Scheherazade S. Rehman is a professor of international finance/business and international affairs at The George Washington University. You can visit her homepage here and follow her on Twitter @Prof_Rehman.
The current global risk landscape is full of challenges that we never anticipated even a few years ago. The surprise key risk of 2013 is the abject inability for many countries to govern themselves effectively, also known as global governance failure. Most surprising is that this is particularly pervasive in the West. We are seeing this in Europe (in Italy, for example) and we are most certainty seeing this in the United States. Who would have imagined that the most developed and advanced nations off the world, with the most sophisticated political, economic, financial, social, educational, environmental, institutional, judicial and legal systems, would find themselves suddenly ungovernable ... and unforgivably at the expense of the common man otherwise classified as the middle-class?
There are, of course, other global risks facing 2013 that we have accurately predicted for many decades. There are, for example, an increasingly challenging competitive business environment with the pace of innovation going at breakneck speeds in developed and emerging markets alike, increasing global income disparity, labor markets shifts, extreme weather, mismanaged urbanization and water management, threats to cybersecurity, and natural resource limitations ...a to mention just a few.
The unexpected global risk of governance failure in the post-crisis era, however, seems the most puzzling. Almost all notable risk experts are now citing government's failure to act, to make policy, to govern, in many developed countries, as the most serious risk these nations and the world face in 2013. This is true for the United States, Italy, France, Spain, and the United Kingdom, not to mention all the smaller countries like Greece and Portugal.
It has gotten so bad that the United States is experiencing a government sequester—$1.2 trillion of automatic, across-the-board cuts to government agencies over the next 10 years to be evenly split between domestic and defense discretionary spending. The sequester occurred because a divided Congress could not reconcile its differences to enact either a policy to reduce government debt or other laws necessary to move this country into a post-crisis recovery phase after experiencing the worse recession in 60 years. While we all agree democracy is messy (and there is no substitute for it) surely this is not the model to govern the richest and most advanced nation in the world.
In Europe things are equally as bad. For example, in Italy the government's inability to govern was so persistent that Italians give up the right to have a democratically elected government for a few years. Italy's previously elected government of Silvio Berlusconi was thrown out and replaced by the technocratic unelected government of Mario Monti to save Italy from a looming full-blown Greek-style financial crisis. When the harsh medicinal remedies of the unelected, technocratic Monti government proved too bitter to swallow it was forced to resign, soon to be followed by democratic elections (last month) in which 25 percent of the votes went to a comedian who claims to stand for no government and wants a referendum on the euro (as if reverting back to the Italian lira is going to solve anything) and over 30 percent of the votes went back to Berlusconi's dysfunctional camp. The votes are so split in Italy that they cannot form a government. As a result new elections will in all probability be called for in the next few months and until then nothing will move and Italy will continues its long slide into economic decay and social malaise. Currently, there is a governmental void in Rome much like the one in the Vatican. This is stunning in the heart of modern, developed Europe.
Unfortunately this trend seems only to be getting worse in the West. This is, in part, because the common man—the middle class—is still not infuriated enough or perhaps not attentive enough or not empowered enough to demand that elected politicians and public officials simply do their jobs well. In the aftermath of the financial crisis, burdened by debt, with declining real incomes, and a shrunken wealth profile, the Western middle class simply seems to become more and more mired in hopelessness, accepting failure to govern as the new normal. I, for one, cannot fathom how things are going to get better in 2013 unless governments are forced to act by American-style sequesters or European-type public riots.