National Differences in Political, Economic, and Legal Systems and Economic Development Flashcards
+ culture
Political systems can be assessed according to two dimensions
the degree to which they emphasize collectivism as opposed to individualism and the degree to which they are democratic or totalitarian
Collectivism
an ideology that views the needs of society as being more important than the needs of the individual. Collectivism translates into an advocacy for state intervention in economic activity and, in the case of communism, a totalitarian dictatorship.
Refers to a political system, that stresses the primacy of collective goals over individual goals. An individual right to do something, may be restricted “to the good of society”.
Individualism
an ideology that is built on an emphasis of the primacy of the individual’s freedoms in the political, economic, and cultural realms. Individualism translates into an advocacy for democratic ideals and free market economics.
A philosophy that an individual should have freedom in his or hers economic and
political pursuits, fx Adam Smith, David Hume. Build on two central principals:
1. Guaranteeing individual freedom and self-expression.
2. Society is best served with people pursuing their own economic self-interest.
Market economy
prices are free of controls, and private ownership is predominant.
Command economy
prices are set by central planners, productive assets are owned by the state, and private ownership is forbidden.
Mixed economy
elements of both a market economy and a command economy
What does the rate of economic progress depend on?
the extent to which that country has a well-functioning market economy in which property rights are protected.
What does the attractiveness of a country as a market and/or investment site depend on?
balancing the likely long-run benefits of doing business in that country against the likely costs and risks.
Benefits of doing business in a country are a function of?
the size of the market (population), its present wealth (purchasing power), and its future growth prospects. By investing early in countries that are currently poor but are nevertheless growing rapidly, firms can gain first-mover advantages that will pay back substantial dividends in the future.
Costs of doing business tend to be greater where
political payoffs are required to gain market access, where supporting infrastructure is lacking or underdeveloped, and where adhering to local laws and regulations is costly.
The risks of doing business in a country tends to bre greater where
in subject to economic mismanagements and lacking a legal system to provide adequate safeguards in the case of contract or property rights violations.
Political economy
Political, economy and legal systems interact with each other and affect the
economy for at country.
Political system
The system of government in a nation
Socialism
Roots from Karl Marx, he advocated state ownership of basic means of production,
distribution and exchange (i.e., business).
Social democracy: Denmark,
Privatization: Selling state-owned enterprises to private investors.
Common law
based on tradition, precedent and custom. Judge have the power to interpret the law
so that it applies to the unique circumstances of an individual case.
Civil law
based on laws organized into codes. Judge rely on detailed legal codes, and only have the
power to apply the law.
Theocratic law
law based on religious teachings fx Islamix law.
Contract
A document that specifies the conditions under which an exchange is to occur and
details the right of the parties involved.
Contract law
What governs contract enforcement. If one party in a contract agreement feels the
other is violated it, it resort to the contract law.
United Nations Convention on Contracts for the International Sale of Goods (CISG)
When contract disputes arise in international trade, there is always the question of which country’s
laws apply, the CISG establishes a uniform set of rules, that the countries adopters the conventions
rules as part of its laws.
Property rights
refers to the legal rights over the use to which a resource is out and over the use
made of any income that may be derived from that resource.
Private actions
is violating property rights, theft, piracy, blackmail done by private individuals or
groups fx the Mafia.
Public action
is violating of property rights which occurs when public officials (politicians and
government bureaucrats.
Foreign Corrupt Practices Act (FCPA)
U.S law regulating behavior regarding the conduct of
international business in taking bribes and other unethical actions.
Intellectual property
computer software, screenplay, music score or chemical formula- a product
of intellectual activity.
Patent
Grants the inventor of a new product or process exclusive rights for a defined period to
manufacture, use, or sale.
Copyrights
a legal rights of the author, composers, playwrights, artist and publishers to publish
and disperse there work as they see fit.
Trademarks
are designs and names that are officially registered (fx Christian Dior clothes).
World Intellectual property organization
185 countries agrees on intellectual property rights,
because the rights differs from country to country.
Product safety laws
safety standards to which a product must adhere.
Product liability
involves holding a firm responsible for when a product causes injury, death or
damage.
Results of high levels of corruption?
Significally reduce the foreign direct investment, level of international
trade and economic growth rate in a country.
Culture
a system of values and norms that are shared among a group of people and that when
taken together constitute a design for living- bound together by a common culture (Hofstede and
Weber, Namenwitrth definition).
It’s possible to talk about culture on different levels
Cross-cultural literacy
how cultural difference across and within nations can affect the way
business is practiced.
Values
ideas about what a group believes to be good and right and desirable- shared assumptions
Norms
Social rules and guidelines the prescribes appropriate behavior in certain situations.
Divided into to two categories by William Graham Sumner (sociologist)
Folkways: actions of little moral significance: like dress code, eating with correct
utensils so on. Rituals and symbolic behavior.
Mores: Has more significance than folkways. Might collapse a business deal.
Includes theft, adultery, incest and cannibalism. Fx in USA drinking alcohol is alright,
whereas in Saudi Arabia consumption alcohol is a violation to an important social
mores.
Society
A group of people sharing common set of values and norms.
Nation-states
political creations, not the same as a society. Are often studied for the national
identituy, so own. May contain one culture og several subcultures.
Determinants of culture
Religion, Political philosophy, Economic philosophy, education, language, social structure
Social structure
basic social organization. How the society is organized in terms of values, norms
and relationships. First degree is the basic unit of the social organization is the individual or the
group. Second degree is if the society is divided into castes or classes.
India fx: has high degree of social stratification and low mobility between strata.
USA fx: has low degree of social stratification and high mobility between strata.
Social stratifications
you are born into it, and can move between the strata, but if you are born
into low strata, it’s harder to go up and otherwise around. Social stratification is based on four basic
principles:
1. is a trait of society, not a reflection of individual differences
2. carries over a generation to the next
3. is generally universal but variable
4. involves not just inequity but also beliefs.
Social mobility
Refers to the extent to which individuals can move out of the strata they were born
in.
Culture and business - What did Hofstede do?
Isolated four dimensions that he claimed summarized the different cultures (through collected
data from IBM where he worked as a psychologist)
Four dimensions of culture
- Power distance (PD)
- Individualism versus collectivism (IND)
- Uncertainty avoidance (UA)
- Masculinity versus femininity (MAS)
Later added:
- Long-term versus short-term orientation
Index score from 0-100
Culture and business - criticism of Hofstedes work
- He assumes there is one-to-one correspondence between culture and the nation state
- The reaches team were from Europe and America- biased questions
Explain what determines the level of economic development of a nation
- The different measurements
- GNI and GDP
- PPP
- HDI doesn’t take into account the political environment
- How free the countries is
- The engines of growth entrepreneurship and innovation
- Political system
- The Freedom House
Identify the macropolitical and macroeconomic changes occurring worldwide
The past 30 years a lot of countries of been democracies
- From a planned or mixed to a market free economy
- Reversing countries
- Terrorism
- Clash of different systems and ideology
- The Heritage foundation
- “Economic freedom does not necessarily equate with political freedom
Describe how transition economies are mobbing towards market-based systems
- Deregulation
- Privatization
- Creation of legal system to safeguard property rights
Explain the implications for management practice of national difference in political economy
- Is it safe/beneficial to do business in this country
- Overall attractiveness - benefits (size of economy, likely economic growth), costs (corruption, lack of infrastructure, legal costs), risks (political, economic and legal).
Gross National Income (GNI)
income per head of population. It measures the total annual income
received by residents of a nation. Doesn’t account for differences in in cost of living in different
countries
Purchasing Power Parity (PPP)
The PP for different countries is then adjusted depending on
whether the cost of living is lower or higher than in the USA, fx in 2016 GNP pr. capita of China
was $8,260 but the PP per capita was $15,500 suggesting that the cost of living was lower in China
and that $8,260 in China would buy as much as $15,500 in USA.
Gross domestic product (GDP)
countries growth rate in gross domestic product.
The GNI and PPP data give a static picture of development, fx that China is much
poorer than the uSA, but they do not tell if China is closing the gap.
Amartya Sen (HDI)
Economist Amartya Sen argued in her thesis that the measures of development should focus on the
capabilities and opportunities that people enjoy. It should been seen as a process of expanding the
real freedoms that people experience, focus on:
- Basic heathcare- especially for children
- Basic education- especially for women
- Sen’s thesis suggested political freedom also should be included- its not
Sen’s thesis was picked by UN, which has developed the Human Development Index (HDI).
HDI: Measures the quality of human life in different nation, based on 3 measurements:
1. Life expectancy at birth
2. Educational attainment
3. Average incomes (based on PPP)
Innovation
new progress, new products, organizations, new management and strategies. Often a
product of entrepreneurial activity.
Entrepreneurs
are those who first commercialize innovative new products and processes and
entrepreneurial activity.
Heritage foundation
an index of economic freedom based on 10 indicators. (economic freedom
does not equate political freedom) (should be viewed with caution, because of its support to the Tea
Party).
The tea party movement
is an American fiscally conservative political movement within the
Republican Party
Deregulation
its removing legal restrictions to the free play of markets, the establishment of
private enterprises. Fx in communism the government commands the control over prices and
output- to deregulate the have to not.
Privatization
an increase in privatizations- transfers the ownership of state property in the hands
of individuals.
