Lecture 9 political systems, legal systems, political risk and government intervention Flashcards
What is a political system?
Set of formal institutions that constitute a government. Includes legislative bodies, political parties, lobbying groups, trade unions
What’s a legal system?
System for interpreting and enforcing laws and regulations
What’re the 3 major types of political systems
Totalitarianism
Socialism
Democracy
Totalitarianism characteristics (3)
Government controls all economic and political matters
Led by a dictator
Power sustained via secret police, propaganda, regulation of free discussion and criticism
What is socialism?
Capital & wealth put in state used as a means of production not profit
Group welfare outweighs individual welfare
Governments role is to control basic means of production, distribution and commercial activity
Frequent government intervention in private sector
Corporate income tax rates - higher
2 key factors of democracy and what are they
Private property rights
(Ability to own property and assets - accumulate private wealth)
Limited government (Government only performs essential functions that serve all citizens - national defence, maintaining law and order, foreign relations, providing basic infrastructure)
Empirical freedom suggests…
Democracy means more economic freedom, leading to higher economic living standards
Economic freedom flourishes in systems characterised by: (3)
Free market economics
Strong rule of law
Minimal government intervention in business
5 types of legal systems
Common law
Civil law
Socialist law
Mixed systems
What is common law?
Legal system
Also known as case law
Relatively flexible as judges have power to interpret laws based on circumstances
What is civil law?
Based on an all-inclusive system of laws that have been “codified”, written by legislative bodies
Laws are more set in stone, less flexible
What is country risk
The developments in a country’s legal/political environments that can have adverse effects or potential loss on company operations/profitability
What is the nature of government intervention
Important dimension of country risk
Governments intervene in trade and investment to achieve political/social/economic objectives
Hinders / helps ability of firms to compete internationally
Rationale for government intervention
Tariffs and other barriers can generate government revenue
Safety, security, welfare of citizens
Economic, political, social objectives
Consequences of protectionism (4)
Reduced supply of goods to buyers
Price inflation
Reduced variety, less choice available to buyers
Reduced industrial competitiveness
