The Economics of Terrorism. (World Watcher)

By Howell, Llewellyn D. | USA TODAY, September 2002 | Go to article overview

The Economics of Terrorism. (World Watcher)


Howell, Llewellyn D., USA TODAY


MOST AMERICAN BUSINESSPEOPLE don't realize that there is insurance for foreign investors against losses generated by political or social causes in developing countries, especially that there is insurance against war damage or acts of terrorism. The Overseas Private Investment Corporation (OPIC), a U.S. government-owned insurance and guarantee company, and the Multilateral Investment Guarantee Agency, OPIC's counterpart at the World Bank, both provide risk insurance against such possibilities as expropriation and damage to investors from political violence, domestic or international, terrorist or other. Many private insurers do, too.

The management choice of purchasing some form of political risk insurance can be guided by some consultation with companies or specialists who conduct political risk assessments or monitor political violence. Risk assessments of the U.S., Japan, and other developed countries have been available for more than 30 years.

Commercial risk assessment companies such as The PRS (Political Risk Services) Group and BERI (Business Environment Risk Intelligence) have routinely provided political risk assessments of the U.S. and Western nations since the 1970s. VRA, Inc., a Massachusetts-based research company, monitors violence globally for all countries, with highly developed computer software that can provide real-time intelligence for foreign investors.

They can thus prepare, in some senses, for the expansion of political violence that has occurred in the 21st century. They can be on alert. They can buy insurance that will help them recover from losses of facilities, materials, and production. They can be defensive and manage risk and prevent some losses. There has been a quantum change in the meaning of "political risk" with the advent of mass destruction terrorism. Previously, all of this had been on a micro level.

However, the system of political risk assessment and management is set up for businesses operating as individual units. What about system-wide risks for the state or country? Terrorism and the war on terrorism have much-larger consequences for businesses than those that OPIC can help them with. The American economy has to be defended by the U.S. government.

Where does this economic defense need to occur? Let's look at some critical examples of where America has been hurt economically by after-effects resonating from the terrorist acts of Sept. 11.

Foreign investment in the U.S. Just as it is a little-known fact that risk assessments are done of the U.S. and other developed countries, few Americans recognize the importance of foreign investment in the U.S. Globally, there has been exponential growth in foreign investment since the 1970s. Within that, as American capital has left the U.S. to take advantage of low wages in the developing world, foreign capital has come to replace it to take advantage of America's high technologies and high labor/productivity ratios.

Today, those foreign investors are being deterred not only by the threats from terrorists in the U.S., but by Washington's response to them. Rules on foreign investment are being tightened by financial regulations and investigations in the search for Al Qaeda money. Antiforeign sentiment is on the rise generally, making it difficult for overseas investors to be present in the U.S. Even preliminary efforts to investigate investment opportunities are being made more difficult by newly enacted visa and entry requirements.

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