Earlier this month, Condoleezza Rice and Amy Zegart visited UCLA to speak about their newly published book, “Political Risk: How Businesses and Organizations Can Anticipate Global Insecurities” and about other foreign policy issues. While a number of topics were covered, Rice and Zegart’s comments regarding North Korea’s nuclear program, Russia and its president Vladimir Putin, and nuclear and cyber risk trends were the most striking.
Personally, I found the discussion about the book fascinating because it takes a unique approach in that it focuses on how political risk can affect businesses. Both Rice and Zegart are extremely qualified to discuss this topic. Condoleezza Rice served as the 20th National Security Advisor and the 66th Secretary of State under George W. Bush. She is also a professor of political science and business at Stanford University. In the private sector, Rice headed the committee for public policy for Chevron and has also been on the board of directors for companies such as the Carnegie Corporation, the Charles Schwab Corporation, and Chevron, among others. Similarly, Zegart has a background in international security. She currently serves as co-director of the Center for International Security and Cooperation at Stanford. Zegart is considered a leading expert on the US Intelligence Community and national security. She has a PhD in political science from Stanford and has published three books on this topic. She also has private sector experience, and worked for the consulting firm McKinsey & Company where she advised Fortune 100 companies.
Political risk, as defined by the speakers in an article for the Harvard-Review is “essentially the probability that a political action will significantly affect their business—whether positively or negatively”. During the discussion, the speakers emphasized that while political risk has always been a factor for multi-national businesses, it is a more pressing issue today due to several recent trends around the world. One example the speakers discussed was social media. Social media makes collective action such as protests and boycotts by ordinary citizens much easier and more effective. Using social media can decrease the costs of coordination and spreads messages around the globe quickly. Small groups of people can have much larger effect in their communities and the world than ever before. This collective action may increase political risk by disrupting normal business functions such as shipping of materials and goods or governmental oversight functions. These effects were seen in the Arab Spring which began in 2010. This series of revolutions resulted in government overthrows in Tunisia, Egypt, and Libya, and civil war in Syria. Many of the protests were organized on sites like Facebook, and protesters used social media as a platform to share their stories and generate awareness for their cause on a global scale. Social media use in this time was so prolific among users who had access to it that the Arab Spring has been dubbed both the “Facebook Revolution” and “Twitter Revolution”.
When asked about the drivers of the changes in political risk, Rice and Zegart gave a number of possible explanations. One is the changing geopolitical landscape. The speakers asserted that we all have taken for granted the liberal world order established after World War II. Over the last 70 years, there has been a general and almost worldwide belief in the benefits of free trade, capitalism, and open economies that more and more countries bought into. The post-war period saw the establishment of international regulatory committees such as the International Monetary Fund in 1945 whose stated goal is to “build a framework for economic cooperation” among countries. The idea was that countries who trade with one another and have diplomatic relations are less likely to go to war. According to the speakers, this liberal worldview is being challenged globally by what Rice and Zegart jokingly called the “four horsemen of the apocalypse”: Populism, nationalism, isolationism, and protectionism. These ideological shifts are exemplified by the recent unilateral tariffs placed on steel and aluminum by President Trump, an unprecedented move in today’s globalized economy. These tariffs raise the possibility of a trade war with China and possibly the EU, threatening businesses with supply chains running through these countries. In a world that is so undeniably and irreversibly connected, these four ideologies, and the policies they bring with them, do indeed seem apocalyptic.
Another reason for the changing “political risk landscape” identified by the speakers is that we are witnessing the emergence of great power rivalry between the United States and Russia in a way the world has not seen since the Cold War. The speakers asserted that as great powers behave badly, they substantially increase political risk. One example of this is Russia’s spread of fake news and propaganda in support of then-presidential candidate Donald Trump on Facebook and other social media outlets during the 2016 presidential election. While it is unclear if this propaganda affected the election results, Russian interference with the US on this scale has not been seen since the height of the Cold War. Russian meddling in US elections is a huge political risk for social media and technology companies, and one that is incredibly difficult to anticipate or prevent.
Another particularly insightful aspect of the conversation on political risk came from Rice and Zegart’s analysis of the different kinds of hazards associated with doing business in countries with authoritarian versus democratic governments. The speakers avoided giving a moral judgement on whether or not companies should conduct business in places with authoritarian regimes, and instead focused on the practicalities of it, stating that there are both advantages and disadvantages to doing business in each system of governments. In authoritarian states, companies can often do business efficiently, but they tend to lack both transparency and rule of law, which can be bad for business due to a lack of security and the threat of asset seizures. There is also no peaceful transfer of power, which can become an issue for companies if violence disrupts business. In contrast, doing business in a country with a democratic government typically ensures transparency and retention of property, but business may be less efficient due to burdensome regulations and large bureaucracies. While Rice and Zegart avoided making a determination as to which type of government was better for business, and instead emphasized that it is vital for businesses to understand the risks that are associated with both.
In addition to discussing their book, the speakers also discussed current foreign policy issues. Both Rice and Zegart had suggestions as to how the U.S should move forward regarding the upcoming nuclear negotiations with North Korea. Surprisingly, they don’t think that the US should try to negotiate with Kim Jong Un because such attempts have not been successful in the past. During Rice’s tenure as secretary of state, she tried to negotiate a nuclear deal with North Korea, which was unsuccessful. The speakers did however acknowledge that the current situation is unique because no previous president has had to negotiate with a nuclearized North Korea, and that negotiating with Kim Jong Un, while not recommended, may be necessary. They believe that there is a possibility that a deal could be struck, but that it will require nuanced and detailed discussions that need to be handled well with minimal negotiations. Rice, however, did not place much confidence in President Trump stating, “our President is someone whose first job in government is President”. Regardless, the speakers advocated for the US to take this opportunity, but for the administration not to forget that they are still dealing with Kim Jong Un. Rice also stated that she does not believe the US should pull their troops out of the demilitarized zone between North and South Korea because she believes that withdrawing military support would encourage Japan to remilitarize, causing even more tension in the region and possibly leading to an arms race between North Korea, China, and Japan.
The speakers also discussed recent happenings in Russia. Rice scrutinized Russian president Vladimir Putin as a leader, saying that, based on her past conversations with him, he believes that Russia has only been successfully ruled by “great men”, such as the czars of the past. He believes himself to be one of them in his quest to reestablish Russian influence worldwide. Rice stated, however, that Russia may attempt to offset their declining power by reasserting their military dominance. An example of this can be seen in Putin’s invasion of the Ukrainian region of Crimea and sending troops to support the Assad regime in Syria. In 2014, Putin invaded the Crimea, claiming that Crimeans wanted to separate from Ukraine while acting in defense against the spread of NATO. Despite the International Criminal Court calling this action a crime, Putin continues to keep troops in the region, perhaps as a way to display his military might in a world where Russia retains little diplomatic power. Similarly, Russia continues to send troops and military support to President Assad’s regime in Syria despite allegations of chemical weapon use and war crimes. Supporting Syria’s militarily allows Russia to maintain influence in the Middle East. Both actions demonstrate Russian attempts to display military power and influence at a time when Moscow has little diplomatic leverage.
Finally, Rice and Zegart discussed the four countries most likely to produce political risk in the form of nuclear development and cyber security issues. Rice called China, Russia, North Korea, and Iran the “Big Four” due to these countries’ threats to both company security and a country’s national security. Most of these state are sophisticated adversaries in cyber security. As discussed earlier, Russia, for example, has already displayed some of their cyber warfare capabilities during the 2016 election with a massive disinformation campaign. North Korea hacked Sony Picture Entertainment in 2014 to attempt to block the release of a movie that satirized Kim Jong Un. Their cyber attacks have only gotten more sophisticated since; in 2015 the country stole millions of dollars from the New York Federal reserve. In addition, when compared with countries such as North Korea and Iran, the US is asymmetrically vulnerable due to the number of internet users and the country’s digital connectivity. In North Korea, for example, only 10 percent of their population uses the internet compared to 89 percent in the US. In regards to nuclear threats, Rice and Zegart were concerned about all the countries mentioned above, but noted Iran in particular due to speculation at the time of the lecture that Trump would pull the U.S out of the Iran nuclear deal (He has since done so). With Trump withdrawing from this deal, there is a possibility that Iran could restart their nuclear program immediately, leading to a potential nuclear arms race in the Middle East. The speakers asserted that businesses that operate in or run supply chains through these four countries must be wary of potential tariffs and sanctions due to actions such as cyber hacking or nuclear escalation.
It was captivating to be able to listen to individuals with as much as experience as Rice and Zegart discuss business risks and foreign policy. Many thanks to both of them for visiting UCLA and giving this lecture.