The Shape of the World to Come - Part II: The Key Challenges Facing the World

We live in the apparent paradox of our world being both on the path of rapid economic, social, security and geopolitical progress while also facing an increasing array of complex challenges which threaten this very progress. An earlier version of the Sign of the Times examined the positive trends that have shaped our world which include the rise of political freedom, the decline of crime and armed conflict and the rising chances of victory against global hunger and poverty. Despite these positive forces however, there are several perplexing issues that cannot be ignored. Global prosperity overall is on the rise while the wealth gap between the rich and the poor around the world continues to widen, international interconnectedness brings new nations into a more prosperous era while taking jobs away from the first wave of modern industrial nations; technology continues to provide both advancements in living standards and decimate traditional manufacturing jobs and growing consumption offers advancements in living standards to the newly prosperous while placing an increasing strain on the world’s natural resources. As a result, political freedom and democracy have given rise to isolationism and xenophobia and enabled revolutionary style coups to be launched in some of the world’s most advanced and established democracies, questioning the very values of the people of these nations and endangering the world order that underpins our times. This month’s Sign, the second in a three-part series, examines the most pressing challenges that the world faces today, evaluating their potential impact over the next decade. A further paper, the final part of the series, will seek to combine the impact of the long-term trends and current challenges to put forward a perspective on the shape of the world to come.

Context: Progress Interrupted – Global Risk Factors to Continued Development

Over the last two to three decades, significant global progress has been made across a wide range of economic, social and technological areas.  Global wealth has increased by c.4x from US$20tn to US$80tn between 1980 and 2015, while during the same period global trade has expanded from c.US$2tn to c.US$16tn, life expectancy has improved from 62 years to 70 years and more than half of the world’s population today have regular access to the internet.  There have been substantial and positive advances all over the world, and there is compelling evidence that the world has been on a long run trajectory to become more free, less violent, better educated, more prosperous, and increasingly technologically advanced.  However, events in 2016 have laid bare a set of challenges in some of the most developed economies that could potentially derail overall global progress over the coming decades. These challenges will require world leaders to reassess their approach to global development and indeed the nature of the world order itself. Political freedom has enabled revolutionary style coups to be launched in some of the world’s most advanced and established democracies…endangering the world order that underpins our times. As discussed in last month’s Sign of the Times, the US and UK have experienced revolutions against the status quo driven by broad dissatisfaction on large parts of their populations with the world order that their nations had done so much to create and promote over many decades and this has called into question many elements of an order that the world had come to take for granted, including globalisation, free trade and multilateralism. This has, in part, been spurred by rising income inequality, brought about by the loss of jobs in the west due to technological advances and the migration of production to low cost countries. The backlash that this has created threatens the very model of internationalism that is required to address many of the other pressing challenges facing the world today that no one country can solve alone, including poverty, climate change and cross-border terrorism.

The core challenges facing the world today can broadly be grouped into four overlapping categories of challenges: economic, environmental, security and social and human values. As was the case with the long-term mega-trends for positive development that were outlined in the first part of this series, the data on the validity of these challenges also appears to be self-evident, and incontrovertible.

Ten Challenges that the World Faces Today


Economic Challenges

1. Rising Income Inequality. Income inequality in the developed world reached its low point in the 1950-60s, when the West’s model of industrial development was at the peak of its growth. Since this time however, inequality (measured using the GINI coefficient) has risen and in places such as the US, the richest citizens’ share of total income has reached levels not seen since the Gilded Age of robber barons and industrial monopolists. Despite economic growth, real median household income in America has been flat over the past 20 years and is currently falling, while the income of the top 5% has risen by 16%. Further, income inequality is also expanding rapidly in high growth emerging markets, including Brazil, China and India, at a time in their development stage when other countries saw it fall. This trend of global wealth creation accruing largely to the world’s wealthy significantly increases the risk of social conflict and provides the basis of populist political success.

2. Employment Dislocation, Job Security and Quality.While unemployment rates are low in the developed world, at 5%, 10% and 3% for the US, EU and Japan respectively, job security has been declining. In addition, in the West, particularly, the shift to post-industrial economies is changing the nature of jobs with an increasing focus on service jobs in favour of manufacturing employment, with manufacturing’s share of total employment shrinking by 75% in the US since the end of World War II. Further, automation and technological advances are threatening services jobs too. Studies indicate that 49% of jobs in Japan, 47% in the US and 37% in the UK across a wide range of functions including sales and accounting are currently at risk due to automation. Moreover, the shift to services has led an overall decrease in the quality of employment, with much of job growth in OECD countries coming from temporary employment with lower wages and less job security. While at this stage, only 2% of US jobs today are temporary, 15% of job growth comes from temporary employment.

3. Trade Protectionism Increasing. During the Great Depression, restrictive trade policies in the form of increased tariffs led to a sharp reduction in trade and in turn also diminished overall industrial output. Between 1929 and 1932, global trade shrank by 25%, while global output contracted by 30%. In the aftermath of the global financial crisis of 2008, global leaders vowed not to repeat the mistakes of the Great Depression. However, more recently there appears to be a reversal in global trade behaviour which, as history shows, threatens industrial output and therefore jobs. Starting in late 2015, the number of protectionist trade measures implemented by G20 countries hit 21 per month, a 50% increase over the levels seen as recently as 2010, with reasons varying from political to economic. Further, Donald Trump’s election platform and the UK’s Brexit vote indicate that this trend may continue to accelerate.

Environmental Challenges

1. Climate Change and Pollution Driving Environmental Disasters.Greenhouse gas emissions have grown by nearly 80% since 1970 and are at their highest levels in 800,000 years. Climate change is most certainly real, overwhelmingly recognised by scientist as man-made, and its impacts are increasingly being felt around the world in the form of changing rainfall patterns, increased storms and other extreme weather events. Additionally, man-made pollution is degrading key global eco-systems and making parts of the world practically uninhabitable; 60% of China’s ground water is not fit for human consumption, 20% of its arable land is polluted and only 1% of its nearly 600m urban inhabitants breathe air considered safe under EU standards. Rapid industrialisation risks can create pollution of this order of magnitude in other emerging markets as well if not addressed proactively. Both pollution and longer term climate effects are leading to a staggering loss of biodiversity globally, with species current extinctions estimated at 100x the rate that would prevail in the absence of human intervention.

2. Food and Water Scarcity.Global population growth and development is placing a tremendous strain on natural resources, particularly food and water. While current food production levels suffice to provide the global population with the recommended 2,100 calories per person daily, this is no longer expected to be the case beginning 2040. Moreover, with pollution limiting the ability to increase land under cultivation, significant technological breakthroughs will be required in the near term to feed the world in 20 years’ time. Importantly, most of the 3 billion people projected to be added worldwide by 2050 will be born in countries already experiencing water shortages; which in turn shows a world divided into the north (with water) and the south (without water); future migration patterns would naturally be en masse from south to north. Today, nearly 2.5bn lack adequate access to sanitation, further exacerbating pollution and reducing potable resources. Increasing water scarcity also has profound implications on health, hunger, and poverty, and the effects of shortages are already being increasingly felt in many places, creating potential conflict zones as individuals and state actors fight over ‘equitable’ distribution of scarce resources.

Security Challenges

1. Cross-Border Terrorism. 9/11 has ushered in a new era of global cross-border terrorism in which non-state actors, rather than wars, pose the greatest security threats to industrialised societies. The US invasions of Afghanistan and Iraq in response to Al Qaeda’s 9/11 attack further exacerbated regional instabilities and gave birth to new terrorist groupings such as ISIS that have unleashed a new wave of terrorist attacks, both locally in the Middle East and internationally. Terrorism today is at an all-time high, causing nearly 40,000 deaths per year and billions in economic losses. In addition to the governance and stability challenges facing countries at the source of terrorism, the fear of terrorism in the West is contributing to rising xenophobia and the backlash against migration as well as the erosion of civil liberties, as societies fearful of terrorist attacks trade freedom for security by allowing more power to the state.

2. Global Vulnerability to Cyber-Crime.In 2014, there were 43m cyber-crime related incidents, or over 100,000 incidents per day, reported in the world, a 48% increase over the previous year. As global connectivity continues to increase, the frequency and severity of cyber-attacks by both criminals and state sponsored actors will have profound financial and geopolitical effects. The average estimated financial loss per company from individual cybercrime totalled US$3m in 2014 and is rising. Cyber-crime is also becoming an increasingly powerful political and geopolitical tool, as witnessed most recently by Russia’s alleged interference in the US election, hacking and releasing confidential communications at critical times, as well as by China’s alleged state backed corporate espionage . With the 21st century’s wars being increasingly fought electronically, an electronic arms-race has the potential to dramatically transform the global order.

Social and Human Values Challenges

1. Displacements and Increasing Refugee Flows.Recent data released by the United Nations indicates nearly 1% of the global population today is either a refugee, internally displaced or seeking asylum . The number of refugees in the world today at 65m is the highest in human history, with many seeking asylum in developed countries like the United States, the United Kingdom, France and Germany. The almost 2m illegal border crossings into Europe in 2015 represent a more than tenfold increase over a two-year period and have overburdened host states’ abilities to process and integrate the incoming flow of asylum seekers.

2. Rising Legitimacy of Use of Hate as a Political Weapon and Rising Hate Crime.The rise of hateful rhetoric in political debate and the role it has had in spurring violence was a key feature of the US presidential election and the Brexit referendum. The legitimisation of hateful dialogue during the Brexit campaign is a matter of public record and the murder of Jo Cox, a Labour MP on the ‘Remain’ side, was a highly visible result of the lowered tone of the dialogue. More than 50,000 abusive and offensive tweets were sent celebrating Cox’s murder and lauding her killer. That the number of hate crimes reported in the UK spiked 57% in the days after referendum is factual, as is the 6% increase in reported hate crimes post the US election, with a particular rise in assaults on Muslims.

3. Development of Post-Truth Societies.In the 20th century, Nazis burned and Communists banned books with the aim of suppressing alternative opinion. In 2016, this has found its parallel in the undermining of facts during the US election and the Brexit vote. With good reason, ‘Post-truth’ - relating to denoting circumstances in which objective facts are deemed irrelevant to policy which instead is dictated by emotion and personal belief - has been named ‘word of the year’ by the Oxford Dictionary. 71% of Donald Trump’s political statements to date have proven to be false or mostly false yet he was seen as significantly more trustworthy than his more truthful opponent, Hillary Clinton. Moreover, fake news, i.e. fictional or invented stories, is thriving. In the final three months of the presidential campaign, the 20 top-performing fake election news stories generated more engagement on Facebook than the top stories from major news outlets such as The New York Times.

Conclusions: A Challenge of Leadership

Collectively, if left unaddressed, these challenges pose an increasing threat to global development and stability and risk, undermining much of the progress the world has made in the past decades.  Moreover, these risks are interdependent, with any one being caused or exacerbated by another and in turn causing a third.  The diagram below charts some of the causes and effects that create a vicious cycle of risk and instability in the world.

Interdependency and Exacerbation of Global Risks: A Vicious Cycle

Collectively, if left unaddressed, these challenges pose an increasing threat to global development and stability and risk, undermining much of the progress the world has made in the past decades. Moreover, these risks are interdependent, with any one being caused or exacerbated by another and in turn causing a third. The diagram below charts some of the causes and effects that create a vicious cycle of risk and instability in the world.In the context of these challenges, it is clear why large masses of the global population no longer believe that we live in the ‘best of times’, despite the objective longer-term increases in freedom, health, development and prosperity that have taken place in the world. The world’s issues are a result of its successes and so the two as constructed today seem intrinsically inseparable. Importantly, the world’s challenges in many cases are direct results of the positive trends: accelerated economic growth has made increasing income inequality possible, just as increased development has driven pollution and decreased mortality has driven population growth and thereby resource scarcity. Additionally, freedom in the West has driven the growth of consumption, wealth creation and expectations, that when not delivered, have resulted in support for revolution. The world’s issues are a result of its successes and so the two as constructed today seem intrinsically inseparable.

The result, in other words, is a series of interlinked challenges that cannot be tackled in isolation. Trying to address one or two challenges in isolation is not only untenable it shows a lack of understanding of the system of the world and how it works. The first step in forging a way forward must be the acknowledgement of the issues. Trying to address one or two challenges in isolation is not only untenable it shows a lack of understanding of the system of the world and how it works Donald Trump and the ‘Leave’ camp in the UK have acknowledged some of the issues, such as income inequality, employment dislocation and terrorism, but the solutions that they campaigned on such as isolationism or national primacy, if implemented, risk failing to solve these issues while exacerbating others by creating unemployment from protectionism, environmental risk and potentially stimulating long term refugee flows by undermining the viability of poorer and fragile states. The world clearly cannot solve today’s major issues without recognising both the underlying problems and their interdependency.

Further, many of the challenges of our times have global roots and impacts, and are bigger than any one country can handle on its own. A core challenge for today’s divided world leaders will be to establish a set of shared values as the basis of building the future world order. The events of 2016 suggest that the current model of capitalism, driven by free trade and underwritten by the Pax America, will need to be replaced by one that can continue to produce freedom, security and prosperity in a more equitable fashion in the decades to come. The core challenge for today’s divided world leaders will be to establish a set of shared values as the basis of building the future world order. Of course, a key line of enquiry will be to determine to which extent a new model can do without the excesses of the old and still be successful,recognising that often the extremes and excesses produced breakthroughs. The second key challenge will be to manage the trade-offs that any complex system will likely require. Unless they can create non-zero sum solutions for every single challenge, leaders will need to weigh potential trade-offs between issues such as security and freedom, between short term growth and long term stability, between the benefits of technological innovation and its dislocations, and between income inequality and overall economic growth. States will also need to determine equitable trade-offs between each other, balancing their ‘wins’ against other countries’ resulting ‘losses’. This will require societies to re-examine many of their core societal values.

Finally, the West has championed values that include human rights, democracy, free trade, capitalism, diversity and tolerance, united action to protect people as universal values. However, if these were values that were only to be supported while it perceived a benefit itself and abandons now that it feels that these do not meet its needs, then these were clearly not universal values; they were tools of policy. The recent elections have seen popular support for leaders that reject some of these notions. The US and UK’s recent electoral decisions beg the question whether these notions are the true shared values of the West. Unless societies can agree on a set of truly universal values, a new sustainable world order cannot be forged in a ‘civilised’ manner. In which case, one will emerge from the chaos of competition and conflict that accompanies the collapse of the existing world order.

The final part of the series on the shape of the world to come will look at the potential paths open to the forging of a new world order.

Notes:-

2 November 2016, The Shape of the World to Come – Part I: How the World is Progressing

3 December 2016, We Live in Revolutionary Times: The Prelude to the New World Order

4 In 2012 share of the top 10% in gross income in the US crossed 50%, a number last reached before World War I. From the 1940s to the 1980s the number was below 35%, Source: UC Berkeley Econometrics Laboratory

5 Unemployment in the EU averages 9.8%, but individual country unemployment varies from over 23% in Greece to 4% in Germany

6 For example temporary positions suffer a 17-47% wage cut vs comparable permanent positions; Source OECD

7 Sources: Cook, John et al, (2016) “Consensus on consensus: a synthesis of consensus estimates on human-caused global warming”; Verheggen, Bart et al. (2014). “Scientists’ Views about Attribution of Global Warming”; Powell, James Lawrence (2012), “The State of Climate Science: A Thorough Review of the Scientific Literature on Global Warming”; William R. L. Anderegg, et al. (2010). “Expert credibility in climate change”

8 Sources: Chinese Ministry of Environmental Protection, China Water Resources Ministry, World Bank

9 Source: Science Advances: Accelerated modern human–induced species losses: Entering the sixth mass extinction

10 See the July 2013 Sign of the Times: Cyber Attack, Defence and Security in the Making and Preserving of Superpowers

11 Source: United Nations

12 Source: Guardian

13 Source: National Police Chiefs’ Council