The Blind Side


A few weeks ago, we wrote about the challenge the Corona Virus epidemic presents to China, given its poor standards for transparency and an absence of free information flow. So far, very tough – even draconian – measures might be compensating to contain the outbreak. Thankfully, the mortality rate attributable to Corona at this point is also quite low.

In some ways, China and the rest of the world have been given a dry-run opportunity to determine how well they’ll be able to marshal resources against something far more lethal, if that were to come.

In The Atlantic magazine’s February 22nd edition (see “How the Coronavirus Revealed Authoritarianism’s Fatal Flaw”), the writer Zeynep Tufekci wonders whether history is rhyming, and whether the weight and threats of an authoritarian state were so stifling to prevent even the most powerful man in China to know, even today, fully and in a timely way what was really going on.

Tufekci recounts that on August 4, 1958, Mao had announced to China’s population that they should celebrate, that they should all have “five meals a day” to avail of the huge agricultural surpluses accumulating due to the ambitious Great Leap Forward planning.

During this heady atmosphere, China even penned ag-export deals to increase hard currency earnings. Mao and his coterie reacted in this way because of glowing local progress reports being forwarded to the central authorities.

Local officials had been lying, of course. A non-workable program and the dictates of an authoritarian regime compelled them to. Mao and his government began perceiving the crisis only after it was largely underway. Tens of millions perished instead, due to policy failure, the resulting famine and in part to an information impasse intrinsic to an oppressive state.

One can say that the non-existent free flow of unvarnished information allowed policy consequences to blind side the Chinese Communist Party back in 1958. The writer Tufekci submits that something similar may have happened to Xi Jinping’s government during the past few months. In current China, oppression and comprehensive control of every information channel did not yield omniscience, but instead dissembling. Tufekci writes:

“Hubei authorities may have lied, not just to the public but also upward – to the central government. Just as Mao didn’t know about the massive crop failures. Xi may not have known that a novel corona virus was turning into a global pandemic until too late.”

It’s a natural progression: a greater lack of transparency entails greater event risk – it couldn’t be otherwise; a greater level of event risk implies a much higher vulnerability to being “blind-sided” – being caught unprepared by newly unfolding events. Being caught flat-footed has consequences.

Attached below is a column chart highlighting the performance on average of the G-20 countries, by GDP, according to their scores in the IBRD’s World Governance Index measure for “Voice and Accountability” (VA) – the higher the percentage score, the more open and transparent the society is.

The VA score measures local resident confidence on how well news and information is made available and circulates in an economy. The score for the G-20 is, on average, rather high – higher than the overall respective benchmarks for both countries that have not triggered a political risk insurance (“PR non-default”) and for countries that have (“PR default”).

Of note, a subset of four countries drawn from the G-20 score on the VA index score much lower respectively than the other benchmarks noted in the chart.

These four countries – China, Russia, Saudi Arabia and Turkey – present large economies and significant potential opportunities for international businesses, investors and lenders. These same countries also show low levels of transparency, and the inherent event risk that comes with that.


Share this: