Pacific Perspective
Pacific Perspective
Managing political
violence is the only way
to ensure against riskMost American business people don't realize there is insurance for foreign investors against losses generated by political or social causes in developing countries.
The Overseas Private Investment Corp., a U.S. government-owned insurance and guarantee company, and the Multilateral Investment Guarantee Agency, its counterpart at the World Bank, both provide risk insurance against such possibilities as expropriation and damage to investors from political violence, domestic or international, terrorist or other. Many private insurers do likewise.
The management choice of purchasing some form of political risk insurance can be guided by consultation with companies or specialists who conduct political risk assessments or who monitor political violence.
Even among those that do know about political risk assessment and political risk insurance, it is not well known that risk assessments of the United States, Japan, and other developed countries have been available for more than 30 years.
Commercial risk assessment companies such as The PRS (Political Risk Services) Group and BERI (Business Environment Risk Intelligence) have routinely provided political risk assessments of the United States and Western countries since the 1970s.
VRA Inc., a Massachusetts-based research company, monitors violence globally, with highly developed computer software that can provide real-time intelligence for foreign investors.
We can thus prepare, in some senses, for the expansion of political violence that has occurred in the 21st Century. We can be on alert. We can buy insurance that will help us recover from losses of facilities, materials and production. We can be defensive and manage risk and prevent some losses.
There has been a quantum change in the meaning of "political risk" with the advent of mass destruction terrorism. All of this had been previously on a micro level.
The system of political risk assessment and management is set up for businesses operating as individual units.
What about system-wide risks? For the state or the country?
Terrorism, and the "War on Terrorism," have much larger consequences for businesses than those that Overseas Private Investment Corp. can help us with. We have to be prepared to deal with them as a society.
What are these? Let's look at some critical examples of where we have been hurt economically by after-effects resonating from the terrorist acts of Sept. 11.
Foreign investment
Few Americans recognize the importance of foreign investment in this country.As American capital has left the United States to take advantage of low wages in the developing world, foreign capital has come to replace it to take advantage of America's high technologies and high labor/ productivity ratios.
But those foreign investors are now being deterred by not only the threats from terrorists in the United States but also by the U.S. government's response to them.
Regulations on foreign investment are being tightened by financial regulations and investigations in the search for al-Qaeda money.
Anti-foreign sentiment is on the rise generally, making it difficult for foreign investors to be present in the United States. Even preliminary efforts to investigate investment opportunities are being made more difficult by newly enacted visa requirements and entry regulations.
Given the hundreds of billions of dollars invested in the United States, even a small percentage downturn could have profound impacts. As the United States' front door to Asia, Hawaii could suffer extensively on this count.
U.S. investment abroad
U.S. investments abroad have now become targets, especially in the Muslim world, which is more than a quarter of all countries.Businesses like McDonald's, American Express or Chase Manhattan Bank have become potential targets, along with the individuals who come and go from them.
As U.S. investors become more cautious about going abroad, both the opportunities for income and development prospects for Third World economies and democracies will diminish.
Tourism
Tourism is a major and growing industry globally. It is unique in that it has no real limits in terms of expansion possibilities.
Hawaii is dependent on tourism but the United States also derives tremendous income from it. Worldwide, revenues from tourism shrank 2.6 percent last year, with the United States being among the hardest hit with a drop of 11.9 percent.
Estimates are higher for Hawaii at about 20 percent. While it can be argued that some of the drop resulted from an economic slowdown unrelated to terrorism, this is a difficult case to make given the broad reshaping of the international economy as globalization proceeds.
International students
A major industry in the United States is higher education.Hundreds of thousands of international students make their way to this country every year to take advantage of our high quality tertiary institutions. They bring with them U.S. dollars that circulate as international currency.
Now, visa regulations and cultural suspicion are beginning to hinder entry and discourage applications.
The Europeans and others are jumping into this fray to try to draw that business.
As they do, our economy will suffer. Growth in Hawaii's universities depends in great part on an international student clientele and institutional investment. We will suffer both financially and intellectually if there is a decline in this industry.
There are more areas of concern. What is important for Americans to understand is that the consequences of political violence in the United States and in the world have become much more economic than we might have expected.
If the destruction of the United States was a goal of the terrorists who struck on Sept. 11, the limitation of the U.S. economy is certainly the way to get there.
We can't insure against this risk. Systemic management of political violence is the only way we can get there.
Llewellyn Howell is director of International Executive MBA Programs at the University of Hawaii College of Business Administration and is international affairs editor for USA Today Magazine.