D270 Chapter Three (Part One)

Why study political environment?

It affects business

What does the political environment determine for business?

General framework, sets specific rules, and legal system of the country

What does the political environment asses for business?

Overall attractiveness for investment

ex: costs, benefits, risks, challenges

What determines political and legal system differences?

History

-colonialism, dominance/influence. internal development

What is another item that determines political and legal system differences?

Economic Circumstances

ex: poverty fosters rationale to restrict and control

-wealth tends to be associated with few restrictions and freedom

Political Systems

System of government in a nation

Who holds the power in political systems?

A person, a small group, a political party, the citizens

What are one-way political systems can be assessed?

Degree they emphasize collectivism or individualism

What is a second way political systems can be assessed?

Degree to which they are democratic or totalitarian

Describe characteristics of individualism (doctrine of individualism)

-Champions the right and role of the individual over the group (rights as in benefits)

-Laissez-faire: government should not interfere in business affairs

-Governments play a limited role in society (freedom for activities)

Describe the characteristics of collectivism (doctrine of collectivism)

-Collective goals are more important than individual goals

ex: goals of the mass are more important than individual goals

-Individual interests are subordinate to the good of the collective

ex: everyone is equal and gets the same benefits

ex: everyone earns $14.50 at a job regardless of experience/years

ex: what you could do to help others

Political Ideology

How the society should govern itself and the methods it will use

Political Freedom

-The degree to which fair and competitive elections occur

-The extent to which individual and group freedoms are guaranteed

-The legitimacy of the country’s “rule of law”

-The existence of freedom of the press

Democracy

-Government is by the people, exercised either directly or through elected representatives (representative democracy)

-Democracy and individualism are intrinsically relayed and mutually reinforcing

-Court system is independent, not supervised by the political system

-Everyone does not have time to vote on everything, therefore we elect people to do it for you

Define Representative Democracy

Protects individual freedoms and liberties. Law treats all citizens equally.

ex: US, Japan, etc. have only two parties

Define Multiparty Democracy

Three or more parties govern (separately or as a collation).

ex: Canada, Israel, Italy, Germany

-voting for the party, then if they get more than 50%, they have power, if they don’t have enough people, they join others and collation together

Define Parliamentary Democracy

Representatives of legislative branch

ex: India and Australia

-vote for the people who make the laws instead of president

Define Social Democracy

Transition from capitalism to socialism. Egalitarianism whole regulating capitalism toward opportunism.

ex: Sweden and Norway

-”in between” of two styles, agrees on things people should get/collectivism

-free childcare, healthcare, cap on medicine prices

Define Totalitarianism

-One person/party exercises absolute control over all spheres of human life (competing political parties are banned)

-Governments direct most economic activity, but few social ones

-Court system controlled by the political party in power

-No one can voice their disagreements

Define Authoritarianism Totalitarianism

Blind submission to authority as opposed to individual freedom. Rulers demand unquestionable obedience. Resistance incurs punishment.

ex: North Korea

-everyone does it “their” way

Define Fascism Totalitarianism

Dictator (or small group) controls the lives of the people. People are not allowed to disagree.

Often taking power by convincing followers that they will return the country to a historically better time or will take vengeance on the current government.

Goal is to take control of the people’s thinking patterns/mind

Define Secular Totalitarianism

A single party government controls elections, suppresses other ideologies. Limited individual freedoms

Small group overthrows big party

ex: China, Russia, Vietnam, Venezuela

Define Theocratic Totalitarianism

Government led by religious leaders

ex: Iran, Saudi

-religious leaders are on big decisions/asked

ex: women driving cars

What are some advantages of Democracy?

-People prefer to have choice over personal and economic decisions

-People prefer freedom over control of the behavior

What are some disadvantages of Democracy?

-Difficult for individuals and groups to achieve national agreement

-National policy can be slow and cumbersome to implement

What are some advantages of Totalitarianism?

-Can permit fats and efficient national policy formation because there is no need to debate decisions

-Enlightened and benevolent leaders can make good decisions in the national interest

What are some disadvantages of Totalitarianism?

-The needs of individuals and private enterprise are subordinate to those of the state

-Leaders can make poor decisions and may be corrupted by power

Define Full Democracy

-Mature political culture, transparency, Judiciary is independent, rule of law

ex: USA, Canada, Norway, Austria, Denmark, South Korea)

Define Flawed Democracy

State represents basic civil liberties

Free elections

Fraud or media restrictions

Weak political culture

Policy changes

ex: Brazil, South Africa, Hungary, Mexico, India

Define Hybrid Regime

Limited opposition

Judicial bias

Corruption

Media regulates

ex: Venezuela, Ecuador, Thailand, Pakistan

Define Authoritarian

Political pluralism in absent or repressed

Elections not free or not fair

Rule of man

Censorship

Media state owned or controlled

Small groups run the place, no chance for anyone else to take over

ex: Russia, China, Guinea, Saudi Arabia, Kuwaitt

What is one reason for the decline in freedom?

Xenophobia, especially in response to immigration crisis, ed to violence by citizens and new security policies by states (taking our jobs, homes ,etc.)

What is a second reason for decline in freedom?

Economic Slowdowns

What is a third reason for the decline in freedom?

Authoritarian governments crack down on public dissent

What is a fourth reason for the decline in freedom?

Social media “misinformation” aimed at disrupting governments

What is a fifth reason for the decline in freedom?

Governments using increased force and restrictions of the press

What are some other reasons for the decline in freedom?

-Reversing progress for women

-Ethnic Cleansing

-Decline in freedom of expression

-Decreases in the electoral process

Freedom in the World Index

Measuring political rights and civil liberties around the world

What is the lowest class of political risk for international business?

Systemic: changes in public polices, affects all companies but may not reduce profits

ex: done evenly for everyone

What is the second lowest class of political risk in international business?

Procedural: costs of getting things done, corruption, labor, disputes, and/or partisan judicial system

What is the second highest class of political risk in international business?

Distributive: expropriation, elimination of property rights, changes in taxes, monetary policy, regulations on foreign businesses

ex: oil reserve

What is the highest political risk for international business?

Catastrophic: civil disorder, regime change, devastates the business environment, effects all firms

ex: revolutions: risk for businesses: stay or go