BUSI2025 Chapter Notes - Chapter 2: Country Risk, Totalitarianism, Collectivism
Chapter 2
Definition of a political system
• The complete set of institutions, political organizations and interest groups.
• The relationships among institutions and the political norms and rules that govern
their functions.
• Individualism: primacy of the rights and role of the individual
• Australia, US, UK are individualist communities and they tend to be more democratic
• Collectivism: primacy of the rights and role of the community
Democracy
• Wide participation by citizens in the decision-making process
• Key features of democratic political systems:
- Freedom of opinion, expression, religion, media, association and access to
information.
- Exercise of citizen power through elected representatives
- Citizen equality in opportunity and treatment under law
- Free, fair and regular elections
- Protection of individual and property rights
- Fair and independent court system
- Subordination of government to the rule of law.
Totalitarianism
• A totalitarian system subordinates the individual to the interests of the collective
- Dissent is eliminated through indoctrination, persecution, surveillance,
propaganda, censorship and violence.
• Prominent types of totalitarianism include:
- Authoritarianism – regime tolerates no deviation from state ideology
- Fascism – aims to control every aspect of daily life (North Korea)
- Secular – single political party that does not allow challenge to authority
- Theocratic – political system where government represents and follows a religious
system
Assessing Risk
• Distinguish between:
- Commercial risk – competitive pressures, technological change, market changes
- Environmental risk – culture, legal-political, general economic forces
• Political risk arising from the legal-political environment
- Macro risk: affects all companies
- Micro risk: affects specific regions, sectors, industries, firms
- Sometimes described as country risk
Definition of Political Risk
• The risk that political decisions or events in a country negatively affect the probability
or sustainability of an investment
• Types:
- Systemic- affects all firms e.g. weakened property rights, restrictions on freedom
- Procedural-affects some, not all firms e.g. excessive red tape, corruption, breaches
of contract
- Distributive-foreign firms seen as agents of prosperity e.g. tax discrimination,
unilateral trade barriers, expropriation of assets
- Catastrophic-affects all firms e.g. civil disorder, coup, war
Document Summary
Definition of a political system: the complete set of institutions, political organizations and interest groups, the relationships among institutions and the political norms and rules that govern their functions. Individualism: primacy of the rights and role of the individual: australia, us, uk are individualist communities and they tend to be more democratic, collectivism: primacy of the rights and role of the community. Democracy: wide participation by citizens in the decision-making process, key features of democratic political systems: Freedom of opinion, expression, religion, media, association and access to information. Exercise of citizen power through elected representatives. Citizen equality in opportunity and treatment under law. Subordination of government to the rule of law. Totalitarianism: a totalitarian system subordinates the individual to the interests of the collective. Dissent is eliminated through indoctrination, persecution, surveillance, propaganda, censorship and violence: prominent types of totalitarianism include: Authoritarianism regime tolerates no deviation from state ideology. Fascism aims to control every aspect of daily life (north korea)
