Monarchy

One of the first political systems John Study runs across, and one of the oldest and most common
through human history, is the monarchy. In this system, the government is ruled by a single leader, the
monarch. Now, this sounds simple enough, but we can break this down further. An absolute monarch is
a ruler, like a king or queen, who has total control over the government. Medieval European kings were
absolute monarchs who believed their authority to be divinely granted and shared power with no one.
However, these systems were often abusive of their citizens, so modern nations tend to go with a
constitutional monarchy, in which the ruler's powers are checked by a legislative body, generally called a
Parliament or Diet.

Dictatorship

Okay, so let's say that John Study enjoys being the only person in power, but doesn't really want to
share power with anyone. Then, perhaps he could consider a dictatorship, a political system in which a
single person exercises near total control of not just the government but all of society. Generally,
dictators are not monarchs but instead people whose power relies on some pretense of being
legitimately elected or selected for office. Once in power, dictators often rely on secret police or military
power to tell citizens how they can live, how they should think, etc. Rigged elections, abuses of human
rights, and violence tend to be common features of a dictatorship.

Oligarchy and Aristocracy

The next form of political system that John Study could consider would be an oligarchy, which literally
means rule of the few. In an oligarchy, a few select people control the government. Which people? Well,
it could be people of a certain class, or level of wealth, or even political association. Generally, these
people are not elected or looking to share power, so it's not exactly a representative form of
government.

Very similar to this is the idea of an aristocracy, in which power is held by land-owning elites. An
aristocracy is a bit different than an oligarchy because aristocrats generally have noble titles or some
blood relation to the royal family and pass down this status hereditarily. In both oligarchies and
aristocracies, there is often a central leader, a monarch or emperor, but this person is little more than a
puppet to the ruling class. For example, in feudal Japan, the shogunate system was set up so that
powerful warlords called shoguns controlled the emperor, making this exclusive class the real power in
Japanese politics.
Communism

Some political systems are directly defined by their economies, which is another way John Study could
think about this. Technically, communism is an economic system, in which the government controls the
distribution of resources. However,

According to renowned political scientists, Gabriel Almond and James Coleman (1960), ‘Political system
is that system of interactions to be found in all independent societies which performs the functions of
integration and adaptation by means of legitimate physical compulsion.’

The Concise Oxford Dictionary of Sociology (1994) defines it as, ‘a political system in any persistent
pattern of human relationship that involves (to a significant extent) power, rule and authority.’ It is a
collectivity of political institutions (e.g., government), associations (e.g., political parties) and
organizations performing roles based on a set of norms and goals (like maintaining internal order,
regulating foreign relations, etc.). Sociologically, the term ‘political system’ refers to the social institution
which relies on a recognized set of procedures for implementing and achieving the political goals of a
community or society.

Types of Political Systems:

According to Edward Shills, there are three main types of political systems.

These are discussed as under:

Totalitarian system:

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A system in which the state controls and regulates all phases of life considered essential for
perpetuating its power and for carrying out programmes arbitrarily. It is the most extreme form of
authoritarianism. Unlike democracies, where a variety of groups struggle for a voice in government, the
government dictates the society’s values, ideology, rules and form of government.
Societies having totalitarian system do not permit dissent. The centralized authority always dominates
over the autonomy of individual or sub-groups within the society. Mussolini’s Italy, Hitler’s Nazi
Germany and Stalin’s Soviet Union are often quoted as examples of totalitarian states.

Totalitarian states are ruled by one political party that organizes the citizens into a unified group. In
practice, the state is represented by a politically powerful ruling class or elite that dominates all other
interest groups.

Oligarchic system:

Any form of government in which there is a ‘rule by a few’, for example, by members of a self-regulating
elite having domination over a large society is known as an oligarchic political system. It is a system in
which a small group (elites) rules and holds supreme power over a larger society.

Democratic system:

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In its broadest sense, democracy is a way of life in which an individual feels free to act within accepted
boundaries of norms and also equal in respects of his/her rights. In the narrower sense, it is a form of
government, a power structure in which people govern themselves.

People participate in the government through their representatives that they elect. In other words,
people represent themselves and take their own decisions. It is an imagination of the replica of an
equalitarian society.

Political factors

Political factors involve the decisions and laws that governments make. These include:

tax

laws
political stability

Governments can raise or lower corporation tax, which will impact on profits. They can also affect
businesses by increasing value-added tax on products or business rates.

They can bring in new laws like the National Minimum Wage, which impacts on profits and employment
rights. Governments can also introduce new health and safety legislation meaning that a business has to
change the way it works, for example by training its staff.

Economic growth

A financial graph

If there is economic growth then more jobs will be created and more tax will be paid.

Interest rates

When interest rates are high, businesses borrow less and invest less. However they receive more
interest on money saved in the bank.

When interest rates are low, businesses may borrow and invest more, but will receive less interest on
money in the bank.

Unemployment

If unemployment is high, then firms have more potential workers to choose from. More competition for
jobs means that it is easier for a business to keep wages down. If the rate of unemployment is low then
businesses will have to offer higher competitive wages to secure new employees.

Inflation

When inflation is high, prices rise and customers may stop buying luxury goods and focus on essentials.

re for – and mitigate – the associated risks.

Political Impact on Business

In modern society, politics can be defined as all those activities and systems which have a direct impact
on how power and authority are allocated and used. From a business perspective, changes in these
machinations can affect the fortunes of your company in several different ways, regardless of your size
or reach. Here are some of the more common ways that politics can cause waves:

1. Taxation

The most obvious impact is in the form of changes in laws and regulations that affect your business.
Taxes, in particular, can have a massive effect on your overhead and profit margins. In most democratic
states, changes in government often bring significant regulatory changes related to taxation, with these
changes often hinging on the political ideologies of the party in power. For example, the Republican
Party in the US and the Conservative Party in the UK are a clear illustration of parties who favour tax cuts
as a route to helping businesses grow. Donald Trump’s election in the US has resulted in some of the
biggest tax cuts in living history, which, of course, is great news for enterprises in that region.

However, this works both ways, of course. If you live in a region where the governing party has
established high corporate tax rates and offered little incentive for small business owners, then you
might want to consider moving your company elsewhere.

2. Regulations and Compliance

Besides taxes, governments also have the power to change laws related to other aspects of business
operations, such as environmental sustainability, social responsibility, labour laws, and more. An
increase in compliance regulations can affect the overall ease of doing business. Governments often
initiate these changes in response to challenges that arise in the other segments of what is known as the
PESTLE framework. For instance, global warming has become a key social and political issue in recent
years. Governments across the world are enforcing stricter emission norms, which affect the way auto-
makers design and produce their vehicles. This, in turn, can have an impact on supply chains and other
supporting businesses.

Even more relevant from a business perspective are changes concerning compliance – particularly with
respect to financial reporting and auditing. An excellent example of this is the Dodd-Frank Wall Street
Reform and Consumer Protection Act, passed in the US in 2010 by Barack Obama as a response to the
2008 financial crisis. Designed to reign in recklessness and preserve financial stability, it was targeted by
critics who claimed it would make US firms less competitive. Subsequently, it was repealed in 2018 by
the Trump administration, demonstrating how the political will of the day can severely impact day-to-
day business operations one way or the other.

3. Political Climate
While changes in taxation and laws can have a positive impact, deviations in the overall political climate
are usually negative. Sweeping political reform can affect businesses in many ways, particularly in
regions experiencing substantial social unrest. A prime example of this would be present-day Venezuela.
As a result of growing anger at the ruling regime, the country is experiencing widespread civil unrest; the
economy has tanked, and hitherto thriving businesses are unable to survive under such circumstances.

Similar stories can be seen playing out in other areas, such as Afghanistan, Yemen, Haiti, and several
African nations, where cycles of political crisis, violence, and general instability have made it virtually
impossible for businesses to prosper and investment to arrive.

Why Is the Political Environment so Challenging?

Perhaps the biggest issue with political factors is that they are often unpredictable. Take Brexit, for
example. When then-UK Prime Minister David Cameron announced an EU membership referendum as a
means of appeasing fringe Eurosceptics within his party, few would have raised an eyebrow. Since the
vote to leave, however, the subsequent uncertainty has been significant for both British and EU-based
enterprises. Despite repeated warnings from business bodies that political indecision is massively
affecting