POLITICAL AND LEGAL ENVIRONMENT

Political scenario in a country is the outcome of the interacting influence of various interest groups such as individual households, firms, politicians, and many other groups.

Political similarityPolitical diversity

The ultimate test of any political system is to hold a society together despite pressures from different ideologies

The two extremes on the political spectrum are democracy and totalitarianism

Democracy features

Freedom of opinion, expression, press Elections in which voters decide their representatives Limited term for elected officials Independent and fair court system Non-political bureaucracy and defence infrastructure Citizen accessibility to decision making

Defining feature of democracy is freedom

factors for evaluating freedom

Political rights Civil liberties

In terms of political freedom a country is rated as

Free egs. Australia, Japan Partly free egs. Brazil, Malaysia Not free egs. Egypt, North Korea

Totalitarianism

One single agent whether an individual, group or party monopolizes all political power

Decision making is restricted to few individuals

TOTALITARIANSYSTEM

AUTHORITARIANISMEg. CHILE

FASCISMEg. GERMANY UNDER

HITLER

SECULAR TOTALITARIANISM

Eg. CHINA

THEOCRATICTOTALITARIANISM

Eg. IRAN, AFGANISTAN UNDER TALIBAN

Trends in political systemkey drivers

Breakdown of totalitarian regimes Improved communication technology Higher standards of living

Political Risk

The risk that political decisions or events in any country negatively affect the profitability or sustainability of any investment

Leading sources of political risk

Expropriation or nationalisation International war or civil strife Unilateral breach of contract Destructive government actions Harmful actions against people Restrictions on repatriation of profit Discriminatory taxation policies

LEGAL ENVIRONMENT

A legal system is the mechanism for creating, interpreting and enforcing the laws in a specified jurisdiction

Legal systems differ from country to country

Legal systems

Common law system Civil law system Theocratic law system Customary law system Mixed legal system

Common law system is based on tradition, precedent, custom and usage and interpretation by the courts

Egs. Canada, US, England, India

Civil law system is based on systematic and extensive codification of law.

Egs. Germany, France, Japan

Theocratic legal system is based on religious percepts

Egs. Islamic law

Customary legal system follows the wisdom of daily experience

Mixed legal system combines the elements of other legal systems.

Egs. State of Louisiana has mixture of common law system and civil law system

Indonesia- theocratic law partly shapes civil law system