The International Political Risk Service Group Ltd. is a private company that provides analysis of political risk for 140 countries in the world. The data are organized into two groups. First group of data are country reports that are concentrated mainly on the risk in the business environment and economic conditions of the country.
Several issues related to economic policy and regulatory framework are referred to in the report. The type of data provided in this way is given in the appendix for about 100 countries. This type of data provided in this report is not very relevant for the measurement of democracy. The more relevant for the purpose of the measuring democracy are the data provided in the International Country Risk Guide. The data in the Guide are updated on the monthly basis and the number of countries included is 140. The only problem is the fact that the data are accessible only to subscribers. However the sample report for September 2001 is available for free and the data can be assessed from it. The ICRG assesses risk on the basis of the three groups of risk components. Those risk components are grouped into three Risk Categories – Political, Economic and Financial. The political risk category is composed of 12 components and the financial and the economic risk categories of 5 each. The sum of the risk scores of all elements of one component determines the risk score for that component, and the risk score of each component determines the overall risk rating. Somewhat arbitrarily, the scores of components are weighted and then added so that the political risk category participates by ½ in the final score, while other two participate by ¼ in the final score. For each score, whether for component, one element of component or the whole score the highest score means lower risk. The scores are available for each component, for three groups of components and for the overall index.
Of the three components used in the risk assessment, two of them are economic. They use economic statistic indicators that do not tell much about democracy. Component of political risk is the one that is covering areas that are relevant for the democracy measurement. Political risk component has 12 subcomponents of its own. These components differ by weight by which they participate in the final score, and some of them are divided into sub components from which the score of the individual component is set.
The components of the scale are the followings (their weights are shown in parentheses: government stability (12), socio economic conditions (12), investment profile (12), external conflicts (12), military in politics (6), religion in politics (6), law and order (6), ethnic tensions (6), democratic accountability (6), and bureaucratic quality (6).
The First five components are divided into three sub components each. The score of its sub component determines the score of the component in this case and each sub component has a maximum score of 4. Law and Order component is divided into two sub components, with maximum score of 3 for each of them.
The components are defined in the following way.
Government Stability is an assessment both of the government’s ability to carry out its declared program(s), and its ability to stay in office.
Socioeconomic conditions is an assessment of the socioeconomic pressures at work in society that could constrain government action or fuel social dissatisfaction.
Investment Profile is an assessment of factors affecting the risk to investment that are not covered by other political, economic and financial risk components.
Internal Conflict is an assessment of political violence in the country and its actual or potential impact on governance. The highest rating is given to those countries where there is no armed opposition to the government and the government does not indulge in arbitrary violence, direct or indirect, against its own people. The lowest rating is given to a country embroiled in an on going civil war.
External Conflict measure is an assessment both of the risk to the incumbent government from foreign action, ranging from non violent external pressure (diplomatic pressures, withholding of aid, trade restrictions, territorial disputes, sanctions, etc) to violent external pressure (cross border conflicts to all out war).
Corruption is an assessment of corruption within the political system. The most common form of corruption met directly by business is financial corruption in the form of demands for special payments and bribes connected with import and export licenses, exchange controls, tax assessments, police protection, or loans. Although this measure takes such corruption into account, it is more concerned with actual or potential corruption in the form of excessive patronage, nepotism, job reservations, favor for favors , secret party funding, and suspiciously close ties between politics and business.
Military in Politics even at a peripheral level, is a diminution of democratic accountability. However, it also has other significant implications. The military might, for example, become involved in government because of an actual or created internal or external threat. Such a situation would imply the distortion of government policy in order to meet this threat, for example by increasing the defense budget at the expense of other budget allocations. In some countries, the threat of military take over can force an elected government to change policy or cause its replacement by another government more amenable to the military’s wishes. A military takeover or threat of a takeover may also represent a high risk if it is an indication that the government is unable to function effectively.
Religious Tensions may stem from the domination of society and/or governance by a single religious group that seeks to replace civil law by religious law and to exclude other religions from the political and/or social process; the desire of a single religious group to dominate governance; the suppression off religious freedom; the desire of a religious group to express its own identity, separate from the country as a whole.
Law and Order is defined by two sub components. One of them is the strength and impartiality of the judicial system and the other is popular observance of the law
Ethnic Tensions is an assessment of the degree of tension within a country attributable to racial, nationality, or language divisions. Lower ratings are given to countries where racial and nationality tensions are high because opposing groups are intolerant and unwilling to compromise. Higher ratings are given to countries where tensions are minimal, even though such differences may still exist.
Democratic Accountability is a measure of how responsive government is to its people. The points in this component are awarded on the basis of the type of governance enjoyed by the country in question. The following types of governance are defined:
Alternating Democracy
The essential features of an alternating democracy are:
• A government/executive that has not served more than two successive terms.
• Free and fair elections for the legislature and executive as determined by constitution or statute;
• The active presence of more than one political party and a viable opposition;
• Evidence of checks and balances among the three elements of government: executive, legislative and judicial;
• Evidence of an independent judiciary;
• Evidence of the protection of personal liberties through constitutional or other legal guarantees.
Dominated Democracy
The essential features of a dominated democracy are:
• A government/executive that has served more than two successive terms.
• Free and fair elections for the legislature and executive as determined by constitution or statute;
• The active presence of more than one political party
• Evidence of checks and balances between the executive, legislature, and judiciary;
• Evidence of an independent judiciary;
• Evidence of the protection of personal liberties.
De facto One Party State
The essential features of a de facto one party state are:
• A government/executive that has served more than two successive terms, or where the political/electoral system is designed or distorted to ensure the domination of governance by particular government/executive.
• Holding of regular elections as determined by constitution or statute
• Evidence of restrictions on the activity of non government political parties (disproportionate media access between the governing and non governing parties, harassment of the leaders and/or supporters of non government political parties, the creation impediments and obstacles affecting only the non government political parties, electoral fraud, etc).
De jure One Party state
The identifying feature of a one party state is:
• A constitutional requirement that there be only one governing party.
• Lack of any legally recognized political opposition.
Autarchy
The identifying feature of an autarchy is:
• Leadership of the state by a group or single person, without being subject to any franchise, either through military might or inherited right.
In an autarchy, the leadership might indulge in some quasi democratic processes. In its most developed form this allows competing political parties and regular elections, through popular franchise, to an assembly with restricted legislative powers (approaching the category of a de jure or de facto one party state). However, the defining feature is whether the leadership, i.e. the head of government, is subject to election in which political opponents are allowed to stand.
Bureaucracy Quality high points are given to countries where the bureaucracy has the strength and expertise to govern without drastic changes in policy or interruptions in government services. In these low risk countries, the bureaucracy tends to be somewhat autonomous from political pressure and to have an established mechanism for recruitment and training. Countries that lack the cushioning effect of a strong bureaucracy receive low points because the change in government tends to be traumatic in terms of policy formulation and day to day administrative functions.
The definitions given above are taken from the ICRG methodology section. They are not defined more precisely, nor are criteria for assigning scores given. Especially some sub sections are not defined, so it is not totally clear what is meant under terms like cross border conflict, government unity or popular support. Another problem with these political risk indicators is that it is not stated how are they measured, and how are different scores allocated. About the data collection and score allocation the methodology section says that ICRG staff collects political information and financial and economic data, converting these into risk points for each individual risk component on the basis of a consistent pattern of evaluation, but from their methodology section it is not clear what does that consistent pattern of evaluation is supposed to mean, and what are the criteria for allocating scores. Without the information about what data are used in assessment and what criteria are used for allocating scores it is not possible to assess how reliable and valid these indicators are. The political risk assessments are made on the basis of subjective analysis of the available information that is conducted by the staff. Financial and economic risk assessments are made solely on the basis of objective statistical data. The methodological part also says that to ensure consistency, between countries and over time, points are assigned to different components for a country on the basis of a series of pre set questions for each component. But those sets of questions were not accessible, so it is not possible to assess do they provide sound ground and clear criteria for allocation of points.
We could not assess the temporal variance in the data since the report is freely available only for one time point. Only the overall data for political and total risk are given for a timeframe of some 2 years. Maximum score of the index is 100 for political risk. Some cases show change of up to 10 points during the period covered, suggesting that the index may be capable of capturing short term changes. But since the time series are not given for components, it is not possible to say how much of the reported change in random fluctuation that may be caused by simple measurement error.
Apart from the general data about risk, each report has a section in which a number of individual countries are covered. Those reports are mainly descriptive and cover most important developments, so the emphasis is different from a one country to another.
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