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Chapter 2: National Differences in Political, Economic, and Legal Systems

Learning Objectives

• Understand differences in political, economic, and legal systems.

• Explain the implications for management practice of national differences in political economy.

Political Systems

Collectivism

• Focus on the needs of society as a whole; equal outcomes prioritized over growth.

• Two main types of collectivist systems:

  • Communist: The state owns the means of production.

  • Socialist: The means of production owned by workers or cooperatives.

Individualism

• Emphasizes individual freedoms and the pursuit of personal self-interests leads to best social outcomes.

• Focus on equal opportunities rather than equal outcomes.

• Means of production are privately owned.

Pros and Cons of Organizing Frameworks

Socialism/Communism

• Achieves more equal outcomes but often at the expense of economic growth.

• Government inefficiency due to conflicting goals can hinder public benefit.

Individualism

• Promotes better economic growth but frequently leads to inequality of outcomes.

• Difficult for the state to guarantee equality of opportunity.

Democracy and Totalitarianism

Democracy

• Power rests with the people, either directly or through elected representatives.

• Representative democracy is common, but many exist with superficial democratic practices.

• Example of fake democracies: Gambia, Zimbabwe, and Iran.

Totalitarianism

• Absolute control exercised by one person or political party.

• Opposing parties are prohibited, leading to extreme repression.

Political Systems Comparison

Terms for Similar Political Systems

• Authoritarian: Similar to totalitarianism but allows some freedoms.

  • Example: Chile under Pinochet.

• Fascism: Right-wing, militaristic, and nationalistic totalitarianism.

  • Example: Germany under Hitler.

Economic Systems

• The connection between political ideology and economic systems.

• Three types of economic systems:

  • Market Economy: Driven by consumer choices; individual goals prioritized.

  • Command Economy: State controls everything; focuses on collective goals.

  • Mixed Economy: Combination of both market and command features.

Characteristics of Economic Systems

Legal Systems

• Defines laws and regulations to govern behavior and enforce grievances.

• Importance of a legal system includes:

  • Regulation of business practices.

  • Execution of business transactions and rights/obligations.

Differences in Laws and Legal Systems

• Civil vs. Common Law systems differ mainly in enforcement quality.

• Legal recourse varies:

  • Theft, intellectual property issues, contract breaches, corruption.

Contract Law Differences

• Contracts detail conditions of exchange and rights/obligations.

• Variations in contract detail across countries; U.S. specifications are more comprehensive.

Property Rights

• Definition: Legal rights regarding resource use and income derived.

• Essential for success, particularly in creative economies like the U.S.

Violations of Property Rights

• Can occur through private actions (theft) or public actions (corruption).

• Excessive taxation and requirements limit owners' rights.

Protection of Intellectual Property

• Definition: Product of intellectual activity including:

  • Patents: Exclusive rights for inventions.

  • Copyrights: Protection for creative works.

  • Trademarks: Distinguishing features for products.

International Differences in IP Protection

• Varies significantly by country; enforcement can be lax.

• Membership in global IP organizations providing some standards.

Product Safety and Liability

• Product Safety Laws: Standards products must meet.

• Product Liability: Hold companies accountable for damages caused by products.

• Decision-making on standards may differ between home and host countries.

Case Study: HB Fuller

• U.S.-based company selling banned glues leading to addiction among street children in Latin America affected its reputation.

Implications for Managers

• Political, economic, and legal environments impact market attractiveness.

• Careful operational decisions are necessary when local laws lack clarity or enforcement.

Political Economy: Important Aspects

• International business operates across varied political, economic, and legal systems.

• Key differences include:

  • Political: Individualism vs. Collectivism, Democracy vs. Totalitarianism.

  • Economic: Market vs. Mixed vs. Command.

  • Legal: Enforcement of laws and property protections.