NATIONAL DIFFERENCES IN

POLITICAL ECONOMY
Political Systems
The economic and legal systems of a country are
shaped by its political system.
Political system the system of government in a
nation.
Can be assessed according to 2 related
dimensions:
the degree to which they emphasize collectivism as
opposed to individualism.
the degree to which they are democratic or totalitarian.
These dimensions are interrelated:
Systems that emphasize collectivism tend toward
totalitarian
Systems that emphasize individualism tend toward
democratic

1. Collectivism and Individualism
Collectivism a political system that stresses the
primacy of collective goals over individual goals.
The needs of society viewed as being more important
than individual freedoms.
Plato (427 -347 B.C.) argued that individual rights
should be sacrificed for the good of the majority and
that property should be owned in common. (The
Republic)

a) Socialism
Modern socialists trace their intellectual roots to Karl
Marx (1818-1883).
Marx argued that individual freedoms should be
restricted, if not the rich become richer and the poor
become poorer.
According to him, the pay of workers does not
reflect the full value of their labor.
He advocated state ownership of the basic means
of production, distribution and exchange.
If the state owned the means of production, the
state could ensure that workers were fully
compensated for their labor.
The idea is to manage state-owned enterprise to
benefit society as a whole, rather than individual
capitalists.

In the early 20
th
century, the socialist ideology split
into two broad camps:
Communists: believed that socialism could be
achieved only through violent revolution and
totalitarian dictatorship.
Former Soviet Union, Eastern Europe, China,
Cambodia, Laos, Vietnam, Angola, Cuba.
Social democrats: to achieve socialism by
democratic means.
Nationalized private companies in certain
industries, transforming them into state-owned
enterprises to be run for the public good rather
than private profit.
Australia, Great Britain, France, Germany, Norway,
Spain and Sweden, India, Brazil.
b) Individualism
Refers to a philosophy that an individual should have
freedom in his/her economic and political pursuits.
Stresses that the interests of the individual should
take precedence over the interests of the state.
Aristotle (384-322 B.C.) argued that individual
diversity and private ownership are desirable.
Private property is more highly productive than
communal property and will thus stimulate progress.
David Hume (1711-1776), Adam Smith (1723-1790)
The Wealth of Nations and John Stuart Mill (1806-
1873).
Individualism is built on 2 central tenets:
i/ The important of guaranteeing individual freedom
and self-expression

ii/ the welfare of society is best served by letting
people pursue their own economic self-interest, as
opposed to some collective body dictating what is
in societys best interest.

2. Democracy and Totalitarianism
Different ends of a political dimension.
Democracy: a political system in which
government is by the people, exercised
either directly or through elected
representatives.
Totalitarianism: 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.
a) Democracy
- Based on a belief that citizens should be directly
involved in decision making.
- Most modern democratic states practice
representative democracy - citizens periodically
elect individuals to represent them, where the
elected representatives then form a government.

a) Totalitarianism
i/ Communist totalitarianism
- Advocates that socialism can be achieved only
through totalitarian dictatorship.
- Decline worldwide and collapsed since 1989.


ii/ Theocratic totalitarianism
- found in states where political power is monopolized
by a party, group or individual that governs according to
religious principles.
- common form is based on Islam and is exemplified by
Iran and Saudi Arabia.
- limit freedom of political and religious expression
- laws of the state are based on Islam principles.

iii/ Tribal totalitarianism
- has arisen from time to time in African countries
Zimbabwe, Tanzania, Uganda and Kenya.
- African country contains a number of tribes.
- a political party that represents the interests of a
particular tribe (and not always the majority tribe)
monopolizes power.
iv/ Right-wing totalitarianism
- permits some individual economic freedom but restricts
individual political freedom on the grounds that it would lead
to the rise of communism.
- many of the governments are backed by the military, and
some may be made up of military officers.
- the fascist regimes that ruled Germany and Italy in the
1930s and 1940s were right-wing totalitarian states.
- until the early 1980s, many were common in Latin
America, South Korea, Taiwan, Singapore, Indonesia and
Philippines.
Economic Systems

1. Market Economy
- all productive activities are privately owned.
- production is determined by the interaction of
supply and demand and signaled to producers
through the price system.
- a restriction on supply occurs when a market
is monopolized by a single firm.
2. Command Economy
- types of goods produced, quantity and price
are planned by the government.
- the objective of a command economy is for
government to allocate resources for the good
of society.
- all businesses are state owned.
- dynamism and innovation are absent from
command economies.
3. Mixed Economy
- between market economies and command
economies can be found mixed economy.
- certain sectors are left to private ownership and
free market mechanism while other sectors have
significant state ownership and government
planning.

Legal Systems
- Refers to the rules, or laws, that regulate behavior
along with the processes by which the laws are
enforced.

1. Different Legal Systems
a) Common Law
- evolved in England over hundred of years.
- is based on tradition, precedent and custom.
- Tradition: a countrys legal history
- Precedent: cases that have come before the courts in the
past
- Custom: the ways in which laws are applied in specific
situations.
- more flexible.
b) Civil Law
- Is based on a very detailed set of laws organized into
codes.
- Tend to be less adversarial than a common law
system because the judges rely upon detailed legal
codes rather than tradition, precedent and custom.
- Less flexibility than common law judges have the
power only to apply the law.
- Germany, France, Japan, Russia.

c) Theocratic Law
- The law is based on religious teachings.
- Islamic law is the most widely practiced theocratic
legal system.





2. Differences in Contract Law
- The difference between common law and civil law
systems can be illustrated by the approach of each
to contract law.
- A contract is a document that specifies the
conditions under which an exchange is to occur and
details the rights and obligations of the parties
involved.
- Contract law the body of law that governs contract
enforcement.

3. Property Right
- Refer to the bundle of legal rights over the use to
which a resource is put and over the use made of
any income that may be derived from that resource.

a) Private Action
- refers to theft, piracy, blackmail and like by private
individuals or groups.

b) Public Action and Corruption
- public action to violate property rights occurs when
public officials extort income or resources from
property holders.
- can be done through legal and illegal mechanisms.


4. The Protection of Intellectual Property
- intellectual property refers to property that is the
product of intellectual activity e.g. software, music.
- ownership rights are established through patents,
copyrights and trademarks.
- Patent: exclusive rights for a defined period to the
manufacture, use or sale of that invention.
- Copyrights: exclusive legal rights of authors,
composers, play wrights, artists and publishers to
publish and disperse their work as they see fit.
-Trademarks: designs and names, often officially
registered, by which merchants or manufacturers
designate and differentiate their products.
5. Product Safety and Product Liability
- product safety laws set certain safety standards to
which a product must adhere.
- product liability involves holding a firm and its officers
responsible when a product causes injury, death or
damage.

The Determinants of Economic Development
- One common measure of economic development is a
countrys gross national income per head of population
(GNI).
- Regarded as a yardstick for the economic activity of a
country.
- Its measures the total annual income received by
residents of a nation.

- In year 2001, US -$34,870 while Nigeria only $290.
- Differences in cost of living comparison of living
standards in different countries can be viewed from
Purchasing Power Parity (PPP).
- Higher PPP shows that they can spend more.

a) Political Economy and Economic Progress
- Innovation and entrepreneurship are the engines of
growth.
- Innovation and entrepreneurship require a market
economy.
- Innovation and entrepreneurship require strong property
rights
- The required political system
- Economic progress begets democracy.