market capitalism. This reform comes down to a series of objectives such as: "Fostering greater solidarity and long term thinking in market capitalism". No clear recipe is provided as to how this might be achieved and capitalism hardly develops through solidarity but often involves dividing groups. For example immigrants are exploited because they will work for low wages and if they are illegal they are unable to complain about their position. They can be seen by other working people as taking jobs away from them and as lowering wages and allowing poor working conditions.
Many of those who attend, claim to have been stimulated by discussions at the event which is financed by 120 different sponsors — mostly multinational corporation. The main feature of the meetings the Guardian article declares: "The only lasting impression is of how unfractured is the society of millionaire bosses enjoying each other’s company at shareholders’ expense. Please, one of you, use next week’s forum to point out the absurdity of Davos."
However, some descriptions of the developing situation were interesting. Dani Rodrik, a U.S. economist. talks about what he calls "the globalisation trilemma". He claims that countries are unable to have democracy, sovereignty and globalisation all at the same time but only two of them at once. At present, there is a reaction against globalization and more stress on national sovereignty and democracy as illustrated by events in Europe. However, globalisation is in the interest of global capital and there is likely to be strong resistance to this trend that may produce even more social unrest. What can happen as well is that blocs of capital will use conflict such as that between Russia or China and many western countries as a way of deflecting anger upon other countries rather than being directed against the system. Populist demagogues such as Trump appear to have the ability to fight against such moves and direct anger back at the system. Some capitalists may see a benefit in better relations with Russia. Trump however seems to be playing an opposite strategy with respect to relations with China, perhaps attempting to have Russia and China at odds with one another. Having sovereignty will simply mean that national corporations will have a privileged place within a country. Large corporations will still have the biggest say in policy even if there is a formal democracy.
While President-elect Donald Trump is not attending the meeting in Davos, vice-president Joe Biden is. Xi Jinping is the first Chinese president to attend. Margareta Drzeniek-Hanouz sounded an optimistic note saying: “Urgent action is needed … to overcome political or ideological differences and work together to solve critical challenges. The momentum of 2016 towards addressing climate change shows this is possible and offers hope that collective action at the international level aimed at resetting other risks could also be achieved.”
The top risk to the economy for 2017 was the rising income and wealth disparity. However, the actual data show that countries are not all experiencing increased inequality: "Since the 1980s, the share of income going to the top 1 percent wealthiest citizens has increased in the U.K., the U.S., Canada, Ireland and Australia – though not Germany, France, Japan or Sweden – says the WEF."
Still important for the WEF is climate change, the second biggest risk for the economy in 2017. The end of the El Nino cycle may mean 2017 is not likely to register record heat. It is not expected that there will be major new accords such as the Paris Climate Agreement. However, governments must get on with the carbon cuts promised in Paris. The election of Donald Trump in the U.S. is likely to result in less action there.
The third risk for the WEF concerns problems facing democracy in that those setting policy and managing institutions have become divorced from the electorate both in pay, benefits, and culture. This gap may also be seen between those at Davos and average citizens. Austerity programs cut welfare provisions for those most vulnerable. Multiculturalism is also under stress as nationalism increases. The report claims: “This could be a pivotal moment in political history, and it requires courageous new thinking about how best to manage the relationship between citizens and their elected representatives.”
The fourth of five risks to the economy in 2017 is rising cyber dependency. As the economy depends more on the Internet the system becomes more open to disruption through hacking. This is indirectly connected to terrorism — a feature of the global situation which one might think is a considerable risk to the economy. Huge amounts of resources are devoted to dealing with terrorism both internally and in outright warfare that could have been used to deal with some of the other problems the WEF has listed. It is estimated that 10 percent of U.K. GDP comes from the "Internet economy"
The final issue facing the 2017 economy is the ageing population. Japan is a prime example of a country with a growing number of older citizens. The number of those over 65 in Japan is already 25 percent and is expected to reach 40 percent. In 2060 the number of citizens below 19 is expected to be just 13 percent. The situation is trending in the same direction in many parts of the developed world. The increased cost of welfare programs can drive a country into debt as in Japan which has a debt to GDP ratio of 240 percent. While this trend may lead to a labor shortage the introduction of new technology may offset this. Often the resulting increase in productivity goes to capital rather than labour. More of it should be used for the needs of the aged. China may also be facing the same sort of problem soon.
Rather surprisingly, terrorism was not picked out as one of the fives specific problem areas, nor were the ongoing conflicts in the Middle East nor the increasing conflicts between Russia and the west. The elaborate preparations for Davos are described in this article.


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