Quiz 2: National Differences in Political, Economic, and Legal Systems

Business

Poland in the early 2000s had a very tight fiscal policy. This was partially to keep inflation down so that their admittance to the European Union would be approved. As a result they did not have the big property bubble that was found in the other nations around. Ironically they had been earlier criticized for this very policy. Also in 2009, Germany, their neighbor and largest trading partner, had a stimulus program which resulted in a boom in Poland's economy since the Germans wanted more cars and car parts from Poland. Poland had the factories to manufacture those cars.

State-directed economies make the decisions regarding production. The state directs on behalf of the public at large. If an entrepreneur comes up with an innovation, but is not on the state planning board, then, whatever new process or invention individual come up with most likely to go nowhere. In addition, individual would not spend time, money, and effort discovering some new invention or strategy, if all the benefits of his efforts go to the state. In a free market economy, an entrepreneur has the ability and incentive to invent, produce, and become more efficient. Therefore a free market economy stimulates economic growth, while a state-directed economy stifles it.

The types of political, economic and legal systems existing have a major impact on the functioning of managers in an international business. In an individualistic political system, a manager will have freedom of action and can take decisions based on the market conditions and not be dictated by a higher authority as will be the case in a collectivistic political system. For instance, his production plans would be based on the market needs rather than what had been decreed. The best environment for a manager in an international business would also be in a market economy where the performance of his products and company would be based purely on merit. It would depend on the demand for the products based on quality and price. In the past many command economies of the Communist states would flood the market with cheap goods at a throwaway price. This was so as their motive was just to sell the product without any consideration for the profit because they were state funded entities. Ultimately, the best legal system would be one based on civil law. Here the law is very clear and is based on logic. The common law is based on interpretation which leads to a lot of ambiguity and consequent higher legal costs. The theocratic law is based on religion and personal beliefs of people. These laws were designed for people in the ancient times when other systems did not exist. They have no place in today's world.