State of Politics: Rising Risk and the

Birth of an Industry
15 de jun. de 2015

The political risk industry barely deserves to be called an "industry"; its still
too new. Its also expanding too rapidly to be called anything else.
As the world becomes both more deeply interconnected and more chaotic,
market results are driven increasingly by political decisions. According to a
recent poll conducted by accounting firm PwC, 72 percent of CEOs are
seriously concerned about ongoing geopolitical uncertainty that affect
company bottom lines. These (very smart) businessmen have long turned to
firms like Eurasia Group to make sense of a world threatening to spin out of
control. Through our research and analysis, we provide the biggest
corporations in the world with the intelligence they need to make shrewd
business decisions.
But as an industry, political risk still has some ways to go. Political risks
newness is both its greatest obstacle and its greatest strength. Thats what
makes it such an exciting field to be in we are building it from the ground
up, shaping it as demand evolves.
There is no set course of training for people to enter the political risk field. It
is not a profession in the traditional sense, which is what makes it
appealing to so many of us. People who work in political risk come from
across the career spectrum this field is as cross-discipline as it gets.
The 20th century has seen behavioral revolutions in the fields of economics,
psychology and sociology but not political science. At least not yet. Part of
this is because most poli sci undergrads spend four years studying what they
love and then go off and do something else. There is no well-worn career
path to pursue political science outside a Ph.D. program, a choice which
traditionally leads only toward academia.

I got my Ph.D. in political science from one of the top universities in the
country, and not once did I take a course that taught me how political
science applies to the business world. Thats a huge oversight, and its a
principal reason I started Eurasia Group.
But people are starting to catch up to the times. Public policy schools are
leading the charge by offering courses in political risk. The Fletcher School at
Tufts is already hard at work fashioning a curriculum specifically geared to
the field, and I think theyre making great progress. Business schools have
also realized the critical nature of political risk weve been busy at Eurasia
Group launching a new program for executive training at NYUs Stern School
of Business. While were incredibly excited about these prospects, these are
only small initial steps.
More and more, people entering the political risk field are coming directly
from the policy world. Former Secretaries of State and Treasury, National
Security Advisors and even Presidents are getting in on the game. These
people have serious rolodexes, and theyre not afraid to use them. But while
its understandable that theyll use their personal insights and relationships
to analyze politics, its also inevitable that they will try to use those same
contacts to sway politics as well. The pay for that is really, really good, but
thats lobbying, not unbiased political risk analysis. Thats why ratings
agencies keep safeguards in place to ensure they dont rate the folks who
pay them. These senior government officials are important players in the
political risk field, but their credibility is called into question when they start
offering access or lobbying services.
So the other big challenge facing political risk as an industry is maintaining
objectivity. People who have a deep understanding of a countrys politics also
tend to have high-level contacts in those political circles. While this is usually
a benefit, we also make sure they dont become liabilities by undermining
objective analysis.
Thats why I love the fact that political risk has taken a quantitative turn
these last few years. Much as sports has undergone a data revolution since

Brad Pitt made a movie about it, analytics make up an ever larger part of our
work. The difference is that in sports the measurements are finite data has
to be drawn from on-field performance. In political risk, there is no defined
field which bounds our data, and so we have to sift through vast amounts of
information. At Eurasia Group we are constantly devising new quantitative
models: analyzing news for patterns, creating risk indices, and projecting
event risk probabilities.

And soon the field will go further than

that the social media revolution gives us unprecedented access into the
minds of average citizens and political leaders alike. A tweet is just a tweet
until it becomes a social phenomenon. We saw that with the 2013 Gezi Park
protests in Turkey.
So its important to find the right people to distinguish signal from noise,
the significant from the insignificant, and to tweak formal models to produce
more insightful results. Data is only as good as its interpretation. That
means bringing in the top talent available, and why were building out our
consulting practice and financial products its one thing for a business to
have quality information, and another to know what to do with it.
As long as the world has had politics, it has also had political risks. We have
finally started systematically identifying and dealing with these risks, and the
results so far are outstanding. But we are still at the beginning. Its an
exciting time to be in political risk or to be studying poli sci as an
undergrad.