1

Abstract
To survive into the 21st century, senior executives must develop within there company
proactive and integrated approach to business risk assessment and control.
A Business risk management framework must integrate risk management strategies,
policies, measures, monitoring process and control to reject unacceptable risk and reduce
the political risks to an acceptable level. It must also support the allocation of resources to
the best opportunities for returns in relation to risk assumed. One way to manage political
risk is to buy political risk insurance. Organizations that have international operations use
this type of insurance to mitigate their risk exposure as a result of political instability.
There are indices that provide an idea of the risk exposure an organization has in certain
countries. For instance, an index of economic freedom ranks countries based on how
political interference impacts business decisions in each country.
Political Philosophy is the study of these and other matters, more generally the firstthe
relationship between individuals and society. Sometimes the subject is nicely
encapsulated in the question "how are we to live?" That is: given that few people live
entirely alone, we may ask how best to govern our interactions. What responsibilities do
we have to each other? Can we do as we please? Is society more important than the
individuals that make it up? Political philosophy doesn't exist in a vacuum, though; the
answers we might give will depend in turn on our ethical ideas, as well as what kind of
world we think we live in and what we may consider the purpose of our time here, if any
Historical Considerations.
There have been so many political theorists and theories over the years that we cannot
hope to cover them all here. Instead we'll look at a few representative and important
notions that vexed wiseacres of the past.

Introduction
The word "philosophy" comes from the Greek philosophia, which literally means "love
of wisdom". Philosophy is the study of the fundamental nature of knowledge, reality, and
existence, especially when considered as an academic discipline. Political philosophy is
the study of human social organization and of the nature of man/woman in society. It is
the study of such topics as politics, liberty, justice, property, rights, law, and the
enforcement of a legal code by authority.
There are a wide variety of political philosophies. Such as: Socialism, Capitalism,
Liberalism, Conservatism, Anarchism, Communism, Monarchism, Democracy and
Fascism.
There are a wide variety of political philosophies, of which we can only consider a few
here. Well look at some of the philosophical aspects only. The standard division runs as
follows
Socialism:- A great many political ideas may come under the broad banner of socialism,
but generally speaking there is an economic decision that the ownership and planning the
use of the means of production should be held centrally and publicly in some way, rather
than privately. Often this is based on a critique of capitalism, but the idea is that the
former method is more ethical or beneficial to people living under such arrangements. It
is important to remember that not all socialists have a red hue and live under the beds of
decent, right-thinking people.
Liberalism:- It is a political orientation which favors the social progress by implementing
law and reform rather than revolution. It is the belief in the importance of equal rights
and liberty. This ideology began in the 18th century, which was a movement to self
government and away from aristocracy. Aristocracy is a government form in which the
best qualified rule.
Conservatism:- It is a political and social philosophy that promotes retaining traditional
social institutions. A person who follows the philosophies of conservatism is referred to
as a traditionalist or conservative.
Some conservatives seek to preserve things as they are, emphasizing stability and
continuity,
Anarchism:- Generally defined as a political philosophy which holds the state to be
undesirable, unnecessary, or harmful or, alternatively, as opposing authority or
hierarchical organization in the conduct of human relations.
Communism:- Communism is a distinct socio-political philosophy that is willing to use
violent means to attain its goal of a classless society.

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Monarchism:- Which based on the belief that political power should be concentrated in
one person who rules by decree. A monarchist is an individual who supports this form of
government, independent from the person, the monarch.
Capitalism:- It is an economic system that is based on private ownership of the means of
production and the creation of goods or services for profit. Other elements central to
capitalism include competitive markets, wage labor and capital accumulation.
Democracy:- Democracy is a form of government in which all eligible citizens have an
equal say in the decisions that affect their lives. Democracy allows people to participate
equallyeither directly or through elected representativesin the proposal,
development, and creation of laws.
Abraham Lincoln said Democracy is the government of the people, by the people, for
the people.
Fascism:- The term Fascism was first used of the totalitarian right-wing nationalist
regime of Mussolini in Italy (192243); the regimes of the Nazis in Germany and Franco
in Spain were also Fascist. Fascism tends to include a belief in the supremacy of one
national or ethnic group, contempt for democracy, an insistence on obedience to a
powerful leader, and a strong demagogic approach
Nowadays many of the issues in political philosophy now turn or are dependent in many
ways upon economic analysesthe best way to provide and allocate resources being an
example. Nevertheless, these may themselves have been influenced by political and
philosophical ideas, so there is interdependence at play between them. To ignore either is
problematic: we need to know the best way to achieve our aims, but we also have to
decide what to aim for in the first place and what forms of solution we are inclined to
accept.
Political risk is a type of risk faced by investors, corporations, and governments. It is a
risk that can be understood and managed with reasoned foresight and investment. Prof.
Stephen Kobrin classifies political risk as: Macro risk and Micro risk.
Macro risk refers to adverse actions that will affect all foreign firms, such as
expropriation or insurrection, whereas micro risk refers to adverse actions that will only
affect a certain industrial sector or business, such as corruption and prejudicial actions
against companies from foreign countries.
The concept of political risk in international business is based on the existence of possible
threats to the firm from political instability and lawlessness in the area of investment.
Once a firm leaves the basically standardized world of domestic business law, the global
environment is much more fluid; most states can use many levers of power to extract
more resources from the investing firm. Political risk not only affected a specific business
or class of business. But also affecting an entire country or region, and include such
things as currency devaluation.

Philosophy:The word "philosophy" comes from the Greek philosophia, which literally means "love
of wisdom".
Philosophy is the study of the fundamental nature of knowledge, reality, and existence,
especially when considered as an academic discipline.

Political Philosophy:Political philosophy is the study of human social organization and of the nature of
man/woman in society. It is the study of such topics as politics, liberty, justice, property,
rights, law, and the enforcement of a legal code by authority.
Political philosophy can also be understood by analyzing it through the perspectives of
metaphysics, epistemology and axiology.
A good definition for Political Philosophy is found only after determining what is
politics, which is a sticky question to begin with. Politics could be defined as "the
question of how to distribute a scarce amount of resources 'justly. This is, essentially, the
way in which people obtain, keep, and exercise power. Political philosophy, then, is the
study of the theories behind politics. These theories may be used to gain power or to
justify its existence.
Mostly, however, they have been used to justify or legitimate the existence of
contemporary political structures by appealing to "rationality," "reason," or, among
others, "natural law."
Plato's Republic is a good starting point for political philosophy, however, it's really a
treatise on education. It starts out by trying to define Justice (one of Kenneth Burke's
"God Terms"). In it, he makes an argument for a sort of acetic life-style by, through a
standard Platonic dialogue, laying out a minimally functional society. He then, somewhat
periodically, responds to the question of luxury by outlining how to 'justly' lay out a state
that will accommodate luxuries for the entitled (a state that looks very similar to Sparta).
It's a good starting place, because it lays out his conception of Justice, which, inevitably,
is based on his theory of the forms, which is a similar basis of conceptions of natural law.
Skipping a few thousand years and many important texts, we get to Nicolo Machiavelli's
The Prince, which was written in 1513 and published, after his death, in 1532.
Machiavelli lived in Florence under the Medici family's rule. During a brief period of
reform, the Medicis were chased from power, and Machiavelli became a diplomat. When
the Medicis returned, Machiavelli was basically exiled. One reason he might have
written The Prince was to try to return to public life in Florence. This book is often
criticized for its moral relativism, and, in an inadequate summarization, that power
defines moral action.
Moving along, we can get to the social contract theorists, namely Jean Jacques Rousseau,
Thomas Hobbes, John Locke, Charles Montesquieu, and Baruch Spinoza. This, of course,
will be a brief and incomplete treatment of them, but it's a starting place. Hobbes' theory
is mostly found in his book Leviathan. In it, he defines the state of nature (the prepolitical

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society) as a place where life is "nasty, brutish, and short." It's important to understand
that Hobbes was writing after the Thirty Years War (a religious conflict between,
primarily, the English Protestants and the Spanish Catholics), so he had a very pessimistic
view of Human Nature. He basically thought that man, left to its own devices, would war
against itself, hence the above quotation.
From that, Hobbes had a view that society with a state, at its worst, was better than
having no state at all, so he concluded that any state action would be justified if for no
other reason than that it is a modus vivendi, a lesser evil. The crux of this, and all social
contract theory, is that the citizen has a sort of contract with the state in which people
give up some autonomy to make their lives better. For Hobbes, this autonomy was given
up to protect life at its most fundamental level.
Locke, however, has an entirely different notion. His view of the state of nature (the prepolitical society) is much nicer. Basically people will respect each other and not infringe
on another's person or property. If someone does, then the aggressed has the natural right
to rectify the situation, and anyone else who witnesses an aggressor has the duty to help
the aggresses. Locke concedes that property disputes will eventually be numerous enough
that this would be time consuming, and in the general interest, people will form a state in
order to have someone else protect their property and persons--basically to settle
disputes--out of convenience. Much of this is laid out in The Second Treatise on
Government. It's important to note that much of the U.S. constitution is based on Locke's
political philosophy.

Political Philosophies:There are a wide variety of political philosophies, of which we can only consider a few
here. Well look at some of the philosophical aspects only. The standard division runs as
follows:
Socialism:A great many political ideas may come under the broad banner of socialism, but generally
speaking there is an economic decision that the ownership and planning the use of the
means of production should be held centrally and publicly in some way, rather than
privately. Often this is based on a critique of capitalism, but the idea is that the former
method is more ethical or beneficial to people living under such arrangements. It is
important to remember that not all socialists have a red hue and live under the beds of
decent,
right-thinking
people.
There are degrees to which socialism is preferred to some form of market economy.
Given the failure of some attempts to control economies centrally, some have instead
opted to allow a market to operate while maintaining control of certain areas that may be
seen as fundamental, such as health services, travel networks and so on.
The principle philosophical difficulty for socialism is how to distribute resources fairly. If
we hope to give to people according to their needs, what do we mean by a need? How do
we distinguish between true and false claims of need from people?

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Moreover, if we don't continue to impose controls on the distribution of these resources,
wouldn't
they
eventually
become
unequally
distributed?
In the face of such problems, it is often useful to ask what we're aiming at with a political
philosophy: if the answer for socialism is a more just or fair world then even if these
concepts prove impossible to attain, we may still choose to at least try.
Anarchism:Anarchism has been defined many ways by many different sources. The word anarchism
is taken from the word anarchy which is drawn from dual sources in the Greek language.
It is made up of the Greek words av (meaning: absence of [and pronounced "an"] and
apxn (meaning: authority or government [and pronounced "arkhe"]). Today, dictionary
definitions still define anarchism as the absence of government. These modern dictionary
definitions of anarchism are based on the writings and actions of anarchists of history and
present. Anarchists understand, as do historians of anarchism and good dictionaries and
encyclopedias, that the word anarchism represents a positive theory. Exterior sources,
however, such as the media, will frequently misuse the word anarchism and, thus, breed
misunderstanding.
A leading modern dictionary, Webster's Third International Dictionary, defines anarchism
briefly but accurately as, "a political theory opposed to all forms of government and
governmental restraint and advocating voluntary cooperation and free association of
individuals and groups in order to satisfy their needs." Other dictionaries describe
anarchism with similar definitions. The Britannica-Webster dictionary defines the word
anarchism as, "a political theory that holds all government authority to be unnecessary
and undesirable and advocates a society based on voluntary cooperation of individuals
and groups." Shorter dictionaries, such as the New Webster Handy College Dictionary,
define anarchism as, "the political doctrine that all governments should be abolished."
These similar dictionary definitions of anarchism reflect the evolution of the theory of
anarchism made possible by anarchist intellectuals and movements. As a result,
dictionary definitions, although fair, only reflect watered down definitions of the word
anarchism. Professor Noam Chomsky, in fact, has refuted the definition, as written in the
New American Webster Handy College Dictionary, describing anarchism as a "political
doctrine." According to Chomsky, "...anarchism isn't a doctrine. It's at most a historical
tendency, a tendency of thought and action, which has many different ways of developing
and progressing and which, I would think, will continue as a permanent strand of human
history." Other modern definitions of anarchism are thoroughly explained, not as a word,
but as a history of movements, people and ideas. The Encyclopedia of the American Left,
in fact, gives a three page history of anarchism, yet does not once define the word.
Prior to the existence of the word anarchism people used the term "Libertarian
Socialism," which meant the same thing as anarchism. Libertarian socialism was used
largely by Mexican radicals in the early eighteenth century. William Godwin was the first
proclaimed anarchist in history and the first to write about anarchism. He was born in
1756 in Weisbech, the capital of North Cambridge shire. He later married feminist Mary
Wollstonecraft and had a daughter, Mary Shelley - author of Frankenstein. Godwin
published a book called Political Justice in 1793 which first introduced his ideas about

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anarchism, Godwin was forgotten about, however, and after his death Pierre Joseph
Proud on became a leading anarchist figure in the world. His book What is Property?
Incorporated greater meaning to the word anarchism; anarchism became not only a
rejection of established authority but a theory opposing ownership of land and property as
well.
Anarchism fully blossomed as a defined theory when Russian anarchists Mikhail
Bakunin (1814-1876) and Peter Kropotkin (1842-1921 started to write and speak.
Bakunin had a major influence in the world and introduced anarchism to many people.
Kropotkin was one of the many people inspired by Bakunin. Kropotkin wrote many
books on anarchism, including Muitual Aid, Fields Factories and Workshops, and The
Conquest of Bread, and greatly aided in the evolution of the theory of anarchism.
Kropotkin wrote the first adept encyclopedia definition of anarchism in the eleventh
edition of the Encyclopedia Britannica in 1910. His definition was fifteen pages long. He
started the definition by introducing the word anarchism as:
the name given to a principle of theory of life and conduct under which society is
conceived without government - harmony in such a society being obtained, not by
submission to law, or by obedience to any authority, but by free agreements concluded
between various groups, territorial and professional, freely constituted for the sake of
production and consumption, as also for the satisfaction of the infinite variety of the
needs and aspirations of a civilized being, In a society developed on these lines, the
voluntary associations which already now begin to cover all fields of human activity
would take a still greater extension so as to substitute themselves for the state of its
functions.
Following Kropotkin, Leo Tolstory furthered the ideas which make up the meaning of the
word anarchism. Tolstoy introduced Christian anarchism (rejecting church authority but
believing in God) and broadened anarchism's meaning. Tolstoy, in favor of the growth of
anarchism, wrote "The anarchists are right in the assertion that, without Authority, there
could not be worse violence than that of Authority under existing conditions."
As the 20th century emerged anarchism began to peak and the definition of anarchism
became concrete with the growth of new anarchist writers and movements. The execution
and imprisonment of eight anarchists in Chicago in 1886 sparked anarchism's growth in
the United States. The "Haymarket Eight" flourished anarchists such as Voltairine de
Cleyre and Lucy Parsons. Parsons was born into slavery and later became an anarchist
and an ardent speaker and working class rebel; the Chicago police labled Parsons,
"...more dangerous than a thousand rioters." Emma Goldman also became a part of the
anarchist movement due to the Chicago Martyrs. Described as a "damn bitch of an
anarchist," Goldman also broadened the meaning of anarchism and introduced the
greatest and most important ideas of anarchist feminism in history which prevail, as a
result of Goldman, to this day.
Emma Goldman's life long comrade, Alexander Berkman, played a major part in helping
to define the word anarchism. He wrote a book called ABC of Anarchism which defined
and describes anarchism and is still read today. Berkman wrote, "Anarchism means you
should be free; that no one should enslave you, boss you, rob you, or impose upon you. It
means you should be free to do the things you want to do; and that you should not be
compelled to do what you do not want to do."

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Anarchism was put into action by giant movements throughout history which proved its
definition was more than theoretical. The communal efforts of anarchism were seen in the
Paris Commune in the early 19th century; the revolutionary organizing of Mexican
working class rebels was proven possible by anarchists such as Ricardo Flores Magon
and revolutionaries like Emiliano Zapata, and the Spanish Revolution of 1936-39 proved
anarchists' capability of creating anarchism within small sectors of the world. Certainly
today we can see anarchism in action in places like Mondragon, Spain, where anarchists
are working in collectives and trying to live free of authority.
Although the word anarchism is understood by many in its classic sense (that defined by
dictionaries and by anarchists of history), the word is often misused and misunderstood.
Anarchism, because of the threat it imposes upon established authority, has been
historically, and is still, misused by power holders as violence and chaos. As anarchist
historian George Woodcock put it, "Of the more frivolous is the idea that the anarchist is
a man who throws bombs and wishes to wreak society by violence and terror. That this
charge should be brought against anarchists now, at a time when they are the few people
who are not throwing bombs or assisting bomb throwers, shows a curious purblindness
among its champions." The claim that anarchism is chaos was refuted long ago by
Alexander Berkman when he wrote:
I must tell you, first of all, what anarchism is not. It is not bombs, disorder, or chaos. It is
not robbery or murder. It is not a war of each against all. It is not a return to barbarianism
or to the wild state of man. Anarchism is the very opposite of all that.
These refutations of stereotypes associated with anarchism are sometimes trampled by
the popular misuse of the word anarchism. It is not uncommon for a Middle Eastern
nation in the midst of U.S.-imposed turmoil to be labeled by the media as "complete
anarchy," a phrase which undermines the true definition of the word anarchism and all
those who toiled, and who do toil, to make the word anarchism mean what it does today.
Modern anarchists still work hard to help anarchism maintain its validity and history.
Anarchism today is being used to find solutions to the problems of power; not just state
power, but corporate power and all immediate forms of domination among individuals
and organizations. Anarchists such as L. Susan Brown have introduced ideas such as
existential individualism, while other anarchists remain loyal to anarcho-syndicalism and
class struggle. Anarchism has also been spread around the world through music and
bands such as Crass, introducing anarchism and anti-speciesism and urging selfsufficiency among workers and community members. Other anarchists such as Lorenzo
Kom'boa Ervin, an ex-Black Panther, are introducing new means of organizing and
directly challenging racism. Furthermore, anarchism has become integrated into
ecological issues thanks in part to eco-anarchist ideas and freethinking organizations such
as Earth First! Also, we see anarchists working to keep anarchism, in theory and practice,
alive and well around the world with anarchist newspapers such as Love and Rage in
Mexico and the United States, anarchist book publishers such as AK Press in the U.S. and
the U.K., and political prisoner support groups such as the Anarchist Black Cross.
As documented, the word anarchism has a long history. Although the word is simply
derived from Greek tongue, the philosophy and actions of anarchists in history and
present give the word anarchism proper definition. Dictionary definitions, as quoted, are
sometimes fair to anarchism, but far from complete. The misuse of the word anarchism is
unfortunate and has been a problem anarchists have had to deal with for the last century.

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Because of the misuse of anarchism, the simple dictionary definitions of anarchism, and
the different interpretations of anarchism the word can take on many meanings, but the
truly accurate meaning of the word anarchism can be found in anarchist history, anarchist
writings and anarchist practice.
Communism:Before we answer the question, What is Communism? it may be good to first compare
it to communism with a small c. The system of thought called communism is an
ideology summarized in the neat-sounding maxim, From each according to his ability, to
each according to his need. A study of communism could lead one into the fascinating
and divergent attempts throughout history by groups to walk in the light of the above
principle -- attempts both secular and religious, some benign and some malignant.
Like the big elephant examined by the group of blind men in the old Indian story, our
understanding of communism would vary greatly depending on which portion of the
beast we touch. But if we think of communism as that bulky beast of the jungle with
many strange parts, Communism with a capital C would be the tusk- perceived as a
sharp and dangerous spear by its fearful examiner.
Modern day Communism is based on the writings of two German economists, Karl Marx
and Fred rich Engels, who answered the question What is Communism? in their
collaboration, The Communist Manifesto published in 1848. In it they declare that
many problems in society are due to the unequal distribution of wealth. To bring about
happiness and prosperity for all, the distinctions between the rich and poor of society
must be eliminated. And since the rich will never give up their goods or status
voluntarily, a rebellion of the poor -- the working class -- is necessary.
Thus, Communism is a distinct socio-political philosophy that is willing to use violent
means to attain its goal of a classless society. If capitalism is defined as a social system
based on individual rights (and individual wealth), then communism is its direct opposite.
Communism believes in equality through force. In its system, individual rights are
ground to powder and used to build its idol of absolute government control. It is indeed
like the tusk of the elephant. It is sharp. It is dangerous. And it has gored millions of men
in its rage through history.
Communism embraces atheism and dismisses religion as the opiate of the masses, a
system designed by the rich and powerful to keep the poor in their place.
But Communisms quest for a classless society is bound to fail. As Frank Zappa, 60s
rock star, succinctly said, Communism doesnt work because people like to own stuff.
Furthermore, someone has to hold the money bag even in a communist-style society. And
whoever holds the bag becomes not only a target for those looking on but for the subtle
interior demons of pride, avarice, and self-preservation.

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If there will always be the poor, then there will always be the rich. There will always be
division, the haves and the have-nots, and any attempt to establish a classless society this
side of heaven, particularly through the violent and godless ways of Communism, is
destined to frustration and failure.
Monarchism:Monarchism is a system based on the belief that political power should be concentrated in
one person who rules by decree. A monarchist is an individual who supports this form of
government, independent from the person, the monarch.
In this system, the Monarch may be the person who sits on the throne, a pretender, or
someone who would otherwise inhabit the throne but has been deposed.
In 1687-88, the Glorious Revolution and the overthrow of King James II established the
principles of constitutional monarchy, which would later be worked out by Montesquieu
and other thinkers. However, absolute monarchy, theorized by Hobbes in the Leviathan
(1651), remained a dominant principle. In the 18th century, Voltaire and others
encouraged "enlightened absolutism", which was embraced by the Holy Roman Emperor
Joseph II and Catherine II of Russia.
Absolutism continued to be the dominant political principle of sovereignty until the 1789
French Revolution and the regicide against Louis XVI, which established the concept of
popular sovereignty upheld by Jean-Jacques Rousseau. Monarchy began to be contested
by the Republican principle. Counterrevolutionaries, such as Joseph de Maistre or Louis
de Bonald, sought the restoration of the Ancien Rgime, divided in the three estates of the
realm, and the divine right of kings.
Following the ousting of Napoleon I in 1814, the Coalition restored the Bourbon Dynasty
in pushing Louis XVIII to the French throne. The ensuing period, called the Restoration,
was characterized by a sharp conservative reaction and the re-establishment of the Roman
Catholic Church, supported by the ultramontanism movement, as a power in French
politics. After the 1830 July Revolution and the overthrow of Charles X, the legitimist
branch was defeated and the Orleanss, gathered behind Louis-Philippe, accepted the
principle of constitutional monarchy.
The Spring of Nations in 1848 then set the signal for a new wave of revolutions against
the European monarchies.
World War I and its aftermath saw the end of three major European monarchies, the
Russian Romanov dynasty, the German Hohenzollern dynasty and the Austro-Hungarian
Habsburg dynasty. In Russia, the 1917 February revolution resulted in the abdication of
Tsar Nicholas II and the establishment of Bolshevik Russia and a civil war between the
Bolshevik Red Army and the monarchist White Army from 1917 to 1921.

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The rise of the Hungarian Soviet Republic in 1919 saw an increase in support for
monarchism, however efforts by Hungarian monarchists failed to bring back a royal head
of state, and the monarchists settled for a regent, Admiral Mikls Horthy, to represent the
monarchy until it could be restored. Horthy was regent from 1920 to 1944. In Germany a
number of monarchists gathered around the German National People's Party which
demanded the return of the Hohenzollern monarchy and an end to the Weimar Republic.
The party retained a large base of support until the rise of Nazism in the 1930s.
With the arrival of Communism in Eastern Europe by 1945, the remaining Eastern
European monarchies such as the Kingdom of Romania, the Kingdom of Hungary, the
Kingdom of Bulgaria and the Kingdom of Yugoslavia were all abolished and replaced by
socialist republics.
The aftermath of World War II also saw the return of monarchist and republican rivalry in
Italy, in which a referendum was held on whether Italy should remain a monarchy or
become a republic. The republican side won the referendum (by a narrow margin) and the
modern Republic of Italy was created.
Monarchism as a political force internationally has substantially diminished since the end
of the Second World War, though it had an important role in the 1979 Iranian Revolution
and also played a role in the modern political affairs of Nepal. Nepal was one of the last
states to have had an absolute monarch, which continued until King Gyanendra of Nepal
was peacefully deposed in May 2008 and Nepal became a federal republic. One of the
world's oldest monarchies was abolished in Ethiopia in 1974 with the fall of Emperor
Haile Selassie.
Capitalism:Capitalism is an economic system that is based on private ownership of the means of
production and the creation of goods or services for profit. Other elements central to
capitalism include competitive markets, wage labor and capital accumulation. There are
multiple variants of capitalism, including laissez-faire, welfare capitalism and state
capitalism. Capitalism is considered to have been applied in a variety of historical cases,
varying in time, geography, politics, and culture. There is general agreement that
capitalism became dominant in the Western world following the demise of feudalism.
Competitive markets may also be found in market-based alternatives to capitalism such
as market socialism and co-operative economics.
Economists, political economists and historians have taken different perspectives on the
analysis of capitalism. Economists usually emphasize the degree to which government
does not have control over markets (laissez faire), as well as the importance of property
rights. Most political economists emphasize private property as well, in addition to power
relations, wage labor, class, and the uniqueness of capitalism as a historical formation
The extent to which different markets are free, as well as the rules defining private
property, is a matter of politics and policy. Many states have what are termed mixed
economies, referring to the varying degree of planned and market-driven elements in a

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state's economic system. A number of political ideologies have emerged in support of
various types of capitalism, the most prominent being economic liberalism.
Liberalism:Liberalism (from the Latin liberalis) is a political philosophy or worldview founded on
the ideas of liberty and equality. Liberals espouse a wide array of views depending on
their understanding of these principles, but generally they support ideas such as free and
fair elections, civil rights, freedom of the press, freedom of religion, free trade, and a
right to life, liberty, and property.
Liberalism first became a distinct political movement during the Age of Enlightenment,
when it became popular among philosophers and economists in the Western world.
Liberalism rejected the notions, common at the time, of hereditary privilege, state
religion, absolute monarchy, and the Divine Right of Kings. The early liberal thinker
John Locke is often credited with founding liberalism as a distinct philosophical tradition.
Locke argued that each man has a natural right to life, liberty and property and according
to the social contract governments must not violate these rights. Liberals opposed
traditional conservatism and sought to replace absolutism in government with democracy
and the rule of law.
The revolutionaries in the American Revolution, the French Revolution and other liberal
revolutions from that time used liberal philosophy to justify the armed overthrow of what
they saw as tyrannical rule. The nineteenth century saw liberal governments established
in nations across Europe, Latin America, and North America.
During the beginning of the twentieth century some countries adopted totalitarian, nonliberal regimes, such as Fascism, Nazism and Communism. In other countries classical
liberalism became less popular and gave way to social democracy and social liberalism .
According to the Encyclopedia Britannica, "In the United States liberalism is associated
with the welfare-state policies of the New Deal program of the Democratic administration
of Pres. Franklin D. Roosevelt, whereas in Europe it is more commonly associated with a
commitment to limited government and laissez-faire economic policies.
Words such as liberal, liberty, libertarian, and libertine all trace their history to the Latin
liber, which means "free". One of the first recorded instances of the word liberal occurs
in 1375, when it was used to describe the liberal arts in the context of an education
desirable for a free-born man. The word's early connection with the classical education of
a medieval university soon gave way to a proliferation of different denotations and
connotations. Liberal could refer to "free in bestowing" as early as 1387, "made without
stint" in 1433, "freely permitted" in 1530, and "free from restraint"often as a pejorative
remarkin the 16th and the 17th centuries.
In 16th century England, liberal could have positive or negative attributes in referring to
someone's generosity or indiscretion. In Much Ado About Nothing, Shakespeare wrote of
"a liberal villains" who "hath... confect his vile encounters". With the rise of the
Enlightenment, the word acquired decisively more positive undertones, being defined as
"free from narrow prejudice" in 1781 and "free from bigotry" in 1823.In 1815, the first

13
use of the word liberalism appeared in English. By the middle of the 19th century, liberal
started to be used as a politicized term for parties and movements all over the world.
Liberalis
m as a political movement spans the better part of the last four centuries, though the use
of the word liberalism to refer to a specific political doctrine did not occur until the 19th
century. Perhaps the first modern state founded on liberal principles, with no hereditary
aristocracy, was The United States of America, whose Declaration of Independence states
that "all men are created equal and endowed by their creator with certain unalienable
rights". A few years later, the French Revolution overthrew the hereditary aristocracy,
with the slogan "liberty, equality, fraternity", and was the first state in history to grant
universal male suffrage.
Some argue that Liberalism started as a major doctrine and political endeavor in response
to the religious wars gripping Europe during the 16th and 17th centuries. In any case, the
intellectual progress of the Enlightenment, which questioned old traditions about
societies and governments, eventually coalesced into powerful revolutionary movements
that toppled archaic regimes all over the world, especially in Europe, Latin America, and
North America. Liberalism fully exploded as a comprehensive movement against the old
order during the French Revolution, which set the pace for the future development of
human history.
The emergence of the Renaissance in the 15th century helped to weaken unquestioning
submission to the institutions of the Middle Ages by reinvigorating interest in science and
in the classical world.In the 16th century, the Protestant Reformation developed from
sentiments that viewed the Catholic Church as an oppressive ruling order too involved in
the feudal and baronial structure of European society. The Church launched a Counter
Reformation to contain these bubbling sentiments, but the effort unraveled in the Thirty
Years' War of the 17th century. In England, a civil war led to the execution of King
Charles I in 1649. Parliament ultimately succeededwith the Glorious Revolution of
1688in establishing a limited and constitutional monarchy. The main facets of early
liberal ideology in Britain emerged against the backdrop of these events. The American
colonies had been loyal British subjects for decades, but they declared independence
from rule under the monarchy in 1776 as a result of their dissatisfaction with lack of
representation in the governing parliament overseas, which manifested itself most
directly and dramatically through taxation policies that colonists considered a violation of
their natural rights. The American Revolution was primarily a civil and political matter at
first, but escalated to military engagements in 1775 that were largely complete by 1781.
The 1776 United States Declaration of Independence drew upon liberal ideas of
unalienable rights to demonstrate the tyranny of the British monarchy, and justify a
complete denial of its legitimacy and authority, leading to the creation of a selfdetermining and sovereign new nation. After the war, the new nation held a
Constitutional Convention in 1787 to resolve the problems stemming from the first
attempt at a confederated national government under the Articles of Confederation. The
resulting Constitution of the United States settled on a republic with a federal structure.
The United States Bill of Rights quickly followed in 1789, which guaranteed certain
natural rights fundamental to liberal ideals. The American Revolution predicated a series
of drastic socio-political changes across nations and continents, collectively referred to as
the "Atlantic Revolutions", of which the most famous is probably the French Revolution.

14
Three years into the French Revolution, German writer Johann von Goethe reportedly
told the defeated Prussian soldiers after the Battle of Valmy that "from this place and
from this time forth commences a new era in world history, and you can all say that you
were present at its birth". Historians widely regard the Revolution as one of the most
important events in human history, and the onset of the Revolution in 1789 is considered
by some to mark the end of the early modern period.
The march of the women on Versailles in October 1789 was one of the most famous
examples of popular political participation during the French Revolution. The
demonstrators forced the royal court back to Paris, where it would remain until the
proclamation of the First Republic in 1792.
The French Revolution is often seen as marking the "dawn of the modern era, and its
convulsions are widely associated with "the triumph of liberalism". For liberals, the
Revolution was their defining moment, and later liberals approved of the French
Revolution almost entirely"not only its results but the act itself," as two historians
noted.The French Revolution began in May 1789 with the convocation of the EstatesGeneral. The first year of the Revolution witnessed, among other major events, the
Storming of the Bastille in July and the passage of the Declaration of the Rights of Man
and of the Citizen in August.
The next few years were dominated by tensions between various liberal assemblies and a
conservative monarchy intent on thwarting major reforms. A republic was proclaimed in
September 1792. External conflict and internal squabbling significantly radicalized the
Revolution, culminating in the "Reign of Terror", led by Robespierre. After the fall of
Robespierre and the radical Jacobins, the Directory assumed control of the French state in
1795 and held power until 1799, when it was replaced by the Consulate under Napoleon.
Napoleon ruled as First Consul for about five years, centralizing power and streamlining
the bureaucracy along the way. The Napoleonic Wars, pitting the heirs of a revolutionary
state against the old monarchies of Europe, started in 1805 and lasted for a decade. Along
with their boots and Charleville muskets, French soldiers brought to the rest of the
European continent the liquidation of the feudal system, the liberalization of property
laws, the end of seigniorial dues, the abolition of guilds, the legalization of divorce, the
disintegration of Jewish ghettos, the collapse of the Inquisition, the permanent destruction
of the Holy Roman Empire, the elimination of church courts and religious authority, the
establishment of the metric system, and equality under the law for all men. Napoleon
wrote that "the peoples of Germany, as of France, Italy and Spain, want equality and
liberal ideas, "with some historians suggesting that he may have been the first person ever
to use the word liberal in a political sense. He also governed through a method that one
historian described as "civilian dictatorship," which "drew its legitimacy from direct
consultation with the people, in the form of a plebiscite". Napoleon did not always live up
the liberal ideals he espoused, however. His most lasting achievement, the Civil Code,
served as "an object of emulation all over the globe, "but it also perpetuated further
discrimination against women under the banner of the "natural order".
The march of the women on Versailles in October 1789 was one of the most famous
examples of popular political participation during the French Revolution. The
demonstrators forced the royal court back to Paris, where it would remain until the
proclamation of the First Republic in 1792.

15
The French Revolution is often seen as marking the "dawn of the modern era, "and its
convulsions are widely associated with "the triumph of liberalism". For liberals, the
Revolution was their defining moment, and later liberals approved of the French
Revolution almost entirely"not only its results but the act itself," as two historians
noted.The French Revolution began in May 1789 with the convocation of the EstatesGeneral. The first year of the Revolution witnessed, among other major events, the
Storming of the Bastille in July and the passage of the Declaration of the Rights of Man
and of the Citizen in August.
The next few years were dominated by tensions between various liberal assemblies and a
conservative monarchy intent on thwarting major reforms. A republic was proclaimed in
September 1792. External conflict and internal squabbling significantly radicalized the
Revolution, culminating in the "Reign of Terror", led by Robespierre. After the fall of
Robespierre and the radical Jacobins, the Directory assumed control of the French state in
1795 and held power until 1799, when it was replaced by the Consulate under Napoleon.
Napoleon ruled as First Consul for about five years, centralizing power and streamlining
the bureaucracy along the way. The Napoleonic Wars, pitting the heirs of a revolutionary
state against the old monarchies of Europe, started in 1805 and lasted for a decade. Along
with their boots and Charleville muskets, French soldiers brought to the rest of the
European continent the liquidation of the feudal system, the liberalization of property
laws, the end of seigniorial dues, the abolition of guilds, the legalization of divorce, the
disintegration of Jewish ghettos, the collapse of the Inquisition, the permanent destruction
of the Holy Roman Empire, the elimination of church courts and religious authority, the
establishment of the metric system, and equality under the law for all men. Napoleon
wrote that "the peoples of Germany, as of France, Italy and Spain, want equality and
liberal ideas,"with some historians suggesting that he may have been the first person ever
to use the word liberal in a political sense. He also governed through a method that one
historian described as "civilian dictatorship," which "drew its legitimacy from direct
consultation with the people, in the form of a plebiscite". Napoleon did not always live up
the liberal ideals he espoused, however. His most lasting achievement, the Civil Code,
served as "an object of emulation all over the globe, "but it also perpetuated further
discrimination against women under the banner of the "natural order".
General Toussaint Overture, inspired by the French Revolution led revolutionary forces
during the Haitian Revolution that ended slavery in Haiti and resulted in the creation of
the short-lived Haitian Republic - the first self-governing independent black state in the
Americas.
Liberals in the 19th century wanted to develop a world free from government
intervention, or at least free from too much government intervention. They championed
the ideal of negative liberty, which constitutes the absence of coercion and the absence of
external constraints. They believed governments were cumbersome burdens and they
wanted governments to stay out of the lives of individuals. Liberals simultaneously
pushed for the expansion of civil rights and for the expansion of free markets and free
trade. The latter kind of economic thinking had been formalized by Adam Smith in his
influential Wealth of Nations (1776), which revolutionized the field of economics and
argued that the "invisible hand" of the free market was a self-regulating mechanism that
did not depend on external interference. Sheltered by liberalism, the laissez-faire

16
economic world of the 19th century emerged with full tenacity, particularly in the United
States and in the United Kingdom.
The relatively laissez-faire liberal economy of the Industrial Revolution and rise of living
standards allowed an increasingly larger number of parents to avoid sending their
children to work.
Politically, liberals saw the 19th century as a gateway to achieving the promises of 1789.
In Spain, the Liberals, the first group to use the liberal label in a political context, fought
for the implementation of the 1812 Constitution for decadesoverthrowing the
monarchy in 1820 as part of the Trienio Liberal and defeating the conservative Car lists
in the 1830s. In France, the July Revolution of 1830, orchestrated by liberal politicians
and journalists, removed the Bourbon monarchy and inspired similar uprisings elsewhere
in Europe.
Depiction of Romanian revolutionaries during the Revolutions of 1848.
Frustration with the pace of political progress, however, sparked even more gigantic
revolutions in 1848. Revolutions spread throughout the Austrian Empire, the German
states, and the Italian states. Governments fell rapidly. Liberal nationalists demanded
written constitutions, representative assemblies, greater suffrage rights, and freedom of
the press. A second republic was proclaimed in France. Serfdom was abolished in Prussia,
Galicia, Bohemia, and Hungary. Metternich shocked Europe when he resigned and fled to
Britain in panic and disguise.
Eventually, however, the success of the revolutionaries petered out. Without French help,
the Italians were easily defeated by the Austrians. Austria also managed to contain the
bubbling nationalist sentiments in Germany and Hungary, helped along by the failure of
the Frankfurt Assembly to unify the German states into a single nation. Under abler
leadership, however, the Italians and the Germans wound up realizing their dreams for
independence. The Sardinian Prime Minister, Camillo di Cavour, was a shrewd liberal
who understood that the only effective way for the Italians to gain independence was if
the French were on their side. Napoleon III agreed to Cavour's request for assistance and
France defeated Austria in the Franco-Austrian War of 1859, setting the stage for Italian
independence. German unification transpired under the leadership of Otto von Bismarck,
who decimated the enemies of Prussia in war after war, finally triumphing against France
in 1871 and proclaiming the German Empire in the Hall of Mirrors at Versailles, ending
another saga in the drive for nationalization. The French proclaimed a third republic after
their loss in the war, and the rest of French history transpired under republican eyes.
Just a few decades after the French Revolution, liberalism went global. The liberal and
conservative struggles in Spain also replicated themselves in Latin American countries
like Mexico and Ecuador. From 1857 to 1861, Mexico was gripped in the bloody War of
Reform, a massive internal and ideological confrontation between the liberals and the
conservatives. The liberal triumph there parallels with the situation in Ecuador. Similar to
other nations throughout the region at the time, Ecuador was steeped in turmoil, with the
people divided between rival liberal and conservative camps. From these conflicts,
Garca Moreno established a conservative government which was eventually overthrown
in the Liberal Revolution of 1895. The Radical Liberals who toppled the conservatives

17
were led by Eloy Alfaro, a firebrand who implemented a variety of sociopolitical reforms,
including the separation of church and state, the legalization of divorce, and the
establishment of public schools.
Although liberals were active throughout the world in the 19th century, it was in Britain
that the future character of liberalism would take shape. The liberal sentiments unleashed
after the revolutionary era of the previous century ultimately coalesced into the Liberal
Party, formed in 1859 from various Radical and Whig elements. The Liberals produced
one of the most influential British prime ministersWilliam Ewart Gladstone, who was
also known as the Grand Old Man. Under Gladstone, the Liberals reformed education,
disestablished the Church of Ireland (with the Irish Church Act 1869), and introduced the
secret ballot for local and parliamentary elections. Following Gladstone, and after a
period of Conservative domination, the Liberals returned with full strength in the general
election of 1906, aided by working class voters worried about food prices. After that
historic victory, the Liberal Party shifted from its classical liberalism and laid the
groundwork for the future British welfare state, establishing various forms of health
insurance, unemployment insurance, and pensions for elderly workers.This new kind of
liberalism would sweep over much of the world in the 20th century.
The 20th century started perilously for liberalism. World War I proved a major challenge
for liberal democracies, although they ultimately triumphed, along with Communism,
over the monarchies. The war precipitated the collapse of older forms of government,
including empires and dynastic states. The number of republics in Europe reached 13 by
the end of the war, as compared with only three at the start of the war in 1914.This
phenomenon became readily apparent in Russia. Before the war, the Russian monarchy
was reeling from losses to Japan and political struggles with the Cadets, a powerful
liberal bloc in the Dumb. Facing huge shortages in basic necessities along with
widespread riots in early 1917, Czar Nicholas II abdicated in March, ending three
centuries of Romanov rule and allowing liberals to declare a republic. Under the
uncertain leadership of Alexander Kerensky, However, the Provisional Government
mismanaged Russia's continuing involvement in the war, prompting angry reactions from
the Petrograd workers, who drifted further and further to the left. The Bolsheviks, a
communist group led by Vladimir Lenin, seized the political opportunity from this
confusion and launched a second revolution in Russia during the same year. The
communist victory presented a major challenge to capitalism as a core component of
liberalism. As some manifestations of communism historically resulted in totalitarian
regimes, mainstream liberalism has shied away from association with communism.
However, the economic problems that rocked the Western world in the 1930s proved
even more devastating, leading to fundamental reforms in some of the aims of the liberal
state.
The Great Depression fundamentally changed the liberal world. There was an inkling of a
new liberalism during World War I, but modern liberalism fully hatched in the 1930s as a
response to the Depression, which inspired John Maynard Keynes to revolutionize the
field of economics. Classical liberals, such as economist Ludwig von Mises, posited that
completely free markets were the optimal economic units capable of effectively
allocating resourcesthat over time, in other words, they would produce full
employment and economic security. Keynes spearheaded a broad assault on classical

18
economics and its followers, arguing that totally free markets were not ideal, and that
hard economic times required intervention and investment from the state. Where the
market failed to properly allocate resources, for example, the government was required to
stimulate the economy until private funds could start flowing againa "prime the pump"
kind of strategy designed to boost industrial production.
The social liberal program launched by President Roosevelt in the United States, the New
Deal, proved very popular with the American public. In 1933, when Roosevelt came into
office, the unemployment rate stood at roughly 25 percent. The size of the economy,
measured by the gross national product, had fallen to half the value it had in early
1929.The electoral victories of Roosevelt and the Democrats precipitated a deluge of
public works programs. Despite this, by 1936 the level of unemployment had only fallen
to around 10 percent (when counting persons on work relief as employed) or 17 percent
(when counting persons on work relief as unemployed).Deficit spending sparked by
World War II eventually pulled the United States out of the Great Depression. From 1940
to 1941, government spending increased by 59 percent, the gross domestic product
skyrocketed 17 percent, and unemployment fell below 10 percent for the first time since
1929.By 1945, after vast government spending, public debt stood at a staggering 120
percent of GNP, but unemployment had been effectively eliminated. Most nations that
emerged from the Great Depression did so with deficit spending and strong intervention
from the state.
The protests at the Berlin Wall in 1989 that resulted in its fall, the end of single-party
state rule in East Germany, and the reunification of Germany in the form of a liberal
democracy.
Protest against the World Bank in Indonesia. Neoliberal economic policies pursued by
international institutions since the 1970s and 1980s have provoked strong criticism and
protest, especially in developing or underdeveloped countries that have been pressured by
institutions such as the International Monetary Fund to privatize parts of their economy
and remove protectionist measures, in order to gain IMF assistance.
The economic woes of the period prompted widespread unrest in the European political
world, leading to the rise of fascism as an ideology and a movement that heavily
criticized liberalism. Broadly speaking, fascist ideology emphasized elite rule and
absolute leadership, a rejection of equality, the imposition of patriarchal society, a stern
commitment to war as an instrument of natural behavior, and the elimination of
supposedly inferior or subhuman groups from the structure of the nation. The fascist and
nationalist grievances of the 1930s eventually culminated in World War II, the deadliest
conflict in human history. The Allies prevailed in the war by 1945, and their victory set
the stage for the Cold War between communist states and liberal democracies. The Cold
War featured extensive ideological competition and several proxy wars. While
communist states and liberal democracies competed against one another, an economic
crisis in the 1970s inspired a temporary move away from Keynesian economics across
many Western governments. This classical liberal renewal, known as neoliberalism,
lasted through the 1980s and the 1990s, bringing about economic privatization of
previously state-owned industries. However, economic troubles in the early twenty-first
century have prompted resurgence in Keynesian economic thought. Meanwhile, nearing
the end of the 20th century, communist states in Eastern Europe collapsed precipitously,
leaving liberal democracies as the only major forms of government. At the beginning of

19
World War II, the number of democracies around the world was about the same as it had
been forty years before. After 1945, liberal democracies spread very quickly. Even as late
as 1974, roughly 75 percent of all nations were considered dictatorial, but now more than
half of all countries are democracies. However, liberal democracies still confront several
challenges, including the proliferation of terrorism and the growth of religious
fundamentalism. The rise of China is also challenging Western liberalism with a
combination of authoritarian government and capitalism.
Liberalism has drawn both criticism and support in its history from various ideological
groups. For example, some scholars suggest that liberalism gave rise to feminism,
although others maintain that liberal democracy is inadequate for the realization of
feminist objectives. Liberal feminism, the dominant tradition in feminist history, hopes to
eradicate all barriers to gender equalityclaiming that the continued existence of such
barriers eviscerates the individual rights and freedoms ostensibly guaranteed by a liberal
social order. British philosopher Mary Wollstonecraft is widely regarded as the pioneer of
liberal feminism, with A Vindication of the Rights of Woman (1792) expanding the
boundaries of liberalism to include women in the political structure of liberal society.
Less friendly to the goals of liberalism has been conservatism. Edmund Burke,
considered by some to be the first major proponent of modern conservative thought,
offered a blistering critique of the French Revolution by assailing the liberal pretensions
to the power of rationality and to the natural equality of all humans. Conservatives have
also attacked what they perceive to be the reckless liberal pursuit of progress and material
gains, arguing that such preoccupations undermine traditional social values rooted in
community and continuity. However, a few variations of conservatism, like liberal
conservatives, expound some of the same ideas and principles championed by classical
liberalism, including "small government and thriving capitalism".
Some confusion remains about the relationship between social liberalism and socialism,
despite the fact that many variants of socialism distinguish themselves markedly from
liberalism by opposing capitalism, hierarchy and private property. Socialism formed as a
group of related ideologies in the 19th century such as Christian socialism, communism
(with the writings of Karl Marx) and anarchism, and these ideologies as with
liberalism and conservatism fractured into several major movements in the following
decades. Marx rejected the foundational aspects of liberal theory, hoping to destroy both
the state and the liberal distinction between society and the individual while fusing the
two into a collective whole designed to overthrow the developing capitalist order of the
19th century.
Social democracy, an ideology advocating progressive reform of capitalism, emerged in
the 20th century and was influenced by socialism. Yet unlike socialism, it was neither
collectivist nor anti-capitalist. Broadly defined as a project that aims to correct, through
government reformism, what it regards as the intrinsic defects of capitalism by reducing
inequalities, social democracy was also not against the state. Several commentators have
noted strong similarities between social liberalism and social democracy, with one
political scientist even calling American liberalism "bootleg social democracy" due to the
absence of a significant social democratic tradition in the United States that liberals have
tried to rectify. Another movement associated with modern democracy, Christian
democracy, hopes to spread Catholic social ideas and has gained a large following in
some European nations. The early roots of Christian democracy developed as a reaction

20
against the industrialization and urbanization associated with laissez-faire liberalism in
the 19th century. Despite these complex relationships, some scholars have argued that
liberalism actually "rejects ideological thinking" altogether, largely because such thinking
could lead to unrealistic expectations for human society.
Conservatism:Conservatism (Latin: conservare, "to retain") is a political and social philosophy that
promotes retaining traditional social institutions. A person who follows the philosophies
of conservatism is referred to as a traditionalist or conservative.
Some conservatives seek to preserve things as they are, emphasizing stability and
continuity, while others oppose modernism and seek a return to "the way things were".
The first established use of the term in a political context was by Franois-Ren de
Chateaubriand in 1819, following the French Revolution. The term, historically
associated with right-wing politics, has since been used to describe a wide range of
views.
Edmund Burke, an Anglo-Irish politician who served in the British House of Commons
and opposed the French Revolution, is credited as one of the founders of conservatives in
Great Britain. According to Hail sham, a former chairman of the British Conservative
Party, "Conservatism is not so much a philosophy as an attitude, a constant force,
performing a timeless function in the development of a free society, and corresponding to
a deep and permanent requirement of human nature itself."
Forms of Conservatism:Liberal conservatism:- It is a variant of conservatism that combines conservative values
and policies with classical liberal stances. As these latter two terms have had different
meanings over time and across countries, liberal conservatism also has a wide variety of
meanings. Historically, the term often referred to the combination of economic liberalism,
which champions laissez-faire markets, with the classical conservatism concern for
established tradition, respect for authority and religious values. It contrasted itself with
classical liberalism, which supported freedom for the individual in both the economic and
social spheres.
Over time, the general conservative ideology in many countries adopted economic liberal
arguments, and the term liberal conservatism was replaced with conservatism. This is
also the case in countries where liberal economic ideas have been the tradition, such as
the United States, and are thus considered conservative. In other countries where liberal
conservative movements have entered the political mainstream, such as Italy and Spain,
the terms liberal and conservative may be synonymous. The liberal conservative tradition
in the United States combines the economic individualism of the classical liberals with a
Burkean form of conservatism (which has also become part of the American conservative
tradition, such as in the writings of Russell Kirk).

21
A secondary meaning for the term liberal conservatism that has developed in Europe is a
combination of more modern conservative (less traditionalist) views with those of social
liberalism. This has developed as an opposition to the more collectivist views of
socialism. Often this involves stressing what are now conservative views of free-market
economics and belief in individual responsibility, with social liberal views on defense of
civil rights, environmentalism and support for a limited welfare state. This philosophy is
that of Swedish Prime Minister Fredrik Refined. In continental Europe, this is sometimes
also translated into English as social conservatism.
Conservative liberalism
Conservative liberalism is a variant of liberalism that combines liberal values and policies
with conservative stances, or, more simply, the right wing of the liberal movement. The
roots of conservative liberalism are found at the beginning of the history of liberalism.
Until the two World Wars, in most European countries the political class was formed by
conservative liberals, from Germany to Italy. Events after World War I brought the more
radical version of classical liberalism to a more conservative (i.e. more moderate) type of
liberalism.
Libertarian conservatism:- Libertarian conservatism describes certain political
ideologies within the United States and Canada which combine libertarian economic
issues with aspects of conservatism. Its five main branches are Constitutionalism,
paleolibertarianism, neolibertarianism, small government conservatism and Christian
libertarianism. They generally differ from pale conservatives, in that they are in favor of
more personal and economic freedom.
Agonists such as Samuel Edward Konkin III labeled libertarian conservatism rightlibertarianism.
In contrast to pale conservatives, libertarian conservatives support strict laissez-faire
policies such as free trade, opposition to any national bank and opposition to business
regulations. They are vehemently opposed to environmental regulations, corporate
welfare, subsidies, and other areas of economic intervention. Many of them have views in
accord to Ludwig von Mises. However, many of them oppose abortion, as they see it as a
positive liberty and consider abortion to violate the non-aggression principle because
abortion is aggression toward the unborn.
Fiscal conservatism:- Fiscal conservatism is the economic philosophy of prudence in
government spending and debt. Edmund Burke, in his 'Reflections on the Revolution in
France', argued that a government does not have the right to run up large debts and then
throw the burden on the taxpayer:
It is to the property of the citizen, and not to the demands of the creditor of the state, that
the first and original faith of civil society is pledged. The claim of the citizen is prior in
time, paramount in title, superior in equity. The fortunes of individuals, whether
possessed by acquisition or by descent or in virtue of a participation in the goods of some
community, were no part of the creditor's security, expressed or implied. The public,

22
whether represented by a monarch or by a senate, can pledge nothing but the public
estate; and it can have no public estate except in what it derives from a just and
proportioned imposition upon the citizens at large.
Green conservatism:- It is a term used to refer to conservatives who have incorporated
green concerns into their ideology. One of the first uses of the term green conservatism
was by former United States Republican House Speaker Newt Gingrich, in a debate on
environmental issues with John Kerry. Around this time, the green conservative
movement was sometimes referred to as the crunchy con movement, a term popularized
by National Review magazine and the writings of Rod Dreher. The group Republicans for
Environmental Protection seeks to strengthen the Republican Party's stance on
environmental issues, and supports efforts to conserve natural resources and protect
human and environmental health.
National and traditional conservatism
Main articles: National conservatism and Traditional conservatism
National conservatism is a political term used primarily in Europe to describe a variant of
conservatism which concentrates more on national interests than standard conservatism
as well as upholding cultural and ethnic identity, while not being outspokenly nationalist
or supporting a far-right approach.[citation needed] In Europe, national conservatives are
usually eurosceptics.
National conservatism is heavily oriented towards the traditional family and social
stability as well as in favor of limiting immigration. As such, national conservatives can
be distinguished from economic conservatives, for whom free market economic policies,
deregulation and fiscal conservatism are the main priorities. Some commentators have
identified a growing gap between national and economic conservatism: "most parties of
the Right [today] are run by economic conservatives who, in varying degrees, have
marginalized social, cultural, and national conservatives." National conservatism is also
related to traditionalist conservatism.
Traditionalist conservatism is a political philosophy emphasizing the need for the
principles of natural law and transcendent moral order, tradition, hierarchy and organic
unity, agrarianism, classicism and high culture, and the intersecting spheres of loyalty.
Some traditionalists have embraced the labels "reactionary" and "counterrevolutionary",
defying the stigma that has attached to these terms since the Enlightenment. Having a
hierarchical view of society, many traditionalist conservatives, including a few
Americans, defend the monarchical political structure as the most natural and beneficial
social arrangement.
Cultural and social conservatism:- Cultural conservatives support the preservation of
the heritage of one nation, or of a shared culture that is not defined by national
boundaries. The shared culture may be as divergent as Western culture or Chinese culture.
In the United States, the term cultural conservative may imply a conservative position in
the culture war. Cultural conservatives hold fast to traditional ways of thinking even in

23
the face of monumental change. They believe strongly in traditional values and traditional
politics, and often have an urgent sense of nationalism.
Social conservatism is distinct from cultural conservatism, although there are some
overlaps. Social conservatives believe that the government has a role in encouraging or
enforcing what they consider traditional values or behaviors. A social conservative wants
to preserve traditional morality and social mores, often through civil law or regulation.
Social change is generally regarded as suspect.
A second meaning of the term social conservatism developed in the Nordic countries and
continental Europe. There it refers to liberal conservatives supporting modern European
welfare states.
Social conservatives (in the first meaning of the word) in many countries generally favor
the pro-life position in the abortion controversy and oppose human embryonic stem cell
research (particularly if publicly funded); oppose both eugenics and human enhancement
(transhumanism) while supporting bioconservatism; support a traditional definition of
marriage as being one man and one woman; view the nuclear family model as society's
foundational unit; oppose expansion of civil marriage and child adoption rights to couples
in same-sex relationships; promote public morality and traditional family values; oppose
atheism, especially militant atheism, secularism and the separation of church and state;
support the prohibition of drugs, prostitution, and euthanasia; and support the censorship
of pornography and what they consider to be obscenity or indecency. Most conservatives
in the U.S. support the death penalty.
Religious conservatism:See also: Religious right (disambiguation), Christian Right, and Fundamentalist Islam
Religious conservatives principally seek to apply the teachings of particular religions to
politics, sometimes by merely proclaiming the value of those teachings, at other times by
having those teachings influence laws.
Progressive conservatism:Progressive conservatism incorporates progressive policies alongside conservative
policies. It stresses the importance of a social safety net to deal with poverty, support of
limited redistribution of wealth along with government regulation to regulate markets in
the interests of both consumers and producers. Progressive conservatism first arose as a
distinct ideology in the United Kingdom under Prime Minister Benjamin Disraeli's "One
Nation" Toryism.
There have been a variety of progressive conservative governments. In the UK, the Prime
Ministers Disraeli, Stanley Baldwin, Neville Chamberlain, Winston Churchill, Harold
Macmillan and present Prime Minister David Cameron are progressive conservatives.
The Catholic Church's Rerum Novarum (1891) advocates a progressive conservative
doctrine known as social Catholicism. In the United States, the administration of
President William Howard Taft was progressive conservative and he described himself as
"a believer in progressive conservatism" and President Dwight D. Eisenhower declared

24
himself an advocate of "progressive conservatism". In Germany, Chancellor Leo von
Captives promoted a progressive conservative agenda called the "New Course". In
Canada, a variety of conservative governments have been progressive conservative, with
Canada's major conservative movement being officially named the Progressive
Conservative Party of Canada from 1942 to 2003. In Canada, the Prime Ministers Arthur
Meighen, R.B. Bennett, John Diefenbaker, Joe Clark, Brian Mulroney, and Kim
Campbell led progressive conservative federal governments.
Democracy:- Democracy is a form of government in which all eligible citizens have an
equal say in the decisions that affect their lives. Democracy allows people to participate
equallyeither directly or through elected representativesin the proposal,
development, and creation of laws.
Abraham Lincoln said Democracy is the government of the people, by the people, for
the people.
Types of Democracy:
i. Anticipatory democracy is a theory of civics relying on democratic decision making
that takes into account predictions of future events that have some credibility with the
electorate. The phrase was coined by Alvin Toffler in his book Future Shock and was
expanded on in the 1978 book Anticipatory Democracy, edited by Clement Bezold.
Other well-known advocates of the anticipatory approach include Newt Gingrich, Heidi
Toffler, K. Eric Drexler, and Robin Hanson. They all advocate approaches where the
public, not just experts, participate in this "anticipation".
ii. Bioregionalism democracy is a political, cultural, and ecological system or set of
views based on naturally defined areas called bioregions, similar to coercions. Bioregions
are defined through physical and environmental features, including watershed boundaries
and soil and terrain characteristics. Bioregionalism stresses that the determination of a
bioregion is also a cultural phenomenon, and emphasizes local populations, knowledge,
and solutions.
Bioregionalism is a concept that goes beyond national boundariesan example is the
concept of Cascadian, a region that is sometimes considered to consist of most of Oregon
and Washington, the Alaska Panhandle, the far north of California and the West Coast of
Canada, sometimes also including some or all of Idaho and western Montana. Another
example of a bioregion, which does not cross national boundaries, but does overlap state
lines, is the Ozarks, a bioregion also referred to as the Ozarks Plateau, which consists of
southern Missouri, northwest Arkansas, the northeast corner of Oklahoma, southeast
corner of Kansas.

25
Relationship to environmentalism of Bioregionalism:
Bioregionalism, while akin to environmentalism in certain aspects, such as a desire to
live in harmony with nature, differs in certain ways from classical, 20th century
environmentalism.
According to Peter Berg, bioregionalism is proactive, and is based on forming a harmony
between human culture and the natural environment, rather than being protest-based like
the original environmental movement. Also, while classical environmentalists saw human
industry as the enemy of nature and nature as a victim needing to be saved;
bioregionalisms see humanity and its culture as a part of nature, focusing on building a
positive, sustainable relationship with the environment, rather than a focus on preserving
and segregating the wilderness from the world of humanity.
iii. Economic democracy is a socioeconomic philosophy that proposes to shift decisionmaking power from corporate shareholders to a larger group of public stakeholders that
includes workers, customers, suppliers, neighbors and the broader public. No single
definition or approach encompasses economic democracy, but most proponents claim that
modern property relations externalize costs, subordinate the general well-being to private
profit, and deny the polity a democratic voice in economic policy decisions. In addition to
these moral concerns, economic democracy makes practical claims, such as that it can
compensate for capitalism's claimedly inherent effective demand gap.
Economic democracy is described as an integral component of an inclusive democracy,
in Takes Fotopoulos' Towards An Inclusive Democracy as a stateless, moneyless and
market less economy that precludes private accumulation of wealth and the
institutionalization of privileges for some sections of society, without relying on a
mythical post-scarcity state of abundance, or sacrificing freedom of choice.
Inclusive democracy list three preconditions: Demotic self-reliance, demotic ownership
of the means of production, and co federal allocation of resources.
Demotic self-reliance involves radical decentralization and self-reliance, rather than of
self-sufficiency.
Demotic ownership of productive resources leads to the politicization of the economy,
the real synthesis of economy and polity. This happens because economic decision
making is carried out by the entire community, through assemblies, where people make
the fundamental macroeconomic decisions which affect the whole community, as
citizens, rather than as vocationally oriented groups e.g. workers, as e.g. in participatory
economics. Workers would also participate (in vocationally oriented groups) in their
respective workplace assemblies, in a process of modifying/implementing the Democratic
Plan and in running their own workplace.
Co federal allocation of resources is required because much remains to be decided at
the regional/national/supra-national level. However, delegates (rather than
representatives) with specific mandates from the assemblies are involved in a confederal

26
demotic planning process which, in combination with vouchers, effects the allocation of
resources in a co federal inclusive democracy.
iv. Sociocracy democracy is a system of governance, using consent-based decision
making among equivalent individuals and an organizational structure based on cybernetic
principles. The most recent implementation of sociocracy by Gerard Endenburg, also
known as Circular Organizing, was developed as a new tool for governance of private
enterprise, but has been adopted in many different kinds of organizations including
public, private, and non-profit and community organizations as well as professional
associations.
Advantages of Sociocracy Democracy:
Consent as defined and practiced in sociocratic organizations is claimed to be a more
efficient and effective decision-making method than autocratic decision-making, because
it builds trust and understanding. The process educates the participants about the needs of
the other members in doing their work effectively as well as their psychological and
social needs as human beings. In addition to reducing friction, the well-defined,
information-based, and highly disciplined process helps the group stay focused and move
swiftly through examining an issue and actual decision-making. The main advantages of
adopting the sociocratic approach have been extensively studied, especially in
collaboration with Professor Georges Romme (at Maastricht University respectively
Eindhoven University of Technology); see for example: Romme & Endenburg (2006).
Sociocratic principles are now applied around the world. These include corporations,
small businesses, nursing homes, colleges, ecovillages and co housing communities,
private schools, and international professional and educational membership
organizations. Examples of this variety are organizations such as the Boeddhistische
Omroep Stitching, the Buddhist Broadcasting Foundation, (BOS) in the Netherlands;
Living Well - an award-winning long-term health care center in Vermont; The EcoVillage of Loudoun County in Virginia - a co housing community; Creative Urethanes - a
manufacturer of skateboard wheels and urethane parts in Winchester, Virginia.
Sociocratic principles have also been applied in higher education, for example, the
School of Media, Culture, and Design of Woodbury University, Burbank, California;
Institute Francais, University of Regina, Saskatchewan, Canada, and others.
Fascism:The term Fascism was first used of the totalitarian right-wing nationalist regime of
Mussolini in Italy (192243); the regimes of the Nazis in Germany and Franco in Spain
were also Fascist. Fascism tends to include a belief in the supremacy of one national or
ethnic group, contempt for democracy, an insistence on obedience to a powerful leader,
and a strong demagogic approach.

27
The four Basic Principle of Fascism:
It would take me a while to define Fascism in my own words so this article explains it for
you in a very simple way.
Absolute power of the State: The Fascist state is a glorious, living entity that is more
important than any individual. All individuals are part of the State, but the State is greater
than the sum of its parts. All individuals must set aside their own needs and supplicate
themselves to the needs of the State. There is no law or other power that can limit the
authority of the State.
Survival of the fittest: A Fascist state is only as glorious and powerful as its ability to
wage wars and win them. Peace is viewed as weakness, aggression as strength. Strength
is the ultimate good and ensures the survival of the State.
Strict social order: Social classes are strictly maintained in order to avoid "mob rule" or
any hint of chaos. Chaos is a threat to the State. The State's absolute power and greatness
depends on the maintenance of a class system in which every individual has a specific
place, and that place cannot be altered.
Authoritarian leadership: To maintain the power and greatness of the State requires a
single, charismatic leader with absolute authority. This all-powerful, heroic leader
maintains the unity and unquestioning submission required by the Fascist state. The
authoritarian leader is often viewed as a symbol of the State.
Some people use "fascist" to describe any authoritarian person or government. But as you
can see, authoritarianism is only part of the philosophy. Communism under Stalin was an
authoritarian political philosophy, too; but Fascism is directly opposed to Communism
(along with democracy, liberalism, humanism and rationalism). Aside from the above
principles, a Fascist state also typically promotes a private economy that submits to
government regulation; immediate (and often violent) submission of any opposing views;
the ethnic dominance of its own people and the lower status of outsiders.
While politicians and Conservative pundits seem more than willing to make a connection
between a socio-political philosophy like fascism and a religion-based philosophy like
Islamic fundamentalism, scholars are much less quick to cross that bridge. "Religious
fascism," sometimes called "clerical fascism," has been a subject of debate since the latter
term was coined to describe what some viewed as the relationship between the Catholic
Church and the Mussolini regime. Some people saw the Church as a supporter of Fascism
in Italy. Since religion can be so closely tied to ethnicity, many scholars have found
philosophical similarities between political fascism and religious fundamentalism. On the
other hand, the word is not exactly morally neutral in its contemporary usage. "Fascist"
has become a common slur -- a blanket term used to mean "really bad guy." Making a
connection between a particular religion and fascism can be a dangerous undertaking
considering fascism's current connotation and the inherent difficulty in defining any
singular fascist philosophy.

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Risk:It is the potential that a chosen action or activity (including the choice of inaction) will
lead to a loss (an undesirable outcome). The notion implies that a choice having an
influence on the outcome exists (or existed). Potential losses themselves may also be
called "risks". Almost any human endeavor carries some risk, but some are much more
risky than others.

Political Risk:Political risk is a type of risk faced by investors, corporations, and governments. It is a
risk that can be understood and managed with reasoned foresight and investment.
Broadly, political risk refers to the complications businesses and governments may face
as a result of what are commonly referred to as political decisionsor any political
change that alters the expected outcome and value of a given economic action by
changing the probability of achieving business objectives.. Political risk faced by firms
can be defined as the risk of a strategic, financial, or personnel loss for a firm because of
such non market factors as macroeconomic and social policies (fiscal, monetary, trade,
investment, industrial, income, labor, and developmental), or events related to political
instability (terrorism, riots, coups, civil war, and insurrection). Portfolio investors may
face similar financial losses. Moreover, governments may face complications in their
ability to execute diplomatic, military or other initiatives as a result of political risk.
A low level of political risk in a given country does not necessarily correspond to a high
degree of political freedom. Indeed, some of the more stable states are also the most
authoritarian. Long-term assessments of political risk must account for the danger that a
politically oppressive environment is only stable as long as top-down control is
maintained and citizens prevented from a free exchange of ideas and goods with the
outside world.
Understanding risk as part probability and part impact provides insight into political risk.
For a business, the implication for political risk is that there is a measure of likelihood
that political events may complicate its pursuit of earnings through direct impacts (such
as taxes or fees) or indirect impacts (such as opportunity cost forgone). As a result,
political risk is similar to an expected value such that the likelihood of a political event
occurring may reduce the desirability of that investment by reducing its anticipated
returns.
There are both macro- and micro-level political risks. Macro-level political risks have
similar impacts across all foreign actors in a given location. While these are included in
country risk analysis, it would be incorrect to equate macro-level political risk analysis
with country risk as country risk only looks at national-level risks and also includes
financial and economic risks. Micro-level risks focus on sector, firm, or project specific
risk.

29

Types of political Risk:Prof. Stephen Kobrin classifies political risk as:

Macro-level political risk:Macro-level political risk looks at non-project specific risks. Macro political risks affect
all participants in a given country. A common misconception is that macro-level political
risk only looks at country-level political risk; however, the coupling of local, national,
and regional political events often means that events at the local level may have followon effects for stakeholders on a macro-level. Other types of risk include government
currency actions, regulatory changes, sovereign credit defaults, endemic corruption, war
declarations and government composition changes. These events pose both portfolio
investment and foreign direct investment risks that can change the overall suitability of a
destination for investment. Moreover, these events pose risks that can alter the way a
foreign government must conduct its affairs as well. Macro political risks also affect the
organizations operating in the nations and the result of macro level political risks are like
confiscation, causing the seize of the businesses' property.
Macro risk includes:
1. Expropriation: The act of taking of privately owned property by a government to be
used for the benefit of the public. In the United States, the government has the right to
take property through eminent domain. The Fifth Amendment to the Constitution
provides that private property will not "be taken for public use without just
compensation." While there is compensation, the expropriation occurs without the
property owner's consent.
Many, but not all, countries support the belief that the expropriating country
should pay adequate, timely and effective compensation to the involved party. Properties
taken through eminent domain are often used for public utilities, highways and railroads.
Countries can also expropriate foreign businesses located within the country. Former
socialist Chilean President Salvador Allende, for example, expropriated U.S. businesses
located in Chile in the early 1970s.
2. Currency Inconvertibility: A situation where one currency cannot be exchanged for
another currency because of foreign exchange regulations or physical barriers.
Inconvertible currencies may be restricted from trade due to extremely high volatility or
political sanctions.
Labeling a currency as inconvertible allows regulators to protect investors from
storing funds in an unsafe investment. For example, if a nation were to begin
experiencing hyperinflation, where the value of a unit of currency rapidly depreciates, its
currency could be deemed inconvertible. This would prevent investors from converting
funds into the unstable currency.

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3. Credit Risk: Credit risk refers to the risk that a borrower will default on any type of
debt by failing to make payments which it is obligated to do. The risk is primarily that of
the lender and includes lost principal and interest, disruption to cash flows, and increased
collection costs. The loss may be complete or partial and can arise in a number of
circumstances. For example:

A consumer may fail to make a payment due on a mortgage loan, credit card, line
of credit, or other loan
A company is unable to repay amounts secured by a fixed or floating charge over
the assets of the company
A business or consumer does not pay a trade invoice when due
A business does not pay an employee's earned wages when due
A business or government bond issuer does not make a payment on a coupon or
principal payment when due
An insolvent insurance company does not pay a policy obligation

Credit risk can be classified in the following way:

i.

ii.

iii.

Credit default risk - The risk of loss arising from a debtor being
unlikely to pay its loan obligations in full or the debtor is more than
90 days past due on any material credit obligation; default risk may
impact all credit-sensitive transactions, including loans, securities
and derivatives.
ii. Concentration risk - The risk associated with any single exposure
or group of exposures with the potential to produce large enough
losses to threaten a bank's core operations. It may arise in the form of
single name concentration or industry concentration.
iii. Country risk - The risk of loss arising from sovereign state
freezing foreign currency payments (transfer/conversion risk) or
when it defaults on its obligations (sovereign risk).

4. Ethnic, Religious or Civil Strife: Macro political risk arises on account of war and
violence and racial, ethnic, religious and civil strife within a country. Recent example of
these risks is slaughter in Bosnia and Herzegovina, Somalia and Rwanda, the upsurge of
Islamic fundamentalism in Algeria and Egypt.

Micro Level Political Risk:

Micro-level political risks are project-specific risks. In addition to the macro political
risks, companies have to pay attention to the industry and relative contribution of their
firms to the local economy. An examination of these types of political risks might look at
how the local political climate in a given region may impact a business endeavor. Micro
political risks are more in the favor of local businesses rather than international
organizations operating in the nation. This type of risk process includes the project-

31
specific government review Committee on Foreign Investment in the United States
(CFIUS), the selection of dangerous local partners with political power, and
expropriation/nationalization of projects and assets.
Political risk is also relevant for government project decision-making, whereby
government initiatives (be they diplomatic or military or other) may be complicated as a
result of political risk. Whereas political risk for business may involve understanding the
host government and how its actions and attitudes can impact a business initiative,
government political risk analysis requires a keen understanding of politics and policy
that includes both the client government as well as the host government of the activity. It
includes:
1. Conflict of interest (COI): A conflict of interest occurs when an individual or
organization is involved in multiple interests, one of which could possibly corrupt the
motivation for an act in the other.
The presence of a conflict of interest is independent from the execution of impropriety.
Therefore, a conflict of interest can be discovered and voluntarily defused before any
corruption occurs. A widely used definition is: A conflict of interest is a set of
circumstances that creates a risk that professional judgment or actions regarding a
primary interest will be unduly influenced by a secondary interest. Primary interest refers
to the principal goals of the profession or activity, such as the protection of clients, the
health of patients, the integrity of research, and the duties of public office. Secondary
interest includes not only financial gain but also such motives as the desire for
professional advancement and the wish to do favors for family and friends, but conflict of
interest rules usually focus on financial relationships because they are relatively more
objective, fungible, and quantifiable. The secondary interests are not treated as wrong in
them, but become objectionable when they are believed to have greater weight than the
primary interests. The conflict in a conflict of interest exists whether or not a particular
individual is actually influenced by the secondary interest. It exists if the circumstances
are reasonably believed (on the basis of past experience and objective evidence) to create
a risk that decisions may be unduly influenced by secondary interests.
William K. Black insists that "Conflicts of interest matter." In the run up to the Savings
and loan crisis of the 1980s and early 1990s, control frauds like Charles Keating were
able to get legislators like Speaker of the House Jim Wright, the Keating Five Senators
and majorities in both the US House and Senate to suppress investigations of massive
criminality until their Ponzi schemes finally collapses. Only then did citizen pressure and
media involvement force political action. Then regulators filed thousands of criminal
referrals that translated into over a thousand felony convictions. The current foreclosure
and Sub prime mortgage crisis is similar to the run up to the S&L crisis with zero
criminal referrals and zero prosecutions of key finance executives. Black calls this the de
facto decriminalization of elite financial fraud. As with the S&L crisis, the current
situation is facilitated by conflicts of interest in the media and the US system of privately
funded political campaigns.
An organizational conflict of interest (OCI) may exist in the same way as
described above, in the realm of the private sector providing services to the Government,

32
where a corporation provides two types of services to the Government that have
conflicting interest or appear objectionable (i.e.: manufacturing parts and then
participating on a selection committee comparing parts manufacturers). Corporations may
develop simple or complex systems to mitigate the risk or perceived risk of a conflict of
interest. These risks are typically evaluated by a governmental office (for example, in a
US Government RFP) to determine whether the risks pose a substantial advantage to the
private organization over the competition or will decrease the overall competitiveness in
the bidding process.
Types of conflicts of interests:
The following are the most common forms of conflicts of interests:
Self-dealing, in which an official who controls an organization causes it to enter
into a transaction with the official, or with another organization that benefits the
official. The official is on both sides of the "deal."
Outside employment, in which the interests of one job contradict another.
Family interests, in which a spouse, child, or other close relative is employed (or
applies for employment) or where goods or services are purchased from such a
relative or a firm controlled by a relative. For this reason, many employment
applications ask if one is related to a current employee. If this is the case, the
relative could then recluse from any hiring decisions. Abuse of this type of
conflict of interest is called nepotism.
Gifts from friends who also do business with the person receiving the gifts. (Such
gifts may include non-tangible things of value such as transportation and lodging.)
Pump and dump, in which a stock broker who owns a security artificially inflates
the price by "upgrading" it or spreading rumors, sells the security and adds short
position, then "downgrades" the security or spreads negative rumors to push the
price down.
2. Corruption: Political corruption is the use of power by government officials for
illegitimate private gain. Misuse of government power for other purposes, such as
repression of political opponents and general police brutality, is not considered political
corruption. Neither are illegal acts by private persons or corporations not directly
involved with the government. An illegal act by an officeholder constitutes political
corruption only if the act is directly related to their official duties, is done under color of
law or involves trading in influence.
Forms of corruption vary, but include bribery, extortion, cronyism, nepotism, patronage,
graft, and embezzlement. Corruption may facilitate criminal enterprise such as drug
trafficking, money laundering, and human trafficking, though is not restricted to these
activities.
The activities that constitute illegal corruption differ depending on the country or
jurisdiction. For instance, some political funding practices that are legal in one place may
be illegal in another. In some cases, government officials have broad or ill-defined
powers, which make it difficult to distinguish between legal and illegal actions.
Worldwide, bribery alone is estimated to involve over 1 trillion US dollars annually. A

33
state of unrestrained political corruption is known as a plutocracy, literally meaning "rule
by thieves".
Some forms of corruption-now called institutional corruption are distinguished from
bribery and other kinds of obvious personal gain. Campaign contributions are the prime
example. Even when they are legal, and do not constitute a quid pro quo, they have a
tendency to bias the process in favor of special interests, and undermine public
confidence in the political institution. They corrupt the institution without individual
members being corrupt themselves. A similar problem of corruption arises in any
institution that depends on financial support from people who have interests that may
conflict with the primary purpose of the institution.
How Does Political Risk Affect International Business?
The concept of political risk in international business is based on the existence of possible
threats to the firm from political instability and lawlessness in the area of investment.
Once a firm leaves the basically standardized world of domestic business law, the global
environment is much more fluid; most states can use many levers of power to extract
more resources from the investing firm.
Credible Commitments and Political Risk
The writings of Aristotle, Montesquieu, Madison and Smith all share the prediction than
another important element in determining investment levels is the governments ability to
craft a credible commitment not to expropriate the returns on an investment. More
recently, Nobel prize winner Douglass North has argued that efficient economic
organization is the key to growth (North and Thomas, 1973). North argues that one of
the central questions of modern economics should be How have economies in the past
developed institutions that have provided the credible commitment that has enabled
complex contracting to be realized; and what lessons can we derive from that experience
that will of value today in the ongoing process of building or rebuilding economies?
(North, 1993:11) North adds that attaining efficient economic organization requires a
well-specified legal system, a well-specified and impartial third party of government to
enforce [markets], and a set of attitudes towards contracting and trading that encourage
people to engage in [markets] at low cost. Norths subsequent writings highlight the time
consistency problem faced by governments that would be better off in the long term if
they could commit not to expropriate investment returns, but face short-term incentives to
do so. The commitment problem is especially severe in the context of infrastructure
investment. When the lifespan of an investment is measured in decades, any variation in
future pricing, taxation or regulatory policies has a tremendous impact on the projected
rates of return for investment. Furthermore, because operating costs are a relatively small
percentage of total costs, operators of infrastructure assets rationally continue to operate
even when their revenue falls short of a fair economic return. This willingness to operate
in the face of a non compensatory revenue stream creates tempting opportunities for
politicians that may gain favor with various political constituencies through expropriation
of the investors revenue stream. Such incentives are heightened as economies of scale

34
typically lead to a small number of infrastructure service providers that can easily be
labeled as extortion monopolists. Furthermore, because infrastructure services are widely
consumed, reallocations of the revenue stream from investors to consumers are sure to be
popular in the short term and may significantly affect the level of popular political
support for the government. The combination of the economic opportunity to expropriate
a revenue stream and the political benefits from doing so lead to an inherent commitment
problem in government pledges regarding the stability of the current policy regime.
Given this commitment problem, government pledges regarding the future policy
environment will only be believed to the extent that they are credible. As the ease with
which the government may alter its policies increases, investors become increasingly
wary. In addition to the possibility that the government will expropriate the revenue
stream of the infrastructure investor for its own purposes, other interested partiese.g.,
consumers of infrastructure services, competitors, upstream suppliers or downstream
buyersmay also compete in the political arena for any profits obtained by the investor.
Competition for these profits necessarily imposes costs on the investor and further
disadvantages countries whose governments are unable to make credible policy
commitments.
The Problems with Existing Measures of Political Risk
While the arguments supporting the link between a governments ability to commit to a
stable policy environment for investment and the level of investment undertaken are
uncontroversial, empirical evidence bearing on this link is scarce. In fact, the commonly
used measures of political risk in a country fare little better than do the income levels
discussed previously in explaining the disparity in infrastructure growth rates among
countries with similar initial levels of infrastructure penetration.
As noted earlier, these measures are of two types: macroeconomic accounting measures
used as indicators of a likely downturn in the overall economic climate, and perceptual
measures based on investors or country experts perceptions about the likelihood of
substantive policy change. While these are the best available measures of political risk,
they have not performed well in sophisticated analyses seeking to predict currency crises,
banking crises, devaluations or expropriation events. For example, work by Jeffrey
Frankel and Andrew Rose of the University of California, Berkeley, (Frankel and Rose,
1996) uses macroeconomic accounting measures to predict currency market stability.
Although these measures correctly predict percent of periods (months) of tranquility in
the foreign exchange market for a given currency, they correctly predict only percent of
periods in which a currency crash occurs.
There also exists little statistical evidence to date that subjective risk ratings carry any
additional information beyond these macroeconomic statistics (Cosset and Roy, 1991).
And yet another striking example of the inadequacy of conventional political risk
measures involves the recent East Asian financial crisis. To the surprise of many
members of the corporate, policymaking and academic communities, neither accounting
nor perceptual measures provided substantial warning of impending crises in Thailand,
Indonesia, Malaysia or South Korea in 1998. There are several reasons for the failure of

35
the traditional political risk measures. The first reason is their retrospective nature. By
examining macroeconomic accounting measures or investor perceptions of risk, these
measures are all guided more by recent trends than by the fundamental probabilities of
interest to investors. If the growth rate in a country increases in the absence of substantive
political reform, has the underlying probability of a deleterious policy shift during the
next decade or two necessarily changed as well? Moreover, if relatively high growth
continues for several years and foreign investors flock in to take advantage of the growth
miracle, leading to a reduction in the perceived risk ness of the country, has the true risk
exposure of the infrastructure investor actually decreased? We suggest that the answer to
each of these questions is no, and that the commonly used macroeconomic and
perceptual measures are likely to bear little correlation to the underlying political risk that
an investor in a country will actually face in the future. A second problem, associated
primarily with the macroeconomic accounting measures, is that they are subject to
manipulation by political actors whose capricious behavior may lie at the root of a
countrys problems in the first place. For example, looking ahead, how are we to predict
whether the current South Korean recovery is sustainable? Has growth increased because
the reforms implemented to date have addressed charges of crony capitalism, or does it
represent a short-term boom engineered by the government that obscures the remaining
long-term dangers?
A third problem, associated primarily with the perceptual measures, is their tautological
nature. It is hardly surprising that less investment occurs in countries that managers
perceive to be risky. However, this finding tells us nothing about the fundamental sources
of risk. Moreover, perceptual measures can be misleading if managers currently rely on
models of political risk that lack the necessary sophistication.
For example, private sector investors updated their perceptions of the levels of risk in the
East Asian countries discussed earlier based on the magnitude of the initial downturn and
the speed of the arrival of the first signs of recovery. It is not at all clear that such
indicators have much to say about the actual long-term prospects for investment. We
believe that most of the problems with conventional political risk measures ultimately
stem from their lack of focus on the political systems that they purport to measure.
A true prospective measure might examine past trends in macroeconomic accounting
measures and managerial perceptions of risk, but rather than extrapolate from these
trends directly, would interpret them in the context of a nations underlying political and
regulatory structures. If a boom is underway and risk perceptions are falling in the
absence of credible political guarantees that the policies responsible for the boom will
continue in the future, investors should be seriously concerned. In the context of the East
Asian crisis, for example, an analysis of the structure of the political systems in the
affected countries demonstrates substantial potential for arbitrary and capricious
policymaking.

Building a Better Measure of Political Risk

36

Having identified the shortcomings of traditional measures of political risk and suggested
the basis for a better measure, we now address the practical issue of how to construct
such a measure. That is, how should we characterize underlying political structures in a
consistent fashion and, more to the point, measure their ability to support credible policy
commitments? Past efforts at co-opting measures of interest to political scientists, such as
the level of democracy (versus autocracy) or political instability have met with little
success.
While at first glance it seems reasonable to expect democracies and stable polities to
attract higher rates of investment than their less stable or autocratic counterparts do, the
reason for the failure of such measures should be apparent when one considers specific
cases. Do Lesotho, Russia, Mongolia or Benin, all which score eight or above (as of
1994) on a commonly used point scale of democracy, truly provide better investment
climates than do Singapore or Taiwan, which respectively scored a and a on the same
scale? Or does Zaire, which from the time that it became independent in 1967 until 1994
had no change in the identity of its executive, provide a more attractive investment
climate than does Italy, which had twenty-one leadership changes in the same period?
Rather than co-opt an existing measure of questionable validity, we therefore propose the
adoption of a measure that is objectively derived with the explicit goal of measuring the
likelihood of changes in the policy regime.
Construction of the political constraint index developed in (Henisz, 1998) begins by
identifying the number of independent veto points in a countrys political system
(executive, lower and upper legislative chamber, judiciary and sub federal institutions).
Simplifying assumptions regarding the distribution of the preferences of the median actor
in each of these institutions are then imposed allowing for the computation of a first-stage
measure of the feasibility of policy change based solely on the number of existing veto
points.
This initial measure is then modified to take into account the extent of actual preference
alignments across the various branches of government using data on the party
composition of the executive and legislative branches and the appointment history of the
High Court. Alignment across veto points increases the likelihood that a policy will be
altered. The measure is then further modified to capture the extent of preference
heterogeneity within each legislative branch which increases (decreases) the decision
costs involved in overturning policy for aligned (opposed) government branches.
This political constraint index thus captures the feasibility of a change in policy given the
structure of a nations political institutions (the number of veto points) and the
preferences of the actors that inhabit them (the partisan alignment of various veto points
and the heterogeneity or homogeneity of the preferences within each branch). It has been
calculated for virtually all countries in the postwar period (1945-1994) and efforts are
ongoing to extend the sample backwards to 1800 and forward to 1999.

37

Data Analysis
Figure 1. Distribution of political risk effects, by main dimension:

38

Figure 2. Distribution of political risk effects, by industry

39

Figure 3. Sources contributing to political risk effects, by main dimension

Notes: Due to the presence of multiple sources, the total number of sources recorded
exceeds the number of cases in the dataset; the numbers in the table reflect the count and
percentage of cases where the source in question is regarded as having contributed to the
realization of political risk; percentages are in proportion to the total number of cases in
the dataset.

40

Objective of the Study

What is philosophy?
What is Political Philosophy?
Types of Political Philosophy?
What is Risk and Political Risk?
Types of Political Risk?
How does Political Risk Affect in International Business?
How managing Political Risk improves International Business
Performance?

41

Methodology

We collected the secondary data from Books, Magazines, Journal, News

paper, Articles, Websites and Social sites.
The websites are:
http://www.wikipedia.org
www.yahoo.com
www.ebooks.com
www.earticles.com
www.allaboutthepoliticalrisk.com
www.ebookee.org
http://www.allaboutphilosophy.org
http://www.theoriginandpurposeofdemocracy.org/two.html
We collected the data for the report from 9 th October 2012 to 15th October
2012

Conclusion
Companies decide to initiate international operations for a myriad of reasons including
lower costs, new opportunities, and access to resources. Unfortunately, they come at the
cost of increased risk to the business. A study done by PricewaterhouseCoopers Advisory
and Eurasia Group found that 83% of respondents monitored their political environment
but 73% did not think they were adequately mitigating the political risks associated with
international operations. The reasons for this situation included complex information,
biased sources, and not enough funding within their organization for better risk
management practices. As a result, management could be making decisions with
inaccurate or incomplete information about political risks.
PwCs Advisory and Eurasia Group believe that it is important for international
companies to manage political risk because it enables them to protect their investments
and operations as well as find and capitalize on emerging opportunities. According to
PwC, this can be done through a systematic approach to political risk management. The
political risk management policies should be integrated with the current risk management

42
structure because political risk is often intertwined with other risks such as regulatory or
social risks. The principles of this approach to managing political risk are:
1. Political risk management starts at the top Top level management should understand
that political risk affects every aspect of their organization. The responsibility for
monitoring political risk should be assigned at both the board and management level. The
companys risk tolerance level should be communicated across the organization. The
study found that although the board understood that political risk is important, there was
no clear person or business unit who had the responsibility for managing it.
2. Managing political risk directly impacts performance The study showed that 75% of
respondents monitor political risk because of its potential financial impact on the
organization. There are also many other ways that monitoring political risks can help the
organization. For example, it can allow the company to anticipate leadership changes,
influence policy, and participate in social change as well as monitor the impact of
regulatory, social, and economic change. These risks are especially important for
companies with a large capital asset base or those in heavily regulated industries. For
other industry sectors the political risk could have a greater impact on their supply chain,
reputation, and market.
3. Evaluating political risk optimizes decision making Management should view
political risks and the other risks that affect it in terms of a portfolio. This method of
examining risk will allow management to see how the risks interact with each other and
that political risk can be both internal and external to the organization. The portfolio view
can also help companies view their political risks globally and determine if risks in
different countries offset each other. This method of diversification can allow managers
to see how political risks shift across the globe and allow them to take advantage of
opportunities.
4. Assessing risks before taking action delivers value International companies should
use a systematic process for assessing political risks according to their risk exposure. The
process should be overseen by a risk manager and should include all available
information. In the study, 80% of respondents indicated that they used qualitative factors
while 33% used quantitative factors. Neither method is superior, but identifying risks
should be accompanied by mitigation factors.
5. Systematic political risk management protects investments Many respondents in the
study indicated that they evaluate political risk for new investments. This evaluation
process should continue after the project is implemented because political risk can affect
future operating and divestment decisions. Building a formal network for communication
of risks is important so that information can be disseminated effectively through the
organization for multiple purposes.
Companies can employ a four-step process to determine if their policies adhere to the
principles mentioned: (1) map the politics, (2) evaluate the risks, (3) assess controls and
plans, and (4) determine the acceptability of residual risk. This assessment will be a good
0starting point for a company to begin the discussion about political risk and creating a
system to identify, assess, and mitigate it.
111

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