Business: Schumpeter: Risky business
Managers need to watch political risk in developed markets as well as emerging ones.
Multinational companies have always paid careful attention to political risk in the developing world.No surprise there, given the risk premium attached to investment in emerging markets.Western businesses turn for advice to consultancies that keep a watchful eye on alarming developments in far-flung places.There is booming demand for political-risk insurance that can protect companies against shocks, be they coups in Turkey, sanctions against Russia or a debt default by Venezuela.
Now, however, firms need to pay the same attention to political risk in the developed world.Just consider the latest news from the American election trail.The woman who stands between the presidency and a hot-head who wants to tear up the world’s trading system is losing her air of invincibility, due to an unguarded comment about a “basket of deplorables”, a bout of pneumonia and a foolish decision to conceal the illness from voters.Britain’s vote on Brexit in June was a reminder that impossibles may turn into improbables, and then quickly become fact.Businesses now face years of uncertainty as politicians thrash out the details of the Anglo-continental divorce settlement.
Europe faces various possible crises.Spain is on its way to its third election in a year.Matteo Renzi, prime minister of Italy, has promised to resign if he loses a constitutional referendum due by the end of the year, which would threaten political turmoil just when the banking system is particularly shaky.Angela Merkel, Germany’s chancellor and until now the iron woman of European politics, is weakening rapidly because of her unpopular policy on refugees.Plenty of commentators reckon the world of risk is turning upside down.
“Political risk has shifted to the developed world,” gloated a recent column in South Africa’s Rand Daily Mail.It is easy to see why this idea has traction.The Indian government is both stable and pro-business.Vladimir Putin has imposed order on Russia, albeit at a horribly high cost.China produces five-year plans while America struggles to pass a budget.But it is a misguided view, nonetheless.Brazil lurches from one corruption-driven crisis to another.Jacob Zuma’s government in South Africa is riven by graft and incompetence.The Philippines, which has one of the world’s best recent records on economic growth, has elected a Trumplestiltskin of its own, Rodrigo Duterte.
There isn’t a fixed lump of “instability” to be distributed around the globe.At the moment political turmoil is on the rise across most of the world.