THE FAILURE OF GOVERNANCE IN A HYPERCONNECTED WORLD / THE NEW YORK TIMES OP EDITORIAL ( VERY HIGHLY RECOMMENDED READING )

January 10, 2012

The Failure of Governance in a Hyperconnected World

By LEE HOWELL


Most of us are taught to think about the long-term consequences of our actions, but it is a life lesson that is easily forgotten — both on an individual and an organizational level. This is why, each year, the World Economic Forum poses the question, “What risks should the world’s leaders be addressing over the next 10 years?”


In response, the Global Risks 2012 report presents three “risk cases” that explore facets of a common theme: governance failure in a hyperconnected world.


The first risk case, “seeds of dystopia,” starts from concern that globalization is not delivering on its promises. Gallup polling shows that people everywhere perceive their living standards to be falling, and express decreasing levels of confidence that their governments know what to do about it.


Meanwhile, both the Internet and urbanization make disparities in wealth more transparent. Disparities can spur achievement when social mobility is perceived to be possible. However, when ambitious young people feel that however hard they work their prospects are constrained, feelings of disengagement and discontent take root.


Social contracts are breaking down in advanced economies, as shrinking workforces have to support growing populations of elderly while their own entitlements are being cut. In emerging economies, sluggish global growth risks disappointing the expectation that a rising tide will lift all boats; in the poorest countries, bulging youth populations lack the skills to succeed or the rights to migrate.


This is a combustible combination, as suggested by the outbreak of social unrest over the last year from Greece, Chile and China to the Arab Spring to the Occupy movement. Without bold and imaginative leadership, growing popular disillusionment could undermine the nascent global cooperation mechanisms that are our best hope of addressing its root causes.


The second risk case focuses on “how safe are our safeguards” — the policies, norms, regulations or institutions through which we manage the complex systems on which global prosperity depends. Experts in many domains, from climate to finance to emerging technologies, worry that governance is lagging behind accelerating complexity.


In relying on 20th-century institutions to respond to 21st-century systems, the danger is that safeguards fail to balance an activity’s risks with its potential benefits.


Safeguards that are too lax may have the same ultimate effect of curtailing an activity’s benefits as safeguards that are too cautious. This dynamic played out in the aftermath of the March 2011 Japan tsunami: lax safeguards at the Fukushima power plant led to a meltdown that ignited global popular concern about nuclear safety; the German government responded by decommissioning its own nuclear plants.


A mindset change is needed in how we define safeguards. We need mechanisms that are nimble and flexible, involve and give incentives to stakeholders, and use insights from complexity theory to anticipate emerging threats to systemic resilience.


The final risk case addresses the global system on which so many others now depend: the Internet. Connectivity has transformed the ways in which we conduct business and personal relationships. Almost a third of the global population is online and the connectedness of “things” — from hospital beds to domestic electricity meters — is growing even more rapidly.


But we understand the benefits more fully than the risks. The “dark side” of connectivity considers the potential of terrorism, crime and war in the virtual world to become as deadly and disruptive as their equivalents in the physical world. Stuxnet, the cyber weapon that targeted Iran’s nuclear program in 2011, suggests what may be possible. The same kind of automated systems it attacked are used to control everything from nuclear reactors and gas pipelines, to chemical treatment of tap water and prison door locks.


There is little reliable empirical evidence about cyber threats. Victims have an incentive to keep it quiet, while vendors of security solutions have an incentive to talk it up. Nonetheless, the Global Risks 2012 report has a 10-year time horizon. Ten years ago, the dotcom bubble had just burst and there was a sense that the hype about the Internet’s transformational benefits had been overblown. With hindsight, we can see that the hype was merely premature.


None of the challenges highlighted in these three risk cases is insurmountable. But difficulties will inevitably arise when traditional solutions are misapplied to novel problems.


Today’s rising economic anxiety, for example, is not merely a cyclical problem demanding the usual cyclical fixes, as some experts make it seem. Our economic problems are structural and require a different sort of solution.


The aim of the Global Risks report, therefore, is not to raise anxiety levels even higher, but to start the necessary conversation about how stakeholders can work together to invent the solutions needed to address these new constellations of risks.


Lee Howell is managing director in charge of Global Risks 2012 at the World Economic Forum.