Analysis of Political, Economic and Legal

Systems

Dr. Irfan Abdullah

Office: 308- NBS
Date: September 22, 2022
E-post: irfan.abdullah@nbs.nust.edu.pk
 OVERVIEW

 Introduction

 Political Economy

 Political Systems

 Economic Systems

 Legal Systems
 • International business is much more complex and
dynamic than local/domestic business

• Countries differs in many ways from one another

– Economic development,
– Education and skill level,
Introduction – Resources and knowledge
– Cultural practices
– Politics and political orientations,
– Laws and rules and regulations.

• These effect the international business

– Benefits and cost;
– Risks & challenges associated with doing business in
different countries;
– Managing the operations in different countries;
– Devise and adopt diverse effecinet strategies in
different countries.
 Introduction
Political Economy

Political
System

Political
Econom
y

Economic
Legal System
System
 • Political Economy-
Refers to an country’s

1. Economic,
2. Legal and
3. Political systems.

• These systems are

interdependent; they
interact with and
influence each other

• A country political
economy has major
Political Economy implication for the
international business
1. Political System

• It refers to the structure and

system of government in a
country, state, nation or
region.

• Political system can be

assessed in terms of degree to
which they

A. Focus on collectivism and

Individualism

B. Democratic or
Totalitarian.
 Collectivism vs Individualism

COLLECTIVISM

• Refers to a political system that prioritize the

supremacy of collective goals over individual goals.

• Collectivism focused on the needs of society as a

whole and consider society more important than
individual freedoms.

• Modern forms of collectivist system exist in shape

of Socialism

• Socialists- Those who believe in public ownership

of the means of production for the common good of
society rather than an individual.

• The logic here that state is the sole owner/controller

of the means of
production and economic phenomenon.
Collectivism vs Individualism
Socialist view further divided into 2 systems
• Communist- Believe socialism can be achieved only
through revolution and dictatorship. North Korea,
Russia, China.

• Social Democrats- Those committed to achieving

socialism by democratic means. Norway, Sweden,
Austria, France, Germany

• Many state-owned enterprises perform poor and

failed to succeed, and many nations implement
privatization.

• The privatization drive in Pakistan and in the global

market since 1990.
• Can you name any Pakistani company that was
privatized?
 Collectivism vs Individualism
Individualism- the opposite of
collectivism

• Individual should have freedom over

their economic and political pursuits.

• Individual freedom and self-express

• Letting people and firms pursue their

own self interests to achieve the best
overall good for society.

• Welfare of society is best served by

letting people pursue their own
economic and political self-interest,
rather than the collective.
 Democratic vs. Totalitarian
• Democracy- the system in which government is select by the people,
exercised control either directly or through elected representatives.

• Totalitarianism- the form of government in which one person or

political party exercises absolute control over all spheres of human
life and opposing political parties are prohibited.

– Communist Totalitarianism -A version of collectivism favoring

that socialism can be achieved only through a totalitarian
dictatorship.

– Theocratic Totalitarianism -A political system in which political

power is monopolized by a party, group, or individual that
governs according to religious principles.

– Tribal Totalitarianism -A political system in which a party,

group, or individual that represents the interests of a particular
tribe (ethnic group) monopolizes political power.

– Right-Wing Totalitarianism -A political system in which

political power is monopolized by a party, group, or individual
that generally permits individual economic freedom but
restricts individual political freedom, including free speech.
 2. Economic System
• A system by which societies or governments organize and
distribute their available resources, services, and goods in a
specific area.

• There are three types of economic systems

• The Market Economy (Capitalism)
• The Command Economy
• The Mixed Economy

Command Mixed Market

Economy Economy Economy
 2. Economic System
Market Economy

• An economic system in which the interaction of

supply and demand determines the quantity in
which goods and services are produced.

• The goods and services that a country produces,

and the quantity in which they are produced is
determined by market forces (demand and
supply)

• If the demand exceed the supply the prices will

raise

• If the supply exceed the demand the prices will

fall

• The role of the government is to encourage fair

and free competition in the market
 2. Economic System
Command Economy
• The goods and services that a country produces, and
the quantity in which they are produced, and the
prices at which they are sold are determined by the
government.

• Investments are made in the best interests of the

nation as a whole rather than in the interests of
private individuals.

• State owned businesses have little incentive to control

costs and be efficient because they cannot go out of
business (no competition)

• They are static with no innovation and improvement

• North Korea, Cuba, Sudan, Saudi Arab
2. Economic System
 2. Economic System
Mixed Economy

• It consist elements of Market economy and

Command 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.

• Governments take over the ownership of troubled

firms considered vital to national interest. (Pakistan,
India, UK, USA, France etc.)

Example- 2018 Rs17bn bailout package for PIA 

2008 the U.S. government took an 80% stake
in AIG to stop that financial institution from collapsing.
PIA, Steel Mill, PTCL, Cement and Sugar industries
etc.
Political Ideology Economic System Economic and Political systems are
interconnected.

Individual goals Free Economy • In countries where individual goals

preferred Capitalism are given preferences over collective
goals- market economy or free
Collective goals Command economy.
preferred. State Economy
control enterprises • In countries where collective goals are
given presences- the state may take
control over enterprises- command
economy.
Individual goals + Mixed Economy
state control (Hybrid)
• In countries where economic system is
a mix of both- mixed economy

Connection of Economic
& Political Systems
 3. Legal System
Legal system refers to
• The rules and regulations that devise and regulate
behaviors, and the mechanism through which we
enforced the law and redress for grievances

• Regulate business practices.

• Define the way in which the business transactions

and contract are to be executed

• Set down the rights and responsibilities of various

actors involved in business

• The legal environments of countries differ in

significant ways (marketing, labor, business,
digital/e-commerce)

• Differences in legal systems can affect the

attractiveness of a country as an investment
destination or market.
 3. Legal System

• Important- political ideology and

legal system are interconnected

Types of legal System

• 1.Common law,
• 2.Civil law, and
• 3.Theocratic law
 • Common law is based on the tradition, precedent, and
custom.

• The law courts interpret common law, they consider

for those characteristics.

• Tradition refers to a country’s legal history, precedent

to cases that have come before the courts in the past,
3. Legal and custom to the ways in which laws are applied in
specific situations.

System • Common law can be found in Britain’s former

colonies (Pakistan, India, Bangladesh etc.), and USA.

1. Common Law
3. Legal System
2. Civil Law
• A civil law system is
based on a detailed set of
laws organized into codes.

• Courts interpret civil law

with regard to these codes.

• Judges decisions in the

civil law are stick to the
general code(s).

• Exp- Germany, France,

Japan, and Russia etc.
 3. Legal System
3. Theocratic Law
• A theocratic law system is one in which the law
is based on religious teachings.
• Islamic law (Sharia), Hindu law, Jewish law

• The foundation for Islamic law is the Quran,

the Sunnah, or Ijtihad (Ijma)

• There is no pure Sharia law (Muslim countries

have a blend of Sharia and Common law)

• Exp- Pakistan, UAE, Gulf countries, Iran, Egypt

and Malaysia etc. (Pakistan Shariat Court)

• The world financial system also incorporate

Islamic financial mode of transaction (Islamic
banking, Musharika, Islamic finances) in about
75 countries
Why it is important to focus on Political Economy?
Political Economy’s Effect on Business
• International law and business
• Business agreements and negotiations
• International business dispute resolution
• Business Contract- short contacts in civil law (many issues
are already covered in a civil codes), while long and
expansive contracts in common law, because of the
consideration of explanation of every aspect.
• Business structure in foreign markets
• Consumer protection
• Ownership regulations
• Compliance with international legal systems
(United Nations Convention on Contracts for
the International Sale of Goods (CISG)).
• Intellectual Property Rights- (copyrights, patents,
trademarks, and trade secrets etc.)
• Corruption- combat against corrupt practices Foreign Corrupt
Practices Act (FCPA)
"Al-rashi Wal-murtashi Kila-huma Finnar"
• Product safety, reliability and liability- certifications,
standards etc.