Income gaps threaten global economy
Forum urges focus on ‘lost generation’
LONDON — The gap between the rich and the poor is the most likely threat to the global economy in coming years, the World Economic Forum said Thursday in a risk assessment ahead of the gathering of political and business leaders in the Swiss ski resort of Davos.
The Forum, which hosts the annual gathering, said income disparity in the wake of the global financial crisis is the “most likely risk to cause an impact on a global scale in the next decade” and warned of a “lost generation” of young people that could stoke tensions in society.
“The generation coming of age in the 2010s faces high unemployment and precarious job situations, hampering their efforts to build a future and raising the risk of social unrest,” the Forum said in Global Risks 2014, which was compiled with contributions by 700 global experts.
The warning from the Forum comes amid signs the global economy is finally over the worst that the financial crisis has thrown at it. The U.S. has begun to rein in some of the extraordinary monetary policies it put in place to get the economy out of recession and avoid a repeat of the 1930s. The countries that use the euro currency are past the worst of their debt crisis. The World Bank, in a report this week, went so far as to say the global economy has “turned a corner.”
However, the costs of the global financial crisis, which has left its mark on all corners of the world, are not expected to disappear overnight, and next week’s meeting is likely to face criticism from groups campaigning against poverty and globalization.
Adrian Monck, who is the head of communications for the Forum, defended the gathering, noting that inequality and wealth gap were now on the agenda for discussion.
“It’s important that people have that brought to their attention and that we mobilize people around those issues,” he said.
Philip Jennings, General Secretary of the labour group UNI Global Union, said the risk report “should act as a wake-up call” to those attending Davos.
“These are global issues we can do something about: we can twist the global economy back into shape — this includes a new commitment to create jobs, address income inequality and falling living standards,” said Jennings, whose organization represents 20 million workers from over 900 unions.
“Since the global financial crisis it’s been a race to the bottom in jobs, wages and living standards,” he said.
John Veihmeyer, chairman and CEO of KPMG’s Americas division, said it’s “absolutely understandable” that income inequality was revealed as a major risk and that fixing and improving education systems around the world is a key, if not sole, way to narrow the differences.
In large parts of the developed world, the imbalance between government spending and tax-based revenue will likely mean budget restraint for years to come at a time when economies are trying to gain traction.
“Many young people today face an uphill battle,” said David Cole, chief risk officer at Swiss Re, a reinsurance firm that contributed to the Forum’s risk assessment. “As a result of the financial crisis and globalization, the younger generation in the mature markets struggle with even fewer job opportunities and the need to support an aging population.”
In a number of countries, particularly in those at the forefront of Europe’s debt crisis, youth unemployment has risen to extremes. Greece and Spain have nearly 60 per cent of their under25s out of work.
As well as creating uncertainty in households and stifling consumer spending, sky-high youth unemployment also denies workers skills and experiences, depressing an economy’s longterm potential and increasing tensions in society and between generations.