CRITICAL THINKING AND DISCUSSION QUESTIONS
QUESTION 1: Free market economies stimulate greater economic growth, whereas
state-directed economies stifle growth. Discuss.
ANSWER 1: In a market economy, private individuals and corporations are allowed to own
property and other assets. This right of ownership provides a powerful incentive for people to
work hard, introduce new products, develop better advertising campaigns, invent new products,
QUESTION 2: A democratic political system is an essential condition for sustained economic
progress. Discuss.
ANSWER 2: Although you can always find examples of totalitarian regimes that have achieved
QUESTION 3: What is the relationship between corruption in a country (i.e., bribe- taking by
government officials) and economic growth? Is corruption always bad?
ANSWER 3: In the United States we show public contempt for the practice of bribery although
evidence suggests that bribery is not uncommon in the United States. When government
QUESTION 4: You are the CEO of a company that has to choose between making a $100
million investment in Russia or Poland. Both investments promise the same long-run return, so
your choice is driven by risk considerations. Assess the various risks of doing business in each of
these nations. Which investment would you favor and why?
ANSWER 4: When assessing the risks of investment, one should consider the political,
economic, and legal risks of doing business in both Russia and Poland. The political risk in
QUESTION 5: Read the Country Focus on Venezuela under the leadership of Hugo Chávez, then
answer the following questions:
a. Under Chávez’s leadership, what kind of economic system was put in place in Venezuela?
How would you characterize the political system?
b. How do you think that Chávez’s unilateral changes to contracts with foreign oil companies
will impact upon future investment by foreigners in Venezuela?
c. How will the high level of public corruption in Venezuela impact future growth rates?
d. Currently Venezuela is benefitting from a boom in oil prices. What do you think might happen
if oil prices retreat from their current high level?
e. In your estimation, what is the long run prognosis for the Venezuelan economy? Is this a
country that is attractive to international businesses?
ANSWER 5:
a. Chávez claimed to be a democratic socialist. During his 1998 presidential campaign, Chávez
b. In the oil industry, which the country depends on for some 70 percent of its exports, Chávez
c. Corruption in Venezuela is rampant. In 2012, Transparency International ranked the country
d. During the years when oil prices were rising, Venezuela, one of the world’s largest producers
of oil, became very rich. Chávez funded various social programs using the oil profits. Most
e. A recent World Bank study puts Venezuela as being one of the most regulated economies in
the world. The move to take various enterprises under state control is also impeding economic
QUESTION 6: Read the Management Focus feature: Did Walmart violate the Foreign Corrupt
Practices Act? What is your opinion? If you think they did, what do you think the consequences
will be for Walmart?
ANSWER 6: Student opinions will vary on this topic. Despite spending more than $230 million
CLOSING CASE: Putin’s Russia
Summary
The closing case describes the process of transitioning from a centrally planned economy to a
market-based economic system in Russia following the collapse of the Soviet Union in 1991.
Attempts at political reform resulted in a strong presidency that has in many cases undermined
the country’s transition to a democratic government, while the economic reform process often
ended up benefitting a select few private investors with strong ties to the former Soviet
government. Corruption and organized crime have proven to be a major obstacle to economic
growth in Russia into the twenty-first century. Despite significant growth in the early part of the
century on the strength of Russia’s booming oil and gas export industry, the country failed to
diversify its output and was severely affected by the collapse of oil prices beginning in
mid-2014. The presence of a highly bureaucratic government (one of the many vestiges of the
Soviet system in present-day Russia) has also resulted in a number of barriers to investment and
business growth, while political favoritism continues to benefit businesses that have allied
themselves with the government.
Russia’s current president, Vladimir Putin, has also curtailed civil liberties and expanded the
power of the presidency to the point that the country now closely resembles an autocracy rather
than a democracy. Political opponents are regularly imprisoned, while the country’s constitution
and legal system have been revised to place more power in the hands of the president. In 2014,
despite international condemnation, Putin led Russia to annex the Crimea region of neighboring
Ukraine, leading to the imposition of strong economic sanctions by Western countries. Despite
the damaging economic effects of the sanctions, combined with falling oil prices, Putin’s grip on
the Russian political and economic system shows no signs of weakening.
A discussion of the case can revolve around the following questions:
QUESTION 1: Why did the Russian economy perform well during the 2001–13 period? Why
did it run into trouble in 2014? What does this tell you about the efficacy of
post-communist economic and political reforms?
ANSWER 1: Russia’s economy is primarily based on its oil and gas industry. As oil prices rose
QUESTION 2: How has Vladimir Putin been able to accumulate so much political power in
Russia?
ANSWER 2: Putin benefitted from a lingering culture of bureaucracy and political cronyism left
QUESTION 3: At this point, how secure do you think Putin’s hold on power is? What might
change things?
ANSWER 3: Although Putin maintains a firm grip on the Russian political system, much of his
QUESTION 4: After the collapse of communism, many Western businesses started to invest in
Russia. How do you think the current political and economic climate is impacting the
profitability of those investments?
ANSWER 4: Following Russia’s annexation of Crimea and the imposition of sanctions by
Western governments, many Western companies invested in the region began to worry that Putin
QUESTION 5: Given what is happening in Russia today, what do you think will happen to
foreign direct investment in Russia going forward? Is this a country where a Western enterprise
would want to do business?
The political climate in Russia is a significant concern to Western investors. However, the
potential for profit in Russia is high despite the recent downturn, and many businesses remain
willing to invest there as soon as the economy shows signs of improvement.
Another Perspective: For more information on the potential risks and rewards of investing in
Russia go to
{http://www.strategic-risk-global.com/what-are-the-business-risks-of-investing-in-russia/141440
3.article} and
{http://www.reuters.com/article/2015/04/23/russia-crisis-western-companies-idUSL6N0X30GX
20150423}.
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library on Pinterest, which is updated
on a monthly basis. While there be sure to “like” the clips that work well for you, and add notes
that might be helpful to your colleagues.
INCORPORATING globalEDGE™ EXERCISES
Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following exercises:
Exercise 1
The definition of words and political ideas can have different meanings in different contexts
worldwide. In fact, the Freedom in the World survey published by Freedom House evaluates the
state of political rights and civil liberties around the world. Provide a description of this survey
and a ranking (in terms of “freedom”) of the world’s leaders and laggards. What factors are taken
into consideration in this survey?
Exercise 1 Answer
Search phrase: Freedom in the World or Freedom House
Resource Name: Freedom House Surveys
Website: http://www.freedomhouse.org/reports
globalEDGE Category: Publications
Additional Info:
Published annually since 1972, the survey ratings and narrative reports on 195 countries provide
insight into an assessment of global political rights and civil liberties in each country. Political
rights ratings are based on an evaluation of three subcategories: electoral process, political
pluralism and participation, and functioning of government. Civil liberties ratings are based on
an evaluation of four subcategories: freedom of expression and belief, associational and
organizational rights, rule of law, and personal autonomy and individual rights.
Exercise 2
As the chapter discusses, differences in political, economic, and legal systems have considerable
impact on the benefits, costs, and risks of doing business in countries around the world. It also
has a considerable impact on how easy it is to do business in these countries. The World Bank
Doing Business Indicators measures the extent of business regulations in countries around the
world. Compare the United States, France, Japan, Brazil, and Nigeria in terms of how easily
contracts are enforced, how property can be registered, and how investors can be protected.
Identify in which area you see the greatest variation from one country to the next.
Exercise 2 Answer
OPENING CASE: Corruption in Brazil
Summary
Although Brazil is the seventh largest economy in the world, many economists argue that
widespread corruption prevents the country from reaching its true economic potential. Political
favoritism and rampant bribery are among the major obstacles to economic development. One
notable example was the 2005 scandal known as the mensalao (monthly payoff scandal), in
which a number of politicians were found guilty of accepting bribes from influential business
executives in exchange for their support on controversial government initiatives. Likewise, in
2014, the state-owned oil company Petrobas was discovered to have accepted bribes from
construction companies. The resulting investigation led to charges of bribery, money laundering,
and corruption against a number of officials, weakening the political power of Brazilian
president Dilma Rousseff. Public outrage and high-profile prosecutions have spurred some
efforts at reform, but corruption remains a significant issue affecting the Brazilian economy.
Discussion of the case can revolve around the following questions:
QUESTION 1: How have a few highly publicized corruption scandals contributed to a stagnant
economy in Brazil?
ANSWER: Countries with a developing economies, such as Brazil, often rely upon foreign direct
investment (FDI) to build needed infrastructure and boost employment and tax revenues. Major
QUESTION 2: Who or what is responsible for the current state of political and economic
corruption in Brazil?
ANSWER: Student answers will vary. Some students may point to excessive greed on the part of
QUESTION 3: What does Brazil need to do to reduce corruption and improve economic growth?
What steps should the country take to make it a more attractive destination for investment and
economic partnerships?
ANSWER: In general, holding corrupt politicians and executives accountable for their crimes
may help to restore investor confidence and contribute to an economic turnaround in Brazil. This
Another Perspective: To learn more about popular efforts to reform the Brazilian political
system, go to
{http://www.economist.com/news/americas/21646272-despite-epidemic-scandal-region-making-
progress-against-plague-democracy}.