National Differences in Political Economy (PDF)

National Differences in Political Economy 2-1 What Is A Political Economy? Political economy of a nation - how the political, economic, and legal systems of a country are interdependent they interact and influence each other they affect the level...

National Differences in Political Economy 2-1 What Is A Political Economy? Political economy of a nation - how the political, economic, and legal systems of a country are interdependent they interact and influence each other they affect the level of economic well- being in the nation 2-2 What Is A Political System? Political system - the system of government in a nation Assessed according to the degree to which the country emphasizes collectivism as opposed to individualism the degree to which the country is democratic or totalitarian 2-3 What Is Collectivism? Collectivism stresses the primacy of collective goals over individual goals can be traced to the Greek philosopher, Plato (427-347 BC) Today, collectivism is equated with socialists (Karl Marx 1818-1883) advocate state ownership of the basic means of production, distribution, and exchange manage to benefit society as a whole, rather than individual capitalists 2-4 How Does Modern-Day Socialism Look? In the early 20th century, socialism split into 1. Communism – socialism can only be achieved through violent revolution and totalitarian dictatorship in retreat worldwide by mid-1990s 2. Social democrats – socialism is achieved through democratic means retreating as many countries move toward free market economies state-owned enterprises have been privatized 2-5 What Is Individualism? Individualism refers to philosophy that an individual should have freedom in his own economic and political pursuits can be traced to Greek philosopher, Aristotle (384-322 BC) individual diversity and private ownership are desirable individual economic and political freedoms are the ground rules on which a society should be based implies democratic political systems and free market economies 2-6 What Is Democracy? Democracy - a political system in which government is by the people, exercised either directly or through elected representatives usually associated with individualism 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 2-7 What Is Totalitarianism? Totalitarianism - form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties 2-8 What Is Totalitarianism? Four major forms of totalitarianism exist today 1. Communist totalitarianism – found in states where the communist party monopolizes power 2. Theocratic totalitarianism - found in states where political power is monopolized by a party, group, or individual that governs according to religious principles 3. Tribal totalitarianism - found in states where a political party that represents the interests of a particular tribe monopolizes power 4. Right-wing totalitarianism - permits some individual economic freedom, but restricts individual political freedom 2-9 What Is The Link Between Political Ideology and Economic Systems? Political ideology and economic systems are connected countries that stress individual goals are likely to have market based economies in countries where state- ownership is common, collective goals are dominant 2-10  What Is An Economic System? There are three types of economic systems 1. Market economies - all productive activities are privately owned and production is determined by the interaction of supply and demand government encourages free and fair competition between private producers 2-11 What Is An Economic System? 2. Command economies - 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” because there is little incentive to control costs and be efficient, command economies tend to stagnate 2-12 What Is An Economic System? 3. Mixed economies - 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 national security 2-13 What Is A Legal System? 2-14 What Are The Different Legal Systems? 2-15 How Are Contracts Enforced In Different Legal Systems? Contract - 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 law that governs contract enforcement 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 2-16 Which Country’s Laws Should Apply In A Contract Dispute? The United Nations establishes a uniform set of rules governing certain aspects Convention on of the making and performance of everyday commercial Contracts for the contracts between buyers and sellers who have their places International Sale of business in different nations of Goods (CIGS) Ratified by the but, many larger trading nations including Japan and the U.S. and about 70 U.K. have not agreed to the provisions of CIGS and opt for countries arbitration instead 2-17 How Are Property Rights And Corruption Related? Property rights - 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 2-18 How Are Property Rights And Corruption Related? Property rights can be violated through 1. Private action – theft, piracy, blackmail 2. Public action - legally - ex. excessive taxation or illegally - ex. bribes or blackmailing high levels of corruption reduce foreign direct investment, the level of international trade, and the economic growth rate in a country 2-19 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 facilitating or expediting payments to secure or expedite routine government action are permitted 2-20 Which Countries Are Most Corrupt? Rankings of Corruption by Country 2010 2-21 How Can Intellectual Property Be Protected? Intellectual property - property that is the product of intellectual activity Can be protected using: 1. Patents – exclusive rights for a defined period to the manufacture, use, or sale of that invention 2. Copyrights – the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit 3. Trademarks – design and names by which merchants or manufacturers designate and differentiate their products 2-22 How Can Intellectual Property Be Protected? Protection of intellectual World Intellectual Property Organization property rights Paris Convention for the Protection of differs from Industrial Property country to country stay away from countries where intellectual property laws are lax To avoid piracy, file lawsuits firms can lobby governments for international property rights agreements and enforcement 2-23 What Is Product Safety And Liability? Product 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 liability laws tend to be less extensive in less developed nations 2-24  Why Is Product Safety And Product Liability Important? Does the high cost of liability insurance in the U.S. make American Question: companies less competitive? Is it ethical to follow host country standards when product safety Question: laws are stricter in a firm’s home country than in a foreign country? Is it ethical to follow host country standards when liability laws are Question: more lax in the host country? 2-25 How Can Managers Determine A Market’s Overall Attractiveness? The overall attractiveness of a Other things being equal, more country as a potential market attractive countries have and/or investment site for an democratic political institutions, international business depends market based economies, and on balancing the benefits, costs, strong legal systems that and risks associated with doing protect property rights and limit business in that country corruption 2-26