MKT 310 - National Differences Review
In general, what are the Political, Economic, and Legal characteristics that make a country more attractive as a market or investment site?
A nation with: - Democratic Political Institutions - A Market-Based Economic System - A Strong Legal System that enforces Property Rights and limits Corruption
What are Pseudo-Democracies?
A political system that falls between Pure Democracies and Complete Totalitarian systems of government - Here, authoritarian elements have captured some or much of the machinery of state and use this in an attempt to deny basic political and civil liberties
For a Market Economy to function properly, supply must not be restricted. What does this mean? How does the restriction of supply impact consumers and the welfare of society?
A supply restriction occurs when a single firm monopolizes a market - Because a monopolist has no competitors, it has no incentive to search for ways to lower production costs. It will simply pass on cost increases to customers in the form of higher prices - The monopolist will become increasingly inefficient, producing high-priced, low-quality goods
What is Common Law?
A system of law based on Tradition, Precedent, and Custom - Tradition: A country's legal history - Precedent: Cases that have come before the courts previously - Custom: The ways in which laws are applied in specific situations
What is Civil Law?
A system of law based on a very detailed set of written laws and codes
What is Theocratic Law?
A system of law based on religious teachings - Islamic law is the most widely practiced Theocratic Legal System in the modern world
What is the United Nations Convention on Contracts for the International Sale of Goods (CISG)?
A uniform set of rules governing certain aspects of the making and performance of commercial contracts between sellers and buyers who have their places of business in different nations - By adopting the CISG, a nation signals to other adopters that it will treat the convention's rules as part of its law
What is Communist Totalitarianism?
A version of Collectivism advocating that Socialism can only be achieved through Totalitarian Dictatorship - While this was previously the most widespread form of Totalitarianism, Communism has been in a decline worldwide and many Communist Party dictatorships have collapsed since 1989
What is Private Action?
A violation of property rights through theft, piracy, blackmail, and other similar activities by private individuals or groups - A weak legal system allows a much higher level of criminal action - EX: Mafia, Yakuza, etc
The principles of Individualism can be traced back to which ancient philosopher? Describe this philosopher's view on Individualism
Aristotle - Aristotle argued that individual diversity and private ownership are desirable - He also believed that private property is more highly productive than communal property and will thus stimulate progress
According to lecture, why is the global decline of Democracy an issue?
As Democracies decline, there are many aspects of a country that start to weaken - We will see increases in the corruption of governments, the harassment of journalists, biased judiciaries that do not objectively uphold the law, etc - As these aspects of a country weaken, they impact the ability of individuals to live freely and the ability of businesses to be profitable
Describe Karl Marx's thoughts on the payment of workers in a Capitalist society. How did he propose that this situation be improved?
Karl Marx believed that the pay of workers did not reflect the full value of their labor in a Capitalist Society - To correct this perceived wrong, Marx advocated state ownership of the basic means of production, distribution, and exchange - He reasoned that if the State owned the means of production, they could ensure that workers were fully compensated for their labor
What are Product Safety Laws?
Laws that set certain standards to which a product must adhere
What are Legal Systems? What primarily influences the Legal System of a country?
Legal Systems are the system of rules that regulate behavior and the process by which the laws of a country are enforced and through which redress of grievances is obtained - The Legal System of a country is influenced by the prevailing political system
In modern times, the Collectivist mantle has been picked up by what group? Who does this group trace their intellectual roots to?
The Socialists - Modern Socialists trace their intellectual roots to Karl Marx
What is Contract Law?
The body of law that governs contract enforcement - The parties to an agreement normally resort to contract law when one party feels that the other has violated either the letter or spirit of an agreement
What are Trademarks?
The designs and names, often officially registered, by which merchants or manufacturers can differentiate their products
What is Innovation?
The development of new products, processes, organizations, management practices, and strategies
What are Copyrights?
The exclusive rights of authors, composers, playwrights, artists, and publishers to publish and disperse their work as they see fit
What is Public Action and Corruption?
The extortion of income or resources of property holders by public officials, such as politicians and government bureaucrats - This can be done through legal mechanisms such as levying excessive taxation, requiring expensive licenses or permits from property holders, taking assets into state ownership without compensating the owners, etc - It can also be done through illegal means (Corruption) by demanding bribes from businesses in return for the rights to operate in a country, industry, or location
What is the philosophy behind Intellectual Property law?
The philosophy behind IP laws is to reward the originator of a new invention, book, musical record, etc for their ideas and effort - These laws provide an incentive for people to search for novel ways of doing things, and they reward creativity
In a pure Command Economy, all businesses are State-owned. What is the rationale for this?
The rationale for State ownership of businesses is that the government can then direct them to make investments that are in the best interests of the nation as a whole rather than in the interests of private individuals
What is Privatization?
The sale of state-owned enterprises to Private Investors - This process was typical after Social Democratic parties were voted out of office
What are Political Systems? What are the 2 dimensions by which a Political System can be assessed?
The system of government in a nation - The degree to which they emphasize Collectivism as opposed to Individualism - The degree to which they are Democratic or Totalitarian
What is Property?
The term "Property" refers to a resource over which an individual or business holds a legal title (owns) - Resources include land, buildings, equipment, etc
After WWII, Social Democratic governments in various nations began to nationalize private companies by transforming them into state-owned enterprises to be run for the "public good rather than private profit". Describe the performance of these State-Owned Companies
These State-Owned Companies performed poorly in many countries - Because State-Owned companies were protected from competition by their monopoly position and guaranteed government financial support, they became increasingly inefficient - This resulted in individuals paying higher prices for products and higher taxes
What are Property Rights?
These refer to the legal rights over the use of a resource and the use of any income that may be derived from that resource - Countries differ in the extent to which their legal systems define and protect property rights
What is a Pure Democracy?
This form of Democracy is based on the belief that citizens should be directly involved in decision-making - For advanced societies with huge populations, this is impractical - The Pure form of Democracy was originally practiced by the city-states of ancient Greece
What is the Shadow Economy / Black Economy? Why would people conduct transactions in the Shadow Economy?
This refers to the economic activity that occurs in the form of unrecorded cash transactions or barter agreements - People engage in such transactions in order to avoid paying taxes
What are Entrepreneurs?
Those who first commercialize innovations - Innovation is often seen as the result of Entrepreneurial Activity
True or False: Although countries such as China and India are currently relatively poor, their economies are already large in absolute terms and are growing far more rapidly than those of many advanced nations
True
True or False: From the late 1980s until around 2005, the decline in Collectivism was matched by the rise of Individualism
True
True or False: Both Civil and Criminal Product Liability laws exist
True - Civil Law calls for payment and monetary damages - Criminal Liability Law results in fines or imprisonment
True or False: Countries that rank high in Governance typically have higher incomes
True - Conversely, countries that rank low in Governance typically have lower incomes
True or False: Emerging Market populations are typically younger than those in Developed Markets
True - In Emerging Economies, elderly people account for a much smaller share of the total market and younger individuals account for a much larger share
True or False: In a Totalitarian Country, all the constitutional guarantees on which Representative Democracies are built are denied to citizens
True - Political repression is widespread, free and fair elections are lacing, media is heavily censored, basic civil liberties are denied, etc
True or False: It is possible to have Democratic societies that emphasize a mix of Collectivism and Individualism
True - Systems that emphasize Collectivism tend to lean toward Totalitarianism, whereas those that place a high value on Individualism tend to be Democratic - However, it is also possible to have Totalitarian societies that are not entirely Collectivist
True or False: In general, the past three decades have seen a general move toward more democratic forms of government, market-based economic reforms, and adoption of legal systems that better enforce property rights
True - These trends have helped foster greater economic development around the world and have created a more favorable environment for international business
According to the text, the GNI and PPP provide a "static picture" of development. What does this mean?
While the GNI per Capita and the PPP tell us if one nation is poorer than another, they don't tell us if the poorer nation is closing the gap - To assess this, we have to look at the growth rates achieved by countries in GDP
True or False: All Democracies are "real". That is, the practices of one Democratic nation should be the same as those in another Democratic nation
False - "Full Democracies" are considered to be truly democratic - Various aspects of "Flawed Democracies" are weak or underdeveloped - "Hybrid Regimes" are flawed in numerous respects
True or False: Aristotle claimed that Communal Property tends to be better cared for than Individual Property
False - Aristotle claimed that Communal Property receives little care, whereas property that is owned by an individual will receive the greatest care, and is therefore more productive
True or False: Freedom House research indicates that every region, other than the U.S, has seen a decline in Democracy over the last 14 years
False - Based on Freedom House research, *every* region has seen Democratic Declines in the last 14 years - The U.S has experienced an 8 point decline in their Democracy Rating from 2009 - 2019 - The largest declines have been in Rule of Law, Freedom of Expression, and Electoral Processes
True or False: Common Law Systems are less flexible than Civil Law Systems
False - Common Law Systems have the advantage of greater flexibility and allow judges to interpret a contract dispute in light of the prevailing situation
True or False: Because all businesses are owned by the State in a Command Economy, these enterprises have been largely beneficial to the societies in which they operate
False - In a Command Economy, state-owned enterprises have little incentive to control costs and be efficient because they cannot go out of business - The absence of private ownership means that there is no incentive for individuals to look for better ways to serve consumer needs
True or False: Expediting Payments are no different than Bribes
False - These are different from bribes in that they merely facilitate the performance of duties that recipients of this money are already obligated to perform
True or False: Contracts drafted under a Common Law framework tend to be very detailed and all contingencies are spelled out
False - This is because the Common Law is typically ill-specified. Consequently, drawing up these contracts is a more expensive process. - In contrast, Contracts drafted under Civil Law frameworks tend to be much shorter and less specific because many of the issues are already covered in a Civil Code
True or False: When moving into an Emerging Market, firms are typically able to use the same strategy as they have used in Developed Markets previously
False - What may be popular in a Developed Market may be unpopular in an Emerging Market - Further, emerging Markets are also changing almost 2-3 times faster than Developed Markets. This means that a company's knowledge of any particular emerging market becomes obsolete more rapidly than your knowledge of a Developed Market
What is Freedom House?
Freedom House is a U.S-based government-funded non-governmental organization founded by Franklin Roosevelt - Freedom House rates the status of Democracy within a country based on a number of factors
What are Freedom House ratings based on?
Freedom House ratings are based on Political Rights and Civil Liberties - Political Rights: Electoral processes, political pluralism, functioning governments - Civil Liberties: Freedom of expression, rule of law, individual rights, etc
In what way is GNI per person misleading?
GNI per person figures do not consider differences in the Cost of Living - To account for differences in the Cost of Living, one can adjust GNI per capita by the purchasing power (PPP)
In some Mixed Economies, such as China, how has the government used its control of State-Owned enterprises? How do advocates of Market Based Economic systems view this strategy?
In some Mixed Economies, such as China, the state uses its control of state-owned enterprises to further its industrial policy, promoting the development of public and private sectors that it believes to be important for the future economic development of the nation - Advocates of Market Based Economic Systems view this as a Risky Strategy and believe that investment decisions are best left to the private sector
What is Product Liability?
Involves holding a firm and its officers responsible when a product causes injury, death, or damage - These laws are typically the least extensive in less developed nations
What are the 3 main types of Legal Systems used around the world?
- Common Law - Civil Law - Theocratic Law
What are the 4 major forms of Totalitarianism that exist in the world today?
- Communist Totalitarianism - Theocratic Totalitarianism - Tribal Totalitarianism - Right-Wing Totalitarianism
There is substantial agreement among economists that what two things are the primary engines of long-run economic growth?
- Innovation - Entrepreneurial Activity
What are the 3 forms of Intellectual Property protection?
- Patents - Copyrights - Trademarks
According to lecture, what are the 6 main differences between Emerging Markets and Developed Markets?
- Per Capita Income - Infrastructure - Demographics - Speed of Change - Bureaucracy - Corruption
What are the 3 primary ways in which countries differ from one another?
- Political Systems - Economic Systems - Legal Systems
What are the 2 ways in which Property Rights can be violated?
- Private Action - Public Action
In the early 20th century, the Socialist Ideology was split into what two camps?
- The Communists - The Social Democrats
According to lecture, what are the 4 trends contributing to the global decline in Democracy?
- The Global Migration Crisis - Erosion of the Press - Lies and Misstatements being issued by the Government - A Mixing of Business and Public Interests
The GNI per capita for China is $10,410, but the PPP per capita was $16,740. What does this suggest?
- The cost of living in China is *lower than* that of the U.S - $10,410 in China would buy as much as $16,740 in the U.S
What are the 2 Central Tenets of Individualism?
- The importance of guaranteeing individual freedom and self-expression must be emphasized - The welfare of society is best served by letting people pursue their own economic self-interest
How can International Businesses respond to violation of their Intellectual Property in foreign markets?
- They can lobby their respective governments to push for international agreements to ensure that intellectual property rights are protected and that the law is enforced - They can file lawsuits - They can choose to stay out of countries in which Intellectual Property laws are not sufficiently enforced
What is the main trade-off that businesses face when deciding to operate in either a Developed Market or an Emerging Market?
- While Developed Markets have more political and economic stability, the lack of risk in these markets means that growth rates are slow and potential returns are lower - While Emerging Markets are growing rapidly and have larger potential returns, the degree of political and economic risk are far higher than in Developed Markets (note that Emerging Markets are slightly less risky than Frontier Markets)
Why do Civil Law systems tend to be less adversarial than Common Law systems? How do the responsibilities of judges change based on which Legal System is present?
A Civil Law system tends to be less adversarial than a common law system because the judges rely on detailed legal codes rather than interpreting Tradition, Precedent, and Custom - In Common Law Systems: Judges Interpret the law - In Civil Law Systems: Judges Apply the law
It is commonly believed that what economic system creates the greatest incentives for Innovation and Entrepreneurship? Explain why
A Market Economy - In a Market Economy, any individual who has an innovative idea is free to make money out of that idea by starting a business (engaging in entrepreneurial activity) - Additionally, businesses are free to improve their operations through innovation. This leads to increased productivity of labor and capital, which boosts economic growth rates
What is 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
What is a Representative Democracy?
A Political System in which citizens periodically elect individuals to represent them in government - These elected representatives then form a government whose function it is to make decisions on behalf of the electorate
What is Democracy?
A Political System in which government is by the people, exercised either directly or through elected representatives - Democracy tends to go hand in hand with Individualism
What is 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) - Political Freedoms are restricted on the grounds that they would lead to a rise of Communism - Many Right-Wing Totalitarian governments are backed by the military
What is Theocratic Totalitarianism?
A Political System in which 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
What is Collectivism? How does the adoption of Collectivism influence society?
A Political System that emphasizes Collective goals as opposed to Individual goals - When Collectivism is emphasized, the needs of society as a whole are generally viewed as being more important than individual freedoms
What is the Foreign Corrupt Practices Act (FCPA)?
A U.S. law regulating behavior regarding the conduct of international business in the taking of bribes and other unethical actions - This law makes it illegal to bribe a foreign official to obtain or maintain business over which that foreign official has authority - It also requires that all publicly-traded companies keep detailed records that would reveal whether a violation of the act has occurred
What is a Contract?
A document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved
What is Totalitarianism?
A 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 - Totalitarianism tends to go hand in hand with Collectivism
What are Patents?
A form of intellectual property protection that grants the inventor of a new product or process exclusive rights to the manufacture, use, or sale of that invention
What is Gross National Income (GNI)?
A measure of the total annual income received by residents of a nation
What is a Command Economy?
An Economic System where the allocation of resources, including determination of what goods and services should be produced, in what quantity they should be produced, and the prices at which they are sold, is planned by the government - The objective of a Command Economy is for the government to allocate resources for "the good of society"
What is the Purchasing Power Parity (PPP) Adjustment? How is it applied?
An adjustment in gross domestic product per capita to reflect differences in the Cost of Living - Using the United States as the base for the adjustment in the Cost of Living, the PPP for different countries is then adjusted (up or down) depending on whether the cost of living is lower or higher than in the U.S - If the PPP > GNI Per Capita, the Cost of Living in that country is lower than in the U.S.
What is a Market Economy?
An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced - The purchasing patterns of consumers, as signaled to producers through the mechanism of the price system, determine what is produced and in what quantity
What is a Mixed Economy?
An economy in which certain sectors of the economy are left to private ownership and free market mechanisms, while others have significant State ownership and government planning
What is Individualism?
An emphasis on the importance of guaranteeing individual freedom and self-expression - Individualism can be thought of as the opposite of Collectivism - Individualism stresses that the interests of the individual should take precedence over the interests of the State
What is the Economist Intelligence Unit (EIU)?
An entity that produces an annual review ranking countries on their adherence to 60 distinct democratic values, including electoral processes and freedom of the press - As of 2019, the U.S is classified as a "Flawed Democracy"
What is the World Intellectual Property Organization?
An international organization whose members sign treaties to agree to protect Intellectual Property - This includes the signing of the oldest Intellectual Property treaty, the Paris Convention for the Protection of Industrial Property
What are Communists? How has the influence of Communist views on Socialism changed throughout the years?
Communists refer to those who believe that Socialism can only be achieved through Revolution and Totalitarian Dictatorship - The Communist version of Socialism peaked in the 1970s when most of the world's population lived in Communist states, but saw a massive retreat by the mid-1990s as Democracy began to spread
According to lecture, what are some of the ways in which countries differ from one another?
Countries differ in terms of: - Political Systems - Economic Systems - Legal Differences - Economic Development - Social Behaviors and Cultural Differences
What is the relationship between Corruption within a country and the rate of Economic Growth within that country?
Economic evidence suggests that high levels of Corruption significantly reduce the Foreign Direct Investment, Level of International Trade, and Economic Growth Rate in a Country - By siphoning off profits, corrupt politicians and bureaucrats reduce the returns to business investment and, hence, reduce the incentive of both domestic and foreign business to invest in that country
Even though the Foreign Corrupt Practices Act (FCPA) and the Organization for Economic Co-Operation and Development (OECD) discourage bribery, what form of payment is permitted by both?
Facilitating or Expediting Payments (AKA Grease Payments or Speed Money) - These are used to expedite or secure the performance of routine government action - EX: Paying money to speed up the issuance of permits or licenses
How did Karl Marx view the practices of Capitalist Societies?
Marx argued that in a Capitalist society in which individual freedoms are not restricted, the few benefit at the expense of the many - Marx also believed that Capitalists expropriate the value created by workers, while paying them only subsistence wages in return
Advocacy of Collectivism can be traced back to which ancient philosopher? Describe this philosopher's view on Collectivism
Plato (427 - 347 B.C) - In "The Republic", Plato argued that individual rights should be sacrificed for the good of the majority. Further, he believed that property should be owned in common - Additionally, Plato did not equate collectivism with equality. He believed that society should be stratified into classes, with those best suited to rule administering society for everyone's benefit
How does Private Ownership encourage vigorous competition and economic efficiency?
Private Ownership ensures that entrepreneurs have a right to the profits generated by their efforts - This gives entrepreneurs an incentive to search for better ways of serving customer needs
What is Intellectual Property?
Refers to property that is the product of intellectual activity
What are Social Democrats?
Social Democrats refer to those committed to achieving Socialism by democratic means and who are opposed to violent revolution and dictatorship
What is the Corruption Perceptions Index (CPI)? What is the relationship between Democracy and Corruption in a country?
The CPI provides a score that represents how free a country is from corruption - As Democratic Institutions weaken, there is more corruption within that country in both the political and business area - In other words, corruption in a country increases as democracy in a country declines
According to the text, how does China describe the structure of its Economy?
The Chinese describe their economic system as being a "Socialist Market Economy" (Mixed Economy) - China remains a one-party state ruled by the Communist Party - However, their economy consists of a vibrant Private Sector and a significant State-Owned Sector
What is the Human Development Index (HDI)? What 3 measures is it based on?
The HDI is an attempt by the UN to assess the impact of a number of factors on the quality of human life in different nations. It is based on the following: - Life Expectancy at Birth, - Educational Attainment - Whether Average Incomes are sufficient to meet the needs of life in a country
How does the HDI classify the quality of life within countries?
The HDI is scaled from 0 to 1 - Countries scoring less than 0.5 are classified as having low human development (the quality of life is poor) - Countries scoring from 0.5 - 0.8 are classified as having medium human development - Countries that score above 0.8 are classified as having high human development
What is the Political Economy? The use of this term is intended to emphasize what?
The Political Economy refers to the Political, Economic, and Legal Systems of a country - The term Political Economy is used to emphasize that Political, Economic, and Legal systems of a country are Interdependent - By interacting with and influencing each other, these elements affect the level of economic well-being
The benefits, costs, and risks associated with doing business in a country are a function of what?
The Political, Economic, and Legal Systems of that country
