The sovereign state of taxes.

• Author: Howell, Llewellyn D.
• Position: World Watcher

POLITICAL RISK ANALYSIS has become a much bigger business in the decade and a half since the end of the Cold War. If nothing else, the battle between Communism and Capitalism did provide umbrellas for colonially created states that contained multiples of ethnicities, giving them another way of seeing themselves in the world other than in strictly ethnic terms. As the umbrellas of the West and the Soviet Union went away, diverse countries have decomposed into their more rudimentary characteristics: race, religion, language groups, size, and any trait that people can use to separate themselves. The result is that they end up killing each other and damaging anything and anyone getting in the way.

Political risk analysis has been an important business, advising foreign investors on the dangers they will face when they enter new environments in search of profits and constructive economic contributions, what insurance is available, and what they can do politically, sociologically, and physically to protect themselves.

Great focus has been placed on "instability" as a critical variable in risk for businesses, as unstable governments tend to do things in the area of economics that are very negative for foreign investors. Yet, the past focus on instability also was driven, in great part, by the U.S.'s interest in keeping developing world governments out of the hands of pro-Soviet forces. A Defense Advanced Research Projects Agency study in the early 1980s equated "political risk" solely with "instability."

Today, we are long past our trepidation about Communist influence. We remain concerned, though, as a development issue, in the stability of governments around the world to provide continuous services, human fights for their citizens, and welcoming environments for international investment and trade. Despite what antiglobalization protestors might think, international investment, is the driving force in employment growth, technology transfer, and dispersion of equity in the international system. This is what is known as development.

To maintain this growth and dispersion in wealth, governments that coordinate these efforts must be stable and productive. Assessors such as the International Country Risk Guide (ICRG) still weigh stability at the high end of their variable lists in examining overall political risk. ICRG breaks its stability variable down into the components government unity, legislative strength, and popular support. While both useful...