Guest Post by Malcolm Peart (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
The World Economic Forum has conducted a Global Risk Survey since 2006. This is the fifteenth survey. The responses are from 650 members of the World Economic Forum. In the preface to the 2021 Global Risk Report it is noted that: “In 2006, the Global Risks Report sounded the alarm on pandemics and other health-related risks.” (1) With this context in mind, the 2021 risk analysis “centers on the risks and consequences of widening inequalities and societal fragmentation. In some cases, disparities in health outcomes, technology, or workforce opportunities are the direct result of the dynamics the pandemic created.” (2)
This piece will review the results of the 2021 Global Risk Survey. It will also discuss some of the issues surrounding the survey.
In the Executive Summary the authors provide an assessment of the economic consequences of the pandemic. “The pandemic’s economic shockwave-working hours equivalent to 495 million jobs were lost in the second quarter of 2020 alone – will immediately increase inequality, but so can an uneven recovery. Only 28 economies are expected to have grown in 2020.” (3) Interestingly the authors anticipate that COVID will speed the movement to the Fourth Industrial Revolution.
The Fourth Industrial Revolution is the idea that virtual and physical global manufacturing systems cooperate in a flexible manner. It is anticipated that this flexibility, along with break throughs in quantum computing and new materials developed using new process such as nano technology will provide this revolution with a much broader and positive socio-economic impact.
The problem is that the assumption that a Fourth Industrial Revolution is a broad-based linear advance is not correct. Technological development is not deterministic. To be sure technological change over the long term is important to economic growth. However, this is not the same as technological development being deterministic. This can be seen in the following three propositions regarding General Purpose Technologies (GPT). (GPT’s are technologies which can be applied across multiple economic sectors. For instance, the first industrial revolution was facilitated by steam power. Steam power was applied in multiple sectors such as trains and manufacturing plants. The second industrial revolution was defined by the application of scientific methods to problems across multiple sectors. Similarly, the third industrial revolution was based on computers and computer chips. MRIs, cell phones and self-driving automobiles are all examples this GPT cross pollination.)
- Major new technologies, particularly transforming GPTs, have important effects on socio-economic system of any country into which they are introduced.
- The same technology introduced into different places, and/or at different times, will have different effects because the rest of the political, social, economic, and institutional structures will differ between the two situations.
- Because knowledge builds on previous knowledge in an uncertain, path-dependent, and sometimes discrete process, the introduction of a new technology cannot have unique predetermined results. (4)
The unequal application of technological development should raise the questions about the Fourth Revolution having an equally positive socio-economic globally. The issue of income inequality was only exacerbated by the pandemic.
In the 2020 survey there were two groups of respondents. These were Multistakeholders and Global Shapers. In 2021 there was just the one group. For this group, the top short term (1-2 years) risk was Infectious diseases.
Infectious diseases are not considered a medium- or long-term risk. This runs counter to some of the current medical thinking that COVID – 19 will be around for a much longer period. For instance, there are three new strains of COVID – 19 which might be more infectious and deadly. These are the United Kingdom, South Africa, and Brazilian strains. It is not known if the current vaccines are sufficiently effective against these strains. If they are not, how soon can effective vaccines be developed?
It took almost a year to develop the current vaccines. That was a year faster than anticipated. With a new administration in Washington D.C. still getting its footing, is a year or earlier for a countering vaccine reasonable.? If not, then the infectious disease risk will last longer than two years. Further, the COVID – 19 spread was unanticipated. Since there are other diseases which could appear and spread just as rapidly, it seems unusual that the risk of infectious diseases does not appear on either the medium- or long-term risk categories. Interestingly, Backlash against science is ranked tenth in long term risks. This would indicate that there is recognition that the way the COVID – 19 process is being handled is problematic.
In 2020 neither the Multistakeholders nor the Global Shapers ranked Infectious diseases in the top ten short term risks for either likelihood or impact. This would have been expected given it is the 2021 number one short term risk.
Multistakeholders did rank Infectious diseases tenth on long-term Impact. Global Shapers ranked it seventh on long-term impact. Infectious diseases was not among the top ten long-term likelihood risks for either group. Thus, the 2020 respondents did not see Infectious diseases as an immediate problem.
An examination of the risk rankings for 2019 and 2018 also show Infectious diseases were not high on the likelihood ranking. In 2019 Infectious diseases does not even appear among the forty-two short-term risks listed. In the 2018 report, Infectious diseases was listed as number ten in Impact, but did not ranked among the top ten in the Likelihood.
Thus, while Infectious diseases are ranked first in 2021, the emphasis and recognition that Infectious diseases as a key risk in earlier reports is spotty at best. In fact, looking at the top five global risks for either likelihood or impact for the period 2005 to 2019, Infectious diseases does not appear. This raises the question: Is the global risk survey something that can be used in a proactive manner, or is it just a list of the latest bright shiny objects that caught the attention of the members of the World Economic Forum?
This answer is even more important when the second highest short-term risk is evaluated. That risk is Livelihood crisis.
Livelihood crisis is the second highest ranked short-term risk. It is rated as a geopolitical risk. Other geopolitical risks listed among the top ten and related to the Livelihood crisis are Prolong stagnation, Youth disillusionment and Social cohesion erosion. These are ranked number six, eight and nine, respectively.
While these are considered short-term risks (1-2 years), it is reasonable to ask: Are they? If the consequences of these risks are currently appearing in society, can any adverse impact be significantly mitigated in 1-2 years? Further, what ranking, if any, did these risks receive in prior years?
The 2020 survey did not list Livelihood crisis, Prolonged stagnation, Youth disillusionment or Social cohesion erosion as either short- or long-term risk. The closest comparable short-term risks are Recession in a major economy and Social Instability. Recession was ranked ninth in terms of long-term risks by Multistakeholders. Global Shapers ranked Social Instability ninth in terms of long-term Likelihood.
Livelihood crisis does not appear among the 42 short-term risks listed in 2019. There are, however, three risks listed which tangentially relate. These are Inequality (within countries) ranked twelfth, High levels of youth unemployment ranked nineteenth. Civil unrest (including strikes and riots ranked thirty-second.
While it is obvious that these three could be directly or indirectly related to the Livelihood crisis, Prolonged stagnation, Youth disillusionment or Social cohesion erosion, the mitigative actions needed to deal with each risk could be substantively different. This lack of clarity or consistency of risk labels between surveys, dilutes proactive effectiveness. It also calls into question the designation of short-term, medium, and long-term risk.
This problem can also be seen in the other 2021 top ten short-term risks.
Other 2021 Top Ten Short-Term Risks
Below are listed the other top ten short-term risk identified by the 2021 World Economic Forum members. Of these, only Cyber security failure is considered both a short term and medium-term risk. It is rated 4 short term and 8 medium term.
Table 1 shows the remaining top ten 2021 short term risks. They are listed by risk, percentage, 2021 short-term rank, 2020 long term likelihood rank for Multistakeholders and 2019 short-term rank. The 2019 risks are used because of the number of short-term risks (42) that are identified.
The compassion between the top ten short-term 2021 risks and the 42 short term risks listed in 2019 show that two of the 2021 top ten risks, Extreme weather events and Digital inequality, were not among the 2019 list. Further, while Cybersecurity failures had a fairly consistent rating, the ratings vary for Terrorist attack and Human environmental damage.
|Risk||2021 %||2021 Rank||2020 long term||2019 Rank|
|Extreme weather||52.7||3||1||Not listed|
|Digital inequality||38.3||5||Not listed||Not listed|
|Terrorist attack||37.8||7||Not listed||42|
|Human environmental damage||35.6||10||5||15|
Looking at the top ten long term likelihood list for the 2020 Multistakeholders, Extreme weather event is number 1. Human made environmental disasters is number 5. Cyberattacks is rated at number 7. Digital inequality, and Terrorist attack are not among the top ten likelihood long term risks.
While it is not unusual for risks to be rated differently from year to year, the wide variance and failure to list a risk which is highly rated the following year, raises questions about the usefulness of the surveys as a proactive risk document.
The 2021 Global Risk Report is the fifteenth such report conducted by the World Economic Forum. This report represents the responses of 650 World Economic Forum members. The two highest rated short-term risks are: Infectious disease and Livelihood crisis. Neither appeared as short-term risks in the 2020 report. In fact, Livelihood crisis did not appear in either the 2019 or 2020 reports. As for Infectious disease, it does not appear among the top ten short term risks in 2020. Although, it is ranked seventh in long term impact by Multistakeholders and number nine by Global Shapers. Neither group ranks Infectious diseases as a long-term likelihood risk. Nor is it among the 42 short-term risks listed in 2019.
It is not unusual for the rating of risks to vary from years to year. The problem is that there is a lack of consistency in the risks used or priority given. How is it that Infectious disease can be identified as an import risk in 2006, but only appear on the 2020 long term impact risk, as opposed to a likelihood risk, while in 2021 it is the number one short-term risk? If it was so impactful, as COVID – 19 turned out to be, how could the movers and shakers of the Economic Forum, have missed it?
The same holds true for Livelihood crisis. Livelihood crisis is ranked second in short- term risks in 2021. Yet, it does not appear among the top ten risks, either short-term or long-term in 2020. Nor is it among the 42 short-term risks listed in 2019.
The lack of risk identification consistency also appears in three of the remaining ten short-term 2021 risks. These are Extreme weather, Digital inequality, and Terrorist attack. Extreme weather is ranked 3 in 2021. It is the number one long term risk in 2020. It does not appear among the 42 short-term risks in 2019. Digital inequality is ranked 5 in 2021. But it does not appear in either the short-term or long-term top ten in 2020, or among the 42 short-term 2019 risks. Similarly, Terrorist attack, which is ranked number seven among the 2021short-term risks, is not listed as either a short-term or long-term risk in 2020 and last (42) in the 2019 short-term risks.
The failure to list some very impactful risks until they are suddenly front, and center raises two important questions. How useful is the risk survey as a proactive risk assessment tool? Should the survey be seen as an merely a representation of the latest shiny objects noted by the world’s mover and shakers?
- World Economic Forum, 2021, “The Global Risk Report 2021”, https://www.weforum.org/reports/the-global-risks-report-2021, Page 5.
- Ibid page 5.
- Ibid page 7.
- Lipsey, Richard G., Kenneth I. Carlaw, and Clifford T. Bekar, 2005, “The Economic Transformation: General Purpose Technologies and Long Term Economic Growth”, New York, Oxford University Press, page 17.
James J. Kline, Ph.D., CERM, is the author of numerous articles on quality in government and risk analysis. He is a senior member of the American Society for Quality and Six Sigma Green Belt with experience consulting for the private sector and local governments. His recent book, Enterprise Risk Management in Government: Implementing ISO 31000:2018, is available on Amazon. He can be reached at firstname.lastname@example.org.