Interesting Maps: Worldwide Risk, South China Sea, Hurricanes And The Arctic

Lots of interesting maps out there these days.  Here are a few that tell their stories better than most...

Marsh is a insurance broking and risk management firm with a pretty long track record.  Founded in 1871, you have probably never heard of them because they work with big companies to help them figure out their insurance needs.  They do about $6 billion a year and have upwards of 30k employees in 130 countries. 

What I like about them is that they put a lot of their research online.  Obviously, all of it has an insurance "edge" to it (that is probably less exciting than it sounds, by the way) but you don't have to wade through a ton of small print to get to some meaty stuff on just about any region of the globe.

Which is why their Political Risk Map is so interesting.  You can take a look at a screenshot of part of the map below but to find out what all the pretty colors mean and to see the rest of the world, you are going to have to go to the site itself.

Marsh Political Risk Map

Drilling down into just one part of the globe - in this case, the South China Sea and environs - requires a more nuanced view of risk and there are a few, very good, recent, mapping tools to help make sense of it all. 

The first was put together by the Asia Maritime Transparency Initiative.  AMTI is housed within the highly regarded Center for Strategic and International Studies and offers a substantial body of analysis on issues in and around the South China Sea.

Particularly impressive is the map below (just a screenshot - click the link for the interactive version) that lays out all of the claims and counterclaims to various chunks of ocean in the area.

AMTI Maritime Claims Map

Equally impressive is the very detailed and highly interactive reporting done by the talented people at Reuters Graphics.  Their article, Concrete and Coral is an excellent primer for those not familiar with this hotspot.  I have taken a screenshot of one of the many graphics but it does not do the article justice.  You really have to see it to get the full effect.

Concrete and Coral

One more hotspot and one more map!  This time it is the Arctic Sea, which, because of ice loss due to climate change, has become yet another slowly growing crisis.  While much of this crisis revolves around resource extraction and which country owns what, it is worth noting that there are a lot of people who make this part of the world their home as well.

GRID-Arendal was formed in 1989 in an agreement between Norway and the UN.  In their own words, "We transform environmental data into credible, science-based information products, delivered through innovative communication tools and capacity building services."  Their maps (and the accompanying text and data) on indigenous people in the Arctic Circle certainly accomplishes this goal.  Again, I provide just a screenshot of one of the many maps and resources they have provided below.  Check the entire site for more!

Indigenous Peoples Of The Arctic

Finally, as most Americans (particularly those in the south) know, it is hurricane season again.  Many areas are still trying to recover from last year's devastating series of hurricanes and the good people at NOAA are already saying that this year is likely to be as bad or worse.

NOAA provides a very cool interactive mapping tool that let's you examine historic hurricanes and their tracks in a number of different ways.  I was curious, so I set out to find how many hurricanes had impacted the Erie, Pennsylvania area (where I live)  Much to my surprise, there were five since 1955!  Check out the full site to search for your home town.

NOAA Historical Hurricane Tracks

Global Risks 2009: Hard Landing Predicted For China (World Economic Forum)

The boffins of Davos have done it again. This year's Global Risk Report, prepared by the World Economic Forum is on the street and a more grim story I have rarely read.

Consider these findings (Bold mine):

• "The decline in export demand has led to a substantial reduction in China’s overall economic growth, increasing considerably the risk of a hard landing that would stress the financial system and could generate social tensions within China and beyond as other economies face similar declines."


• "Although global equity markets have declined on average by more than 50% in a very short time, the vicious circle between falling asset values, write-downs and attendant pressure on the capital position of financial institutions and continued deleveraging appears to be unbroken. This vicious circle is now affecting manufacturing, services and households around the world and the credit crunch has generated a substantial weakening of economic activity and growing credit losses."


• "The US, United Kingdom, France, Italy, Spain and Australia are all already running high deficits. Massive government spending in support of financial institutions and growth are threatening to worsen fiscal positions that are already precarious in many countries. The convergence of this decline with rising health and pension costs in industrialized economies due to demographic trends will place further fiscal pressure on governments."


• "...uncertainty in the financial sector, falling asset prices, poor credit conditions, weak demand and rising unemployment could create a deflationary spiral. However, the short-term risk of deflation must be seen in the context of a long-term inflation risk caused by the large monetary stimulus in pursuit of financial and economic stability and the risk posed by the growing public debt. Economic history is littered with periods during which governments reduced their debt burden through inflation."

These guys were spot on last year when they indicated that the greatest risk for 2008 (in terms of risk and dollars lost) was asset price collapse. Let's hope they are less accurate this year...

• Note: With respect to China at least, the DNI's threat assessment last year mentioned a similar threat (in much less stark terms). I noted at the time that all of projects we had done here at Mercyhurst regarding China saw the wheels starting to come off the Chinese juggernaut sometime after the 2008 Olympics. The dynamic pretty much went like this in every case: Something -- environmental degradation, energy prices, corruption, downturn in the business cycle -- threatens the social contract between the Chinese Communist Party and the people of China. This social contract basically says "We will allow the CCP to rule as long as things are getting better for me and mine." Once they start to get worse, the regime change clause of the Mandate of Heaven kicks in...
  

The report this year is organized around the same types of risks as last year's report. There is a briefing chart supplement this year with some very interesting graphics in it. The image below, for example, shows the inter-related nature of the risks (click on it to get the full briefing report).

Also useful is the YouTube video interview with the editor of the report:

The most disappointing thing about the report this year is that the WEF decided not to include the raw numbers as they did with last years report. This makes it much more difficult to provide an overall risk assessment that takes into consideration both potential costs (dollars and lives). They had two options, I guess, after last year's report: Do the combined risk analysis themselves or make it much more difficult for others to do so. It is a shame they decided on the less transparent course of action.

Rank Ordering The 26 Risks From The 2008 Global Risk Report (WEF)

The World Economic Forum just concluded in Davos, Switzerland. The annual meeting of many of the world's economic and political leaders is always worth watching but the most interesting document to come out this year, for me at least, was the Global Risk Report for 2008 (Download the full text here).

Put together by some pretty high speed, low drag thinkers from places like Citigroup, Swiss Re and the Wharton School Risk Center, the report is roughly equivalent to an NIE for the Davos crowd. The document makes estimates regarding the likelihood and the severity (in terms of lives and money) of 26 separate events over the next 10 years. Some, like the risk of a Katrina-like disaster in another major metropolitan area somewhere in the world, are based on what the report refers to as "traditional actuarial models". Other risks, such as seven identified geopolitical risks, have much greater uncertainty associated with them. All of the risks are rated on a 1-5 scale with a 1 = least likely or least severe and a 5 = most likely or most severe. The table below gives a summary of the risks, the scores associated with those risks and what exactly the numbers mean.



A couple of interesting things here. First, no single risk has a greater than 20% chance of occurring according to the authors. Second, the scales, in terms of severity, are not set at regular intervals for either lives or money. They spike upward very quickly, almost logarithmically, so that the differences between a 2 and a 3 and a 3 and 4, for example, are quite stark -- almost as if the economists of Davos were making a Richter Scale for risk. Third, some of the titles are a little obtuse. You will have to see the full text to understand what some of them mean.

Finally, though, I found it fascinating what the authors of the document didn't do. They didn't look at the risks from the standpoint of overall severity. In other words, they did not do what I did in the chart above -- create a single chart with all three variables in it. They chose to look at likelihood versus severity in terms of lives separate from likelihood versus severity in terms of cost. They created two charts and two tables to show how these variables worked together.

While these views were very interesting, it seemed to beg the question, "How should we rank order the risks?" Decisionmakers have to allocate resources (for a more detailed discussion of the central importance of this idea to notions of strategy and strategic intelligence see this article by me and Diane Chido). Typically, decisionmakers allocate more resources to attempt to mitigate or take advantage of the most important risks and allocate fewer resources to the less important risks. All of this seems like common sense until you try to rank order the risks. There are lots of methods for making this type of determination but one of the most common is expected value.

The concept behind expected value is simple: If I have a 30% chance of making 10 dollars, my expected value is .3 X 10 = 3 dollars. It can also lead to what might seem like a counterintuitive answer. Quick, which would you rather have, a 30% chance at 10 dollars or a 1% chance at $1000? While many people pick the first deal, the expected value of the first is only $3 while the expected value of the second deal is $10. Expected values can be either positive or negative. In the case of the Davos data, we are clearly talking about expected costs.

We already have the likelihood values and, since the World Economic Forum was kind enough to use 5 point scales for both of their severity ratings, the equation is pretty simple. The expected value of the Davos estimates would be the likelihood of occurrence multiplied by the average of the two severity ratings (cash and lives). In terms of rank ordering it makes no difference if I use the likelihood scale or the actual percentages associated with that scale. In order to keep things simple, I used the likelihood scale.

OK, OK, I hear you. You can't equate cash and lives (even if the fact that the authors put the two on the same five point scale almost begs you to do so...). This is, of course, the likely reason that the authors of the document would claim for not doing the expected value calculation that I am about to do. I think they are being a little too coy. Many of the guys who wrote this are actuaries or come from the insurance field. They put a dollar value on life every day. It is their job. I suspect that explaining how they do this and justifying their decision just seemed like something that was too difficult to do so they left us with a less useful document.

Which is a shame because I think there are at least two ways they could explain themselves that would have made this document more useful to decisionmakers. First, the intent behind using the combined severity scores is for the purpose of rank ordering not for the purpose of valuing. What we want here is some sense of which risk is overall most critical and, in general terms, how much worse is one risk than another. Second, there appears to be an inadvertent bias towards life in the assessment of overall severity. There are five total category 4 or 5 level risks with respect to severity in terms of cost. Only one of those has any associated cost in lives. On the other hand, there are also five category 4 or 5 risks with respect to severity in terms of lives lost. The severity in terms of cost for each of these, however, runs between 3 and 4, virtually guaranteeing that, assuming equal risks of both events, events with more lives lost will be more important than events where more money is lost.

In the end, I wish they had taken a crack at it because I know they are better mathematicians than I and would have done a better job of it. Anyway, here goes! When you do the math, the 26 risks for the next 10 years break down along these lines:



Lots of interesting stuff here as well. First, none of the risks get close to the maximum score of 25. Second, the top two risks are both what the World Economic Forum categorizes as "society" risks -- chronic disease and a pandemic. It is also interesting to see that terrorism is #18 out of 26, roughly equal to the collapse of the nuclear non-proliferation treaty in terms of its expected cost. Finally it is amazing to me how many of these risks could be readily and accurately assessed using exclusively open sources.

It is also instructive to look at the averages for each of the five sectors the WEF evaluated:



Clearly, society risks have the greatest potential cost while risks associated with technology pose the least expected cost. The other three categories, geopolitics, economy and environment, have roughly the same expected cost and lie between the two extremes.

One final comment; a thought experiment, really. Let's assume that the list is generally accurate, that these are the risks the world will face in the next ten years and that they are ranked more or less according to their level of importance. How do the intelligence resources that should be watching these risks stack up against the risks themselves? How much is spent on intelligence concerning chronic disease in the developed world and is that amount weighted appropriately given this issue's importance?

Clearly every one of these global risks has national security implications but not every one translates into a traditional national security priority. Which ones do the intelligence community cover and which ones do other agencies cover? Given that they are all interconnected (the full document even has a network diagram showing how they are all interconnected), where does the integrated picture emerge? Who is responsible for producing it?

Even in those areas where the intelligence community clearly has a stake, have resources been allocated appropriately? For example, failed and failing states have an expected cost that is roughly twice as much as international terrorism. Do we spend twice as much on intelligence concerning failed and failing states as we do on intelligence concerning terrorism? If we don't, are we being rational?

I can only speculate about the answers to these questions but I would be interested in your comments.

(Note: The full spreadsheets for the data above are available here)