Red Queen Example - Capital Drain v0.0.1
Let's take two countries, country A and country
Z. A is in the 1st world, Z is in the 3rd. In each of these countries let's take
two investments. In country A, project (a) generates a 5 year ROI of 10%. In Z,
project (z) generates a 5 year ROI of 18%. All things being equal project (z)
would get funded over project (a). But they are not equal. The political risk
factors of Z are much higher than A. In the current environment, the political
risk is worth 14% ROI. That makes the politically adjusted ROI of (a) and (z)
10% and 4% respectively and the money stays in 1st world A to fund project (a).
Now let's say that due to political pressure, treaty negotiations, or military
invasion on the part of A, the political climate in Z changes and the new
political risk levels are cut in half to 7% more risk for Z. That changes the
ROI levels of (a) and (z) to 10% and 11% respectively and the money goes to fund
(z), reducing capital invested in A for a few years.
So A spends money to reform Z and gets
rewarded with lower capital investment, 'exported jobs' and a lot of brickbats
from the 'international community'. So why do it at all? Because, in the future
world where (z) doesn't get funded, somebody who would have been absorbed into
(z)'s workforce gets ticked off enough to emigrate to A, grow botulinum toxin as
a revenge attack, and stick it in the food supply at a meat packing plant
causing a mass casualty event rivaling 9/11.
Posted: Tue - October 7, 2003 at 12:01 PM