chapter National Difference in Political Economy McGraw-Hill/Irwin Global Business Today, 5e © 2008 The McGraw-Hill Co!anies, Inc", #ll $i%h&s $eser'ed" 2
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McGraw-Hill/Irwin
Global Business Today, 5e © 2008 The McGraw-Hill Co!anies, Inc", #ll $i%h&s
$eser'ed"
2
differences in political economy
of a country:
- Differ among countries?
- Influence economic development?
• eminder!: "#e political, economic and legal systems are
interconnected$ "#e c#apter addresses eac# separately for
analysis and discussion purposes only$
mechanism of government in reality #may e different from
official form of government$
dimensions:
to individualism
2 -
'ollectivism
• &rimacy of societal goals over individual goals . views the needs of society as being more important than the needs of individual
• +mp#asis on t#e /good of society,0 t#e /common good0
• odern collectivism - socialism
Individualism
• ( political p#ilosop#y based on t#e idea t#at an
individual s#ould #ave freedom over #is or #er
economic and political activities
desirable
property receives less attention
•Government by the people! exercised either directly or through elected representatives
• Elected officials are held accountable through safeguards such as
- Individual%s right to freedom of expression! opinion! and organi&ation
- 'ree media
- (egular elections in which eligile citi&ens are allowed to vote
- )imited terms for elected representatives
- * fair court system that is independent from the political system
- * nonpolitical police forces and armed serves
- (elatively free access to state information
"otalitarianism
•One person/party exercises asolute control over all or most spheres of human life
•Opposing political parties are prohiited
•"ypes of totalitarian systems - Communist totalitarianism: advocates achieving socialism
through totalitarian dictatorship
- Theocratic totalitarianism: political power is monopoli&ed y a party! group! or individual that governs according to religious principles
2 - 6
+'O7OI' )*)"+)
• &ure mar8et economy - goods and services that a country produces and the +uantity in which they are produced is determined y supply and demand
• &ure command economy - goods and services that a country produces! the +uantity in which they are produced! and the price at which they are sold are all planned y the government
free mar8et for goods and services and private
control of production and consumption,
• 7eoliberalism <free mar8et capitalism> - Emphasis on individualism and self-interest
- inimal state role in the economy
- arginali&ation of laor y usinesses
• 'orporatism <social-democratic capitalism> - .oordination among political parties! trade unions! and
industry associations
• )tatism <(sian statism or developmentalism> - /overnment is expected to regulate mar"ets! control profits!
direct economic investment! and e+uali&e employment opportunities
political and economic systems@
• * country3s laws regulate - usiness practices
- define the manner in which usiness transactions are to e executed! and
4ifferent Legal )ystems
• 'ommon law system - ased on tradition! precedent, and custom #found in most of /reat 0ritain%s former colonies! including the United 1tates$
•'ivil law system - ased on a very detailed set of laws organi&ed into codes #found in over 56 countries! including /ermany! 'rance! 7apan! and (ussia$
• 8ow can contract disputes e resolved? 9hich country%s laws?
- 8ome country laws?
- 8ost country laws?
• =nited 7ations 'onvention in 'ontracts for t#e Inter-
national )ales of Aoods <'IA)> estalishes a uniform set of
rules governing some aspects of international commercial
contracts
• 0y adopting .I/1! a nations signal to other nations that it will
&roperty ig#ts
• Legal rig#ts over t#e use of a resource #e,g,! land! uildings! e+uipment! intellectual property$ and income derived from that resource #e,g,! repatriation of profits$
•&roperty rig#ts can be violated by: - &rivate action - theft! piracy! lac"mail! etc,! y private
individual or groups
countries and pulishes ran"ings for;
- .orruption Perceptions Index
economic growth? If so! how?
=$)$ Boreign 'orrupt &ractices (ct
- a"es it a violation of the United 1tates% law to bribe a
foreign government official in order to otain or
maintain usiness over which the foreign official has
authority
- (e+uires all pulicly traded countries to "eep detailed
records so that it is clear whether a violation of the act
has occurred or not
&ublic Officials in International Cusiness
"ransactions
.ooperation and Development #<E.D$
- <liges memer states to ma"e riery of foreign
pulic officials a criminal offense
&roperty - an agreement signed y => countries to
protect intellectual property rights
• "rade elated (spects of Intellectual &roperty
ig#ts <"I&)> - re+uires 9< memers to grant and
enforce patents lasting at least @6 years and copyrights
lasting A6 years
product must adhere
officers responsile when a product causes inBury! death!
or damage,
- 8ost country standards?
- 8ome country standards?
country%s gross national income per head of
population #/NI$ or /DP per capita
• * purc#asing power parity #PPP$ adBustment allows
for a more direct comparison of living standards in
different countries
• * drawbac of oth /NI and PPP data is that they
provide only a static picture of development
• Noel Pri&e winning economist (martya )en argued that
development should e assessed less y material output and more
y the capabilities and opportunities that people enBoy
• Human 4evelopment Inde9 - * United Nations developed index ased on life expectancy!
education attainment! and whether average incomes are sufficient
to meet the asic needs of life in a country
- Used to gauge a country%s economic development and li"ely
future growth rate
• 9hat is the relationship etween political economy and economic progress?
• Innovation! entrepreneurship and 'DI engines of growth
• 9hat are the re+uirements for the business environment of a country to e conducive to innovation and entrepreneurship?
- * mar"et economy?
- he Cright political system?
Conscious Globalism!
Example for
(rgentina:
• Individualistic
• Democratic
• Political! economic! and legal systems of a country
- (aise important et#ical issues that have implications for the practice of international usiness
- Influences the attractiveness of that country as a mar"et and4or investment site
• eminder; The actions of multinational corporations influence
Global Business Today, 5e © 2008 The McGraw-Hill Co!anies, Inc", #ll $i%h&s
$eser'ed"
2
differences in political economy
of a country:
- Differ among countries?
- Influence economic development?
• eminder!: "#e political, economic and legal systems are
interconnected$ "#e c#apter addresses eac# separately for
analysis and discussion purposes only$
mechanism of government in reality #may e different from
official form of government$
dimensions:
to individualism
2 -
'ollectivism
• &rimacy of societal goals over individual goals . views the needs of society as being more important than the needs of individual
• +mp#asis on t#e /good of society,0 t#e /common good0
• odern collectivism - socialism
Individualism
• ( political p#ilosop#y based on t#e idea t#at an
individual s#ould #ave freedom over #is or #er
economic and political activities
desirable
property receives less attention
•Government by the people! exercised either directly or through elected representatives
• Elected officials are held accountable through safeguards such as
- Individual%s right to freedom of expression! opinion! and organi&ation
- 'ree media
- (egular elections in which eligile citi&ens are allowed to vote
- )imited terms for elected representatives
- * fair court system that is independent from the political system
- * nonpolitical police forces and armed serves
- (elatively free access to state information
"otalitarianism
•One person/party exercises asolute control over all or most spheres of human life
•Opposing political parties are prohiited
•"ypes of totalitarian systems - Communist totalitarianism: advocates achieving socialism
through totalitarian dictatorship
- Theocratic totalitarianism: political power is monopoli&ed y a party! group! or individual that governs according to religious principles
2 - 6
+'O7OI' )*)"+)
• &ure mar8et economy - goods and services that a country produces and the +uantity in which they are produced is determined y supply and demand
• &ure command economy - goods and services that a country produces! the +uantity in which they are produced! and the price at which they are sold are all planned y the government
free mar8et for goods and services and private
control of production and consumption,
• 7eoliberalism <free mar8et capitalism> - Emphasis on individualism and self-interest
- inimal state role in the economy
- arginali&ation of laor y usinesses
• 'orporatism <social-democratic capitalism> - .oordination among political parties! trade unions! and
industry associations
• )tatism <(sian statism or developmentalism> - /overnment is expected to regulate mar"ets! control profits!
direct economic investment! and e+uali&e employment opportunities
political and economic systems@
• * country3s laws regulate - usiness practices
- define the manner in which usiness transactions are to e executed! and
4ifferent Legal )ystems
• 'ommon law system - ased on tradition! precedent, and custom #found in most of /reat 0ritain%s former colonies! including the United 1tates$
•'ivil law system - ased on a very detailed set of laws organi&ed into codes #found in over 56 countries! including /ermany! 'rance! 7apan! and (ussia$
• 8ow can contract disputes e resolved? 9hich country%s laws?
- 8ome country laws?
- 8ost country laws?
• =nited 7ations 'onvention in 'ontracts for t#e Inter-
national )ales of Aoods <'IA)> estalishes a uniform set of
rules governing some aspects of international commercial
contracts
• 0y adopting .I/1! a nations signal to other nations that it will
&roperty ig#ts
• Legal rig#ts over t#e use of a resource #e,g,! land! uildings! e+uipment! intellectual property$ and income derived from that resource #e,g,! repatriation of profits$
•&roperty rig#ts can be violated by: - &rivate action - theft! piracy! lac"mail! etc,! y private
individual or groups
countries and pulishes ran"ings for;
- .orruption Perceptions Index
economic growth? If so! how?
=$)$ Boreign 'orrupt &ractices (ct
- a"es it a violation of the United 1tates% law to bribe a
foreign government official in order to otain or
maintain usiness over which the foreign official has
authority
- (e+uires all pulicly traded countries to "eep detailed
records so that it is clear whether a violation of the act
has occurred or not
&ublic Officials in International Cusiness
"ransactions
.ooperation and Development #<E.D$
- <liges memer states to ma"e riery of foreign
pulic officials a criminal offense
&roperty - an agreement signed y => countries to
protect intellectual property rights
• "rade elated (spects of Intellectual &roperty
ig#ts <"I&)> - re+uires 9< memers to grant and
enforce patents lasting at least @6 years and copyrights
lasting A6 years
product must adhere
officers responsile when a product causes inBury! death!
or damage,
- 8ost country standards?
- 8ome country standards?
country%s gross national income per head of
population #/NI$ or /DP per capita
• * purc#asing power parity #PPP$ adBustment allows
for a more direct comparison of living standards in
different countries
• * drawbac of oth /NI and PPP data is that they
provide only a static picture of development
• Noel Pri&e winning economist (martya )en argued that
development should e assessed less y material output and more
y the capabilities and opportunities that people enBoy
• Human 4evelopment Inde9 - * United Nations developed index ased on life expectancy!
education attainment! and whether average incomes are sufficient
to meet the asic needs of life in a country
- Used to gauge a country%s economic development and li"ely
future growth rate
• 9hat is the relationship etween political economy and economic progress?
• Innovation! entrepreneurship and 'DI engines of growth
• 9hat are the re+uirements for the business environment of a country to e conducive to innovation and entrepreneurship?
- * mar"et economy?
- he Cright political system?
Conscious Globalism!
Example for
(rgentina:
• Individualistic
• Democratic
• Political! economic! and legal systems of a country
- (aise important et#ical issues that have implications for the practice of international usiness
- Influences the attractiveness of that country as a mar"et and4or investment site
• eminder; The actions of multinational corporations influence
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