1. National Differences in Political Economy

2. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-2 India

3. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-3 Focus The term Political Economy is used to stress that the political, economic, and legal systems of a country are dependent on each other.

4. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-4 Focus We will review these systems and explore how differences in political economy influence the benefits, costs, and risks associated with doing business in different countries.

5. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-5 Focus We need to analyze different systems according to their emphasis on: Collectivism vs. Individualism Democracy vs. Totalitarianism

6. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-6 Political Systems “The system of government in a nation.” Collectivism: uA political system that stresses the primacy of ‘collective goals’ over ‘individual goals’; ‘the good of the society’; ‘the common good.’

7. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-7 Political Systems “The system of government in a nation.” Collectivism: A political system that stresses the primacy of collective goals over individual goals.  Advocated by Plato in the “Republic”.

8. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-8 Political Systems “The system of government in a nation.” 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.

9. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-9 Political Systems “The system of government in a nation.” Socialism:  Trace intellectual roots to Karl Marx.

10. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-10 Political Systems “The system of government in a nation.” Socialism:  Trace intellectual roots to Karl Marx.  Argued that the pay of workers does not reflect the full value of their labor.

11. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-11 Political Systems “The system of government in a nation.” Socialism:  Trace intellectual roots to Karl Marx.  Argued that the pay of workers does not reflect the full value of their labor.  Advocated collective ownership of production, distribution, and exchange (businesses), thereby ensuring that workers were fully compensated for their labor.

12. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-12 Communists:  Socialism is achieved through violent revolution.. Two Approaches

13. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-13 Social Democrats:  Socialism is achieved through democratic means. Two Approaches

14. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-14 Political Systems Individualism:  Opposite of Collectivism. “The system of government in a nation.”

15. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-15 Political Systems Individualism:  Opposite of Collectivism.  Individual should have freedom in political and economic pursuits. “The system of government in a nation.”

16. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-16 Political Systems Individualism:  Opposite of Collectivism.  Individual should have freedom in political and economic pursuits.  Advocated by Aristotle. “The system of government in a nation.”

17. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-17 Political Systems Individualism:  Opposite of Collectivism.  Individual should have freedom in political and economic pursuits. qAdvocated by Aristotle. qPrivate property is more highly productive than communal property and will thus stimulate progress. “The system of government in a nation.”

18. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-18 Political Systems Individualism:  Opposite of Collectivism.  Individual should have freedom in political and economic pursuits. qAdvocated by Aristotle. qPrivate 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) “The system of government in a nation.”

19. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-19 Political Systems Individualism:  Opposite of Collectivism.  Individual should have freedom in political and economic pursuits. qAdvocated by Aristotle. qPrivate 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. “The system of government in a nation.”

20. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-20 Two tenets of individual capitalism: qAn emphasis on the importance of guaranteeing qindividual freedom and qself-expression. qAnd the idea that 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. Therefore, Individualism advocates:  Democratic political systems.  Free market economics.

21. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-21 Democracy and Totalitarianism Democracy Government by the people, exercised either directly or through elected representatives.

22. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-22 Democracy and Totalitarianism Totalitarianism Government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited.

23. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-23 Democracy Safeguards to protect a democracy: Right to freedom of expression, opinion, and organization.

24. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-24 Democracy Safeguards to protect a democracy: Right to freedom of expression, opinion, and organization. A free media.

25. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-25 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.

26. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-26 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.

27. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-27 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.

28. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-28 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.

29. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-29 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.

30. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-30 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.

31. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-31 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.

32. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-32 Totalitarianism 4 major forms: Communism Collectivism is achieved through total dictatorship.

33. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-33 Totalitarianism 4 major forms: Communism Collectivism is achieved through total dictatorship. Theocratic Political power is influenced by religious principles.

34. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-34 Totalitarianism 4 major forms: Communism Collectivism is achieved through total dictatorship. Theocratic Political power is influenced by religious principles. Tribal A political party representing the interests of a particular tribe monopolizes power.

35. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-35 Totalitarianism 4 major forms: Communism Collectivism is achieved through total dictatorship. Theocratic Political power is influenced by religious principles. Tribal A political party representing the interests of a particular tribe monopolizes power. Right-wing Generally permits individual economic freedom, but restricts political freedom to prevent the rise of communism.

36. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-36 Economic Systems Market Economy: All productive activities are privately owned.

37. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-37 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.

38. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-38 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. 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.

39. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-39 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. 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. State-Directed Economy: The state plays a significant role through its “industrial policy” and setting national goals.

40. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-40 Legal Systems Rules, or laws, that regulate behavior and the processes by which laws are enforced and grievances redressed.

41. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-41 Legal Systems Property Rights: the legal rights over the use of a resource and the income derived from it. Rules, or laws, that regulate behavior and the processes by which laws are enforced and grievances redressed.

42. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-42 Legal Systems Property Rights: the legal rights over the use of a resource and the income derived from it. Private Action: Theft, piracy, blackmail and the like by private individuals and groups. Rules, or laws, that regulate behavior and the processes by which laws are enforced and grievances redressed.

43. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-43 Legal Systems Property Rights: the legal rights over the use of a resource and the income derived from it. Private Action: Theft, piracy, blackmail and the like by private individuals and groups. Public Action and Corruption: Violation of property rights by public officials, such as politicians and government officials, by extorting income or resources (taxes, licenses or permits, outright confiscation) from property holders. Rules, or laws, that regulate behavior and the processes by which laws are enforced and grievances redressed.

44. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-44 Country Corruption Rankings 2000 Canada U.K. Australia France Greece Russia Nigeria 10=Highly clean 0=Totally corrupt Figure 2.1

45. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-45 Protection of Intellectual Property Property that is the product of intellectual activity.

46. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-46 Protection of Intellectual Property Property that is the product of intellectual activity. It is protected by: Patent: through exclusive use rights, it protects the inventor of a product for a certain period of time.

47. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-47 Protection of Intellectual Property Property that is the product of intellectual activity. It is protected by: 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.

48. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-48 Protection of Intellectual Property Property that is the product of intellectual activity. It is protected by: 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.

49. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-49 Protection of Intellectual Property Property that is the product of intellectual activity. It is protected by: Patent: Copyright: Trademark: However, Piracy remains a significant problem in international business.