National Differences in Political, Economic, and Legal Systems

Learning Objectives

  • 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.

Introduction

Political Economy

  • Definition: The political, economic, and legal systems of a country.
  • Interdependence: These systems influence each other significantly.

Political Systems

Definition

  • The system of government in a nation is termed the political system.

Assessment Dimensions

  • It is assessed according to two primary dimensions:
    • Emphasis on Collectivism vs. Individualism
    • Degree of Democracy vs. Totalitarianism

Collectivism and Individualism

Collectivism

  • Definition: The needs of society as a whole are generally viewed as more important than individual freedoms.
  • Socialism: Advocates public ownership of the means of production for the common good.
    • Karl Marx's View: In capitalist societies, a few benefit at the expense of the many when individual freedoms are not restricted.
    • Distinctions:
      • Communists: Support total control over resources and means of production.
      • Social Democrats: Favor more democratic methods of governance.
    • Concept of Privatization: The transition from public to private ownership.

Individualism

  • Definition: An individual should possess freedom in both economic and political pursuits.
    • Interests of the individual should take precedence over the interests of the state.
  • Two Main Tenets:
    • Guarantee of individual freedom and self-expression.
    • Welfare of society is best served when individuals pursue their own economic self-interest.

Democracy and Totalitarianism

Democracy

  • Definition: Government is by the people, exercised either directly or through elected representatives.

Totalitarianism

  • Definition: A single person or political party exercises absolute control over all aspects of life and prohibits opposing political parties.
  • Relationship: Democracy aligns with individualism, whilst totalitarianism correlates with collectivism.

Types of Democracy

  1. Representative Democracy:
    • Citizens periodically elect individuals to represent their interests.
    • Safeguards are typically found in constitutional law which includes:
      • Freedom of expression
      • Free media
      • Universal adult suffrage
      • Fair court systems

Types of Totalitarianism

  1. Communist Totalitarianism:
    • Socialism achieved through a totalitarian dictatorship.
  2. Theocratic Totalitarianism:
    • Governed according to religious principles by a single authority.
  3. Tribal Totalitarianism:
    • Power held by representatives of a specific tribe.
  4. Right-Wing Totalitarianism:
    • Permits individual economic freedom but restricts political freedoms including free speech to stave off communism.

Pseudo-Democracies

  • Definition: Systems that lie between pure democracies and totalitarian regimes.
  • Characteristics: Authoritarian elements that inhibit fundamental political and civil liberties.

Economic Systems

Market Economy

  • Definition: All productive activities are privately owned.
  • Production determined by supply and demand; supply must not be restricted.
  • Government's role: To promote vigorous free and fair competition.

Command Economy

  • Definition: The government plans the production of goods and services, including their quantity and price, for the good of society.
  • Characteristics:
    • All businesses are state-owned.
    • Historically found in communist nations.
    • Lack of incentives for individuals to improve service or efficiency.

Mixed Economy

  • Definition: A combination where some sectors are privately owned and others are government-owned.
  • Current Trends: Once common in the developed world; less prevalent now.
  • Government assistance example: U.S. government helped Citigroup and General Motors.

Legal Systems

Definition

  • Legal systems are composed of:
    • Rules or laws governing behavior.
    • Processes for enforcing laws.
    • Mechanisms for obtaining redress for grievances.
  • Influence: Heavily influenced by the prevailing political system.

Different Legal Systems

  1. Common Law:
    • Based on tradition, precedent, and custom.
    • Generally more flexible than other systems.
  2. Civil Law:
    • Based on clearly delineated laws organized into codes.
    • Less adversarial.
  3. Theocratic Law:
    • Based on religious teachings, such as Islamic law.

Differences in Contract Law

Contract Definition

  • A contract specifies conditions for exchanges and details of parties' rights.

Contract Law

  • Governs enforcement of contracts.
  • Common Law:
    • Requires detailed contracts expressing contingencies.
    • Potentially more expensive and adversarial.
  • Civil Law:
    • Contracts are typically shorter and less specific.

CISG

  • Definition: United Nations Convention on Contracts for the International Sale of Goods.
  • Features: Establishes universal rules governing specific aspects of commercial contracts between sellers and buyers from different nations.
  • Automatic application unless parties opt out.

Property Rights and Corruption

Property Defined

  • Includes: Land, buildings, equipment, capital, mineral rights, businesses, and intellectual property.

Property Rights

  • Definition: Legal rights concerning the use of resources and income derived from them.

Types of Action

  1. Private Action:
    • Theft, piracy, or blackmail by individuals or groups.
  2. Public Action and Corruption:
    • Public officials extorting resources or property.
    • Legal: Excessive taxes, licenses/permits requisitioned, asset taking without compensation.
    • Illegal: Corruption, demands for bribes.

Legal Frameworks

  1. Foreign Corrupt Practices Act (FCPA):
    • Makes it illegal to bribe foreign officials for business.
    • Requires detailed record keeping from publicly traded companies to prevent violations.
  2. Convention on Combating Bribery (1997):
    • Criminalizes bribing foreign public officials.
    • Allows for facilitating payments.

The Protection of Intellectual Property

  • Definition: Property resulting from intellectual activity, such as software, screenplays, and music.

Types of Intellectual Property

  1. Patents:
    • Exclusive rights granted to inventors for a defined period.
  2. Copyrights:
    • Exclusive rights of authors, composers, playwrights, and artists.
  3. Trademarks:
    • Officially registered designs and names that differentiate products.
  • Legal Frameworks:
    • World Intellectual Property Organization
    • Paris Convention for the Protection of Industrial Property

Product Safety and Product Liability

  • Definition: Product safety laws establish specific safety standards for products.
  • Product liability holds firms accountable for injuries, deaths, or damages caused by their products.
    • Consequences are severe for products not adhering to safety standards.
    • Legal implications include both criminal and civil liability, raising ethical considerations for international business.

Focus on Managerial Implications

Macro Environment Influence

  • Implications:
    • The political, economic, and legal systems of a country present essential ethical issues for international business.
    • These environments significantly influence the attractiveness of a country for market entry or investment.
    • A country boasting democratic institutions, a market-driven economy, and a strong legal framework is typically more appealing for business operations.