2. 2-2
Удиртгал
Асуулт: Улс орны улс т рийн эдийн засаг гэж юу вэө ?
Хариулт:
Улс орны улс т рийн эдийн засагө нь тухайн улс орны
улс т р, эдийн засаг хуулийн системээс хамаарнаө
Эдгээр систем нь харилцан хамааралтай б г дө өө
харилцан бие биедээ н л лд гө өө ө
Улс орны улс т рийн тогтолцоо нь олон улсынө
бизнесийн практикт чухал рэг г йцэтгэдэгүү ү
3. 2-3
Улс т рийн системө
Улс т рийн системө – Энэ нь тухайн улсад ямар
хэлбэрийн засгийн газар б рэлдэн тогтохыгү
тодорхойлдог.
Улс т рийн системийг дараах з лэлтээр тодорхойлжө ү үү
болно.
Хамтын болон хувь х нийг дээдэлсэн тогтолцооү
/collectivism vs individualism/
Ардчилал ба дарангуйлагч тогтолцоо /democratic vs
totalitarian/
4. 2-4
Collectivism and Individualism
Collectivism – Хамтын тогтолцоо нь хувийн эрх
ч л н с ил нийгмийн хэрэгцээ шаардлагыг ил дө өө өө үү үү
здэг.ү
Эртний Грекийн г н ухаантан Платон тодорхойлсонү
н д р социалистууд хамтын тогтолцоог дэмждэгӨ өө ө
Энэ тогтолцоонд хувь х ний эрх “нийгмийн сайнү
сайхан”, “олонхийн эрх ашиг”-аар хязгаарлагддаг.
5. 2-5
Collectivism and Individualism
Socialism
Орчин еийн Социалист нь Карл Марксаас ндэстэйү ү
йлдвэрлэл, хуваарилалт, арилжаа солилцоо ньҮ
т рийн эзэмшилд байдагө
Т р нийгмийн тусын тулд аж ахуйн нэгжийгө
удирддаг
6. 2-6
Collectivism and Individualism
20-р зууны эхэнд социалист нь коммунист болон
социал демократ гэж хоёр салсан
Коммунистууд хувьсгал болон тоталитар
дарангуйллын замаар л хамтын тогтолцоонд х рчү
чадна гэж здэг.ү
Социал демократууд ардчилсан арга замаар ижил
зорилгод х рэхээр ажилладагү
Олон т рийн мчийн аж ахуйн нэгж д амжилтг йө ө үү ү
болсон б г д, н д р олон ндэстн д т рийнө өө ө өө ө ү үү ө
мчит аж ахуйн нэгж дийг хувийн хэвшлийн х р нгө үү ө ө ө
оруулагчдад хувьчлах х т лб рийг хэрэгж лж байна.ө ө ө үү
7. 2-7
Collectivism and Individualism
Individualism
Хувь х нийг дээдэлсэн тогтолцоонд хувь х н улс т р,ү ү ө
эдийн засгийн эрх ч л тэй байх боломжийг олгоно.ө өө
Хувь х ний эрх ч л , хувийн мчийг дээдэлдэгү ө өө ө
Аристотель-аас сэлтэйүү
Индивидуализм нь дараахад ач холбогдол гд гө ө
Хувь х ний эрх ч л ба рийг илэрхийлэх эрхү ө өө өө өө
ч л г баталгаажуулж гд гө өө ө ө
Хувь х м сийн эдийн засгийн ашиг сонирхол ньү үү
нийгмийн сайн сайхныг бий болгодог
Ардчилсан систем ба ч л т зах зээлө өө
8. 2-8
Democracy and Totalitarianism
Асуулт: Ардчилсан ба тоталитари дэглэмийн хоорондох
ялгаа юу вэ?
Хариулт:
Ардчилал – Ардчилал нь шууд болон сонгогдсон
т л л гч р дамжуулан ард т мэн засгийн эрхийгө өө ө өө ү
барих хэлбэр
н д р хамгийн нийтлэг хэлбэр ньӨ өө ө т л ллийнө өө
ардчилал, сонгогдсон т л л гчид засгийн газрыгө өө ө
б рд лж, сонгогчдын нэрийн мн с шийдвэрү үү ө өө
гаргах рэг х лээдэг.үү ү
Тоталитари – Дарангуйлагчийн тогтолцооны ед нэгү
х н эсвэл улс т рийн нам б х йл ажиллагаанд туйлынү ө ү ү
хяналт тогтоож, засгийн эрхийг барьдаг.
9. 2-9
Democracy and Totalitarianism
Ихэнх тоталитари дэглэмд
Улс т рийн хэлмэгд лэлт их байдагө үү
Ч л т, шударга сонгууль байдагг йө өө ү
Хэвлэл мэдээлэл нь цензуртай
Иргэний ндсэн эрх ч л г йсгэгддэгү ө өө ү ү
Дэглэмийг эсэрг цэхийг хориглоноүү
10. 2-10
Democracy and Totalitarianism
Тоталитар дэглэмийн д рв н ндсэн хэлбэр байнаө ө ү :
1. communist totalitarianism: тоталитар дарангуйллын
замаар социализмд х рэхийг дэмждэгү
2. theocratic totalitarianism /шашны/: улс т рийн эрхө
мэдэл нь шашны хууль, зарчмыг зэл санаагааү
болгосон нам, б лэг, хувь х м сийн гартү ү үү
монопольчлогдсон хэлбэр юм.
3. tribal totalitarianism /угсаа залгамжилсан/: тухайн
овгийн ашиг сонирхлыг илэрхийлдэг улс т рийнө
намын монопольчлогдсон эрх мэдэл
4. right wing totalitarianism /барууны/: Энэ хэлбэр нь
хувь х м ст эдийн засгийн эрх ч л олгож, улсү үү ө өө
т рийн эрх ч л г хязгаарласан байдаг.ө ө өө
11. 2-11
зэл суртлын н лҮ ө өө
Коммунизм. Ангиг й нийгмийг байгуулах тухайү
Марксист онол ба улс т рийн намаар т рийн эрхийгө ө
бариулж, дотоод с р г х чнийг хатуу нугачин дарж,ө ө ү
дэлхий дахинд коммунизмыг т гээн дэлгэр лэхэдү үү
чиглэдэг.
Социализм. Т рийн мч болон бизнес дэх т рийнө ө ө
хяналтыг б рэн дэмждэг систем ба ашгийг зорилгооү
болгодогг й. Карл Марксын сургаальд тулгуурладаг баү
тэрээр капиталист нийгэмд з вх н ц нх нь ашигө ө өө
х ртэж, ажилчин ангийн авч байгаа цалин х лсү ө
тэднийг доогуур т вшинд амьдрах хэмжээнд байдагү
гэж зсэн.ү
12. 2-12
зэл суртлын н лҮ ө өө
Капитализм. Б х йлдвэр д хувийн эзэмшилд байхыгү ү үү
з вш рд г ба з вх н батлан хамгаалах салбар, бусадө өө ө ө ө
нийгмийн йлчилгээ, олон улсын засгийн газарү
хоорондын йл ажиллагаанд хувийн хэвшил йлү ү
ажиллагаа явуулахыг хязгаарладаг.
Консерватив зэл. Засгийн газрын йл ажиллагаагү ү
хувьж, хувийн бизнесийн йл ажиллагааг нэмэгд лэхү үү
зэл бодолтой хувь х н, б лэг, намын зэл бодол.ү ү ү ү
рийн орны шашин, соёл, зан заншил, итгэлӨө
нэмшил, уламжлалыг дээдэлж здэг, рчл лтийгү ү өө ө
алгуур хийх ёстой гэсэн баримтлалтай улс т рийнө
философи. Консерватив нь барууны жиг р.үү
13. 2-13
зэл суртлын н лҮ ө өө
Либерал зэл. Засгийн газрын з гээс хувь х ний эрхү ү ү
ч л г улс т рийн хамгийн гол зорилго болгож тавихө өө ө
ёстой гэж здэг. Эдийн засагт засгийн газрын оролцооү
маш бага байх ёстой ба ц х н тохиолдолд тухайлбалөө ө
монопольчлол болон картель ссэн тохиолдолдүү
засгийн газар оролцох ёстой гэж здэг. Либерал ньү
з ний жиг р.үү үү
22. 2-22
Т вл рс н т л вл г т эдийн засагө ө ө ө ө ө өө
Цэвэр т вл рс н т л вл г т эдийн засагтө ө ө ө ө ө өө ямар бараа
йлчилгээг, ямар хэмжээтэй йлдвэрлэж ямар нээрү ү ү
зарахыг засгийн газар т л вл д гө ө ө ө
Б х бизнес т рийн эзэмшилд байх ба зардлыг хянаж,ү ө
р ашигтай ажиллах сонирхол бага байдагү
Хувийн эзэмшил байдагг й тул хэрэглэгчдийнү
хэрэгцээг ил сайн хангах сонирхол бага байдагүү
35. 2-35
Б тээгдэх ний аюулг й байдал ба хариуцлагаү үү ү
Б тээгдэх ний аюулг й байдлын тухай хуульү үү ү нь
б тээгдэх нд баримтлах ёстой аюулг й ажиллагааныү үү ү
тодорхой стандартыг тогтоосон
Б тээгдэх ний хариуцлагаү үү нь б тээгдэх нээс болоодү үү
гэмтэл, хэл, хохирол учирсан тохиолдолд компаниү
болон т ний албан тушаалтнууд хариуцлагадүү
татагдана
Хариуцлагын тухай хууль нь буурай х гжилтэйө
орнуудад рг н ашиглагддагө ө
Компаниуд эзэн улсын эсвэл х лээн авагч улсынү
стандарт нийцсэн эсэхийг шийдэх ёстой
36. 2-36
Эдийн засгийн х гжлийг тодорхойлогчидө
Улс орны эдийн засгийн х гжлийн т вшин ньө ү
компаниудын боломжит зах зээл болон
йлдвэрлэлийн байршлын сонирхолд н л лд гү ө өө ө
Нэг нийтлэг хэмжээс нь нэг х нд ногдохү ндэснийҮ
Нийт Б тээгдэх нү үү (GNI) юм
Худалдан авах Чадварын Парити (PPP) тохируулга нь
янз б рийн улс орны амьжиргааны т вшинг шуудү ү
харьцуулах боломжийг олгодог
GNI болон PPP г гд л нь х гжлийн статик д рө ө ө ө ү
зургаар хангадаг
с лтийн хувийг авч зэх нь ил ач холбогдолтойӨ ө ү үү
37. 2-37
Эдийн засгийн х гжлийн ялгааө
Газрын зураг 2.1: Нэг х нд ногдох НБү Ү , 2008
38. 2-38
Эдийн засгийн х гжлийн ялгааө
Газрын зураг 2.2: 1 х нд ногдох НБ буюуү Ү PPP, 2008
39. 2-39
Эдийн засгийн х гжлийн ялгааө
Газрын зураг 2.3: 1 х нд ногдох ДНБ-ий с лтийн хувьү ө ө , 1997 - 2008
40. 2-40
Х гжлийн рг н х рээтэй зэл баримтлалө ө ө ү ү
Amartya Sen – х гжил нь материаллаг йлдвэрлэлээрө ү
бага нэлэгдэж, харин х м сийнх нь эдэлж байгааү ү үү
боломж, чадвараар ил нэлэгдэх ёстойүү ү
Н Б дундаж наслалт, боловсролын т вшин, дундажҮ ү
орлого нь улс орны амьдралын наад захын хэрэгцээг
хангахад хангалттай эсэх дээр суурилсан Х нийү
Х гжлийн Индексийг зохиосонө
Улс орны эдийн засгийн х гжил болон ирээд йнө ү
с лтийн хувийг хэмжих Сений санааг тусгасанө ө
41. 2-41
Х гжлийн рг н х рээтэй зэл баримтлалө ө ө ү ү
Газрын зураг 2.4: Х ний х гжлийн индикаторү ө , 2007
42. 2-42
Улс т рийн эдийн засаг ба ЭЗ-ийн йл явцө ү
Асуулт: Улс т рийн эдийн засаг ба эдийн засгийн йлө ү
явцын хоорондын хамаарал юу вэ?
Хариулт:
Инноваци (шинэ б тээгдэх нү үү , шинэ йл явцү , шинэ
б тэцү , шинэ удирдлагын практик, болон шинэ
стратеги) болон энтрепренейршип нь урт хугацааны
эдийн засгийн с лтийн х д лг р юмө ө ө ө үү
Энтрепренер дүү юун т р нд шинэлэг б тээгдэх нү үү ү үү
йл явцыг арилжаалдагү
Зах зээлийн эдийн засаг дахь эдийн засгийн эрх ч лө өө
нь т вл рс н т л вл г т болон холимог эдийнө ө ө ө ө ө өө
засгийн аль алинаас ил инноваци болонүү
энтрепренейршипийг б тээх сонирхолтой байдагү
43. 2-43
Улс т рийн эдийн засаг ба ЭЗ-ийн йл явцө ү
мчийн эрхийн эрх з йн х чтэй хамгаалалт нь эдийнӨ ү ү
засгийн с лт, бизнес эрхлэх ур чадвар болонө ө
инновацийн хувьд таатай бизнесийн орчныг бий
болгох р нэг шаардлага юмөө
Ардчилсан дэглэм нь дарангуйллын дэглэмээс
ил тэй урт хугацааны эдийн засгийн с лтийнүү ө ө
таатай н хцлийг б рд лдэгө ү үү
Дараа дараагийн эдийн засгийн с лт нь ардчилсанө ө
дэглэмийг тогтооход х ргэдэгү
44. 2-44
Газар з й, Боловсрол болон Эдийн засгийн йл явцү ү
Улс орны эдийн засгийн х гжлийн т вшинд н л лжө ү ө өө
буй бусад х чин з йлсү ү :
Газар з йү – эдийн засгийн бодлого, улмаар эдийн
засгийн х гжилд н л лд гө ө өө ө
Таатай газар з й б хий улс орнууд эдийнү ү
засгийн с лтийг дэмжих худалдаанд оролцохө ө
магадлал их
Боловсролын т вшинү
Залуу х м сийнхээ боловсролд ил их х р нгү үү үү ө ө ө
оруулсан улс орнууд эдийн засгийн хувьд хурдан
х гжд гө ө
45. 2-45
Шилжилтийн улс орнууд
1980-аад оны с л еэс хойш ардчилсан хувьсгалынүү ү
давалгаа дэлхий цэвэрлэж байгаа ба мн х тоталитариө ө
дэглэм дийн олонхи нь задарсанүү
Т вл рс н т л вл г т болон холимог эдийн засгуудө ө ө ө ө ө өө
ч л т зах зээл р шилжиж байнаө өө үү
46. 2-46
Ардчиллын тархалт
Ардчилал шинэ улс орнуудад тархаж байна
Олон тоталитари дэглэм д х н амынхаа дийлэнхүү ү
хэсэгт эдийн засгийн дэвшлийг авч ирж чадааг йү
Шинэ мэдээлэл, харилцаа холбооны технологи нь
цензург й мэдээлэлд хандах хандалтыг хянах т рийнү ө
чадварыг унагаж байна
С лийн 25 жилийн эдийн засгийн дэвшил ньүү
ардчилсан шинэчлэлд х ргэх ил х гжин цэцэглэсэнү үү ө
дундаж болон ажилчин ангийг бий болгоход х ргэсэнү
байна
51. 2-51
Эдийн засгийн шилжилтийн м н чанарө
ЗЗЭЗ-ийн систем р шилжсэнээрүү :
1. Т рийн зохицуулалтыг халахө – зах зээлийн ч л т тоглогчдынө өө
эрх з йн хязгаарлалтыг арилгаж, хувийн хэвшлийн аж ахуйнү
нэгж дийг байгуулах, йл ажиллагааг нь дэмжихүү ү
2. Хувьчлал – т рийн мчийн эзэмшлийг хувийн х р нгө ө ө ө ө
оруулагчдад шилж лэхүү
Хувийн х р нг оруулагчид ашгаар д гд ж б тээмжийгө ө ө ө өө ө ү
нэмэгд лдэг ба хувьчлал нь эдийн засгийн р ашгийгүү ү
нэмэгд лдэгүү
3. Эрх з йн системү – мчийн эрхийг хамгаалж, уг системийгө
м рд лэх механизмө үү
Олон улс орон х чтэй хууль эрх з йн системийг бийү ү
болгох чиглэлд ихээхэн амжилт гаргасан хэдий ч ил ихүү
ажил хийх хэрэгтэй
52. 2-52
рчл гд ж буй эдийн засгийн р дагаварӨө ө ө ү
мн нь барууны бизнест хаалттай байсан зах зээл дӨ ө үү
одоо нээлттэй байна
Хятад (1.2 тэрбум х н амү ) нь АНУ, ЕХ, Японыг
нийл лснээс том зах зээл байж болох юмүү
Энэтхэг (1.1 тэрбум х н амү ) нь м н адил маш томө
зах зээл юм
Хэдийгээр боломжит ашиг их хэдий ч, эрсдэлтэй юм
53. 2-53
Менежер дийн р дагаварүү ү
Асуулт: Олон улсын бизнес дэх улс т рийн эдийн засгийнө
р дагавар юу вэ?ү
Хариулт:
Хоёр гол р дагавар байнаү :
1. Улс орны улс т р, эдийн засаг, эрх з йн систем нь олонө ү
улсын бизнесийн практикт ач холбогдолтой чухал ёс
з йн асуудлуудыг бий болгодогү
2. Улс орны улс т р, эдийн засаг, хууль эрх з йн орчин ньө ү
зах зээл, х р нг оруулалтын талбар дахь тухайн орныө ө ө
сонирхолд н л лд гө өө ө
55. 2-55
Зардал
Компаниуд гадаад зах зээлд бизнес хийх зардлыг
шийдвэрлэхэд бэлэн байх ёстой
1. Улс т рийн зардалө – хэрэгтэй з йлээ олж авахынү
тулд хээл хахууль т л х, лоббидохө ө
2. Эдийн засгийн зардал – дэд б тэц болон бизнесийгү
дэмжих явдлыг оруулаад эдийн засгийн системийг
боловсронгуй болгохтой юуны мн холбоотойө ө
3. Хууль эрх з йн зардалү – эрс ялгаатай б тээгдэх н,ү үү
can be higher in countries with dramatically different
product, ажлын байр, болон бохирдлын стандарт,
эсвэл мчийн эрхийн хуулийн хамгаалалт муу улсө
орнуудад гарч ирдэг
56. 2-56
Эрсдэл
Гадаад зах зээлд бизнес эрхлэх нь эрсдэлтэй явдал
Улс т рийн эрсдэлө – улс т рийн х чн д улс орныө ү үү
бизнесийн орчинд эрс рчл лт сгэснээрөө ө үү
бизнесийн байгууллагын ашиг олох болон бусад
зорилгод с р г н л з лэх магадлалө ө ө өө ү үү
Эдийн засгийн эрсдэл – эдийн засгийн муу
удирдлага нь улс орны бизнесийн орчинд эрс
рчл лт сгэснээр бизнесийн байгууллагын ашигөө ө үү
олох болон бусад зорилгод с р г н л з лэхө ө ө өө ү үү
магадлал
Хууль эрх з йн эрсдэлү – худалдааны т нш ньү
боломжтой гэрээг з рчих, мчийн эрхийг хураанө ө
авах магадлал
57. 2-57
Нийт сонирхол
Улс орны зах зээлийн боломж, х р нг оруулалтынө ө ө
талбар зэрэг олон улсын бизнесийн нийт сонирхол
татах байдал нь тухайн улсад бизнес хийхийн ашиг
тус, зардал болон эрсдлийг балансжуулахаас
хамаардаг
Ер нь эдийн засгийн нд р х гжилтэй, улс т рийнө ө ө ө
хувьд тогтвортой зах зээлд зардал болон эрсдэл
бага байдаг
Гэсэн хэдий ч буурай х гжилтэй орнуудынө
с лтийн боломж нд р байх магадлалтай байнаө ө ө ө
58. 2-58
Classroom Performance System
The political, economic and legal systems of a country are
called
a) Political systems
b) Economic systems
c) Legal systems
d) Political economy
59. 2-59
Classroom Performance System
Individuals who believe socialism can be achieved only
through revolutions and totalitarian dictatorship are called
a) Social democrats
b) Communists
c) Individualists
d) Representative democrats
60. 2-60
Classroom Performance System
Which system emphasizes individual freedom and self-
expression?
a) Individualism
b) Collectivism
c) Theocratic totalitarianism
d) Tribal totalitarianism
61. 2-61
Classroom Performance System
Which of the following is not one of the three broad types of
economic systems?
a) Market economy
b) Command economy
c) Mixed economy
d) Free economy
62. 2-62
Classroom Performance System
Which type of legal system is based on a very detailed set of
laws organized into codes?
a) Contract law
b) Civil law
c) Common law
d) Theocratic law
63. 2-63
Classroom Performance System
Which type of risk involves the likelihood that a trading
partner will opportunistically break a contract or expropriate
intellectual property rights?
a) Contract risk
b) Economic risk
c) Legal risk
d) Political risk
Editor's Notes
Chapter 2: National Differences in Political Economy
You probably already know that the political, economic, and legal systems of countries differ, but do you know why these differences are important to companies that do business in foreign markets?
In this chapter, we’re going to explore these systems, known collectively as the political economy of a country, and what they mean for multinational enterprises.
We’ll begin with political systems, or the system of government in a nation. We can assess political systems using two dimensions. First, the degree to which they emphasize collectivism as opposed to individualism, and second, the degree to which they are democratic or totalitarian.
Keep in mind that these systems are interrelated. So, a collectivistic system tends to be more totalitarian and an individualistic system tends to be more democratic.
Let’s begin with the first dimension—collectivism and individualism. Collectivism refers to a system that stresses the primacy of collective goals over individual goals. In other words, in a collectivistic society, the needs of a society as a whole are generally viewed as being more important than individual freedoms.
Collectivism isn’t new -- we can trace it back to the ancient Greek philosopher, Plato. In modern times though, collectivism is equated with socialism.
Modern day socialists trace their roots to Karl Marx who argued that when individual benefits are not restricted, a few people benefit at the expense of many. Marx claimed that successful capitalists got richer, while most workers earned only subsistence wages. He believed that with state ownership of the basic means of production, distribution, and exchange, workers would be fairly compensated. In other words, state owned enterprises could be managed to benefit society as a whole, rather than benefiting individual capitalists.
In the early 20th century, the socialist ideology split into two camps. One group, the communists, believed that collectivism could only be achieved through violent revolution and totalitarian dictatorship. The other group, the social democrats, worked to achieve the same goals using democratic means.
Communism was a dominant force in the late 1970s when the majority of the world’s population was under communist rule. Think of the former Soviet Union for example, and its Eastern European neighbors like Poland, Czechoslovakia, and Hungary. Think also of China, Cambodia, and Vietnam, and of Angola and Mozambique, Cuba, and Nicaragua.
By the mid-1990s, the world was a very different place! Communism was in retreat. The Soviet Union for example, had been replaced by 15 republics that were structured as democracies. China, through it still limited political freedom, was moving away from its strict communist ideology. Today, only a few fringe states like Cuba and North Korea still practice true communism.
Social democracy is also retreating. Countries like Great Britain, France, and Germany that had been greatly influenced by the principles of social democracy, have realized that state-ownership of the means of production doesn’t always benefit the public. New parties have been voted into power with the goal of selling state-owned enterprises to private investors who will run them more efficiently. This process is known as privatization.
In contrast to socialism, individualism, which we can trace to the ancient Greek philosopher, Aristotle, suggests that individuals should have freedom over their economic and political pursuits. This philosophy has been championed by people like David Hume, Adam Smith, and John Stuart Mill, and more recently by economists including Milton Friedman and Friedrich von Hayak.
There are two main points to individualism. First, that individual freedom and self-expression are guaranteed, and second, that people are allowed to pursue their own self-interest in order to achieve the best overall good for society.
The differences between the central tenets of this philosophy and those of collectivism have contributed to much of the political conflict that has shaped recent history. For international companies, the shift towards individualism and its free market economics is important for creating a favorable business environment.
Now, let’s move on to the second dimension of political systems, the degree to which they are democratic or totalitarian. You can think of these as being at opposite ends of a political spectrum where at one end, democracy is a political system in which government is by the people, and is exercised either directly or through elected individuals, and at the other end, totalitarianism, where one person or political party exercises absolute control over all spheres of life, and opposing political parties are forbidden.
While we generally think of democracy as going hand-in-hand with individualism, and totalitarianism being associated with collectivism, gray areas do exist. For example, China is still under totalitarian rule, but has adopted free market policies that tend to be associated with individualism.
The most common form of democracy today is representative democracy, where elected representatives vote on behalf of constituents. This is the type of system that is present in the U.S. Some of the characteristics of democracies include freedom of expression, free media, regular elections, a fair court system, and free access to state information. Of course, these freedoms do not exist in totalitarian systems.
Usually totalitarian regimes are characterized by widespread political repression, a lack of free and fair elections, censored media, and a lack of basic civil liberties. It’s also hard to challenge this type of regime. You may recall hearing about Google’s problems in China for example. Google would like to provide Chinese citizens with the same search results it provides to citizens in democratic countries like the United States, but is finding that its efforts to do so are hampered by restrictions from the Chinese government.
There are four major forms of totalitarianism. Communist totalitarianism advocates achieving socialism through totalitarian dictatorship. While this form of totalitarianism is declining worldwide, countries like Vietnam, Cuba, and North Korea still follow the philosophy.
In a theocratic totalitarian system political power is monopolized by a party, group, or individual that governs according to religious principles. You might think of countries like Saudi Arabia or Iran when you think of this type of system. Both countries are greatly influenced by the principles of Islam, and both countries restrict political and religious freedom.
In a tribal totalitarian system a political party that represents the interests of a particular tribe monopolizes power. This type of system is present in some African nations like Zimbabwe and Tanzania.
Finally, in a right wing totalitarian system individual economic freedom is allowed, but individual political freedom is restricted because it might lead to communism. A nation’s military often backs this type of system. Right wind totalitarianism has been declining since 1980, but you might recall its presence in Germany and Italy during the 1930s and 1940s.
Now that we’ve explored the various types of political systems, let’s move on to economic systems. Keep in mind that a nation’s political system and its economic system are connected.
As we mentioned before, in countries where individual goals are given primacy over collective goals, free market systems are likely to exist, but in countries where collective goals are dominant, markets are likely to be restricted and state-owned enterprises are common.
There are three broad types of economic systems—the market economy, the command economy, and the mixed economy. Let’s begin with the market economy where the goods and services that a country produces are privately owned and production quantities are determined by supply and demand.
In a market economy, like the U.S., governments encourage free and fair competition and discourage monopolies.
In contrast to the market economy, in a command economy the goods and services that a country produces, the quantity in which they are produced, and the price at which they are sold are planned by the government. Businesses are state-owned and the government allocates resources for the good of society as a whole. However, because state-owned companies lack the profit incentive to be efficient and develop the new products that you find in market economies, command economies tend to stagnate.
Finally, a mixed economy includes some elements of a market economy and some elements of a command economy. Governments often take control of industries that are considered vital to national interest. Until their recent shift to market economies, France, Great Britain, and Sweden were mixed economies.
Now, let’s move on to explore legal systems, or the rules that regulate behavior, along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained.
A country’s legal system is influenced by its political system. As we discussed, countries that are collectivistic totalitarian states restrict private enterprise, while individualistic market economies are pro private enterprise and pro consumer.
The legal environment of a country is important because a country’s laws regulate business practice, define the manner in which business transactions are to be executed, and set down the rights and obligations of those involved in business transactions. So, the legal system impacts the attractiveness of a country as an investment or a potential target market.
There are three types of legal systems—common law, civil law and theocratic law. The common law system, which evolved in England, and is now the system in most of Great Britain’s former colonies including the U.S., is based on tradition, precedent, and custom. So, judges look at how previous cases have been treated to decide how to treat current cases. Then, as new precedents are made, laws can be amended if necessary.
The second type of legal system is civil law which is based on a detailed set of laws organized into codes. This type of system, which is practiced in more than 80 countries including Germany, Japan, and Russia, is less adversarial than common law because under civil law, judges only have the power to apply the existing law, not interpret the law.
Finally, theocratic law is based on religious teachings. You might already know that today, Islamic law is the most widely practiced theocratic law system in the world. The foundation for Islamic law is the Koran which sets forth a set of morals that are intended to govern all aspects of life. In practice, Islamic jurors and scholars are struggling to apply the foundations of Islamic law to the modern world, and many Muslim countries today are actually practicing Islamic law combined with common law or civil law.
You might be wondering why it is important for international companies to be familiar with the legal system in the countries in which they operate. One key reason is because each system approaches the enforcement of contracts in a different way. Remember that a contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.
Contract law then is the body of law that governs contract enforcement. You might expect from our earlier discussion that common law systems tend to spell out detailed contingencies related to the enforcement of a contract, while in civil law systems contracts tend to be much shorter because many issues are already covered in a civil code. What does this mean for companies? Well, compared to a civil law system, contracts in common law states will be more expensive to draw up, and contract disputes tend to be very adversarial. However, in a common law system remember that the judge interprets the law with regard to the situation at hand, so there may be more flexibility in how a dispute is handled.
Now, suppose you come from a common law state, and you’ve signed an agreement with a company operating under a civil law system. Which law should apply? To deal with this type of scenario, many countries, including the U.S., have signed the United Nations Convention on Contracts for the International Sale of Goods, or CIGS. CIGS established a uniform set of rules governing certain aspects of the making and performance of everyday contracts between sellers and buyers who have their places of business in different nations.
Unfortunately, at the moment, only about 70 countries have ratified CIGS, and many major trading countries like the United Kingdom and Japan have still not signed the agreement.
Let’s move on to look at property rights and corruption. Think of property as a resource that you might own like land, buildings, trademarks, or capital. Property rights are the legal rights over the use to which a resource is put and over the use of any income that may be derived from that resource. As you’ve probably already guessed, the laws on property rights differ across countries.
Property rights can be violated through private action or through public action. Private violations like theft, piracy, or blackmail are done by individuals. Keep in mind that this type of violation can take place in any country, but countries with weak legal systems like Russia have a much bigger problem with it. In the time after the collapse of communism, the Russian Mafia forced many company to pay protection money or face violent repercussions. The Mafia in the U.S. has played a similar, though less persuasive role in the U.S., and in Japan, the yakuza, which is a version of the Mafia, also extorts funds from companies.
When public officials like politicians and bureaucrats violate property rights, they might use legal mechanisms such as levying excessive taxes like Chavez did in Venezuela, or requiring special expensive licenses, or even simply taking assets into state control. Public violation can also be illegal. You might think of having to pay a bribe in order to get the right to operate in a certain country like companies had to do in the Philippines when Ferdinand Marcos was in power.
In some countries, even though there are laws protecting property, the laws are not consistently enforced. You can learn more about corruption by exploring the Country Focus in your text on the corruption that took place in Venezuela in the late 1990s and early 2000s when the president of the country, Victor Chavez began to take control over foreign oil companies doing business in Venezuela, and also the Country Focus on the corruption during the 1990s in Nigeria by then military dictator Sani Abacha.
Remember, that this type of corruption is present in every country, but it’s much more prevalent in countries with weak legal systems. Transparency International, a nonprofit organization that fights corruption, ranks Finland and New Zealand as some of the least corrupt nations in the world, and Bangladesh and Nigeria as being among the most corrupt.
Why is this important for companies? Most companies will be significantly more cautious when doing business in countries with high levels of corruption. This can be quite detrimental to a country. Recall for example, that the Country Focus on corruption in Nigeria shows that the country’s high level of corruption has significantly and negatively affected economic growth in the nation. Nigeria has abundant national resources, especially oil, however, a brutal civil war and a series of military dictatorships that legitimized bribes have conspired to limit economic growth.
U.S. companies are no longer permitted to pay bribes like the ones we just mentioned. The Foreign Corrupt Practices Act was passed in the 1970s to make it illegal for companies to bribe government officials in foreign countries to obtain or maintain business over which the foreign official has authority. Companies have to keep detailed records so that it’s clear whether a violation has taken place.
There are some exceptions to this law. Facilitating or expediting payments, which are also called grease payments, are still allowed. So a company can speed up the processing of routine paperwork, or obtain permits or licenses using grease payments. The U.S. argues that since these types of activities would be performed routinely anyway, speeding them is not a violation of the law.
Let’s go on to talk about protecting intellectual property. Remember that intellectual property is property that is the product of intellectual activity. So, it can include anything from computer software or a chemical formula for a new drug to a screenplay or a music score.
There are various ways to protect intellectual property. A patent gives the inventor of a new product or process exclusive rights to manufacture, use or sell the invention. A copyright is the exclusive right of authors, composers, playwrights, artists, and publishers to publish and dispose of their work as they see fit. Finally, a trademark is a design or name that may be officially registered, that allows merchants or manufacturers to designate or differentiate their products.
The basic idea behind all of these is that the inventor of the intellectual property devoted time and other resources to its development, and therefore should be allowed to benefit from it. So, for example, if a pharmaceutical company spends $800 million dollars over the course of a decade to develop a new drug, the company can take out a patent on it, and enjoy the benefits of the effort at least for a period of time. Without the protection of the patent, the drug company would have little incentive to develop new intellectual property.
The protection of intellectual property differs by country. China and Thailand are currently among the world’s biggest violators of intellectual property rights. Pirated products like Rolex watches, Levi’s jeans, and computer software are widely available in both countries. In Central and Eastern Europe, about 66 percent of all software is pirated, and in China alone, 80 percent of software is pirated!
Nearly 200 countries have signed the Paris Convention for the Protection of Industrial Property to protect intellectual property rights, and are part of the World Property Organization, but enforcement of property regulations is still lax in many countries.
So, what can you do if your intellectual property is stolen? You can lobby your government to take action. Many companies have done this already, and as a result this is one of the areas that the WTO is working on though the Trade Related Aspects of Intellectual Property Rights or TRIPS agreement. You can also file your own lawsuit. Starbucks was successful at doing this against a Chinese firm that opened stores that were virtually replicas of the traditional Starbucks store. You can learn more about this case in the Management Focus in your text.
Another area that companies need to be aware of when they do business in other countries is product safety and product liability. Product safety laws set certain standards to which a product must adhere and product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage.
You probably already known that the U.S. has some of the strictest laws in the world in this area. Developing nations usually have less comprehensive laws. This often leads to an ethical dilemma for companies. What should a company do if the standards in a foreign market are lower than the standards at home? Should they incur the costs of complying with the home country standards, even if this puts them at a competitive disadvantage, or should they simply meet the standards of the host market even if this means that consumers may not be assured of the same product safety levels? We’ll be talking more about these types of issues in Chapter 4.
Now, let’s move on to the determinants of economic development.
As we already mentioned in the case of Nigeria, the political, economic, and legal environments of a country can have a significant impact on its economic development, and on its attractiveness as a potential investment location or target market.
There are different ways to measure differences in economic development. One way is to use gross national income per person, or GNI. You probably already know that countries like the U.S., Japan, and Switzerland rank high using this measure. In fact, in Japan, GNI in 2008 was $37,670. In contrast, China’s GNI was $2,940, and India’s an amazingly low $950!
But, GNI measures can be misleading because they don’t take into account cost of living differences. So, we adjust these numbers by purchasing power. Using purchasing power parity or PPP, we can adjust the numbers to reflect how far your money actually goes in a particular country. Making these adjustments would mean that the $2,940 in China would actually be equivalent to making $6,020 in the U.S., still very low, but a bit better.
Notice that when we look at just GNI per capita, countries like the United States, Japan, and Sweden are very rich. GNI per capita in Japan is $37,670. Consider that in contrast to India GNII per capita of just $950! Remember though, as we said, GNI per capita doesn’t tell he whole story, we have to also factor in purchasing power.
What does this mean for companies?
Well, looking at a PPP adjusted GNI for India in 2008, we would conclude that the average Indian could only consume about 6 percent of the goods and services consumed by the average American. Think about that the next time you go to the mall! Should we discount India as a potential market then? No, because if we look a little deeper we would find that the country has an emerging middle class of about 200 million people that represents a tremendous opportunity for foreign companies.
It’s important to recognize that GNI and PPP statistics only provide a static look at the situation in a particular country. We know for example, that India is much poorer than Japan, but what we don’t know from the figures is that economic growth could still make India an attractive market. By looking at the growth rate in GDP, we can see that India is currently growing a faster rate than many developed countries.
Nobel-prize winning economist Amartya Sen has argued that rather than simply focusing on material output measures like GNI per capital, we should consider the capabilities and opportunities people enjoy when measuring economic development. Sen believes that economic progress includes things such as removing impediments to freedom like tyranny, poverty, and the neglect of public facilities, and a democratization of political communities so that citizens have a voice in decisions. So, for example, Sen argues that providing basic health care and education is essential for economic growth.
The UN has incorporated Sen’s ideas in its Human Development Index, or HDI, which measures the quality of life in different countries. HDI is based on life expectancy at birth, educational attainment, and whether average incomes in a country are sufficient to meet the basic needs of life in a country.
Why is it important to look at the relationship between political economy and economic progress?
There is broad agreement among policy makers and scholars that innovation and entrepreneurship are the engines of long-run economic growth, and that furthermore innovation and entrepreneurship require a market economy. In other words, new products and business processes can increase the productivity of labor and capital. Just think of some of the innovations by Microsoft or Dell, both of which were formed by entrepreneurs, and how they have changed not only the way of doing business, but also how we live today. Remember that without the market economy that creates incentives for entrepreneurs like Bill Gates and Michael Dell, these companies and their innovations may never have been created!
Similarly, innovation and entrepreneurship require strong property rights. If the innovations by Microsoft were not given protection, there would have been little incentive for the company to continue to develop new software and other products.
What type of political system is best for economic development? People in the West would argue that a representative democracy with a strong market system is most conducive to economic growth. However, keep in mind that countries like China, South Korea, Hong Kong, and Singapore, all of which are recognized as being among the fastest-growing economies in the last 30 years, all began their growth with an undemocratic government in place. So, what’s the right answer? Most experts agree that sustained economic growth requires a free market system and strong protection of property rights, and that while a totalitarian regime may initially experience growth, it is unlikely that even a benevolent dictatorship is best in the long run.
Finally, remember that economic progress often leads to the establishment of democracy. When a free market system is in place, individual freedoms and democracy will follow. Think about countries, like South Korea and Taiwan that have adopted more democratic governments in the last twenty years, and of China which appears to be on the road to a free market system. The Country Focus on your text explores a recent effort by China to provide landholders with better property rights. Social unrest provoked by land disputes have increased in recent years and it is hoped that new laws will help prevent future problems.
So far, we’ve focused primarily on a country’s political and economic systems as being responsible for its rate of economic development, but there are other factors that are important too.
Adam Smith for example, argued that a country’s geography can also influence its economic growth. Harvard economist, Jeffery Sachs has expanded this idea to suggest that countries that are lucky enough to have favorable geographic situations are more likely to be open to and develop market economies. So, landlocked economies tend to grow more slowly than coastal economies that have easy access to trading routes. Similarly, countries with poor climates or soil conditions are less likely to grow than those with more favorable conditions.
You might guess that education is another factor that has been linked to economic development. Generally, we say that the more a country invests in its education system, the greater its economic growth. So, although Pakistan and South Korea were more or less equal in 1960, because South Korea made education a top priority, (almost all South Korean children went to school while just a third of Pakistani children were enrolled), South Korea was able to pull far ahead of Pakistan.
So, now that you’re familiar with the different types of political systems and how they affect economic growth, you may be wondering where the world stands today. We can see two major trends in the global economy. First, during the late 1980s and early 1990s, we saw a series of democratic revolutions, and second, there has been a strong move away from centrally planned and mixed economies toward free market economies. Let’s talk about each of these, beginning with the spread of democracy.
What has caused the spread in democracy over the last 15 years?
There are three main reasons. First, many totalitarian regimes were unsuccessful. Think about Eastern Europe for example and the revolution there that was prompted by the growing gap between the rich, vibrant Western economies and the stagnant, poor economies of the Communist East. Since the revolution, countries like Poland, and the Czech Republic have emerged as economic success stories.
A second reason for the spread of democracy is that advances in communications technology like the Internet, faxes, and satellite TV have all made it easier to spread democratic ideals, and have limited the ability of governments to suppress access to these ideas.
Finally, emerging middle classes have been pushing for democratic reforms.
The number of democracies in the world has nearly doubled since 1987. Many of the new democracies are in Eastern Europe and Latin America. Mexico, for example, had its first free and fair presidential election in 2000.
So, should we expect this path to continue? What is the world likely to look like in the future?
Some political scientists believe that the trend will continue and that Western liberal democracy will prevail. Others however, have suggested that while we see societies modernizing and adopting many of the material goods like Coca-Cola that are a part of the democratic free market economy, this type of modernization may also be creating a push for the adoption of more traditional values. So, for example the resurgence of Islam in traditional Muslim societies may be a consequence of the countries trying to come to grips with the modernization that is taking place.
What does this mean for companies? Well, if this second perspective holds, it may be much more difficult for companies to do business in certain parts of the world.
Now, let’s talk about the second trend, the spread of market based systems. Going hand in hand with the spread of democracy has been a move away from command and mixed economies and towards market-based systems. You already know that countries in the former Soviet Union and Eastern European Communist bloc rejected their systems in favor of market based systems, and we have seen a similar trend in Asian countries like China and Vietnam, as well as in African countries like Angola, Ethiopia, and Mozambique.
The reasons for the shift are the same everywhere. The old system simply didn’t work well. Keep in mind though, that economic freedom doesn’t necessarily mean political freedom. Hong Kong and Singapore for example have free market systems, but are not politically free.
So, how do countries make the change from a centrally planned or mixed economy to a free market economy?
There are three steps that must take place—deregulation, privatization, and the legal enforcement of property rights.
Deregulation involves removing legal restrictions to the free play of markets, the establishment of private enterprises, and the manner in which private enterprises operate. So in other words, price controls are eliminated so that price is set by supply and demand, private enterprises are permitted, and so is foreign investment and trade. In Egypt, for example, major economic reforms have helped the country become a destination for companies like Microsoft, Oracle, and Vodafone. You can find out more about these reforms and their implications for Egypt in the Closing Case in your text.
The second step, privatization, transfers ownership of state property to private investors. Because private investors are motivated by profit, the companies should become more efficient and productive. In Great Britain for example, over 100 companies were privatized. If the process is to be successful though, deregulation and an open economy have to occur as well. Otherwise, the competition that leads to greater efficiency isn’t present.
Finally, remember that if a market economy is to function, there must also be a strong legal system in place to protect property rights and provide contract enforcement. This is often a challenge to countries going through the shift towards being a market economy. In Eastern Europe for example, since property had been owned by the state, there was no mechanism in place to protect private property. Even now, while most countries have improved their systems, there are still gaps that can create huge difficulties for companies.
Still, despite the problems, companies now have access to new markets like China and its 1.2 billion people, and India’s 1.1 billion people! Latin America has also emerged as a new market of about 400 million consumers. Keep in mind that these countries are still transitioning and while the potential benefits are enormous, there is still significant risk.
We’ve already talked about what much of this means for companies, but let’s look at two broad implications for managers of international companies.
First, political, economic, and legal systems of a country raise important ethical issues that have implications for the practice of international business. For example, should a company operate in a country where basic human rights are denied, or corruption is rampant? We’ll be talking more about these ideas in later chapters.
Second, the political, economic, and legal environment of a country influences the attractiveness of that country as a potential market or investment destination.
Keep in mind that a large population doesn’t always mean a large profit. The benefits of doing business in a market are a function of not only its size, but also the current and future purchasing power of its consumers. So, in 1960, if you looked at South Korea, it may not have looked too attractive. Of course now you know that the companies that invested then, and gained first mover advantages are benefiting from their foresight. Companies just coming into the market are having a much more difficult time building brand loyalty and gaining experience.
Today, we see many companies expanding in China in the hopes that they will be able to achieve first mover benefits.
What are the costs of doing business in a foreign market? We’ll talk more about this in later chapters, but for now, know that it may be necessary to make payments to the host government just to be allowed to operate in a country.
There may also be costs associated with the economic systems of the country. For example if a country’s infrastructure is poor, a company may find it has to make additional investments. McDonald’s has done this in Moscow where it had to vertically integrate backwards just to maintain food quality levels. Russian grown meat and potatoes were so poor the company couldn’t use them, and so it set up its own dairy farms, cattle ranches, vegetable plots, and food processing plants.
Finally, there may be legal costs associated with the country. Complying with local laws and workplace regulations, product safety standards, and environmental pollution laws can all affect the bottom line. So companies doing business in the U.S. for example, may find insurance costs exorbitant. And, as we mentioned earlier, if a country has a poor legal system, costs will rise.
So, given the costs of doing business in a foreign market, is it worth it? Well, you’ll need to look at the risks involved.
Political risk is the likelihood that political forces will cause drastic changes in a country’s business environment that adversely affects the profit and other goals of a company. So, this type of risk is going to be higher in countries that are in the midst of social unrest or disorder, and its effects can be sudden and dramatic. In 1979, following the Islamic revolution in Iran for example, the new government simply seized the Iranian assets of many U.S. companies without compensation.
Economic risk is the likelihood that economic mismanagement will cause drastic changes in a country’s business environment that adversely affects the profits and other goals of a company. You might think of the Asian financial crisis and its implications here. Over-investment in factories and office space, and poor loans sent the economy into a downward spiral. We’ll talk more about this in later chapters.
Finally, legal risk is the likelihood that a trading partner will opportunistically break a contract or expropriate property rights. We’ve already talked about the importance of a strong legal system to making a country an attractive market.
So, we can say that the overall attractiveness of a country as a potential market or investment site is a function of the benefits, costs, and risks associated with doing business in that country. You might recall from the Opening Case for example, that Poland has emerged as an economic success and in doing so, as a more attractive destination for international companies.
Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?
Question 1: The political, economic, and legal systems of a country are called
a) political systems
b) economic systems
c) legal systems
d) political economy
If you picked D, you’re right!
Question 2: Individuals who believe socialism can be achieved only through revolutions and totalitarian dictatorship are called
a) social democrats
b) communists
c) individualists
d) representative democrats
If you picked B, you’re correct!
Question 3: Which system emphasizes individual freedom and self-expression?
a) individualism
b) collectivism
c) theocratic totalitarianism
d) tribal totalitarianism
If you picked A, you’re doing great!
Question 4: Which of the following is not one of the three broad types of economic systems?
a) Market economy
b) Command economy
c) Mixed economy
d) Free economy
Did you pick D? I hope so!
Question 5: Which type of legal system is based on a very detailed set of laws organized into codes?
a) Contract law
b) Civil law
c) Common law
d) Theocratic law
The correct answer is B. Did you get it right?
Question 6: Which type of risk involves the likelihood that a trading partner will opportunistically break a contract or expropriate intellectual property rights?
a) contract law
b) economic risk
c) legal risk
d) political risk
The correct answer is C. How did you do?
