Chapter 2

National Differences
in Political Economy

WHAT IS A POLITICAL ECONOMY?

Political economy of a nation - 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 system - 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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WHAT IS A POLITICAL SYSTEM?

Collectivism stresses the primacy of collective
goals over individual goals
Individualism an individual should have
freedom in his own economic and political
pursuits
Democracy - government is by the people,
exercised either directly or through elected
representatives
Totalitarianism - one person or political party
exercises absolute control over all spheres of
human life and prohibits opposing political
parties
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POLITICAL SYSTEMS

Collectivism:

Refers to an ideology that stresses the

collective goals. The system values the good of
the society rather than individual welfare.
Individual rights should be sacrificed and
property should be owned in common.
Advocated by Plato in the Republic.
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TWO APPROACHES
Communists:
Socialism is achieved through violent
revolution.

Social Democrats:

Socialism is achieved through democratic

means.
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POLITICAL SYSTEMS

Individualism
Opposite of Collectivism.
Refers to an ideology that stresses the interest of the
individual more than the interest of the state or the society.
The ideology is free market economy.
Everybody will take care of his private property and thus
be most productive rather than being inefficient. So, as a
whole, state will progress.
Adam Smith (1723-1790)
Embodied in the U.S. Declaration of Independence.
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TWO APPROACHES
Democracy
Government by the people, exercised either directly or
through elected representatives.

Totalitarianism

Government in which one person or political party

exercises absolute control over all spheres of human life
and opposing political parties are prohibited.
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DEMOCRACY
This refers to a political system in which government is by the
people.
In Ancient Greece, citizens were directly involved in
decision-making.
Now, most modern democratic states practice representative
democracy.

Here citizens periodically elect individuals to represent them.

People elect the representatives, who combined forms the
government.
These representatives function on behalf of people.
This system is inspired by the philosophy of individualism.
It allows both economic and political freedom.

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TOTALITARIANISM
One person/party exercises absolute control over all
spheres of human life (competing political parties are
banned)

This is a form of government in which one person or political

party exercises absolute control over all spheres of human life
and opposition party is prohibited.
This system is inspired by the philosophy of collectivism.
The characteristics of democracy are absent.
Communist totalitarianism
Theocratic totalitarianism
Tribal totalitarianism
Right wing totalitarianism

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COMMUNIST TOTALITARIANISM
Advocates that socialism can be
achieved only through totalitarian
dictatorship.
Has been in decline worldwide
since 1989.
Communist Totalitarian states
deny many basic civil liberties to
their populations .
Exceptions to this trend are China,
Vietnam, Laos, North Korea, and
Cuba.
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THEOCRATIC TOTALITARIANISM
Found in states where political
power is monopolized by a party,
group, or individual that governs
according to religious principles
Most common form of theocratic
totalitarianism is based on Islam.
State limits freedom of political
and religious expression while the
laws of the state are based on
Islamic principles .
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TRIBAL TOTALITARIANISM
Tribal totalitarianism occurs when a
political party that represents the
interests of a particular tribe (and not
always the majority tribe) monopolizes
power.
Tribal totalitarianism has arisen from
time to time in African countries such
as Zimbabwe, Tanzania, Uganda, and
Kenya

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RIGHT WING TOTALITARIANISM

Generally permits some individual
economic freedom but restricts
individual political freedom,
frequently on the grounds that it
would lead to the rise of communism
Many right-wing totalitarian
governments are backed by the
military, and in some cases the
government may be made up of
military officers
E.g. before 80s South Korea,
Taiwan, Singapore, Indonesia and
the Philippines were right-wing
totalitarianism.

Since the early 1980s this form of

government has been in retreat

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ECONOMIC SYSTEMS
There are three types of economic systems

Market economy
Command economy
Mixed economy
Collectivism __________ Middle Point _______Individualism
(Command economy)
(Mixed economy)
(Market economy)

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WHAT IS AN ECONOMIC SYSTEM?

There are three types of economic systems
1. Market economies - all productive activities are
privately owned and production is determined by
the interaction of supply and demand
2. Command economies - government plans the
goods and services that a country produces, the
quantity that is produced, and the prices as which
they are sold
3. Mixed economies - certain sectors of the
economy are left to private ownership and free
market mechanisms while other sectors have
significant state ownership and government
planning
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BROADER CONCEPTIONS OF
DEVELOPMENT: AMARTYA SEN
Development should be measured less by material
output, such as GNP, per capita and measured
more by the capabilities and opportunities that
people enjoy.
Human Development Index (HDI) measures
quality of life in different nations
Based on life expectancy, educational attainment,
and average incomes
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WHAT IS A LEGAL SYSTEM?

Legal system - the rules that regulate behavior
along with the processes by which the laws are
enforced and through which redress for
grievances is obtained
the system in a country is influenced by the
prevailing political system

Legal systems are important for business

because they
define how business transactions are executed
identify the rights and obligations of parties involved
in business transactions

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WHAT IS A LEGAL SYSTEM?

There are three types of legal systems
1. Common law - based on tradition,
precedent, and custom
2. Civic law - based on detailed set of laws
organized into codes
3. Theocratic law - law is based on religious
teachings

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THEOCRATIC LAW
Based upon religious teachings.
Islamic law is the most widely
practiced theocratic legal system in
the modern world, although both
Hindu and Jewish law are still
practiced.
Based upon moral behavior.
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WHICH COUNTRIES ARE

MOST CORRUPT?
Rankings of Corruption by Country 2010

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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. Patents exclusive rights for a defined period to the
manufacture, use, or sale of that invention
2. Copyrights the exclusive legal rights of authors,
composers, playwrights, artists, and publishers to
publish and disperse their work as they see fit
3. Trademarks design and names by which
merchants or manufacturers designate and
differentiate their products
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WHAT IS PRODUCT SAFETY

AND LIABILITY?
Product safety laws set certain standards to
which a product must adhere
Product liability involves holding a firm and its
officers responsible when a product causes
injury, death, or damage
liability laws tend to be less extensive in less
developed nations

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