Summary of the Legal,Political,and Economic Environments Facing Buciness
Summary of the Legal,Political,and Economic Environments Facing Buciness
The role of the political system is to integrate the society; the role of the
economic system is to allocate scarce resources.
Most complex societies are pluralistic; in other words, they encompass a variety of ideologies
In ^democracies there is wide participation in the decision-making process.
whereas in totalitarian states only a relative few may participate. Totalitarian
regimes can be communistic, theocratic, or secular. Totalitarian regimes are
beginning to accede to greater participation in the decision-making process.
jMost democracies have multiple political parties, whereas some, such as
Mexico, have one dominant political party.
i The economic system determines who owns and controls resources. In a mar-
ket system individuals allocate and control resources; in a command econ-
omy the government allocates and controls resources. A command economy
is compatible with a totalitarian political system; a market eranomy_is com-
patible with a democracy.
A multinational enterprise (MNE) that enters a country needs to determine
the nature of the political and economic system and how it can fit into that
system.
There are three major world economies: The First World is made up of the
market industrial economies; the Second World consists of the centrally
planned economies; and the Third World is comprised of the developing
countries. The centrally planned economies are undergoing significant eco-
nomic change.
Developing countries are divided into low-income (per capita GNP of $545
or less) and middle-income (per capita GNP of $545 to $6000) categories.
Middle-income developing countries are divided into lower-middle-income
and upper-middle-income categories.
As countries become more prosperous and their economies shift from low-
income to high-income categories, the distribution of Gross Domestic Product
(GDP) shifts in emphasis from agriculture to industry to services.
Some of the greatest problems facing the developing countries are infjatirjn^
external debt, weakening currencies, a shortage ol skilled workers, -political
instability, war and insurrection, mass poverty, rapid population growth,
weakening commodity prices, and reliance on imported oil. Developing
countries have exhibited strong growth, but they are riskier places of invest-
ment than the industrial countries.
Inflation today is not as rampant as it was during the 1970s, but it is still
severe in some countries, such as Argentina, Brazil, and Israel.
The trade strategy of countries ranges from strongly outward oriented (such
as Hong Kong and Korea) to strongly inward oriented (such as Argentina and
India).
Many of the large debtor nations have had to restructure their loans because
of their inability to meet principal and interest payments.
The UNCTAD meetings focus on growth and solving the problem of indc
edness. The International Monetary Fund (IMF) is concerned with stabijiz
exchange rates and helping countries overcome their problems of indebt
ness. The World Bank is concerned with providing capital for Third Wc
development.
The role of the political system is to integrate the society; the role of the
economic system is to allocate scarce resources.
Most complex societies are pluralistic; in other words, they encompass a variety of ideologies
In ^democracies there is wide participation in the decision-making process.
whereas in totalitarian states only a relative few may participate. Totalitarian
regimes can be communistic, theocratic, or secular. Totalitarian regimes are
beginning to accede to greater participation in the decision-making process.
jMost democracies have multiple political parties, whereas some, such as
Mexico, have one dominant political party.
i The economic system determines who owns and controls resources. In a mar-
ket system individuals allocate and control resources; in a command econ-
omy the government allocates and controls resources. A command economy
is compatible with a totalitarian political system; a market eranomy_is com-
patible with a democracy.
A multinational enterprise (MNE) that enters a country needs to determine
the nature of the political and economic system and how it can fit into that
system.
There are three major world economies: The First World is made up of the
market industrial economies; the Second World consists of the centrally
planned economies; and the Third World is comprised of the developing
countries. The centrally planned economies are undergoing significant eco-
nomic change.
Developing countries are divided into low-income (per capita GNP of $545
or less) and middle-income (per capita GNP of $545 to $6000) categories.
Middle-income developing countries are divided into lower-middle-income
and upper-middle-income categories.
As countries become more prosperous and their economies shift from low-
income to high-income categories, the distribution of Gross Domestic Product
(GDP) shifts in emphasis from agriculture to industry to services.
Some of the greatest problems facing the developing countries are infjatirjn^
external debt, weakening currencies, a shortage ol skilled workers, -political
instability, war and insurrection, mass poverty, rapid population growth,
weakening commodity prices, and reliance on imported oil. Developing
countries have exhibited strong growth, but they are riskier places of invest-
ment than the industrial countries.
Inflation today is not as rampant as it was during the 1970s, but it is still
severe in some countries, such as Argentina, Brazil, and Israel.
The trade strategy of countries ranges from strongly outward oriented (such
as Hong Kong and Korea) to strongly inward oriented (such as Argentina and
India).
Many of the large debtor nations have had to restructure their loans because
of their inability to meet principal and interest payments.
The UNCTAD meetings focus on growth and solving the problem of indc
edness. The International Monetary Fund (IMF) is concerned with stabijiz
exchange rates and helping countries overcome their problems of indebt
ness. The World Bank is concerned with providing capital for Third Wc
development.
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