05 Political Economy

8/21/2019 05 Political Economy

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Political Economyand Global

Business


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Our political economytopics…1. Political-economic systems of the developed world

2. Ways of classifying, analyzing political systems

3. Ways of classifying, analyzing economic systems

4. Legal systems

5. he corruption !"oblem

6. Levels of economic de#elo!ment

$. he s!"ead of freedom, democracy, and markets8. Managing you" "elationshi! %ith go#e"nment

Po"tions &c' 2(($-2(13 )cG"a%-*ill +om!anies nc.


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government and politics…

But the U.. and other developedcountries ha#e im!o"tant safegua"ds inthei" constitutions



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Safeguards of Successful Representative

Democracy

Individual’s right to freedom of expression, opinion and organization

Free media

Regular elections

Adult suffrage

Limited terms for elected representatives

A fair court system that is independent from the political system

A non-political state ureaucracy

!on-political force and armed service

Relatively free access to state information



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he "ich count"ies almost all belong to ag"ou! called the "ganization fo"Economic +oo!e"ation and e#elo!ment&E+'

o /oin, a count"y must be gua"anteeingthese rights to its !eo!le



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Business benefits inmature democracy

+onstitutions limit %hat go#e"nment canta0e

and %hat othe" changes go#e"nments canma0e

egal systems enfo"ce cont"acts

bet%een business!eo!le

bet%een business!eo!le and custome"s



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Political systems!"o#ide the %"itten "ules of the game4&institutions' in a nation that allo%!eo!le to

go#e"n themsel#es and

%o"0 togethe"

o do business, you ha#e to know the rules

ometimes

the %"itten "ules a"en6t follo%ed

the"e a"e no agreed rules to say %hethe"%hat you %ant is 7



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2 key dimensions of difference

Political systems as they are designed can be

assessed according to two dimensions

Degree to which they are democratic or

totalitarian

Degree to which they emphasize individualism

as opposed to collectivism



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Democracy versus totalitarianism

Democracy

Government is by the

people, exercised either

directly or through elected

representatives(representative

democracy)

Elected representatives

are held accountable

through safeguards

Totalitarianism

One personparty

exercises absolute control

over all spheres of human

life (competing politicalparties are banned)

!ommunist totalitarianism

"heocratic totalitarianism

"ribal totalitarianism

#ight wing totalitarianism



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Collectivism and IndividualismIndividualism

!entral tenet is that

individual economic

and political freedoms

are the ground rules onwhich society is based

$s the direct opposite of

collectivism

Collectivism

Collective goals are

more important than

individual goals

$ndividual rights are

sacrificed for the good

of the ma%ority

$n the modern world

collectivism isexpressed through

socialism



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official principlesdon’t tell everything

Pe"ha!s %e should ha#e an additionalclassification of !olitical systems

)o"e matu"e &e.g., the "ich count"ies6systems 8 usually'

ess matu"e &many systems in !oo"e"count"ies'

Are some of the rich countries turning theirsystems into less mature ones?



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Classifying conomic Systems

"ar#et economy$ what is produced ! in what

"uantity is determined by supply#demand and

signaled to producers through a price system

%ong &ong is closest

'ommand economy$ planned by government

rare today $ %orth &orea' Cuba

"ixed economy$ a balance of both of the above

most countries' but degree of mi(ture varies



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Individualism vs) Collectivism

in conomic Systems

There is a connection between political ideology

and economic systems $n countries where individual goals are given primacy

free market economic systems are fostered!ountries where collective goals are given primacy there

is mar&ed state control of markets



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$n any new country, consider whether

rules are real

*any poor countries have what used to be called a

+soft state,

Powerful people can rea# or change the rules

when they wantPeople don-t follow the rules .ta#e ries' etc)/

ven in many rich countries .0apan/' the rules may

tilt in favor of local people



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1egal Systems

Rules' laws' and

processes that enforce

them regulate behavior 'rocesses through which

grievances are addressed

ll countries have legal

systems, but they may wor&

very differently


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Property Rights

bundle of legal rights over the use to (hich a

resource is put and over the use made of any

income from that resource

Can be violated through

'rivate action (eg, theft)

'ublic (government) action

!orruption



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Contract 1awContracts specify conditions under which an e(change is to

occur Detail rights and obligations of parties

'ontract la( is the body of law that enforces a contract

Dispute resolution is often comple(

*here to sue, where to arbitrate + whose laws apply

-alidity of contracts and decisions

The 3nited %ations has a Convention on Contracts for the

International Sale of 4oods .CI4S/



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Intellectual Property Rights

Intellectual property refers to property that is the

product of intellectual activity

Intellectual property laws are believed very

important stimulus to innovation and creative work

)rotection of intellectual property rights varies

greatly from country to country

There are international rules' and the 3)S) is

struggling to get them enforced



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Piracy of Intellectual Property



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Product Safety and 1iability

Product safety laws set safety standards for products

and manufacturing processes

Product liability laws hold the firm and its officers

responsible for product safety standards

nvironmental standards limit pollution etc)

1aws differ radically from country to country



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h 9 ti 6


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he 9co""u!tion6!"oblem

)any &most:' t"aditional codes ofbeha#io" "e;ui"e !eo!le to do things thatin de#elo!ed count"ies a"e called9corruption6


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Most Corrupt?

>an0ings of +o""u!tion by +ount"y 2(1(


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Differences in conomic Development

Different countries have dramatically different

levels of economic development


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Two common measurements of economic

development

Gross National Income (GNI)

superseded Gross .ational 'roduct or G.'

the sum of all income received by residents of a nation

Gross .ational $ncome at Purchasing Power Parity

(PPP), which accounts for differences in the cost of living


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o estimate ho% big a ma"0et a count"yis, loo0 at $%#

?.. G@ fo" 2(11 %as A15.2 t"illion.

+hina6s G@ %as A$.3 t"illion.

ndia6s %as A1. t"illion.



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count"y is, loo0 at G@per capita

a"ge G@ does not !"o#e a count"y is "ich+hina has the second highest G@ in the %o"ld,but many of its !eo!le a"e #e"y !oo"

G@ !e" ca!ita is G@ per head& otal G@

di#ided by !o!ulation

his is called nominal4 G@ !e" ca!itabecause it is not ad/usted fo" !"icediffe"ences

?.. nominal4 G@ !e" ca!ita in 2(11 %asACD,32D

+hina6s nominal G@ !e" ca!ita %as A5,C1$

ndia6s nominal G@ !e" ca!ita %as A1,51C



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Differences in

conomic Development

4%I per Capita' 2556


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The single best measure of the wealth of the people of a country

is *!I per capita at purchasing po(er parity .4%I PPP/

gencies calculating *!I at purchasing po(er parity take

4%I and population calculated by governments

Then they make an ad+ustment ased on price indexes fordifferent countries



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Differences in

conomic Development

4%I PPP per Capita' 2556


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Differences in

conomic Development

4rowth Rate in 4DP per Capita' 7889 : 2556


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;roader Conceptions of Development<

martya Sen

Sen says development should be measured less by

material output measures' such as 4%P per capita'

and more by the capailities and opportunities

that people en+oy

=is %uman evelopment Index .=DI/ measures

"uality of life in different nations

;ased on life e(pectancy' educational attainment'and 4%I at PPP average incomes


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;roader Conceptions of Development<

martya Sen


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States in Transition

The political economy of the world has changed

radically since the late 78>5-s

Two trends

wave of democratic revolutions swept the world

"here has been a strong move away from centrally

planned and mixed economies toward a free market

model


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The Spread of Democracy


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The Spread of Democracy

Three main reasons account for the spread ofdemocracy "otalitarian regimes failed to deliver economic progress

.ew information and communication technologies, including

shortwave radio, satellite television, fax machines, des&toppublishing, and most importantly, the $nternet, have bro&endown the ability of the state to control access to information

"he economic advances of the past /uarter century have led tothe emergence of increasingly prosperous middle and

working classes who have pushed for democratic reforms


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The Spread of *arket:;ased Systems


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What does this mean


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What does this meanfo" business!eo!le:

Political economy often tells you ho%attractive a count"y is fo" business

When o!e"ating in a count"y, unde"stand the!olitical economic situation to 0no%

what you can do in the count"y

how to address political pro'lems

ou ha#e to plan ho% you6ll add"ess the

diffe"ences bet%een you" home system andthe ones you ente"

ou %ill face ma/o" ethical issues



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Political "is0sPolitical "is0 is the danger that!olitical fo"ces %ill cause d"asticchanges o" une=!ected beha#io"s in acount"y that ad#e"sely affect !"ofit o"

othe" business goals.

)any 0inds of change can alte" abusiness6 !osition in a count"y.



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=omework assignment 7


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The homework task Pick one company that operates internationally

*any people will be able to do this easily

If you need help' flip through issues of ?ortune or conomist

maga@ine' look at www)?ortune)com' or check out the Aall St)

0ournal or %B Times .or their web pages/

1ist at least countries where the firm operates

It-s & to guess


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Describe at least five political ris#s the firm faces in these

countries

Plan on writing at least one sentence about each risk todescribe it

It-s & if the risks all come from 7 country

;ut include a diverse group of risks


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Bou don-t have to write a lot to get

a good grade

;ut you do have to describe E risks clearly and accurately

Students who get less than C: will be re"uired to re:write

05 Political Economy

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