The WEF Crisis Report Part 2

Future Concerns-

Previously we’ve looked at the shorter-term risks we’re facing – the current issues and those that’ll become more pressing in the next two years. Next, we look to the horizon and what we can anticipate as potential problems over the next 10 years. Of course, without truly addressing the short-term issues, they’re going to keep coming up in the long term, so many of the future crises are very similar to the previous ones we’ve gone over – the cost-of-living crisis, economic downturns, geoeconomic warfare, climate action hiatus, and societal polarisation.

The WEF chose in this year’s report to dive into five newly emerging and/or rapidly accelerating issues that could become tomorrow’s crises. These focus points are –

· Natural Ecosystems and their decline

· Human Health and the issue of strained healthcare systems the world over

· Human Security and international tensions armed with emerging technologies

· Digital Rights and the dangers of a lack of cyber security

· Economic Stability and the growing debt crisis

The graph below shows a more in-depth look into risks of particular concern:

Natural Ecosystems are on the edge-

Biodiversity within and between ecosystems is already declining faster than at any other point during human history. Over the next 10 years, the mix of biodiversity loss, pollution, natural resource con­sumption, and climate change will make for a dangerous mix. Given that over half of the world’s econo­mic output is estimated to be moderately to highly dependent on nature, the collapse of ecosystems will have far-reaching economic and societal consequences. These include increased occurrence of zoonotic diseases, a fall in crop yields and nutritional value, growing water stress exacerbating potentially violent conflict, loss of livelihoods dependent on food systems and nature-based services like pollination, and ever more dramatic floods, sea-level rises, and erosion from the degradation of natural flood protection systems like water meadows and coastal mangroves. Without significant policy change or investments, the complex linkages between climate change mitigation, food insecurity, and biodiversity degradation will accelerate ecosystem collapse. Heatwaves and droughts are already causing mass mortality events (a single hot day in 2014 killed more than 45,000 flying foxes in Australia). Arctic sea-ice, warm-water coral reefs and terrestrial ecosystems have been found most at risk in the near term, followed by forest, kelp, and seagrass ecosystems.

Land-use change remains the most prolific threat to nature, according to many experts. Agriculture and animal farming alone take up more than 35% of Earth’s terrestrial surface and are the biggest direct drivers of wildlife decline globally. The ongoing crisis in the affordability and availability of food supplies puts efforts to conserve and restore biodiversity at odds with food security. State incentives to boost local production and reduce reliance on imports could come at the cost of ecosystem preservation. Technology can provide partial solutions in the countries that can afford it, for example, the global vertical farming market has been predicted to grow at a compound annual rate of 26% and hit $34 billion by 2033. These agricultural production techniques increase food output per unit area with a smaller environmental footprint but can be more carbon-intensive than open-field farming in some regions.

Human Health- pandemics and capacities

Global public health is under growing pressure and health systems around the world are at risk of becoming unfit for purpose. The COVID-19 pandemic further amplified ever-present spectres and emerging risks to physical and mental health. There is also a rising risk of a “panic-neglect” cycle. As COVID-19 recedes from the headlines, complacency appears to be setting in on preparing for future pandemics and other global health threats. Healthcare systems face worker burnout and continued shortages at a time when fiscal consolidation risks deflecting attention and resources elsewhere.

Global health outcomes have been weakened by the COVID-19 pandemic, with lingering effects. Early evidence points to a post-COVID-19 condition impacting the quality of life and occupational status of individuals – contributing to work absences and early retirements, tighter labour markets and a decline in economic productivity. The pandemic also diverted resources from other diseases such as cancer screening and tuberculosis, and immunisation campaigns for diseases other than COVID-19 were put on hold. Vaccination rates for polio fell to the lowest level in 14 years, perhaps ushering in the return of the wild strain to Africa in 2021.

Medical advances have made it possible for people to live with multiple co-morbidities (such as diabe­tes, hypertension, heart disease and depression), but these remain complex and expensive to manage. People are living more years in poor health, and we may soon face a more sustained reversal in recent life expectancy gains beyond the influence of the pandemic. In the USA, for example, until 2014 life expectancy at birth in the U.S—a core measure of population health—was steadily trending upward. Then it plateaued. Then it dropped. In 2021, an American was expected to live 76.1 years—down 2.8 years from the 2014 peak of 78.9 years. This backslide has erased all life expectancy gains since 1996.

As disease burden grows and innovation widens the scope of what medicine can treat, inexorable demand for healthcare is running up against chronic capacity challenges. Health systems are likely to face intensifying financial pressure – with budget cuts or revenue loss as well as higher costs of goods and labour. Even before the COVID-19 pandemic aggravated staff shortages, the World Health Organization predicted a global shortfall of 15 million health workers by 2030. Some health systems are seeing productivity decline as experienced employees leave due to exhaustion, burnout, and concerns about staff and patient safety. Skills and infrastructure gaps undermine capacity further as staff become overwhelmed by challenges for which they are not adequately equipped or supported to solve, leading to more strikes over pay and staffing levels.

Human Security – Big weapons, itchy trigger fingers

Economic and information warfare will continue to pose a more severe threat than hot conflict over the next decade. Past decades were defined by the non-deployment of humanity’s most powerful weapons and no direct clashes between global powers. Yet the world has still become less peaceful, with more violent demonstrations, external conflict, and intense internal conflicts.

The 2010s saw global military expenditure growing in line with GDP and government budgets. However, today, global military expenditure as proportion of GDP is rising, driven predominantly by higher spending by the United States of America, the Islamic Republic of Iran, Russia, India, China, and Saudi Arabia. Japan announced a proposal to double its defence budget to $105 billion (2% of its GDP) in May last year, and Qatar has increased spending by 434% since 2010 in response to blockades. The war in Ukraine – as well as lukewarm condemnation by a few key geopolitical players – has driven recent pled­ges by NATO members to meet or exceed the target of 2% of GDP, which, if met by all members, would represent an increase in total budget by 7% in real terms. This level of widespread defence spending, particularly on research and development, has the potential to deepen insecurity and promote a race between global and regional powers towards more advanced weaponry.

The private sector is set to increasingly drive the development of military technologies, yielding ad­vancements in semiconductor manufacturing, AI, quantum computing, biotechnology, and even nuclear fusion. Many of these are general purpose, civilian, in nature but can add to military power. Military-driven innovations in relevant fields will have knock-on benefits for economic productivity and societal resilience. The influence of blocs will grow, closely tying together alliances across security, investment, trade, innovation, talent, and standards. For example, Australia, Japan, South Korea, and New Zealand were recently invited to participate at a NATO summit for the first time.

Proliferation of more destructive and new-tech military weaponry may enable newer forms of asym­metric warfare, allowing smaller powers and individuals to have a greater impact at a national and global level. For example, advances in biotechnologies could enable the creation of pathogens by small groups or even individuals. Low-cost drones utilizing swarm intelligence can be used to attack high-value units, including bases and fuel tanks. The lower cost and potential spread of weaponry to rogue actors will further erode the worlds government’s “monopoly on violence”. Despite limited transparency and accountability, there has also been a growing reliance on private militia and security services to protect assets and infrastructure, including vessels, commercial shipping, offshore platforms, and ports. The use of these proxy, hybrid, and private armies in multiple security contexts has been linked to violations of human rights and international law in conflict, post-conflict, and peacetime settings.

Digital Rights – Everyone gets to be in their own Truman Show

Digital tools underpin the functioning of cities and critical infrastructure today and will play a key role in developing resilient solutions for tomorrow’s crises. Yet these developments also give rise to new challenges for states trying to manage the existing physical world and this rapidly expanding digital domain. Malicious activity in cyberspace is growing, with more aggressive and sophisticated attacks taking advantage of more widespread exposure. The proliferation of data-collecting devices and data-dependent AI technologies could open pathways to new forms of control over individual autonomy.

The right to privacy as it applies to information about individuals incorporates two key elements: the right not to be observed and the right to control the flow of information when observed. As more data is collected and the power of emerging technologies increases over the next decade, individuals will be targeted and monitored by the public and private sector to an unprecedented degree, often with minimal anonymity or consent. In recognition of the potential risks posed to privacy and the freedom of movement, some companies have self-regulated the sale of facial recognition to law enforcement, and the use of this technology in public spaces faces an upcoming ban in the EU. The mass move to home working during the pandemic has led to tracking of workers through cameras, keystroke monitoring, productivity software, and audio recordings – practices which are permitted under data-protection legislation in certain circumstances, but which collect deeper and more sensitive data than previous mechanisms.

As our lives become increasingly digitalised over the next decade, our “everyday experience” will be recorded and commodified through internet-enabled devices. Individuals have usually consented to the collection of data for the associated beneficial use of the service or product, however, as the collection, commercialisation, and sharing of data grows, consent in one area may reveal far more than intended when aggregated with other data points. The “mosaic effect” gives rise to two key privacy risks: re-identification and attribute disclosure. This means that an international organisation may share anonymised data with partner governments to support effective and efficient crisis responses, which seems fairly reasonable. But, when combined with other data sets, it could allow the identification and tracking of vulnerable refugees and displaced persons – or compromise the location of camps and the supply chains of critical goods. Data on race, ethnicity, sexual orientation, and immigration status can be legally obtained in some markets and re-identified to varying degrees, enabling civil harassment and abuse.

Developing a more globally consistent taxonomy, data standards, and legal definition of personal and sensitive information is key. These frameworks should recognize that issues can rise from data-driven inferences that are enabled by large data sets, and the blurring of personal and industrial data. For example, one company was recently fined under the EU’s GDPR (General Data Protection Regulation) for targeted advertising that inferred a medical condition on the basis of purchase history. Historically severe fines for data loss are also helping change the cost-benefit assessment around investment in cybersecurity measures, but questions remain around the individual rights to action, damage, and compensation in cases of breach. It will be on organisations to consider the ethics of data collection and usage to minimise reputational considerations beyond regulatory compliance.

Economic Stability – At this stage even the debt collectors have debt

The threat of a sovereign debt crisis has been brewing, with public debt growing as interest rates have fallen. Governments have leveraged cheap money to invest in future growth and help stabilise distres­sed financial systems, providing massive fiscal support during the pandemic and to shield households and businesses from the current cost-of-living crisis. However, high levels of debt may not be sustain­able under tighter economic conditions.

Bi-lateral government debt for 68 of the 72 countries of the Debt Service Suspension Initiative by creditor. Note – the Paris Club is a group of 22 major creditor countries whose role is to find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor countries

Some developing and emerging markets are feeling the impacts of tightening monetary policy and deteriorating economic conditions first and most acutely. For example, Ghana recently reached an agreement with the IMF regarding a $3 billion bailout, and Zambia is seeking to conclude restructuring of $15 billion in external debt early this year. A broad-based global recession within the year could temper inflation and cap interest rate rises, but there is a higher risk of balance-of-payments crisis in the short-term, alongside a credit crunch over the mid to longer term. Larger emerging markets exhibiting a heightened risk of default include Argentina, Egypt, Ghana, Kenya, Tunisia, Pakistan and Türkiye. A parti­cularly serious example is Sri Lanka, which declared itself ‘bankrupt’ in July of 2022 and could be a bell­wether for others listed above.

For now, the ratio of defaulted versus total global public debt remains very low by historic standards, and far lower than peaks experienced in the 1980s. However, this partially reflects the growth in abso­lute public debt levels. Despite record IMF emergency lending and a $650 billion allocation in special drawing rights, more than 54 countries are currently in need of debt relief, representing less than 3% of the global economy. Yet these countries represent 18% of the global population and account for more than 50% of people living in extreme poverty. The scale of debt defaults will influence the depth of available restructuring, with some creditor countries hesitant to bail out distressed states on sufficiently concessionary terms, due to their own tightening fiscal space and rising domestic needs. There may also be a shift away from overseas development assistance towards loans to continue to support develop­ment and wield economic power. This has a lower domestic cost but exacerbates the debt burden on these markets and increases the risk of a larger wave of defaults in the future.

China has become a large bilateral creditor to many low-income countries and, by some estimates, has become the largest official creditor globally. Renewed soft power approaches and debt-trap diplomacy could redraw regional and global political lines, driving currency blocs and possibly exacerbating pres­sures on developing countries as supply chains shift to mirror economic alliances.

The private sector could be incentivised to participate in debt restructuring through a variety of mechanisms, including issuing of new bonds with stronger legal protections, loss reinstatement commitments, and value recovery instruments – with the latter enabling private creditors to gain from upside developments in debtor countries in the future, such as GDP-linked instruments in Costa Rica, Argentina, Greece and Ukraine.

Finally, we are unlikely to be able to double down on debt to the same extent to cushion the next crisis. A more proactive approach to countries that are not yet on the verge of debt distress could help miti­gate the systemic risk of sovereign debt contagion. Recognition of simultaneous crises – debt, climate impacts, and food security – could be integrated into greater flexibility and more concessional forms of financing available to vulnerable markets.