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ISK - HULT International Business School
Navigating the Business Environment (BUS101) - G
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Chapter 2 - The Political Environment
WEEK 2
Class 1 – Defining the political environment (PE)
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Class 2 – Political ideologies, the European Union
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Defining the Political Environment (PE)

All aspects of an organization’s business environment are interrelated to some extent, and this is especially true of
the political environment
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- Political decisions inevitably affect the economic environment: GDP => Purchasing power & Income
disparities between consumer groups
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Policy of the
unique child, allocations & state benefits for big families, …
- Politicians can influence the pace at which new technologies appear and are adopted (ie
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Political systems

Political system, the set of formal legal institutions that ​constitute a “government” or a “​state​
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Still more broadly defined, the
political system is seen as a set of “processes of interaction​” or as a ​subsystem of the social system interacting
with other nonpolitical subsystems, such as the​ ​economic system​
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The other extreme may be represented by totalitarian systems of government in
which power derives not from popular representation, but is acquired by a select group
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(II) ​The link between ​the dominant political system, ​economic growth and the nature of the business
environment is an interesting and often complex one
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In western countries with open democratic governance, a lengthy process of consultation is likely
to take place before a new road is built, and there are likely to be extensive checks and balances to prevent the
interests of individuals or groups being threatened or unduly favoured
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The political institutions
critical to economic development are more likely to exist and function effectively in democratic systems
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(IV) ​Corruption remains a barrier to economic development in many countries
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The link between ​accountability and ​ethics is apparent in political systems
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​Abuse of a privileged political position can also undermine ​public confidence in the political
process
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(V) ​A further intriguing issue concerns the role of political systems relative to transnational organizations (MNCs
= Multinational Companies)​
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In many eastern European countries, the early days of laissez-faire
capitalism (described by Joseph Stiglitz as ‘market bolshevism’, in which unregulated free markets were forced on
these countries) was replaced over time with calls for more rather than less state involvement
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Change in the political environment can impact on business strategy and operations in a number of ways
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At the most general level, the ​stability of the political system affects the attractiveness of a
particular national market
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At a national level, governments pass ​legislation that directly affects the relationship between the
firm and its customers, and relationships between itself and its suppliers, and between itself and
other firms and individuals
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Governments see business organizations as an important vehicle for social reform through
legislation that affects employment relationships
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The government is additionally responsible for ​protecting the public interest at large, imposing
further constraints on the activities of firms
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It is responsible for
formulating policies that can influence the rate of growth in the economy and hence the total
amount of spending power
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Government at both a central and local level is itself a ​major consumer of goods and services, and
accounts for about ​40% of the UK’s gross domestic product
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Government policies can influence the dominant social and cultural values of a country, although
there can be argument about which is the cause and which the effect
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At one extreme, the ideology of the immediate post-war Labour government

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placed great importance on the role of the state, and this resulted in many private-sector organizations being
taken into state ownership
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Most ​Members of Parliament (MPs) belong to a political party
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Parties also provide a hierarchical organization through
which MPs can become junior ministers and eventually take a place in the executive
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In the UK, members of the main
political parties are divided on issues such as the level of involvement with the EU, defence expenditure and
educational policy
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The UK political environment has traditionally been ​dominated at a national level by two major
parties
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There is an argument that diversity of parties in the ​legislature (something that is generally favoured by
‘proportional representation’ electoral systems) allows for a wide range of political views to be represented in the
government, in contrast to two-party systems where minority opinions can easily be lost
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Note on Social Exclusion:
Social exclusion is a shorthand term for what can happen when people or areas suffer from a combination of
linked problems such as unemployment, poor skills, low incomes, poor housing, high-crime environments, bad
health and family breakdown
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central government
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local government
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supranational government
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The central government

The central government system of most countries can be divided into four separate functions
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These, collectively, provide sovereign government within the UK although, as will be seen later, this
sovereignty is increasingly being subjected to the authority of the EU
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The House of Commons ​is the most important part of the
legislature as previous legislation has curtailed the authority in Parliament of the monarch and the ​House of
Lords​
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The Cabinet is headed by the Prime Minister, who has many powers, including the appointment and dismissal of
ministers and determining the membership of ​Cabinet committees​, chairing the Cabinet and setting its agenda,
summarizing the discussions of the Cabinet and sending directives to ministers
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Each is headed by
a ​Minister or Secretary of State who is a political appointee, usually a member of the ​House of Commons​
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The Judiciary

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Democratic system​s of government provide a number of checks and balances against the abuse of executive
power
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Through the court system, citizens can have some redress against a legislature, executive or civil
service that acts beyond its authority
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Regional & National Government

Although many European countries, such as Germany and France, have historically had some degree of regional
government, this has been largely absent in the UK
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However, this is
only a partial system of regional government covering some parts of the UK, and the constitution and powers of
each are very different
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Any powers that remain with the UK Parliament at Westminster
are ‘reserved’, and set out in ​Schedule 5 of the Scotland Act
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The Scottish Executive is the government in Scotland for all devolved matters
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The UK government continues to appoint a
Secretary of State for Scotland​, who remains a member of the UK Cabinet and is responsible for reserved items of
government within Scotland
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The Welsh
Assembly is responsible for developing and implementing policies and programmes for all issues that have been
devolved to Wales
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All
ministers are accountable to the Assembly and its committees for their actions
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Northern
Ireland had previously had a high level of devolved administration through the UK government’s Northern Ireland
Office, and the Good Friday Agreement sought to reestablish a form of Parliament that had previously been
suspended during two decades of the ‘Troubles’
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A ​First Minister and a Deputy First Minister are elected to lead the
Executive Committee of Ministers
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Local government

(I) Local authorities in the UK are responsible for a wide range of services, from social services and education to
refuse collection and street cleaning
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(II) ​From the mid-1990s, the basic structure of local government set up by the ​Local Government Act 1974 has
been changed further by the appointment of commissions to study the needs of local government in individual
areas
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The relationship between the central and the local government: It has been argued that local government in
Britain is losing its independence from central government, despite claims by successive governments that they
support a philosophy of less government and a decentralization of powers
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- Over half of local government income now comes in the form of grants from central government
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- Furthermore, central government has the power to set a maximum permitted total expenditure for
a local authority and to set a maximum amount for its council tax due from householders
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The European Union

The ​European Union (EU), formerly known as the European Community (EC), was founded by the ​Treaty of
Rome, ​signed in ​1957 by France, West Germany, Italy, Belgium, the Netherlands and Luxembourg
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A more significant expansion to the EU occurred in May 2004 when ten
countries of central and eastern Europe joined: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia and Slovenia
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Norway and Switzerland have always declined to join
the EU, but enjoy a similar freedom of movement of capital, goods, people and services, as part of the wider
European Economic Area ​(EEA)
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The implication of a common market is the free movement
of trade, labour and capital between member-states
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There is considerable debate about the form that future development of the EU should take and, in particular, the
extent to which there should be political as well as economic union
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- The creation of a ​common unit of currency ​has been seen by many as crucial to the development
of a single European market, avoiding the cost and uncertainty for business and travellers of having
to change currencies for cross-border transactions
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Argument continues about the a​mount of influence the EU should have in nation-states’ social and
economic policy (the ​European Governance​)
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The principle of ​free movement of people across borders remains controversial in view of the
possibility of large numbers of ​refugees or economic migrants being admitted by one state and
then being automatically allowed to migrate to other member-states
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There remains widespread concern about the lack of democratic accountability of EU institutions,
not helped by allegations of excessive bureaucracy and corruption
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The structure of the EU

The Treaty of Rome (as modified by subsequent treaties) developed a structure of government whose
elements reflect, in part, the structure of the UK government
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The judiciary is represented by the ​European
Court of Justice​
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Secondary legislation
is made by the Council of Ministers and the Commission under authority delegated to them by the treaties
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- Regulations automatically form part of the law of member-states and apply directly to every
individual in the EU
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- Directives are mandatory instructions to member-states, which must take steps to implement them
through national legislation
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In general, although the treaties of the EU impose duties on the UK government that
it is obliged to follow, membership of other supranational organizations is voluntary and does not have binding
authority on the UK government
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(II) UNCTAD​: ​United ​Nations Conference on Trade and Development: an ​organization within the ​United ​Nations
that ​deals​ with ​international​ ​trade​, ​development​, and ​investment​, ​especially​ in ​developing​ ​countries
(III) NATO; (IV) WTO; (V) WB; …​ (there is a chapter dedicated to that)
ISK - HULT International Business School
Navigating the Business Environment (BUS101) - G
...


Chapter 3 - The Socio-Cultural & Demographic Environment
WEEK 3
Class 1 – Social change, the cultural environment
Class 2 – The impact of demographic changes on the business environment

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