24 November 2014

Top Ten Trends from the 2014 World Economic Forum

The world is changing faster than ever. We’re connected to each other in ways that would have been thought impossible just a generation ago, enabling enormous potential but also exposing our institutions to great strain. If we are to effectively address the challenges we face as a planet, decision-makers need to keep pace and anticipate what lies ahead.

Every year the World Economic Forum forecasts the 10 biggest trends for the coming year, specifically looking at how they will influence global and regional economic, political and social change. Also included are new technology developments and advances the World Economic Forum has seen in their research.

The research is a selective tool which gathered over 1,500 responses and the top 10 following trends were identified:

1. Rising social tensions in the Middle East and North Africa

The survey revealed that experts across the globe considered that there were rising tensions in particular with the Middle East and North Africa to be the biggest challenge facing the world. In the past, divergence in the Arab world ran mainly along economic lines, but this has now changed. Today, 45% believe the biggest challenge is political stability, while 27% name unemployment as the region’s most pressing challenge.

2. Widening wealth gaps

The difference between rich and poor is becoming more extreme, and as income inequality widens the wealth gap in major nations, education, health and social mobility are all threatened. It was once where nations with most of the population were living in extreme poverty, but today we are seeing more and more people in the middle-income countries. Income inequality is shifting the nature of our work as we now seek to also address poverty in countries on the rise, where a small percentage of the people enjoy economic rewards but, where many are now falling into the clutches of poverty. And it is the young who are most willing to take to the streets because they feel like they have nothing to lose. Many young adults with degrees are unable to find employment and some countries have more than 50% youth unemployment. Over the next decade, particularly in developing countries where much of the population is under 30, the lack of access to jobs will increase the risks of political and social stability.

3. Persistent unemployment

From the survey ... "a generation that starts its career in complete hopelessness will be more prone to politics and will lack the fundamental skills that one develops early on in their career. This can undermine the future of European integration, as the countries with the highest youth unemployment rate are on the periphery".

It is suggested that governments need to create a regulatory structure that encourages employment and economic stability, first of all incentivizing companies to create jobs and then invest in their workers. This has become essential because people can no longer expect life-time employment. A person who is employable today may not be employable tomorrow.

4. Intensifying cyber threats

Digital warfare is escalating as a sophisticated breed of attack against corporations, governments and individuals. The survey indicates that people aged over 50 are more worried about it than people aged below 50. But the shift from the cloud and the rise of the “internet of things” mean that virtually everything can be affected.

It has been learned that communications between aero-planes and the ground are not encrypted and that it wouldn’t take much for a hacker to give some rather unusual instructions to a plane or up-date its firmware while it’s in flight. You may instantly think this as distressing. We are in a vulnerability phase and a time where cyber terrorism is very real. In today’s society there are always going to be times where we will deal with an unpredictable attack. However, the more resources and people managing the issues, the more preventable and corrections made will be the outcome.

5. Inaction on climate change

We are not moving fast enough to meet climate change. Insufficient action will ultimately mean that if we do not make changes then the climate will erase what progress we have made in the past 20 years in economic development, in social development and in environmental protection. From the survey ... "We are losing the battle on climate change – the sense of urgency we had two years ago has disappeared". Our changing climate is the most pressing challenge we face, but it’s also the most compelling we have ever had, because there is no response to climate change. This is not just an environmental challenge and it’s not a future challenge; it is a transformational challenge that we must embrace.

6. Loss of confidence in economic policies

Younger people tend to be especially critical of today’s economic policies – the survey found that respondents under 50 think this issue is more significant than respondents over 50 and it’s in particular the 18-29 year olds. It makes sense that the boomers might not be quite so concerned personally, they stand to benefit from some very favourable government-supplied pensions and they’ve certainly done better than previous generations, whereas many younger folks in places like the US will be wondering how long these systems will remain intact.

7. A lack of values in leadership

A statement from the survey ... "The common good is the only way to prosper in the long term, because nobody can feel secure in a country which the majority of people are struggling".

It is the younger people again that have shown the strongest feeling on this issue; respondents under 40 told the survey that they’re not at all satisfied with the attention governments give to a lack of values in leadership.

And further, another statement from the survey ... "Most people’s understanding of a lack of values in leadership probably relates to the problem of leaders simply caring about their own interests, rather than being motivated by something more worthwhile. We expect leaders not to just stick to what they know, but to be driven by something that moves us forward and brings people together. And so, in reality, the concern is that there’s not enough sharing of views, values and vision".

It may be impossible for leaders to know the interests of all, who I think the best leaders should look at a wider audience and not look to maintain their own interests.

8. Asia’s expanding middle class

Across Asia we are seeing a tremendous rise in living standards, with poverty disappearing everywhere you look. In China, for example, since the initiating of market reforms, more than 600 million people have been rescued from poverty. A tremendous effort for a country. One key positive outcome of these changes for example is the reduction of conflict within the region. However, the biggest challenge we face is what this all means for the environment; if Asia’s expanding middle class citizens all aspire to western living standards through the western model, the strain placed on our global environment could prove disastrous.

Asian leaders recognise they have to do something, but in terms of solutions it’s also important for the developed countries to lead by example. This is a big challenge for long-term policy thinkers – if you want the likes of China to emerge as a responsible stakeholder and one that pays attention to the global environment, then the western world must take the lead.

9. The growing importance of megacities

Megacities meaning those urban areas with populations more than 15 million.

China, for example, has embarked on the daunting task of constructing new cities to urbanise 250 million rural residents. The issue that may confront China is the lack of understanding of the complexity of cities and its connection to socio-economic success. Indeed, we are told that many of these new cities, like classic suburbs, are soulless ghost towns with little sense of community. Cities have an organic quality; they evolve and physically grow out of interactions between people. The great metropolises of the world facilitate human interaction, creating that indefinable buzz and soul of the city; the wellspring of its innovation and excitement that is a major contributor to its resilience and success, economically and socially.

10. The rapid spread of misinformation online

A statement from the survey showed that ... "any online information is part of a larger and more complex ecology, with many interconnected factors. It is important to look beyond the specific medium and consider the political-cultural setting in which misinformation spreads."

It’s also imperative to highlight the volume and rapid dissemination of online misinformation. When you are dealing with social media, you are dealing with big data. It’s simply not possible to read the 1 billion tweets produced every two-and-a-half days. In order to properly understand this data, we need to make use of computer-assisted processing and combine this with human evaluation to put information into context.

Finally, we should remember that every case of misinformation is unique and should be considered independently, and we should pay attention to the complexities of the ecosystem it circulates within. In terms of interpreting misinformation, human evaluation will remain essential to put information into context, and context is ultimately what this is all about.

... That's Lending

Best regards,
Cory Bannister, Vice President, Head of Distribution
La Trobe Financial Asset Management Limited

La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

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