Because learning changes everything.

Week 2

National Differences in Political,

Economic and Legal Systems

Dr/Ghada Mohamed Abdel Fattah

e-mail: [email protected]

Class Link:
https://connect.mheducation.com/class/g-mohamed-abdelfattah-mktg-2022
 Because learning changes everything. ®

Chapter 2_Part I
National Differences in
Political, Economic, and
Legal Systems

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 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.

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 Opening Case
China’s Mixed Economy
China used to be a one-party state where private enterprise was banned,
and business activity was controlled by government.
Market-oriented reforms have now made China the second largest
economy in the world.
• Still a one-party state, but now a “socialist market economy.”
• Mixed economy with vibrant private sector and a significant state-
owned sector.

But China’s state-owned enterprises are less productive than private-

sector business, no matter how much support they receive from the state.

China’s subsidization of both state-owned enterprises, such as the steel companies, and private companies
such as Huawei, have also created tensions with the country’s major trading partners, and most notably the
United States. The Obama administration argued that the state-subsidized steel sector was dumping excess
steel production on world markets and slapped punitive tariffs on Chinese steel imports. The Trump
administration has taken this approach further, launching an all-out trade war with China and imposing
limits on the ability of companies like Huawei (which the administration fears is an arm of the Chinese state)
from doing business in the United States. There are signs that this confrontational approach is starting to
bite. China’s economic growth rate has slowed significantly in the last 8 years from around 10 percent to 6.1
percent in 2019. To date though, there are few signs that the Chinese government is willing to pull back from
its state-directed mixed private-/state-owned economic model.

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 Industrial Activity in China

A worker handling hot cables at a steel factory in China.

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 Introduction
The opening case illustrates some of the issues discussed in this
chapter.
One of the most dramatic economic developments of the last 40
years has been the rise of China.
China operates with a mixed economy in which the state is actively
involved in production, both directly through ownership of the
means of production and indirectly when it uses state-owned banks
to provide strategic support to private enterprises.
This is a different economic system than that found in many
Western democracies, where the role of the state in economic
activity is much more limited.
One cannot understand how business is done in China without
taking these differences into consideration.
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 Introduction
International Business
• More complicated than domestic.

• Differing political, legal, and economic systems; vary in economic

development and growth trajectories.

• Cultural, education, and skill levels vary.

• The political, economic, and legal systems are known as the

political economy.
• Systems are interdependent.
• Societal culture affects political economy, and political economy shapes
societal culture.

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 Political Systems 1

Political System
System of government in a nation.

Political systems assessed in terms of degree to which they:

• Emphasize collectivism as opposed to individualism.

• Are democratic or totalitarian.

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 Political Systems 2

Collectivism and Individualism

Collectivism: system that stresses the primacy of collective goals
over individual goals.
• Traced to Greek philosopher Plato.
• Society should be stratified into classes.
• Property should be owned in common.

When collectivism is emphasized, needs of society are generally

viewed as being more important than individual freedoms.

Advocacy of collectivism can be traced to the ancient Greek

philosopher Plato (427–347 B.C.), who, in The Republic, argued
that individual rights should be sacrificed for the good of the
majority and that property should be owned in common.

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 Political Systems 3

Socialism.
• Socialists: those who believe in public ownership of the
means of production for the common good of society.

• Modern socialists trace roots to Karl Marx.

• Socialism advocates state ownership of basic means of

production, distribution, and exchange.

• State then manages enterprises to benefit society as a whole.

• According to Marx, the pay of workers does not reflect the full value of their
labor. To correct this perceived wrong, Marx advocated state ownership of the
basic means of production, distribution, and exchange (i.e., businesses). His
logic was that if the state owned the means of production, the state could
ensure that workers were fully compensated for their labor.

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 Political Systems 4

In the early 20th century, socialism split into:

• Communists: believed socialism could only be achieved though violent
revolution and totalitarian dictatorship.
• In retreat worldwide by mid-1990s.
• Social democrats, who worked to achieve same goals by democratic
means.
• Many state-owned enterprises failed to succeed, and many nations
implemented privatization programs: Sale of state-owned enterprises to private
investors.

Social democracy also seems to have passed a high-water mark, although the
ideology may prove to be more enduring than communism. Social democracy has
had perhaps its greatest influence in a number of democratic Western nations,
including Australia, Denmark, Finland, France, Germany, Great Britain, Norway,
Spain, and Sweden, where social democratic parties have often held political
power. Other countries where social democracy has had an important influence
include India and Brazil.

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 Political Systems 5

Individualism
• Suggests individuals should have freedom over economic and political
pursuits.
• Traced to Aristotle, who argued that individual diversity and private
ownership are desirable.
• Refined in work of David Hume, Adam Smith, and John Stuart Mill.

Individualism stresses:
• Individual freedom and self-expression.
• Letting people pursue self-interests to achieve the
best overall good for society.
• Democratic systems and free markets.
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 Political Systems 6

Democracy and Totalitarianism

Democracy
• Political system in which government is by the people, exercised either
directly or through elected representatives.

• Most common form today is representative democracy: elected

representatives vote on behalf of constituents.
• Freedom of expression, opinion, and organization; free media; regular elections;
universal adult suffrage; limited terms for elected officials; fair court system;
nonpolitical state bureaucracy; nonpolitical police force and armed services; free
access to state information.

• The United States, for example, is a constitutional republic that operates as a

representative democracy. In a representative democracy, citizens periodically
elect individuals to represent them. These elected representatives then form a
government whose function is to make decisions on behalf of the electorate. In a
representative democracy, elected representatives who fail to perform this job
adequately will be voted out of office at the next election.

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 Political Systems 7

Totalitarianism
• Form of government in which one person or political party exercises
absolute control over all spheres of human life, and opposing political
parties are prohibited.
• In most totalitarian regimes:
• There is widespread political repression.
• There are no free and fair elections.
• Media is censored.
• Basic civil liberties are denied.
• Challenges to regime are prohibited.

In a totalitarian country, all the constitutional guarantees on which representative

democracies are built—an individual’s right to freedom of expression and
organization, a free media, and regular elections—are denied to the citizens. In
most totalitarian states, political repression is widespread, free and fair elections
are lacking, media are heavily censored, basic civil liberties are denied, and those
who question the right of the rulers to rule find themselves imprisoned or worse.

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 Political Systems 8

Four major forms of totalitarianism today:

1. Communist totalitarianism: advocates achieving socialism through
totalitarian dictatorship.

2. Theocratic totalitarianism: political power is monopolized by a party,

group, or individual that governs according to religious principles.

3. Tribal totalitarianism: where a political party that represents the interests

of a particular tribe monopolizes power.

4. Right-wing totalitarianism: individual economic freedom is allowed but

individual political freedom is restricted because it could lead to
communism.
Four major forms of totalitarianism exist in the world today. Until recently, the most
widespread was communist totalitarianism. Communism, however, is in decline
worldwide, and most of the Communist Party dictatorships have collapsed since 1989.
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 Political Systems 9

Pseudo-Democracies
Describes a political system which calls itself democratic but offers
no real choice for the citizens.
• Example: Russia under Vladimir Putin.

• Pseudo-democracies might be described as imperfect, where

authoritarian elements have captured some or much of the machinery
of state and use this in an attempt to deny basic political and civil
liberties.

• In the Russia of Vladimir Putin, for example, elections are still held,
people compete through the ballot box for political office, and the
independent press does not always toe the official line.
• However, Putin has used his position to systematically limit the political
and civil liberties of opposition groups.
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