From the Horse’s Mouth: Perils of Neoliberalism
How do the custodians of global capitalism view the world economic and political scenario today? Let us hear from two of them: the IMF and the World Economic Forum (WEF). The gloomy picture drawn by the IMF was not that unexpected, but it is the “Insight Report” by WEF – from which we bring you substantial excerpts – that makes really interesting reading. It carries unmistakable imprints of the tumultuous 2011 on bourgeois psyche and provides us with an authentic list of their major worries.
World GDP: Down, Down, Down
The IMF World Economic Outlook published in September 2011 predicted worldwide GDP growth of 4% in 2011 and 2012, down from 5% in 2010. In June 2011 it had projected 4.5 per cent growth, but by September held that “a barrage of economic shocks in 2011 combined with other factors” would lead to “a worse than anticipated outcome.” The economy was in “a dangerous new phase” marked by weaker activity and a sharp decline in confidence, it added.
In a matter of less than four months, it has had to revise the estimates downwards again, even as the euro zone crisis was spreading fast. Italian newswire ANSA reported on 19 January that the IMF now expects the 2012 global gross domestic product to rise only by 3.3%. The estimate for 2013 shows GDP growth of 4.0%, compared with a previously forecast expansion of 4.5%.
As for prospects of major economies, the IMF’s 2012 GDP growth estimate for the US was left unchanged at 1.8%, while for 2013 it was lowered to 2.2% from 2.5%. Italy’s GDP is forecast to slide 2.2% this year--much worse than that expected by the Italian government and European Commission--while for 2013 the drop is expected to be 0.6%. Spain’s GDP forecasts were also revised down to a contraction of 1.7% in 2012 and 0.3% in 2013, from growth of 1.1% and 1.8% respectively. The IMF’s German growth forecast was cut to 0.3% in 2012, from 1.3% previously, while the 2013 forecast was left unchanged at 1.5%. French GDP growth estimates were reduced to 0.2% from 1.4% in 2012, and to 1.0% from 1.9% in 2013; while the U.K.’s growth estimates were revised down to 0.6% from 1.6% in 2012, and to 2.0% from 2.4% in 2013.
The IMF also cut its GDP estimates for the euro zone to a contraction of 0.5% from growth of 1.1% in 2012, while for 2013, GDP growth was cut to 0.8% from 1.5%.
WEF: Risks and Potholes Galore
(Excerpts from WEF’s Insight Report)
“The World Economic Forum’s Global Risks 2012 report is based on a survey of 469 experts from industry, government, academia and civil society that examines 50 global risks across five categories.
“Three distinct constellations of risks [(1) signs of “Dystopia” or a hard, hopeless life; (2) doubtful dependability of “Safeguards” used to deal with natural, industrial, financial, societal and other hazards; (3) problems of digital “Hyperconnectivity” – also referred to as risk cases – Ed./- Liberation] that present a very serious threat to our future prosperity and security emerged from a review of this year’s set of risks.
“Case 1: Seeds of Dystopia
Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Analysis of linkages across various global risks reveals a constellation of fiscal, demographic and societal risks signalling a dystopian future for much of humanity. The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already heavily indebted governments. Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability.
“This case underscores the danger that could arise if declining economic conditions jeopardize the social contracts between states and citizens. In the absence of viable alternatives, this could precipitate a downward spiral of the global economy fuelled by protectionism, nationalism and populism.
“The word “dystopia” describes what happens when attempts to build a better world unintentionally go wrong. This case considers how current fiscal and demographic trends could reverse the gains brought by globalization and prompt the emergence of a new class of critical fragile states – formerly wealthy countries that descend into lawlessness and unrest as they become unable to meet their social and fiscal obligations. Such states could be developed economies where citizens lament the loss of social entitlements, emerging economies that fail to provide opportunities for their young population or to redress rising inequalities, or least-developed economies where wealth and social gains are declining.
“Two dominant issues of concern emerged from the Arab Spring, the “Occupy” movements worldwide and recent similar incidents of civil discontent: the growing frustration among citizens with the political and economic establishment, and the rapid public mobilization enabled by greater technological connectivity. These trends are evolving differently across developed, emerging and least developed economies.
“In developed economies, such as those of Western Europe, North America and Japan, the social contract that has in recent decades been taken for granted is in danger of being destroyed. Workers nearing retirement fear cutbacks in social entitlements they have grown up to expect, such as state pensions, pre-established retirement age and guaranteed access to quality healthcare. Meanwhile, young adults in this same group of economies realize that they are part of a compressed labour force that is expected to support a growing population of elderly citizens, while bearing the brunt of austerity measures required to offset growing national debts.
“In emerging economies, the context – and the challenge – is different. Countries such as Indonesia, Vietnam, the Philippines, Mexico, Peru and the BRIC countries (Brazil, Russia, India and China), are racing to take advantage of a demographic window of opportunity presented by large labour forces with relatively few dependents, before this population also ages. These nations’ ability to seize the opportunity is far from guaranteed, given sluggish global growth and reduced demand from developed economies. Rapid economic growth in emerging economies has fuelled an impatient expectation that a rising tide will lift all boats, but social contracts may not be forged quickly enough to rectify increasingly visible economic inequalities and social inequities.
“Failure to meet demands for civil and political rights could also have harmful consequences. In most countries, improvements in economic living standards have been accompanied by increases in political and civil rights such as freedom of speech, assembly and belief. In approximately a dozen countries, citizens who have enjoyed rapid economic growth in the last 20 years have instead seen deterioration in their political and civil freedoms, often resulting in social unrest. A closer look reveals that many countries in this group share recent episodes of social unrest as a common characteristic.
“In the world’s poorest countries, rapidly increasing populations of young people, who are growing up in extremely vulnerable circumstances, are posing urgent demographic challenges. Least-developed economies and fragile states, such as Afghanistan, Pakistan, Timor-Leste and many Sub-Saharan African countries, are still struggling to ensure basic health and education for their growing populations and to take advantage of the wealth-generating potential of women.
“This dynamic is summed up in Figure 11 [which shows “Seeds of Dystopia Constellation” i.e. Chronic fiscal imbalances, Mismanaged urbanization, Chronic labour market imbalances, Critical fragile states, Backlash against globalization, Mismanagement of population aging, Unsustainable population growth and Severe income disparity] with the potentially potent combination of chronic labour market imbalances, chronic fiscal imbalances and severe income disparity. When amplified by extreme demographic pressures, these conditions could lead to a retrenchment from globalization and the emergence of a new type of critical fragile states – formerly wealthy countries that descend into a spiral of decay as they become increasingly unable to meet their social and fiscal obligations.
“The signs already exist that the world is becoming more fragmented, inconsistent and mistrustful; the question is the extent to which these developments could lead to a global dystopia.
“Within a two-year period following the liquidity crisis, 27 million people around the world lost their jobs; many more accepted reduced working hours, wages and/or benefits. Young people have been hit especially hard by the lack of career opportunities – a trend that prompted the International Labour Organization to warn of a “lost generation”. Since the onset of the global recession, many countries have experienced increases in rates of poverty, mental illness, substance abuse, suicide, divorce, domestic violence and the abandonment, neglect and abuse of children.
“On an unprecedented scale around the world, there is a sense of receding hope for future prospects. Gallup polling data in 2011 reveal that, globally, people perceive their living standards to be falling, and they express diminishing confidence in the ability of their government to reverse this trend. Their discontent is exacerbated by the starkness of income disparities: the poorest half of the global population owns barely 1% of the global wealth, while the world’s top 1% owns close to half of the world’s assets.
“Trends and Uncertainties
By 2050, the world will experience a near doubling of the urban population to 6.2 billion – 70% of the projected world population of 8.9 billion. This means that we will have to build the same urban capacity (housing, infrastructure and facilities) in the next 40 years that we have built over the past 4,000 years. Meanwhile, the number of people globally over 60 years of age has risen from 8% in 1950 (roughly 200 million people) to 11% in 2009 (760 million people), but is now projected to double in rate by 2050 (2 billion people). Globally, the population of older people is growing at a rate of 2.6% per year, considerably faster than the population as a whole.
“Key Insights
General expectations about the potential of the world economy may not be met due to the interplay between fiscal imbalances and demographic trends. The resulting disappointment is amplified by a growing sense that wealth and power are becoming more entrenched in the hands of political and financial elites. Though rapid urbanization offers economies of scale if infrastructure keeps pace, it also makes the gulf in living standards between the rich and the poor more immediately visible to more people – a trend which is further amplified by the Internet.
“When social mobility is widely perceived as attainable, income disparity can spur people to reach for success. However, when ambitious and industrious young people start to feel that, no matter how hard they work, their prospects are constrained, then feelings of powerlessness, disconnectedness and disengagement can take root. The social unrest that occurred in 2011, from the United States to the Middle East, demonstrated how governments everywhere need to address the causes of discontent before it becomes a violent, destabilizing force.
“Case 2: How Safe are our Safeguards?
[The survey cites the examples of the volcanic eruption of April 2010 which led to the grounding of thousands of flights resulting in loss of billions of dollars and the Fukushima meltdown which prompted German politicians to shut down eight of Germany’s 17 nuclear reactors immediately, with the remaining nine to be taken offline by 2022 and adds:] “For safeguards to strike the right balance – neither so lax they fail, nor so strict they carry harmful consequences – we need a more flexible, forward-looking approach. This applies to a diverse range of topics, such as global finance, transportation networks, emerging science and new technologies, scarce resources, the climate and biodiversity.
“Case 3: The Dark Side of Connectivity
The impacts of crime, terrorism and war in the virtual world have yet to equal that of the physical world, but there is fear that this could change. Hyperconnectivity is a reality. With over five billion mobile phones coupled with internet connectivity and cloud-based applications, daily life is more vulnerable to cyber threats and digital disruptions.
“The Risk Categories
The 50 global risks in this report are divided into five categories: economic, environmental, geopolitical, societal and technological.
“Economic
Being in the forefront of public debate in recent years, chronic fiscal imbalances and severe income disparity emerged this year as the two most likely economic risks to manifest in the coming 10 years. In addition, these two risks are rated as having potentially high impact, along with extreme energy and agriculture price volatility, as well as major systemic financial failure.
“Environmental
The environmental category addresses environmental global risks of high concern, from natural disasters such as extreme weather and geomagnetic storms, to man-made disasters such as irremediable pollution and species overexploitation.
The two key pillars of climate change – continued rising greenhouse gas emissions and the failure of climate change adaptation – top this category with the highest impact. Interestingly, survey respondents collectively rated man-made risks, such as mismanaged urbanization, land and waterway use mismanagement and species overexploitation, as more likely to occur in the next 10 years than natural disasters such as earthquakes and volcanic eruptions (unprecedented geophysical destruction), persistent extreme weather and geomagnetic storms.
“Geopolitical
The geopolitical category addresses risks that are of greatest
concern in the areas of politics, diplomacy, conflict, crime and governance on a global scale. From diffusion of weapons of mass destruction to pervasive entrenched corruption, geopolitical risks are global risks of humanity’s own making.
Global governance failure was ranked second in the highest impact along with diffusion of weapons of mass destruction, but the former is regarded as relatively more likely to occur in the next 10 years.
“Societal
The societal category addresses trends and uncertainties in population dynamics, social stability and human survival. From food and water shortage crises to rising religious fanaticism, societal risks all have a relatively high likelihood of occurring in the next 10 years. Water supply crisis has the highest impact and highest likelihood, with food shortage crisis following closely behind.
“Technological
Technological risks range from cyber attacks, highlighted as having the highest likelihood and a high impact, to critical systems failure having the highest impact and lower likelihood, and to the unintended consequences of nanotechnology, which has a lower impact and lower likelihood.
“Conclusion
Over the past seven years this report has developed a methodology to improve the analysis of interconnected global risks – those which no single country, region, sector or industry is likely to be able to confront or prevent on their own.
“The risk clusters highlighted in previous analyses – such as the water-food-energy nexus and the global illicit economy – will not disappear, but with each new year, risk perceptions can vary. In 2012, concern about the growth prospects of the world economy is at the forefront of respondents’ concerns, and this subject pervades all three distinct, yet interconnected, cases presented in this report. Two risks that feature prominently in this year’s report – cybersecurity and demographic challenges – also emerged in Global Risks 2011 as risks to watch, while the governance of complex systems has been an underlying theme of previous reports.”