IB - Chapter 2: Differences in Political, Economic, and Legal Systems

Collectivism

Def: a system that stresses the primacy of collective goals over individual goals - When collectivism is emphasized, the needs of the society as whole are generally viewed as being more important than individual freedoms - A socialist system is based on some form of public or collective ownership of the social means of production

Democracy

Def: political system in which government is by the people, exercised either directly or through elected representatives Most common form today is representative democracy; elected representatives vote on behalf of constituents

Individualism

Individualism: suggests individuals should have freedom over their economic and political pursuits - Can be traced to Aristotle who argued that individual diversity and private ownership are desirable - And British philosophers such as David Hume, Adam Smith, and J. S. Mill - Later Nobel Prize winning economists Milton Friedman, Friedrich von Hayek, and James Buchanan Individualism stresses: - Individual freedom and self-expression - Letting people pursue their own self-interests to achieve the best overall good for society - Democratic systems and free markets

Property Rights

the legal rights over the use to which a resource is put and over the use made of any income that may be derived from that resource

Private Action

the theft, piracy, blackmail, and the like by private individuals or groups officials extort income or resources from property holders

Civil Law

based on detailed set of laws organized into codes - found in more than 80 countries, including Germany, France, Japan, and Russia

Theocractic Law

based on religious teachings (Islamic Law is the most widely practiced)

Common Law

based on tradition, precedent, and custom - found in most of Great Britain's former colonies, including the United States

Trademarks

designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products

Copyrights

exclusive legal rights of authors, composers, playwrights, artists, and publisher to publish and dispose of their work as they see fit

Totalitarianism

form of government in which one person or political party exercises absolute control and opposing political parties are prohibited Can result in: - widespread political repression - censorship of media - denial of civil liberties

Patents

give the inventor exclusive rights to the manufacture, use, or sale of that invention

Command Economy

is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods are offered for sale It also determines investments and incomes

Government or Political Corruption

occurs when an office holder or other governmental employee acts in an official capacity for personal gain EX: excessive taxation, requiring expensive licenses or permits from property holder, or taking assets into state ownership without compensating the owners Results: foreign direct investment falls, international trade falls, economic growth falls, and this results in a lower standard of living

Legal System

of a country refers to the rules, or laws, that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained A country's Legal System is important because laws: - Regulate business practice - Define the manner in which business transactions are to be executed - Set down the rights and obligations of those involved in business transactions

Corruption

private or public dishonest actions by someone in authority, often to acquire personal benefit, (is present in all countries and may be more accepted in some)

Intellectual Property

property that is the product of intellectual activity - Patents - Copyrights - Trademarks The protection of intellectual property rights differs greatly from country to country 185 nations are members of the World Intellectual Property Organization Paris Convention for the Protection of Industrial Property: agreement signed by 170+ countries

Many nations lie between...

pure democracy (democracy in which the power is exercised directly by the people rather than through representatives) and complete totalitarianism (complete political, social, and cultural control)

National Differences in Economic Systems

- Countries vary in levels of economic development or the process by which a nation improves the economic, political, and social well-being - Economic development is a policy intervention endeavor with aims of improving the economic and social well being of people - Economic growth is a phenomenon of market productivity and rise in GDP = C + Ig + G + Xn - Political Economy: Is the study of production and trade and their links with government and law. -->It is the study and use of how economic theory and methods influence and develop different social and economic systems, such as capitalism, socialism and communism.

Foreign Corrupt Practices Act limits corruption in the US

- It is illegal to bribe a foreign government official in order to obtain or maintain business over which the foreign official has authority - All publicly traded companies must keep detailed records so that it is clear whether a violation of the act has occurred - Facilitating or expediting payments to secure the performance of routine government actions are permitted

Socialism

- Modern socialists trace their roots to Karl Marx - Advocated state ownership of the basic means of production, distribution, and exchange - The state then manages the enterprises for the benefit of society as a whole - In the early 20th century, socialism split into communists and social democrats: -->Communists - socialism could only be achieved though revolution and totalitarian dictatorship -->Social democrats worked to achieve the same goals by democratic means -Many state-owned enterprises failed to succeed, and many nations implemented privatization programs

Mixed Economic System

- features characteristics of both capitalism and socialism A mixed economic system has private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. Most modern economies feature a synthesis of two or more economic systems (i.e., are mixed), with economies falling at some point along a continuum. -The public sector works alongside the private sector, but may compete for the same limited resources. Countries with a mixed economy include Iceland, Sweden, France, the United Kingdom, the United States, Russia and China. -These countries have a mix of government spending and free-market systems based on the share of government spending as a percentage of gross domestic product.

International Business is more complicated than domestic business

-The political, economic, and legal systems are known as the political economy - Countries vary in economic development - Cultural, education, and skill levels vary - Societal culture affects the political economy and the political economy shapes societal culture

The Macro Environment Influences Market Attractiveness

-The political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business -The political, economic, and legal environments of a country clearly influence the attractiveness of that country as a market and/or investment site -A democratic country with a market-based economy, protection of property rights, and limited corruption is a more attractive place to do business.

Free Market

-is a system in which the prices for goods and services are determined by the open market and consumers - the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other

North Korea's Command Economy

North Korea functions as a centralized, single party, and tightly controlled command economy

Economics Systems

Political ideology and economic systems are connected. There are three types of economic systems: 1. the market economy 2. the command economy 3. the mixed economy

National Differences in Political Systems

Political system: the system of government in a nation Political systems can be assessed in terms of the degree to which they: - Emphasize collectivism as opposed to individualism - Are democratic or totalitarian