International Business
11e
By Charles W.L. Hill
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Chapter 2
National Differences in
Political, Economic,
and
Legal Systems
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
What Is A Political Economy?
Political economy of a nation - how the
political, economic, and legal systems of a
country are interdependent
they interact and influence each other
they affect the level of economic well-being in
the nation
2-3
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What Is A Political System?
Political system - the system of
government in a nation
Assessed according to
the degree to which the country emphasizes
collectivism as opposed to individualism
the degree to which the country is democratic
or totalitarian
2-4
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What Is Collectivism?
Collectivism stresses the primacy of
collective goals over individual
goals
can be traced to the Greek philosopher, Plato
(427-347 BC)
Today, collectivism is equated with
socialists (Karl Marx 1818-1883)
advocate state ownership of the basic means
of production, distribution, and exchange
manage to benefit society as a whole, rather
than individual capitalists
2-5
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How Does Modern-Day
Socialism Look?
In the early 20th century, socialism split into
1. Communism – socialism can only be
achieved through violent revolution and
totalitarian dictatorship
in retreat worldwide by mid-1990s
2. Social democrats – socialism is achieved
through democratic means
retreating as many countries move toward free
market economies
state-owned enterprises have been privatized
2-6
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What Is Individualism?
Individualism refers to philosophy that an
individual should have freedom in his own
economic and political pursuits
can be traced to Greek philosopher, Aristotle (384-
322 BC)
individual diversity and private ownership are
desirable
individual economic and political freedoms are the
ground rules on which a society should be based
implies democratic political systems and free
market
economies
2-7
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What Is Democracy?
Democracy - a political system in which
government is by the people, exercised either
directly or through elected representatives
usually associated with individualism
pure democracy is based on the belief that citizens
should be directly involved in decision making
most modern democratic states practice
representative democracy where citizens periodically
elect individuals to represent them
2-8
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What Is Totalitarianism?
Totalitarianism - form of government in
which one person or political party
exercises absolute control over all
spheres of human life and prohibits
opposing political parties
2-9
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What Is An Economic System?
There are three types of economic
systems
1. Market economies - all productive
activities are privately owned
and production is determined by
the interaction of supply and
demand
government encourages free and fair
competition between private producers
2-12
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What Is An Economic System?
2. Command economies - government plans the
goods and services that a country produces,
the quantity that is produced, and the prices as
which they are sold
all businesses are state-owned, and
governments allocate resources for “the
good of society”
because there is little incentive to control
costs and be efficient, command economies
tend to stagnate
2-13
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What Is An Economic System?
3. Mixed economies - certain sectors of the
economy are left to private ownership
and free market mechanisms while other
sectors have significant state ownership
and government planning
governments tend to own firms that are
considered important to national security
2-14
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What Is A Legal System?
Legal system - the rules that regulate behavior
along with the processes by which the laws are
enforced and through which redress for
grievances is obtained
the system in a country is
influenced by the prevailing political system
Legal systems are important for business
because they
define how business transactions are
executed
identify the rights and obligations of parties involved
in business transactions
2-15
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What Are The
Different Legal Systems?
There are three types of legal systems
1. Common law - based on tradition,
precedent, and custom
2. Civic law - based on detailed set of laws
organized into codes
3. Theocratic law - law is based on religious
teachings
2-16
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How Are Contracts Enforced
In Different Legal Systems?
Contract - document that specifies the conditions
under which an exchange is to occur and details
the rights and obligations of the parties involved
Contract law is the body of law that governs
contract enforcement
under a common law system, contracts tend to
be
very detailed with all contingencies spelled out
under a civil law system, contracts tend to be much
shorter and less specific because many issues are
already covered in the civil code
2-17
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How Are Property Rights
And Corruption Related?
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
2-19
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How Are Property Rights
And Corruption Related?
Property rights can be violated through
1. Private action – theft, piracy, blackmail
2. Public action - legally - ex.
excessive taxation or illegally -
ex. bribes or blackmailing
high levels of corruption reduce foreign direct
investment, the level of international trade, and
the economic growth rate in a country
2-20
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Which Countries Are
Most Corrupt?
Rankings of Corruption by Country
2014
2-22
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How Can Intellectual
Property Be Protected?
Intellectual property - property that is the product of
intellectual activity
Can be protected using
1. Patents – exclusive rights for a defined period to the
manufacture, use, or sale of that invention
2. Copyrights – the exclusive legal rights of authors,
composers, playwrights, artists, and publishers
to publish and disperse their work as they see fit
3. Trademarks – design and names by which
merchants or manufacturers designate and
differentiate their products
2-23
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