Off to Davos global executives, world leaders and members of the media went this week! This was one of my favorite posts last year so figured I would do it again as the Global Risks Report by my employer, Marsh & McLennan Companies, has just released the 14th edition for 2019.
The World Economic Forum (WEF) is a Swiss non-profit foundation. The international body cites it's mission as "committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas".
In layman's terms, it is a gathering of about 3,000 businesspeople, celebrities and journalists to discuss the state of the world. The theme for the 2019 forum is "Globalization 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution."
Marsh & McLennan Companies are instrumental in helping put together the Global Risks Report. The report is about 100 pages discussing the worlds largest risks. I think it is vastly important to be aware of the emergence and development of these risks overtime. In this post, I am going to present a synopsis of what was included in this years report.
The report begins with the largest risks our world currently faces: individuals, companies, governments, etc. The first, is from 2018. The second, are 2019's most pressing risks. It is always interesting to see how these change form year to year.
You will note, cyber and natural disasters are always near the top of the list. We will delve into some of these below.
Macroeconomic. Financial market volatility increased as fears over the future of global economies rattled investors and central banks alike. The latest International Monetary Fund (IMF) prediction shows a gradual slowdown over the next few years. Historically large economies (ex: China) have lowered growth estimates. The global debt burden is also continuing to rise as it began post the 2008 financial crisis.
Geopolitical. Rifts between major powers have been increasing- notably the United States and China. A period of globalization has taken place which has altered the political economy globally. A concern arising: should a global crisis take place, would the mega powers of the world be able to join and work together for a collective solution.
Environmental. A range of environmental issues are at the forefront: extreme weather, agreement on proposed climate agendas, loss of species that could alter the human food chain. For humans, loss of biodiversity effects health and socioeconomic development as it can spur malnutrition. Disruptions in the delivery of goods or services due to a natural disaster is also a large concern.
Technology. Data fraud and cyber attacks continue to be high on individuals and corporations list of concerns. The likelihood and potential severity of these attacks on companies computer systems have increased with further emergence of technology. The enhancements of artificial intelligence, while in many ways better our world, pose a threat to societies if not monitored. Technology is also seen as a major loss of privacy and deepening polarization.
Energy Grid. The number one threat to our world, as stated by the U.S. Department of Homeland Security, is an attack on our energy grid by some sort of cyber malware. Utility companies spent an estimated $1.7B in 2017 on protecting their firms from such an attack. Many agree that in the future, there may need to be a government backstop (to cover expenses as TRIA does for certified acts of terrorism that was instated post 9/11) if this were to happen because no individual company (ex: ConEdison) could sustain the damages.
Oceans. Ongoing climate change and rapidly growing cities continue to make humans more vulnerable to rising sea levels. Urbanization, or the move to cities, exacerbates the risk of destroying natural sources of coastline resilience and put an immense strain on groundwater reserves.
Rising oceans pose a risk to over consuming roads, railways and ports. Internet cables running deep below the grounds surface also could be damaged due to excess water. Sanitation along with drinking water becomes a concern should ground water be contaminated by salt water. This also contributes to damaged agriculture.
Mental Health. Issues ranging from anxiety to depression and beyond effect an estimated 700 million people worldwide. The decline of well-being is, in itself, a risk as it contributes to the degradation of social cohesion and political landscape along with society productivity.
Biological Threats. A release of biological pathogens is widely thought of as a prime terrorist attack scenario. However, these also could be accidentally released. The vitality of having cures for said diseases along with prevention and contingency plans are a key risk mitigation tactic. Intentional biological trends including genetically modified babies is a new frontier requiring monitoring.
Income Inequality. Widening levels of wealth disparity and divergences between public and private levels of capital ownership are exacerbating the gap between the classes. The transfer of public to private wealth has occurred in nearly all countries whether they be developed or emerging. Underlying effects become a lack of cohesion and seemingly a distrust in the system.
Identity Politics. Immigration and migration changes has played a large role in asylum rules and regulations. The rise of the #MeToo movement put the notion of discrimination against gender front and center in industries ranging from Hollywood to Wall Street. Women are also more likely to be displaced from their jobs due to automation.
Globalization. Powers of the world have shifted. World leaders have changed as have the bodies in which they oversee. In relation to states, the following has been taking place: individuals have seen less control as states tend to be the reigning power. Along with companies, many are controlled by the states to the extent in which is the highest percentage seen in decades.
Multilateralism. As variables including GDP continue to evolve and change, multilateralism and the powers that be also must do the same. The idea of states forming an alliance to pursue a greater good , in theory works. However, with economies and political powers evolving, these formations need to be revisited.
Trade. China and the U.S. are arguably the biggest story in this arena. However, they truly are just a fragment of the larger puzzle. Although large economies such as these may influence global growth, smaller countries also play a role. With tensions escalating, the Internal Monetary Fund has revised growth projections for 2019 by 20 basis points. Tariffs on everything from aluminum to washing machines to European cars- the notion of “economic security being national security” is at the forefront for many countries as they evolve as more protectionist.
Investments. Monetary investment in governments, sovereign wealth funds and in particular, strategic sectors, have been blocking investments in emerging technologies. In August of this year, Germany announced a reduction in the threshold at which foreign investments can be blocked. If citizens of one country do not believe in their homeland’s trajectory, they will seek returns elsewhere. The balancing act arises when citizens of that country want to invest and the opportunities have been saturated with outside investors.
Foreign Direct Investment. Also known as FDI, the make-up of where this aid comes from for projects including infrastructure has changed from more traditional to outside governments stepping in. The issue comes as FDI is continuously becoming more politically charged.
Anger. While not as tangible as other topics touched upon in the Risks Report, every year Gallup takes a poll of the world's emotional state. As you may guess if you turn on the television from time to time, we are living in a very divided world. This leads to a "tremendous increase in mutual hatred." People reporting themselves as "angry" or more "on edge" on a daily basis rose in the past year. To blame? Shock: politics ranked as one. Families have been divided and at times stopped speaking on account of disagreements. To quote- "incivility has boiled over because we have lost respect for opinions other than our own." Let's take a step back, my friends.
Social Media. Specifically SM but really technology as a whole has been working it's way into become a full-blown addiction for many. This is the leading cause for feelings of isolation and loneliness. The blurring line between reality and fiction continues to become more opaque. Related to this is lack of sleep, poor performance in work or school and an immense decrease in in-person interactions.
Workplace Stress. A large number of workers globally attribute being overworked with their lack of happiness in their jobs. Other factors include ergonomic stress or lack of a work environment that provides comfort. Many report a constant stress is the creeping up of automation and the fact many jobs will be replaced by AI in the coming years.
^These may not seem as serious as inflation or an impending recession, but people are what make up our world. If we live in an environment where individuals are constantly anxious and angry, the long term effects will indirectly influence most of these other topics in some form or fashion.
Outbreaks. The spread of infectious diseases across the world have been occurring with increasing frequency. Five trends have been driving this: surging trade can pass diseases into different parts of the world by both humans and food contamination. With 55% of the world living in urban areas, high density living enhances the risk of disease spreading. Deforestation has been an issue in countries such as Africa where diseases are spread via mosquitoes and other various animals. Climate change has been linked to a rise in the transmission of diseases including dengue fever. Finally, human displacement. When thinking about the Syrian refugee crisis, humans migrating and generally in rough conditions and close confines once arriving at migration camps have led to outbreaks.
Healthcare Costs. While healthcare is advancing and less lives are being lost because of modern medicine, these potions to cure sicknesses come at a hefty cost. Procedure and prescription costs have skyrocketed leading to an increase in the cost of healthcare. Without insurance provided by your employer, it can be very difficult to stay ahead of healthcare expenses.
Pathogen Preparedness. Speaking on biologic threats above, the World Health Organization is proactively preparing for worst case scenarios. Should an attack of sorts take place where a pathogen is released, how would the WHO be able to ensure the disease is contained and then not passed along to both doctors and other citizens.
Disaster Recovery. Over the years, we have seen an increase in the cost of disasters. Notably expensive storms, hurricanes Harvey, Irma and Maria, the cost for spending post a disaster is almost nine times higher in many cases than on preventing the disaster in the first place.
Why are the storms costing more? Are storms getting worse? Possibly. Frequency ebbs and flows. But a key factor is simple: there is more STUFF! There are more homes than in the 80's. More businesses, cars, bridges- more things that can be wrecked causing an increase in recovery costs.
Waste. Population growth clearly exacerbates food availability. To sustain current food levels between 2019 and 2050, this will require a 70% increase in food production. Coupled with other issues mentioned above- this could be a tall order. A large issue has to do with the amount of food wasted- particularly in Western civilizations. 95 kg's of food is wasted per person every year in the United States. Compared to Rwanda? 1 kg.
Food Insecurity. You've heard of the trade war between the U.S. and China- mainly steel, aluminum. There is also the potential for a food trade war in the future. Cross border issues can block certain goods, unable to be grown or produced in a country, from entering. If an ecosystem in one country fails, they may be entirely reliant upon a neighbor. A tense conflict could limit accessibility.
Supply and Demand. As we spoke above on the trade war, there are sometimes unintended consequences of tariffs, etc. Imposing tariffs on certain goods may bring another government to the negotiating table but as seen with Chinese goods, these tariffs then make U.S. products more expensive. Why? Supply and demand basics. If you cut off the pipeline of semiconductors for iPhones that come from China (and are generally cheap) you are going to have to find somewhere else to get said components- usually from a more expensive source.
Fracking. Similar to the above, you're facing what some environmentalists consider a trade-off. While reports of fracking directly causing earthquakes is largely unsubstantiated, many see our energy independence which was shepherded by the Bush administration as a trade-off to environmental harm. The United States is now a net exporter of energy for the first time in years. Currently with an oversupply of natural gas and a healthy pipeline of crude, studies will need to continue to be done to ensure if fracking is ceased because of these concerns- that it will be worth the price the U.S. will pay to go back to being energy dependent.
Space. The amount of government and commercial activity in space has been increasing rapidly. The concern is of course an actual collision but second that it could become a potential battleground.
As you can see, Davos is chock-full of discussions and gives a good feel of sentiment for the year ahead. I will leave you with a few interviews with the CNBC anchors and some of the most influential business people in the world.
Jamie Dimon. Chairman and CEO of JPMorgan Chase.
David Solomon. CEO of Goldman Sachs.
Ginni Rometty. Chairwoman, President & CEO of IBM.
Christine Lagarde. Chairwoman of the International Monetary Funds (IMF).
James Gorman. Chairman and CEO of Morgan Stanley.
Majid Jafar. CEO of Crescent Petroleum. "Oil prices are more likely to hit $90 than $40 in 2019."
Mark Weinberger. CEO and Global Chairman of Ernst & Young. "The government shutdown will not have a long-term effect on GDP."
Jim Coulter. Founder of TPG. "The economy is like a frat party at 4 AM- late, but not over."
Bono. Singer, U2. "Capitalism is a 'wild beast' that if not tamed, can chew up a lot of lives."
Jes Staley. CEO of Barclays. "We'll likely be uncertain about Brexit right down to the wire."
Ray Dalio. Founder of Bridgewater Associates. "Capital could flee the U.S. if Alexandria Ocasio-Cortex's tax idea becomes a reality."
Marc Benioff. CEO of Salesforce. "San Francisco is a train wreck of inequality because of Silicon Valley."
So, this may have seemed like a bunch of gloom and doom but I will leave you with this.
James Gorman spoke on his notice during Davos that the more he spoke with other business titans and global leaders, that somehow the conversation turned more negative than our reality really is. He said you can seemingly talk yourself into thinking the world is worse off.
Jamie Dimon followed this with, of course, the world isn't perfect. But what are we, WE, as individuals doing on a daily basis to make it better. Take it all with a grain of salt and keep on a'goin', one day at a time.
"Look up at the stars, and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious."- Stephen Hawking
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