GOVERNMENTS AND CITIZENS IN A GLOBALLY INTERCONNECTED WORLD OF

STATES
THE FORMATION of a state is the highest expression of a political act of men conforming to promote
their common interest, advance their common welfare, secure their collective rights, optimize their available
common resources, promote their common heritage, and harness their common potential for the general
well-being of the citizens (De Leon and De Leon Jr. 2014, p. 6).
WHAT IS A STATE?
A state is a community of persons, more or less numerous, occupying a definite territory, possessing an
organized government, and enjoying independence from external control.
It is dwelled by people permanently occupying a fixed territory and bound by common-law habits and
customs into one body politics, exercising through the medium of an organized government, independent
sovereignty and control over all persons and things within its boundaries, capable of making war and peace
and entering into international relations with other communities of the globe (De Leon and De Leon Jr.,
2014).
Nation and State
Under international law, state is not equivalent to nation. Nation is defined as people, or aggregation of men,
existing in the form of an organized society, usually inhabiting a distinct portion of the earth, speaking the
same language, using the same customs, possessing historic continuity, and disguised from other like groups
by their racial origin and characteristics, and generally, but not necessarily, living under the same
government and sovereignty (Dannug and Campanilla, 2004).
State is more of a political concept, while nation is racial or ethical. However, state and nation are often
used interchangeably. For example, the nations referred to in the United Nations are actually states.
To illustrate, the Arab Nation is not a state but a nation which consists of several states, such as Kingdom of
Saudi Arabia, Yemen, Qatar, Bahrain, Kuwait, Syria, Jordan, Iraq, Iran (although their language is not Arabic
but Farsi, but their geographical location is within the Arab nations) Oman, Lebanon, and United Arab
Emirates. On the other hand, the United States of America is a state and not a nation but it consists of
several nationalities such as Caucasians, Africans, Chinese, Filipinos, Latin Americans, Koreans, etc.,
Elements of the State
1. People. This is the entire body of those citizens of a state who are invested with political power
for political purposes (Black's Law Dictionary, 6th edition). It is necessary to the existence of the
state. There can be no functionaries to govern and no subjects to be governed without the people.
The number should be neither too small nor too large. It should be large enough to be
self-sufficient and small enough to be well governed (Martin, 1984). It must be sufficient and
number to maintain and perpetuate itself. A casual gathering of individuals by chance, a group of
bandits or a society of pirates does not constitute people as an element of state (Aruego, 1975; De
Leon and De Leon Jr., 2014).
2. Territory. It is a geographical area under the jurisdiction of another country or sovereign power
or state (Black’s Law Dictionary, 6th edition). It must be a fixed territory which the inhabitants
occupy. Nomadic tribes who travel from place to place, may not establish a state since they are not
occupying a fixed territory. A state must have a territory sufficient in extent to provide for its
maintenance and growth (Aruego, 1975; De Leon and De Leon Jr., 2014).

There are four modes by which a state can acquire territory. These are by discovery and occupation,
prescription, cession, and subjugation and annexation.
• Discovery and occupation. A state may acquire a territory by discovering a continent, an island or land with
no inhabitants or occupied by uncivilized inhabitants, and thereafter, occupying it by placing it under
its political administration. Discovery without subsequent occupation is not sufficient to acquire a
territory.
There is effective occupation when the following are met:
a. That the parties occupying the territory must have been authorized by the state for which they
are acting;
b. That the state must by formal act evidence its intention to acquire sovereignty over the new
territory; and
c. That there must be established within a reasonable time after discovery some government
authority (Public International Law).

The following lands can be the subjects of discovery and occupation: (1) uninhabited lands, (2) lands
inhabited by uncivilized persons, and (3) lands discovered by a state but which it failed to occupy for
unreasonable length of time.

• Prescription. It is the mode of acquiring a territory through continuous and undisputed exercise
of sovereignty over it during such period as is necessary to create under the influence of
historical development the general conviction that the present condition of things is in
conformity with international order (Public International Law). Note that the length of time
required for the acquisition of territory by prescription is not definite, although some
authorities consider a period of fifty years as sufficient.
• Cession. It is the assignment, transfer, or yielding up of territory by one state or government to
another. Cession may be in the form of sale or donation. For example, for 20 million dollars,
the Spanish government on December 10, 1898 ceded the Philippine archipelago to the United
States of America through the Treaty of Paris.
• Subjugation and Annexation. It is a mode of acquiring a territory belonging to a state by
occupation and conquest made by another state in the course of war and by annexation at the
end of the war. Conquest gives the conqueror inchoate title that may be converted into a full
title after annexation of the territory. Conquest and annexation are also called involuntary
cession.
• Accretion. It is another mode of acquiring territory by addition of portions of soil, either artificial
such as the reclamation area in Manila Bay, or natural by gradual deposition through the
operation of natural causes such as the waves of the ocean.

3. Government. Government is the totality of authorities which rule a society by prescribing and
carrying out fundamental rules which regulate the freedom of its members. It is composed of the
executive, legislative, judiciary, and administrators with corresponding roles in administering the
affairs of the state (De Leon and De Leon Jr., 2014, p.9).
Kinds of Government
1. De Jure or legitimate government. This is established according to the constitution, and lawfully entitled
to recognition and supremacy and administration of the nation, but which is actually cut off from
power or control. It is a government deemed lawful or deemed rightful or just, but which,
nevertheless, has been supplanted or displaced (Black's Legal Dictionary, 6th edition).
2. De facto or illegitimate government. A government that maintains itself by a display of force against the
will of the rightful legal government and is successful, at least temporarily, in overturning the
institutions of the rightful government by setting its own in lieu thereof.
There are three kinds of de facto government:
a. Government by Revolutions is government established by the inhabitants who rise in revolt
against and depose the legitimate regime.
 b. Government by Secession is a government established by the inhabitants of a state who secede
therefrom without overthrowing its government.
c. Government by Occupation is a government established in the course of war by the invading
forces of one belligerent country in the territory of another belligerent country, the
government of which is also displaced.

4. Sovereignty. It is the supreme, absolute and uncontrollable power by which an independent state
is governed. It is the paramount control of the constitution and the frame of government and its
administration (De Leon and De Leon Jr., 2014, 9).

There are two kinds of sovereignty: internal and external. Internal sovereignty is the power to control
and direct the internal affairs of a country such as the authority to enact, execute, and apply laws.
Under international laws, internal sovereignty is not a factor in determining whether an entity is a
state.

External sovereignty is the power of an independent state to control and direct its external affairs such
as the authority to enter into treaties with other states, to wage war, and to receive and send
diplomatic missions.

THE POLITICAL, LEGAL, AND REGULATORY ENVIRONMENTS AMONG STATES

In May 1998, India stunned the world by conducting nuclear weapon tests. Two weeks later, Pakistan
responded by conducting several tests of its own. Amidst widespread condemnation of the tests, several
major trading partners moved swiftly to impose economic sanctions on India and Pakistan. Japan, the
largest donor nation to both India and Pakistan, froze development grants and new loans. The U.S.
government weighed several options, including cutting off aid from the Agency for International
Development (AID), withholding credits from, the Export-Import Bank and preventing the Overseas
Private Investment Corporation (OPIC) from extending insurance and loans to U.S. firms doing business
in India. Such actions were permitted under the Nuclear Proliferation Prevention Act, a law passed in 1994
that had never been used. Boeing, Enron, and Hughes Network Systems were a few of the U.S. companies
that could be affected if sanctions were imposed.

The world's response to the nuclear tests in India and Pakistan illustrates that the political, legal, and
regulatory environments can have on international trade and global marketing activities. Each of the world's
national governments regulates trade and commerce with other countries and attempts to control the access
of outside enterprises to national resources. Every country has its own legal and regulatory system that
affects the operations and activities of the global enterprise, including the global marketer's ability to address
market opportunities. Laws and regulations constrain the cross-border movement of products, services,
people, money, and technical know-how. Every government should know that laws and regulations are
frequently ambiguous and continually changing.

The Political Environment

Globalization in the context of governance takes place within the political environment of governmental
institutions, political parties, and organizations through which a country's people and rulers exercise power.
Each nation as we know has a political culture, which reflects the relative importance of the government
and legal system and provides a context within which individuals and corporations understand their
relationship to the political system. Hence, every corporations doing business outside its home country
should carefully study the political culture in the target country and analyze salient issues arising from the
political environment. These include the governing party’s attitude toward sovereignty, political risk, taxes,
and seizure of assets.
Nation-States and Sovereignty

Sovereignty, as defined, earlier is supreme and independent political authority. Government actions taken
in the name of sovereignty occur in the context of two important criteria: a country's stage of development
and the political and economic system in place of the country. Many governments in developing countries
exercise control over their nations’ economic development by passing protectionist laws and regulations.
Their objective is to encourage economic development by protecting emerging or strategic industries.
Government leaders can also engage in cronyism and provide favors for family members or “political
friends.” For example, former Indonesian President Suharto established a national car program that granted
tax breaks and tariff privileges to a company established in South Korea by his youngest son. The United
States, EU, and Japan responded by taking the matter to the World Trade Organization. Conversely, when
many nations reach advanced stages of economic development, their governments declare that any practice
or policy that restraints free trade is illegal. Antitrust laws and regulations are established to promote fair
competition. Advanced country laws often define and preserve a nation's social order; laws may extend to
political, cultural, and even intellectual activities and Social conduct. In France, for example, laws forbid the
use of foreign words such as le weekend or le marketing in official documents. Also, a French law passed
in 1996 requires that at least 40 percent of the songs played by popular radio stations must be French.

A current global phenomenon is the trend towards privatization, which reduces direct governmental
involvement as a supplier of goods and services in a given economy. In essence, each act of privatization
moves a nation's economy further in the free-market direction. The trend is clearly evident in Mexico,
where, at one time, the government controlled over 1,000 corporations. By the early 1990s, most had been
sold including the two Mexican Airlines, mines, and banks that posted a sale worth $23 billion. Privatization
in Mexico and elsewhere is evidence that national governments are changing how they exercise sovereign
power.

In Europe, the individual EU countries are giving up the right to have their own currencies, ceding the right
to set their own product standards, and making other sacrifices in exchange for improved market access.

POLITICAL RISK

Political risk is the risk of a change in political environment or government policy that would adversely affect
a company's ability to operate effectively and profitably. It can deter a company from investing abroad.
When the perceived level of political risk is high, a country will have greater difficulty in attracting foreign
investment. Political forces can drastically change the business environment with little advance notice.
Valuable sources of information include The Economist, Financial Times, and other business periodicals. A
number of organizations such as the Economic Intelligence Unit (EIU), the Geneva-based Business
Environment Risk Intelligence (BERI) and the World Political Risk Group (PRS) specialize in providing
up-to-date political risk reports on individual country markets. The BERT system examines six internal
causes of political risk, two external causes, and two symptoms as illustrated in Table 3.1.

Table 3.1 Categories of Political Risk

Economic Intelligence Unit
War
Social unrest
Orderly political transfer
Politically motivated violence
Business Environment PRS Group World Political
Risk Intelligence (BERI) Risk Forecasts
Fractionalization of the political spectrum Political turmoil probability
Fractionalization by language, ethnic, or
Equity restrictions
religious groups
Restrictive or coercive measures required to
Local operations restrictions
retain power
Mentality (xenophobia, nationalism,
Taxation discrimination
corruption, - nepotism)
 International disputes
Change in government or
pro-business orientation
Institutional effectiveness
Bureaucracy
Transparency and fairness
Corruption
Crime
Source: Adapted from Llewellyn D. Howell. The Handbook of Country and Political Risk Analysis, 3rd ed.
(Syracuse, NY, 2008).
Social conditions (including population Repatriation restrictions
density and wealth distribution)
Organization and strength of forces for a Exchange controls
radical government
Dependence on or importance to a major Tariff barriers
hostile power
Negative influences of regional political Other harriers
forces.
Societal conflict involving demonstrations, Payment delays
strikes, and street violence
Instability as perceived by assassinations
Fiscal or monetary
and guerrilla war expansion
Labor costs, foreign debt

Causes of Political Risk

Tension is the fundamental cause of political risk between the residents’ aspirations and goals and the real
conditions at a given time. Whenever the public perceives a wide gap between its aspirations and reality,
there is political risk. In high-income countries, the gap between aspirations and reality in high-income
countries is seldom great enough to generate a significant level of political risk. When political risk is present
in a high-income country, it can be traced to identifiable, long-standing issues in the country, such as the
conflict between the Protestants and Roman Catholics in Northern Ireland.

In lower-and lower- middle- income countries, an economic crisis can trigger political risk, Indonesia is a
prime example. After the rupiah (Indonesian currency) plunged from 2,300 to 18,000 to the U.S. dollar and
then settled at a rate of 10,000 rupiah to the dollar, Indonesia went into a free fall of economic decline.
What had been the most stable country in Southeast Asia overnight became a country where all trading
went off. The incompetence of the government and private sector in Indonesia provoked the expulsion of
President Suharto and ushered in a period of significant risk to foreign investors.

The current political climate in the rest of Central and Eastern Europe is still characterized by varying
degrees of uncertainty. Hungary, Latvia, and Albania represent three different levels of risk. Hungary has
already achieved upper- middle income status. Latvia, a lower-middle country, is projected to grow slowly.
Albania does not even have economic data available. Diligent attention to risk assessment throughout the
region should be ongoing to determine when the risk has decreased to levels acceptable to management
(Yergin & Gustafon, 1935).
Political Risk
What it is:
Political risk is the risk of financial, market or personnel losses because of political decisions or
disruptions. Also known as "geopolitical risk."

How it works (Example):

There are many environmental factors facing business. Besides market-based causes, business can be
affected by political decisions or changes.

For example, political decisions by governmental leaders about taxes, currency valuation, trade tariffs or
barriers, investment, wage levels, labor laws, environmental regulations and development priorities, can
affect the business conditions and profitability. Similarly, non-economic factors can affect a
business. For example, political disruptions such as terrorism, riots, coups, civil wars, international wars,
and even political elections that may change the ruling government, can dramatically affect businesses’
ability to operate.
 Political risks are faced equally by investors in international businesses and investment fund
portfolios. These political risks are part of the estimation and disclosure of risk factors, usually found in
a company or portfolio's prospectus.

Why it Matters:
Political risk can affect the operations and profitability of a business as directly and quickly as any financial,
physical, or market risk factor. The impact of political risk is considered to be long-term because the
risk rises over time, given the greater potential for events and changes over time. Although political risk
is extremely difficult to quantify, companies and investors must examine and understand the potential
for political risks by closely examining the location's history, political institutions, and political forces at
work in the region.
Source: https://investinganswers.com/financial-dictionary/stock-market/political-risk-636

Taxes

Tax is the lifeblood of every government (with the exception of some oil rich countries that do not impose
taxes on their citizens). Governments rely on tax revenue to generate funds necessary for social services,
the military, and other expenditure. Unfortunately, government taxation policies on the sale of goods and
services frequently motivate companies and individuals to profit by not paying taxes. In China, for example,
most imports are subject to high duties, plus a 17 percent value-added tax (VAT). As a result, significant
quantities of oil, cigarettes, photographic films, personal computers, and other products are smuggled into
China. In some instances, customs documents are falsified to undercount goods in shipment; and the
Chinese military has allegedly escorted goods into the country as well. Ironically, global companies can still
profit from the practice. It has been estimated that 90 percent of the foreign cigarettes sold in China are
smuggled. For Philip Morris, this means annual sales of $100 to distributors in Hong Kong, who then
smuggle the cigarette across the border (Dunne, May 8, 1997).

Corporate taxation is another issue. The high level of political risk currently evident in Russia can be
attributed in part to excessively high taxes on business operations. High taxes encourage many enterprises
to engage in cash or barter transactions that are off the hooks and sheltered from the eyes of tax authorities.
This has, created a liquidity squeeze that prevents companies from paying wages to employees, in other
words, the impact of this will disappoint employees that can lead to political instability if there are labor
strikes.

Seizure of Assets

The ultimate threat a government can pose toward a company is seizing assets. Expropriation refers to
government action to dispossess a foreign company or investor. Compensation is generally provided,
although not often in the “prompt, effective, and adequate” manner provided for by international standard.
If no compensation is provided, the action is referred to as confiscation (Root, 1994, 154). International
law is generally interpreted as prohibiting any act by a government to take foreign property without
compensation. Nationalization is generally broader in scope than expropriation. It occurs when the
government takes control of some or all of the enterprises in a particular industry. International law
recognizes nationalization as a legitimate exercise of government power, as long as the act “satisfies a public
purpose” and is accompanied by adequate payment which means it reflect the fair market value of the said
property. South Korea nationalized Kia, the nation’s number three automaker in the wake of the Asian
currency crisis. In 1998, the Japanese government was debating whether to nationalize the country’s
banking system.

Short of outright expropriation or nationalization is the phrase creeping expropriation which has been applied
to limitations on economic activities of foreign firms in particular countries. These have included limitations
on repatriation of profits, dividends, royalties, and technical assistance fees from local investments or
technology arrangements. Other issues are increased local content requirements, quotas for hiring local
nationals, price controls, and other restrictions affecting return on investment. Global companies have also
suffered discriminatory tariffs and nontariff barriers that limit market entry of certain industrial and
consumer goods, as well as discriminatory laws on patents and trademarks. Intellectual property restrictions
have had the practical effect of eliminating or drastically reducing protection of pharmaceutical products.

In-the mid-1970s, Johnson & Johnson and other foreign investors in India had to submit to a host of
government regulations to retain majority equity positions in companies already established. Many of these
rules were later copied in whole or in part by Malaysia, Indonesia, the Philippines, Nigeria, and Brazil. After
1980, Latin America which experienced debt crisis and low GNP growth, the lawmakers reversed many of
these restrictive and discriminatory laws. The goal was to again attract foreign direct investment and badly
needed Western technology. The end of the Cold War and restructuring of political allegiances contributed
significantly to these changes.

INTERNATIONAL LAW

International law may be defined as the rules and principles that nation-states consider binding upon
themselves. International law pertains to property, trade, immigration, and other areas that have traditionally
been under the jurisdiction of individual nations. International law applies only to the extent that countries
are willing to assume all rights and obligations in these areas. The roots of modern international law can be
traced back to the 17th century Peace of Westphalia. Early international law was concerned with waging
war, establishing peace, and other political issues, such as diplomatic recognition of new national entities
and governments. Although elaborate international rules gradually emerged—such as the status of neutral
countries the creation of laws governing commerce proceeded on a state-by-state basis in the 19th century.
International law still has the function of upholding order, although in a broader sense than dealing with
problems arising from war. At first, international law was essentially an amalgam of treaties, covenants,
codes, and agreements. As trade grew among nations, order in commercial affairs assumed increasing
importance. The law had originally dealt only with nations as entities, but a growing body of law rejected
the idea that only nations can be subject to international law (Kelso & Kelso, 1984).

Paralleling the expanding body of international case law in the 20th century, new international judiciary
organizations have contributed to the creation of an established rule of international law: the permanent
Court of International Justice (1920-1945); the International Court of Justice (ICJ), the judicial arm of the
United Nations, founded in 1946; and the International Law Commission, established by the United States
in 1947. Disputes arising between nations are issues of public international law, and they may be taken
before the World Court, located in Hague, The Netherlands (Kelso & Kelso, 1984).

The court, whose function is to decide in accordance with international law, such disputes as are submitted
to it, shall apply:
a. international conventions, whether general or particular, establishing rules expressly recognized by
the contesting states;
b. international custom, as evidence of a general practice accepted as law;
c. the general principles of law recognized by civilized nations; and
d. subject to the provisions of Article 59, judicial decisions, and the teaching of the most highly
qualified publicists of the various nations, as subsidiary means for the determination of rules of
law.

Other sources of modern international law include treaties, international custom, judicial case decisions in
the courts of law of various nations, and scholarly writings. What happens if a nation has allowed a case
against it to be brought before the International Court of Justice and then refuses to accept a judgment
against it? The plaintiff nation can seek recourse through the United Nations Security Council which can
use its full range of powers to enforce the judgment (Kelso & Kelso, 1984).
Please watch: https://www.youtube.com/watch?v=0ViSYjt-wGw

Common Law and Civil Law

Private international law is the body of law that applies to disputes arising from commercial transactions
between companies of different nations. Laws governing commerce emerged gradually, leading to a major
split in legal systems between various countries (Kelso & Kelso, 1984). The story of law in the Western
world can be traced to two sources: Rome, from which the continental European civil law tradition
originated, and English common law, from which the U.S. legal system originated.

A civil-law country is one in which the legal system reflects the structural concepts and principles of the
Roman Empire in the sixth century.

For complex historical reasons, Roman law was received differently and at vastly different times in various
regions in Europe, and in the 19th century each European country made a new start and adopted its own
set of national private-law codes, for which the Code of Napoleon of 1804 was the prototype. In civil-law
countries, the codes in which private law is cast are formulated in broad general terms and are thought of
as completely comprehensive which means all the inclusive source of authority by reference to which every
disputed case must be referred for decision (Jones, 1975)

In common-law countries, many disputes are decided by reliance on the authority of past judicial decisions
(cases). Although much of contemporary American and English law is legislative in origin, the law inferred
from past judicial decisions is equal in importance to the law set down in codes. Common-law countries
often rely on codification in certain areas.

In common-law countries, companies are legally incorporated by state authority. In civil-law countries,
companies are formed by contract between two or more parties, who are fully liable for the actions of the
company.

The United States, nine of Canada's 10 provinces, and other former colonies with an Anglo-Saxon history
found their systems on common law. Historically, much of continental Europe was influenced by Roman
law and later, the Napoleonic Code. Asian countries are split: India, Pakistan, Malaysia, Singapore, and
Hong Kong are common-law jurisdictions; Japan, South Korea, Thailand, Vietnam, Taiwan, Indonesia, and
China are civil-law jurisdictions. The legal systems in Scandinavia are mixed, displaying some civil-law
attributes and some common-law attributes. Today, the majority of countries have legal systems based on
civil-law traditions.

In much of central Europe, including Poland, Hungary, and the Czech Republic, the German civil-law
tradition prevails. As a result, banks not only take deposits and make loans but also engage in the buying
and selling of securities. In Eastern Europe —particularly Russia--the United States has had greater
influence. Germany has accused the United States of promoting a system so complex that it requires legions
of lawyers. The U.S. response is that the German system is outdated (Nelson, 2005).

Please watch: https://www.youtube.com/watch?v=AMSlQ3KUQQ8

Islamic Law

The legal system in many Middle Eastern countries is identified with the laws of Islam, which are associated
with “the one and only one God, the Almighty” (Luqmani, Yavas, & Quraeshi, 1989, pp. 61-63). In Islamic
law, the Sharia is a comprehensive code governing Muslim conduct in all areas of life, including business.
The code is derived from two sources. First is the Koran, the Holy Book written in Arabic that is a record
of revelation made to the Prophet Muhammad by Allah. The second source is the Hadith, which is based
on the life, sayings, and practices of Muhammad. In particular, the Hadith spells out the products and
practices that are haram (forbidden). The orders and instructions found in the Koran are analogous to code
laws; the guidelines of the Hadith correspond to common law. Any Westerner doing business in Malaysia
or the Middle East should have at least a minimum rudimentary understanding of Islamic law and its
implications for commercial activities. Brewers, for example, must refrain from advertising beer on
billboards’ or in local-language newspapers.

Please watch: https://www.youtube.com/watch?v=4A5f7qQmuqQ&t=377s

Bribery and Corruption: Legal and Ethical issues

At the beginning of the 20th century Charles M. Schwab, head of Bethlehem Steel presented a $200,000
diamond and pearl necklace to the mistress of Czar Alexander III's nephew. In return for that consideration,
Bethlehem Steel won the contract to supply the rails for the Trans-Siberian railroad (Daniel Pines, 1994,
185).

Today, in the post-Soviet era, Western companies are again being lured by emerging opportunities in
Eastern Europe. Here, as in the Middle East and other parts of the world, they are finding that bribery is a
way of life and that corruption is widespread, and U.S. companies in particular are constrained in their
responses to such a situation by U.S. government policies of the post-Watergate age. Transparency
International annually ranks countries in terms of corruption. Tables 3.1 (Most corrupt) and 3.2 (least
corrupt) reveal the corruption ranking that affects business operation in each country.

Table 3.1 Most Corrupt Countries, 2017

Countries Perceived to Best Countries Ghana 6 71
Rank
Be the Most Corrupt Overall Rank Angola 7 79
Nigeria 1 76 Russia 8 26
Colombia 2 55 Kenya 9 57
Pakistan 3 74 Guatemala 10 66
Iran 4 77 Source: Transparency International, 2018
Mexico 5 31

Table 3.1 shows the countries and their rankings as the most corrupt countries in the world while Table 3.2
shows the least corrupt countries and their scores. The ranking is based on the level of public sector
corruption in 2017, according to business people, journalists, and civic organizations. Higher-ranked
countries tend to have more press freedom, access to information about public spending, and independent
judicial systems.

Countries are given a score out of 100, with those scoring highly being the least corrupt.

Table 3.2 Least Corrupt Countries in the World, 2017

Country Rank Score/100
New Zealand 1 89
Denmark 2 88
Finland 3 85
Norway 3 85
Switzerland 3 85
Singapore 4 84
Sweden 4 84
Canada 5 82
Luxembourg 5 82 The existence of bribery as a fact of life in world markets will
Netherlands 5 82 not change because it is condemned by the U.S. Congress.
United Kingdom 5 82 In fact, bribery payments are considered a deductible
Germany 6 81 business expense in many European countries. According to
Australia 7 77 one estimate, the annual price tag for illegal payments by
Hong Kong 7 77 German firms alone is more than $5 billion. Most global
Iceland 7 77 companies are still adopting codes of conduct designed to
Austria 8 75 reduce illegal activities.
Belgium 8 75
When companies operate abroad in the absence of home-
United States 8 75
country legal constraints, they face a continuum of choices
Ireland 9 74
concerning company ethics. At one extreme, they can
Japan 10 73
maintain home-country ethics worldwide with absolutely no
Source: Transparency International, 2018
adjustment or adaptation to local practice. At the other
extreme, they can abandon any attempt to maintain company ethics and adapt entirely to local
conditions and circumstances as they are perceived by company managers in each local
environment. Between these extremes, one approach that companies may select is to utilize varying
degrees of extension of home-country ethics. Alternatively, they may adapt in varying degrees to
local customs and practices (Mason & Jonquierres, 1997 p.13).

In the case of the Philippines, Article II, Section 20 of the State Policies states that “The State recognizes the
indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments (Dannug
& Campanilla, 2004, p. 496). The presence of multinational corporations such as Nestle, Coca-Cola,
Unilever, McDonald, KFC, and many other foreign firms operating in the Philippines is a testimony that
the above state policies works efficiently to investors. Regardless of the corruption ranking of the
Philippines as revealed by Transparency International (2018), (111 out of 180 countries) the Philippine
government is still inviting and attracting investors to do business here in the country.

Balances in Globalization

The globalization system is built around three balances, which overlap and affect one another.
1. Traditional balance between nation‑states. Respect to sovereignty of each country is the rule here.
Although the United States is still the dominant superpower, the mandate of the United Nations
is still adhered to protect each country. Disputes, disagreements, and the like are discussed
diplomatically by countries in order to maintain and sustain peace, harmony and stability with one
another.
2. Balance between nation-states and global markets. In reality, there is always imbalance and
inequality (as discussed in the chapter between global divides) between and among nations in terms
of economies That is why the concept of electronic herd emerged that gathers in key global
financial centers, such as Wall Street, Hong Kong, London, Frankfurt, and Tokyo which can be
described as the “supermarkets.” Emerging supermarkets are Singapore and Seoul. The attitudes
and actions of these Electronic Herd and Supermarkets can have a huge impact on nation-states
today, even to the point of triggering the downfall of governments (cited by Dannug & Campanilla,
2004, p. 88).
3. Balance between individuals and nation-states. This means that globalization had given every
individual the freedom to move, to choose, to decide what is beneficial to them with no
intimidation or restriction from any authority provided laws and policies are not violated. The
individuals in the age of globalization are actors in a world stage, empowered by their will to create
something rewarding for them and for the society.
The key to continuous improvement in the period of globalization is the direct outcome of the actions
of individuals. With the proper use of technology, individuals can make their own choices because they
are provided the freedom to decide what is rewarding and beneficial to them.