Re-Innovate a Social System

Book

In the book with the rather harmless title „Social Credit Rating“, Springer Verlag, Hrsg. Oliver Everling, all financial, societal and political issues of today can be found.

Since 2014, the KP (communist party) of PRC (China), is developing a so called, Social Credit System (SCS). The official goal is to include social (good) behavior in credit ratings for individuals as well as for companies to get more access to good (and cheaper) funding. If you follow the rules of society, you get awarded. By reading most of the contributions two things are clear, (1) this is much more than a social rating and (2) this actually gives a chance for German SME to profile themselves in China (on cost of US competitors).

China consider itself as being in the center of the world, as do the US/Western Europe. So those two blocks will evidently have a confrontation as long as none of them accept two different political models. I cannot imagine China accepting the free and liberal world of the West run by private oligopolies like Google and Facebook, as well as the US/WE accepting a communist party having access to the data, privat or corporate. The articles in this book very nicely show the total different set of attitudes between those blocks.

The Chinese (or Eastern Asian) way of integrating new models into their existing ones instead of going on confrontation like US and the „West“, actually appeals to me more today, although being taught neoliberalism at a Westerns Business School in the 90:ies and reading Fukuyama with great optimism at the end of the Cold War. Therefore I see a re-naisance of the philosophy of the „Wirtschafts-Wunder“ in both Japan and Germany to be the adequate way between Wall-Street Capitalism and One Party system in China. In this „third way“ the state played a regulatory role on the market and acted as a mediator between shareholders and stakeholders (soziale Marktwirtschaft).

Again, there is a perfect balance in this book to get an own picture of what this all means and there is no way to ignore those facts if you want to act in a global market in the future. China is there, no matter if you like it or not, and I prefer to see this as an historical chance to re-innovate our liberal/social system in a time where global capitalism has failed to solve the COVID19 crisis in regard to China.

Country Risk

Country Risk: The Bane of Foreign Investors

Agencies, Book

Country Risk: The Bane of Foreign Investors (by Norbert Gaillard, Springer, July 2020) is an original and innovative research work.

Chapter 1 introduces the key concepts.

Chapter 2 establishes that impediments to international business preceded any mention of the country risk concept. I investigate how country risk has evolved and manifested since the advent of the Pax Britannica in 1816. Four distinct periods are examined: the era of Pax Britannica (1816–1914), the 1914–1945 period, the Cold War (1945–1991), and the globalization years (1991–2016). For each period, I describe the international political and economic environment and identify the main obstacles to foreign investment.

Chapter 3 documents the numerous forms that country risk may take and provides illustrations of them. Seven broad components of country risk are scrutinized in turn: international political risks; domestic political and institutional risks; jurisdiction risks; macroeconomic risks; microeconomic risks; sanitary, health, industrial, and environmental risks; and natural and climate risks. This taxonomy includes some risks that have materialized since 1945. I also discuss how the different country risk components are factored into the business strategies of the 30 companies on which the Dow Jones Industrial Average (DJIA) index is based.

Chapter 4 focuses on what is known as “type-3 country risk” (CR3) – that is, sovereign risk. This emphasis is motivated by the high likelihood of sovereign risk, which is often equated with country risk, exacerbating all the other risks that affect international investors. I present the sovereign rating methodologies used by Moody’s, Standard & Poor’s, Institutional Investor, and Euromoney. Next, I measure and compare these four raters’ performance (i.e., their ability to forecast sovereign defaults). Finally, I identify the strengths and weaknesses of these methodologies and make recommendations.

Chapter 5 studies the various indicators used to assess type-1, type-2, type-4, type-5, and type-6 country risks (i.e., CR1, CR2, CR4, CR5, and CR6) – in other words, the risks likely to affect (respectively) exporters, importers, foreign creditors of corporate entities, foreign shareholders, and foreign direct investors. In doing so, I present the country risk rating methodologies used by six major raters: International Country Risk Guide, Credendo, the Organisation for Economic Co-operation and Development, the Fraser Institute, the Heritage Foundation, and the World Economic Forum. In parallel, I discuss eight types of shocks that reflect the main components of country risk analyzed in Chapter 3 (namely, major episodes of international political violence, major episodes of domestic political violence, expropriation acts, high-inflation peaks, deep economic depressions, significant restrictions on capital flows, sovereign debt crises, and exceptional natural disasters). Each type of shock has occurred a number of times since the early 1980s, resulting in country risk crises. Next, I measure the track records of Euromoney and the six raters in terms of anticipating these crises. Finally, I deliver a critical view of these indicators.

In Chapter 6, I summarize the findings and explain why globalization is now at a crossroads.

Read more in Country Risk: The Bane of Foreign Investors (by Norbert Gaillard, Springer, July 2020).