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Political Economyand Global
Business
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Our political economytopics…1. Political-economic systems of the developed world
2. Ways of classifying, analyzing political systems
3. Ways of classifying, analyzing economic systems
4. Legal systems
5. he corruption !"oblem
6. Levels of economic de#elo!ment
$. he s!"ead of freedom, democracy, and markets8. Managing you" "elationshi! %ith go#e"nment
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government and politics…
But the U.. and other developedcountries ha#e im!o"tant safegua"ds inthei" constitutions
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Safeguards of Successful Representative
Democracy
Individual’s right to freedom of expression, opinion and organization
Free media
Regular elections
Adult suffrage
Limited terms for elected representatives
A fair court system that is independent from the political system
A non-political state ureaucracy
!on-political force and armed service
Relatively free access to state information
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he "ich count"ies almost all belong to ag"ou! called the "ganization fo"Economic +oo!e"ation and e#elo!ment&E+'
o /oin, a count"y must be gua"anteeingthese rights to its !eo!le
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Business benefits inmature democracy
+onstitutions limit %hat go#e"nment canta0e
and %hat othe" changes go#e"nments canma0e
egal systems enfo"ce cont"acts
bet%een business!eo!le
bet%een business!eo!le and custome"s
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Political systems!"o#ide the %"itten "ules of the game4&institutions' in a nation that allo%!eo!le to
go#e"n themsel#es and
%o"0 togethe"
o do business, you ha#e to know the rules
ometimes
the %"itten "ules a"en6t follo%ed
the"e a"e no agreed rules to say %hethe"%hat you %ant is 7
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2 key dimensions of difference
Political systems as they are designed can be
assessed according to two dimensions
Degree to which they are democratic or
totalitarian
Degree to which they emphasize individualism
as opposed to collectivism
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Democracy versus totalitarianism
Democracy
Government is by the
people, exercised either
directly or through elected
representatives(representative
democracy)
Elected representatives
are held accountable
through safeguards
Totalitarianism
One personparty
exercises absolute control
over all spheres of human
life (competing politicalparties are banned)
!ommunist totalitarianism
"heocratic totalitarianism
"ribal totalitarianism
#ight wing totalitarianism
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Collectivism and IndividualismIndividualism
!entral tenet is that
individual economic
and political freedoms
are the ground rules onwhich society is based
$s the direct opposite of
collectivism
Collectivism
Collective goals are
more important than
individual goals
$ndividual rights are
sacrificed for the good
of the ma%ority
$n the modern world
collectivism isexpressed through
socialism
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official principlesdon’t tell everything
Pe"ha!s %e should ha#e an additionalclassification of !olitical systems
)o"e matu"e &e.g., the "ich count"ies6systems 8 usually'
ess matu"e &many systems in !oo"e"count"ies'
Are some of the rich countries turning theirsystems into less mature ones?
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Classifying conomic Systems
"ar#et economy$ what is produced ! in what
"uantity is determined by supply#demand and
signaled to producers through a price system
%ong &ong is closest
'ommand economy$ planned by government
rare today $ %orth &orea' Cuba
"ixed economy$ a balance of both of the above
most countries' but degree of mi(ture varies
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Individualism vs) Collectivism
in conomic Systems
There is a connection between political ideology
and economic systems $n countries where individual goals are given primacy
free market economic systems are fostered!ountries where collective goals are given primacy there
is mar&ed state control of markets
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$n any new country, consider whether
rules are real
*any poor countries have what used to be called a
+soft state,
Powerful people can rea# or change the rules
when they wantPeople don-t follow the rules .ta#e ries' etc)/
ven in many rich countries .0apan/' the rules may
tilt in favor of local people
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1egal Systems
Rules' laws' and
processes that enforce
them regulate behavior 'rocesses through which
grievances are addressed
ll countries have legal
systems, but they may wor&
very differently
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Property Rights
bundle of legal rights over the use to (hich a
resource is put and over the use made of any
income from that resource
Can be violated through
'rivate action (eg, theft)
'ublic (government) action
!orruption
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Contract 1awContracts specify conditions under which an e(change is to
occur Detail rights and obligations of parties
'ontract la( is the body of law that enforces a contract
Dispute resolution is often comple(
*here to sue, where to arbitrate + whose laws apply
-alidity of contracts and decisions
The 3nited %ations has a Convention on Contracts for the
International Sale of 4oods .CI4S/
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Intellectual Property Rights
Intellectual property refers to property that is the
product of intellectual activity
Intellectual property laws are believed very
important stimulus to innovation and creative work
)rotection of intellectual property rights varies
greatly from country to country
There are international rules' and the 3)S) is
struggling to get them enforced
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Piracy of Intellectual Property
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Product Safety and 1iability
Product safety laws set safety standards for products
and manufacturing processes
Product liability laws hold the firm and its officers
responsible for product safety standards
nvironmental standards limit pollution etc)
1aws differ radically from country to country
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h 9 ti 6
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he 9co""u!tion6!"oblem
)any &most:' t"aditional codes ofbeha#io" "e;ui"e !eo!le to do things thatin de#elo!ed count"ies a"e called9corruption6
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Most Corrupt?
>an0ings of +o""u!tion by +ount"y 2(1(
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Differences in conomic Development
Different countries have dramatically different
levels of economic development
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Two common measurements of economic
development
Gross National Income (GNI)
superseded Gross .ational 'roduct or G.'
the sum of all income received by residents of a nation
Gross .ational $ncome at Purchasing Power Parity
(PPP), which accounts for differences in the cost of living
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o estimate ho% big a ma"0et a count"yis, loo0 at $%#
?.. G@ fo" 2(11 %as A15.2 t"illion.
+hina6s G@ %as A$.3 t"illion.
ndia6s %as A1. t"illion.
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count"y is, loo0 at G@per capita
a"ge G@ does not !"o#e a count"y is "ich+hina has the second highest G@ in the %o"ld,but many of its !eo!le a"e #e"y !oo"
G@ !e" ca!ita is G@ per head& otal G@
di#ided by !o!ulation
his is called nominal4 G@ !e" ca!itabecause it is not ad/usted fo" !"icediffe"ences
?.. nominal4 G@ !e" ca!ita in 2(11 %asACD,32D
+hina6s nominal G@ !e" ca!ita %as A5,C1$
ndia6s nominal G@ !e" ca!ita %as A1,51C
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Differences in
conomic Development
4%I per Capita' 2556
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The single best measure of the wealth of the people of a country
is *!I per capita at purchasing po(er parity .4%I PPP/
gencies calculating *!I at purchasing po(er parity take
4%I and population calculated by governments
Then they make an ad+ustment ased on price indexes fordifferent countries
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Differences in
conomic Development
4%I PPP per Capita' 2556
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Differences in
conomic Development
4rowth Rate in 4DP per Capita' 7889 : 2556
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;roader Conceptions of Development<
martya Sen
Sen says development should be measured less by
material output measures' such as 4%P per capita'
and more by the capailities and opportunities
that people en+oy
=is %uman evelopment Index .=DI/ measures
"uality of life in different nations
;ased on life e(pectancy' educational attainment'and 4%I at PPP average incomes
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;roader Conceptions of Development<
martya Sen
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States in Transition
The political economy of the world has changed
radically since the late 78>5-s
Two trends
wave of democratic revolutions swept the world
"here has been a strong move away from centrally
planned and mixed economies toward a free market
model
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The Spread of Democracy
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The Spread of Democracy
Three main reasons account for the spread ofdemocracy "otalitarian regimes failed to deliver economic progress
.ew information and communication technologies, including
shortwave radio, satellite television, fax machines, des&toppublishing, and most importantly, the $nternet, have bro&endown the ability of the state to control access to information
"he economic advances of the past /uarter century have led tothe emergence of increasingly prosperous middle and
working classes who have pushed for democratic reforms
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The Spread of *arket:;ased Systems
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What does this mean
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What does this meanfo" business!eo!le:
Political economy often tells you ho%attractive a count"y is fo" business
When o!e"ating in a count"y, unde"stand the!olitical economic situation to 0no%
what you can do in the count"y
how to address political pro'lems
ou ha#e to plan ho% you6ll add"ess the
diffe"ences bet%een you" home system andthe ones you ente"
ou %ill face ma/o" ethical issues
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Political "is0sPolitical "is0 is the danger that!olitical fo"ces %ill cause d"asticchanges o" une=!ected beha#io"s in acount"y that ad#e"sely affect !"ofit o"
othe" business goals.
)any 0inds of change can alte" abusiness6 !osition in a count"y.
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=omework assignment 7
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The homework task Pick one company that operates internationally
*any people will be able to do this easily
If you need help' flip through issues of ?ortune or conomist
maga@ine' look at www)?ortune)com' or check out the Aall St)
0ournal or %B Times .or their web pages/
1ist at least countries where the firm operates
It-s & to guess
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Describe at least five political ris#s the firm faces in these
countries
Plan on writing at least one sentence about each risk todescribe it
It-s & if the risks all come from 7 country
;ut include a diverse group of risks
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Bou don-t have to write a lot to get
a good grade
;ut you do have to describe E risks clearly and accurately
Students who get less than C: will be re"uired to re:write