Global Edge
Joel Kurtzman and Glenn Yago
October 17, 2007
Santa Monica

In years past, countries competed on labor costs and raw materials. Today, factors such as entrepreneurial access to capital and stable social institutions are equally important to economic growth.

And as Joel Kurtzman and Glenn Yago of the Milken Institute stated in their talk, companies doing business in other countries must understand these factors if they hope to succeed.

To help, Kurtzman and Yago have created two important tools that will help companies identify and deal with global risks:

  • Their CLEAR framework explains the potentially expensive challenges businesses face overseas: Corruption, the Legal system, Enforcement policy, Accounting standards and governance, and Regulatory developments.
  • Their Opacity Index measures how countries are ranked relative to each CLEAR factor, so companies can balance their exposure.

"Knowledge is a key driver in the global economy," said Yago, director of Capital Studies at the Milken Institute. "Its distribution is an important factor in economic growth."

Kurtzman, a senior fellow at the Institute, said the amount of data they have made available makes clear that the real risks to business are not the large-scale, infrequent risks, such as terrorist attacks or earthquakes, but the small-scale, high-frequency risks such as corruption or a lack of a strong legal system.

"The small-scale, high-frequency risks are the most expensive risks for businesses," said Kurtzman.

According to the authors' Opacity Index, the countries with the highest scores are Finland, the United Kingdom and Denmark (the United States is sixth). Those with the lowest scores are Indonesia, Lebanon and Venezuela. In other words, those at the top of the Index pose the least risk to businesses, while those at the bottom the greatest number of risks.

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