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Ch.2NationalDifferencesinPoliticalEconomic.pptxChapter 2
National Differences in Political, Economic, and Legal Systems
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Learning Objectives
LO 2-1 Understand how the political systems of countries differ.
LO 2-2 Understand how the economic systems of countries differ.
LO 2-3 Understand how the legal systems of countries differ.
LO 2-4 Explain the implications for management practice of national differences in political economy.
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Introduction
Political Economy
Political, economic, and legal systems of a country are interdependent
They influence each other
©Philimon Bulawayo/Reuters
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Political economy refers to the political, economic, and legal systems of a country.
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Political Systems 1 of 6
Learning Objective 2-1 Understand how the political systems of countries differ.
Political systems:
Collectivism vs. individualism
Democratic vs. totalitarian
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Political system refers to the system of government in a nation.
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Political Systems 2 of 6
Collectivism and Individualism
Collectivism
The needs of society as a whole are generally viewed as being more important than individual freedoms
Socialism
Karl Marx: The few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted
Communists vs. social democrats
Privatization
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Collectivism refers to a political system that stresses the primacy of collective goals over individual goals.
Socialists believe in public ownership of the means of production for the common good of society.
In the early twentieth century, the socialist ideology split into two broad camps. The communists believed that socialism could be achieved only through violent revolution and totalitarian dictatorship, whereas the social democrats committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship. Both versions of socialism waxed and waned during the twentieth century.
Privatization is the sale of state-owned enterprises to private investors.
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Political Systems 3 of 6
Collectivism and Individualism continued
Individualism
An individual should have freedom in his or her economic and political pursuits
The interests of the individual should take precedence over the interests of the state
Two tenets
Guarantee of individual freedom and self-expression
Welfare of society best served by letting people pursue their own economic self-interest
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Individualism is an emphasis on the importance of guaranteeing individual freedom and self-expression.
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Political Systems 4 of 6
Democracy and Totalitarianism
At different ends of a political dimension
Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism, with exceptions
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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 spheres of human life and prohibits opposing political parties.
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Political Systems 5 of 6
Democracy and Totalitarianism continued
Democracy
Representative democracy
Totalitarianism
Communist totalitarianism
Theocratic totalitarianism
Tribal totalitarianism
Right-wing totalitarianism
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Representative democracy is a political system in which citizens periodically elect individuals to represent them in government.
Communist totalitarianism is a version of collectivism advocating that socialism can be achieved only through a totalitarian dictatorship.
Theocratic totalitarianism is a political system in which political power is monopolized by a party, group, or individual that governs according to religious principles.
Tribal totalitarianism is a political system in which a party, group, or individual that represents the interests of a particular tribe (ethnic group) monopolizes political power.
Right-wing totalitarianism is a political system in which political power is monopolized by a party, group or individual that generally permits individual economic freedom but restricts individual political freedom, including free speech, often on the ground that it would lead to the rise of communism.
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Political Systems 6 of 6
Democracy and Totalitarianism continued
Pseudo-democracies
Lie between pure democracies and complete totalitarianism systems
Authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties
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Economic Systems 1 of 3
Learning Objective 2-2 Understand how the economic systems of countries differ.
Market Economy
All productive activities are privately owned
Production is determined by supply and demand
Government encourages vigorous free and fair competition
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In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. Production is determined by the interaction of supply and demand and signaled to producers through the price system.
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Economic Systems 2 of 3
Command Economy
Government plans the good and services, quantity and price, then allocates them for “the good of society”
All businesses are state owned
Historically found in communist economies
No incentive for individuals to look for better ways to serve needs
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In a pure command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for “the good of society.” In addition, in a pure command economy, all businesses are state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals.
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Economic Systems 3 of 3
Mixed Economy
Some sectors are privately owned, some are government owned
Once common in developed world, less so now
Government may aid troubled firms
U.S. helped Citigroup, General Motors
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Legal Systems 1 of 9
Learning Objective 2-3 Understand how the legal systems of countries differ.
Legal Systems
Rules or laws that regulate behavior
Process through which laws are enforced
Redress for grievances
Influenced by the prevailing political system
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The legal system of a country refers to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained.
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Legal Systems 2 of 9
Legal Systems continued
Different Legal Systems
Common Law
Tradition, precedent, custom
More flexible than other systems
Civil Law
Laws organized into codes
Less adversarial
Theocratic Law
Based on religious teachings
Most common is Islamic law
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Common law is based on tradition, precedent, and custom.
A civil law system is based on a detailed set of laws organized into codes.
A theocratic law system is one in which the law is based on religious teachings.
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Legal Systems 3 of 9
Differences in Contract Law
Governs the enforcement of contracts
Common law
Contracts are very detailed with all contingencies spelled out
More expensive and can be adversarial.
Civil law
Contracts tend to be much shorter and less specific
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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. Some form of contract regulates many business transactions. Contract law is the body of law that governs contract enforcement.
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Legal Systems 4 of 9
Differences in Contract Law continued
United Nations Convention on Contracts for the International Sale of Goods (CISG)
Establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations
Applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties opt out
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United Nations Convention on Contracts for the International Sale of Goods (CISG) is a set of rules governing aspects of the making and performance of commercial contracts between sellers and buyers who have their places of business in different nations.
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Legal Systems 5 of 9
Property Rights and Corruption
Property is a resource that an individual or business owns
Land, buildings, equipment, capital, mineral rights, businesses, intellectual property
Most countries protect property rights
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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.
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Legal Systems 6 of 9
Property Rights and Corruption continued
Private action
Theft, piracy, blackmail
Public action and corruption
Public officials extort income, resources, or property
Levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, redistributing assets without compensating the prior owners
Corruption, demanding bribes
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In terms of violating property rights, private action refers to theft, piracy, blackmail, and the like by private individuals or groups.
Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders.
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Figure 2.1 Rankings of corruption by country, 2016
Jump to long description in appendix
Constructed by the author from raw data from Transparency International, Corruption Perceptions Index 2016.
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Legal Systems 7 of 9
Property Rights and Corruption continued
Foreign Corrupt Practices Act (FCPA)
Illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority
Requires all publicly traded companies to keep detailed records that would reveal whether a violation of the act has occurred
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997)
Allows for facilitating or expediting payments
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Foreign Corrupt Practices Act is U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions.
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Legal Systems 8 of 9
The Protection of Intellectual Property
Patent
Copyrights
Trademarks
World Intellectual Property Organization
Paris Convention for the Protection of Industrial Property
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Intellectual property refers to property that is the product of intellectual activity, such as computer software, a screenplay, a music score, or the chemical formula for a new drug.
A patent grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention.
Copyrights are the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.
Trademarks are designs and names, officially registered, by which merchants or manufacturers designate and differentiate their products.
World Intellectual Property Organization is an international organization whose members sign treaties to agree to protect intellectual property.
Paris Convention for the Protection of Industrial Policy is an international agreement to protect intellectual property.
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Legal Systems 9 of 9
Product Safety and Product Liability
Product safety
Product liability
Greater if a product does not conform to safety standards
Criminal and civil laws apply
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Product safety laws set certain safety 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.
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Focus on Managerial Implications
Learning Objective 2-4 Explain the implications for management practice of national differences in political economy.
Two broad implications
Political, economic, and legal systems of a country raise important ethical issues that have implications for international business.
Political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site.
A country with democratic political institutions, market-based economic system, and strong legal system clearly more attractive to do business in.
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Appendix of Image Long Descriptions
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Appendix 1 Figure 2.1 Rankings of corruption by country, 2016
Corruption Index 100=clean; 0 = totally corrupt
Somalia 8
Venezuela 18
Vietnam 21
Nigeria 26
Russia 29
China 37
Columbia 37
India 48
Brazil 48
Turkey 42
Italy 44
South Africa 44
South Korea 56
Poland 62
France 70
United States 75
United Kingdom 81
Germany 81
Canada 83
Sweden 89
Denmark 91
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