Political Influences on Business: Overview

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  • 0:02 Political Influences
  • 1:29 Political Stability
  • 2:31 Taxes
  • 3:04 Social Policies
  • 4:26 Lesson Summary
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Lesson Transcript
Instructor: Rodney Michael

Rodney has taught university accounting classes and has a doctorate in accounting.

In this lesson, you'll learn about different ways that political processes influence and direct business practices within a country. We'll also explore the political implications for international businesses.

Political Influences

Let's begin with a general discussion of political influences on businesses. The political processes within a country generate laws and regulatory requirements. Companies doing business within that country must follow the laws and comply with the regulations or face legal penalties. Theoretically, the laws and regulations reflect the social values and governmental objectives of the host country. Unsurprisingly, these will vary widely among countries. For example, consider the different social, cultural, and political values of North Korea and Canada.

Even within a country, regional differences can lead to diverse laws, regulatory requirements, and political concerns. These concerns influence your life, and mine, every day. For example, as this is being written, there is a can of carbonated water next to me. Printed on the top of the can is a notice that a ten-cent bottle deposit is required in this state. Presumably, this is a state regulation designed to encourage people to recycle the can and avoid littering.

There is also a bottle of over-the-counter vitamins within reach. On these, there is a small white sac labeled, 'HARMLESS ABSORBENT- DO NOT EAT.' Apparently, this reflects a concern at some level of the government that I might deliberately eat the sack. Let's look at some of the more important types of political influences on business.

Political Stability

The political processes within a country can take many forms, from dictatorships to participatory democracies. Recent history has provided numerous instances of civil war, revolution, and externally imposed regime changes. When a political system is unstable, it is difficult to conduct even the simplest business activity. For example, in times of political disruption, the banking systems are likely to be impaired or completely shut down. Routine activities such as paying bills, arranging credit, buying merchandise and making capital investments become very difficult.

In times of political upheaval, uncertainty discourages new investment or expansion. For example, if there is the possibility that a pro-business government could be overthrown by a socialist regime favoring state ownership of business assets, foreign investment within the country is unlikely. Even in a country such as the United States, changes in administrations or budgetary squabbles can influence business strategies.

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