chapter 3

• Innovation includes new products, new processes, new organizations, new management practices, and new strategies.
• Economic growth often leads to the establishment of democratic regimes.
• Innovation and entrepreneurship require strong property rights because without strong property rights, individuals and businesses risk having innovations and potential profits stolen, reducing the incentive for innovation and entrepreneurism.
• A strong relationship exists between economic freedom and economic growth.
• Innovation and entrepreneurship require a market economy because there is little incentive to develop new innovations in planned economies because the state owns all means of production and therefore, captures the gains.
• Countries with favorable geography are more likely to engage in trade, are more open to market-based systems, and countries that invest in education have higher growth rates because the workforce is more productive.
• In terms of demographics, countries with a young and growing population have greater growth potential because a growing population increases the supply of labor and younger workers tend to consume more than older workers.
• Entrepreneurs are the first to commercialize innovative products and processes.
• Democratic regimes are probably more conducive to long-term economic growth.
• The political economy of nation-states is marked by three trends: Democratic revolutions during late 1980s; early 1990s led to a greater commitment to free market capitalism, a move away from centrally planned and mixed economies toward a more free market approach, and the emergence of new democracies.
• An aging population implies a stress on government finances.
• Countries in Southeast Asia have offset their geographical disadvantage by investing in education.
• Average incomes are sufficient to meet the basic needs of life in a country as represented by the Human development index, 2017.
• The spread of democracy is driven by three factors: the failure of totalitarian regimes to deliver economic progress, new information and communication technologies, and economic advances that have led to a prosperous middle class that has pushed for democratic reforms.
• Since 2005, there has been a shift back toward greater authoritarianism in some nations resulting in a retreat from the free market model.
• Author Francis Fukuyama argues the new world order will be characterized by democratic regimes and free market capitalism.
• Huntington maintains that global terrorism is a product of tensions between civilizations and a clash of value systems and ideology, with examples including Al-Qaeda and ISIS.
• Since 2005, there has been a drift back toward more authoritarian modes of government in many nations, with elections compromised, civil liberties restricted, independent press attacked, opposition parties restricted, and examples including Turkey, Russia, Ukraine, Indonesia, Ecuador, Venezuela.
• Former U.S. Secretary of State Colin Powell maintains that terrorism is one of the major threats to world peace and economic progress.
• A shift from centrally planned economies to market-based economies is occurring in more than 30 countries in the former Soviet Union and eastern European communist bloc, with the change also occurring in Asian and African states.
• Political scientist Samuel Huntington argues that while many societies are modernizing, they are not becoming more Western and predicts a world split into different civilizations that will be in conflict, making business difficult.
• Command and mixed economies failed to deliver the sustained economic growth achieved in market-based countries.
• In 2019, Freedom House ranked countries into three broad categories: 86 countries classified as free, 59 countries classified as partly free, and 51 countries classified as not free.
• Economic development is determined by the level of economic development of a nation, the changes occurring worldwide, the transition economies moving toward market-based systems, and the implications for management practice of national differences in political economy.
• Differences among nations affect how attractive it is for doing business.
• Trends that foster greater economic development include democratic forms of government, market-based economic reforms, and legal systems that better enforce property rights.
• Other things being equal, the benefit - cost - risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems and no dramatic upsurge in either inflation rates or private sector debt.
• Benefits, Costs, Risks, and Overall Attractiveness of Doing Business Internationally
• Legal risk: the likelihood that a trading partner will opportunistically break a contract or expropriate property rights.
• Overall Attractiveness: based on balancing the benefits, costs, and risks associated with doing business in that country.
• Gross National Income (GNI) measures the total annual income received by residents of a nation, with Japan, Sweden, Switzerland, and U.S. having high GNI and China and India having low GNI.
• Purchasing power parity (PPP) is an adjustment in gross domestic product per capita to reflect differences in cost of living.
• Economic data for select countries includes GNI per Capita, 2018 ($), GNI PPP per Capita, 2018 ($), Annual GDP Growth Rate, 2009 to 2018 (percent), Size of Economy GDP, 2018 ($ billions), and more.
• The “official” figures can be misleading as they do not account for black economy transactions that include unrecorded cash transactions or barter agreements.
• GNI and PPP data are static and do not consider economic growth rates.
• China and India are currently relatively poor, but their economies are growing more rapidly than many advanced nations.
• China may become the world’s largest economy during the next decade.
• India will be among the largest economies in the world.
• Economic development should be assessed by the capabilities and opportunities people enjoy, according to Amartya Sen.
• Development requires the removal of major impediments to freedom: poverty, tyranny, poor economic opportunities, according to Amartya Sen.