State of Politics: Rising Risk and the Birth of an Industry

In this series, professionals debate the state – and future – of their industry. Read all the posts here and write your own (use #MyIndustry in the body of your post).

The political risk industry barely deserves to be called an "industry"; it’s still too new. It’s 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 professional services firm PwC, 72 percent of CEOs are seriously concerned about ongoing geopolitical uncertainty that affect company bottom lines. These 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 insights they need to make shrewd business decisions.

But as an industry, political risk still has some ways to go. Political risk’s newness is both its greatest obstacle and its greatest strength. That’s 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. That’s a huge oversight, and it’s 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 they’re making great progress. Business schools have also realized the critical nature of political risk — we’ve been busy at Eurasia Group launching a new program for executive training at NYU’s Stern School of Business. While we’re 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 they’re not afraid to use them. But while it’s understandable that they’ll use their personal insights and relationships to analyze politics, it’s 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 that’s lobbying, not unbiased political risk analysis. That’s why ratings agencies keep safeguards in place to ensure they don’t 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 country’s politics also tend to have high-level contacts in those political circles. While this is usually a benefit, we also make sure they don’t become liabilities by undermining objective analysis.

That’s 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 it’s 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 we’re building out our consulting practice and financial products — it’s 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. It’s an exciting time to be in political risk — or to be studying poli sci as an undergrad.