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Government controls all economic and political

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Government controls all economic and political matters Either theocratic (religion-based) or secular A state party is led by a dictator. Membership is mandatory for those wanting to advance. Power is sustained via secret police, propaganda, regulation of free discussion and criticism. Today: Some countries in the Middle East and Africa; Cuba, North Korea. Ex-totalitarian states tend to have much government intervention and bureaucracy International Business: The New Realities 7-10 ▪ China (1949–1980s) ▪ Germany (1933–1945) ▪ Soviet Union (1918–1991) ▪ Spain (1939–1975)
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Political Systems: Socialism Capital is vested in the state and used primarily as a means of production for use rather than for profit. Group welfare outweighs individual welfare. Government’s role is to control the basic means of production, distribution, and commercial activity. Socialism occurs in much of the world as social democracy (e.g., Western Europe, Brazil, India). Government intervention in the private sector Corporate income tax rates are higher International Business: The New Realities 7-11
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Political Systems: Democracy Economic activity occurs freely, as per market forces Limited government : The government performs only essential functions that serve all citizens, such as national defense, maintaining law & order, foreign relations, and providing basic infrastructure. Private property rights : The ability to own property and assets and to increase one’s asset base by accumulating private wealth. Property includes land, buildings, stocks, contracts, patents. Encourages initiative, ambition, innovation. International Business: The New Realities 7-12
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Examples of Countries Under Various Political Systems International Business: The New Realities 7-13
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Relationship Between Economic and Political Freedom (cont’d)
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Democracy and Openness Democracy is associated with ‘openness’, the lack of regulation and barriers to the entry of firms in foreign markets. Openness is associated with: Successful market entry Increased market demand Competition on quality, which improves overall product quality. Increased competition, leading to efficiencies and lower prices. 7-15 Example Since the 1980s, India steadily lowered entry barriers to its car market. Foreign carmakers entered the market, greatly increasing the number of models for sale. Greater competition increased the quality of available cars, and car prices fell.
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Political and Economic Systems Totalitarianism is associated with command economies , wherein the state makes all decisions on what to produce, how much to produce, and what prices to charge. Democracy is associated with market economies and capitalism, in which decisions are largely left to market forces, that is, supply and demand. Socialism is associated with mixed economies , which have features of both market and command economies, combining state intervention and market mechanisms (e.g., Sweden, Singapore).
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