A country is many things. And, a country is complex, a complex system. In many respects, it is like a living organism. A country reflects the product and consequences of its own complexity, and it bears consequences from choices made or not made. In aggregate, countries – through their instrumentalities – can learn or fail to learn. They can adapt, accommodate, or discount, just as organisms do.
I would argue that what allows a country “to engage” and to prosper are its institutions – which are, roughly speaking, the agreed rules and practices that govern resident behavior. Effective institutions are the “vital organs” that can translate energy and efforts into growth, recovery, and successful adaptation. Failing or captured national institutions cannot do so at all.
That is why the current Coronavirus outbreak offers an instructive, albeit terrifying, episode to watch. According to the tracking done by Johns Hopkins University, the global total stood at 20,704 cases as of February 4th, with total deaths at 427. The lion’s share of the outbreak has been recorded in China. That is why it will be very interesting to see how that nation – and its institutions – will be able to respond to, adapt to and counter this visible challenge to its welfare.
At MMD, we have developed a graphical metric which might offer clues as to how robust China may be regarding this challenge, as well as others. The chart below provides a picture of China’s “political risk curve”.
It plots China’s results according to different World Governance Indicators (WGI) against two different benchmarks, which show the average WGI scores for defaulting and non-defaulting countries. Note that the higher the WGI percentage score, the better the score – or perceived governance – is.
The WGI scores are compiled by the World Bank and reflect survey work done to ascertain local confidence in country institutions. Specifically, the WGI scores show how local confidence corresponds to six different institutional aspects: voice and accountability (VA), political stability/no violence (PV), government effectiveness (GE), regulatory quality (RQ), rule of law (RL), and control of corruption (CO).
Referencing data from Zurich Insurance on country political risk claims, the chart plots the four most distinguishing measures, showing China’s performance vs. the average scores posted by countries that have tripped political risk insurance claims (ie “defaulting”) and the average scores for countries which have never tripped political risk insurance claims (ie “non-defaulting”).
As the chart conveys, China’s performance deviates substantially from benchmarks on governance posted for countries which have never precipitated a political risk claim. What’s striking though, is the sharp deviation from the benchmark VA score, even when compared against the benchmark number for “defaulting” countries. Using the most recent data available, that is for 2018, the VA for China only posts at 8.9% vs. the 41.9% score for the defaulting country benchmark.
Significantly, the VA score offers an assessment on local perceptions regarding, among other things, a country’s allowance for “freedom of expression, freedom of association and a free media”. China’s extremely low VA score implies an environment where information is not generally available, or perhaps trusted, or not that widely circulated. This points to an environment not ideally suited toward fully perceiving, processing and addressing a dangerous pandemic, or any large societal challenge – social monitoring notwithstanding.
The unfolding months ahead should tell us a lot. Hopefully, the Coronavirus outbreak will only amount to “a scare”. The world is aware of it, and there is a global effort underway to manage it. Hopefully, China – in tandem with others – will get its arms around this new potential crisis. One note of encouragement: while it is still early days, the apparent lethality of Coronavirus is not nearly as severe when compared to similar outbreaks. MERS recorded a mortality rate of 34.5% of cases, SARS posted a 9.5% rate, according to “Science Alert”. The death rate among Coronavirus cases is only about 2.1% at this point. We hope the Coronavirus will be a “nothing burger”, when all is said and done.