The Elements of "Political" Risk

Friendly and cooperative governments can be overthrown and replaced by anti#business or anti#American regimes. Investments can be restricted, nationalized, or expropriated without compensation. Individual business people can find themselves subject to legal systems that do not recognize the niceties of American courts, or they can be caught up in political or military conflicts. Thus, the business person who may become involved in international business should be aware of the legal and political aspects of international trade.

Each of the world's hundred#fifty#odd independent and sovereign nations has its own system of legal rules and its own political culture and climate. Broadly speaking, however, the world's nations could at the beginning of the 1990s be divided into six broad categories: developed, newly industrialized, formerly communist, communist, underdeveloped, and drastically underdeveloped. Nations within each group vary widely, and there are borderline cases for each group, but this distinctions can still assist us in understanding the patterns of government relations with business.

The "First World" of developed, industrialized countries ## Canada, Britain, Germany, Japan, and so on, not to mention the United States itself ## possess broadly democratic political institutions and primarily market#oriented economies.

One of the more subtle hazards to American businesses in the Third World is running afoul of American law. As the Marcos case illustrates, American courts take a strikingly imperial attitude towards misdeeds (under American law) committed abroad. Bribery or kickbacks to officials may be a way of life in Third World countries, but they are prosecutable crimes in American courts. Americans doing business in the Third World should be aware of this hazard.

In spite of the movement towards privatization in the 1980s, major European nations also have government#owned or government#controlled firms which are granted a privileged status under law, or which can expect favorable rulings from courts or regulatory agencies. Foreign businesses doing business with these quasi#governmental entities, or competing with them, should be aware of this. Moreover, the bureaucratic predictability noted above has its limits, even in the most developed countries (as in the United States itself). It is a nearly universal rule that courts and regulators give a "home court advantage" to their own nation's businesses, who after all are more likely to have support from strong domestic political constituencies.

The developed industrial countries of the First World, and to a somewhat lesser degree the newly industrialized countries, formerly communist countries, and communist countries, are all characterized by what may be called bureaucratic predictability. That is to say, they have legal and regulatory institutions, rules, and procedures which are clearly spelled out, and which tend to be followed more or less faithfully in practice.

 

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