Page 30 - WEF Reoprt 2020

Economic growth, political will and social

stability are fundamental for a model of

“stakeholder capitalism”

to change its policy. Chile is one of the forced the government to cancel the Asia-
fastest growing and most stable Latin Pacific Economic Cooperation (APEC) and
American economies, and it is becoming COP25 summits scheduled to take place in
less unequal: its Gini coefficient—the most Santiago. Hong Kong’s economy contracted
35
widely used measure of income inequality— by 3.2% in the third quarter of 2019, with the
fell from 0.57 in 1990 to 0.47 in 2017. Government Economist stating that “local
Nonetheless, it still has the second highest social incidents dealt [it] a very severe blow”. 36
Gini coefficient among OECD members,
well above the OECD average of 0.32. The profound political consequences of
31
In Hong Kong, the recent months-long inequality can also undermine economic
demonstrations on political issues have growth by making a country harder to
also been aggravated by inequality: at 0.54, govern—in ways ranging from legislative
Hong Kong’s Gini coefficient is at its highest impasses to complete government
level in 45 years, significantly above those paralysis. This risk is accentuated by the
of China (0.39) or the United States (0.42). decentralized and spontaneous nature
As Andrew Sheng and Xiao Geng have of recent demonstrations: with pop-up
argued, “a powerful, but oft-ignored factor protests, it is difficult for governments to
underlying the frustrations of Hong Kong’s negotiate with demonstrators and develop
people is inequality.” 32 concrete measures to meet their demands.
During 2019, distinctive issues exacerbated
In Lebanon, where the Gini coefficient is by inequality forced the reshuffling of the
0.51, nation-wide protests were triggered entire presidential cabinet in Chile and the
by the government’s decision to impose resignation of the heads of state in Bolivia,
a tax on the popular communication app Iraq and Lebanon.
WhatsApp. In Iraq, protests began in
October—mostly led by people from the According to our expert community,
disenfranchised working class and middle- “domestic political polarization” is the second
income groups—over issues of corruption, risk most likely to increase in 2020—up from
unemployment and demands for access to ninth in 2019. Our global business community
basic public services. also ranked “failure of national governance”
as the sixth most concerning risk for doing
Economic and political consequences business over the next 10 years.
Inequality hinders growth and damages
macroeconomic fundamentals, as the IMF
has pointed out: it slows down economic Stakeholder capitalism
activities and casts doubt on a country’s
stability. This damages investor confidence The World Economic Forum has argued
33
and undermines political capital—both since 1970 for the need to consider social
fundamental conditions for prosperity, well-being alongside economic gains.
especially in times of economic volatility. Unless the global economic system is
In France, for example, the persistence of reformed to be more socially conscious,
the “gilets jaunes” movement had caused the twin risks of prolonged slowdown and
businesses more than US$11.4 billion in stronger defiance towards the current
losses by December 2019 and complicated economic model will continue to exacerbate
the government’s plans for economic revival. each other. Economic growth, political will
At the time of writing this report, growth in and social stability will be fundamental to
France was expected to slow from 1.7% in ensure a prompt and smooth transition to
2018 to 1.3% in 2020. The protests in Chile a more cohesive and sustainable model of
34
cost businesses over US$1.4 billion and “stakeholder capitalism”. 37

The Global Risks Report 2020 25