Professional Documents
Culture Documents
Business
Fourth Edition
National
Difference
s in
Political
Economy
India
• The economic, legal& political systems
are interdependent
Collectivism:
◆ A political system that stresses the primacy of
collective goals over individual goals.
◆Advocated by Plato in the “Republic”.
◆In modern times, the Socialists advocate Collectivism.
Socialism:
◆Trace intellectual roots to Karl Marx.
◆Argued that the pay of workers does not reflect the
full value of their labor.
◆Advocated state ownership of production, distribution,
and exchange (businesses), thereby ensuring that workers were
fully compensated for their labor.
Two Approaches
Communists:
◆Socialism is achieved through violent
revolution.
Social Democrats:
◆Socialism is achieved through democratic
means.
Political Systems
“The system of government in a nation.”
Individualism:
❑ Opposite of Collectivism.
❑ Individual should have freedom in political and economic
pursuits.
❑ Advocated by Aristotle.
❑ Private property is more highly productive than
communal property and will thus stimulate progress.
❑ Revived during the 16th century in England and the
Netherlands.
❑ Hume (1711-1776)
❑ Adam Smith (1723-1790)
❑ John Stuart Mill (1806-1873)
❑ Embodied in the U.S. Declaration of Independence.
Two tenets:
❑ An emphasis on the importance of guaranteeing
individual freedom and self-expression.
❑ The welfare of society is best served by letting
people pursue their own economic self-interest, as
opposed to some collective body (government) dictating
what is in society’s best interest.
Individualism advocates:
❑ Democratic political systems.
❑ Free market economics.
Democracy and Totalitarianism
• Democracy • Totalitarianism
– Government by the – Government in which
people, exercised one person or
political party
either directly or
exercises absolute
through elected control over all
representatives. spheres of human
life and opposing
political parties are
prohibited.
Democracy
• Safeguards to protect a democracy:
– Right to freedom of expression, opinion, and
organization.
– A free media.
– Regular elections in which all eligible citizens are
allowed to vote.
– Universal adult suffrage.
– Limited terms for elected representatives.
– A fair court system independent of the political
system.
– A nonpolitical state bureaucracy.
– A nonpolitical police force and armed service.
– Relatively free access to state information.
Totalitarianism
• 4 major forms:
– Communism
• Collectivism is achieved through total
dictatorship
• eg., China, Cuba, Vietnam,Laos,North Korea
– Theocratic
• Political power is influenced by religious
principles. Islamic countries
– Tribal
• A political party representing the interests of a
particular tribe monopolizes power.
• Zimbabwe, Tanzania, Uganda and Kenya
– Right-wing
• Generally permits individual economic freedom,
but restricts political freedom to prevent the
rise of communism.
• Sometimes backed by military
• Military officers government
• The fascism in Germany & Italy
Economic Systems
• Market Economy:
– All productive activities are privately owned.
• Command Economy:
– Goods and services produced, their quantity, and
prices are determined by the government.
– Consistent with the collectivist ideology
– Govt can always direct the companies investing in
the best interest of the nation
– Historically, this command economy is found in
communist countries
– Some elements of command economy are also
evident in socialist economies
• Mixed Economy:
– Parts of the economy are left to private
ownership and free market mechanisms
while other sectors are state-owned and
have government planning.
– India has a mixed economy, Great
Britain ,France, Sweden
Legal Systems
Rules, or laws, that regulate behavior and the
processes by which laws are enforced and
grievances redressed.
0
2
4
6
8
Finland
Canada
Singapore
U.K.
Switzerland
10=Highly clean
Australia
0=Totally corrupt
U.S.A.
France
Japan
Greece
2000
China
Russia
Indonesia
Nigeria
Country Corruption Rankings
Figure 2.1
Ranking
Protection of Intellectual Property
• Property that is the product
of intellectual activity.
– Patent: through exclusive use
rights, it protects the inventor of a
product for a certain period of time.
– Copyright: Gives exclusive rights
to authors, composers, playwrights
and artists to publish and dispense
their work.
– Trademark: Officially registered
designs and names that protect
owners product designations.
• Piracy remains a significant
problem in international
business.
Software Piracy by Region
70
60
50
40
30
20 1999
10 2000
0 L.Amer.
N.Amer.
Asia/Pacific
W.Europe
E.Europe
MidEast/Africa
2000 Avg.
Figure 2.2
Software Piracy Losses by
Region 2000
3% 7%
26% Mid East Africa
Latin Amer.
Asia/Pacific
37% W. Europe
27% N. Amer.
Figure 2.3
Product Safety and Product
Liability
• Product Safety:
– Safety standards to which a product
must adhere.
• Product Liability:
– Civil and criminal penalties if standards
are not met.
– Civil law results in fine
– Criminal law results in imprisonments
Product Standards and Ethical
Dilemmas
Strong Weak
Product Product
Standards Standards
Contracts
• Common Law • Civil Law
– Evolved in England – ‘Code Napoleon’
– Based on: – Detailed set of laws
• Tradition organized into
• Precedent ‘Codes’.
• Custom – Europe
– United States – Russia
• Contracts tend to be – Japan
long – 80 countries
• Short contracts
Differences in Economic
Development
• Gross National Product (GNP)
– Common yardstick for measuring
economic activity.
• Measures total value of goods and Both give
services produced annually. a static
picture of
– Doesn’t consider the differences in development
costs of living.
• Purchasing Power Parity.
– Uses U.S. cost of living for basis of
adjustment among countries.
PPP Index and GNP Data for
Selected Countries 2000
Country GNP/Capita PPP/Capita GNP Growth
Rate (%) 90-99
Brazil $3,570 $7,320 3.0
China 840 3,940 10.7
Germany 25,050 25,101 1.3
India 460 2,390 6.0
Japan 34,210 26,460 1.3
Nigeria 260 790 2.4
Poland 4,200 9,030 4.5
Russia 1,660 8,030 -6.1
Switzerland 38,120 24,970 0.6
United Kingdom 24,500 23,550 2.5
United States 34,260 34,260 3.3
Table 2.1
Amartya Sen
• Measure development by
capabilities and opportunities
people enjoy.
– Requires removal of:
• Poverty
• Tyranny
• Poor economic opportunities
• Systemic social deprivation
• Neglect of public facilities
• Intolerance of repressive states
• U.N.’s Human Development
Index
– Based on:
• Life expectancy at birth
• Educational attainment
• Whether average income is
sufficient
Political Economy and Economic
Development
Innovation and Entrepreneurship are Engines of Growth
What kind of
political system?
Economic Progress Begets Democracy
Geography, Education and Economic
Development
“..that 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 more extensive
division of labor than tropical regions.”
Jeffrey Sachs The general assertion is that
Harvard University nations that invest more in
education will have higher
growth rates because an
educated population is a more
productive population.
States in Transition
Democratic Revolutions
Two
Trends
There is no “universal”
civilization based on widespread
acceptance of Western liberal
democratic ideals.
The spread of Market-Based
Systems
Centrally
Planned
Economies
Market –
Based
Shift Economies
Mixed
Economies
The Nature of Economic
Transformation
The shift to market-based economies entails:
• Deregulation
Removal of legal restrictions to free
markets.
• Privatization
• Transfer of state ownership of property into
private hands.
• Legal Systems
Creation of systems to protect property
rights.
Implications for Business
• Risks
– Political
• Attractiveness
– Economic
• Benefits – Legal
– First-mover
• Ethics
advantages
– Human rights
– Late-mover
disadvantages – Regulations
– Corruption
• Costs
• Foreign Corrupt
Practices Act