Chapter 2 - Political Economics
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Transcript Chapter 2 - Political Economics
National Differences in Political Economy
National Differences in Political
Economy
How
do political, economic, legal systems of
a country:
–
–
–
–
Differ among countries?
Influence economic progress?
Change during our times?
Influence benefits, costs, risks of business?
What
are ethical issues that arise from
doing business internationally?
National Differences in Political
Economy
Political
System:
– System of National Government
– Varies by country on the basis of
values and beliefs about
Collectivism and Individualism
Democracy and Totalitarianism
Collectivism
Primacy
of collectivist over individual
goals
Emphasis: “good of society”,
“common good”
Plato,427-347 BC, to Socialists, Marx,
1818 - 83
Communists-revolution,
Social Democrats-democratic outlook
Individualism
Individual
freedom over economic
and political action
– Individual diversity and private
ownership are desirable
– Private property is more productive
whereas communal property receives
little care
Without
private property, no
man will be seen to be liberal
and no man will ever do any act
of liberality; for only in the use
of money is liberality made
effective
-- Aristotle, 384-322 BC
– An individual who intends his own gain is
“led by an invisible hand to promote an end
which was no part of his intention. Nor is it
always worse for the society that it was no
part of it. By pursuing his own interest he
frequently promotes that of the society more
effectually than when he really intends to
promote it. I have never known much good
done by those who effect to trade for the
public good”
-- Adam Smith, 1723-1790
Democracy:
- Government is by the people, exercised either directly or
through elected representatives
- Safeguards hold elected representatives accountable
Totalitarianism:
One person/party exercises absolute control over all
spheres of human life
– Communist totalitarianism (PRC, Vietnam, Laos, N.
Korea,Cuba)
– Theocratic totalitarianism (Iran, S. Arabia)
– Tribal totalitarianism (Zimbabwe, Tanzania)
– Right wing totalitarianism
Economic Systems
Market economy: what is produced in what quantity
determined by supply/demand and through a price
system
Command economy: planned by government
Mixed economy: a balance of both of the above
State-Directed economy: state directly influences
investment activities of private enterprise through
“industrial policy.”
National Differences in
Political Economy
A Legal
System is:
– rules - laws - that regulate
behavior
– process through which
laws are enforced
grievances are redressed
Businesses
must
observe
– Home country laws
– Host country laws
– International Laws and Treaties
Different Legal
Systems
– Common Law
– Civil Law
– Theocratic Law
Dispute
resolution
– Where to arbitrate?
Mediate?
– Validity of contracts
and decisions
Contract Law
A contract specifies
– conditions under which an exchange will happen
– rights/obligations of parties
It
is based on a country’s legal system.
Systems differ based on legal tradition
– common law system
– civil law system
Legal Systems
Disputes need to be resolved based on a
particular legal system
– Which country’s? Home? Host?
UN Convention on Contracts for the
International Sale of Goods (GIGS)
International Court of Arbitration of the
International Chamber of Commerce in Paris,
France
Legal Systems and
International Business
Property rights
use of a resource
use made of income from resource
enforcement issues
Public vs private action violations
Legal Systems and
International Business
Protection of Intellectual Property
– patent: inventors’ exclusive rights to
manufacture,
use, sell an invention
– copyright: same for authors, composers, artists,
publishers
– trademark: unique design and name, often
officially registered
Paris Convention for the Protection of Industrial
Property (96 countries)
WTO/GATT
Public Action and
Corruption
Public Action
can violate property rights
– Legal mechanisms
– Illegal means: corruption
Corruption across
countries is tracked by
Transparency International
High
corruption levels reduce Foreign
Direct Investment and economic growth
Public Action and
Corruption
US foreign corrupt practices act:
– illegal for US managers to bribe government
officials
OECD Convention on Bribery of Foreign
Public Officials in International Business
transactions
Legal Systems and
International Business
Protection of intellectual property
– Patents, copyrights, trademarks
– Paris convention for the Protection of
Industrial Property
– TRIPS (WTO)Trade Related Aspects of
Intellectual Property
Product safety and product
– Product safety laws
– Criminal / civil liability
liability
Differences of Economic
Development
GDP per capita:
does not factor cost of living
differences
Purchasing Power Parity (PPP) index:
adjusts per capita GDP by cost-ofliving
Human Development Index:
life expectancy, literacy, PPP based
average incomes
Broader Conceptions of
Development
Amartya Sen: development
– Should be assessed by material output
measures
– Is an economic AND a political process that
requires “democratization”
Human
Development Index (HDI) =
f{life expectancy, educational attainment,
PPP based annual incomes sufficient to
meet basic needs}
Political Economy and Economic
Progress
Innovation >> Engine for Growth
(products, processes, strategies, organizations,
management practices)
Innovation requires:
– market economy
– strong property rights
– the “right” political system
Economic progress is related to democracy
States in Transition
Democratic
systems spread in the ‘80s
and ‘90s
Totalitarian regimes failed to deliver
economic progress
Spread of information trough new
communication technologies
Emergence of prosperous middle classes
States in Transition: Universal
or Clashing Civilizations
New
realities: Russian reemergence,
Zimbabwean racial unrest, China’s
resurgence
New world order and terrorism
– Fukuyama: “… the end of history…” and
harmonious existence
– Huntington: new conflicts, e.g., Islamic
fundamentalism
States in Transition: Spread of
Market-Based Systems
Nature
of economic transformation
– Deregulation: legal changes
– Privatization: transfer of state
property/industries to private individuals
Auctions
IPOs
– Evolution of legal systems
– The road of transformation is rocky
Implications for International
Business
Country’s political, economic, and legal environment
– influence attractiveness
– raise ethical Issues
Country attractiveness
– balance long-term risks with short-term benefits for business
– benefits depend on: size, wealth, future economic growth
first mover advantages
identify “star” future economies
– costs are affected by:
economic sophistication (may be more costly to operate in
LDCs, no infrastructure)
legal framework impact on costs
political payoffs