SUMMARY REPORT
CHAPTER-2: National Differences in Political Economy
L0-1 Understand how the political systems of countries differ.
OBJECTIVES:
L0-2 Understand how the economic systems of countries differ.
LEARNING
L0-3 Understand how the legal systems of countries differ.
L0-4 Explain the implications for management practice of national
differences in political economy.
Complexity of International Business: International firms are more
complex as compared to domestic ones because political, economic,
INTRODUCTION
legal and cultural systems in each country vary. These variations have
an effect on the cost, benefit and risk associated with international
trade.
Poland’s Situation: The author employs Poland as a case study to
illustrate these ideas after changing from a centrally planned
economy into market-oriented economy following the discourage
communism.
Collectivism vs. Individualism: The chapter describes political
systems along two dimensions: collectivism versus individualism
and democratic versus totalitarian regimes.
Collectivism: Emphasizes the primacy of collective goals over
individual goals, often associated with totalitarian regimes.
Individualism: Prioritizes individual freedoms and self-
expression, typically linked with democratic political systems.
POLITICAL
SYSTEMS
Socialism: The chapter traces the intellectual roots of modern
socialism to Karl Marx, explaining its evolution into communism and
social democracy.
Communism: Advocates for state ownership of production,
historically prevalent but now mostly declined.
Social Democracy: Seeks to achieve socialism through
democratic means, influencing many Western democracies but
has seen a decline in recent decades.
TOTALITARIANISM
DEMOCRACY AND Democracy: Involves government by the people, often through
representative democracy. It typically supports individualism and
market economies.
Totalitarianism: Represents absolute control by one person or party,
with no opposition tolerated. The chapter outlines different forms of
totalitarianism, including communist, theocratic, tribal, and right-wing.
Market Economy: Characterized by private ownership and
production driven by supply and demand. Competition is crucial for
efficiency, but monopolies pose a threat.
ECONOMIC
SYSTEMS
Command Economy: The government controls all production, aiming
to serve the collective good. This system has declined in favor of
market economies due to inefficiencies.
Mixed Economy: Combines elements of both market and command
economies. Although less common today, governments may still
intervene in times of economic crisis.
Common Law: Based on tradition, precedent, and custom, allowing
flexibility in legal interpretations.
LEGAL SYSTEMS
Civil Law: Structured around comprehensive codes, providing less
flexibility but more consistency.
Theocratic Law: Based on religious teachings, such as Islamic law.
Contract Law and Property Rights: The chapter highlights the
importance of understanding contract law and property rights in
different legal systems, especially in international business.
Private Action: Includes theft and other crimes by individuals or
PROPERTY RIGHTS &
groups, with the strength of legal systems affecting the level of
CORRUPTION
criminal action.
Public Action and Corruption: Occurs when government officials
violate property rights through excessive taxation or extortion.
Corruption is treated as illegal and punished accordingly, but its
prevalence varies widely across countries.
CONCLUSION
This chapter concludes by emphasizing that understanding national
differences in political, economic, and legal systems is crucial for
international business, as these differences directly shape strategies
and operations.
