Intl. Trade Chapter 2: National Differences in Political Economy

What is the political economy of a country?

-a country's political economy refers to its political, economic, and legal systems (interrelated) -these systems are interdependent, and interact and influence each other -a country's political system has major implications for the practice of international business

Socialism

-one kind of collectivism -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

Economic Systems

-political ideology and economic systems are connected -there are three types of economic systems: market economy(dem.), command economy(total./gov. control), mixed economy(China) --> free market system is likely in countries where individual goals are given primacy over collective goals --> state-owned enterprises and restricted markets are common in countries where collective goals are dominant

Product Safety and Product Liability

-product safety laws set certain safety standards to which a product must adhere -product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage -->liability laws are usually least extensive in less developed countries -firms must decide whether to adhere to the standards of the home country or the standards of the host country

What are the implications of the political economy for international businesses?

-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 environment of a country clearly influences that attractiveness of that country as a market and/or investment site

Political system

-the system of government in a nation -political systems can be assessed in terms of the degree to which they: 1. are democratic or totalitarian 2. emphasize collectivism as opposed to individualism (these two interrelated)

In most totalitarian regimes:

-widespread political repression -no free and fair elections -media is censored -basic civil liberties are denied -challenges to the regime are prohibited

Four major forms of totalitarianism today:

1. communist totalitarianism: advocates achieving socialism through totalitarianism dictatorship 2. theocratic totalitarianism: political power is monopolized by a party, group, or individual that governs according to religious principles 3. tribal totalitarianism: a political party that represents the interests of a particular tribe monopolizes power 4. right wing totalitarianism: individual economic freedom is allowed but individual political freedom is restricted in the belief that it could be lead to communism

Difference between a democracy and totalitarianism?

Democracy: political system in which government is by the people, exercised either directly or through elected representatives (of the people, by the people, for the people) -most common form today is representative democracy-->elected representatives vote on behalf of constituents Totalitarianism: 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

Socialism: Communists & Social Democrats

Early 20th century, socialism split into communists and social democrats: -communists: collectivism could only be achieved through revolution and totalitarian dictatorship -social democrats: worked to achieve the same goals by democratic means (UK, Sweden, Aus) many state-owned enterprises failed to succeed, and today, many nations are implementing privatization programs

Command Economy

In a pure command economy, the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are all planned by the government -all businesses are state-owned , and so have little incentive to control costs and be efficient -because there is no private ownership, there is little incentive to better serve customer needs

Market Economy

In a pure market economy, the goods and services that a country produces, and the quantity in which they are produced is determined by supply and demand -consumers, through their purchases, determine what is produced and in what quantity -the role of government is to encourage free and fair competition between private producers

Intellectual Property

Intellectual property-property that is the product of intellectual activity Intellectual property rights include: 1. patents-give the inventor exclusive rights to the manufacture, use, or sale of that invention 2. copyrights-exclusive legal rights of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit 3. trademarks-designs and names, often officially registered, by which merchants or manufacturers designate and differentiate their products

Mixed Economy

Mixed economy includes some elements of a market economy and some elements of a command economy -governments tend to take over troubled firms that are considered to be vital to national interests The number of mixed economies in the world today is falling

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act limits corruption in the US -its illegal to bribe a foreign govt. 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

In a contract dispute, which country's laws should apply?

The United Nations Convention in Contracts for the International Sales of Goods (CIGS) establishes a uniform set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different nations -countries that adopt CIGS signal to other nations that they will treat the Convention's rules as part of their law

Legal Systems

The 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

How do common law and civil differ?

The two systems approach contract law(the body of law that governs contract enforcement) [intl. bus.], in different ways -a contract: specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved In a common law state, contracts are very detailed with all contingencies spelled out In a civil law state, contracts are shorter and much less specific

Different Legal Systems

There are three main types of legal systems: 1. common law-based on tradition, precedent, and custom -found in most of Great Britain's former colonies, including US 2. civil law-based on a very detailed set of laws organized into codes -found in over 80 countries, including Germany, France, Japan, and Russia 3. theocratic law-based on religious teachings -islamic law is the most widely practiced

Collectivism

collectivism: a system that stresses the primacy of collective goals over individual goals -can be traced to the Greek philosopher Plato -today, socialists support collectivism When collectivism is emphasized, the needs of the society as whole are generally viewed as being more important than individual freedoms

Corruption

corruption is present in all countries to some degree, however when a country has a high level of corruption: -foreign direct investment falls -international trade falls -economic growth falls

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 individualism stresses: 1. individual freedom and self-expression* 2. letting people pursue their own self-interests to achieve the best overall good for society* 3. democratic systems and free markets

Property Rights

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 property rights can be violated by: -private action (theft, piracy, blackmail, and the like by private individuals or groups) -public action (public officials extort income or resources from property holders) -->excessive taxation, requiring expensive licenses or permits from property holders, or taking assets into state ownership without compensating the owners

Protection of Intellectual Property

the protection of intellectual property rights differs greatly from country to country -Paris Convention for the Protection of Industrial Property: agreement signed by 170 countries to protect intellectual property rights -Trade Related Aspects of Intellectual Property Rights (TRIPS): requires WTO members to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years