I don’t care how you get the information; I’m paying you for the result

Accountability - nothing to toy with / <i>Photo: Dunechaser, flickr
Accountability - nothing to toy with / photo: Dunechaser, flickr

Much has been written over the past few years on the role of private security companies (PSCs) (or PMCs, whomever you’re asking) in today’s conflict zones. Companies like Blackwater USA Xe have been criticized for their lack of accountability in regard to the laws of armed conflict.

Incidents involving Blackwater contractors blasting away civilians in Iraq have solidified the picture of an out-of-control private army that is driven only by its pecuniary interests. Now states are rushing to sign conventions regulating these companies’ activities.

Finally you might think.

But rather covertly another similar business model has flourished in the shade of the PSCs/PMCs without much being written about it: Private intelligence companies (or PICs), which according to Wikipedia are a:

[P]rivate sector (non-governmental) organization devoted to the collection and analysis of information, most commonly through the evaluation of public sources (OSINT or Open Source Intelligence) and cooperation with other institutions.

If this definition was entirely correct, there would be no obvious problems with the activities of such companies. After all they are only a bunch of newspaper readers writing intelligent analysis on political risks. Or are they?

The Dow Jones of International Security

Courtesy of Isobel T /Flickr
Courtesy of Isobel T /Flickr

In a time where numeric and statistical models of reality are in crisis, there are still people that think that re-packing expert judgment using a formula somehow makes the underlying assumptions more valuable. The Russian Center for Policy Studies, for example, offers what it calls “the Dow Jones of International Security”, an index that “is meant to demonstrate the extent to which the international security situation differs from the “ideal” (…) at each point in time.”

According to the Center, the index is based on a complex methodology that is characterized by “its comprehensiveness, robustness, and clarity.”

The following formula is used to calculate your security:

Formula as presented on the Russian Center for Policy Studies' Website
Formula as presented on the Russian Center for Policy Studies' Website

Screenshot: Center for Policy Studies site

According to the Center’s methodology page, the factors above include “the threat of global nuclear war, the number and intensity of local conflicts, the type of political relations between various countries and international organizations, the intensity and scale of terrorist activity, the stability of the global economy, and the threat posed by man-made catastrophes and epidemics.”

Now the question is, how does the Center collect its data to calculate the security index?

“It is calculated on the basis of expert analyses of the probability of the occurrence of one or another global or regional event that would have a direct impact on international security. Each such event is given a certain score on the scale we have developed.”

So the index is basically based on expert judgment which is quite unreliable:

Philip Tetlock pointed out in his book “Expert Political Judgment: How Good Is It? How Can We Know?” that some 82’000 expert predictions that he tracked for two decades where only a tiny bit more reliable than random guesses or monkeys throwing darts at a board.

The problem with the index above also seems to be that perception of the current security situation is treacherous. For example on 10th September 2001 the West, especially the US seemed to be quite a safe place to most analysts. However, one day later the West was perceived as a side in a global war against a violent ideology. Nicholas Taleb’s “black swans” or random events with high impact, make an analysis of the current security situation much more difficult. It would be interesting to know how the Center’s experts had rated the probability of a global event one week before 9/11.

To be fair, the Center of Policy Studies is just doing what other political risk and even market analysts of big banks are doing: Selling their predictions by highlighting the value of expertise. As long as the marketing works and people really believe that accurate mathematical predictions of the future or even an accurate model of the present realities are possible, they will sell their products and the industry will continue to grow.