Political, Legal & Economic Differences Flashcards
On what matrices do political systems differ
collectivism/individualism
democracy/totalitarianism
political economy
Political, economic, and legal systems of a country are interdependent
They influence each other
We use the term political economy to stress that the political, economic, and legal systems of a country are interdependent; they interact with and influence each other, and in doing so, they affect the level of economic well-being
Collectivism vs Socialism
Collectivism
The needs of society as a whole are generally viewed as being more important than individual freedoms
Socialism
Karl Marx: The few benefit at the expense of the many in a capitalist society where individual freedoms are not restricted
Communists vs. social democrats
Privatization
Individualism
Individualism
An individual should have freedom in his or her economic and political pursuits
The interests of the individual should take precedence over the interests of the state
Two tenets
1.Guarantee of individual freedom and self-expression
2.Welfare of society best served by letting people pursue their own economic self-interest
Democracy and Totalitarianism and Individualism and Collectivism
At different ends of a political dimension
Democracy and individualism go hand in hand, as do the communist version of collectivism and totalitarianism, with exceptions
type of democracies and totalitarianism
Democracy
Representative democracy
Constitutional Democracy
Totalitarianism
Communist totalitarianism
Theocratic totalitarianism
Tribal totalitarianism
Right-wing totalitarianism
Pseudo-democracies
Lie between pure democracies and complete totalitarianism systems
Authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties
totalitarianism key points
Totalitarianism is a system of government under which the people are allowed virtually no authority, with the state holding absolute control.
Totalitarianism is considered an extreme form of authoritarianism, in which government controls almost all aspects of the public and private lives of the people.
Most totalitarian regimes are ruled by autocrats or dictators.
Totalitarian regimes typically violate basic human rights and deny common freedoms in maintaining total control over their citizens.
constitutional vs representative democracy
Representative democracy
In a representative democracy, representatives are elected by the people and entrusted to carry out the business of governance. Australia is a representative democracy.
Most modern democratic states practice representative democracy. The United States, for example, is a constitutional republic that operates as a representative democracy. In a representative democracy, citizens periodically elect individuals to represent them. These elected representatives then form a government whose function is to make decisions on behalf of the electorate. In a representative democracy, elected representatives who fail to perform this job adequately will be voted out of office at the next election
Constitutional democracy
In a constitutional democracy a constitution outlines who will represent the people and how. Australia is also a constitutional democracy.
Economic systems: types
market economy, command economy, mixed economy
Market Economy
All productive activities are privately owned
Production is determined by supply and demand
Government encourages vigorous free and fair competition
Command Economy
Government plans the good and services, quantity and price, then allocates them for “the good of society”
All businesses are state owned
Historically found in communist economies
No incentive for individuals to look for better ways to serve needs
Mixed Economy
Some sectors are privately owned, some are government owned
Once common in developed world, less so now
Government may aid troubled firms
U.S. helped Citigroup, General Motors
Legal Systems components
Rules or laws that regulate behavior
Process through which laws are enforced
Redress for grievances
Influenced by the prevailing political system
Different Legal Systems
1.Common Law
Tradition, precedent, custom
More flexible than other systems
2.Civil Law
Laws organized into codes
Less adversarial
3.Theocratic Law
Based on religious teachings
Most common is Islamic law
Differences in Contract Law
Governs the enforcement of contracts
Common law
-Contracts are very detailed with all contingencies spelled out
-More expensive and can be adversarial.
Civil law
-Contracts tend to be much shorter and less specific
United Nations Convention on Contracts for the International Sale of Goods (CISG)
Establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations
Applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties opt out
United Nations Convention on Contracts for the International Sale of Goods (CISG)
Establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations
Applies automatically to all contracts for the sale of goods between different firms based in countries that have ratified the convention, unless the parties opt out
Property Rights def
Property is a resource that an individual or business owns
Land, buildings, equipment, capital, mineral rights, businesses, intellectual property
Most countries protect property rights
Private vs Public Action
Private action
Theft, piracy, blackmail
Public action and corruption
Public officials extort income, resources, or property
Levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, redistributing assets without compensating the prior owners
Corruption, demanding bribes
In terms of violating property rights, private action refers to theft, piracy, blackmail, and the like by private individuals or groups. Although theft occurs in all countries, a weak legal system allows a much higher level of criminal action.
Public action to violate property rights occurs when public officials, such as politicians and government bureaucrats, extort income, resources, or the property itself from property holders. This can be done through legal mechanisms such as levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, or redistributing assets without compensating the prior owners. It can also be done through illegal means, or corruption, by demanding bribes from businesses in return for the rights to operate in a country, industry, or location.
Corruption by country
slide 19
FCPA
Foreign Corrupt Practices Act (FCPA)
Illegal to bribe a foreign government official to obtain or maintain business over which that foreign official has authority
Requires all publicly traded companies to keep detailed records that would reveal whether a violation of the act has occurred
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997)
Allows for facilitating or expediting payments
The Protection of Intellectual Property types
Patent - grants the inventor of a new product or process exclusive rights for a defined period to the manufacture, use, or sale of that invention.
Copyrights - the exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit.
Trademarks - designs and names, officially registered, by which merchants or manufacturers designate and differentiate their products (e.g., Christian Dior clothes). In the high-technology “knowledge” economy of the twenty-first century, intellectual property has become an increasingly important source of economic value for businesses.
Protecting intellectual property has also become increasingly problematic, particularly if it can be rendered in a digital form and then copied and distributed at very low cost via pirated DVDs or over the Internet (e.g., computer software, music, and video recordings).
World Intellectual Property Organization
Paris Convention for the Protection of Industrial Property
Product Safety and Product Liability
Product safety - the ability of a product to be safe for intended use, as determined when evaluated against a set of established rules.
Product liability - Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause.
Greater if a product does not conform to safety standards
Criminal and civil laws apply
3 broad implications
Political, economic, and legal systems of a country raise important ethical issues that have implications for international business.
Political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market or investment site.
A country with democratic political institutions, market-based economic system, and strong legal system clearly more attractive to do business in.
Collectivism: lina
Collectivism: group more important than the individual
Collectivism refers to a political system that stresses the primacy of collective goals over individual goals.
In such circumstances, an individual’s right to do something may be restricted on the grounds that it runs counter to “the good of society” or to “the common good.”
Apparently collectivism can turn inro socialism – benefit of all at the expense of the many
Marx: While successful capitalists accumulate considerable wealth, Marx postulated that the wages earned by the majority of workers in a capitalist society would be forced down to subsistence levels. He argued that capitalists expropriate for their own use the value created by workers, while paying workers only subsistence wages in return.
Marx: To correct this perceived wrong, Marx advocated state ownership of the basic means of production, distribution, and exchange (i.e., businesses). His logic was that if the state owned the means of production, the state could ensure that workers were fully compensated for their labor. Thus, the idea is to manage state-owned enterprise to benefit society as a whole, rather than individual capitalists.
In the early twentieth century, the socialist ideology split into two broad camps
The communists believed that socialism could be achieved only through violent revolution and totalitarian dictatorship, whereas the social democrats committed themselves to achieving socialism by democratic means, turning their backs on violent revolution and dictatorship.
Individualism: lina
Individualism - philosophy that an individual should have freedom in his or her economic and political pursuits. In contrast to collectivism, individualism stresses that the interests of the individual should take precedence over the interests of the state.
In a passage that might have been taken from a speech by contemporary politicians who adhere to a free market ideology, he argued that private property is more highly productive than communal property and will thus stimulate progress. According to Aristotle, communal property receives little care, whereas property that is owned by an individual will receive the greatest care and therefore be most productive.
Individualism is built on two central tenets.
1.The first is an emphasis on the importance of guaranteeing individual freedom and self-expression.
2.The second tenet of individualism is that the welfare of society is best served by letting people pursue their own economic self-interest, as opposed to some collective body (such as government) dictating what is in society’s best interest
democracy refers
to a political system in which government is by the people, exercised either directly or through elected representatives.
To guarantee that elected representatives can be held accountable for their actions by the electorate, an ideal representative democracy has a number of safeguards that are typically enshrined in constitutional law. These include
(1) an individual’s right to freedom of expression, opinion, and organization;
(2) a free media;
(3) regular elections in which all eligible citizens are allowed to vote;
(4) universal adult suffrage;
(5) limited terms for elected representatives;
(6) a fair court system that is independent from the political system;
(7) a nonpolitical state bureaucracy;
(8) a nonpolitical police force and armed service; and
(9) relatively free access to state information
Totalitarianism - definition and types
Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and prohibits opposing political parties.
Communist totalitarianism
Theocratic totalitarianism - Theocratic totalitarianism is found in states where political power is monopolized by a party, group, or individual that governs according to religious principles
Tribal totalitarianism - Tribal totalitarianism has arisen from time to time in African countries such as Zimbabwe, Tanzania, Uganda, and Kenya. The borders of most African states reflect the administrative boundaries drawn by the old European colonial powers rather than tribal realities. Consequently, the typical African country contains a number of tribes (e.g., in Kenya there are more than 40 tribes). Tribal totalitarianism occurs when a political party that represents the interests of a particular tribe (and not always the majority tribe) monopolizes power
Right-wing totalitarianism - Right-wing totalitarianism generally permits some individual economic freedom but restricts individual political freedom, frequently on the grounds that it would lead to the rise of communism. A common feature of many right-wing dictatorships is an overt hostility to socialist or communist ideas. Many right-wing totalitarian governments are backed by the military, and in some cases, the government may be made up of military officers.
Most totalitarian states
In most totalitarian states, political repression is widespread, free and fair elections are lacking, media are heavily censored, basic civil liberties are denied, and those who question the right of the rulers to rule find themselves imprisoned or worse
connections between the two types of political system dimensions
These dimensions are interrelated; systems that emphasize collectivism tend to lean toward totalitarianism, whereas those that place a high value on individualism tend to be democratic
The democratic–totalitarian dimension is not independent of the individualism–collectivism dimension
However, a large gray area exists in the middle. It is possible to have democratic societies that emphasize a mix of collectivism and individualism.
Market economy: long
Given the dangers inherent in monopoly, one role of government in a market economy is to encourage vigorous free and fair competition between private producers. Governments do this by banning restrictive business practices designed to monopolize a market. Private ownership also encourages vigorous competition and economic efficiency. Private ownership ensures that entrepreneurs have a right to the profits generated by their own efforts. This gives entrepreneurs an incentive to search for better ways of serving consumer needs. That may be through introducing new products, by developing more efficient production processes, by pursuing better marketing and after-sale service, or simply through managing their businesses more efficiently than their competitors. In turn, the constant improvement in product and process that results from such an incentive has been argued to have a major positive impact on economic growth and development.
In the archetypal pure market economy, all productive activities are privately owned, as opposed to being owned by the state. The goods and services that a country produces are not planned by anyone. Production is determined by the interaction of supply and demand and signaled to producers through the price system. If demand for a product exceeds supply, prices will rise, signaling producers to produce more. If supply exceeds demand, prices will fall, signaling producers to produce less. In this system, consumers are sovereign. The purchasing patterns of consumers, as signaled to producers through the mechanism of the price system, determine what is produced and in what quantity
For a market to work in this manner, supply must not be restricted. A supply restriction occurs when a single firm monopolizes a market. In such circumstances, rather than increase output in response to increased demand, a monopolist might restrict output and let prices rise.
Command economies: long
In a pure command economy, the government plans the goods and services that a country produces, the quantity in which they are produced, and the prices at which they are sold. Consistent with the collectivist ideology, the objective of a command economy is for government to allocate resources for “the good of society.”
” In addition, in a pure command economy, all businesses are state owned, the rationale being that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals.
While the objective of a command economy is to mobilize economic resources for the public good, the opposite often seems to have occurred. In a command economy, stateowned enterprises have little incentive to control costs and be efficient because they cannot go out of business. Also, the abolition of private ownership means there is no incentive for individuals to look for better ways to serve consumer needs; hence, dynamism and innovation are absent from command economies. Instead of growing and becoming more prosperous, such economies tend to stagnate.
Mixed economies
Mixed economies can be found between market and command economies. In a mixed economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning.
In mixed economies, governments also tend to take into state ownership troubled firms whose continued operation is thought to be vital to national interests. For example, in 2008 the U.S. government took an 80 percent stake in AIG to stop that financial institution from collapsing, the theory being that if AIG did collapse, it would have very serious consequences for the entire financial system.
the legal system of a country refers
to the rules, or laws, that regulate behavior along with the processes by which the laws are enforced and through which redress for grievances is obtained. The legal system of a country is of immense importance to international business. A country’s laws regulate business practice, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions. The legal environments of countries differ in significant ways. As we shall see, differences in legal systems can affect the attractiveness of a country as an investment site or market.
Common law explanation
Common law is based on tradition, precedent, and custom. Tradition refers to a country’s legal history, precedent to cases that have come before the courts in the past, and custom to the ways in which laws are applied in specific situations. When law courts interpret common law, they do so with regard to these characteristics. This gives a common law system a degree of flexibility that other systems lack. Judges in a common law system have the power to interpret the law so that it applies to the unique circumstances of an individual case. In turn, each new interpretation sets a precedent that may be followed in future cases. As new precedents arise, laws may be altered, clarified, or amended to deal with new situations
A civil law system is based on
a detailed set of laws organized into codes. When law courts interpret civil law, they do so with regard to these codes. More than 80 countries— including Germany, France, Japan, and Russia—operate with a civil law system. A civil law system tends to be less adversarial than a common law system because the judges rely on detailed legal codes rather than interpreting tradition, precedent, and custom. Judges under a civil law system have less flexibility than those under a common law system. Judges in a common law system have the power to interpret the law, whereas judges in a civil law system have the power only to apply the law
A theoretic law system
is one in which the law is based on religious teachings. Islamic law is the most widely practiced theocratic legal system in the modern world, although usage of both Hindu and Jewish law persisted into the twentieth century. Islamic law is primarily a moral rather than a commercial law and is intended to govern all aspects of life.
common law and civil law systems
The difference between common law and civil law systems can be illustrated by the approach of each to contract law (remember, most theocratic legal systems also have elements of common or civil law). A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved. Some form of contract regulates many business transactions.
Contract Law
is the body of law that governs contract enforcement. The parties to an agreement normally resort to contract law when one party feels the other has violated either the letter or the spirit of an agreement.
Property
In a legal sense, the term property refers to a resource over which an individual or business holds a legal title, that is, a resource that it owns. Resources include land, buildings, equipment, capital, mineral rights, businesses, and intellectual property (ideas, which are protected by patents, copyrights, and trademarks). Property rights refer to the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource
corruption vs FDI
Economic evidence suggests that high levels of corruption significantly reduce the foreign direct investment, level of international trade, and economic growth rate in a country
Product safety laws
set certain safety standards to which a product must adhere.
Product liability
involves holding a firm and its officers responsible when a product causes injury, death, or damage. Product liability can be much greater if a product does not conform to required safety standards.
civil and criminal product liability laws
Civil laws call for payment and monetary damages. Criminal liability laws result in fines or imprisonment. Both civil and criminal liability laws are probably more extensive in the United States than in any other country, although many other Western nations also have comprehensive liability laws. Liability laws are typically the least extensive in less developed nations. A boom in product liability suits and awards in the United States resulted in a dramatic increase in the cost of liability insurance. Many business executives argue that the high costs of liability insurance make American businesses less competitive in the global marketplace
