National Differences in Political Economy
Chapter 2
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The Impact of Privatization
1994: Sales = $253m
Loss = $310m
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1998(3Q): Sales = $934m
Profits = $260.2m
2-1
Political Systems
“The System of Government in a Nation”
Individualism
Democratic
Collectivism
Totalitarian
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2-2
Collectivism and Individualism
Collectivism
Socialism
• Communists
• Social Democrats
Individualism
Guarantee individual freedom and expression
People can pursue own economic self-interest
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2-3
Democracy and Totalitarianism
Democracy
Government by people exercised directly or
through elected representatives.
Totalitarianism
One person or party exercises control over all
spheres of human life.
• Opposing political parties are prohibited.
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2-4
Democracy
Representative Democracy
Freedoms:
•
•
•
•
•
•
expression, opinion, organization
media
regular elections with universal suffrage
limited terms for elected representatives
fair and independent court system
non political bureaucracy, police force and armed
service
• relatively free access to state information
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2-5
Totalitarianism
Constitutional guarantees are denied.
Four major forms:
Communist
Theocratic
Tribal
Right Wing
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2-6
Economic Systems
Market Economy
Command Economy
Mixed Economy
State Direct Economy
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2-7
Economic Systems
Market
Mixed
Command
State-Directed
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2-8
Legal Systems
Rules or laws that regulate behavior.
Property rights
Private action
Public action
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2-9
International Property Issues
Protection of Intellectual Property
Lax enforcement
Product Safety and Product Liability
Competitiveness
Ethics
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2-10
PPP Index and GNP Data
(Selected Countries)
Country
Mozambique
India
China
Indonesia
Romania
Russia
Mexico
Brazil
S.Korea
United
Kingdom
Australia
Canada
Singapore
United States
Japan
Switzerland
GNP per
capita,
1997 (US$)
90
390
860
1110
1420
2740
3680
4720
10550
20710
GNP per
capita
measured at
PPP, 1997
(US$)
520
1650
3570
3450
4290
4190
8120
6240
13500
20520
Annual
Average
Growth in
GDP, 199097 (%)
6.9
5.9
11.9
7.5
0
-9
1.8
3.1
7.2
1.9
20540
19290
32940
28740
37850
44320
20170
21860
29000
28740
23400
26320
3.7
2.1
8.5
2.5
1.4
-0.1
© McGraw-Hill Companies, Inc., 2000
Table 2.1
2-11
The Global Politics of
Civilizations
Japan
Orthodox
(Russia)
Islam
African
West
Latin
American
Hindu
(India)
More Conflictual
©
© McGraw-Hill
McGr aw-Hill Companies,
Companies, Inc.,
Inc., 2000
2000
Sinic
(China)
Figure 2.1
Less Conflictual
2-12
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Map 2.1
2-13
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Map 2.2
2-14
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Map 2.3
2-15
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Map 2.4
2-16
Other Determinants of Development:
Geography and Education
“Throughout history, coastal states, with their long engagements
in international trade, have been more supportive of market
institutions than landlocked states, which have tended to
organize themselves as hierarchical (and often military)
societies. Mountainous states, as a result of physical isolation,
have often neglected market-based trade. Temperate climes have
generally supported higher densities of population and thus a
more extensive division of labor than tropical regions.”
-Jeffrey Sachs© McGraw-Hill Companies, Inc., 2000
2-17
Geography and Education
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2-18
Singapore
Population: 2.8 million
Literacy rate: 91.1%
GDP ($B): 83
Per Capita GDP: $26,294
Strategic location: Malacca Straits
World’s second busiest port: cargo tonnage
Average GDP growth over 25 years: 8%
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2-19
Spread of Democracy
Totalitarian regimes failed to deliver
economic progress.
New information technologies (internet)
restricted a state’s ability to control
information.
Emergence of prosperous middle class
demanding democratic reforms.
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2-20
Universal Civilization
“we may be witnessing…the end of history as such: that is,
the end point of mankind’s ideological evolution and the
universalization of Western liberal democracy as the final
form of human government.”
- Francis Fukuyama -
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2-21
Clash of Civilizations
There is no “universal” civilization
based on widespread acceptance of
Western liberal democratic ideals.
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2-22
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Map 2.5
2-23
Real Percentage GDP Growth, 1990-94,
for Five Post-Communist States
5
0
1990
1991
1992
1993
1994
-5
-10
-15
-20
-25
McGraw Hill Companies,
©©McGraw-Hill
Companies,Inc.,
Inc.,2000
2000
Czech Republic
Hungary
Poland
Russia
Ukraine
2-24
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Map 2.6
2-25
The Changing Political
Economy of India
Population: 936 million
GDP: $1.254 trillion
GDP growth: 5-6% per year
10% of population produces 40% of
national income
Agriculture is 70% of employment, but only
35% of GDP
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2-26
India’s GDP
% GDP
8
6
4
2
0
50-60 60-70 70-80 80-90 90-92
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92-95
96
97
98
2-27
The Falling Rupee
US Dollar Value of 100 Indian Rupees
$ 3.4
3.2
3
2.8
2.6
2.4
2.2
2
1995
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1996
1997
1998
2-28
Percentage of India’s Exports and Imports
(By Region)
40
Exports
30
Imports
20
10
Imports
Exports
$36.0B
$31.6B
0
Asia
Europe
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US
Africa
2-29
Foreign Investment in India
4
3
2
$ BILLIONS
1
0
1992
1993
1994
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1995
1996
1997
1998
2-30
The Nature of Economic
Transformation
Deregulation
Removal of legal restrictions to free markets.
Privatization
Transfer of state ownership of property into
private hands.
Creation of legal systems to protect
property rights.
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2-31
The Nature of Risk
Political Risk
Likelihood that political forces will cause drastic
changes that adversely affect profits and other goals.
Economic Risk
Likelihood that economic mismanagement will cause
drastic changes that adversely affect profits and other
goals.
Legal Risk
 Likelihood that a trading partner will opportunistically
break a contract or expropriate property rights.
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2-32