The largest risks facing society in the months and years ahead are macroeconomic and have no immediate solutions. New threats have emerged so rapidly over recent decades that our ability to mitigate them has simply not caught up.
That is the main contention of “Global Risks 2011,” a new report published jointly by Marsh & McLennan, Swiss Re, Zurich Financial Services and the Wharton Center of Risk Management. “20th century systems are failing to manage 21st century risk,” said Robert Greenhill, managing director and chief business officer at the World Economic Forum. “We need new networked systems to identify and address global risks before they become global crises.”
The primary risk was unveiled by the financial crisis. Some very specific causes were behind the meltdown (mortgage industry speculation, liar’s loans, credit default swaps and collateral debt obligations to list a few), but the report asserts that the crisis was “built on longer-term structural weaknesses in the global economy.” Chief among these are the vast, long-term, unfunded liabilities related to an aging population, including pensions, social security and rising health care costs. Fiscal crises like those ongoing in the Eurozone also illustrate the underlying troubles prevalent throughout the global economy.
“Current fiscal policies are unsustainable in most industrialized economies,” said Daniel M. Hofmann, chief economist of Zurich. “In the absence of far-reaching structural corrections there will be a high risk of sovereign defaults.”
On top of this is the growing concern surrounding resource limits. Shortages of core needs-namely, water, food and energy-could incite domestic and international conflicts. In the business sector, industries will likely clash over access to these resources. Climate change and population growth will only exacerbate this reality.
All told, the report paints a picture of a world laden with massive risk that seems ingrained in the status quo behavior of the world’s modern economies. Combatting the threats will take a significant-and rapid-shift.
“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,” said Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center.
And if not? Well, the future will only become more treacherous and unpredictable than it already is.