Daunting problems ahead as income gaps increase
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Shanghai Daily, January 31, 2012
By 2050, the world will experience a near doubling of the urban population to 6.2 billion - 70 percent of the projected world population of 8.9 billion.
This means that we will have to build the same urban capacity (housing, infrastructure and facilities) in the next 40 years that we have built over the past 4,000 years.
Meanwhile, the number of people globally over 60 years of age has risen from 8 percent in 1950 (roughly 200 million people) to 11 percent in 2009 (760 million people), but is now projected to double in rate by 2050 (2 billion people).
Globally, the population of older people is growing at a rate of 2.6 percent per year, considerably faster than the population as a whole. This rate is projected to grow annually less than 1 percent over the next 10 years, and the trend is not confined to developed economies.
The percentage of people between the ages of 10 and 24 has already begun to decline in many emerging countries.
Meeting social contracts for the youth and elderly depends on the resumption of strong growth in the global economy, which shrank by 2 percent in 2009.
Within a two-year period following the liquidity crisis, 27 million people around the world lost their jobs; many more accepted reduced working hours, wages and/or benefits.
Young people have been hit especially hard by the lack of career opportunities - a trend that prompted the International Labor Organization to warn of a "lost generation."
Receding hope
Since the onset of the global recession, many countries have experienced increases in rates of poverty, mental illness, substance abuse, suicide, divorce, domestic violence and the abandonment, neglect and abuse of children.
In an unprecedented scale around the world, there is a sense of receding hope for future prospects. Gallup polling data in 2011 reveal that, globally, people perceive their living standards to be falling, and they express diminishing confidence in the ability of their government to reverse this trend.
Their discontent is exacerbated by the starkness of income disparities: the poorest half of the global population owns barely 1 percent of the global wealth, while the world's top 1 percent owns close to half of the world's assets.
Equally striking contrasts are emerging within national borders; for example, residents of Shanghai now live an average of 15 years longer and earn US$20,000 per year more than their fellow Chinese citizens in the inland province of Guizhou.
In developed countries, household and national debts compound the challenge of providing for aging populations.
On average, households in emerging economies owe 30 percent of their annual income, while households in developed economies owe almost 150 percent, or 1.5 years, of their income.
Shrinking tax revenues have meant deteriorating fiscal positions of governments and reduced their ability to ease social hardship with welfare and counter-cyclical spending.
While aging populations and economic slowdown put pressure on social contracts in advanced economies, in emerging economies there is a growing demand to formalize social contracts. India's National Rural Employment Guarantees Act and Brazil's Plano Brasil Sem Miseria are examples of new government programs that aim to redistribute wealth in an effort to fight poverty and inequality.
However, like welfare systems in developed economies, these programs depend on continued growth and expanding employment and are therefore vulnerable to economic contraction.
In 2011, the World Economic Forum launched its quarterly Global Confidence Index. The final results show that over half the respondents remained pessimistic about the global economic outlook; one in four said there is a lack of global leadership to deal with global problems.
A majority fear greater geopolitical as well as societal upheaval in the years to come.
General expectations about the potential of the world economy may not be met due to the interplay between fiscal imbalances and demographic trends. The resulting disappointment is amplified by a growing sense that wealth and power are becoming more entrenched in the hands of political and financial elites.
Visible gulf
Though rapid urbanization offers economies of scale if infrastructure keeps pace, it also makes the gulf in living standards between the rich and the poor more immediately visible to more people - a trend which is further amplified by the Internet.
When social mobility is widely perceived as attainable, income disparity can spur people to reach for success. However, when ambitious and industrious young people start to feel that, no matter how hard they work, their prospects are constrained, then feelings of powerlessness, disconnectedness and disengagement can take root.
The social unrest that occurred in 2011, from the United States to the Middle East, demonstrated how governments everywhere need to address the causes of discontent before it becomes a violent, destabilizing force.
The world has at its disposal the human resources to manage its aging populations and to ensure that scores of youth do not feel that the opportunities presented by economic growth are beyond their reach.
While the problems manifest themselves differently across developed, emerging and least developed economies, the experts contributing to this report suggest that their solutions may be surprisingly similar: equip youths with the skills to succeed and enable them to move to where their labor is most needed through safe, well-managed migration channels.
Dangers arise, however, when the necessary leadership is not forthcoming, and populations are not equipped with the skills to adapt to new realities. As a result, a vicious cycle could take hold: as tough times feed disillusionment, populations may retreat from global connectedness, which in turn will limit the ability to arrest a potential slide into dystopia.
Adapted from the World Economic Forum's latest report titled "Global Risks 2012."
