IBUS1101 Lecture Notes - Lecture 6: Extraterritoriality, International Trade Administration, Ultimate Power
5 Jun 2018
School
Department
Course
Professor
Distinguish political and legal environments in international business.
•
Understand political systems.
•
Understand legal systems.
•
Know the participants in political and legal systems.
•
Identify the types of country risk produced by political systems.
•
Identify the types of country risk produced by legal systems.
•
Know about managing country risk.
•
LO:
6.1 Distinguish political and legal environments in international
business
Political and Legal Environments in International Business
Legislative bodies
○
Political parties
○
Lobbying groups
○
Trade unions
○
Includes
•
Political system = set of formal institutions that constitute a government
Provide protection from external threats
•
Ensure stability based on laws
•
Govern the allocation of valued resources among the members of society
•
Define how a society's members interact with each other
•
Principle functions of political systems are to:
Constituents = people and organisations that support the political system and receive government
resources
Legal system = system for interpreting and enforcing laws
Chapter 6: Political and Legal Systems in National
Environments
Wednesday, 18 April 2018
2:11 PM
Textbook Page 1
Ensure order
○
Resolve disputes in civil and commercial activities
○
Tax economic output
○
Provide protections for private property (intellectual property and assets)
○
Legal systems include institutions and procedure that:
•
Legal system = system for interpreting and enforcing laws
6.2 Understand political systems
Political systems
Totalitarianism
•
Socialism
•
Democracy
•
3 main types of political systems (not mutually exclusive):
the state attempts to regulate most aspects of public and private behavior.
•
A totalitarian government seeks to control not only all economic and political matters but also
the attitudes, values, and beliefs of the citizenry.
•
the entire population is mobilized in support of the state and a political or religious ideology.
•
Totalitarian states are generally either theocratic (religion-based) or secular (non–religion-
based).
•
Totalitarianism
Textbook Page 2
based).
Usually there is a state party led by a dictator. Party membership is mandatory for those
seeking to advance within the social and economic hierarchy. Power is maintained by means
of secret police, propaganda disseminated through state-controlled mass media, regulation of
free discussion and criticism, and the use of terror tactics.
•
Totalitarian states usually do not tolerate activities by individuals or groups such as churches,
labor unions, or political parties that are not directed toward the state’s goals.5
•
fundamental principle is that capital and wealth should be vested in the state and used
primarily as a means of production rather than for profit
•
based on a collectivist ideology.
•
Collective welfare of people is seen to outweigh the welfare of the individual.
•
Socialists argue that capitalists receive a disproportionate amount of society’s wealth relative
to workers.
•
They believe that in a capitalist society, the pay of workers does not represent the full value of
their labor.
•
They argue government should control the basic means of production, distribution, and
commercial activity.
•
Socialism has manifested itself in much of the world as social democracy and has been most
successful in Western Europe. It has also played a major role in the political systems of large
countries such as Brazil and India. It remains a viable system in much of the world. Social
democratic governments frequently intervene in the private sector and in business activities,
as in Italy and Norway. Corporate income tax rates are often relatively high, as in France and
Sweden. Even robust economies such as Germany have experienced net outflows of FDI as
businesses seek to escape extensive regulation.
•
Socialism:
Individuals can own property and assets and increase one’s asset base by
accumulating private wealth. Property includes tangibles, such as land and
buildings, as well as intangibles, such as stocks, contracts, patent rights, and
intellectual assets. Democratic governments devise laws that protect property
rights. People and firms can acquire property, use it, buy or sell it, and bequeath it
to whomever they want. These rights are important b ecause they encourage
individual initiative, a mbition, and innovation as well as thrift and the desire to
accumulate wealth. People are less likely to have these qualities if there is
uncertainty about whether they can control their property or profit from it.
▪
Private property rights
○
The government performs essential f unctions that serve all citizens. These include
national d efense; maintenance of law and order and diplomatic relations; and c
onstructing and maintaining infrastructure such as roads, schools, and public
works. State control and intervention in the economic activities of private
individuals or firms is minimal. By allowing market forces to determine economic
activity, the government ensures that r esources are allocated with maximal
efficiency.
▪
Limited government
○
Two major features
•
the individual pursuits of people and firms are sometimes at odds with equality and justice.
•
Because people have differing levels of personal and financial resources, each performs with
varying degrees of success, leading to inequalities.
•
Critics of pure democracy argue that when these inequalities become excessive, government
should step in to correct them. Each society balances individual freedom with broader social
goals.
•
In democracies such as Japan and Sweden, the democracy’s rights and freedoms are construed
in larger societal terms rather than on behalf of individuals.
•
All democracies include elements of socialism (government intervention in the individual and
firm affairs)
•
Democracy:
Textbook Page 3
