While a countrys political system plays an important

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While a country’s political system plays an important role in the conduct of international business in that country, an even greater role in this regard is arguably played by the economic ideology that prevails in that country. For example, two given countries might both be “representative democracies,” but if one is more socialistic in terms of its economic ideology and the other more capitalistic in economic ideology, the conduct of business in these countries will differ considerably from one to the other. In today’s complex economic world, it is probably fair to say that very few countries purely follow one economic ideology or another. For example, the United States is essentially a capitalistic country with an economic ideology that strongly supports free markets, individual initiative, and private ownership. However, the United States has had a federal minimum wage, a federal income tax system, and a federal retirement plan (Social Security) since the 1930s; since the 1960s it has also had a welfare “safety net” to reduce poverty and a government-run health care program (Medicare) for the elderly. With this in mind, what follows is a general overview of the basic economic ideologies that prevail in the world today. 6-2a Communism Communism represents an economic ideology whereby the government or state basically owns and controls all the major factors of production. Employee labor unions exist in such countries, but are essentially controlled by the state. Under Communist economic ideology, individual rights give way in the extreme to collectivistic rights— indeed, under Karl Marx’s classic view, a communist country is at heart an economically classless one. The past two or three decades have brought a considerable decline in communist economic ideology throughout the world, the shift of the old Soviet Union away from communism being most notable in this regard. China is currently the largest nation in the world with a communist economic ideology, and it is emerging as one of the most economically powerful countries in the world. But to achieve this success, China is finding it needs to move very slowly away from a 100 percent communist economic ideological approach. For example, today some private (indeed, even foreign) ownership of certain major Chinese businesses is permitted, although these businesses still generally remain 80 percent or more government owned and controlled. Moreover, there has been some relaxation of state control of labor unions. The formerly prevailing complete absence of individual remuneration/incentive differences has also been relaxed. 6-2b Socialism Socialism involves an economic ideology when the government or state plays a strong role in the economy and may own stakes in certain businesses. Unlike communist countries, however, countries with socialist economies do not aspire to be “classless.” That said, such economies tend to be somewhat more collectively than individualistically oriented, with disparities in income and wealth less extreme than in capitalistic countries. Many European countries (e.g., France, Great Britain, and Spain) have strong socialistic orientations, with governments in those countries historically owning stakes in various businesses, such as major airlines and oil companies.

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