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Fighting Butterfly Effects with Starfish Resilience

“Don’t stop thinking about tomorrow,” sang Fleetwood Mac. The World Economic Forum heeds that advice. In its seventh annual Global Risks Report, it looks 10 years out to assess the potential impact and likelihood of 50 global risks. The results are based on the collective insights of 469 experts from a wide range of disciplines and countries.

You may need a stiff drink after reading this sobering report. If, instead, you’re of a mind to be dismissive of such projections, consider that this same group put “asset price collapse” as its number one global risk in 2007 and as early as 2006 had asset bubbles and the massive misallocation of capital in the U.S. property market as the number one global concern.

So what’s worrying the soothsayers for the decade ahead? In general, major concerns are socioeconomic. The risks are grouped in three categories: First is dystopia; second is the failure of systems and safeguards to keep pace with changing threats; third are the risks of a hyperconnected world.

In the category of dystopia, severe income inequality was cited “as the most likely global risk to manifest in the next 10 years.” Problems will be exacerbated by increasingly young populations in the poorest countries and aging populations in developed countries; plus more indebtedness among households, coupled with falling government revenues, limiting the ability of governments to ease social hardship.

With regard to the second set of risks, the report notes that “the systems on which the global economy relies are increasingly complex and interdependent,” creating situations where “causal effects are nonlinear and virtually impossible to predict.” Call it the butterfly effect. As an example, the report notes that a tsunami in Japan led Germany to vote to phase out all nuclear energy and disrupted car production in the United States.

The risks of interdependence are amplified by the third category’s risks of hyperconnectivity. The report notes that while cyberbarriers to committing serious espionage and sabotage are falling rapidly, the resources devoted to countering cyberthreats are “nowhere near adequate.”

On the solution side of the ledger, the report suggests that organizations strive to be more like starfish, which can regenerate severed limbs. It lauds the Development Bank of Japan for being the first to factor a company’s business continuity plans into its credit score.

It’s all well and good to list the dangers that lie ahead, but more to the point, the report states, “decisive action is needed to design safeguards before the risks manifest themselves.”

These must be “dynamic safeguards that can evolve with the system they are safeguarding...[and be] flexible enough to be continually tightened or adapted in response to emerging risks and opportunities.” The overarching goal is to move from reactive firefighting to anticipatory governance involving all global stakeholders. And lest there be any doubt that we’re all in this together, the report reminds us that “none of the global risks highlighted respects national boundaries.”