Political Systems (1/2)
The political economy of a nation refers to how the political, economic, and legal systems of a country are interdependent; they interact and influence each other, and in doing so they affect the level of economic well-being
Political Systems (2/2)
Political system refers to the system of government in a nation
Political systems can be assessed according to two dimensions
the degree to which they emphasize collectivism as opposed to individualism
the degree to which they are democratic or totalitari
Collectivism And Individualism (1/4)
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals
Collectivism can be traced back to the Greek philosopher, Plato (427-347 BC), but in modern times, collectivism is equated with socialists
Collectivism And Individualism (2/4)
Socialists advocate state ownership of the basic means of production, distribution, and exchange
State-owned enterprises are managed to benefit society as a whole, rather than individual capitalists
In the early 20th century, socialism split into:
Communi
Collectivism And Individualism (3/4)
By the mid-1990s, communism was in retreat worldwide
Social democracy is also retreating as many countries move toward free market economies
State-owned enterprises have been privatized
Collectivism And Individualism (4/4)
refers to philosophy that an individual should have freedom in his own economic and political pursuits
Individualism can be traced to Greek philosopher, Aristotle (384-322 BC), who argued that individual diversity and private ownership are desirable
Under
Democracy And Totalitarianism (1/3)
Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives
Totalitarianism is a form of government in which one person or political party exercises absolute control over all sp
Democracy And Totalitarianism (2/3)
Pure democracy is based on the belief that citizens should be directly involved in decision making
Most modern democratic states practice representative democracy where citizens periodically elect individuals to represent them
Democracy And Totalitarianism (3/3)
There are four major forms of totalitarianism:
Communist totalitarianism - found in states where the communist party monopolizes power
Theocratic totalitarianism - found in states where political power is monopolized by a party, group, or individual that
Economic Systems
Political ideology and economic systems are connected
In countries where individual goals are emphasized free market economies are likely
There are three types of economic systems:
market economies
command economies
mixed economies
Market Economy
In a market economy all productive activities are privately owned and production is determined by the interaction of supply and demand
The role of government is to encourage free and fair competition between private producers
Command Economy
In a command economy, the government plans the goods and services that a country produces, the quantity that is produced, and the prices as which they are sold
All businesses are state-owned, and governments allocate resources for "the good of society"
Ho
Mixed Economy
In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms while other sectors have significant state ownership and government planning
Governments tend to own firms that are considered important to nationa
Legal Systems
The legal system of a country refers to the rules that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained
There are three types of legal systems:
Common law - based on tradition,
Differences In Contract Law (1/3)
Depending on the legal system, contracts are approached in different ways
A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved
Contract law is the body of
Differences In Contract Law (2/3)
Under a common law system, contracts tend to be very detailed with all contingencies spelled out
Under a civil law system, contracts tend to be much shorter and less specific because many issues are already covered in the civil code
Differences In Contract Law (3/3)
Many countries have ratified the United Nations Convention on Contracts for the International Sale of Goods (CIGS) which establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between bu
Property Rights And Corruption (1/3)
Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource
Countries differ in terms of how their legal systems define and protect property rights
Property r
Property Rights And Corruption (2/3)
Public action and private action to violate property rights occurs when public officials extort income, resources, or the property itself from property holders
This can be done legally through mechanisms like excessive taxation or illegally through corrup
Property Rights And Corruption (3/3)
The Foreign Corrupt Practices Act makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business over which that foreign official has authority
The OECD has also adopted a convention that obliges member states to
The Protection Of Intellectual Property Rights (1/2)
Intellectual property refers to property that is the product of intellectual activity
Intellectual property can be protected using:
Patents - exclusive rights for a defined period to the manufacture, use, or sale of that invention
Copyrights - the exclusi
The Protection Of Intellectual Property Rights (2/2)
Protection of intellectual property rights differs from country to country - when intellectual property protection is lax, piracy is common
Many countries are members of the World Intellectual Property Organization and have signed international treaties t
Product Safety And Product Liability
Property safety laws set certain standards to which a product must adhere
Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage
When product safety laws are stricter in a firm's home country
The Determinants Of Economic Development
Countries have different levels of economic development
Gross national income (GNI) per person is a common measure of economic development
Purchasing power parity (PPP) involves adjusting GNI by purchasing power
Broader Conceptions Of Development: Amartya Sen
Nobel Prize winning economist Amartya Sen argues that development should be seen as a process of expanding the real freedoms that people experience
So, development requires the removal of major impediments to freedom like poverty, tyranny, and neglect of
Political Economy And Economic Progress
What is the relationship between political economy and economic progress? Experts agree that:
Innovation and entrepreneurship are the engines of long-run economic growth
Innovation and entrepreneurship require a market economy
Innovation and entrepreneurs
Geography, Education, And Economic Development
In addition to political and economic systems, geography and education are also important determinants of economic development
Countries with favorable geography are more likely to engage in trade, and so, be more open to market-based economic systems, an
States In Transition
Since the late 1980s, two trends have emerged in the political economy:
A wave of democratic revolutions swept the world in the late 1980s and early 1990s
There has been a move away from centrally planned and mixed economies and toward a more free market
The Spread Of Democracy
There are three main reasons for the spread of democracy:
Many totalitarian regimes failed to deliver economic progress to the vast bulk of their populations
New information and communication technologies, have broken down the ability of the state to cont
The New World Order And Global Terrorism
Many countries may be increasingly difficult places in which to do business, either because of their inherent violent conflict, or because they are part of a civilization that is in conflict with an enterprise's home country
Terrorism represents one of th
The Spread Of Market- Based Systems
Command and mixed-economies failed to deliver the kind of sustained economic performance that was achieved by countries adopting market-based systems
As a result, more countries have shifted toward the market-based model
The Nature Of Economic Transformation
The shift toward a market-based system involves:
Deregulation - removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate
Privatization - transfers the ownership
Implications For Managers
There are two broad implications for managers:
the political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business
the political, economic, and legal environment of a cou
Benefits
The long-run benefits of doing business in a country are a function of the size of the market, the present wealth of consumers in that market, and the likely future wealth of consumers
By identifying and investing early in a potential future economic star
Costs
The costs of doing business in a country are influenced by political, economic, and legal factors:
Political costs include the cost of paying bribes or lobbying for favorable or fair treatment
Economic costs relate primarily to the sophistication of the e
Risks
The risks of doing business are determined by a number of political, economic, and legal factors:
Political risk is the likelihood that political forces will cause drastic changes in a country's business environment that adversely affects the profit and o
Overall Attractiveness
The overall attractiveness of a country as a potential market and/or investment site for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country
Other things being equal, the benefit-cos