Friday, May 25, 2012

Understanding Economic and Political Systems Across Borders

Your business investment is affected by the type of political system in the country you wish to invest or explore. Before you decide in which country to do business with, you first need to examine the type of economic and political system it operates in. The three major political systems are (1) Capitalism, (2) Communism, and (3) Socialism. Work operations and habits are affected by each system, and your investment will also be affected in several ways that you may or may not like. Therefore, to be sure that you are going to do business in a potential country with acceptable environment without regret, you need to arm yourself with information to guide you through your investment period.


Capitalism is an economic system that leads to creation of wealth in most of the world. Most of the factors of production [land, labor, capital, entrepreneurship, and knowledge] are privately owned and used as pleased to produce goods and services. In a free market, what to produce and the quantity to produce is dictated by the market. In this market, buyers and sellers negotiate prices for goods and services. In capitalistic countries, consumers directly or indirectly inform producers on; what they want, how many they want, in what form they want it, how they are going to take possession of it, and so on. In such countries, while business owners make decisions on what to produce, how much to charge for products, how much to pay workers, where to produce goods and services, government often interjects to set the minimum wage, and also set standard for environmental safety reasons. Capitalism is what promotes the wealth of developed countries and responsible for their economic stability.


Communism is the political system in which the government owns almost 100% of the factors of production, makes all economic decisions, and also encroaches in the life of its citizens. In this type of system, you are restricted on where you should live, when you should travel, whether to change jobs, and what religion to practice. You can now see how far your investment can go in such a system with no freedom. Majority of the time governments do not know what to produce, or how much to produce because the prices are not reflective of demand and supply. Most countries under this system face starvation due to economic depression, and few prefer to build their military instead of creating wealth.


Socialism is an economic system with the premise that most businesses should be under the ownership of the government and that the profits should be distributed evenly among the citizens. Smaller businesses are owned by entrepreneurs, and those business owners are taxed heavily in order to pay for social programs. This system believes in social equality, and that the government should be an agent to distribute the wealth evenly to its citizens. It also believes that wealthier people should pay more through taxation, and that the tax revenue should be redistributed to the poorer people in form of social programs. Some of those social programs are free health care, free education, free food, free child care, and so on. Workers in this system have many employee benefits, receive sick leave, work fewer hours per week, and take longer vacations. There is no motivation to come to work early, work hard, or stay late. A major setback is that most professionals in socialist countries are migrating to capitalistic countries due to high taxation and other non-incentive issues.

No comments:

Post a Comment