Chapter 02 – National Differences in Political, Economic, and Legal Systems
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National Differences in Political, Economic,
and Legal Systems
Learning objectives
• Understand how the political systems
of countries differ.
• Understand how the economic
systems of countries differ.
• Understand how the legal systems of
countries differ.
• Explain the implications for
management practice of national
differences in political economy.
This chapter discusses differences in national
political, economic, and legal systems,
highlighting the ways in which managers in
global settings need to be sensitive to these
differences.
Political differences are described along two
dimensions: collectivist vs. individualist and
democratic vs. totalitarian. Economic
systems are explored in terms of market
characteristics: market economies, command
economies, and mixed economies. Legal
systems are discussed in terms of the
protections they offer for business:
intellectual property, product safety, liability,
under the rule of Robert Mugabe. Once
considered the jewel of Africa, the country is
now one of the most corrupt in the world, has
an unemployment rate of 80 percent, and
skyrocketing inflation. The closing case
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Chapter 02 – National Differences in Political, Economic, and Legal Systems
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OUTLINE OF CHAPTER 2: NATIONAL DIFFERENCES IN POLITICAL,
ECONOMIC, AND LEGAL SYSTEMS
Opening Case: The Decline of Zimbabwe
Introduction
Political Systems
Collectivism and Individualism
Country Focus: Putin’s Russia
Democracy and Totalitarianism
Economic Systems
Market Economy
Command Economy
Mixed Economy
Legal Systems
Different Legal Systems
Differences in Contract Law
Property Rights and Corruption
Country Focus: Corruption in Brazil
Management Focus: Did Walmart Violate the Foreign Corrupt Practices Act?
The Protection of Intellectual Property
Management Focus: Starbucks Wins Key Trademark Case in China
Product Safety and Product Liability
Focus on Managerial Implications
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Economic Transformation in Vietnam
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CLASSROOM DISCUSSION POINT
Ask students to think about the two dimensions used to describe political systems:
Collectivist-Individualist and Democratic-Totalitarian. Begin by drawing the following scale
on the board:
______________________________________________________
Individualist Collectivist
______________________________________________________
Democratic Totalitarian
Then ask students to provide some examples of what might describe a collectivist system —
where does Canada’s national healthcare system put it, which countries might be considered
democratic, where should China be placed, and so on.
Finally, move to a discussion of how differences in political economy present both
opportunities and threats for business. Managers must analyze each national market that they
participate in and identify specific ways in which the political economy of that nation could
support or threaten the company’s business model.
If there are foreign students in the class or students with foreign experience, you might draw
on their observations of differences these dimensions impose on the practice of business.
OPENING CASE: The Decline of Zimbabwe
Summary
Once described as the jewel of Africa, Zimbabwe, blessed with rich natural resources and a
strong agricultural sector, boasted a thriving economy in 1980. Today, though, Zimbabwe is a
country in desperate straits. With inflation spiraling out of control, unemployment at some 80
percent, and rampant corruption, Zimbabwe appears to have little promise. The former British
colonial state has been under the rule of Robert Mugabe for nearly four decades. Over the
years, Mugabe has consolidated power in the presidency and ensured his position through
rigged elections. Under Mugabe, Zimbabwe has seen its once robust economy rapidly
deteriorate, culminating with the lowest growth rate ever recorded between 1999 and 2009,
when the country’s economy declined more than 6 percent annually. Today, prospects for
economic recovery seem unlikely. The country’s platinum and diamond deposits are still
lucrative, but corruption has meant that the country sees little revenue from those industries.
Poaching and deforestation have decimated the country’s tourism industry, and private
enterprise is limited thanks to a host of taxes and tariffs. The World Bank believes there is still
potential for economic growth in Zimbabwe; however, it maintains that achieving an
economic turnaround would require a change in leadership. For now, that seems unlikely as
Mugabe appears to be firmly in control. Discussion of the case can begin with the following
Chapter 02 – National Differences in Political, Economic, and Legal Systems
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questions:
QUESTION 1: Discuss the economic crisis in Zimbabwe. What factors have contributed to
the country’s economic collapse?
ANSWER 1: Once a country with a thriving economy built on its strong agricultural sector
and lucrative platinum and diamond deposits, today Zimbabwe is a shadow of its former self.
Under the nearly four-decade rule of Robert Mugabe, Zimbabwe’s economy has collapsed,
QUESTION 2: How would you characterize the political system in Zimbabwe?
ANSWER 2: When Zimbabwe gained its independence in 1980, several democratic
institutions were in place. However, these were quickly dismantled as the country’s elected
QUESTION 3: What needs to happen for Zimbabwe to get back on track economically? How
can investor confidence in Zimbabwe be restored?
ANSWER 3: In a country considered by Transparency International to be one of the most
corrupt in the world, where some 80 percent of the population is currently unemployed, and
inflation is running wild, the prospect of implementing economic recovery plans is daunting.
LECTURE OUTLINE
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This lecture outline follows the Power Point Presentation (PPT) provided along with this
individual goals. Advocacy of collectivism can be traced to the ancient Greek philosopher
Plato. In modern times, the collectivist system is largely the domain of nations that have
embraced socialism.
Socialists believe in public ownership of the means of production for the common good.
1. Communists, who believe that socialism can only be achieved through violent
revolution and totalitarian dictatorship, and
2. Social democrats, who are committed to achieving socialism through democratic
means.
Individualism is the direct opposite of collectivism. Its central tenet is that individual
economic and political freedoms are the ground rules on which society is based.
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Many nations fall somewhere between a pure democracy and a pure totalitarian state. These
countries are known as imperfect or pseudo-democracies.
countries are likely to be restricted rather than free.
There are three broad types of economic systems: the market economy, the command
economy, and the mixed economy.
A market economy is an economy in which all productive activities are privately owned, as
opposed to being owned by the state. Production is determined by the interaction of supply
ownership and free market mechanisms while other sectors have significant state ownership
and government planning. India has a mixed economy.
Mixed economies were once very common throughout much of the world, although they are
becoming much less so. There was a time not too long ago when Great Britain, France, and
Sweden were mixed economies, but extensive privatization has reduced state ownership of
businesses in all three.
Slides 2-19 – 2-22 Legal Systems
Legal systems are the systems of rules or laws that regulate behavior along with the processes
by which the laws are enforced and through which redress for grievances is obtained.
There are three main types of legal systems—or legal traditions—in use around the world:
common law, civil law, and theocratic law.
1. Common law is based on tradition, precedent, and custom.
2. Civil law is based on a very detailed set of laws organized into codes.
3. Theocratic law is based on religious teachings.
Contract Law
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Since common law tends to be relatively ill specified, contracts drafted under a common law
framework tend to be very detailed with all contingencies spelled out. In civil law systems,
establishes a uniform set of rules governing certain aspects of the making and performance of
everyday commercial contracts between sellers and buyers who have their places of business
in different nations.
Another Perspective: The United Nations Commission on International Trade Law provides a
detailed overview of the United Nations Convention on Contracts for the International Sale of
occur when public officials, such as politicians and government bureaucrats, extort income or
resources from property holders.
Another Perspective: The U.S government’s web page on intellectual property rights,
{http://www.uspto.gov}, contains a wealth of information on intellectual property rights
including information on international intellectual property rights treaties and protecting
trademarks.
In the United States, the Foreign Corrupt Practices Act makes bribing a foreign government
official in order to obtain or maintain business over which that foreign official has authority a
violation of United States law, and requires all publicly traded companies to keep audit
records.
Intellectual Property Rights
Intellectual property is property that is the product of intellectual activity, such as computer
software, a screenplay, a music score, or the chemical formula for a new drug.
trademarks.