Political environment and business chapter 1

Question 1

1.1 – Evolution of politics?

Answer 1

1.1 – Evolution of politics
▪ Politics in the world started since the establishment of society after agricultural revolution.
▪ Politics has been evolving since then according to:
- experiences of society and
- the needs of the society.

Question 2

– Definition of politics?

Answer 2

▪ We cannot find a single definition of politics which can satisfy all the intrinsic values.
(a) According to Vladimir Lenin
▪ Politics is the most concentrated expression of economics.
(b) According to Bernard Roland Crick
▪ Politics is distinctive form of rule whereby people act together through institutionalized procedures
- to resolve differences,
- to conciliate diverse interests and values and
- to make public policies in pursuit of common purposes.

Question 3

3 – Impact of political policy?

Answer 3

1 Politics has direct or indirect impact on state, society, individual, economy and government.
2 Business activity is always dependent on the political policy and decision making.

Question 4

– Importance of political environment for managers ?

Answer 4

▪ To become a successful business manager, one should take into consideration the political
environment for business, then
- capitalize on available opportunities; and
- try to mitigate risks.

Question 5

.5 – Factors determining the political setup of a country?

Answer 5

▪ The political setup in any country depends upon various factors such as:
-1 Political ideology of the ruling political party.
- 2 Pre-existing laws and regulations
-3 Socio-religious constraints.
- 4 Political opposition and their economic agendas.

Question 6

Political Ideologies?

Answer 6

1 -Communism
2 -Socialism
.3 – Democracy
4 – Democratic Capitalism
.5 – Dictatorial Capitalism

Question 7

1 – Communism

Answer 7

▪ This political ideology is also known as:
- Extreme left Radicals; or
- Dictatorial socialism
1▪ All means of production must be in the hands of state.
2▪ No private property is allowed.
3▪ Production by the state industries would be based on the needs of people.
4▪ Distribution of state earnings on the basis of the need of people.
5▪ Egalitarian, class less society where everyone has equal material.
6▪ No individual freedoms
7▪ It is comprehensive political system which has its own economic system.
8▪ There is no room for ‘organized religion’ in communism. However individual religion is supported
in some form. They consider religion as ‘opium of masses.’
9▪ Communists want change through any means possible including violence.
10▪ Stalin/Lenin were the main supporters of communism.
11▪ Soviet Union is using this political ideology.

Question 8

2 – Socialism?

Answer 8

▪ This political ideology is also known as:
- Democratic socialism
- - Left wing liberals
1 Most and important means of production in the hands of state with few exceptions are allowed.
2▪ Private property is allowed.
3▪ It recognizes the distinction amongst people based on their ability and their contribution.
4▪ Distribution of output amongst people should be based on their input.
5▪ Challenges ‘status quo’.
6▪ The system believe that the people are the responsibility of the state, and it needs to regulate
business through laws to protect masses.
7▪ Everyone is equal in-front of the law.
8▪ Religion is allowed in this system
9▪ They favor change through peaceful means.
10▪ Implementation of ideology through social change.
11▪ Major characteristics include:
- collectivism,
- economic equality,
- social service and
- nationalization.
12▪ Fabian is the main supporter of socialism
13▪ Sweden is following this political ideology.

Question 9

.3 – Democracy?

Answer 9

1▪ This political ideology is also known as Center Moderates.
▪ They want change but not at the cost of tradition.
2▪ State must play the role of guardian for all.
3▪ Individual freedom is recognized.
4▪ Full religious freedom.
5▪ Private property is allowed.
6▪ Ownership of private and public means of production needs to be balanced.
7▪ They believe in international cooperation for the benefit of all however they also recognize their
national interests.
8▪ Slow social change.
9 ▪ J.S. Mill, Keynes and F.D. Roosevelt were the supporters of this ideology.
10▪ Canada is using this political ideology.

Question 10

.4 – Democratic Capitalism?

Answer 10

1▪ This political ideology is also known as:
- Right Wing Laissez Faire; or
- Conservatism
2▪ Free market and open competition
3▪ Elitist and oligarchy (rule by the few rich and powerful).
4▪ Law favors the elite.
5▪ Maximum private property with least ownership of means of production by state.
6▪ Maintain ‘status quo’.
7▪ Attainment of national or state goals by any means possible, including amending the laws around
it.
8▪ Individual liberties are recognized with exceptions.
9▪ Religious practice in all forms is allowed.
10▪ Large corporations can flourish in this system and charge their consumers as much as they want.
11▪ There is a tendency of suppression and oppression by majority.
12▪ Attainment of national interest over international cooperation.
13▪ Power politics
14▪ Key terms of characteristics;
1- individualism,
2- private ownership,
3- self-interest,
4- open competition,
5- privatization,
6- not much protection from the system
15▪ Friedman or Hayed or Reagon or Thatcher were the main supporters of it.
16▪ United States is using this ideology.

Question 11

5 – Dictatorial Capitalism?

Answer 11

.
1▪ This political ideology is also known as:
- Fascist Capitalism; or
- Extreme left Reactionaries
2▪ No individual freedom.
3▪ Authoritarian rule.
4▪ Private property as prescribed by the ruling regime.
5▪ Extreme inequalities.
6▪ Protection of national interest at all costs.
7▪ Implementation of ideology through any means possible, including violence.
8▪ This system does not allow dissenting opinion.
9▪ Hitler or Mussolini or Franco were the main supporters of it.
10▪ Nazi Germany or Fascist Italy and Spain are following it.

Question 12

1 – Importance of political ideologies

Answer 12

1▪ Many political decisions have serious economic and business implications.
2▪ Following political decisions might influence the businesses:
- industrial policy,
- policy towards foreign capital and technology,
- fiscal policy and
- foreign trade policy.
3▪ Business manager has to be familiar with ideologies and past approaches of key political parties to
analyze possible future policies of existing and forthcoming ruling parties.
4▪ The goal of any government is to run the country according to their respective ideology for the
attainment of economic prosperity and political stability.

Question 13

.2 – how many political factors (political decisions) affecting businesses ?

Answer 13

.2 – Five political factors (political decisions) affecting businesses
▪ The following are the five ways in which political factors are affecting business in today’s world, or
can affect, as well as some of the ways to prepare for – and mitigate – the associated risks.
Political decisions regarding
1 Government spending
2 Taxation (Fiscal policy)
3 Economic policies
4 Labour laws
5 International
relationship and
policies

Question 14

.2.1 – Political decisions regarding government spending?

Answer 14

.2.1 – Political decisions regarding government spending
1▪ Direction of state spending is based on its inherent political ideology.
2▪ Govt inclined towards left-wing ideology such as communism or socialism would prefer to spend
more on public welfare such as:
- free health,
- free or subsidized education for all etc.
3▪ Right- wing state such as capitalism would prefer to spend more on:
- defense,
- international security,
- alliances etc.

Question 15

.2.2 – Political decisions regarding taxation (Fiscal policy)?

Answer 15

1▪ Various ideologies propose different sorts of taxation either direct & indirect tax.
2▪ Tax policies can have a massive effect on a business’ overhead and profit margins.
3▪ These policies may be used to:
- Reduce income of individuals and companies and thus reduce private expenditures
- Provide resources for public expenditures (roads, public schools, hospitals or parks)
- Exercise control over the private sector investment
- - Improve country’s business competitive position

Question 16

2.3 – Political decisions regarding economic policies?

Answer 16

1▪ Different political parties or individuals enact different policies to guide national economy
2▪ A pro-agriculture political approach may not be able to pay attention to other sectors.
3▪ An ideology relying on non-agriculture sector for economic growth may manage economy that is
not conducive for agriculture sector.
4▪ Various ideologies propose different sorts of taxation either direct & indirect tax.

Question 17

.2.4 – Political decisions regarding labour laws?

Answer 17

1▪ Political parties often focus minimum wages, insurance requirements, labor regulation etc.
2▪ Local labor laws are also affected by international labour regulations.
3▪ Some Western economies do not allow imports from such countries who do not ensure labor
health policies, labor safety from fire hazard, proper work load etc

Question 18

2.5 – International relationship and policies?

Answer 18

1▪ An ideology that support good international relation and welcomes foreign investments will have
direct impact on sustainability of local businesses.
2▪ A protectionist policy (to save and promote own industry) may have different impact

Question 19

Interaction between businesses and government?

Answer 19

.1 – Management of political decisions by businesses
.2 – Financial incentive strategy
3 – Promoting a Constituency building strategy
(a) Stakeholder Coalitions
(b) Advocacy advertising
(c) Trade associations
(d) Managing the political environment via the Public affairs department

Question 20

1 – Management of political decisions by businesses?

Answer 20

1▪ Political parties need the support of businesses – especially larger, influential ones for:
- votes,
- contributions to economy, via reduction of unemployment and
- party funding
2▪ There are different ways through which government policies and decisions are managed by such
influential business owners.
3▪ Business manager should keep an eye on political parties influenced by their supporters from
business community and pressure groups of businesses.
4▪ There are two main methods to influence political decisions by business community:
(i) Financial incentive strategy
(ii) Constituency building strateg

Question 21

2 – Financial incentive strategy?

Answer 21

1▪ Businesses may use their economic leverage to influence public policymakers.
2▪ They can use economic power to threaten to leave a city, state, or country unless a desired
political action is taken (that would favor the business).

Question 22

.3 – Promoting a Constituency building strategy?

Answer 22

.3 – Promoting a Constituency building strategy
▪ Businesses may influence political environment by seeking support from organizations or people
who are also affected by policy or who are concerned with business’s position.
▪ Some of the influencing approaches are as follows:
(a) Stakeholder Coalitions
(b) Advocacy advertising
(c) Trade associations
(d) Managing the political environment via the Public affairs department

Question 23

(a) Stakeholder Coalitions?

Answer 23

(a) Stakeholder Coalitions
1▪ Business may try to mobilize:
- employees,
- stockholders,
- customers, and
- local community to support their political agenda.
2▪ If political issue is negative for business, it is also negative for its stakeholders
3▪ Often, businesses organize programs to get stakeholders, acting as lobbyists or voters, to
influence government officials

Question 24

(b) Advocacy advertising?

Answer 24

(b) Advocacy advertising
1▪ These ads focus on organization’s views on controversial political issues.
2▪ These issue advertisements can appear in newspaper, TV, or other media

Question 25

(c) Trade associations?

Answer 25

1▪ Its coalitions of companies in the same or related industries
2▪ To coordinate efforts in promoting common interests of industry
3▪ Some examples are:
- Federation of Pakistani Chambers of Commerce & Industry
- Overseas Investors Chambers of Commerce and Industry (OICCI),
- All Pakistan Textile Manufacturers Association (APTMA) voiced its concerns over load
shedding and hike in industrial tariffs
4▪ They represent many businesses include companies of all sizes and sectors.
5▪ The associations also publish widely circulated magazines and newsletters

Question 26

(d) Managing the political environment via the Public affairs department?

Answer 26

1▪ In many organizations, managing political activity falls to department of public affairs
2▪ Creation of public affairs units is now a global trend.
3▪ Function and role of the public affairs department is to manage the firm’s interactions with
governments at all levels and to promote the firm’s interests in the political process.
4▪ Typical public affairs executive spends most of the day
- direct lobbying with politicians,
- hosting visits by politicians to the company’s locations, or
- attending fund-raising activities.