CHAPTER 2

NATIONAL DIFFERENCES IN POLITICAL ECONOMY

Political Economy
The political economy of a nation refers to 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
Political System
• Political system refers to 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
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
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
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 based
• implies democratic political systems and free market economies
Democracy
• Democracy refers to 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
Totalitarianism
Totalitarianism is a form of government in which one person or political party
exercises absolute control over all spheres of human life and prohibits opposing
political parties
1. Communist totalitarianism – found in states where the communist party monopolizes
power. E.g. : China (The Communist Party of China).
2. Theocratic totalitarianism - found in states where political power is monopolized by a party,
group, or individual that governs according to religious principles. E.g. : Iran since 1979.
3. Tribal totalitarianism - found in states where a political party that represents the interests
of a particular tribe monopolizes power. E.g. : Rwanda (Hutus).
4. Right-wing totalitarianism - permits some individual economic freedom, but restricts
individual political freedom. E.g. : Nazi Germany.
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. 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
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
Legal System
The legal system of a country 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
There are three types of legal systems
1. Common law - based on tradition, precedent, and custom
2. Civil law - based on detailed set of laws organized into codes
3. Theocratic law - law is based on religious teachings
A federal judge in Detroit
has ordered the
administration to stop
enforcement of President
Trump's executive order
barring citizens from
certain Muslim-majority
countries from traveling
to the U.S, CBS Detroit
reported Friday.
Contracts
A 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.
• 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
Many countries have ratified the United Nations Convention on Contracts for
the International Sale of Goods (CIGS) which 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 nations.
How Are Property Rights And Corruption
Related?
Property rights refer to the legal rights over the usage of a resource and over the
usage of any income that may be derived from that resource.
Can be violated through
1. Private action – theft, piracy, blackmail
2. Public action - legally - ex. excessive taxation; bribes or blackmailing
• high levels of corruption reduce foreign direct investment, the level of international trade, and
the economic growth rate in a country
• 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
Which Countries Are Most Corrupt?
Rankings of Corruption by Country 2015
Rankings of Corruption by Country 2015
Intellectual Property
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
How Can Intellectual Property Be Protected?
Protection of intellectual property rights differs from country to country
• World Intellectual Property Organization
• Paris Convention for the Protection of Industrial Property
To avoid piracy, firms can
• stay away from countries where intellectual property laws are lax
• file lawsuits
• lobby governments for international property rights agreements and
enforcement
Product Safety & Product 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
• When product safety laws are stricter in a firm’s home country than in
a foreign country, or when liability laws are more lax, the firm has to
decide whether to adhere to home country or host country standards