National Differences in Political Economy

Chapter 2

McGraw-Hill

The Impact of Privatization

1994:
1994:Sales
Sales==$253m
$253m
Loss
Loss==$310m
$310m
McGraw-Hill

1998(3Q):
1998(3Q):Sales
Sales==$934m
$934m
Profits
Profits==$260.2m
$260.2m
2-1

Political Systems
The System of Government in a Nation

Individualism

Democratic

Collectivism

Totalitarian

McGraw-Hill

2-2

Collectivism and Individualism

Collectivism
Socialism
Communists
Social Democrats

Individualism
Guarantee individual freedom and expression
People can pursue own economic self-interest
McGraw-Hill

2-3

Democracy and Totalitarianism

Democracy
Government by people exercised directly or
through elected representatives.

Totalitarianism
One person or party exercises control over all
spheres of human life.
Opposing political parties are prohibited.

McGraw-Hill

2-4

Democracy
Representative Democracy
Freedoms:

expression, opinion, organization

media
regular elections with universal suffrage
limited terms for elected representatives
fair and independent court system
non political bureaucracy, police force and armed
service
relatively free access to state information

McGraw-Hill

2-5

Totalitarianism
Constitutional guarantees are denied.
Four major forms:

Communist
Theocratic
Tribal
Right Wing

McGraw-Hill

2-6

Economic Systems

Market Economy
Command Economy
Mixed Economy
State Direct Economy

McGraw-Hill

2-7

Economic Systems

Market

Mixed

Command

State-Directed

McGraw-Hill

2-8

Legal Systems
Rules or laws that regulate behavior.
Property rights
Private action
Public action

McGraw-Hill

2-9

International Property Issues

Protection of Intellectual Property
Lax enforcement

Product Safety and Product Liability

Competitiveness
Ethics

McGraw-Hill

2-10

PPP Index and GNP Data

(Selected Countries)
Country

Mozambique
India
China
Indonesia
Romania
Russia
Mexico
Brazil
S.Korea
United
Kingdom
Australia
Canada
Singapore
United States
Japan
Switzerland

McGraw-Hill

GNP per
capita,
1997 (US$)
90
390
860
1110
1420
2740
3680
4720
10550
20710

GNP per
capita
measured at
PPP, 1997
(US$)
520
1650
3570
3450
4290
4190
8120
6240
13500
20520

Annual
Average
Growth in
GDP, 199097 (%)
6.9
5.9
11.9
7.5
0
-9
1.8
3.1
7.2
1.9

20540
19290
32940
28740
37850
44320

20170
21860
29000
28740
23400
26320

3.7
2.1
8.5
2.5
1.4
-0.1

Table 2.1

2-11

The Global Politics of

Civilizations
Japan

Orthodox
(Russia)

Islam

African
West

Latin
American

Hindu
(India)
More Conflictual

McGraw-Hill

McGraw-Hill Companies, Inc., 2000

Less Conflictual

Sinic
(China)

Figure 2.1
2-12

 McGraw-Hill

Map 2.1

2-13

 McGraw-Hill

Map 2.2

2-14

 McGraw-Hill

Map 2.3

2-15

 McGraw-Hill

Map 2.4

2-16

Other Determinants of Development:

Geography and Education
Throughout history, coastal states, with their long engagements
in international trade, have been more supportive of market
institutions than landlocked states, which have tended to
organize themselves as hierarchical (and often military)
societies. Mountainous states, as a result of physical isolation,
have often neglected market-based trade. Temperate climes have
generally supported higher densities of population and thus a
more extensive division of labor than tropical regions.
-Jeffrey Sachs McGraw-Hill

2-17

Geography and Education

McGraw-Hill

2-18

Singapore

Population: 2.8 million

Literacy rate: 91.1%
GDP ($B): 83
Per Capita GDP: $26,294
Strategic location: Malacca Straits
Worlds second busiest port: cargo tonnage
Average GDP growth over 25 years: 8%

McGraw-Hill

2-19

Spread of Democracy
Totalitarian regimes failed to deliver
economic progress.
New information technologies (internet)
restricted a states ability to control
information.
Emergence of prosperous middle class
demanding democratic reforms.
McGraw-Hill

2-20

Universal Civilization

we may be witnessingthe end of history as such: that is,

the end point of mankinds ideological evolution and the
universalization of Western liberal democracy as the final
form of human government.
- Francis Fukuyama -

McGraw-Hill

2-21

Clash of Civilizations

There is no universal civilization

based on widespread acceptance of
Western liberal democratic ideals.

McGraw-Hill

2-22

 McGraw-Hill

Map 2.5

2-23

Real Percentage GDP Growth, 1990-94,

for Five Post-Communist States
5
0
1990

1991

1992

1993

1994

-5
-10
-15
-20
-25
McGraw Hill Companies,
Inc., 2000
McGraw-Hill
Companies,
Inc.,
2000

Czech Republic
Hungary
Poland
Russia
Ukraine

2-24

 McGraw-Hill

Map 2.6

2-25

The Changing Political

Economy of India

Population: 936 million

GDP: $1.254 trillion
GDP growth: 5-6% per year
10% of population produces 40% of
national income
Agriculture is 70% of employment, but only
35% of GDP
McGraw-Hill

2-26

Indias GDP
% GDP

8
6
4
2
0

50-60 60-70 70-80 80-90 90-92 92-95

McGraw-Hill

96

97

98

2-27

The Falling Rupee

US Dollar Value of 100 Indian Rupees
$ 3.4
3.2
3
2.8
2.6
2.4
2.2
2
1995

McGraw-Hill

1996

1997

1998

2-28

Percentage of Indias Exports and Imports

(By Region)
40

Exports

30

Imports

20
10
0

Imports
Exports
Asia

Europe

McGraw-Hill

US

Africa

$36.0
B
$31.6B

2-29

Foreign Investment in India

4
3
2

$ BILLIONS

1
0

1992

1993

McGraw-Hill

1994

1995

1996

1997

1998

2-30

The Nature of Economic

Transformation
Deregulation
Removal of legal restrictions to free markets.

Privatization
Transfer of state ownership of property into
private hands.

Creation of legal systems to protect

property rights.
McGraw-Hill

2-31

The Nature of Risk

Political Risk
Likelihood that political forces will cause drastic
changes that adversely affect profits and other goals.

Economic Risk
Likelihood that economic mismanagement will cause
drastic changes that adversely affect profits and other
goals.

Legal Risk
Likelihood that a trading partner will opportunistically
break a contract or expropriate property rights.
McGraw-Hill

2-32