CHAPTER 2:

National Differences in
Political Economy
LEARNING OBJECTIVES
• Understand how the political systems of countries differ.
• Understand how the economic systems of countries differ.
• Understand how the legal systems of countries differ.
• Be avle to explain what determines the level of economic
development of nation.
• Discuss macro-political and economic changes taking place
worldwide
• Describe how transition economies are moving toward market-
based systems.
• Articulate the implications for management practice of national
difference in political economy.
 INTRODUCTION

• To develop an awareness of and appreciation for the

significance of country differences in political systems,
economic systems, legal systems and national culture.

• To describe how the political, economic and legal and

culture systems of many of the world's nation states are
evolving and to draw out the implications of these
changes for the practice of international business.
 POLITICAL ECONOMY

• A term that stresses that the political, economic, and legal

systems of a country are independent; they interact and
influence each other, and in doing so they affect the level
of economic well-being.
 POLITICAL SYSTEMS

 is the system of government in nation.

Political systems can be assessed according to two

dimensions:

• degree to which they emphasize collectivism as opposed

to individualism.
• degree to which they are democratic and totalitarian.
 COLLECTIVISM AND INDIVIDUALISM
• Collectivism
- collective goals are more
important than individual
goals.
- the needs of society as
whole are generally viwed
as being more important
than individual freedoms.
• Individualism
- refers to the philosophy
that an individual should
have freedom in his or her
economic and political
pursuits.
- letting people their own
self-interest in order to
achieve the best overall
good for society.
 SOCIALISM

• Communists generally believed that collectivism could

only be achieved through revolution and totalitarian
dicatatorianship, while social democrats worked to
achieve the same goals by democratic means.

• Privatization is the movement toward free market

economies by selling state-owned enterprises to private
investors.
 DEMOCRACY AND TOTALITARIANISM

Democracy Totalitarianism

• is a political system in • is a form of government in

which governement is by
the people, exercised
either directly or through
elected representatives.
which one person or
political party exercises
absolute control over all
spheres of human life, and
opposing political parties
are prohibited.
 Democracy

• Most modern democratic states practice is representative

democracy, which the citizens periodically elect
individuals to represent them whose function is to make
decisions on behalf of the electorate.
 Four Major Forms of Totalitarianism

• Communist totalitarianism - advocates achieving

socialism through totalitarian dictatorship (China, Laos,
Vietnam, South Korea).

• Theocratic totalitarianism - is found in the states where

the party, group, or individual that governs according to
religious principles monopolizes political power (Iran and
Saudi Arabia).
• Tribal Totalitarianism - occurs when political party that
represents the interests of the particular tribe monopolize
power states in Africa.

• Right-wing Totalitarianism - generally permits some

individual economic freedom but restricts individual
political freedom, frequently on the grounds that it would
be lead to the rise of communism, which were military
dictatorships.
 ECONOMIC SYSTEMS

Three broad types of economic systems are market

economy, command economy and mixed economy.

Market Economy

• all the productive activities are privately owned, as

opposed to being owned by the state.
Command economy

• the government plans the goods and services that a

country produces, the quantity in which they are
produced, and the price at which they are sold.

Mixed economy
• certain sectors of the economy are left to private
ownership and free market mechanisms while other
sectors have significant state ownership and government
planning.
 LEGAL SYSTEMS

 refers to the rules, or laws, that regulate behavior along

with the process by which the laws are enforced and
through which redress for grievances is obtained.

There are three main types of legal systems: common

law, civil law and theocratic law.
DIFFERENT LEGAL SYSTEMS

Common Law

• is based on tradition, precedent and custom. It is found in

US and most in Great Britain's former colonies.
Tradition - refers to a country's legal history.
Precedent - refers to acases that have come before
the courts in the past.
Custom - refers to the ways in which laws are applied
in specific situations.
Civil Law System
• is based on detailed set of laws organized into codes and
its found in over 80 countries, including Italy, Germany,
France, Japan and Russia.

Theocratic Law System

• It is based on religous techings.
• Islamic Law is te most widely practiced theocratic legal
system.
 DIFFERENCES IN CONTRACT LAW

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.

Contract Law
• is the body of the law that governs contract enforcement.
United Nations Convention on Contracts for the
International Sale of Goods (CIGS)

• establishes a uniform set of rules governing certain

aspects of making and performing everyday commercial
contracts between sellers and buyers who have their
places of business in different nations.
Property Rights and Corruption

Property Rights
refers to the legal rights over the use to which a resource
is put and over the use made of any income that may be
derived from that resource.

Private Action
refers to theft, piracy, blackmai;l, and the like by private
individuals or groups.
Public Action and Corruption

 occurs when public officials, such as politicians and

government bureaucrats, exort income, resources, or the
property itself from property holders various legal
mechanisms including excessive taxation, requiring
expensive licenses or permits from property holders or
taking assets into state ownership without compensating
the owners.
Foreign Corrupt Practices Act

 This law makes it illegal to tribe a foreign government

official to obtain or maintain business over which that
foreign official has authority, and it requires all publicly
traded companies (whether or not involved in international
trade) to keep detailed records that would reveal whether
a violation of the act has occurred.
The Protection of Intellectual Property

• Intellectual property refers to property is the product that

is the product of intellectual activity, such as computer
software, a screenplay, a music score, or the chemical
formula for a new drug.
Intellectual Property Rights include:

• Patents - documents giving the inventor of a new product

or process exclusive rights for a defined period to the
manufacture, use, or sale of that invention.
• Copyrights- are the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to publish
and disperse their work as they see fit.
• Trademarks - are designs and names, often officially
registered, by which merchants or manufacturers
designate and differentiate their products.
World Intellectual Property Organization

Protection of intellectual property rights differs from country

to country.
• The Paris Convention for the Protection of Industrial
Property (1983).
• The Trade Related Aspects of Intellectual Property Rights
(TRIPS) .
Product Safety and Product Liability

• Product safety laws - set certain safety standards to which

a product must adhere.

• Product Liability - involves holding a firm and its officers

responsible when a product causes injury, death or
damage.
The Determinants of Economic Development

Two ways to measure levels of economic development are:

One common measures of economic development is a

country's gross national income (GNI) per head of
population.
A purchasing power parity (PPP) adjustment allows for
more direct comparison of living standards in different
countries
 BROADER CONCEPTIONS OF DEVELOPMENT:
AMARTYA SEN
• Nobel Price-winning
economist Amartya Sen
has argued that
development should be
assessed less by material
output measures such as
GNI per capita and more
by the capabilities and
opportunities that people
enjoy
Human Development Index (HDI)

 To measure the quality of human life in different nations.

 Three measures of HDI:
- Life expectancy of birth
- Educational attainment
- Whether average incomes are sufficient to meet the
basic needs of life in country.
 POLITICAL ECONOMY AND
ECONOMIC PROGRESS

• Innovation and Entrepreneurship Are the Engines of

Growth
• Innovation and Entrepreneurship Require a Market
Economy
• Innovation and Entrepreneurship Require Strong Property
Rights
• Democratic regimes Are More Conducive to Long-Term
Economic Growth
 GEOGRAPHY, EDUCATION AND
ECONOMIC DEVELOPMENT

• Geography can affect the economic development

• Education emerges as another important determinant of

economic development , the general assertion is that
nations that invest more in education will have higher
growth rates because an educated population is a more
productive population.
 STATES IN TRANSITION

Two trends have been evident:

• Since the late 1980's, a wave of democratic revolutions

has swept the world, and many of the previous totalitarian
regimes collapsed.

• There has been a strong move away from centrally

planned and mixed economies and toward a more free
market economic model.
 THE SPREAD OF DEMOCRACY

The spread of democracy has occurred because:

• many totalitarian regimes failed to deliver economic

progress to the vast bulk of their populations.
• new information and communication technologies including
shortwave radio, satellite television, fax machines, desktop
pulishing and internet, have reduced the state's ability to
control access to uncensored information.
 THE SPREAD OF DEMOCRACY

• many countries the economic advances of the past

quarter century have led to the emergence of increasingly
prosperous middle and working classes who have pushed
for democratic reforms.
 THE NEW WORLD ORDER AND
GLOBAL TERRORISM

• The end of the Cold War and the “new world order” that
followed the collapse of communism in Eastern Europe
and the former Sovier Union, taken together with the
demise of many authoritatarian regimes in Latin America,
have given rise to intense speculation about the future
shape of global geopolitics.
 SPREAD OF MARKET-BASED SYSTEMS

• In general, command and mixed economies failed to

deliver the kind of sustained economic performance that
was achieved by countries adopting market-based
systems such as the United States, Switzerland, Hong
Kong, Singapore and Taiwan.
 THE NATURE OF ECONOMIC
TRANSFORMATION
Derregulation
• involves removing legal restrictions to the free play of
markets, the establishment of private enterprises, and the
manner in which private enrterprises operate.

Privatization
• transfers the ownership pf state property into the hands of
private individuals, frequently by the sale of state assets
through an auction.
COUNTRY ATTRACTIVENESS
COSTS
BENEFITS
Corruption
Size of economy
Lack of infrastracture
Likely Economic Growth
Legal Costs

OVERALL
ATTRACTIVENESS

RISKS
Political Risks: Social Interest/Anti-Business Trends
Economic Risk: Economic Mismanagement
Legal Risk: Failure to safeguard Property Rights
Reporters:

Hernandez, Jhessabel M.
Hernandez, Sheryl
Sastado, Krisha