al The cultural, political and legal environment of international business

Abstract
A study of the elements of a domestic market and those of an international market may reveal many crucial differences, especially political, legal and cultural differences. For example, the "rules of the game” of business in the international market are diverse, changeable and often unclear. The international firm may have to content with different legal and ethical standards in different host countries. In this paper the parameters of the political, legal, and the cultural environment of international business will be considered, The paper also relates how political, legal, and cultural incidents or situations may become roadblocks to the smooth operation of business ventures in foreign countries. Misunderstandings and breakdown in communication often arise from differences in perception by executives who are not from the same cultural, legal and political background. International investors need to know what elements in a foreign culture have the greatest influence over consumption patterns in general and particularly the consumption behaviour to their specific product. By reflecting on the language, religion, demography, climate, values and beliefs, education, labour, roles of women, family, ethnic groups and other similar elements, the international business person will be able to, not only participate in the international economy with a better perception of the situation, but also be able to cater for the needs of the international buyers.

Culture and International
Business
In everyday usage, the term culture refers to the finer things in life, such as the fine arts, literature, philosophy, and classical music. Under this very narrow definition of the term, the “cultured person” is one who prefers Handel to hard rock, can distinguish between the artistic styles of Monet and Manet, prefers pheasant under glass to grits and red-eye gravy and twelve-year-old scotch to beer, and spends his or her leisure time reading Kierkegaard rather than watching wrestling on television. For the anthropologist, however, the term culture has a much broader meaning that goes far beyond mere personal refinements. The only requirement for being cultured is to be human. Thus, all people have culture.
The scantily clad Dani of New Guinea is as much a cultural animal as is Yo-Yo Ma. For the anthropologist, cooking pots, spears, and mud huts are as legitimate items of culture as symphonies, oil paintings, and great works of literature.
The term culture has been defined in a variety of ways. Even anthropologists, who claim culture as their guiding conceptual principle, have not agreed always on a single definition of the term. In fact, as early as 1952, A. L. Kroeber and Clyde Kluckhohn identified more than one hundred and sixty different definitions of culture. One of the earliest widely cited definitions, offered by Edward Tylor in the nineteenth century, defined culture as “that complex whole which includes knowledge, belief, art, morals, law, custom, and any other capabilities and habits acquired by man as a member of society” (1871, 1). More recently, Clyde Kluckhohn and W. H. Kelly have referred to culture as “all the historically created designs for living, explicit and implicit, rational, irrational, and nonrational, which exist at any given time as potential guides for the behavior of men” (1945, 97). Culture has been described by M. J. Herskovits (1955, 305) as “the man made part of the environment,” by James Downs (1971, 35) as “a mental map which guides us in our relations to our surroundings and to other people,” and, perhaps most succinctly, by Elvin Hatch (1985, 178) as “the way of life of a people.”
Running the risk of adding to the confusion, here is still another definition: Culture is everything that people have, think, and do as members of their society. The three verbs in this definition (have, think, and do) can help us identify the three major structural components of the concept of culture; that is, for a person to have something, some material object must be present. When people think, ideas, values, attitudes, and beliefs are present. When people do, they behave in certain socially prescribed ways. Thus, culture is made up of (1) material objects; (2) ideas, values, and attitudes; and (3) normative, or expected, patterns of behavior.
The final phrase of our working definition, “as members of their society,” should serve as a reminder that culture is shared by at least two or more people. Real, live societies are of course always larger than that. In other words, there is no such thing as the culture of a hermit. If a solitary individual thinks and behaves in a certain way, that thought or action is idiosyncratic, not cultural. For an idea, a thing, or a behavior to be considered cultural, it must be shared by some type of social group or society.
Anthropologist Hendrick Serrie has provided an excellent example of how an anthropological understanding of local cultural patterns in southern Mexico prevented the costly mistake of mass-producing a solar cooker developed for this area (1986, xvi–xvii). Designed to reduce the use of firewood for cooking by encouraging the use of solar energy, these solar stoves, with the assistance of a four-foot parabolic reflector, produced levels of heat comparable to a wood fire.
Although initial demonstrations of the cooker caught the interest of the local people, a number of cultural features militated against the widespread acceptance of this technological device. To illustrate, (1) the major part of the cooking in this part of Mexico is done early in the morning and in the early evenings, at those times when solar radiation is at its lowest level, and (2) although the solar stove was very effective for boiling beans and soup, it was inadequate for cooking tortillas, a basic staple in the local diet. Thus, for these and other cultural reasons, it was decided not to mass-produce and market the solar cookers because, even though the cooker worked well technically, it made little sense culturally.
Culture and International Business 21
In addition to this working definition, a number of features of the concept of culture should be made explicit. In the remainder of this chapter, we briefly examine these features that hold true for all cultures and discuss why they are valuable insights into the cultural environment of international business.
CULTURE IS LEARNED
Culture is transmitted through the process of learning and interacting with one’s environment, rather than through the genetic process. Culture can be thought of as a storehouse of all the knowledge of a society. The child who is born into any society finds that the problems that confront all people have already been solved by those who have lived before. For example, material objects, methods for acquiring food, language, rules of government, forms of marriage, and systems of religion have already been discovered and are functioning within the culture when a child is born. If a male child is born into a small country village in Spain, for example, during his lifetime he will likely acquire his food by farming, pay allegiance to the Spanish government, enjoy bullfighting, and be a Catholic. If a male child is born into an East African herding society, in contrast, he will probably acquire his food from his cattle, obey the laws of his elders, spend his leisure time telling tribal folktales, and worship his ancestors as gods. Although these children will grow up to behave quite differently, one basic principle concerning culture is clear: Both children were
Although these children growing up on the Solomon Islands learn different cultural content than do North American children, the process of acquiring culture through learning is common to all cultures.
22 Culture and International Business born into an already existing culture. Each child has only to learn the various solutions to these basic human problems established by his culture. Once these solutions are learned, behavior becomes almost automatic. In other words, culture is passed on from one generation to another within a society. It is not inborn or instinctive.
It is sometimes easy to fall into the trap of thinking that because the Australian
Bushman and the Central African Pygmy do not know what we know, they must be childlike, ignorant, and generally incapable of learning. These primitives, the argument goes, have not learned about calculus, Shakespeare, or the Nobel Peace Prize because they are not as intelligent as we are. Yet no evidence whatsoever suggests even remotely that people in some cultures are less efficient learners than people in other cultures. What the comparative study of culture does tell us is that people in different cultures learn different cultural content—that is, different ideas, values, behavior patterns, and so on—and they learn that content every bit as efficiently as anyone else. For example, despite the inability of a rural
Kikuyu farmer from Kenya to solve a problem by using differential equations, he would be able to recite exactly how he is related (step by step) to a network of hundreds of kinsmen.
Kikuyu farmers have mastered what to us is a bewildering amount of kinship information because their culture places great emphasis on such knowledge if the rather complex Kikuyu marriage and kinship system is to work. The Ju/’hoansi hunters in Namibia can easily determine in which direction the wounded impala traveled when the herd they have been tracking split and went in two different directions. Such a problem for them is certainly no harder to solve than a typical verbal problem found on the SAT exam: “A is to B as B is to ?” And it is more relevant to their everyday survival. Hence, people from different cultures learn those things that contribute to adjusting to their particular environments.
This notion that culture is acquired through the process of learning has several important implications for the conduct of international business. First, such an understanding can lead to greater tolerance for cultural differences, a prerequisite for effective intercultural communication within a business setting. Second, the learned nature of culture serves as a reminder that because we have mastered our own culture through
The learned nature of culture is dramatically illustrated by Amram Scheinfeld, who writes of an American-Chinese man:
Fung Kwok Keung, born Joseph Rhinehart (of German-American stock), who, at the age of two, was adopted by a Chinese man on Long Island and three years later taken to China, where he was reared in a small town (Nam Hoy, near Canton) with the family of his foster father until he was 20. Returning then to New York (in 1928), he was so completely Chinese in all but appearance that he had to be given “Americanization” as well as English lessons to adapt him to his new life. A few years later, after the outbreak of World War II, he was drafted into the American army and sent to Italy. In many ways he was alien to the other American soldiers and tried continuously to be transferred to service in China, but army red tape held him fast in Italy until the war’s end. Back again in New York, Rhinehart-Fung at this writing works as a compositor on a Chinese newspaper (an intricate job which few but Chinese could handle), and still speaks English very imperfectly, with a Chinese accent. (1950, 505)
Culture and International Business 23 the process of learning, it is possible (albeit more difficult) to learn to function in other cultures as well. Thus, cross-cultural expertise for Western businesspeople can be accomplished through effective training programs. Finally, the learned nature of culture leads us to the inescapable conclusion that foreign workers, although perhaps lacking certain job-related skills at the present time, are perfectly capable of learning those skills in the future, provided they are exposed to culturally relevant training programs.

similarly motivated to control pain reflexes voluntarily, for they believe that the capacity to not show pain brings people closer to those supernatural forces that control their lives.
The ethnographic examples are too numerous to cite, but whether we are looking at
Cheyenne men engaged in the Sun Dance ceremony, Fiji firewalkers, or U.S. women practicing the Lamaze (psychoprophylactic) method of childbirth, the principle is the same: People learn ideas from their cultures that when internalized can actually alter the experience of pain. In other words, a component of culture (that is, ideas) can channel or influence biologically based pain reflexes.
Those nontangible parts of culture, composed of ideas, values, beliefs, and so on, can have powerful effects on the human body. For anyone familiar with the pages of
National Geographic, the variety of forms of bodily mutilation found throughout human populations is vast. People alter their bodies because their cultures teach them that to do so will make them more attractive, healthier, or more socially acceptable. For instance, women in the Padaung tribe in Burma elongate their necks by wearing large numbers of steel neck rings; Masai men and women in East Africa put increasingly larger pieces of wood through their earlobes, thereby creating loops of skin; men in
New Guinea put bones through their noses; traditional Chinese women had their feet tightly bound as young girls to retard the growth of their feet; Nubians in the Sudan scar their faces and bodies in intricate geometric designs; Pacific Islanders practice elaborate body tattooing; and a number of cultural groups throughout the world circumcise both men and women as part of the rite of passage into adulthood. It has even been reported that a group of people living between Canada and Mexico engage in the somewhat barbaric practice of putting holes in their earlobes for the purpose of hanging pieces of jewelry from them. And they practice this type of bodily mutilation for the very same reason that people tattoo their bodies, scar their faces, or put bones through their noses—because their cultures teach them that it is the acceptable thing to do.
Altering the body for aesthetic purposes (what is known euphemistically as
“plastic surgery”) has become increasingly widespread in U.S. culture in recent years.
To illustrate, according to the American Society for Aesthetic Plastic Surgery (2009),
11.7 million cosmetic procedures (both surgical and nonsurgical) were performed in the
United States in 2007, a 457 percent increase since 1997. The top five surgical cosmetic procedures in 2007 were liposuction, breast augmentation, eyelid surgery, abdominoplasty
(“tummy tuck”), and breast reduction. Ninety-one percent of all procedures were performed on women and nine percent on men. In fact, surgical and nonsurgical altering of our physical appearance is becoming so widespread and routine that it has become a popular twenty-first century form of entertainment. Reality TV shows such as ABC’s Extreme Makeover and Fox network’s The Swan have taken seemingly unattractive people who voluntarily submit to a host of cosmetic surgical procedures and emerged at the end of the show transformed to the rave reviews of friends, family members, and the sizeable viewing audience. After liposuction, nose jobs, forehead lifts, lip and breast augmentation, tooth veneering, and chin implants, the women appear to be looking suspiciously like a Barbie doll or Pamela Anderson while the men take on a number of physical traits of super action heroes (Kuczynski 2004).
The basic anthropological notion that culture channels biological processes can provide some important insights when managing or marketing abroad. For example, in
Culture and International Business 25
Culture and International Business
Chennai, India, such a concept can be a reminder not to serve beef noodle soup in the plant cafeteria, for to do so might cause a mass exodus to the infirmary. Or, even though foot binding is no longer widely practiced in China, the notion of equating small feet with feminine beauty should be taken into account by shoe manufacturers who hope to sell shoes to Chinese women in the twenty-first century. Or, an understanding of the fascination with plastic surgery in the United States should encourage cosmetic manufacturers around the world to do their homework on what constitutes attractiveness for both men and women in the United States.
CULTURAL UNIVERSALS
All cultures of the world—despite many differences—face a number of common problems and share a number of common features, which we call cultural universals. Even the most casual perusal of an introductory textbook in cultural anthropology leads us to the inescapable conclusion that there are many societies with their own unique cultures.
The determination of how many different cultures exist today depends largely on how one defines the problem, a definitional question on which there is hardly consensus among the world’s anthropologists. We can get a rough approximation of world cultural variation by realizing that approximately eight hundred and fifty separate and distinct cultures (speaking mutually unintelligible languages) are on the continent of Africa alone. Rather than being preoccupied with the precise number of cultures in the world at any one time, we should emphasize the significance of the variability; that is, the great number of differences between cultures illustrates how flexible and adaptable humans are in relation to other animals, because each culture has arrived at different solutions to the universal human problems facing all societies.
As we encounter the many different cultural patterns found throughout the world, there is a natural tendency to become overwhelmed by the magnitude of the differences and overlook the commonalities. Even anthropologists, when describing “their people,” tend to emphasize the uniqueness of the culture and only infrequently look at the similarities between cultures. But all societies, if they are to survive, are confronted with fundamental universal needs that must be satisfied. When cultures develop ways of meeting these needs, general cultural patterns emerge. At a very concrete level, differences in the details of cultural patterns exist because different societies have developed different ways of meeting these universal societal needs. Yet at a higher level of abstraction, a number of commonalities exist because all cultures have worked out solutions to certain problems facing all human populations. Let’s briefly examine the needs that all cultures must satisfy and the universal cultural patterns that emerge to satisfy these needs.
Economic Systems
One of the most obvious and immediate needs of a society is to meet the basic physiological requirements of its people. To stay alive, all humans need a certain minimal caloric intake, potable water, and, to varying degrees, protection from the elements in
Culture and International Business 27 terms of clothing and shelter. No societies in the world have access to an infinite supply of basic resources such as food, water, clothing, and housing materials. Because these commodities are always in finite supply, each society must develop systematic ways of producing, distributing, and consuming these essential resources. Thus, each society must develop an economic system.
To illustrate this principle of cultural universals, we can look at one component of economic systems—namely, forms of distribution. In addition to producing basic material goods (or procuring them from the immediate environment), all societies must ensure that these goods are distributed to all those members of the society whose very survival depends on receiving them. In the United States, most goods and services are distributed according to capitalism, based on the principle of “each according to his or her capacity to pay.” In socialist countries, on the other hand, goods and services are distributed according to another quite different principle—that is, “each according to his or her need.”
These two well-known systems of distribution hardly exhaust the range of possibilities found in the world. The Pygmies of Central Africa distribute goods by a system known as “silent barter,” in which the trading partners, in an attempt to attain true reciprocity, avoid face-to-face contact during the exchange. The Hadza of Tanzania distribute the meat of an animal killed in the hunt according to the principle of kinship— each share of meat is determined by how one is related to the hunter. But whatever particular form the system of distribution might take, there are no societies—at least not for long—that have failed to work out and adhere to a well-understood and systematic pattern of distribution.
Marriage and Family Systems
For a society to continue over time, it is imperative that it work out systematic procedures for mating, marriage, child rearing, and family formation. If it fails to do this, it will die out in a very short time. No society permits random mating and all societies have worked out rules for determining who can marry whom, under what conditions, and according to what procedures. All societies, in other words, have patterned systems of marriage. And since human infants (as compared with the young of other species) have a particularly long period of dependency on adults, every society needs to work out systematic ways of meeting the needs of dependent children. If these basic needs are not satisfied, children will not survive to adulthood; consequently, the very survival of the society is in jeopardy. Thus, we can say that all societies have patterns of child rearing and family institutions.
And yet, it is absolutely essential that one knows something about the specific features of the marriage and family system that exists in those particular parts of the world in which one may have business interests. For example, in those parts of the world where people have many obligations to attend family/kinship functions, labor contracts should include flexible working hours and perhaps slightly lower pay instead of a rigid forty-hour workweek and somewhat higher pay. Workers, in other words, would be
28 Culture and International Business
The Legal Environment for International Business
The Challenge of International Business * Each international business transaction faces dozens of legal and practical problems. * When a U.S. company contracts with a foreign party they must agree on which contract law will apply: * U.S. contract law or the contract law of the foreign party’s nation; or * International law in the United Nations Convention on Contracts for the International Sale of Goods (CISG). * When a U.S. company makes a direct foreign investment, it must comply with the laws of the nation in which the investment is made.

Limitations on Trade * Many governments place barriers to trade between nations.
Export Controls * Most nations place controls on exports for political and economic reasons. * In some cases, a seller’s failure to comply with export controls will subject her to imprisonment.
The Export Administration Act of 1979 * The Export Administration Act of 1979 is the main law controlling exports from the United States. * The Act is designed to accomplish three purposes: * To enhance national security. * To aid in the accomplishment of U.S. foreign policy objectives. * To preserve commodities and technology essential to the protection of the U.S. economy. * The Act is enforced by the Bureau of Export Administration (BXA). * The BXA administers a licensing procedure and maintains a commodity control list. * If exportation to a nation is legal, the exporter must consult the commodity control list to determine whether it needs a general or a validated license issued by the BXA. * General license – a blanket authorization to export the covered goods or without obtaining specific permission for a specific export. * Validated license – authorizes a specific exporter to export a specific good or technology to a specific country. * The commodity control list also controls the reexportation of U.S. goods and technology by the foreign buyer to a second foreign nation.
Import Controls * Countries control the importation of goods and technology primarily to protect domestic firms.
Quotas
* Quota – limits the number or poundage of an item that may be imported into a country.
Licensing
* Licensing foreign technology allows the importing nation to control the economic development or negotiate for better terms for the licensor. * License – government-granted permission to conduct a specific business.
Prohibited Imports * Most countries prohibit imports of goods for economic, political, or moral reasons.
Tariffs
* Tariff – a tax or ad valorem duty assessed on goods when they are imported into a country. * Ad valorem duty – assessed as a percentage value of the good. * The U.S. Customs Service supervises the import of goods until formal entry into the United States and collects any import duties.
World Trade Organization (WTO) * The purpose of the World Trade Organization (WTO) is to reduce all trade barriers and promote a stable world trade environment. * The WTO enforces the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). * The WTO encourages its members to adopt most favored nation treatment for all its members. * Most favored nation treatment – a nation grants another nation trade treatment as favorable as that granted to any other country.
Regional Trade Associations * Regional trade association have reduced tariffs and trade barriers. * North American Free Trade Agreement (NAFTA) – a regional trade association of the Canada, Mexico, and the U.S. * European Union (EU) – comprises most of the western European countries.
Dumping and Subsidized Goods * A common reason for imposing tariffs is to counteract dumping and subsidizing goods. * Dumping is regulated by the Trade Agreement Act of 1979 which created the International Trade Association (ITA) to determine whether dumping occurred and impose a duty if it did. * Dumping – the selling of goods at unfairly low prices. * Governments impose countervailing duties against subsidized goods to protect competing domestic industries.
Counterfeit and Gray Market Goods * A number of statutes protect domestic producers from the import of counterfeit goods. * Dumping – the selling of goods at unfairly low prices. * The importation of gray market goods generally violate the contract between a U.S. firm and its foreign licensee. * Gray market goods – goods produced in a foreign country lawfully bearing trademarks or using patents or copyrights entering the U.S. market without authorization.
Foreign Sales of Domestically Manufactured Products * An important legal question faced by an exporter is what contract law applies to the transaction and what terms the contract should include.
Regulation of International Sales Contracts * The United Nations Convention on Contracts for the International Sale of Goods (CISG) is designed to provide a uniform code for international contracts in a way similar to the Uniform Commercial Code (UCC) in the U.S. * There are substantial differences between the CISG and the UCC.
Need for Written Sales Contracts * The parties to an international sales contract should draft a comprehensive written agreement.
Direct Sale to a Foreign Buyer * The contract between a U.S. seller and foreign buyer of goods should execute a written contract containing the basic terms and conditions of the contract.
Off-Shore Banking and Other Uses of Tax Havens * Some small countries with no or very low income tax rates and strict secrecy laws have become tax havens for U.S. insurance, banking, and investment companies. * Many persons use tax havens to mask illegal activities.
The Foreign Corrupt Practices Act * The Foreign Corrupt Practices Act makes it a crime for any U.S. firm to offer and/or pay a bribe to a foreign official to influence a discretionary governmental decision.

Political Environment of International Business
Political factors constitute an important environment factor in International Business. Actually politics and economics are inter-related as one influences the other. That was the reason for early writers of Economics preferred to caption their work as Political Economy. Political system, political parties in power, political parties in the opposition, political maturity of the parties, number of political parties, political awareness of people, political stability and the like have great impact on the business environment in a country. The economic policies pursued by a Government are to a great extent the by-product of political environment that impacts businesses very often.
Basic Political Ideologies
Political ideology refers to, ‘the body of ideas, theories, aims and means to execute the ideas, adapt the theories and fulfill the aims that constitute a sociopolitical programme for action’. Depending on the mix of different ‘ideas, theories, aims and means’, there exists Pluralism, Democracy and Totalitarianism as alternative ideologies. 1. Pluralism: It involves coexistence of different ‘ideas, theories, aims and means’. Pluralism may be existing due to lack of convergence because the polity is made of different interest groups based on ethnicity, language, religion, race and so on and no one group is dominant enough to overrule the rest. Contrary to popular belief that existence of too many ideologies of different ethnic groups might break the polity into disarray and lead to eventual disintegration, such disintegration hadn’t happened. Western nations with capitalistic orientations have this style. The best example is the USA. Individuals have civil liberties and political rights. Civil liberties are measured in terms of freedom of press, equality of all individuals in the eye of law, personal social freedoms and freedom from extreme forms government indifference or interference. Political rights enjoyed depend on the degree of fair and competitive elections, the ability of people to endow their elected representative with real power, the ability of people to float political parties or competitive and competent political groupings to voice their ideologies and existence of safeguards on the rights of minorities. 2. Totalitarianism: It involves, ‘only one idea, theory, aim and means’. No alternative ideology is allowed to co-exist. There is lack of tolerance. The best example is China. Former USSR was an example. But there used to be the tendency to break away. And that happened with the USSR breaking up into present Russia and over dozen countries. Of course, countries do unite even under totalitarian system do as it happened with Taiwan, Singapore and Hong Kong getting attached to mainland China late 1990s. China could ensure economic growth, but USSR couldn’t. people want development ultimately. As long as this core aim is fulfilled, they stand up together. Individuals have no civil and political freedom. There could be fascism or communist regimes. About 25% of countries are still totalitarian. 3. Democracy: It involves, a mix of pluralism and totalitarianism. There used to be individual freedom with checks and balances. The degree of political rights and civil liberties enjoyed however vary. Certain rights allowed, certain restricted and certain denied too. India falls in this category. It is the largest democracy in the world in theory. 75% of countries have democracies of some order. Of them, 1/3rd are more pluralistic, 1/3rd are some 50:50 type and remaining 1/3rd are more totalitarian.
Politico- economic System
Political system refers to the set of factors relating to political institutions, the political parties and their ideologies, the form of state governance and the role of the state and its functionaries vis-a-vis, the role of individuals and their organizations. Every country has a political system of its own. There are different forms of political system. A brief summary of each of the forms is presented below. 1. Capitalism: Capitalism is a politico-economic system wherein, private ownership and initiative, individual freedom to produce, exchange, consume and distribute, market mechanism and consumer sovereignty and limited role of government are found. In short capitalism may be called as ‘free enterprise economy’ where state control on businesses is not existing or minimum. The capitalist political system is pro-private businesses. Competitive efficiency is rewarded in the market. Businesses flourish through efficiency, innovation and serving the consumers. Businesses are directed by market mechanism, least influenced by governmental factors. Whatever influence from Government is pro-domestic business. The western economies like the USA, Canada, Western Europe, etc. have capitalist political system. Since efficiency is rewarded, higher levels of performance are achieved. These economies generally do very well, they attract foreign investment, they introduce latest technologies, patent protection is of high order and so on. Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on close relationships between businessmen and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth. 2. Crony capitalism: Crony capitalism is evidenced by politician oriented/owned/controlled business world. Self-serving friendships and family ties between businessmen and the government influences the economy and society. This type of capitalism benefits the political owners and not the consumers. A variant of this form involves ‘collusion among market players’. While perhaps lightly competing against each other, they will present a unified front to the government in requesting subsidies or aid (sometime called a trade association or industry trade group). This is marked by entry walls for new comers, preventing competition. Another variant of crony capitalism encourages businesses to stay in the good graces of political officials. Connections with political bigwigs and lobbyists are more important than actual competition as such in this form of capitalism. Corrupt governments may favor one set of business owners who have close ties to the government over others, based on racial, religious, or ethnic favoritism. In smaller countries this is more popular. Anti-capitalists call it a natural consequence of collusion between those managing power and trade, either by common control or through ‘deals’. Since businesses make money and money leads to political power, business will inevitably use their power to influence governments. 3. Welfare Capitalism: Capitalism has certain limitations such as neglect of certain business not yielding good profits or those involving greater risk. Individual ‘good’ may not aggregate to collective ‘good’. So, some state role is needed. Herein the government intervenes and fills up the gaps to ensure maximum social advantage. Government supplements and does not substitute private entrepreneurship. The characters of capitalism are applicable to this system in total subject to the above referred to variation. Government relationship with the business takes the same pattern as in the case of capitalism, except that government intervenes in a small way to ensure social welfare of people at large. 4. Socialism: Socialistic political system is characterized by state ownership of production, exchange and distribution. The main features of this system are: i) Government ownership and/or control of factors of production, ii) Government direction of production, exchange and distribution, iii) Central Planning of resource mobilization, allocation, pricing etc. iv) Restriction private businesses, v) restriction on individual freedom and initiative, vi) government interference in income distribution, vii) government direction on physical distribution and pricing of products, viii) consumer is not the king, only the state is all powerful and so on. In a socialist political system businesses are run and/ or closely controlled by the state. Businesses are run by bureaucrats and not by people with business acumen. Businesses are distanced from profit goal. State policy determines which industry to be developed and which is not to be developed. Private initiative is not nurtured, sometimes is even curbed. Business is dominated by the government bodies. 5. Communism: A communist political system is nothing but 100% state control of all human activities. It is also known as state capitalism. Production, exchange, consumption and distribution are all state controlled. The difference between socialism and communism is that in communism, consumption is also state controlled. Businesses are run almost like government departments. The dominant environment of business is, truly, the government factor. 6. Mixed Economy: Mixed economy is said to be the ‘golden mean’ of capitalism and socialism. Side by side public and private ownership exist. This system is in vogue in India. The features of capitalism and socialism are jointly present in this system. Private initiative, freedom of enterprise, consumer sovereignty, individual saving and investment, profit orientation and market mechanism are all there. But it is not entirely free of government control. State initiative, state enterprise, state investment, social objectives like equal distribution, balanced development of all regions, concessions and privileges for the less privileged, reservations for the benefit of weaker sections, etc are found.
Functioning of Political Parties
The political parties in power influence the business environment to a great extent, irrespective of political system. The influence can be pro-business or anti-business. A pro business political party in power can vest the business community an environment of growth, competition and concern. Anti-business party in power would wield a threat of intimidation. The integrity of the political leaders and their kith and kin is a great factor to reckon with. Besides, the real power within the political party in power counts. Now businesses themselves identify with one or other party and who gets rewards depend whose person are in power. When there happens a coalition government, not just one single political party dictates terms for the businesses. There are multiple concerns. Businesses struggle to please too many political leaders. Parties in opposition and their leaders have the role to question government’s decisions in the parliament/legislature. Now-a-days, they exhibit their power in organizing strikes and stalling conduct of business in the parliament or legislature on smaller issues. In a multiparty system, with coalition governments running the government involves lot of compromises despite their common minimum programme. The leaves the business community disillusioned.
Political maturity of the parties and people and Political Stability
Political maturity of parties involves respecting the verdict; the ruling party must not be vindictive; the opposition parties must not be spiteful. Of late these values are given up in the air. Incident free political rallies, absence of hooliganism, terminological pleasance in referring to individual members, issue based expression of view points, freedom to elected members to express their views irrespective of party affiliation, etc are the hallmarks of political maturity. Impartiality of police system and political non-intervention in its action are real test of political maturity. These are far to expect. An air of uneasiness prevails which suffocates businesses. Opportunistic ideologies are followed for short-term electoral gains. That is no maturity. The lesser the number of parties, more the political maturity of people and the better the governance would be. The developed world nations have fewer political parties, while less developed countries have too many political outfits. Businesses suffer more uncertainty with more number of political parties, because the policy environment becomes shaky.
Political stability is a crucial factor. The political system, the number of parties, ideologies of parties, animosities amongst different parties, leadership characters of political parties, the commitment of parties taking power to honor commitments made by previous governments, etc influence political stability. Political stability also means consistency in political decisions, much needed for inspiring confidence in the minds of business community, both national and international. Lack of political stability is an indication of excessive risk businesses suffer.
Relationship between the State and the Businesses
There could be political instability and yet it may not transform into political risk for businesses. This is so when the State respects the business enterprises concerned. Barring a few cases in most countries, today businesses have good relationship with the Government due to LPG policy pursued widely. Multilateral Investment Guarantee Agency (MIGA), bilateral agreements to protect mutual investment interests, etc ensure that good relationship prevails between the State and the MNCs.
The world is becoming a less-polarized. Countries choose businesses across the globe for business relationship based on merits of efficiency rather than political system followed. The USA, sees India as an economic opportunity. So, political and strategic alliances are on the rise. India is also in good relationship with Japan, the European Union, Russia, Republic of China and so on. So, business interests develop across the globe.