Risk Management: Foundations for a Changing Financial World

CHAPTER 40

MANAGING GEOPOLITICAL RISKS^an

Marvin Zonis

Humiliation, fear, and mistrust are elemental human emotions that are driving the responses of several nations to current economic and political conditions. By understanding such essential psychological processes, policymakers and investors can begin to anticipate and manage the geopolitical risks currently facing the global economy.

Nations around the world are being buffeted by the fallout from the current economic recession, and their negative reactions to the strain are being aggravated by deeply held resentments. My intention, therefore, is to identify the psychological processes involved, describe how they are manifesting themselves in the political and economic lives of various countries, and offer insights into appropriate responses.

PROCESSES DRIVING RISK

Three psychological processes are exacerbating difficulties for the world economy: humiliation, fear, and mistrust.

When I speak of humiliation, I mean feeling underappreciated, diminished, or disrespected. Unfortunately, each of us has experienced humiliation in some way, and the most common psychological response is anger. Nations and cultural groups experience the same thing. Right now billions of people all over the world are feeling anger, even rage, because of the varying degrees of diminishment and humiliation they are feeling. And that rage will have an important political role in country after country. Certainly, we have already seen its results in the ...