CHAPTER 2:

POLITICAL ECONOMY

DR. THANITA BURANATRAKUL

ICMB 351: INTERNATIONAL BUSINESS MANAGEMENT
EMAIL: THANITA.BUR@MAHIDOL.AC.TH
POLITICAL ECONOMY
• Countries are different in
terms on the each element
ECONOMIC the policy economy
POLITICAL
System • Interdependent relationship
System
between
- Political system
- Economic system
LEGAL - Legal system
System
POLITICAL SYSTEMS
System of government in A nation
• Political systems can be assessed according to two
dimensions (IDEAS)

Collectivism VS Individualism
COLLECTIVISM AND INDIVIDUALISM
COLLECTIVISM INDIVIDUALISM

– Collective goals are – Guarantees individual

more important than freedom and self
individual goals expression
– Society needs > – Welfare of the people
Individual freedom and is best served by
needs
letting people do what
– In the modern world they are good at
collectivism is expressed (Adam smith “ The
through *Socialism – wealth of Nation”)
Originated by Karl Marx
(1800s) *Capitalism
 FORMS OF POLITICAL SYSTEM
Totalitarianism vs Democracy

TOTALITARIANISM DEMOCRACY
• One person/party exercises • Political System that the
absolute control over all government is by the
spheres of human life people, which is elected
(competing political parties through representative
are banned)
• Communist totalitarianism
• Theocratic totalitarianism
• Tribal totalitarianism
• Right wing totalitarianism
WHAT IS TOTALITARIANISM?
Totalitarianism is a form of government in which one person or
political party exercises absolute control over all spheres of
human life and prohibits opposing political parties
TYPES OF TOTALITARIANISM

1. Communist totalitarianism found in

states where the communist party
monopolizes power

2. Theocratic totalitarianism
− Religious leaders are the political leader
− Political power is monopolized by a party,
group, or individual that governs according
to religious principles

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WHAT IS TOTALITARIANISM?

3. Tribal totalitarianism -
found in states where a
political party that
represents the interests of a
particular tribe monopolizes
power
Example: Zimbabwe, Rwanda

4. Right-wing totalitarianism - permits some

individual economic freedom, but restricts individual
political freedom

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WHAT IS DEMOCRACY?
Is Thailand a democratic nation??
SAFEGUARDS OF REPRESENTATIVE
DEMOCRACY
• Individual’s right to freedom of expression,
opinion and organization
• Free media
• Regular elections
• Limited terms for elected representatives
• A fair court system that is independent
from the political system
• A non-political state bureaucracy
• Non-political force and armed service
• Relatively free access to state information
ECONOMIC SYSTEMS
• CONNECTION BETWEEN POLITICAL
IDEOLOGY AND ECONOMIC SYSTEMS
– Countries where individual goals are given
more important than collective goal
• Free Market Economy

– Countries where collective goals are given more

important than individual goals
• Planned Economy
ECONOMIC SYSTEMS
FREE MARKET ECONOMY:
– What is produced & in what quantity is
determined by supply/demand and supply
( Invisible hand)
– Perfect competition
– Privately owned business
– Role of Government  Encourage
competition
ECONOMIC SYSTEMS
• COMMAND ECONOMY:
– Planned by government
– Government Determine what to produce, where
to produce, how to produce and for whom to
produce
– State own business
– Monopoly
• MIXED ECONOMY: A balance of command and
market economy
ECONOMIC SYSTEMS
WHICH ECONOMIC SYSTEM IS BETTER?

P(M)

P( Free) MC

D
MR
LEGAL SYSTEMS
Rules/ Law that regulate
behavior of a nation

• 3 main types of legal

systems – in use around
the world:
– Common law
– Civil law
– Theocratic law
LEGAL SYSTEM
COMMON LAW
– Base on tradition and custom/ more flexible
– Innocent until proven guilty
– Role of Judge – Power to Interpret
CIVIL LAW
– Base on codes, Less Flexible,
– Role of Judge – Apply the Law
– Guilty until proven innocent
THEOCRATIC LAW
– Based on religious teaching. (In reality ) Islamic
world = Islamic Law + Common or Civil Law
LEGAL SYSTEM
 CONTRACT
HOW ARE CONTRACTS ENFORCED IN DIFFERENT
LEGAL SYSTEMS?
A contract is a document that specifies the conditions
under which an exchange is to occur and details the
rights and obligations of the parties involved

COMMON CIVIL
LAW LAW
CONTRACT
Contract law is the body of law that governs
contract enforcement
• Multiple Issues in contract law, such as where to
arbitrate disputes, which laws apply, validity of
contracts, etc

To overcome the differences in the Legal System

United Nations Convention on Contracts for the
International Sale of Goods (CIGS) are used which is a
uniform set of rules governing certain aspects of the
commercial contracts between buyers and sellers who
have their places of business in different nations.
PROPERTY RIGHTS
PROPERTY
– A resource over which an individual or business
holds a legal title e.g. Land, Buildings, equipment,
capital, intellectual property

VIOLATION of property rights can be through

 Private Action e.g. Piracy of MP3/
DVD), theft, blackmail

 Public Action
PROPERTY RIGHTS
VIOLATION Of property rights through
PUBLIC ACTION

Legal Mechanism Illegal Mechanism

• Excessive Taxation • Corruption

• Expensive Licenses • Bribery
• Taking asset into state
ownership without enough
compensation
 FOREIGN CORRUPT PRACTICES
ACT (FCPA)
BRIBERY, a demand by government officials for
payment of bribes (gifts, money, etc.) in return to
secure or conduct business

• Prohibit bribing to obtain or maintain a business

• Allow “grease payment” for a routine governmental
action (but the transaction must be declared)
• Require publicly traded companies to keep such
records
INTELLECTUAL PROPERTY
Intellectual Property (IP) - property that is the
product of intellectual activity
Protection of Intellectual Property

1. Patents – exclusive rights for a defined period to the

manufacture, use, or sale of that invention

2. Copyrights – the exclusive legal rights of authors,

composers, playwrights, artists, and publishers to publish
and disperse their work as they see fit

3. Trademarks – design and names by which merchants or

manufacturers designate and differentiate their products

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ECONOMIC DEVELOPMENT

Different countries have different levels of economic

development

MEASUREMENT OF ECONOMIC DEVELOPMENT

The common measurements of economic development
usually measured by material output such as
• GDP (Gross Domestic Product)
• NI (National Income)
• GNP (Gross National Product)
 ECONOMIC
DEVELOPMENT

NOTE:
The higher the level of
economic development.
 higher purchasing
power of the consumer

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 DETERMINANTS OF ECONOMIC
DEVELOPMENT
AMARTYA SEN
• “Development should not be measured
mainly by material output (e.g. GDP per
Capita, Corporate Income Tax Rate)
• Economic development should be
measured by “Real Freedom”
• Leads to Human Development Index
(HDI) used to measured the quality of
human life by the UN
• Life expectancy
• Literacy Level
• Average income to meet basic needs
POLITICAL ECONOMY AND
ECONOMIC PROGRESS
 Country’s economic development is the function
of its political economy

 Innovation and Entrepreneurship

are the engines of long run
Economic growth
 Innovation and entrepreneurship
required
– Market economy
– Strong property rights
IMPLICATION OF POLITICAL
ECONOMY TO INT. BUSINESS
• Political economy influences the attractiveness of a
country

Overall Attractiveness

Benefits Risks
Costs
IMPLICATION OF POLITICAL
ECONOMY TO INT. BUSINESS

BENEFITS
– Long run monetary Benefits depends on
• Size of the Market
• Present Wealth (Purchasing Power)
• Future Wealth of consumer

Cost Risk
• Level of Corruption  Political Risk
• Lack of Infrastructure  Economic Risk
• Legal Cost  Legal Risk