The World Economic Forum convened today in Davos, Switzerland, and “Dr. Gloom” returned. His appearance was not a surprise. With commodity prices surging on a broad front, Nouriel Rubini’s assertion that the global economic recovery is in some trouble was hardly a stunner.
Still, when this New York University economist speaks, the world now listens. Having so accurately predicted the collapse of the housing bubble and the Great Recession that followed, he commands great attention. Rubini today expressed concern that rising commodity prices could help fuel inflation in China and India, and destabilize developing countries and economies.
This time around, Dr. Gloom is not alone. A growing number of economists and market analysts are fretting over “resource limitations” and the relentless rise of commodity prices for oil, copper, tin, cotton, and a wide range of basic food stuffs. Indeed, the Global Risks 2011 report that was released at this week’s meeting in Davos devoted a full chapter to what is described as the “water-food-energy nexus.” The report warned that, “Water security, food security and energy security are chronic impediments to economic growth and social stability.”
The Global Risks 2011 report stressed the interconnectedness of these challenges, noting that “food production requires water and energy; water extraction and distribution requires energy; and energy production requires water. Food prices are also highly sensitive to the cost of energy inputs through fertilizers, irrigation, transport and processing.”
The report also emphasized that demographics challenges are part of the mix:
For certain developing countries, the population size and growth rate are creating intense and rising pressure on resources, public institutions and social stability. In countries where rapid population growth is combined with weak institutions, lack of economic opportunities, fragile ecosystems, gender inequality and severe urban crowding, the potential for large numbers of disaffected youth engaging in resource-based conflict is a real risk. The Forum’s Global Agenda Council on Population Growth has identified 14 countries encompassing 450 million people where high population growth is combined with water and other resource stresses. Such “population cluster bombs” could send myriad shock waves to neighbouring countries and regions.
The Davos conference will likely focus on the immediate threats to the world economy, but if the global economy is struggling with “resource limitations” today, when it is still recovering from the Great Recession, what does that portend for the longer-term? With the anticipated expansion of the world economy, and population likely to increase by about 40 percent over the next 40 years, how will the world ever meet the rising demand for food, energy and water? And what will be the impact on the world’s urban poor, who are already struggling to put food on the table? What happens to them if food and energy prices continue to soar? Those are the real challenges that need to be addressed at Davos.
As urgent as our current problems are, we cannot overlook the needs of future generations. Over the past half century, the world has made notable gains in reducing severe poverty, curbing global hunger and reducing maternal and infant mortality in the developing world, but unless more is done to address the food security and human needs of the developing world, those gains could easily be erased in the next half century.
Posted by Robert J. Walker, executive vice president