Political Risk Analysis: Why The “Why” Is So Difficult To Determine

By

John F. Phillips

Yesterday, I shared on LinkedIn an article from the British magazine The Economist that addressed the possibility of a Chinese invasion of Taiwan, calling Taiwan “the most dangerous place in the world.”

I thought the article was a serious analysis of the current situation and made some valid points about Chinese military capabilities and the ability of the United States to respond any Chinese aggression.

While the piece did an excellent job in addressing the “what” of the situation, I thought its analysis of the “why” China’s leadership may undertake such an action was rather superficial.. It only paid brief lip service, in a paragraph or two buried deep within the article, to the intent, the “why,” that might be motivating President Xi’s actions as China considers a future course of action.

This is a great example of the challenges facing those who analyze, manage, and mitigate political risk. One can talk about the “what” until the cows come home, but understanding the “why” is where the rubber meets the road and determining the “why” is, in my view, the most difficult aspect of understanding political risk. How does one get inside the head of leadership and figure out what they are thinking?

My last article, “Political Risk Analysis: Qualitative or Quantitative,” attempted to address the difficulties that are faced when trying to quantify the “why” that drives political actions. Because of the difficulty, perhaps political and/or economic history can give us some answers.

So, what might be some of the factors determining the “why”, the intent, of current and future Chinese policy toward Taiwan? Here’s a short list of the things that might be motivating President Xi:

  • history of rhetoric concerning reunification of the Chinese mainland and Taiwan;
  • protecting his political and historical legacy;
  • pressure from the leadership of the People’s Liberation Army (PLA) and PLANavy;
  • protecting his political power by protecting his flanks;
  • economic factors, particularly in terms of semiconductors and other technologies;
  • politically motivated “nationalism” similar to what Vladimir Putin practices in Russia to create and sustain domestic political support;
  • using the threat of invasion as leverage in relations with Taiwan, the United States, Japan, and others with a vested interest in the situation, with the threat of invasion being as effective as an actual invasion in terms of policy objectives;
  • Xi is just plain nuts (just kidding).

There is an endgame here, but Xi is the only one who knows how this movie ends.

Obviously, this list isn’t all inclusive, but it shows how difficult it is to pin down intent and anticipate actions based on that intent.

So how do we do this? I think understanding patterns of past behavior is the key. That means understanding political, economic, diplomatic, and social history and looking at current events through the prism of that history. What has occurred in the past that might be helpful in terms of understanding the current situation? Are there similar historic events (eg. the Cuban Missile Crisis: Russian invasion of Crimea) that might be instructive? Is there a historically contradictory pattern in terms of what leadership says and what it does or has past rhetoric (eg. Tiananmen Square-1989) been an accurate predictor of behavior? Is the used of military force an outlier or has it been used in the past to settle disputes or achieve policy goals? How have similar type regimes in other countries reacted to similar situations? You get the idea.

Bottom line, these are questions that are difficult to quantify. Yes, qualitative analysis based on history isn’t always perfect, completely accurate, or objective (what is), but it is, perhaps, the best way to understand intent, the “why,” of political action. Quantitative methods can help with respect to better understanding data sets and relationships, but one needs to be careful about overreliance on models and algorithms. They are a great tool, but do they really reflect reality? The jury is still out on that question.

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