THE BLOG

Political Risk Is Back - Can We Deal With It?

16/01/2017 17:31 GMT | Updated 16/01/2017 17:31 GMT
Jonathan Brady/PA Wire

A friend of mine has a wonderful job for a political addict - a global bank pays him to write reports analysing politics in countries around the world. If he thinks it's relevant, he can write about it, and since the bank operates everywhere, virtually all markets are relevant. My friend is as knowledgeable discussing Thailand's palace intrigues as he is discussing the nuances of the New Hampshire primaries.

The accepted wisdom in political analysis circles had been that political risk was only truly a factor in the emerging economies of Africa and southern Asia. Coups, revolutions, dramatic policy shifts, corruption and dynastic rivalries could upset your company's interests in those economies. But in the rich world, centrist parties could be relied on to provide broadly sensible economic stewardship. How dated that wisdom now seems. My friend's reports recently dwell on the uncertainties of Trump, Farage, Le Pen and various other actors dancing around the bonfires of our vanities.

As unsettling as political risk is, it is also not without some merits. The notion that politics should comprise simply careful economic stewardship and nothing more is a sterile idea, which would stifle change and progress. Politics should be about ideas, principles and identities, and can be as dynamic as the human experience itself. Economic stewardship is important (ask anyone who remembers the Great Depression), but sometimes decisions need to be made on ideas, not on numbers.

An aspect of the referendum campaign that I did not like was its excessive focus on the costs of Brexit and of EU membership. Each household would be £4,300 worse off under Brexit, the claim went. EU fees deprive the NHS of £350million a week, the counter-claim went. But to my mind, Brexit should have been contemplated not primarily on the costs but on the principles. What kind of country do we want to be? How much a part of Europe are we? What sort of signals do we want to send to migrants and would-be migrants? What does sovereignty in the 21st century really mean? These were the ideas I thought needed to be discussed more, rather than obsessing on the costs (which both sides indulged in). If a course of action is the right thing to do, the costs will be worth it.

Theresa May will this week give a major speech on Brexit. Some speculate she will signal leaving the European Single Market. Others say she will focus on Britain's post Brexit identity. It is likely she will address both. Once again, it comes down to costs and ideas.

Political risk is back in Europe. The prospect of France embracing Marine Le Pen's world view is a genuine political risk, though I am still hopeful that the French principles of liberté, égalité et fraternité will prevail - it is fair to say that Le Pen seems to cherish none of those principles, at least not in the way that liberals understand them. In Eastern Europe self-described illiberal governments in places such as Hungary and Turkey have already reintroduced new considerations to political and business decisions that many had assumed were passé.

Yet let me offer some notes of hope. Political risk can be managed, if not fully ameliorated. Good political analysis (such as my friend turns out) offers not just explanations, but identifies options and pressure points for influence. It is not just about identifying the Who and the What, but also the Why and the How. While Brexit offers uncertainty, there are clear policy sweet spots that can be massaged. The government is plainly keen on the wider trade agenda, for example - and understandably so if we are to lose access to the European Single Market. Companies that offer governments support for their trade agenda will have leverage.

In short, there are ways to "deal with" political risk. This is not to say it can be completely offset or negated, and political risk does have the potential to wipe out all our gains. Such is the nature of risk. But we need not be simply passive observers of risk, like fishermen watching a storm at sea. We can analyse, understand, and build strategies for dealing with the risk. This remains our best hope, and our best opportunity.