Income Inequality: Hot Topic at Davos

January 26th, 2012
in econ_news

Econintersect:  According to a report January 25, 2012 by Bloomberg, davos-skiSMALLbillionaires attending the Davos World Economic Forum this week are talking about the need to address income and wealth distribution inequalities.  Bloomberg says that a half-dozen of the richest participants in the annual conference say economic disparity needs to be addressed.   The information was obtained from a survey taken before the conference opened.  The conference is being attended by 2,500 business and political leaders with at least 70 of them billionaires.  Half a dozen may not be enough to make a splash, except that they are among the very richest attendeesClick on picture for larger image of Davos ski slope.

Follow up:

But, looking at the agenda for the conference the topic of wealth and income inequality is not mentioned once.  This is despite the fact that the Davos Global Risks 2012 lists severe income disparity as one of the world’s top risks over the next 10 years.  (See discussion below.)  There are sessions that promise potential for the topic to be developed, such as “Ensuring Inclusive Growth and Development”.  This has prompted Barry Ritholtz at The Big Picture to use the line “WTF headline of the day: Billionaires at Davos Bemoan Inequalities.”

The concern appears to be centered on fears of turmoil and social unrest more than questions of fairness, although some who are speaking out might protest the foregoing statement.  The 2012 Global Risks assessment by the World Economic Forum (Davos meeting sponsor) lists dystopia as the first of three primary risk cases for 2012.  From the summary:

Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Analysis of linkages across various global risks reveals a constellation of fiscal, demographic and societal risks signalling a dystopian future for much of humanity. The interplay among these risks could result in a world where a large youth population contends with chronic, high levels of unemployment, while concurrently, the largest population of retirees in history becomes dependent upon already heavily indebted governments. Both young and old could face an income gap, as well as a skills gap so wide as to threaten social and political stability.

This case underscores the danger that could arise if declining economic conditions jeopardize the social contracts between states and citizens. In the absence of viable alternatives, this could precipitate a downward spiral of the global economy fuelled by protectionism, nationalism and populism.

The other two case studies involve (2) risks associated with managing safeguards to manage vital resources and ensure orderly markets and public safety and (3) effectively managing connectivity in the digital age.  These two are related to the first case in many ways.

The overall causes of the concerns topped by two economic risk centers (or perhaps “causes”) and number one is our old friend severe income disparity.  As shown in the graphic below nothing like this risk center has shown up in the top five in the previous five years.  Perhaps it is the sudden emergence of this risk that has the program for the conference apparently so out of focus.


Click on graphic for larger image.

Sources:  Bloomberg, The Big Picture and Global Risks 2012 Seventh Edition (World Economic Forum)

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