Political and Economy Differences
Political and Economy Differences
Name
Institution
Political Economy
Most of the countries who involve in the domestic trade face a lot of ease as compared to international trade. The evidence can be upheld by the fact that a country has similar culture, same political system and an analogous economic system. On the other hand, international business is a bit intricate, since different countries have several differences. To start with, the educational system in most of the countries is different. Furthermore, the skills and knowledge tend to differ due to specialization. Moreover, each country has a different level of the population making international trade obscure. Also, cultural practices are dissimilar in most countries. The mentioned reasons are a distinct indication that the political, economic and the legal system is different in different countries (Paul, 2008). Taking India as our case study, the country got independence in the year 1947 from Britain. The country adopted a democratic system and a mixed economy; the economic system was purely controlled and owned by the State limiting the emergence of private sectors. Moreover, the economy was centrally planned. Surprisingly, in 1990 the mentioned economic system failed terribly, as the economic growth of the country trailed behind, sanitation and basic needs become a horrendous. Evidently, It is on this grounds that India diverted to an open economic system. For instance, the State allowed and encouraged the emergence of the private sectors; also, the State diverted to privatization, the foreign investment was also permitted. Consequently, there was a significant economic growth. Seemingly, political, economic and legal system can be combined to political economy, as the three correlate with each other, they are also interdependent and interact to affect the economy of a country. The paper endeavours to evaluate how the difference in political economy affects the economic growth.
Apparently, the political system in different countries differs. Worth noting is the fact that the political system connotes to a system of government of a nation. Prevalently, the political system is viewed in two major dimensions: Collectivism and Individualism, and Democratic and Totalitarianism. To start with, the collectivism and individualism, the former means a system of government in which there is collective ownership. Furthermore, the government or the State focuses on the collective gain as opposed the individual gains. The system focuses on the interest on the society at large as opposed to few individual, that is the benefit of all. Notably, the system limits or hinders the economic and political freedom of an individual. On the other hand, individualism is a situation characterized by free trade without government interference. Also, individuals are allowed to own properties. Typically, the individual is allowed to have freedom of expression and ownership.
Similarly, totalitarianism is a situation whereby the government has an absolute control over her subjects and properties. This political system is close to dictatorship, the citizens have less freedom and poorly represented in decision making. The government fully controls the economic activities; the system limits the emergence of the private sectors. European colonists practised totalitarian system in Africa (Stringham, 2007). On the other hand, the democratic system is a situation whereby the government is for the people. This means the people are fully represented and are involved in decision making. Additionally, the people have both economic freedom and freedom of expression. Typically, the system is characterized by several private sectors. A number of ancient cities in Greece believed in a democratic system.
Apparently, different countries have different legal systems. To start with the legal system is rules or laws that govern a nation. In addition, the system set rules that direct and guide the behaviours of individuals and institutions. Also, the system set-up courts which redress injustice. In the business perspective, the legal system provides rules and laws that regulate business practises. Also, the laws dictate how the businessmen and entrepreneurs should conduct themselves. The legal system is divided into three: Common law, Civil law and Theocratic law. To start with, Common law is practised in the Great Britain and Common wealth countries, that is the counties which were colonized by Britain including the United States. Common law is based on the precedent, tradition and custom. The jury interprets the Common law by looking into the precedent or past judgements to administer justice. The law is more flexible since the jury has a freedom to interpret the law.
Civil law, which is a set of laws systematized into Codes. Here the jury uses the Codes to administer justice. Interesting to note is the fact that the jury or the parties involved must have the know-how of all the Codes. The fact is, Civil law is less flexible since the jury has no freedom of interpreting the Civil law instead the jury has to apply the prescribed Codes (Paul, 2008). Countries such as France, Japan, Russia and German practise the civil law. Lastly, Theocratic law is a law which base on the religious teaching, its emphasis on the moral behaviour rather than the commercial law. In addition, theocratic law was set up to give guidance in life. Pakistan is among the counties which practised the theocratic law.
Economic growth of a nation can be purely affected by the political economy. The political system of a nation has an impact on the economy. Democratic system advocate for free market economy, allowing individual ownership and controlling of individual businesses. The system permits the emergence of private sectors as such increase the economic growth of a country. In addition, innovation and entrepreneurship has significantly boosted the economic growth. Innovation is characterized by new technology, new business ideas, new management and organization leads to new services and products. For instance, in United States new innovation has led to increased production. As such, increases the economic growth.
Today, there have been several changes in the political system. Most of the countries are moving from totalitarianism to a democratic system. The world is now appreciating the democracy and abolishes both mixed and planned economies. As such, give individuals economic freedom. The Cold war and communism have been done away with, for instance the Easter Europe have shifted from the communism to the democratic system. The change in the political system has subsequently changed the economic system. For instance shifting from totalitarianism to democratic system has led to a free market system or capitalism as opposed to mixed and controlled economy.
There has been transitioning in the economic system which is intended to change the economic system. To start with, the application of deregulation has significantly changed the market economy. Deregulation is a situation whereby the legal restrictions are abandoned. This reduces the government regulations. For instance, the government removes the price control and allows the market forces to determine the price. Also, the emergence of privatization has significantly boosted the economy; the abolishment of the planned and mixed economy has promoted privatization (Stringham, 2007). It can be explained a situation whereby the State sectors are left in the hand of the private individuals. Lastly, the change in the legal system to provide rules and regulation that favours the international trade. Such, as led to increase in direct foreign investment leading to economic growth.
From the above discussion we can confidently conclude that political economy has adverse effect on the economic growth of a country. A country with a friendly political, economic and legal system will experience a significant economic growth.
References
Paul, J. (2008). International Marketing: Text And Cases. New Delhi: Tata McGraw- Hill
Stringham, E. P. (2007). Anarchy And The Law: The political Economy Of Choice. California: The independent Of Institute