© McGraw-Hill Companies, Inc., 2000 National Differences in Political Economy Chapter 2

© McGraw-Hill Companies, Inc., : Sales = $253m Loss = $310m 1998(3Q): Sales = $934m Profits = $260.2m The Impact of Privatization 2-1

© McGraw-Hill Companies, Inc., 2000 Democratic Totalitarian Political Systems “The System of Government in a Nation” Individualism Collectivism 2-2

© McGraw-Hill Companies, Inc., 2000 Collectivism and Individualism  Collectivism  Socialism Communists Social Democrats  Individualism  Guarantee individual freedom and expression  People can pursue own economic self-interest 2-3

© McGraw-Hill Companies, Inc., 2000 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. 2-4

© McGraw-Hill Companies, Inc., 2000 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 2-5

© McGraw-Hill Companies, Inc., 2000 Totalitarianism  Constitutional guarantees are denied.  Four major forms:  Communist  Theocratic  Tribal  Right Wing 2-6

© McGraw-Hill Companies, Inc., 2000 Economic Systems  Market Economy  Command Economy  Mixed Economy  State Direct Economy 2-7

© McGraw-Hill Companies, Inc., 2000 Economic Systems Market State-Directed MixedCommand 2-8

© McGraw-Hill Companies, Inc., 2000 Legal Systems  Rules or laws that regulate behavior.  Property rights  Private action  Public action 2-9

© McGraw-Hill Companies, Inc., 2000 International Property Issues  Protection of Intellectual Property  Lax enforcement  Product Safety and Product Liability  Competitiveness  Ethics 2-10

© McGraw-Hill Companies, Inc., 2000 PPP Index and GNP Data (Selected Countries) 2-11 Table 2.1

© McGraw-Hill Companies, Inc., 2000

Map

© McGraw-Hill Companies, Inc., 2000 Map

© McGraw-Hill Companies, Inc., 2000 Map

© McGraw-Hill Companies, Inc., 2000 Map

© McGraw-Hill Companies, Inc., 2000 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- 2-17

© McGraw-Hill Companies, Inc., 2000 Geography and Education 2-18

© McGraw-Hill Companies, Inc., 2000 Singapore  Population: 2.8 million  Literacy rate: 91.1%  GDP ($B): 83  Per Capita GDP: $26,294  Strategic location: Malacca Straits  World’s second busiest port: cargo tonnage  Average GDP growth over 25 years: 8% 2-19

© McGraw-Hill Companies, Inc., 2000 Spread of Democracy  Totalitarian regimes failed to deliver economic progress.  New information technologies (internet) restricted a state’s ability to control information.  Emergence of prosperous middle class demanding democratic reforms. 2-20

© McGraw-Hill Companies, Inc., 2000 Universal Civilization “we may be witnessing…the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” - Francis Fukuyama

© McGraw-Hill Companies, Inc., 2000 Clash of Civilizations There is no “universal” civilization based on widespread acceptance of Western liberal democratic ideals. 2-22

© McGraw-Hill Companies, Inc., 2000 Map

© McGraw-Hill Companies, Inc., Real Percentage GDP Growth, , for Five Post-Communist States Czech Republic Hungary Poland Russia Ukraine 2-24 © McGraw Hill Companies, Inc., 2000

© McGraw-Hill Companies, Inc., 2000 Map

© McGraw-Hill Companies, Inc., 2000 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 2-26

© McGraw-Hill Companies, Inc., 2000 India’s GDP 2-27

© McGraw-Hill Companies, Inc., 2000 The Falling Rupee US Dollar Value of 100 Indian Rupees $ 2-28

© McGraw-Hill Companies, Inc., 2000 Percentage of India’s Exports and Imports (By Region) $31.6B $36.0B 2-29

© McGraw-Hill Companies, Inc., 2000 Foreign Investment in India 2-30

© McGraw-Hill Companies, Inc., 2000 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. 2-31

© McGraw-Hill Companies, Inc., 2000 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. 2-32