MGCR 382_Sessions 2 and 3.pptx

Because learning changes everything. National Differences in Political, Economic, and Legal Systems Chapter 2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. ® Disclaimer We discuss different perspectives without tak...

Because learning changes everything. National Differences in Political, Economic, and Legal Systems Chapter 2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC. ® Disclaimer We discuss different perspectives without taking any sides. © McGraw Hill, LLC 2 Learning Objectives 2-1 Understand how the political systems of countries differ. 2-2 Understand how the economic systems of countries differ. 2-3 Understand how the legal systems of countries differ. 2-4 Explain the implications for management practice of national differences in political economy. © McGraw Hill, LLC 3 © McGraw Hill, LLC 4 Questions 1. Following its independence from the United Kingdom in 1922, Ireland embraced nationalistic policies. Why did the country choose this path? 2. How did economic and political reforms in the early 1980s help Ireland achieve its current economic growth trajectory? 3. Many U.S. tech companies have invested in Ireland. How was Ireland able to attract these companies and what do they mean to future economic growth in the country? © McGraw Hill, LLC 5 Introduction Political Economy • Political, economic, and legal systems of a country. • These systems are interdependent. • They influence each other. © McGraw Hill, LLC 6 © McGraw Hill, LLC Political Systems 1 The system of government in a nation is called the political system. Assessed according to two dimensions: • Emphasis on collectivism or individualism. • Degree to which they are democratic or totalitarian. © McGraw Hill, LLC 8 Political Systems: Collectivism vs. Individualism Collectivism: Emphasizes collective goals over individual goals. Socialism – Modern version of collectivism • Public ownership of the means of production for the common good. • Karl Marx: the few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted. • Communists (use of dictatorship) vs. social democrats (use of democratic means). • Privatization: selling state-owned companies to private investors • Privatization is a sign of commitment towards free market economics © McGraw Hill, LLC 9 Political Systems: Collectivism vs. Individualism Individualism: • An individual should have freedom in economic and political pursuits. • The interests of the individual should take precedence over the interests of the state. The two (2) underlying tenets of individualism:  Guarantee of individual freedom and self-expression.  Welfare of society best served by letting people pursue their own economic self-interest. © McGraw Hill, LLC 10 Political Systems 4 Democracy and Totalitarianism • Democracy: government is by the people, exercised either directly or through elected representatives. • Totalitarianism: one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties. • Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism. © McGraw Hill, LLC 11 Gray Zone? • China • Communist version of socialism? • Totalitarian regime? • The ruling party has monopoly over political power? • There is constrained political freedom? • Collectivist society culturally? • Shifting towards individualism culturally? • Shifting towards individual freedom in economic sphere? This Photo by Unknown Author is licensed under CC BY © McGraw Hill, LLC 12 © McGraw Hill, LLC This Photo by Unknown Author is licensed under CC BY-SA © McGraw Hill, LLC Political Systems 5 Democracy: • Representative democracy: citizens periodically elect individuals to represent them. • Includes a multitude of safeguards that are typically based in constitutional law, including: • Freedom of expression. • Free media. • Universal adult suffrage: the right to vote for as many people who are bound by a government's laws as possible, as supported by the "one person, one vote" principle. • Fair court system. © McGraw Hill, LLC 15 Political Systems 6 Totalitarianism: • Communist totalitarianism: socialism can be achieved only through a totalitarian dictatorship. • Theocratic totalitarianism: monopolized by a party, group, or individual that governs according to religious principles. • Tribal totalitarianism: a party, group, or individual that represents the interests of a particular tribe monopolizes political power. • Right-wing totalitarianism: generally permits individual economic freedom but restricts individual political freedom, including free speech, on the ground that it would lead to the rise of communism. © McGraw Hill, LLC 16 Political Systems 7 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 to deny basic political and civil liberties. © McGraw Hill, LLC 17 © McGraw Hill, LLC chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2022.pdf © McGraw Hill, LLC chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2022.pdf © McGraw Hill, LLC Exhibit . a: Summary Economic Freedom Ratings for, First and Second Quartiles chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2022.pdf © McGraw Hill, LLC chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.fraserinstitute.org/sites/default/files/economic-freedom-of-the-world-2022.pdf © McGraw Hill, LLC Economic Systems 1 Market Economy • All productive activities are privately owned. • Production is determined by supply and demand. • To work, supply must not be restricted. • Role of government is to encourage vigorous free and fair competition. © McGraw Hill, LLC 23 https://www.tradecommissioner.gc.ca/funding-financement/canexport/innovation/index.aspx?lang=eng © McGraw Hill, LLC Economic Systems 2 Command Economy • Government plans the goods and services, quantity and price, then allocates them for “the good of society.” • All businesses are state owned. • Historically found in communist countries. • No incentive for individuals to look for better ways to serve needs. • Socialist-inclined governments © McGraw Hill, LLC 25 Economic Systems 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 whose operations are vital to national interests. • U.S. helped Citigroup, General Motors in 2008 recession. © McGraw Hill, LLC 26 © McGraw Hill, LLC Legal Systems 1 Refer to: • Rules or laws that regulate behavior. • Process through which laws are enforced. • Process through which redress for grievances is obtained. Are influenced by the prevailing political system. © McGraw Hill, LLC 28 Legal Systems 2 Different Legal Systems Common law: • Evolved in England over hundreds of years. • Based on tradition, precedent, custom. • Tradition? Legal history • More flexible than other systems. © McGraw Hill, LLC Civil law: • Based on detailed laws organized into codes. • Less adversarial than a common law system. Theocratic law: • Based on religious teachings. • Most common is Islamic law. 29 Legal Systems 3 Differences in Contract Law Contract: specifies conditions under which an exchange is to occur, and details rights of parties involved. Contract law: body of law that governs contract enforcement. • Under common law: • Contracts are very detailed with all contingencies spelled out. • More expensive and can be adversarial. • Under civil law: • Contracts tend to be much shorter and less specific. © McGraw Hill, LLC 30 Legal Systems 4 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. © McGraw Hill, LLC 31 Legal Systems 5 Property Rights and Corruption Property: a resource that an individual or business owns. • Land, buildings, equipment, capital, mineral rights, businesses, intellectual property. Property rights: 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. © McGraw Hill, LLC 32 Legal Systems 6 Property Rights and Corruption continued Private action: • Theft, piracy, blackmail by private individuals or groups. Public action and corruption: • Public officials extort income, resources, or property. • Can be done legally by levying excessive taxation, requiring licenses or permits from property holders, taking assets into state ownership without compensating owners, redistributing assets without compensating prior owners. • Can be done illegally through corruption, demanding bribes. © McGraw Hill, LLC 33 Figure 2.1 Rankings of Corruption by Country, 2020 Access the text alternative for slide images. © McGraw Hill, LLC 34 Legal Systems 7 Property Rights and Corruption continued Foreign Corrupt Practices Act (F C P A): • 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. OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (19 97): • Makes bribery of a foreign public official a criminal offense. • Allows for facilitating or expediting payments. © McGraw Hill, LLC 35 © McGraw Hill, LLC Legal Systems 8 The Protection of Intellectual Property Intellectual property: property that is the product of intellectual activity, such as computer software, a screenplay, a music score. • Patent: inventor’s exclusive rights for a defined period. • Copyrights: exclusive legal rights of authors, composers, playwrights, artists, and publishers. • Trademarks: officially registered designs and names used to differentiate products. World Intellectual Property Organization: international organization whose members sign treaties to protect intellectual property. • Paris Convention for the Protection of Industrial Property. © McGraw Hill, LLC 37 Legal Systems 9 Product Safety and Product Liability 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. • Can be much greater if a product does not conform to safety standards. • Criminal and civil laws apply. • Raises ethical issues when doing business abroad. © McGraw Hill, LLC 38 360° View: Managerial Implications The Macro Environment Influences Market Attractiveness Two broad implications for international business: • 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, a marketbased economic system, and a strong legal system is more attractive to do business in. © McGraw Hill, LLC 39