An economic recovery will begin late this year but will bypass the "permanent underclass" living in major U.S. cities and will "lead to widespread urban rioting in the summer of 1983."
Who says so? Mary McCarthy of Hyattsville, that's who. And she's not a neighborhood astrologer or palm-reader but vice president for research of Business Environment Risk Index (BERI), one of the nation's oldest and largest firms analyzing the investment climate in various countries.
For $775 a year, BERI gives its clients three rundowns on the financial, political and regulatory situation in 48 countries, grading them from top-quality (no investment risk, good profit potential) to bottom (no business dealings recommended).
In BERI's latest report, the section dealing with the United States, prepared by McCarthy, advises potential foreign investors that "the United States is among the world's most favorable environments for foreign business." But it warns that "serious urban rioting will begin in the summer of 1983" as unskilled Hispanics and blacks in the cities, "unemployable in an economy being restructured to emphasize high technology," compete for "economic advantage and shrinking government benefits."
BERI clients abroad are advised to "choose the locations of their operations carefully" and "keep a low profile in the U.S. and use American personnel as much as possible to limit negative reaction toward foreign products."
Unequivocal predictions such as the BERI riot forecast are viewed with disfavor by others in the growing risk-prediction field. McCarthy, a Ph.D. in African history, said it was not her intention to portray the United States as an unstable banana republic but to help clients investing in an otherwise favorable environment to be cautious in their "location decisions"--that is, to stay out of such volatile areas as Miami's liberty City.
"Our job is to point out what we think is most likely to happen so that foreign investors will be prepared," she said. "Our point is that the policy decisions of the government have not focused on what is going to happen to this permanently unskilled, undereducated class."
So long as things are going badly for everyone, "Nobody is going to get too upset," she said. "The problem is when recovery begins to occur. The permanently unemployed urban minorities will begin to see these other groups move ahead, and resentment will explode."
Risk-analysis firms such as BERI received a strong growth impetus from the Iranian revolution, which took foreign business executives by surprise. The firms combine subjective analysis by retired diplomats, business executives, and on-site agents with computerized economic studies to measure profit potential, regulatory environment and political stability.
Despite the predicted riots, the latest BERI report includes the United States among the safest countries for investment, along with West Germany, Japan, Switzerland and Singapore. At the bottom, on the "no business" list, are Iran, Morocco, Pakistan, Peru and Turkey, all nations plagued either by political unrest or by acute financial problems and shortages of hard currency.
BERI's technique is not universally admired in the risk-prediction trade. Gordon Rayfield, a General Motors Corp. economist who is president of the 300-member Association of Political Risk Analysts, said there is a built-in superficiality to a general risk-prediction service aimed at a wide variety of clients.
"Most people doing political analysis now are not concerned with things like urban riots," he said. "They are not the key to doing business in a foreign country."
He said business decisions depend more on what kind of company is involved and the nature of its transactions. "Gulf Oil makes money in Angola" despite the civil war there, he said, "but I'm not sure GM could."