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Will Income Inequality Wreck The Global Economy?

Worsening income inequality is the risk most likely to cause serious damage around the globe in the coming decade, the World Economic Forum said in a report ahead of its annual gathering in Davos, Switzerland, next week.

The widening gap between rich and poor “raises concerns about the Great Recession and the squeezing effect it had on the middle classes in developed economies,” the group said in its Global Risks 2014 report.

While a severe income disparity has taken place in the U.S. and other developed nations, globalization “has brought about a polarization of incomes in emerging and developing economies,” the report said.

President Obama last month called income inequality a bigger threat to the U.S. economy than the budget deficit, which has been shrinking. Decrying a “deficit of opportunity,” Obama called for an increase in the minimum wage, more investment in education and a stronger social safety net.

The World Economic Forum, which hosts the annual high-profile gathering of top business and political leaders, asked 700 global experts to assess global risks.

For the third straight year, income disparity topped the list of the five most likely global risks over the next 10 years. The others in this year’s report were extreme weather events, unemployment and underemployment, climate change and cyber attacks.

“It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today,” said Jennifer Blanke, the group’s chief economist.

The report also assessed the most potentially damaging global risks. For the fourth straight year, fiscal crises or a major systemic financial failure in key economies topped that list.

But the experts did not see fiscal crises as among the most likely global risks in the coming decade as economic growth picks up after the Great Recession.


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