New Risk Report Warns of Global Instability

By Michael Hendrix
June 20, 2014
General Foundation

Citigroup’s new measure of political risk, Vox Populi, shows increasingly volatile public opinion threatening business and investment across the world. The number of elections, protests, and government collapses has increased by 54% over the past decade, concurrent with a rise in disruptive new parties outside the political mainstream.

Triggered by perceived corruption and amplified through social media, elites are feeling the heat of popular discontent over growing inequality and widespread globalization. Vox Populi yields a volatile mix of risky events—elections, mass protests, referendum, and geopolitics—that surprise markets and deepen political divides. Citigroup believes that these upheavals represent a structural change in world politics.

Citigroup identifies instability occurring in both high- and low-income countries, many of which have enjoyed rapid economic growth and improvements in living standards. The austerity-wracked Eurozone, in particular, has shown remarkable stability. All of which is to say that overall prosperity matters less than you’d think to a country’s riskiness.

Many countries have avoided the full cost of discontent thanks to low interest rates. But when rates rise, as they will eventually do, markets and businesses will have less room to absorb the cost of instability. Vox Populi risk isn’t going away any time soon.

How can countries effectively avoid Vox Populi risk? By doing the following:

    •  Fostering social cohesion;
    •  Strengthening fiscal health;
    •  Establishing independent institutions; and,
    • Garnering the support of international actors.

While these recommendations ring true, Citigroup appears to have more room to grow their insights. In particular, the authors note that markets don’t strongly reflect Vox Populi risk, nor do they lead to many direct signs of uncertainty. And politically, roughly 62% of Citigroup’s Vox Populi events were found to have limited impact.

Citigroup’s Vox Populi index is a much-needed measure of the unique pressures facing today’s businesses. Moreover, it shows policymakers the competitive landscape in which they will have to operate in for years to come. While our future remains uncertain, our policies needn’t increase our risks.

 

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