Chapter 1 SOM 354 Study Guide Globalization refers to the trend towards a more integrated global economic system Two key facets of globalization are the globalization of markets the globalization of production The globalization of markets refers to the merging of historically distinct and separate national markets into one huge global marketplace Tastes and preferences of consumers in diff nations are converging on some global norm Ex Coca Cola Starbucks The globalization of production refers to the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production labor energy land and capital Goal is for companies to lower overall cost or improve quality or functionality of product and gain competitive advantage Ex Boeing The stock of foreign direct investment total cumulative value of foreign investments generated by rich industrial countries has been on a steady decline There has been a sustained growth in cross border flows of foreign direct investment Globalization Debate For greater prosperity stimulates economic growth lower prices for goods and services helps create jobs raise income levels Against job losses in certain industries downward pressure on wages of unskilled workers environmental cultural imperialism Chapter 2 The Political Economy of a Country Refers to its political economic and legal systems These systems are interdependent and influence each other A political system is the system of government in a nation it shapes its economic and legal systems Political systems can be assessed in terms of the degree to which they emphasize collectivism as opposed to individualism in terms of the degree to which they are totalitarian or democratic Collectivism refers to a system that stresses the primacy of collective goals over individual goals Collectivism can be traced to the ancient Greek philosopher Plato Today socialists support collectivism When collectivism is emphasized the needs of the society as whole are generally viewed as being more important than individual freedoms Modern socialists trace their roots to Karl Marx who advocated state ownership of the basic means of production distribution and exchange The state then manages the enterprises for the benefit of society as whole Socialism Individualism Individualism is a political philosophy that suggests individuals should have freedom over their economic and political pursuits It can be traced to Aristotle who argued that individual diversity and private ownership are desirable Individualism stresses individual freedom and self expression letting people pursue their own self interests to achieve the best overall good for society democratic systems and free markets Privatization Many nations are implementing privatization programs whereby state owned enterprises to private investors Difference between Democracy and Totalitarianism Democracy is a political system in which government is by the people exercised either directly or through elected representatives The most common form of democracy today is representative democracy where elected representatives vote on behalf of constituents Democracy and individualism generally go hand in hand Totalitarianism is a form of government in which one person or political party exercises absolute control over all spheres of human life and opposing political parties are prohibited Collectivism and totalitarianism generally go hand in hand In most totalitarian regimes there is widespread political repression there are no free and fair elections media is censored basic civil liberties are denied challenges to the regime are prohibited There are four major forms of totalitarianism today THIS MAY NOT BE ON EXAM 1 communist totalitarianism advocates achieving socialism through 2 totalitarian dictatorship theocratic totalitarianism political power is monopolized by a party group or individual that governs according to religious principles 3 tribal totalitarianism a political party that represents the interests of a particular tribe monopolizes power 4 right wing totalitarianism individual economic freedom is allowed but individual political freedom is restricted in the belief that it could lead to communism Economic Systems Three types include the market economy the command economy and the mixed economy A free market system is likely in countries where individual goals are given primacy over collective goals State owned enterprises and restricted markets are common in countries where collective goals are dominant Market Economy the goods and services that a country produces and the quantity in which they are produced is determined by supply and demand Consumers through their purchases determine what is produced and The role of government is to encourage free and fair competition in what quantity between private producers Command Economy the goods and services that a country produces the quantity in which they are produced and the price at which they are sold are all planned by the government All businesses are state owned and so have little incentive to control costs Because there is no private ownership there is little incentive to better serve and be efficient consumer needs Mixed Economy includes some elements of a market economy and some elements of a command economy Governments tend to take over troubled firms that are considered to be vital to national interests The number of mixed economies in the world today is falling Legal Systems refers to the rules or laws that regulate behavior along with the processes by which the laws of a country are enforced and through which redress for grievances is obtained A country s legal system is important because laws regulate business practice laws define the manner in which business transactions are to be laws set down the rights and obligations of those involved in business executed transactions Different Legal Systems There are three main types of legal systems 1 Common law based on tradition precedent and custom found in most of Great Britain s former colonies including the United 2 Civil law based on a very detailed set of laws organized into codes found in over 80 countries including Germany France Japan and States Russia 3 Theocratic law based on religious teachings Islamic law is the most widely practiced The United Nations Convention in Contracts for the International Sales of Goods CIGS MAY BE ON EXAM establishes a uniform set of rules