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Chapter 2
National Differencesin Political Economy
Copyri ght 2011 by the McGraw-H il l Companies, Inc. All ri ghts reserved.McGraw-Hill/Irwin
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What Is A Political Economy?
The political economyof 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
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What Is A Political System?
Political systemrefers to the system of
government in a nation
Assessed according to
the degree to which the country emphasizes
collectivism as opposed to individualism
the degree to which the country is democratic
or totalitarian
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SOCIALISM
Socialism
Modern socialists trace their roots to KarlMarx
advocated state ownership of the basic meansof production, distribution, and exchange
the state then manages the enterprises for thebenefit of society as whole
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How Does Modern-Day
Socialism Look? In the early 20thcentury, socialism split into
1. Communismsocialism can only be achievedthrough violent revolution and totalitarian
dictatorship in retreat worldwide by mid-1990s
2. Social democratssocialism is achieved throughdemocratic means
retreating as many countries move toward free marketeconomies
state-owned enterprises have been privatized
Many state-owned enterprises failed to succeed, and today,many nations are implementing privatizationprogramswhereby state-owned enterprises to private investors
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What Is Individualism?
Individualism refers to philosophy that an
individual should have freedom in his own
economic and political pursuits
can be traced to Greek philosopher, Aristotle (384-322BC), who argued that individual diversity and private
ownership are desirable
individual economic and political freedoms are the
ground rules on which a society should be based implies democratic political systems and free market
economies
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What Is Democracy?
Democracyrefers to a political system in which
government is by the people, exercised either
directly or through elected representatives
usually associated with individualismpure democracy is based on the belief that citizens
should be directly involved in decision making
most modern democratic states practice
representative democracywhere citizens periodicallyelect individuals to represent them
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What Is Totalitarianism?
Totalitarianismis a form of government in which oneperson or political party exercises absolute control overall spheres of human life and prohibits opposing politicalparties
1. Communist totalitarianismfound in states where thecommunist party monopolizes power
2. Theocratic totalitarianism- found in states where politicalpower is monopolized by a party, group, or individual thatgoverns according to religious principles
3. Tribaltotalitarianism- found in states where a political partythat represents the interests of a particular tribe monopolizespower
4. Right-wing totalitarianism- permits some individual economicfreedom, but restricts individual political freedom
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Economic Systems
Political ideology and economic systems are
connected
There are three types of economic systems: the
market economy, the command economy, and themixed economy
A free market system is likely in countries where
individual goals are given primacy over collective
goals
State-owned enterprises and restricted markets
are common in countries where collective goals
are dominant
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Economic System
There are three types of economic systems:1. Market economies
In a pure market economy all productiveactivities are privately owned and productionis determined by the interaction of supply anddemand
Consumers, through their purchases,determine what is produced and in whatquantity
The role of government is to encourage freeand fair competition between privateproducers
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Economic System3. Mixed economies
A mixed economyincludes some elements ofa market economy and some elements of acommand economy
certain sectors of the economy are left toprivate ownership and free marketmechanisms while other sectors havesignificant state ownership and government
planning governments tend to own firms that are
considered important to national security
- eg: French government took over Renault (automobilecompany) during financial problem to save company from
bankruptcy and unemployment problem.2-13
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What Is A Legal System?
The legal systemof a country refers to the rulesthat regulate behavior along with the processesby which the laws are enforced and throughwhich redress for grievances is obtained
There are three types of legal systems
1. Common law
2. Civic law
3. Theocratic law
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Different Legal Systems
There are three main types of legal systems:
1. Common law- based on tradition, precedent, and
custom
found in most of Great Britains former colonies,
including the United States
2. Civil law- based on a very detailed set of laws organized
into codes
found in over 80 countries, including Germany, France,
Japan, and Russia
3. Theocratic law- based on religious teachings
Islamic law is the most widely practiced
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How Are Contracts Enforced In
Different Legal Systems? A contractis a document that specifies the conditions under which an
exchange is to occur and details the rights and obligations of theparties involved
Contract lawis the body of law that governs contract enforcement
Under a common law system, contracts tend to be very detailed withall contingencies spelled out
Under a civil law system, contracts tend to be much shorter and lessspecific because many issues are already covered in the civil code
Many countries have ratified the United Nations Convention onContracts for the International Sale of Goods (CIGS)whichestablishes a uniform set of rules governing certain aspects of themaking and performance of everyday commercial contracts betweenbuyers and sellers who have their places of business in differentnations
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How Are Property Rights
And Corruption Related? Property rights refer to the legal rights over the use to
which a resource is put and over the use made of anyincome that may be derived from that resource
Can be violated through
1. Private actiontheft, piracy, blackmail2. Public action - legally - ex. excessive taxation or illegally - ex.
bribes or blackmailing
high levels of corruption reduce foreign direct investment, the levelof international trade, and the economic growth rate in a country
The Foreign Corrupt Practices Actmakes it illegal forU.S. companies to bribe foreign government officials toobtain or maintain business over which that foreignofficial has authority
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Which Countries Are
Most Corrupt?Rankings of Corruption by Country 2008
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How Can Intellectual
Property Be Protected? Intellectual property- property that is the product of
intellectual activity
Can be protected using
1. Patentsexclusive rights for a defined period to the
manufacture, use, or sale of that invention2. Copyrightsthe exclusive legal rights of authors,
composers, playwrights, artists, and publishers to publishand disperse their work as they see fit
3. Trademarksdesign and names by which merchants ormanufacturers designate and differentiate their products
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How Can Intellectual
Property Be Protected? Protection of intellectual property rights differs from country to
country
World Intellectual Property Organization
Paris Convention for the Protection of Industrial Property-
agreement signed by 170 countries to protect intellectualproperty rights
Trade Related Aspects of Intellectual Property Rights(TRIPS) - requires WTO members to grant and enforce patentslasting at least 20 years and copyrights lasting 50 years
To avoid piracy, firms can stay away from countries where intellectual property laws are
lax
file lawsuits
lobby governments for international property rights
agreements and enforcement
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What Is Product Safety
And Liability?
Product safety lawsset certain standards towhich a product must adhere
Product liabilityinvolves holding a firm and its
officers responsible when a product causes injury,death, or damage
When product safety laws are stricter in a firmshome country than in a foreign country, or when
liability laws are more lax, the firm has to decidewhether to adhere to home country or hostcountry standards
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What Determines A Countrys Level
Of Economic Development?
Two ways to measure levels of economic developmentare
1. Gross national income (GNI)per person of population
2. Purchasing power parity (PPP)involves adjusting GNI
by purchasing power GNI and PPP data provide a static picture of
development & also important to consider growth rates.
Nobel-prize winner Amartya Sen argues economicdevelopment should be seen as a process of expanding
the real freedoms that people experience the removal of major impediments to freedom like
poverty, tyranny, and neglect of public facilities
the presence of basic health care and basic education
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What Determines A Countrys Level
Of Economic Development?
The United Nations used Sens ideas to
develop the Human Development Index
(HDI)which is based on
life expectancy at birth
educational attainment
whether average incomes are sufficient to
meet the basic needs of life in a country
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How Do Countries Compare on
Economic Development?Economic Data for Select Countries
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How Does Political Economy
Influence Economic Progress?
Innovation and entrepreneurship are the engines
of long-run economic growth
Innovation and entrepreneurship require a
market economy and strong property rightsDemocratic regimes are probably more conducive
to long-term economic growth than dictatorships,
even the benevolent kind
Subsequent economic growth leads to the
establishment of democratic regimes
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How Do Geography And Education
Influence Economic Development?
Countries with favorable geography are
more likely to engage in trade, and so, be
more open to market-based economic
systems, and the economic growth theypromote
Countries that invest in education have
higher growth rates because the workforceis more productive
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How Is The Political
Economy Changing? Since the late 1980s, two trends have emerged
1. Democratic revolution (late 1980s and early 1990s) many totalitarian regimes failed to deliver economic progress to
the vast bulk of their populations
new information and communication technologies have brokendown the ability of the state to control access to uncensoredinformation
economic advances of the last 25 years have led to increasinglyprosperous middle and working classes who have pushed fordemocratic reforms
2. A move away from centrally planned and mixedeconomies more countries have shifted toward the market-based model
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How Free Are
Countries Politically?Political Freedom in 2008
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How Free Are
Countries Economically?Distribution of Economic Freedom in 2008
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What Is The Nature Of
Economic Transformation?
The shift toward a market-based systeminvolves
deregulationremoving legal restrictions to
the free play of markets, the establishment ofprivate enterprises, and the manner in whichprivate enterprises operate
privatization-transfers the ownership of state
property into the hands of private investorsthe creation of a legal systemto safeguard
property rights
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