What is Political Risk

Political risk is the risk that investors will lose money or make less money than expected as a result of political decisions, conditions, or events in the country or emerging market in which they have invested. Government instability, currency inconvertibility, nationalization, expropriation, changes in government, legislative bodies, other foreign policymakers, or military control could all result in investment return volatility. Political risk, also known as "geopolitical risk," becomes more of a factor as the investment time horizon lengthens. When evaluating the level of risk associated with any investment, political risk analysis considers social conditions such as crime levels - the number of recent kidnappings, for example - and land rights issues.

Rice, Condoleezza, and Amy B. Zegart. Political risk: How businesses and organizations can anticipate global insecurity. Twelve, 2018. Amazon link.

Synopsis:

An assessment of the constantly changing nature of political risk and strategies for navigating it is provided by Stanford University professor Amy B. Zegart and New York Times bestselling author and former U.S. secretary of state Condoleezza Rice.

The world is evolving quickly. Political risk, or the likelihood that a political move will have a material influence on a company's business, is having a greater impact on businesses than ever before. Political risk used to primarily involve a small number of companies engaging with governments in a small number of frontier markets. A growing number of actors, such as Twitter users, local politicians, activists, terrorists, hackers, and others, contribute to today's political risk. The organizations and rules that were created with the express purpose of reducing business risk and uncertainty frequently have the opposite effect. There are no "safe" wagers in the modern, globalized world.

POLITICAL RISK explores and examines this shifting environment, the strategies businesses can use to survive it, and the lessons that all of us can take away from it in terms of how to better comprehend and deal with these quickly altering global political dynamics. POLITICAL RISK presents a first-of-its-kind framework that can be implemented in any organization, from startups to Fortune 500 firms, by drawing on lessons from the successes and failures of businesses across various industries as well as examples from aircraft carrier operations, NASA missions, and other unusual places.

Organizations that manage political risk seriously and methodically are likely to experience surprises less frequently and bounce back quicker. Companies that don't master these fundamentals run the risk of being caught off guard.

Bremmer, Ian, and Preston Keat. The fat tail. The Power of Political Knowledge in an Uncertain World.  New York: Oxford University Press, 2009. Amazon link.

Synopsis: 

• Provides the first systematic and methodologically sound approach to political risk for both investors and policymakers

• Distills and demystifies complex analytic tool sets and makes them relevant to the real world of commerce and policy

• A new preface illuminates the strategic opportunities that have been created in the wake of global financial crisis

This ground-breaking book by Ian Bremmer and Preston Keat shows that tumultuous political events, like the 2008 Georgia-Russia conflict, and their disastrous repercussions on business, occur considerably more frequently than investors realize. The "tail" of extreme political instability is not reassuringly small but dangerously wide on the curve that shows both the frequency of catastrophic events and the strength of their impact.

The Fat Tail is the first book to both identify the broad variety of political risks that international corporations confront and explain investors how to successfully manage them. It includes a new Foreword that accounts for the cataclysmic impact of the 2008 financial crisis. It illustrates that while the world continues to be extremely perilous for businesses, it is by no means incomprehensible. It was written by two of the world's top experts in political risk management. Though unpredictable, political risk is simpler to understand and control than most people realize. Bremmer and Keat examine a wide range of risky contemporary situations by applying the lessons of world history, from stable markets like the United States or Japan, where politically motivated regulation can still have a significant impact on business, to more precarious locations like Iran, China, Russia, Turkey, Mexico, and Nigeria, where private property is less secure and energy politics spark constant volatility. The book discusses a wide range of political dangers, including those brought on by great power rivalries, terrorist organizations, government appropriation of private property, ineffective leaders, internal conflict, and even "black swans" that defy forecasting. But more crucially, the authors offer a variety of original approaches, concepts, and tools to help businesses, investors, and decision-makers comprehend political risk, demonstrating when and how political risk analysis is effective—and when it is not.

De Mesquita, Bruce Bueno, Alastair Smith, Randolph M. Siverson, and James D. Morrow. The logic of political survival. MIT press, 2005. Amazon Link

The authors of this ambitious book address a fundamental political question: why are leaders who produce peace and prosperity turned out of office while those who preside over corruption, war, and misery endure? Considering this political puzzle, they also answer the related economic question of why some countries experience successful economic development and others do not. The authors construct a provocative theory on the selection of leaders and present specific formal models from which their central claims can be deduced. They show how political leaders allocate resources and how institutions for selecting leaders create incentives for leaders to pursue good and bad public policy. They also extend the model to explain the consequences of war on political survival. Throughout the book, they provide illustrations from history, ranging from ancient Sparta to Vichy France, and test the model against statistics gathered from cross-national data. The authors explain the political intuition underlying their theory in nontechnical language, reserving formal proofs for chapter appendixes. They conclude by presenting policy prescriptions based on what has been demonstrated theoretically and empirically.

"The Logic of Political Survival" is an engaging and thought-provoking book authored by Bruce Bueno de Mesquita, Alastair Smith, Randolph M. Siverson, and James D. Morrow. This collaborative work presents a comprehensive analysis of political leaders' strategies and decision-making processes to maintain their grip on power and ensure political survival.

The book dives deep into the intricate dynamics of political stability, shedding light on the factors that influence a leader's longevity in office. By delving into the distribution of resources, the management of external threats, and the control of violence, the authors construct a solid framework that elucidates the logic behind political survival.

One of the strengths of this book lies in its ability to blend theoretical concepts with empirical evidence. Drawing on an extensive range of case studies and historical examples, the authors provide compelling insights into the real-world complexities of political power. This empirical grounding adds credibility and depth to their arguments, making the book a valuable resource for scholars and policymakers alike.

Furthermore, the authors' interdisciplinary approach is commendable. By incorporating elements from economics, game theory, and political science, they offer a nuanced understanding of the strategic calculations and motivations that drive political leaders. This multidimensional perspective enriches the analysis and enables readers to grasp the intricacies of political decision-making processes more comprehensively.

"The Logic of Political Survival" also succeeds in presenting its content in a clear and accessible manner, considering the complexity of the subject matter. The authors adeptly balance theoretical discussions with real-world examples, ensuring that readers with varying levels of familiarity with political science can grasp the book's core concepts.