The state attempts to regulate most aspects of public and private behaviour

The state attempts to regulate most aspects of public

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The state attempts to regulate most aspects of public and private behaviour (theocratic or secular) Low tolerance for labour representation (e.g. via labour unions) Strong government presence in business Socialist: collectivist ideology that the welfare of the state outweighs the welfare of the individual; government should control the basic means of production, distribution and commercial activity. Government intervenes in the private sector and in business activities Corporate income tax rates are higher and business regulations more extensive than in democracies Democracy: characterised by private property rights and limited government intervention (performs only essential functions e.g. national defence, law and order, foreign relations, basic infrastructure..) Market dominates → can expect higher levels of entrepreneurship and innovation Encourages private initiative, ambition and entrepreneurship/innovation Associated most with ‘openness’—a lack of regulation or barriers to the entry of firms in foreign markets. But most democracies include elements of socialism to redress market failures Greater political freedom tends to yield greater economic freedom Type of political risk Impact Confiscation Loss of assets, loss of future profits Campaign against foreign-owned companies and products Loss of sales and other opportunities Kidnapping and terrorism threats Disrupted production, higher security costs Civil war Destruction of property, disrupted production, lost sales, higher security costs Severe inflation Higher operating costs, eventually reduced sales Currency devaluation Reduced value of repatriated earnings, higher import prices Tax increase Lower after-tax profits
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LISA YANG IBUS20002 Business in the Global Economy LEGAL DIMENSION Provides processes and institutions (bureaucracy, courts…) through which laws are enforced so that parties are held accountable for their actions Common law contracts tend to be very detailed / bureaucratic with all contingencies spelt out Civil law contracts tend to be shorter and less specific as many of the issues are already covered in a civil code. often more expensive to draw up contracts in common law and to resolve disputes Countries’ legal systems also vary in the transparency of their laws, the degree of enforcement (e.g. intellectual property law) and the degree of independence of the enforcement agencies → prone to corruption? Milken Institute, data from 2015 “The costs and conditions of doing business are central to the FDI equation.…countries that invest in their infrastructure, suppress corruption, and maintain sound regulations can claim important advantages.” “The top 10 are primarily economically advanced countries with longstanding institutions and traditions of transparency.” Conditions for a resilient business environment Importance of functional authority
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  • '19
  • Developed country, LISA YANG

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