National differences in: Political system

Economic system
Legal system
Political System
Collectivism vs Individualism
Democracy vs Totalitarianism

Different political systems

Republic vs monarchy
Presidential executive system: executive branch is separate
from the legislative branch. Example: US
Parliamentary executive system: executive branch is not
separate from the legislative branch. Example: UK

Collectivism
Collective goals over individual
goals

Socialism
State ownership of means of
production

Social Democrats

Communists

UK, France, Sweden

Old Soviet Union, China

Characteristics of the social democratic agenda in the past:

1. nationalize private companies in certain industries,
transforming them into state-owned enterprises to be run
for the "public good rather than private profit"
2. provide more welfare benefits, which require higher
taxes
3. more willing to regulate and intervene in the market

Democracy vs Totalitarianism
Democracy: government by the people, directly, or
indirectly (representative democracy)
Totalitarianism: one person or one party dominates politics
Communist totalitarianism old Soviet Union, China
Theocratic totalitarianism Iran
Tribal
Uganda
Right wing
S. Korea, Taiwan, Philippines

Collectivism
Individualism

Democracy
Totalitarianism
UK in early 1970s Soviet Union
US

Economic System
Market economy:

US, Japan

Command economy (centrally planned economy):

Old China, old Soviet Union
Mixed economy:

France, Sweden

Legal System
1. Property rights
Protection of intellectual property
- patent
- copyright
- trademark
Why protect intellectual property?
2. Product safety and product liability
3. Contract law

Foreign Corrupt Practice Act (FCPA) of 1977 and

Omnibus Trade Act of 1988
1. Payments to facilitate ROUTINE GOVERNMENT
ACTIONS is legal.
These are transaction bribes considered to be necessary
action to do business. Routine government actions concern
issues such as securing water services, telephones, mail,
cargo loading and unloading, special handling of perishable
products, transit of goods, visas, work orders, security
permits, and police and fire protection. The bribe (gratuity)
is usually minor and is often made to low level officials.
2. Payments to influence GOVERNMENTAL POLICY
DECISIONS are illegal.
Policy decisions refer mainly to situations in which the
obtaining or retaining of a contract is at stake. The illegal
bribe is usually significant.
3. Illegal bribery occurs when someone voluntarily make a
payment of any amount to encourage an unlawful act.
4. The FCPA prohibits any payment to an agent or third
party that could be used to illegally bribe an official or to
secure an unlawful act if the individual making the
payment knows, or should know, that the recipient will
make the secondary illegal payment.

5. Penalties to a company for FCPA violations can rise as

high as $1 million fine, and an individual may face a fine of
up to $10,000 and a jail term of up to five years.
Regulations also prohibit companies from paying fines
assessed against their employees or other individuals, nor
can they assist individuals in obtaining funds to pay such
fines.

Extreme Outcomes of Political Risk

Confiscation
A government takes over a company's assets without
compensation, typically after a war, coup, or a change in
ideology.
Example: Cuba in 1959 and Iran in 1979
Expropriation
A government takes over a company's assets. A
compensation is negotiated between the company and the
government.
Example: ITT's telephone company in Peru; mining
industry in Bolivia

Political Economy and Economic Progress

1. Innovation is the engine of growth
2. Innovation requires a market economy
3. Innovation requires strong property rights
4. The required political system
5. Economic progress brings democracy