ch.2

2-1: Understand how the political systems of countries differ.
2-2: Understand how the economic systems of countries differ.
2-3: Understand how the legal systems of countries differ.
2-4: Explain the implications for management practice of national differences in political economy.

Political Economy Definition:
- Refers to the political, economic, and legal systems of a country.
- These systems are interdependent and significantly influence one another.

The system of governance in a nation, characterized by:
- Collectivism vs. Individualism: Degree of emphasis on collective vs. individual goals.
- Democracy vs. Totalitarianism: Degree to which the system is democratic or totalitarian.

Collectivism: Emphasizes collective goals over individual goals.
- Socialism:
- Public ownership of the means of production aims for the common good.
- Originated from perspectives of Karl Marx, highlighting exploitation in capitalism where individual freedoms often get curtailed.
- Key Distinctions:
- Communists vs. social democrats.
- Privatization: Transition from state-owned to privately owned enterprises.
Individualism: Refers to the belief that:
- Individuals should have freedom in their economic and political pursuits.
- Interests of the individual must take precedence over the state’s interests.
- Two Tenets of Individualism:
- Guarantee of individual freedom and self-expression.
- Social welfare is best served by allowing individuals to pursue their economic self-interest.

Democracy:
- Government is by the people, either exercised directly or through elected representatives.
Totalitarianism:
- One person or political party exercises absolute control over all aspects of life.
- Prohibits opposing political entities.
- Correlation:
- Democracy is generally linked with individualism, while totalitarianism aligns with collectivism.

Forms of Democracy:
- Representative Democracy:
- Citizens elect individuals to represent them periodically.
- Involves protections based in constitutional law:
  - Right to freedom of expression, opinion, and organization.
  - Presence of free media.
  - Universal adult suffrage.
  - An impartial court system.
Forms of Totalitarianism:
- Communist Totalitarianism:
- Achieves socialism through a totalitarian regime.
- Theocratic Totalitarianism:
- Governed according to religious doctrines.
- Tribal Totalitarianism:
- Monopolized power by a political entity that represents a tribal interest.
- Right-wing Totalitarianism:
- Facilitates individual economic freedoms while restricting political freedoms.

Lie between pure democracies and complete totalitarian regimes.
Marked by authoritarian elements that employ state machinery to suppress basic political and civil liberties.

Defined by:
- All productive activities are privately operated.
- Production driven by supply and demand interaction.
- Essential that supply operates without restrictions, facilitating free and fair competition.

Characteristics include:
- Government control over the planning of goods, services, and their pricing, allocating them for the greater good.
- State ownership of all businesses.
- Historically present in communist countries.
- Lacks incentives for individuals, hindering responsiveness to consumer needs.

A hybrid system where:
- Some sectors are privately owned and others managed by the government.
- Once prevalent in the developed world but has diminished.
- Government bailouts of essential firms reflect its role (e.g., U.S. intervention with Citigroup and General Motors during the recession of 2008).

Comprises:
- Rules and laws regulating behavior.
- Processes through which these laws are enforced.
- Mechanisms for grievance redress.
- Heavily influenced by the prevailing political system.

Common Law:
- Originated in England, shaped over centuries.
- Based on tradition, precedent, and custom.
- Offers more flexibility compared to other systems.
Civil Law:
- Composed of detailed laws organized into codes.
- Less confrontational than common law.
Theocratic Law:
- Based on religious principles, with Islamic law as a prominent example.

Contract Definition:
- Specifies conditions for exchanges, detailing parties' rights and obligations.
Common Law Approach:
- Contracts are detailed, covering contingencies, which can be costly and adversarial.
Civil Law Approach:
- Shorter, less detailed contracts, leading to generally lower enforcement costs.

United Nations Convention on Contracts for the International Sale of Goods (CISG):
- Provides uniform rules governing commercial contracts between sellers and buyers based in different countries.
- Automatically applicable unless parties opt-out.

Property Definition:
- Resources with legal title, including land, buildings, equipment, capital, mineral rights, and intellectual property.
Property Rights:
- Legal rights regarding resource utilization and income derived from resources.

Private Action:
- Involves theft, piracy, and extortion by private individuals/groups.
Public Action and Corruption:
- Public officials extort resources illegally or legally through excessive taxation, mandatory licenses, or state ownership without compensation.
- Illegal corruption typically involves bribe demands.

Foreign Corrupt Practices Act (FCPA):
- Outlaws bribing foreign officials to gain business advantages.
- Mandates public companies to maintain detailed records to reveal violations.
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997):
- Criminalizes bribery of foreign officials, while allowing facilitating payments under specific circumstances.

Intellectual Property:
- Products of intellectual activity including software, screenplay, and artistic works.
- Types of Protection:
- Patent: Exclusive rights granted to inventors for a defined period.
- Copyrights: Protect rights of authors, composers, etc.
- Trademarks: Registered designs or names to identify products.
World Intellectual Property Organization: International body promoting treaties for intellectual property protection.
- Notable treaty: Paris Convention for the Protection of Industrial Property.

Product Safety Laws:
- Set mandatory safety standards for products.
Product Liability:
- Holds firms and their officers accountable for injury, death, or damage caused by their products.
- Liability escalates if products do not conform to safety standards.
Legal Framework:
- Encompasses both criminal and civil law, invoking ethical considerations, especially in international business contexts.

Macro Environment Impact:
- Political, economic, and legal frameworks present significant ethical implications affecting international business.
- These environments assess the attractiveness of countries for market operations or investments.
Attractiveness Indicators:
- Countries with democratic political systems, market-driven economies, and robust legal systems are generally viewed as more favorable for business endeavors.