According to Nassim Nicholas Taleb and Gregory F. Treverton, appearances can be deceiving, especially when it comes to the stability of a nation. In their essay in Foreign Affairs, “The Calm Before the Storm,” Taleb and Treverton argue that what you see is not what you get when it comes to the apparent “stability” of the political system of a given country.

They argue that countries with relatively decentralized governments and a wide variety of political expression such as Italy or the U.S. are actually quite strong politically despite the perception of conflict and lack of national cohesion. The corollary to this is that a strong central government and the lack of political diversity you see in countries such as Saudi Arabia, North Korea, Venezuela and China actually makes these countries more fragile.

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Economic factors and past experience also factor into an understanding of political fragility

Taleb and Breverton flesh out their argument by pointing out that both economics and past experience in dealing with shocks also figure into how politically strong or fragile a country is. The authors break down economics into two factors: diversity of the economy and amount of debt/degree of leverage.

They argue that political fragility “has five principal sources: a centralized governing system, an undiversified economy, excessive debt and leverage, a lack of political variability, and no history of surviving past shocks.”

[drizzle]On the other side of the coin, countries with decentralized governments, diversified economies, moderate debt/leverage, political variability and who have experienced one or more political/economic shocks in the relatively recent past are strong enough to deal with greater shocks from various sources than more fragile nations.

Taleb and Breverton highlight that these five markers of fragility “function best as warning signals.” Just because a country has one or more of these criteria does not mean the government is in imminent danger of collapse, but they certainly can reveal if there is real reason to worry about a given country. The authors continue to say that countries that score poorly on several of the criteria are more worrisome, because “qualifying as fragile on two counts is more than twice as dangerous as doing so on one.”

Examples of a few fragile countries

Saudi Arabia is obviously fragile given it is highly dependent on oil, has no political variability and is very centralized.

“Its oil wealth and powerful government have papered over the splits between its ethnoreligious units, with the Shiite minority living where the oil is,” the authors point out in their essay, and argue Bahrain should also be considered highly fragile for the same reasons plus its repressed Shiite majority.

They continue to say that Egypt should be considered fragile, particularly as it has had only a cosmetic recovery from the recent revolution and its highly centralized and repressive government. Venezuela, which has a completely centralized political system, minimal political variability, an oil-based economy, and only their ongoing experience with surviving an economic shock, also falls into the highly fragile camp.

Understanding China…the Black Swan of Beijing

Taleb and Breverton conclude their essay with a discussion of “the puzzle of China.”

They start by asserting that China’s more than a decade run of strong economic growth makes it difficult to assess the future of the country. China has recovered surprisingly well from the huge shocks of the Maoist period over the last 35 plus years. That is, however, a long time ago and therefore less likely to protect the country against future shocks.

On the negative side of the slate they highlight that China’s political system is among the most centralized in the world, its economy is somewhat diverse, depends  on exports to the West, and its government has been taking on hundreds of billions in debt lately, leaving it more vulnerable to slowdowns in both domestic and foreign growth.

The essay ends with a sobering discussion of the increasing possibility of the Black Swan of Beijing: “Are the gains from past turmoil big enough to offset the weakness from debt and centralization? The most likely answer is no—that what gains China has accrued by learning from trauma are dwarfed by its burdens. With each passing year, those lessons recede further into the past, and the prospects of a Black Swan of Beijing loom larger. But the sooner that event happens, the better China will emerge in the long run.”

So what happens when the world’s second (or largest) economy has a political implosion? Only time will tell.

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