National Differences in Political Economy Chapter 2

1994: Sales = $253m Loss = $310m1998(3Q): Sales = $934m Profits = $260.2mThe Impact of Privatization2-1

Political SystemsDemocratic

TotalitarianThe System of Government in a Nation

Individualism

Collectivism

2-2

Collectivism and IndividualismCollectivismSocialismCommunistsSocial DemocratsIndividualismGuarantee individual freedom and expressionPeople can pursue own economic self-interest2-3

Democracy and TotalitarianismDemocracyGovernment by people exercised directly or through elected representatives.TotalitarianismOne person or party exercises control over all spheres of human life.Opposing political parties are prohibited.2-4

DemocracyRepresentative DemocracyFreedoms:expression, opinion, organizationmediaregular elections with universal suffragelimited terms for elected representativesfair and independent court systemnon political bureaucracy, police force and armed servicerelatively free access to state information

2-5

TotalitarianismConstitutional guarantees are denied.Four major forms:CommunistTheocraticTribalRight Wing2-6

Economic SystemsMarket EconomyCommand EconomyMixed EconomyState Direct Economy2-7

Economic SystemsMarketState-DirectedMixedCommand2-8

Legal SystemsRules or laws that regulate behavior.Property rightsPrivate actionPublic action

2-9

International Property IssuesProtection of Intellectual PropertyLax enforcementProduct Safety and Product LiabilityCompetitivenessEthics2-10

PPP Index and GNP Data(Selected Countries)2-11Table 2.1

Country

GNP per capita, 1997 (US$)

GNP per capita measured at PPP, 1997 (US$)

Annual Average Growth in GDP, 1990-97 (%)

Mozambique

90

520

6.9

India

390

1650

5.9

China

860

3570

11.9

Indonesia

1110

3450

7.5

Romania

1420

4290

0

Russia

2740

4190

-9

Mexico

3680

8120

1.8

Brazil

4720

6240

3.1

S.Korea

10550

13500

7.2

United Kingdom

20710

20520

1.9

Australia

20540

20170

3.7

Canada

19290

21860

2.1

Singapore

32940

29000

8.5

United States

28740

28740

2.5

Japan

37850

23400

1.4

Switzerland

44320

26320

-0.1

The Global Politics of Civilizations

Japan

Orthodox (Russia)

Islam

African

West

Sinic (China)

Hindu (India)

Latin American

More Conflictual

Less Conflictual

Figure 2.1

2-12

Map 2.12-13

Map 2.22-14

Map 2.32-15

Map 2.42-16

Other Determinants of Development: Geography and EducationThroughout history, coastal states, with their long engagements in international trade, have been more supportive of market institutions than landlocked states, which have tended to organize themselves as hierarchical (and often military) societies. Mountainous states, as a result of physical isolation, have often neglected market-based trade. Temperate climes have generally supported higher densities of population and thus a more extensive division of labor than tropical regions. -Jeffrey Sachs-2-17

Geography and Education2-18

SingaporePopulation: 2.8 millionLiteracy rate: 91.1%GDP ($B): 83Per Capita GDP: $26,294Strategic location: Malacca StraitsWorlds second busiest port: cargo tonnageAverage GDP growth over 25 years: 8%2-19

Spread of DemocracyTotalitarian regimes failed to deliver economic progress.New information technologies (internet) restricted a states ability to control information.Emergence of prosperous middle class demanding democratic reforms.2-20

Universal Civilizationwe may be witnessingthe end of history as such: that is, the end point of mankinds ideological evolution and the universalization of Western liberal democracy as the final form of human government.- Francis Fukuyama -2-21

Clash of CivilizationsThere is no universal civilization based on widespread acceptance of Western liberal democratic ideals.2-22

Map 2.52-23

Real Percentage GDP Growth, 1990-94, for Five Post-Communist States1990 1991 1992 1993 199450-5-10-15-20-25Czech RepublicHungaryPolandRussiaUkraine2-24 McGraw Hill Companies, Inc., 2000

Map 2.62-25

The Changing Political Economy of IndiaPopulation: 936 millionGDP: $1.254 trillionGDP growth: 5-6% per year10% of population produces 40% of national incomeAgriculture is 70% of employment, but only 35% of GDP2-26

Indias GDP2-27

The Falling RupeeUS Dollar Value of 100 Indian Rupees$2-28

Percentage of Indias Exports and Imports (By Region)$31.6B$36.0B2-29

Foreign Investment in India2-30

The Nature of Economic TransformationDeregulationRemoval of legal restrictions to free markets.PrivatizationTransfer of state ownership of property into private hands.Creation of legal systems to protect property rights.2-31

The Nature of RiskPolitical RiskLikelihood that political forces will cause drastic changes that adversely affect profits and other goals.Economic RiskLikelihood that economic mismanagement will cause drastic changes that adversely affect profits and other goals.Legal Risk Likelihood that a trading partner will opportunistically break a contract or expropriate property rights.

2-32