political economy through different aspects such as sociology, political science, anthropology, economics. different political systems

1. Muhammad Shafiq
forshaf@gmail.com
http://www.slideshare.net/forshaf

2. To learn how differing types of political system function, in terms
of governmental processes, societies and business interactions.
To gain a critical appreciation of democracy’s progress in
differing national environments.
To assess political risk, both internally and internationally.
To appreciate the nature and significance of diverse national
To assess legal risk for international
managers, including both national and
international implications.
legal systems, as well as their interactions
with both regional and international legal frame-
works
Chapter 5

3. Introduction to Political
economy
• political economy is an area of study that permits a variety
of ideological perspectives and theoretical paradigms.
• It's more than four hundred year old history includes the
works of French Physiocrats, Adam Smith, David Ricardo and
Karl Marx, among others.
• a political economy approach in Sociology is applied to study
the effects of people's involvement in society as members of
groups, and how that changes their ability to function.

4. Political economy
• Political economy, branch of social science that studies the
relationships between individuals and society and between
markets and the state, using a diverse set of tools and methods
drawn largely from economics, political science, and sociology.
• The term political economy s derived from the Greek polis,
meaning “city” or “state,” and oikonomos, meaning “one who
manages a household or estate.”
• Political economy thus can be understood as the study of how
a country—the public’s household—is managed or governed,
taking into account both political and economic factors.
•

5. Renaissance of political economy
•In the second half of the 20th century, as the social sciences (especially
economics but also political science) became increasingly abstract,
formal, and specialized in both focus and methodology, political
economy was revived to provide a broader framework for
understanding complex national and international problems and events.
• The field of political economy today encompasses several areas of
study, including the politics of economic relations, domestic political
and economic issues, the comparative study of political and economic
systems, and international political economy.
• The emergence of international political economy, first within
international relations and later as a distinct field of inquiry, marked the
return of political economy to its roots as a holistic study of individuals,
states, markets, and society.

6. Political Economy define
• Political economy is a term used for studying production and trade,
and their relations with law, custom, and government, as well as with
the distribution of national income and wealth.
• Political economy originated in moral philosophy.
• It was developed in the 18th century as the study of the economies of
states, or polities, hence the term political economy.
• In the late 19th century, the term economics came to replace political
economy, coinciding with the publication of an influential textbook
by Alfred Marshall in 1890.[2]
Earlier, William Stanley Jevons, a
proponent of mathematical methods applied to the subject,
advocated economics for brevity and with the hope of the term
becoming "the recognized name of a science."[3][4]

7. Political economy
• A rapidly growing mainstream literature from the 1970s has
expanded beyond the model of economic policy in which planners
maximize utility of a representative individual toward examining how
political forces affect the choice of economic policies, especially as
to distributional conflicts and political institutions.[5]
It is available as
an area of study in certain colleges and universities.

8. Comparing political systemsComparing political systems
Definition: structures and processes by which a nation-state is
governed.
Authoritarian government – concentration of power in an
individual or small group, often military or ideology-based.
Democratic government – system based on accountability of
governments to the people, through free elections.
Many political systems fall on a continuum between
democracy and authoritarianism:
• The market-oriented authoritarian or semi-
authoritarian system characterizes numerous
emerging economies, where the state guides
economic development.

9. Degrees of democracyDegrees of democracy
States vary in democratic accountability, participation and
civil rights. Attributes of democracy include:
• Free and fair elections, supported by media freedom
• The rule of law, including independent judiciary (though its robustness
varies between states)
• Civil society – the presence of freely-functioning voluntary groups
(including religious, political and labour) is a substantive indicator of
genuine pluralism.
Many transition economies are
building democratic institutions
alongside market structures;
however, legacies of authori-
tarianism remain.

10. Features of authoritarianism and democracy
Authoritarian government rests on rule by a political elite that has power
for the time being. Such a regime usually holds on to the power by
suppressing dissent, often by force. Democratic governments tend to be
accountable to the people,
instead, by relying on free
and fair elections. The will
of the leadership thus domi-
nates in an authoritarian
regime, whereas democracy
relies on representative
institutions like the elected
legislatures.
Power determines law;
constitution on paper only
Detention without charge;
few rights for accused;
Imprisonment for
political dissent
Restrictions on association,
expression and any activity
contrary to the official line
Elections with little or no
choice of the candidates
Courts are an administra-
tive arm of government
Press controlled by the
state; restricted reporting
Constitutional framework;
equality before law
Right to a fair trial; no
detention without charge;
torture prohibited
Right to vote and stand
for office; freedom of
association and expression
Regular elections; one per-
son/one vote; monitoring for
irregularities, intimidation
Independent judiciary;
transparent process
Editorial and reporting inde-
pendent from government
Rule of law
Civil rights
Political
rights
Elections
Court
system
Freedom
of the press
Authoritarianism Democracyversus

11. From
authoritarian
to democratic:
selected
countries
Source: Kekic, L. (2006) ‘A
pause in democracy’s march’,
The Economist: The World in
2007 data,
www.theworldin.com

12. Branches of government
Executive – carries out government functions, including
finances, national security and social welfare.
Legislative – law-making structures and processes; in
democracies, based on a national elected assembly.
Judicial – through the court system, officials administer
justice and adjudicate in disputes for both individuals and
organizations.
Two constitutional principles underpin
relations between the three branches:
– Separation of powers – each is independent,
but…
– Checks and balances prevent domination by one
branch.

13. Parties and politics
Political activities in most countries are played out via political
parties, although they are typically restricted to government-
sponsored parties in authoritarian states.
In democratic societies, parties represent a range of views:
• Conservative (on the ‘right’), socialist (on the ‘left’), nationalist, religious
and rural, among others.
• Centrist parties have greater widespread appeal to electorates.
In multiparty systems, a coalition government
(formed by two or more parties) is a solution,
but can be unstable.

14. Respect for
institutions in
Latin America
(2007)
Source: ‘A warning for reformers’, The Economist, 17 November 2007

15. Political riskPolitical risk
Businesses value stability and predictability of government
policy in assessing location strengths and weaknesses.
Political risk can arise within a country or from external
sources.
An authoritarian regime may seem to be more stable than a
multiparty democratic one, but appearances can be deceptive.
Factors which can destabilize a government (to which
authoritarian governments are particularly vulnerable)
include: corruption , personalized power
centres, factional infighting, institutional
power bases (such as the army).

16. Internal political
risks

17. Note: 0 = highly corrupt, 10 = highly clean. Rankings appear in brackets
Source: Transparency International (2007) Corruption Perception Index,
www.transparency.org
Transparency
International’s
Corruption
Perception Index,
selected
countries,
2007

18. International political riskInternational political risk
Insecurities in relations between countries create
uncertainties which affect international business.
Countries differ in their relative power – in economic,
political and military respects – and their businesses often
reflect these strengths (and weaknesses).
Regional and cross-border conflicts give rise to risk in many
parts of the world, especially affecting operations in resource-
rich countries.
In unstable locations and uncertain
environments, MNEs must assess
risks and work with stakeholders.

19. International risksInternational risks

20. The role of governments in
economic activities
Traditional liberal market view is one of minimum
intervention, but recent financial crises have prompted
direct financial support by US and European governments.
State-owned enterprises, especially in strategic sectors
(such as energy), are limbs of the government.
State-controlled enterprises have varying ownership
structures – some are listed companies, although the state
is the majority shareholder.
State players are a growing force in the global economy,
notably China and resource-rich Middle Eastern states.

21. Business regulation
• Regulation can be advantageous for businesses, as in
government small-business initiatives, but is generally
perceived as burdensome and costly.
• A trend has been reduction in national regulation.
• Businesses may be attracted to countries with little regulation,
but the downside may be weak environmental and safety
regimes, as well as weak protection of property.
• Competition law seeks to control anti-competitive and unfair
business practices:
• EU competition law targets abuse of a dominant position in
the relevant market.

22. Business regulation in selected countries

23. Legal frameworks:Legal frameworks:
national to internationalnational to international
The national legal system provides the substantive law and
court structure which most directly affect businesses.
MNEs operating in different countries are subject to the
national law in each.
• Legal systems in democratic societies where the rule of law
prevails tend to be more transparent than those in
authoritarian countries.
Regional frameworks and international
law overlap with national law in several
spheres, such as environmental protection.

24. Dimensions
of the legal
environment

25. Legal risk internationallyLegal risk internationally
Legal risk arises when a company needs to launch legal action
(such as to enforce a contract) or when it must defend itself
against legal action.
In FDI and outsourcing strategies, the MNE is involved in
webs of legal relations in foreign environments:
Contracts with suppliers, customers, subcontractors
Liability under employment law and health & safety law
Liability under environmental protection law
Liability for dangerous products
Liability for industrial accidents

26. Legal risks in overseas
locations

27. Most
numerous
types of
litigation in
the US and
UK (2004)
Source: Financial
Times, 10 October 2005

28. Legal institutions in the EULegal institutions in the EU
The Council of Ministers is the seat of executive authority.
The European Commission has both legislative and executive
powers, such as issuing regulations and directives.
The European Parliament acts as a check on the other
institutions, but is not as influential as a national legislature.
EU institutional reforms focus on reducing unwieldy
structure, but face objections …
From those fearful of loss of national sovereignty
From those objecting to lack of democratic accountability.

29. International law and businessInternational law and business
implicationsimplications
Inter-governmental co-operation has led to a growing body
of international law, in the form of conventions and treaties.
There is a growing consensus internationally that in some
areas, such as human rights and the environment,
international law is setting the standards.
For firms, compliance with
international standards, rather than
weaker national laws, is increasingly
expected by stakeholders,
consonant with CSR strategy.

30. Ratification of major human rights conventions
Source: UNDP (2006) Human Development Report 2006 (Basingstoke: Palgrave Macmillan)

31. ConclusionsConclusions
In both operations and markets, national political and legal
systems are key aspects of the environment for MNEs.
Both authoritarian and democratic systems – and many in
between – offer opportunities for international business,
but…
Political and legal risks arise in countries with authoritarian regimes
and weak rule of law.
Achieving corporate goals depends on managing these risks.
The growing importance of international
law is concentrating the minds of decision-
makers in both governments and MNEs.