The Nature, Estimation, and Management of Political Risk

Abstract

The Nature, Estimation, and Management of Political Risk, by Janice Monti-Belkaoui and Ahmed Riahi-Belkaoui (Westport, Conn.: Quorum Books, 1998). Reviewer: David L. Weimer, Professor of Political Science and Public Affairs, University of Wisconsin-Madison. Corporate strategy must increasingly be global in perspective. A global capital market, falling information costs, and increasingly free trade in goods demand an international perspective. At the same time, transportation costs for natural resources and final products, and especially restrictions on international labor mobility, create a variety of locational opportunities for multinational firms. With these opportunities, however, come risks associated with the political systems of host countries, including changes in institutions, such as property rights and the political regimes themselves, and changes in economic policies, such as those governing exchange rates, taxes, labor practices, prices, and imports. The volume by Janice Monti-Belkaoui and Ahmed Riahi-Belkaoui attempts to identify the sources of these political risks as well as provide frameworks for estimating and managing them. The authors intend their book to be of use to the entire business community, ranging from executives to researchers. Although it sets out the major issues in a way that one could imagine being of some value to especially patient executives, and it includes some original empirical research of potential interest to researchers, it seems most appropriate as a source of general background for corporate staffs that have to confront political risk in making business decisions. Its strength in this regard is a recitation of the various classifications, analytical elements, and prescriptions found in the scholarly literature. Indeed, the majority of its lists, tables, and figures are reprinted directly from these original sources. Thus, someone new to the topic would find clear summaries of the essential points of much of the relevant academic work. The authors leave at least one very important gap of particular relevance to those who might actually be faced with the task of predicting political events in a particular circumstance-the expected utility approach pioneered by Bruce Bueno de Mesquita and colleagues.1 The expected utility approach uses information provided by country specialists about the relative strengths and commonalities of policy positions of various actors involved in political decisions, broadly defined, to make predictions of outcomes based on the assumption that the actors pursue their self-interests. In a recent review, James Lee Ray and Bruce Russett provided the following assessment: "This 'expected utility' forecasting model has now been tried and tested extensively. …