2012

Priyadarshee Dasmohapatra , Nikhil Bansal, Rohit Agarwal, Tanuj Maggon, Shamli Dahikar International Business Assignment- Group 2

[SUMMARY OF WEF GLOBAL RISK REPORT]

To start with, we have summarized the findings of the WEF global risk report. We have added value by identifying the core issues, i.e, why the risk scenarios have become so plausible; and have suggested actions to be taken by governments and other stakeholders to mitigate the situation.

Approach:

To start with, we have summarized the findings of the WEF global risk report, indicating

the major risks under various categories and their connectedness. Then, we have dug deep into the three cases that talk about potentially catastrophic scenarios emanating from major risk constellations. We have added value by identifying the core issues, i.e, why the scenarios have become so plausible; and have suggested actions to be taken by governments and other stakeholders to mitigate the situation. Summary of findings of the report: Geopolitical Risk: Geopolitical risk deals in the areas of politics, diplomacy, conflict, crime and governance on the global scale. This risk would lead to destruction of resources (petrol, minerals etc) and the society. The risk includes Diffusion of weapons of mass destruction having the highest impact but having less likelihood as compared to global governance failure having second highest impact. Global governance failure is the centre of gravity for geopolitical risk as it is the most inter connected of the 50 global risks. Other risks in this category include pervasive entrenched corruption, critical fragile states, terrorism, entrenched organized crime, failure of diplomatic conflict resolution and widespread illicit trade all rated a higher likelihood than global governance failure; however, their perceived impacts are lower. Societal Risk: Societal risks deals in areas of population dynamics, social stability and human survival. Water supply crisis has the highest impact and likelihood in this category followed closely by food shortage crisis. Other risks in this category cluster around impact and likelihood of 3.0 to 3.5. The centre of gravity of societal risk is unsustainable population growth. It is strongly connected with mismanaged urbanization and severe income disparity. It shares important connection with risk in different categories except the technological risk. Technological Risk: Technological risk deals in areas of current and emerging technology. This risk include cyber attacks with the high impact and likelihood, critical system failures with highest impact and low likelihood, unintended consequences of nanotechnology with low impact and likelihood and other seven risks. Critical system failure was identified as technological centre of gravity having connections with risk of all five categories. It is most strongly related with cyber attacks and three economic risks: prolonged infrastructure neglect, unforeseen negative consequences of regulation and major systematic failure. Economic Risk: Chronic fiscal imbalances and severe income disparity emerged as the two most likely economic risks. These have been rated as having potentially high impact along with extreme energy, agriculture price volatility and major systemic financial failure. Chronic fiscal imbalances share important interconnections with risks from three categories i.e critical systems failure, unsustainable population

growth and global governance failure. I can lead to a major systemic financial failure an economic risk It that captures the collapse of both major finance and banking institutions, as well as currency regimes. Environmental risk: The world currently faces environmental risks ranging from natural to manmade disasters. Two two y risk made pillars of climate change- continued rising green house gas emissions and failure of climate change adaptation have the highest impact. Rising green house gas emissions is also the center of gravity in this category, having direct links with the economic and societal risk categories. This is connected to two critical connectors- unforeseen negative consequences of regulation and extreme volatility in agriculture and energy prices.

Societal Impact Weak response

Natural Manmade Failure to adapt Rising green house gases El-Nino looming large. Economic Flora & Fauna Extinction of species Mismanaged urbanization. Land/waterway overuse. Low electricity generation. Unpredictable weather conditions. Business cycles getting impacted.

Interference

Disasters

Case analysis 1: Seeds of Dystopia Broad Overview/Case outlook

Dystopia describes what happens when attempts to build a better world unintentionally go wrong. It describes the current fiscal and demographic trends that could reverse the gains made earlier through globalization. The states that were once considered as developed are now being considered as critically fragile due to lawlessness and unrest owing to failure of governments to meet their social and fiscal obligations. Such states can be developed nations, developing nations or less developed nations, nations.

Core Issues:
Greater technological connectivity can lead to a rapid public mobilization in case there is unrest. Developed nations problems: Ageing population, cutbacks on social security, mismatch between skill-set of younger generation and employment opportunities available, change in trend from set consumption to saving.

Emerging economies issues: Can exploit the advantage provided by a large available labor force, social and economic inequalities, social contracts at this stage are still not feasible (Some schemes the MNREGA, Plano Brasil Sem Miseria etc exist), increase in civil & political rights. Poorest economies issues: Struggle with basic health & hygiene issues, education for all schemes, treatment of women at par in society etc.

A broader issue linking all these economies is migration. More and more people are shifting from rural to urban areas; understand the education-skill mismatch in employment opportunities. There are income disparities between national borders also. There is a growing pessimism among the nationals about future prospects.

Solutions:
Cross-border migration should be allowed- movement of labor from areas where there are fewer requirements to areas where there is a huge demand through legitimate channels. This will help match available skills with job requirements. Governments (usually developed economies) need to manage their fiscal policies better. Their fiscal deficit and inability to meet social obligations creates unrest, especially when the population is used to enjoying such features. Household debt needs to be managed. Excessive political and social restrictions in todays fast mobilizing world create unrest. Governments should realize this and manage accordingly. Education system needs to be updated in line with employment requirements. In place of total reliance on existing opportunities, Entrepreneurship needs to be fostered through infrastructure and policy support for entrepreneurs.

Case analysis 2: Safeguards Summary/Outlook:

This case discusses the unintentional consequences of regulations which can sometimes underpin growth and prosperity. If the regulations are too stringent, it doesnt give the industry a space to breather thereby crippling development and innovation. On the other hand, if it is too loose, it can have a devastating impact on the society at large, especially the environment. This fact is further highlighted using two examples: volcanic eruption in Iceland that disrupted flight schedules and damage caused to a nuclear power plant due to an earthquake.

Core Issues:
Highlights the regulations put in place after the 1991 disaster which severely impacted the flight engines and caused damage to life and property. However, despite having regulations in place, a lot of people were left stranded at airports and there was a loss of millions of dollars due to immobility of cargo and other deliverables. Discussion on the impact of damage caused to nuclear plant in Japan due to an earthquake on the energy policy of Europe.

Solutions:
Right balance has to be maintained between consequences of stifling growth and those of a catastrophe. Governments must be flexible, since theres no point in having a static solution in a dynamic environment Anticipatory Governance practices must be followed. Communication and collaboration are critical while framing safeguards.

Case 3: The Dark Side of Connectivity:

The three kinds of cyber threat: Critical system failure was rated as the center of gravity in the
technological category in the WEF report. The risk that respondents most frequently connected to systems failure was cyber attacks. Any device with a software defined behavior and any device connected to a network can be manipulated from remote locations. Cyber threats come in three categories: sabotage, espionage and subversion. A. Sabotage: That a piece of IT equipment used in the control system of an Iranian nuclear power plant points to the fact that military control systems can just as well be vulnerable to such threats. B. Espionage: Since national infrastructure and databases are increasingly getting connected to the internet, skilled hackers can steal vast quantities of sensitive information. C. Subversion: Subversion can come either in the form of dissemination of false information or in the form of Denial-of- service attacks which prevent genuine users from accessing data.

Core issues
A. The number of devices connected to the internet is rising, often without adequate safeguards B. The general understanding of the benefits of internet is more than the understanding of concomitant risks C. There is a serious behavioral aspect of the problem- people dont see cyber crime in the same light as they see other crimes. ( substantiated by rampant piracy) D. Impact of cybercrimes on companies has possibly been under reported.

Solutions: How countries can tackle these threats?

A. Tackle anonymity- A deterrent to cyber crime can be disclosure of identity. If we analyze traditional crimes, we can see that social and official identity plays a role in clamping down criminals and controlling crime at the source. The same applies to the cyber world. B. Collaborate: Isolated efforts may not be adequate; so coordinated effort by multi-stakeholders (states and businesses) is required. C. Build intelligence: Make disclosure about cyber attacks mandatory for companies. D. Use ethical hackers to build firewalls. E. Conduct awareness campaigns to brand cyber crime heinous.