Inequality threatens world economy, democracy, says WEF


The widening gap between the rich and poor has emerged as one of the biggest threats to the global economy, said the World Economic Forum in a report published on Wednesday:

Worsening income inequality can’t be remedied by higher economic growth alone and is casting doubt on the very future of capitalism, according to the report, which surveyed 750 business, government and academic leaders on critical global risks.

“The growing mood of anti-establishment populism suggests we may have passed the stage where [reviving economic growth] alone would remedy fractures in society: reforming market capitalism must also be added to the agenda,” according to the report, published ahead of next week’s gathering of world leaders at Davos.

The WEF said recent events in Europe and the US indicated an “appetite for rebalancing towards democracy and national sovereignty”.

“In many Western democracies, traditional mainstream political parties are in crisis,” the report states. “They are struggling to respond to rapid changes in the political landscape as voters’ disaffection expresses itself in lower turnouts or rising support for previously peripheral movements,” it adds, before examining three challenges Western policy-makers will have to try to resolve if they are to tackle these issues successfully:

  • how to make economic growth more inclusive;
  • how to deliver the change voters want while maintaining continuity in systems of government; and
  • how to reconcile growing identity nationalism with diverse societies.

Harvard economist Dani Rodrik has highlighted “the globalization trilemma,” according to which among democracy, national sovereignty and global economic integration, only two are simultaneously compatible. Recent political events in Europe and the U.S. suggest democracy and national sovereignty would be the priorities moving forwards, according to the report.

“The momentous political changes in 2016 raised worries about the health of liberal democracy that has underpinned global prosperity,” said Cecilia Reyes, chief risk officer at Zurich Insurance Group. “Now most of the political establishment is looking at globalization as the problem.”

The threat of hyper-inequality to liberal democracy was highlighted at a National Endowment for Democracy forum earlier this week and in Global Trends: Paradox of Progress, a new report from the U.S. National Intelligence Council.


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