Module 2 :

National Differences
in
Political Economy
 Harvey Aries Juliana Bernadette
Paghubasan Espinar Llagas Siminiano
 -To show how political, economic
The
and legal system of countries differ Objectives
and why these differences are
important to companies to do
business in foreign markets
-To explore these systems, known
collectively as the Political
Economy of a country and what
they mean for multinational
enterprises
 Political INTERRELATIONSHI
P between Political
and Economic
Economy system :
Individuals,
Government and
Public policy

Studies the Used to describe

relationship that the policies that is
forms between set by the
nation’s population government that
and its government affects their
when public policy nation’s
is enacted economies.
 Types of Political
Economy

Socialism Capitalism Communism

Production and Advocates ‘Profit’ Advocates for a
Distribution of as the motive for Classless
goods and wealth advancement and society/system in
are maintained the ability of free which the means
and regulated by markets to of production are
society, rather regulate and drive owned
than a particular the economy on communally.
group of people their own (Owned and
Political
System
a set of different institutions
established politically, to ensure
the free and fair distribution of
resources within a given society.
 COLLECTIVISM
⭐that 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 socialist ( Karl Marx

1818-1883)
• aadvocate state ownership of the basic means of
production, distribution and exchange.
How does Modern-
day Socialism look?
ln the early 20 century, socialism split into
1. Communism - socialism can only be achieved
through violent revolution and totalitarian
dictatorship
⭐inretreat worldwide by mid-1990s
2. Social democrats - socialism is achieved through
democratic means
⭐retreating as many countries move toward free
 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), who argued that individual
diversity and private ownership are desirable
✔️individual economic and political freedoms are
the ground rules on which a society should be
 ✔️The group is most ✔️The individual is the
important most important
✔️Focus on well-being ✔️Focus on individual
and goals of the group goals and
✔️Promotes respect for achievement
others and teamwork ✔️Promotes self
✔️Relationship, expression, individual
collaboration, and thinking, personal
sharing are important choice
✔️Business is ✔️Personal privacy and
collaborative (focus on space are important
membership) ✔️Business is
COLLECTIVISM competitive
INDIVIDUALISM(focus on
leadership)
 DEMOCRACY AND
TOTALITARIANISM

DEMOCRACY TOTALITARIANISM

which government is where one person or

by the people, and is political party
exercised either exercises absolute
directly or control over all spheres
through elected of life, and opposing
individuals, and at the political parties are
forbidden.
other end
 ✔️The group is most ✔️The individual is the
important most important
✔️Focus on well-being ✔️Focus on individual
and goals of the group goals and
✔️Promotes respect for achievement
others and teamwork ✔️Promotes self
✔️Relationship, expression, individual
collaboration, and thinking, personal
sharing are important choice
✔️Business is ✔️Personal privacy and
collaborative (focus on space are important
membership) ✔️Business is
COLLECTIVISM competitive
INDIVIDUALISM(focus on
leadership)
Economic
System
Political system and its economic
system are connected. but in countries
where collective goals, free market
systems are likely to be restricted and
state owned enterprises are
common.
 Market
Economy
Where the goods and in pure market economy the
goods and services that a
services that country country produces and
produces are quantity in which they
privately owned and produce is determined by
production quantities supply and demand.
Consumer through their
are determined by purchases, determine what is
supply and demand produced and in what
quantity. The role of
government is to encourage
free and fair competition
 Command
Economy
The goods and services that a country produces,
the country in which they are produced, and the
price at which they are sold are planned by the
government. Business are state owned and the
government allocates resources for the good of
society as a wholw. However, because state
owned companies lack profits incentive efficient
and develop the new products that you find in
market economics, command economies tend to
 Mixed Economy

includes some elements of a

market economy and some
elements of a command
economy. Governments often
take a control of industries
that are considered vital to
national interest. Until their
shift to market economies.
LEGAL
SYSTEM
refers to the rules that regulate
behavior along with the processes by
which the laws are enforced and
through which redress for grievances is
obtained.
 Three types of Legal
Systems

• Common law • Civil law • Theocratic

law
- based on - based on
tradition, detailed set of - law is based
precedent, and laws organized on religious
custom. into codes. teachings.
CONTRACT
LAW

Contract is a 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.
CONTRACT
LAW

Common law system, contracts tend to be

very detailed with all contingencies spelled
out.

Civil law system, contracts tend to be much

shorter and less specific because many issues
are already covered in the civil code.
United Nations Convention
on Contracts for the
International Sale of
Goods (CIGS)

Establishes a uniform set of rules

governing certain aspects of the making
and performance of everyday commercial
contracts between buyers and sellers who
have their places of business in different
Property Rights and
Corruption

Property rights refer to 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.
 • Private • Public action
legally
action
ex. excessive
- theft, piracy, taxation or
blackmail illegally
The Foreign Corrupt
Practices Act makes it illegal
for U.S. companies to bribe
foreign government officials
to obtain or maintain
business over which that
foreign official has authority.
Intellectual
Property

Intellectual property -
property that is the product
of intellectual activity.
 • Copyrights
• Patents • Trademar
- the exclusive ks
- exclusive legal rights of
rights for a authors, - design and
defined composers, names by
period to the playwrights, which
artists, and merchants or
manufacture publishers to manufacturer
, use, or sale publish and s designate
of that disperse their and
invention. work as they
differentiate
see fit.
their
products.
Product Safety and
Liability

Product safety laws set certain standards to

which a product must adhere.

Product liability involves holding a firm and its

officers responsible when a product causes
injury, death, or damage.
 Determinants of Economic
Development
Gross National Purchasing Power
Income (Per Person) Parity

the total amount of involves an economic

money earned by a theory that compares
nation's people and
different countries'
businesses. It is used
currencies through a
to measure and track
a nation's wealth from "basket of goods"
year to year. approach.
 BROADER CONCEPTIONS
OF DEVELOPMENT
Nobel-prize winning economist Amartya Sen has
argued that economic development should be
seen as a process of expanding the real freedoms
that people experience.
Economic progress should includes the removal
of major impediments to freedom, like poverty,
tyranny and neglect of public facilities and
having the presence of basic health care and
 BROADER CONCEPTIONS
OF DEVELOPMENT
United Nations used Sen’s Ideas to develop the
HUMAN DEVELOPMENT INDEX (HDI) which is
based on:

-Life Expectancy at birth

-Educational Attainment
-Whether average incomes are sufficient to meet
the basic needs of life in a country.
 The shift toward a market-based
economic system involves: NATURE OF
Deregulation - involves removing legal ECONOMIC
restrictions on the free play of markets, the TRANSFORMATION
establishment
of private enterprises, and the manner in
which private enterprises operate
Privatization - transfers the ownership of state property into the hands
of private investors
because private investors are motivated by potential profits to increase
productivity,
Legal system - that protects
privatization should property rights and efficiency
increase economic the machinery to
enforce that system
many countries have made significant strides toward creating a strong
legal system, but
 Implications
political, economic, and legal systems for
of a country raise important ethical managers of
issues that have international
implications for the practice of companies
international business
the political, economic, and legal
environment of a country
influences the attractiveness
of that country as a potential
market or investment destination.
 Benefi ts
The benefits of doing business in a country
are a function of market size, and current
and future
consumer purchasing power
by identifying and investing early in a
potential future economic stars, firms may
be able to
gain first mover advantages (advantages
 Costs
Legal Costs - can
Economic Costs -
be higher in
Political Costs - relate primarily to
countries with
include the cost the sophistication
dramatically
of paying bribes of the economic
different product,
system, including
or lobbying for the
workplace, and
favorable or fair pollution
infrastructure and
treatment standards, or
supporting
where there is poor
businesses
legal protection for
property rights
 Risks
Political Risk - the Economic Risk -
likelihood that the likelihood that Legal Risk - the
political forces economic likelihood that a
will cause drastic mismanagement trading partner
changes in a will cause drastic will
country's changes in a opportunistically
business country's business break a contract
environment that environment that or
adversely affects adversely affects expropriate
the profit and property rights
the profit and
other goals of a
other goals of a
business
business
Thank
You