ASSESSING MENTALITY (BERI Political Risk Index Component)

"The American Mentality in Disrepair"

Presentation to the West Valley Unitarian-Universalist Church

September 5, 2004

Llewellyn D. Howell

In the foreign investment and globalizing world, political risk is a critical factor in go and no-go decisions and in projecting management needs to deal with the vagaries of social and cultural environments. A variety of models is employed to assess the level of risk for new investors. These models typically contain some measure of the level of democracy, the involvement of the military and religion in politics, the level of ethnic tension, and levels of violence, domestic and international.

The context? There is both private and public sector insurance that guards against heavy losses to foreign investors from problems such as expropriation, contract repudiation, or terrorist attack damage. Political risk insurance is offered, among public agencies, by the Multilateral Investment Guarantee Agency (MIGA) of the World Bank and by the Overseas Private Investment Corporation (OPIC), an agency of the U.S. government. OPIC is an outgrowth of the Agency for International Development AID).

AID encourages foreign investment as a means of transferring technology, adding employment, building local equity, and, ultimately, expanding development. In an interesting function of globalization, the U.S. has become a target of foreign investment. This is most notable in the financing of the U.S. budget deficit--with monies from Japan, China, and elsewhere-but also in direct investment that builds tech transfer, employment, and equity in the U.S.

In other words, the shoe of foreign investment is on the proverbial other foot. And as a recipient state, the U.S. is subject to the same risk assessments as any other host state. Risk still has to be managed.

The Business Environment Risk Information (BERI) model contains a variable that it calls "Mentality" in its formula for national risk assessment. The idea behind inclusion of this concept is that there can be a national attitude, a mentality, that would be resistant or corrosive to foreign investment and prevent efficient and productive investment and business operations.

Mentality is a critical variable because it contains an examination of corruption, one of the most pervasive negative influences on investment world-wide and included in virtually every assessment method. But it also incorporates four other factors that reflect equally on national character. These are nepotism, nationalism, xenophobia, and (un)willingness to compromise.

While BERI doesn't release data on these components, it does indicate that the Mentality rating for the U.S. (currently a six on a scale that can range up to 11) has declined in recent years, indicating more investment risk emanating from the American national character. Observers of the American scene can make their own assessments but here are some of the commonly cited circumstances that have led to recent conclusions about American society.

CORRUPTION

Corruption is the use of monetary and other rewards to alter the course of law enforcement, implementation of regulations, or pursuit of legal contracts. In a corrupt environment, processes and structures become distorted and predictability becomes irregular. U.S. corporate corruption has become common fare in business reporting over the last few years, with Enron, Tyco, Global Crossing, and others on the big name list. The Martha Stewart case typifies practices at a lower end of the business spectrum that many think may be just as pervasive as the corporate leadership violations.

President Bush cited "a threat to the free enterprise system" in signing the 2002 Corporate Corruption (Sarbanes-Oxley) bill in 2002. Transparency International, a respected non-governmental organization, currently rates the U.S. as tied for 18^th in their 133 country Corruption Perceptions Index. Good, but not in the top 10%.

NEPOTISM

Nepotism is the granting of opportunities-economic, political, social-to persons related to the decision-maker and circumventing normal competitive processes for employment or advancement. The concept of nepotism may be extended to include close friends or colleagues a well as extended family. We use the term "cronyism" to point fingers of blame for this practice in Indonesia and Russia. This hasn't been a notable problem in the U.S. but names like Powell, Fleischer, Novak, Ledeen, and others have appeared where they might not have been expected to be. Michael Fleischer, for example, brother of presidential spokesman Ari Fleischer, ended up as the top private sector development aide to Paul Bremer in Iraq without experience other than being a New Jersey businessman. How did that happen, many have asked.

NATIONALISM

Nationalism is an extreme identity of individuals with the nation-state. The state rises above civil law, constitutions, laws, regulations, and often logic and common sense. Extreme nationalism is an almost religious experience, with the state being anthropomorphized. Patriotism is an expression of nationalism and extreme patriotism would be placed toward the negative end of this scale. National symbols, like flags, take on a critical importance.

There is currently a flag waving contest underway in the U.S. If the Democrats put up one giant American flag behind their candidate, the Republicans put up two. If those of one party wear a flag pin on their lapel, those from the other wear a larger one. NFL referees are now wearing American flag pins. Campaign signs are a panorama of red, white, and blue. And then there's the National Anthem, and "America the Beautiful" and "God Bless America" (both the song and the phrase)…and more.

XENOPHOBIA

Most directly, xenophobia is the fear or hatred of foreigners or those who come from outside the individual's identity group. Non-Americans. Someone who is "un-American." Anyone who remotely resembles an Arab or a Muslim (never mind that Sikhs are not Muslim, not Arab, and in fact are Caucasians by race) is profiled, overseen suspiciously, denied rights, and generally treated with disrespect.

Then there are the French. And there are illegal Mexican immigrants and the "Protect America Now" ballot proposition in Arizona. Xenophobia in America?

WILLINGNESS TO COMPROMISE

Expressed more appropriately as "unwillingness to compromise," this is an indicator of an unwillingness or inability to see other points of view and to make practical adjustments to pluralistic circumstances in society. A willingness to compromise is a critical value in the functioning of multi-ethnic societies and in the establishment of global policies. The Bush administration has been more unilateralist, insistent, and singularist in perspective than any administration in recent history. Instead of being seen a peacemakers, we are seen as the hardliners.

Neither political risk assessment nor evaluations of Mentality are what we would call an exact science and, certainly, science is not being attempted here. But the U.S. and Americans are vulnerable to the same flaws we have so readily found in countries like China, Nigeria, and Indonesia in the search for productive investment opportunities and subsequent development.

In a globalized system, the U.S. competes for foreign investment. We have one of the better investment environments today but it isn't perfect. In August 2004, the U.S. earned a 64 from a BERI rating of 100 and eight out of 60 countries in the BERI list were given better ratings. In the competitive world of the 21^st Century, even maintaining that position will take attention. Understanding our own Mentality will be a part of that maintenance.