5 Keys to Assessing Wether A Country Is Politically Stable
Last week, tens of thousands of students from my alma mater — the incomparably picturesque University of Cape Town — marched to South Africa’s Parliament buildings. There they met up with students from other institutions of higher learning to protest tuition fee hikes. As Minister of Finance Nhlanhla Nene gave his annual budget speech, riot police turned the peaceful protest violent with pepper spray and stun grenades.
The scene was uncomfortably familiar to me. I’d participated in similar protests in the late 1980s when the apartheid government was our target. I still have a tear-gas canister (made in the USA!) on my desk as a reminder of what any government can do to my liberties.
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How, I wondered, had the country of Mandela gone so far off the rails? What does the future hold for it? I quickly realized that this is a question every one of us involved in offshore life needs to be able to answer.
How can you know when a country is too risky for your investment and/or offshore living plans?
After all, that’s a question many of us have been asking about one country in particular — the United States of America — for a long time. Most of us are motivated in the first instance by concerns about the safety of our wealth and the threat of confiscation, but plenty of folks also realize that our government just lacks stability. Every year things seem to get worse, not better. Right now, public approval of the U.S. Congress — supposedly the centerpiece of our democracy — is in single digits. The leading presidential candidates have … shall we say, an uncertain grasp of constitutionality.
Instability means unpredictability … the last thing you want when you’re trying to find a secure home for your wealth and your family. How, then, can you assess the likely trajectory of a foreign country before you make a commitment to it?
Politically Stable Countries: Your Guide to the Slide
When people ask me about my “area of specialization,” I usually tell them I’m a political economist. I’m equally at home with economic and sociopolitical analysis. If you really want to get a grip on things, you have to be.
For example, whilst the mainstream press prattles on about China’s supposed pending economic collapse, my colleague Jeff Opdyke continually reminds us that behind the most recent numbers are long-term trends rooted in the complex interplay of social, economic and institutional change. Those forces strongly suggest massive opportunities in the “real” Chinese economy — the firms that produce goods and services that people must or want to buy.
What then are the key variables we use to assess foreign countries and their stability? Here is my list:
- Is the ruling ideology intact? Do the majority of people still believe the story that politicians, pundits and others in power tell them about the nature of their society and the way it’s being run? When lots of people begin to doubt that story, trouble is coming, since it means a new story has to be put in place … and that means significant change has to happen first.
- What is the trend of inequality? Some level of inequality is present in every society. If it’s been in place a long time (as in India or China), people will generally tolerate a lot of it. But once they’ve tasted the good life, very few people will accept a long-term decline in their standard of living, unless it applies across the board. If the poor and middle class are stagnating whilst the elite is living the high life, stay away. That’s true even if the economy is growing.
- How united is the ruling elite? When factions begin to form in the top echelons of society and economy, grounded in fundamental disagreements about the way forward, you can expect fireworks. I don’t mean garden-variety squabbles over corruption (such as those we’re seeing in Panama right now). I’m talking about irreconcilable interests, such as businessmen who want tariff protection of local industry versus those who want foreign investment and exports.
- Is the country strategically important? Some countries are just “too important to fail.” Countries such as Saudi Arabia, Brazil and Egypt, for example, occupy critical spaces in the global political economy, and the major powers will usually pull out all the stops to prevent them from falling apart. That’s not always the case.
- Can the government afford to buy off unrest, and for how long? Some of these factors can be mitigated by money, as in the Gulf oil states. But it’s very rare for a country to be able to use government-sponsored goodies to pacify the population indefinitely.
And the Winner Is…
There are plenty of countries out there that pass muster on these criteria. Interestingly, one thing many of them have in common is a past episode of serious breakdown … something that nobody who lives there wants to repeat. Uruguay … Panama … Columbia … Chile … and that’s just the Western Hemisphere.
So look before you leap … and don’t be afraid to look for help doing your homework.
Offshore and Asset Protection Editor