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Archive for February, 2011

The revolts on the Arab street have occasioned a renewed interest in the measurement of political risk. And businesses are paying greater attention to political risk analysis. Both are good news. But is it just passing interest, or will this result in real innovations in risk analysis?

Typically, business analyses of political risk have involved a blend of political indices, such as those provided by Freedom House or the Heritage Foundation or the World Bank, with qualitative analysis focused on specific industries. While informative, these dwell on past and ongoing trends and events, which are then extended to forecast the future.

What has lacked is real understanding of theory. Without it, we cannot understand causality, and without knowing “why men rebel” (the title of a classic political science book), we really cannot understand the risk of rebellion and upheaval, let alone forecast it.

The point of departure of risk analysis, therefore, should be theory, especially theories of revolution. This is where political scientists, and social scientists in general, can make a real contribution to a field dominated by actuaries and financial forecasters. 

In this effort, The Economist made excellent inroads recently. Its humorous-but-apt “Shoe-Thrower’s Index” begins with theory, then garners related indicators, and then produces a risk-ordered list of countries in the Middle East. It’s not complete, but it’s a great start.

The Shoe-Thrower’s Index identifies several factors as causal in the chain of rebellion. All these are established by the social sciences. It then attaches different weights to the factors, as shown in the table.

The higher the total for a given country, the greater its risk of political instability. According to this, Yemen, with a score of over 80, is the riskiest country in the region. Next are Libya, Egypt, Syria, and Iraq, all with scores of over 60. UAE, Kuwait, and Qatar are at the lower end of the spectrum.

There are two main weaknesses in this index. First, as The Economist itself admits, it discards factors that are “hard to quantify,” including unemployment information because they’re not comparable across the countries in the region. This quantitative bias is typical of many risk approaches. More qualitative factors such as ideological motivation or support (such as between Islamism or secularism), leanings of leaders (such as between non-violence or violence), leanings of the armed forces, control over governmental employees, and ideas of justice/injustice are important predictors of not just the occurrence of instability but the duration and extent of it.

The Economist also overlooks the fact that some of the indices it uses as sources of quantitative data, such as those of corruption or democracy, are really qualitative information, drawn from people’s subjective perceptions or opinions. These are merely disguised and presented as quantitative data by attaching numbers to survey responses. Pronouncing a flat-out preference for quantitative data, therefore, is misleading.

The second important factor, which can be both quantitiative and qualitative, not included in the index is “resources.” Political scientists have shown that revolts, and specifically democracy movements, are critically dependent on organizational, technological, and infrastructural resources available to protesters. Simply put, without access to technology, such as Twitter, Facebook, or satellite TV channels, all the other “factors” may not have produced the type of instability that is sweeping through the region. Resources allow isolated show-throwing to snowball into concerted political upheaval.

In any case, the type of risk-indexing exercise that The Economist undertook is definitely a solid step in the right direction. To further improve our understanding of political risk, we need to start weighing in additional qualitiative factors.

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A lot of worry is making the rounds about “Political Islam.” Some of it is valid, some a function of what may be termed the unknown. But the extreme form of the worry, the one that gets inordinate media time, is nonsense. And as a basis for making policy, it is not just nonsense but downright dangerous.

It goes like this: the West should oppose Islamist parties from gaining power because even if they gain power electorally, they will break down democracy, like the Nazis did in 1932-33. The political risk, therefore, is so great that democracy itself can be opposed on principle.

This conception of political risk does disservice to proper analysis because it is not based on evidence and logic. It is based on prejudice. And that is something that all risk analysts should avoid.

I recently wrote an op-ed piece in The Huffington Post debunking this supposed political risk. Here are some excerpts from that:

For decades, Americans have been peddled a scenario with two scary arguments: Islamist electoral takeover is first of all very likely, and once victorious, Islamist parties would dismantle democracy altogether.

What has happened in reality is quite the opposite.

Across the world’s 47 Muslim-majority countries, 154 national elections were held between 1990 and 2006. Out of these, Islamist parties won only 12 elections.

If we only consider only those elections that were free and fair, that is, a reflection of popular will, then only three resulted in a victory by an Islamist party.

The specter that produces right-wing nightmares has been extremely rare.

What about the second part of the argument? Was democracy reversed in the three cases in which Islamist parties won fair and square?

Read more here to find out.

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