MGMT1101 Lecture Notes - Lecture 3: Social Democracy, Totalitarianism, Decision-Making
19 May 2018
School
Department
Course
Professor
Chapter 3 – State vs Firm? The Political/ Legal Environment
Why study the political/legal environment?
- Develop appreciation of the significance of country differences for international business
- Countries have different political, economic and legal systems
Politial Syste: Shapes a outrys legal ad eooi systes
- Decision making, competing interest groups, trade-offs
- Deals with distribution of power, wealth, resources in society
- Government: Formal institutions and processes that are responsible for making and
enforcing the collective decisions for society
- Governance: The process of governing, basis of judgement on the quality of government
➢ Six indicators:
➢ Voice and accountability
➢ Political stability and absence of violence
➢ Government effectiveness
➢ Regulatory quality
➢ Rule of Law (all in society including govt has confidence in and abides by the established
laws and enforcement procedures)
➢ Control of corruptions
Two Extremes (political systems)
Institutions
Democracy/
Collectivism/Capitalist
Authoritarian
rule/Individualism/
Communist
Political System
Constitutional: representative
government and elected
executive
Rule by an individual or small
group
Elections
Free and fair elections
Elections possible, but not fre
Military and Police
Limited Role of the military
Heavy reliance on the military
to maintain control
Judicial System
Independent of political and
other influences
Controlled by the ruling group
Civil Society
Freedom of association and
expression (speech)
Suppression of freedom of
association; little media
freedom (more of propaganda)
Achieving Socialism
Social democrats, turning
backs on violent revolution
and dictatorship
Communists, believe in violent
revolution and totalitarian
dictatorship
find more resources at oneclass.com
find more resources at oneclass.com
Relevance of state:
- Sovereignty: Ultimate authority of state, backed by monopoly use coercive force
➢ Over citizens or firms WITHIN DEFINED territory
➢ In relations to other countries
FAILED STATES DO NOT EXERCISE SOVEREIGNTY EFFECTIVELY
Consequences of Failed States E.g. North Korea & South Korea
- Bestows power to control and restrict commercial activities within own borders
➢ Circumscribed by rule of law in many countries
- Influences internationalisation process
➢ States are signatories of international trade and other bilateral and multilateral
agreements
Why is democracy losing appeal?
- Financial Crisis of 2007-2008: Showed weakness in the democratic political systems
- Rise of China: Showed that a non-democratic country can attain economic progress
- Pleasing the voters: Running BIG DEFICIT and neglecting LONG TERM INVESTMENT
- Time needed: Build institutions to sustain democracy
➢ Political agents (Beyond the state):
- Opposition groups/ Political parties
- Organised interest/ Pressure groups/ NGOs (non-govtal organisations) – including Trade
Unions.
- Terrorist/Guerilla groups
- International organisations – IMF(international monetary funds), UN.
- Opinion-makers
- Civic/Public action
How does national political systems differ? How does it affect MNEs?
Differ
How it affects
1. Source of authority
Rule of law provides MNEs with certainty
2. Dominant ideologies
May be pro/anti-business activities
3. Democratic rights/ freedom
Lack of political freedoms can also restrict
company actions (oppression), which can lead
to instability
4. Interest aggregation
MNEs will be affected by dominant interest
(individualism – personal interest)
5. Unitary vs Federal systems
Number of governments that MNEs need to
deal with
6. Policy making, implementation
MNEs need to know how policies are made and
by whom
7. Government system
MNEs need to know where the power lies
(executive or legislature)
8. Corruption
Social and professional norms
9. Degree of political risk
Assessments and active responses
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Develop appreciation of the significance of country differences for international business. Countries have different political, economic and legal systems. Politi(cid:272)al syste(cid:373): shapes a (cid:272)ou(cid:374)try(cid:859)s legal a(cid:374)d e(cid:272)o(cid:374)o(cid:373)i(cid:272) syste(cid:373)s. Deals with distribution of power, wealth, resources in society. Government: formal institutions and processes that are responsible for making and enforcing the collective decisions for society. Governance: the process of governing, basis of judgement on the quality of government. Rule of law (all in society including govt has confidence in and abides by the established laws and enforcement procedures) Social democrats, turning backs on violent revolution and dictatorship. Heavy reliance on the military to maintain control. Suppression of freedom of association; little media freedom (more of propaganda) Communists, believe in violent revolution and totalitarian dictatorship. Sovereignty: ultimate authority of state, backed by monopoly use coercive force. Over citizens or firms within defined territory. Bestows power to control and restrict commercial activities within own borders. Circumscribed by rule of law in many countries.
