N ational Differences in Political Economy

1. National Differences in Political Economy Chapter 2 Md. Afnan Hossain Lecturer, School of Business & Economics

2. What is a 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

3. What is a Political System? Political system refers to the system of government in a nation. • It differs in 2 degrees: • 1. degree to which they emphasize collectivism as oppose to individualism • 2. degree to which a nation is democratic as oppose to totalitarian

4. Political System: Collectivism 4 Collectivism refers to an ideology that stresses the importance of collective goals over individual goals. The system values ‘the needs of the society’as a whole rather than ‘individual freedoms’. Emphasize on ‘the good of the society’ or to ‘the common good’. Examples: Japan, China.

5. Political System: Individualism 5 Individualism refers to an ideology that stresses the interest of the individual more than the interest of the state or the society. It emphasizes that an individual should have freedom in his or her economic and political pursuit. Private property is more highly productive than communal property and will thus stimulate progress. Individualism has two central principles: Guaranteeing individual freedom and self-expression Letting individual pursue their own economic self-interest Examples: Great Britain and Sweden formerly believed in collectivism but now they are valuing individualism in their political system.

6. Political System: Democracy 6 • Democracy refers to a political system in which government is by the people, exercised either directly or through elected representatives • usually associated with individualism. This system allows both economic and political freedom. • pure democracy is based on the belief that citizens should be directly involved in decision making • most modern democratic states practice representative democracywhere citizens periodically elect individuals to represent them. These representatives function on behalf of the people

7. Political System: Democracy 7 • Some characteristics of a democratic nation are: • Freedom of rights to express • Freedom of media • Regular elections in which all eligible citizens are allowed to vote • Universal adult suffrage (right to vote) • Limited terms for elected representatives • A fair court system that is independent from the political system • A non political state bureaucracy (administrative policy-making group) • Relatively free access to information • Non political police and armed force • Example:USA, Germany, Australia, Finland, France, India.

8. Political System: Totalitarianism 8 Totalitarianism: This is a form of government in which one person or political party exercises absolute control over all spheres of human life and opposition party is prohibited. This system is inspired by the philosophy of collectivism.The characteristics of democracy are absent. There are 4 forms of Totalitarianism • Theocratic Totalitarianism:when a group or individual governs as per religious principles monopolizes power. • Example: Saudi Arabia, Iran. • These states limit freedom of political and religious expression with laws based on Islamic principles.

9. Political System: Totalitarianism 9 • Communist Totalitarianism: This system believes that totalitarianism can be achieved through dictatorship. • Communist parties monopolizes power. • Totalitarian states deny many basic civil liberties to their population. • Communism is in decline worldwide. • Example: North Korea, Cuba, China, Laos, Vietnam; Venezuela under the government of Hugo Chavez

10. Political System: Totalitarianism 10 • Tribal Totalitarianism:when a political party represents the interests of a particular tribe monopolizes powered. • Example: This has arisen from time to time in African countries such as Zimbabwe, Tanzania, Uganda & Kenya. • Right-wing Totalitarianism:it permits some individual economic freedoms but restricts individual political freedom. They are against communism and is mainly backed by militaries. • Example:Before 80s South Korea, Taiwan, Singapore, Indonesia and the Philippines were right-wing totalitarianism. These are mostly military governments. Recent example could be Pakistan.

11. Economic System There are three types of economic systems • 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 • Example: Sweden, Colombia, Mexico • 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” • Example: Cuba, Venezuela, People's Republic of China, Vietnam. • Mixed economies- when some sectors of economy are privately owned and some are publicly depending on the nature of the sector and govt takes over companies when they run into severe financial problems to save them from being bankrupt. • Example: Australia, USA, Great Britain, France, Spain, Italy, etc.

12. Legal System 12 TheLegal system of a country refers to the rules or laws that regulate behavior along with the processes by which the laws are enforced and through which remedy for injustices are obtained. The legal system of a country is of immense importance to international business. Legal system determines the business practice and also the method of transaction. It should also be consistent with the political system. Like, collectivist states will develop laws that will restrict private ownership of property and business. Contrarily, individualist states will encourage private business through their laws.

13. Legal System There are three types of legal systems 1. Common Law:TheCommon Law system evolved in England over hundreds of years ago. It is based on traditions(a country’s legal history), precedents(cases in the past) and customs(how laws are applied in specific situations). Judges in a common law system have the power to interpret the law so that it applies to the unique circumstance of a case (flexibility). As new precedent arises, law might be altered, clarified or amended to deal with new situations. Example:USA, UK, Australia, etc.

14. Legal System 14 2.Civil Law:Law is based on detailed set of rules organized into codes. The judges under this law system don't have the right to interpret but to apply only (less flexibility compared to Common Law). Example: Germany, France, Russia, Japan, etc. 3.Theocratic Law:here law is based on religious teachings. Example: Saudi Arabia, Pakistan (Islamic Law). Islamic Financial Institutions are found in Pakistan, Bangladesh, Egypt, Malaysia, etc.

15. Differences in Contract Law 15 • 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 lawis 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. • Ratified by the U.S. and about 70 countries • but, many larger trading nations including Japan and the U.K. have not agreed to the provisions of CIGS and opt for arbitration instead.

16. Property Rights & Corruption • Property rightsrefer 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. • Can be violated through • Private action-theft, piracy, blackmail • Public action- public officials pressurize for income or resources from private such as excessive taxes, expensive license, bribes, blackmailing, etc. • 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 was passed in USA which prevents all US MNCs to bribe local government to win lucrative contracts.

17. Corruption Perception Index 17 Transparency International(TI) has published the Corruption Perceptions Index (CPI) since 1995, annually ranking countries "by their perceived levels of corruption, as determined by expert assessments and opinion surveys." The CPI generally defines corruption as "the misuse of public power for private benefit." The CPI currently ranks 178 countries "on a scale from 100 (very clean) to 0 (highly corrupt)."

18. Corruption Perception Index (2015) 18