NATIONAL DIFFERENCES IN POLITICAL ECONOMY

Political Differences in International Business

• Political System
• Economic System
• Legal System
Political System
• the system of government in a nation.
Two Dimensions of Political System

• Collectivism and Individualism

• Democratic or Totalitarian
Collectivism
• refers to a political system that stresses
the primacy of collective goals over
individual goals.
Mo d e m so c ia lists tra c e th e ir in te lle c tu a l ro o ts to Ka rl Ma rx (1818 -83), a lth o u g h so c ia list th o u g h t
c le a rly p re d a te s Ma rx (e le m e n ts o f it c a n b e tra c e d to Pla to ). Ma rx a rg u e d th a t th e fe w
b e n e fit a t th e e xp e n se o f th e m a n y in a c a p ita list so c ie ty w h e re in d ivid u a l fre e d o m s a re n o t
re stric te d . Wh ile su c c e ssfu l c a p ita lists a c c u m u la te c o n sid e ra b le w e a lth , Ma rx p o stu la te d th a t
th e w a g e s e a rn e d b y th e m a jo rity o f w o rke rs in a c a p ita list so c ie ty w o u ld b e fo rc e d d o w n to
su b siste n c e le ve ls. He a rg u e d th a t c a p ita lists e xp ro p ria te fo r th e ir o w n u se th e va lue c re a te d
b y w o rke rs, w h ile p a yin g w o rke rs o n ly su b siste n c e w a g e s in re tu rn . Ac c o rd in g to Ma rx, th e p a y
o f w o rke rs d o e s n o t re fle c t th e fu ll va lu e o f th e ir la b o r. To c o rre c t th is p e rc e ive d w ro n g , Ma rx
a d vo c a te d sta te o w n e rsh ip o f th e b a sic m e a n s o f p ro d u c tio n , d istrib u tio n , a n d e xc h a n g e
(i.e ., b u sin e sse s). His lo g ic w a s th a t if th e sta te o w n e d th e m e a n s o f p ro d u c tio n , th e sta te
c o u ld e n su re th a t w o rke rs w e re fu lly c o m p e n sa te d fo r th e ir la b o r. Th u s, th e id e a is to m a n a g e
sta te -o w n e d e n te rp rise to b e n e fit so c ie ty a s a w h o le , ra th e r th a n in d ivid ua l c a p ita list .

Tw o b ro a d c a m p s o f So c ia lism
 C o m m u n ist - b e lie ve d th a t so c ia lism c o u ld b e a c h ie ve d o n ly th ro u g h vio le n t re vo lu tio n
a n d to ta lita ria n d ic ta to rsh ip .
 So c ia l De m o c ra ts - c o m m itte d th e m se lve s to a c h ie vin g so c ia lism b y d e m o c ra tic
m e a n s, tu rn in g th e ir b a c ks o n vio le n t re vo lutio n a n d d ic ta to rsh ip .
Individualism
• refers to a philosophy that an individual
should have freedom in his or her
economic and political pursuits.
 The Two Main Principle of Individualism

• Emphasis on the • The welfare of society is

importance of best served by letting
guaranteeing individual people pursue their own
freedom and self – economic self-interest, as
expression. opposed to some
collective body 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.
Totalitarianism
• 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.
FOUR MAJOR FORMS OF TOTALITARIANISM
Communist Totalitarianism

• Completely socialist is a totalitarian government that

pretends they’re communists. They like to make
themselves look like they’re for the ordinary person.
But really, it’s a ruse. No totalitarian government care
what the populous believe, as long as they support.
Theocratic Totalitarianism

• Totalitarianism is found in states where political power is

monopolized by a party, group, or individual that governs
according to religious principles. The most common form
of theocratic totalitarianism is based on Islam and is
exemplified by states such as Iran and Saudi Arabia.
These states limit freedom of political and religious
expression with laws based on Islamic principles.
Tribal Totalitarianism

• Totalitarianism occurs when a political party that

represents the interests of a particular tribe (and not
always the majority tribe) monopolizes power
Tight - Wing Totalitarianism

• 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.
ECONOMIC SYSTEMS
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.
Command 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.
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. Mixed economies
were once common throughout much of
the world, although they are becoming
much less so.
Legal Systems
• 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.
Three Main Types of Legal Systems

• Common Law - based on tradition,

precedent, and custom.
• Civil Law System - based on a detailed
set of laws organized into codes.
• Theocratic Law System - the law is
basved on religious teachings.