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The Fat Tail: The Power of Political Knowledge in an Uncertain World (with a New Preface) Reprint Edition
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From Publishers Weekly
Bremmer and Keat, executives at Eurasia Group, explore how global political risks influence the business world in this cogently argued analysis. The book details key areas corporations must be wary of in order to survive in the new global economy including foreign laws and regulation, government changes, civil unrest, expropriation, terrorism and war. With excellent examples, the authors demonstrate how planning for such political developments may make or break a company. It's the difference between Morgan Stanley and the Bank of New York in the aftermath of the September 11 terrorist attacks. Both companies had large offices in or near the twin towers. Morgan Stanley had an emergency plan and the Bank of New York didn't; one suffered minor disruption and the other suffered extreme loss of business momentum. These persuasive case studies want for a clearer summary of how to actually implement plans that fortify companies in such situations. This is not a field guide but a sketch of the landscape, not a consulting session but an overview. It remains for the individual or corporation to take the initiative to further pursue the assessments needed to mitigate any risk. (Mar.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to the Hardcover edition.
"The Fat Tail delivers practical wisdom on the impact of political risk on firms of every description and valuable advice on how to use it. Ian Bremmer and Preston Keat offer innovative thinking and useful insight that will help business decision-makers find fresh answers to questions they may not yet know they have." --Fareed Zakaria, best-selling author of The Post-American World
"Political risk has become increasingly complex, and The Fat Tail provides a truly new way to quantitatively assess it in established and emerging markets. It is essential reading for any CEO with multinational interests." --Randall Stephenson, Chairman, CEO and President, ATandT Inc.
"Should be essential reading for anyone involved in international business even - perhaps especially - in places that seem politically stable." --Bill Emmott, former editor-in-chief of The Economist
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Top customer reviews
I bought this book because Fareed Zakaria recommended it at the end of one of his Global Public Square (GPS) broadcasts.
The authors describe a Fat Tail as being the same as what Nassim Nicholas Taleb described as a Black Swan in his book of the same name. One which, by the way, I bought for the same reason I bought the Fat Tail.
Early in the book, the authors, after showing what a fat tail looks like on a graph compared to a normal Gaussian distribution or bell shaped curve made a statement which caught my attention and made reference to Taleb's excellent work.
"Those who would apply Taleb's theory to political risk face another important problem. Unlike financial, economic, or environmental risks, political risks are usually generated by individuals, people with particular and identifiable sets of motivations and limitations. This makes them predictable--and not black swans. If we can map these incentives and constraints, it is considerably easier to forecast downside risks (and the limitations on upside outcomes.)"
I grabbed my pen and wrote in the margin BIG IF!
It's hard to argue against the conclusion that political risks are usually generated by individuals. I'm not as sanguine, however, regarding how readily identifiable sets of motivations are in any individual at any given time. And, the moment I hear anyone begin talking about mapping incentives and constraints, alarm bells start going off and red lights start blinking on my danger grid. Human nature, motivations, political advantage and hidden agendas are, under ideal circumstances, at best squishy.
When I think of mapping something...anything, I see mental images of scientists, mathematicians or technologists working with sets of data represented by numbers. I see graphs, computers and mathematical models. In this book, I saw none of that.
Instead, I saw a series of discussions about events like geopolitics, political risk and capital markets, domestic instability, civil war, state failure and terrorism discussed with anecdotal references to how such events impacted the business of companies and corporations and how they were able to deal with those situations.
And, while these discussions were interesting and instructive, in my opinion, they hardly represented even any semblance of the word mapping, as I believe most people understand the term.
I found the book disappointing because, as I read it, I couldn't help thinking that what Bremmer and Kent were saying, in addition to their exposition was, we're the ones who know this stuff and, if you are interested in or worried about any of what we've said, maybe you should get in contact with us.
Now, maybe that's just me but after making a concerted effort to read the book objectively I can't, in good conscience, recommend it.
My strong recommendation for and support of Taleb's Black Swan, however, remains unchanged.
How can we quantify political risk? Is it even possible? Politics in general are extremely hard to figure out. You may think you know what someone s going to do because of what he says he is going to do, but you have no idea of his true intentions. There is a lot of political debt they usually need to pay back so it may shape the final decisions. Plus most politicians realize that their constituents as a group are pretty stupid and will accept just about anything. Sure individuals are smart, but politicians do not care about individuals.
Were there warning signs that Russia was planning on defaulting on its debt? Maybe, but who positioned themselves for it? In Mexico the peso crisis could have been handled better. But some poor political decisions crushed the peso triggering Mexico's worst economic crisis in over 50 years.
There is always risk that a company will be expropriated by a foreign government, but does that mean it will happen? Not necessarily. The Chrysler plant in Peru was a good example of preparing for this type of risk. Even if the Peruvian government did try to expropriate the Chrysler plant within their borders they would only be able to manufacture 50% of the vehicle because Chrysler strategically manufactured crucial parts in Brazil, Argentina, and Detroit. While the Peruvian government was seizing almost all foreign companies, especially American companies, it could not profitably seize the Chrysler plant, so it was spared.
While I did enjoy this book, I am not sure I will be able to use any of the information in my investing and trading portfolio. For me it was a thought provoking overview of many things that can and do go wrong in the world. I believe this book has more use for fund managers who invest heavily on foreign soil. They will find much value here.
The part I liked best about this book is that it shows how human most politicians are. They are not making decisions based on the good of the people, but rather they make decisions based on their own personal good. Which wasn't a surprise at all, but I did enjoy the story.