Political environment

Political systems can be classified based on the party system in the society, and mode in which
governments attain power. Based on the way governments come into power, they can be classified into
parliamentary type or absolutist type. The citizens elect parliamentary governments. Absolutist governments are
not elected. They come into power by force.
Based on the number of parties active in a country, the political establishment can be classified into four
types: single-party, two-party, multiparty, and one-party dominated systems. In a single-party system there is only
party. This party has absolute power. In a two-party system two major groups with differing political philosophies
compete for control of the government. In a multiparty system no single party may have the strength to form the
government.
As a result, parties enter into coalitions with many small parties to form the government. In a system
dominated by a single-party, although there are many parties, only one party is strong enough to form the
government. India, for example, had such a single-party dominated system for nearly 50 years after
Independence.
To understand and assess the political environment of a company it is necessary to identify and evaluate
factors that can cause political instability. Social unrest, attitudes of nationals, and policies of the host
government are some factors that can cause social instability. Political risk refers to political actions that have a
negative impact on a firm's value. Companies operating internationally have to deal with foreign politics,
domestic politics, and international politics.
The political environment in the host country is referred to as foreign politics. A company may face
problems due to a political crisis in its parent country also. This crisis is confined to domestic politics. Political
relations between two or more countries also affect business relations between the countries. A company can face
problems if the relations between the country in which the firm operates and the country from which it hails are
not good.
The process of establishing a cause-and-effect relationship between political factors and business income
is called political risk analysis. Some government policies that adversely affect the business environment include
non-convertibility of currency, preventing the repatriation of profits, nationalization and inadequacy of
compensation, and domestic political violence. Political risk analysis is an ongoing function and is not restricted
to the initial investment decision. Publications of political analysts, international rating agencies and the views of
employees of the foreign subsidiaries, are some of the sources of information on political risk.
Companies operating internationally employ different strategies to reduce their political risk. The strategic
techniques are: Integrative technique, Protective/Defensive techniques. A company adopting the Integrative
Technique tries to blend with the host country's ethos. Companies can minimize the political risk they face by
adopting Protective Techniques. A company can locate its key operations beyond the control of the host country
government.

Political ideologies
An ideology is a collection of ideas. Typically, each ideology contains certain ideas on what it considers to
be the best form of government (e.g. democracy, theocracy, etc), and the best economic system (e.g. capitalism,
socialism, etc). Sometimes the same word is used to identify both an ideology and one of its main ideas. For

instance, "socialism" may refer to an economic system, or it may refer to an ideology which supports that
economic system.
Ideologies also identify themselves by their position on the political spectrum (such as the left, the centre
or the right), though this is very often controversial. Finally, ideologies can be distinguished from political
strategies (e.g. populism) and from single issues that a party may be built around (e.g. opposition to European
integration or the legalization of marijuana).
The following list attempts to divide the ideologies found in practical political life into a number of
groups; each group contains ideologies that are related to each other. The headers refer to names of the bestknown ideologies in each group. The names of the headers do not necessarily imply some hierarchical order or
that one ideology evolved out of the other. They are merely noting the fact that the ideologies in question are
practically, historically and ideologically related to each other. Note that one ideology can belong to several
groups, and there is sometimes considerable overlap between related ideologies. Also, keep in mind that the
meaning of a political label can differ between countries and that parties often subscribe to a combination of
ideologies.
The list is strictly alphabetical. Thus, placing one ideology before another does not imply that the first is
more important or popular than the second.
This is a list of political ideologies. Many political parties base their political action and election program
on an ideology. In social studies, a political ideology is a certain ethical set of ideals, principles, doctrines, myths
or symbols of a social movement, institution, class, and or large group that explains how society should work,
and offers some political and cultural blueprint for a certain social order. A political ideology largely concerns
itself with how to allocate power and to what ends it should be used. Some parties follow a certain ideology very
closely, while others may take broad inspiration from a group of related ideologies without specifically
embracing any one of them. The popularity of an ideology is in part due to the influence of moral entrepreneurs,
who sometimes act in their own interests.
Political ideologies have two dimensions:
1. Goals: How society should function or be organized.
2. Methods: The most appropriate way to achieve this goal.

CAPITALISM:Under a capitalist economic system, individuals own all resources, both human and non-human.
Governments intervene only minimally in the operation of markets, primarily to protect the private-property
rights of individuals. Free markets in which suppliers and demanders can enter and exit the market at their own
discretion are fundamental to the capitalist economic system. The concept of laissez-faire, that is, leaving the
coordination of individuals' wants to be controlled by the market, is also a tenet of capitalism.
In a capitalist system, individuals own resources, either through inheritance or through industry. The
individual receives compensation for the use of resources by others. This, combined with inherited wealth of the
person, determines an individual's spending power. The accumulated spending power and the willingness of
individuals to allocate resources to consumption determine demand. The availability and costs of resources,
together with the potential for profits of firms, determine supply. In a market system the demand of consumers
combined with the supply of producers determine what and how much will be produced.
Because of the economic competitiveness of the market system, the lowest-cost production method will be
used. If anything other than the lowest-cost production method was being used, a competing firm would have an
incentive to enter production to earn a greater profit and could afford to sell at a lower price, thus driving the

original firm out of production. Consumers could then purchase more of the product at a lower price, allowing
their limited resources to purchase more.
Production will be allocated to those with available resources and a willingness to purchase the output of
production. These purchases then become information for suppliers in determining what and how much to
produce in the future.
Thus, pure capitalism is an economic system based upon private property and the market in whichin
principleindividuals decide how, what, and for whom to produce. Under capital ism, individuals are
encouraged to follow their own self-interests, while the market forces of sup ply and demand are relied upon to
coordinate economic activity. Distribution to each individual is according to his or her ability, effort, and
inherited property. Typically the economies of Canada, the United States, and Western Europe are considered to
be capitalist.

SOCIALISM:Under a socialist economic system, individuals own their own human capital and the government owns
most other, non-human resources that is, most of the major factors of production are owned by the state. Land,
factories, and major machinery are publicly owned.
A socialist system is a form of command economy in which prices and production are set by the state.
Movement of resources, including the movement of labor, is strictly controlled. Resources can only move at the
direction of the centralized planning authority. Economic decisions about what and how much, how, and for
whom are all made by the state through its central planning agencies.
In theory, socialism is an economic system based upon the individual's good will toward others, rather than
a function of his or her own self-interest. Socialism attempts to influence individuals to take other people's needs
into account and to adjust their own needs in accordance with what's available. In socialist economies, individuals
are urged to consider the well-being of others; if individuals don't behave in a socially desirable manner, the
government will intervene. In practice, socialism has become an economic system based on government
ownership of the means of production, with economic activity governed by central planning. The economies of
Sweden and France are examples of a socialist economic system.

COMMUNISM:Under a communist economic system, all resources, both human and non-human, are owned by the state.
The government takes on a central planning role directing both production and consumption in a socially
desirable manner.
Central planners forecast a socially beneficial future and determine the production needed to obtain that
outcome. The central planners make all decisions, guided by what they believe to be good for the country. The
central planners also allocate the production to consumers based on their assessment of the individual's need.
Basic human needs and wants would be met according to the Marxist principle, "From each according to his
ability to produce, to each according to his need."
The economies of China, the former Soviet Union, and the former East Germany are examples of
communist economies.

Role of government in business

Government regulation at the federal and state levels has a major impact on how businesses operate in
the United States. In order to manage business activities in a complex society and to help respond to changing
societal needs, governments at all levels have created numerous regulatory agencies. Although the duties and
functions of each agency vary, all influence the day-to-day business activities that take place within the United
States. Businesses that take a proactive stance toward understanding and complying with federal regulatory
agencies will minimize their chance of fines, prosecution, or other regulatory action. Therefore, it is in the best
interest of businesses to maintain healthy relationships with regulatory agencies at all levels of government.
Among the business activities regulated by government are competitive practices, industry-specific activities,
general issues of concern, and monetary regulations.
Competitive Practices:A number of laws have been passed to protect competitive practices. Among these laws are the Sherman
Antitrust Act of 1890, the Federal Trade Commission Act of 1914, and the Wheeler-Lea Act of 1938.
Sherman Antitrust Act of 1890 One of the earliest pieces of legislation that had a critical effect on the business
sector was the Sherman Antitrust Act of 1890, passed by Congress in response to public outrage over a few large
companies that were forcing their smaller competitors out of business and becoming monopolies. Since there was
no competition, consumers were left with higher prices and usually a lower-quality product. The act had two
main sections attempting to prevent the formation of monopolies. Specifically, section one maintained that
forming a trust or a conspiracy resulting in the restraint of trade was illegal. Section two provided that persons

monopolizing or attempting to monopolize trade were guilty of a misdemeanor. Basically, the federal government
was (and is) looking for companies engaging in price fixing, in dividing up the market share among different
companies to control the market, or in other business practices that may create a monopoly.
The Justice Department is the federal agency responsible for enforcing the act. By prosecuting individuals and
companies violating provisions of the law, imposing fines and jail time, or calling for injunctions, the Justice
Department prevents monopolies from forming. The act also allows injured parties, usually other businesses, to
file suit and get relief from the federal courts for infractions of the law. The Justice Department also reviews
almost every large merger or acquisition that affects the U.S. marketplace. If the Justice Department opposes a
proposed merger, companies involved in the transaction can try to work out an agreement to allay the
government's concerns or oppose the Justice Department in federal court, asking a judge to rule on the merits of
the case. Most companies planning a merger or takeover normally have their legal departments conduct
exhaustive research in order to answer potential questions from the Justice Department. The primary reason for
this research is to avoid a long legal fight with the government that is expensive and can cause significant delays
in the proposed merger or takeover.
Federal Trade Commission Act of 1914 The Federal Trade Commission Act of 1914 created the Federal Trade
Commission (FTC), which consists of five members with staggered terms of seven years each. Board members
are nominated by the president and confirmed or rejected by the Senate. One person serves as the chairperson of
the commission and guides the agency's daily operations. The FTC was originally created to enforce the
provisions of the Sherman Antitrust and Clayton Acts. The FTC has the power to investigate unfair competitive
practices on its own. Firms may also petition the FTC to investigate alleged unfair competitive practices of which
it might otherwise be unaware. The agency can hold public hearings to investigate the alleged infractions, and it
may also issue cease-and-desist orders when it believes unfair competitive business practices are being used.
Since the enforcement powers of the FTC and Justice Department overlap, the two agencies often work together
to solve problems.
Wheeler-Lea Act of 1938 Congress responded to public complaints about improper and deceptive advertising by
passing the Wheeler-Lea Act of 1938, which empowered the FTC to investigate businesses that engage in
deceptive business activities or companies that use misleading or less than truthful advertising to entice
consumers into their stores. A common deceptive practice that some companies have used in the past is called
"bait and switch." This practice refers to advertising a product at an extremely low price to draw customers into a
store but in reality having very little or none of the product available. Store employees then attempt to sell
customers a more expensive product. This is but one example of what the FTC may investigate.
Industry-Specific Federal Agencies
Federal legislation has created agencies to monitor and regulate particular industries because of concern over
industry-specific practices, among them the Interstate Commerce Commission, the Federal Communications
Commission, and the Food and Drug Administration.
Interstate Commerce Commission (ICC) In 1887, Congress passed legislation creating the Interstate
Commerce Commission. Originally, only railroads were regulated, but as modern transportation methods
developed, other transportation modes were added to its list of responsibilities. The primary purpose of the ICC
was to monitor railroad companies (prices charged) that may have had a monopoly in some parts of the country.
The commission could take corrective action, such as price modification, if it found that a railroad or other
interstate business was engaging in monopolistic business activities and charging high prices for its services.
Since this act applied to a limited number of industries, Congress later passed the Sherman Antitrust Act of 1890
(discussed earlier) to provide a much broader coverage of monopolies regardless of industry.

Federal Communications Commission (FCC) The FCC monitors and regulates CB radio, radio, telegraph,
telephone, and television operations. It has broad powers to set acceptable standards for television regarding
language, nudity, violence, or other material that may be perceived as inappropriate by the general public. For
example, television shows that are adult-oriented or contain violence are typically on late in the evening so that
children are less likely to see them. In addition, television shows often warn viewers about their content through a
rating system; since the rating is displayed on the screen, viewers can make an informed decision before watching
a particular program.
The FCC also has the power to fine broadcast companies that use inappropriate language in their programming.
Since most television and radio stations know what are considered acceptable standards, fines are rarely issued.
When fines are issued, however, a television or radio station may take the FTC to federal court to appeal the
decision. Broadcast companies that fight the FCC over a show's content normally argue that the First Amendment
gives them the right to broadcast the contested material.
Food and Drug Administration (FDA) The FDA is responsible for ensuring the safety of cosmetics, drugs, and
food. One of the most important functions of the agency is new drug approval. The FDA requires pharmaceutical
companies to provide detailed scientific data regarding new drugs prior to approval. Specifically, the FDA will
review the potential benefits and negative side effects of all proposed drugs. The agency reviews the information
submitted by the pharmaceutical company and may also conduct its own tests if additional study is deemed
needed. The FDA is extremely important to the business community because if it rejects a new drug, the
pharmaceutical company developing it cannot sell it. FDA regulators must balance the interests of the general
public with those of the pharmaceutical company. The FDA does not endorse new drugs; rather, it approves them,
stating that they are thought to be safe.
General Federal Regulatory Agencies:Federal legislation has also created agencies addressing a broad range of issues, including the Equal Employment
Opportunity Commission, the Occupational Safety and Health Administration, the Environmental Protection
Agency, and the Consumer Product Safety Commission.
Equal Employment Opportunity Commission (EEOC). The Civil Rights Act of 1964 prohibits discrimination
on the basis of race, color, creed, sex, or national origin. This law applies to almost every private company,
nonprofit organization, and government employer, although some exceptions were granted to religious
corporations, Indian tribes, and private-membership clubs. The Civil Rights Act also created the Equal
Employment Opportunity Commission.
The original purpose of the EEOC was to monitor and enforce the provisions of the Civil Rights Act. Its powers
were enhanced in 1972 with passage of the Equal Employment Act, which gave the EEOC the power to file civil
lawsuits in federal court and to represent a person filing a grievance. Prior to filing the suit in federal court, the
EEOC must first try to settle the case out of court with the alleged offending companyan attempt to promote a
more conciliatory approach to solving discrimination problems and to reduce the number of court cases. The
company could agree, for example, to settle the complaint by paying a fine, ordering remedial steps to prevent
further discrimination, and/or working out the problem for the original complainant. In large cases, the EEOC
may work with the Civil Rights Division of the Justice Department in order to settle the problem.
Occupational Safety and Health Administration (OSHA). Enacted in 1970, the Occupational Safety and
Health Administration, was designed to ensure safe and healthy working conditions in nearly every environment.
OSHA's basic premise is that employers must provide a work environment that is safe and free from hazards that
may cause harm or death to their employees. In addition, employers are obligated to follow occupational safety
and health standards that are ordered by the secretary of labor (OSHA falls under this department). Employers are
given written guidelines so they know specific OSHA rules and regulations.

In order to verify that organizations are complying with these regulations, OSHA can conduct surprise
inspections. Technically, employers can ask OSHA to show a search warrant before the search is executed, but
this is not normally done because OSHA can get a warrant relatively quickly. OSHA investigators may inspect
the building, but an employer has the right to have a representative accompany the regulators during the tour. The
investigators review accident records and other documents to verify that compliance has been maintained. OSHA
investigators also observe employees to verify that guidelines set by the agency are followed (e.g., wearing eye
protection). If OSHA investigators believe that violations have occurred, they can issue citations against the
employer. If the employer agrees to pay a fine, OSHA will normally inspect the building at a later date to ensure
compliance. If an employer believes that the fine or other sanction is inappropriate, a court order can be sought
seeking relief from the fine or sanction. In rare instances, the secretary of labor may ask for an injunction against
an employer. Injunctions are only sought in the most serious cases, such as those in which there is imminent
danger to employees.
Environmental Protection Agency (EPA). One of the most pressing issues in the United States is protecting the
environment. A combination of pressure from consumer groups, news media, and voters encouraged Congress to
pass legislation creating the Environmental Protection Agency in 1972. Prior to the creation of the EPA, no single
federal agency had control over environmental issues, resulting in fragmented enforcement and confusing or
conflicting codes. The EPA was created to act as the focal point regarding all pollution issues (air, noise, water,
etc.).
In recent years, Congress has passed several laws addressing a host of environmental issues (e.g., noise, pesticide,
radiation, and water pollution). When Congress passes a new law regarding the environment, it is the EPA's job to
enforce its provisions with the powers contained in the legislation. One example of the EPA's power is that it can
set acceptable air-quality standards for a state. If air-quality standards are not met within a specified frame of
time, fines or other punitive measures may be imposed on the offending state.
Consumer Product Safety Commission (CPSC). Another powerful federal agency was created in 1972 under
the Consumer Product Safety Act. The law created the Consumer Product Safety Commission, which was
intended to protect consumers from defective and dangerous products. In addition, Congress also wanted to unify
the majority of laws regarding product safety (except food, automobiles, and other products already regulated by
federal agencies) so that they would be effective and clear. The CPSC is very powerful; it can ban products
without a court hearing if they are deemed dangerous and can order recalls, product redesigns, and the inspection
of production plants. In more severe cases, the CPSC may also charge officers, managers, and/or supervisors with
criminal offenses.
Federal Monetary Regulatory Agencies:Several federal agencies have been established to monitor monetary practices in the United States, including the
Securities and Exchange Commission, the Federal Reserve Board, and the Federal Deposit Insurance
Corporation.
Securities and Exchange Commission (SEC). The SEC was established to regulate the securities industries in
the United States. A quasi-regulatory and judicial agency, the SEC regulates publicly traded stock-offering
companies by requiring them to issue annual and other financial reports. In addition, the SEC regulates the stock
market, brokers who sell securities, and large investment firms. The SEC also looks for insider trading, such as
trading on secret knowledge about a company, other white-collar crime that may affect a company's stock price,
and securities fraud by stockbrokers. The agency can initiate civil or criminal action against the individual or
firms charged with securities violations. Depending on the circumstances, the penalties levied by the SEC can be
severe, with large fines and long jail terms being the norm. The SEC normally works closely with the Justice

Department when criminal prosecution is involved. As always, the SEC's actions can be appealed to the federal
courts if the individual or firm believes the charges are inaccurate or unjust.
Federal Reserve Board As the United States grew, the nation's banking system became more complex and
subject to greater fluctuations without government regulation. The United States experienced an acute money
panic in 1907 that put a severe strain on the banking system. As a result of the financial panic, a National
Monetary Commission was established by Congress to study how the United States could protect the banking
system and, in turn, the money supply. National Monetary Commission recommendations were implemented by
Congress in 1913 when the Federal Reserve Act was passed and the Federal Reserve Board was established. The
primary purpose of the Federal Reserve Board is to function as a semi-independent board designed to protect the
banking system in the United States.
Federal Reserve Board activities are guided by a board of governors. The board has seven members, all of whom
are nominated by the president and confirmed or rejected by the Senate. Each member is appointed to a fourteenyear term, with vacancies occurring about every two years. To be nominated to the Federal Reserve Board, an
individual must possess excellent academic credentials, be an established leader in the financial world, and have
achieved an impeccable business reputation. In order to separate the Board from political influences and to ensure
that all decisions are based on economic rather than political issues, Board members are appointed and will likely
serve through several presidential administrations. The Board is headed by the chairperson, who is considered to
be the most powerful banker in the world. As such, the chairperson directs the overall mission of the Board and
consults regularly with the president, secretary of the treasury, banking executives, stock market representatives,
and top banking regulators from other countries to coordinate financial policy.
Federal Deposit Insurance Corporation (FDIC). Created after the Great Depression of the 1930s, the FDIC
insures each account up to $100,000 in the event of a bank failure. In return for this protection, participating
banks, credit unions, and other financial institutions must pay premiums, which the FDIC uses to build up funds
for any future bailouts.
Summary:Government regulations and agencies at all levels of government have had a major impact on how businesses
operate. In order to manage business activities in a complex, ever-changing society, governments at all levels
have created numerous regulatory agencies through the legislative process. Although the duties and function of
agencies vary, all influence day-to-day business practices. Frequently regulated business activities include
competitive practices, industry specific activities, general issues of concern, and monetary regulations.

Economic environment
"Understanding the economic environments of foreign countries and markets can help managers predict
how trends and events in those environments might effect their companies' future performance there." Daniels
The purpose of discussing the Economic Environment is to give the student an understanding of some of the
ways you can understand changes in the environment and how these changes influence your decisions - ie. the
dollar going up or down effects how much you can afford to import a component part from a particular country.
A part of the economic environment is the changes in the value of a country's currency. We have a special
unit on the Canadian dollar exchange rate at The domestic economic environment in each country is highly
integrated with, and influenced by the economic environment in other countries.
Economic environment is net result of economic system, economic polices and economic condition
prevailing in a country.
(a) Economic system: Capitalistic economy
Socialist economy
Mixed economy
(b) Economic policies
Industrial policies
Monetary policies
Fiscal policies
(c) Economic condition
Boom
Depression
Level of income
Price trend
Example: China's stock market drops - Canada's TSX drops.
It was explained in The Star (Sept 1st, 2009) that the Toronto stock market dropped due to declining
commodity prices, which is a big part of our exports to China.

Why have the manufacturers in China reduced imports of commodities? - because they are reducing their
exports to Europe and North America as a consequence of declining consumer demand - for example Wal-Mart
USA has less people buying "stuff" because so many Americans have lost their jobs and have less income.

Economic system
An economic system is the system of production, distribution and consumption of goods and services of an
economy. Alternatively, it is the set of principles and techniques by which problems of economics are addressed,
such as the economic problem of scarcity through allocation of finite productive resources. The economic system
is composed of people and institutions, including their relationships to productive resources, such as through the
convention of property. Examples of contemporary economic systems include capitalist systems, socialist
systems, and mixed economies. "Economic systems" is the economics category that includes the study of
respective systems.
An economic system can be defined as a "set of methods and standards by which a society decides and
organizes the allocation of limited economic resources to satisfy unlimited human wants. At one extreme,
production is carried in a private-enterprise system such that all resources are privately owned. It was described
by Adam Smith as frequently promoting a social interest, although only a private interest was intended. At the
other extreme, following Karl Marx and Vladimir Lenin is what is commonly called a pure-communist system,
such that all resources are publicly owned with intent of minimizing inequalities of wealth among other social
objectives".[
Alternatively, 'economic system' refers to the organizational arrangements and process through which a
society makes its production and consumption decisions. In creating and modifying its economic system, each
society chooses among alternative objectives and alternative decision modes. Many objectives may be seen as
desirable, like efficiency, growth, liberty, and equality.
Part of a social system:An economic system can be considered a part of the social system and hierarchically equal to the law
system, political system, cultural, etc. There is often a strong correlation between certain ideologies, political
systems and certain economic systems (for example, consider the meanings of the term "communism"). Many
economic systems overlap each other in various areas (for example, the term "mixed economy" can be argued to
include elements from various systems). There are also various mutually exclusive hierarchical categorizations.
Basic types Economic systems

The basic

and general economic systems are:I.

Market economy (the basis for several "hands off" systems, such as capitalism).

II.

Mixed economy (a compromise economic system that incorporates some aspects of the
market approach as well as some aspects of the planned approach).

III.

Planned economy (the basis for several "hands on" systems, such as socialism, or a
command economy).

IV.

Traditional economy (a generic term for the oldest and traditional economic systems)

V.

Participatory economics (a recent proposal for a new economic system)

VI.

Inclusive Democracy (a project for a new political and economic system)

There are several basic and unfinished questions that must be answered in order to resolve the problems
of economics satisfactorily. The scarcity problem, for example, requires answers to basic questions, such as: what

to produce, how to produce it, and who gets what is produced. An economic system is a way of answering these
basic questions, and different economic systems answer them differently.
Division of economic systems:Typically, "hands-on" economic systems involve a greater role for society and/or the state to pick goods
and services, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see
welfare state) or ameliorating market failures (see economic intervention). Meanwhile, "hands-off" economic
systems give more power to private businesses (and perhaps corporations) to make those decisions, rather than
leaving them up to society as a whole, and often limit government involvement in the market economy.
Often the primary concern of many "hands-on" economic systems that contain government involvement in
market-oriented economies is usually egalitarianism, while the primary concern for traditional "hands-on"
socialist economic systems was to rationalize production, better coordinate economic activity (and thus provide a
superior form of economic organization and exchange to capitalism) and advance the productive forces of the
economy from the perspective that the market mechanism of exchange was prone to systemic crises and
inefficiencies[4][5]; while the primary concern of "hands-off" economic systems is usually private property.
Libertarians target individual economic freedom as a primary goal of their "hands-off" policies, though in
general, most types of economic systems claim that their system of economic organization is either most efficient
or socially effective. The following list divides the main economic systems into "hands-on" and "hands-off," it
attempts to structure the systems in a given section by alphabetical order and in a vertical hierarchy where
possible.

Elements of
Economic
systems
with the

an
System:Economic
mainly deal

relationships between production (supply) and consumption (demand). What is being produced has to be
consumed and what is being consumed has to be produced. Four elements define production:
Manufacturing. Transformation of materials into intermediate and finished goods.
Regulation. The way the production system is controlled and regulated. Mostly the role of governments,
but increasingly of international multilateral agreements.
Circulation. Activities that link the elements of the production system. Includes transport and
communications.
Distribution. Activities making goods and services available to the consumer, such as retailing.
With the emergence of logistics, the elements of circulation and distribution are increasingly embedded.
Further, all these elements, especially manufacturing, are using inputs for their processes, also known as factors
of production. They include land (including natural resources), capital and labor. The enterprise itself is often
considered as the fourth factor as its main purpose is the organization of the other factors of production.

ECONOMIC SYSTEM

ECONOMIC POLICEIES
Economic policy refers to the actions that governments take in the economic field. It covers the systems
for setting interest rates and government budget as well as the labor market, national ownership, and many other
areas of government interventions into the economy. Such policies are often influenced by international

institutions like the International Monetary Fund or World Bank as well as political beliefs and the consequent
policies of parties.
Types of economic policy:Almost any
aspect of government has an economic aspect and so many terms are used. A few examples of types of economic
policy include:

Macroeconomic stabilization policy tries to keep the money supply growing, but not so quick that it
results in excessive inflation.
Trade policy refers to tariffs, trade agreements and the international institutions that govern them.
Policies designed to create Economic growth

Policies related to development economics,

Redistribution of income, property, or wealth

Regulation
Anti-trust
Industrial policy
Macroeconomic stabilization policy:Stabilization policy attempts to stimulate an economy out of recession or constrain the money supply to prevent
excessive inflation.
1) Fiscal policy, often tied to Keynesian economics, uses government spending and taxes to guide the
economy.
I.
II.
III.

Fiscal stance: The size of the deficit

Tax policy: The taxes used to collect government income.
Government spending on just about any area of government

2) Monetary policy controls the value of currency by lowering the supply of money to control inflation and
raising it to stimulate economic growth. It is concerned with the amount of money in circulation and,
consequently, interest rates and inflation.
I.
II.

Interest rates, if set by the Government

Incomes policies and price controls that aim at imposing non-monetary controls on inflation

Reserve requirements which affect the money multiplier.

Tools and goals:Policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or
economic growth. Sometimes other objectives, like military spending or nationalization are important. These are
referred to as the policy goals: the outcomes which the economic policy aims to achieve. To achieve these goals,
governments use policy tools which are under the control of the government. These generally include the interest

rate and money supply, tax and government spending, tariffs, exchange rates, labor market regulations, and many
other aspects of government.
Selecting tools and goals:Government and central banks are limited in the number of goals they can achieve in the short term. For
instance, there may be pressure on the government to reduce inflation, reduce unemployment, and reduce interest
rates while maintaining currency stability. If all of these are selected as goals for the short term, then policy is
likely to be incoherent, because a normal consequence of reducing inflation and maintaining currency stability is
increasing unemployment and increasing interest rates.
Demand-side vs. supply-side tools:This dilemma can in part be resolved by using microeconomic, supply-side policy to help adjust markets.
For instance, unemployment could potentially be reduced by altering laws relating to trade unions or
unemployment insurance, as well as by macroeconomic (demand-side) factors like interest rates.
Discretionary policy vs policy rules:For much of the 20th century, governments adopted discretionary policies like demand management
designed to correct the business cycle. These typically used fiscal and monetary policy to adjust inflation, output
and unemployment. However, following the stagflation of the 1970s, policymakers began to be attracted to policy
rules.
A discretionary policy is supported because it allows policymakers to respond quickly to events. However,
discretionary policy can be subject to dynamic inconsistency: a government may say it intends to raise interest
rates indefinitely to bring inflation under control, but then relax its stance later. This makes policy non-credible
and ultimately ineffective.
A rule-based policy can be more credible, because it is more transparent and easier to anticipate.
Examples of rule-based policies are fixed exchange rates, interest rate rules, the stability and growth pact and the
Golden Rule. Some policy rules can be imposed by external bodies, for instance the Exchange Rate Mechanism
for currency.
A compromise between strict discretionary and strict rule-based policy is to grant discretionary power to
an independent body. For instance, the Federal Reserve Bank, European Central Bank, Bank of England and
Reserve Bank of Australia all set interest rates without government interference, but do not adopt rules.
Another type of non-discretionary policy is a set of policies which are imposed by an international body.
This can occur (for example) as a result of intervention by the International Monetary Fund.
Economic policy through history:The first economic problem was how to gain the resources it needed to be able to perform the functions of
an early government: the military, roads and other projects like building the Pyramids.
Early governments generally relied on tax in kind and forced labor for their economic resources. However, with
the development of money came the first policy choice. A government could raise money through taxing its
citizens. However, it could now also debase the coinage and so increase the money supply.
Early civilizations also made decisions about whether to permit and how to tax trade. Some early
civilizations, such as Ptolemaic Egypt adopted a closed currency policy whereby foreign merchants had to
exchange their coin for local money. This effectively levied a very high tariff on foreign trade. By the early
modern age, more policy choices had been developed. There was considerable debate about mercantilism and
other restrictive trade practices like the Navigation Acts, as trade policy became associated with both national

wealth and with foreign and colonial policy. Throughout the 19th Century, monetary standards became an
important issue. Gold and silver were in supply in different proportions. Which metal was adopted influenced the
wealth of different groups in society.
The first fiscal policy:With the accumulation of private capital in the Renaissance, states developed methods of financing deficits
without debasing their coin. The development of capital markets meant that a government could borrow money to
finance war or expansion while causing less economic hardship. This was the beginning of modern policy. The
same markets made it easy for private entities to raise bonds or sell shares to fund private initiatives.
Business cycles:The business cycle became a predominant issue in the 19th century, as it became clear that industrial output,
employment, and profit behaved in a cyclical manner. One of the first proposed policy solutions to the problem
came with the work of Keynes, who proposed that fiscal policy could be used actively to ward off depressions,
recessions and slumps. The Austrian school argues that central banks create the business cycle.

Legal Environment
The global legal environment refers to the legal environment in international business. The legal
environment regulates the operations of firms in international markets. It is sufficient for a firm operating at the
domestic level to stick to regulations of the land, but organizations operating in different countries need to know
and comply with the laws of the domestic country as well as all the host country they operate in.
.
Governments impose laws to protect the home industry from cut- throat global competition. They impose
different kinds of tariffs, enter into agreements and sign treaties to protect indigenous industry and promote local
trade. When governments feel that the home industry is affected because of dumping, under Article VI of GATT,
they can impose heavy anti-dumping duties. To protect domestic industry, they can also impose non-tariff barriers
and frame regulations on foreign investments.
In international business, disputes and litigation are common. To resolve differences between countries, all
member nations of the WTO have established a Dispute Settlement Body. It is the final authority and passes
rulings and frames regulations on disputes between/among member countries. WTO members have entered in to

agreements and established committees to regulate and govern international trade in information technology
products. Laws have also been framed to regulate and bring uniformity to the interpretation of transportation
rules among countries.
Until the beginning of the last century, the business community was largely free to organize its legal relations in
any way it chose. But increasing industrialization towards the end of the 19th century had given rise to labor
unions, had led to increased concentrations of economic power in the hands of huge trusts and robber barons, had
led to increased injuries in the workplace and to the demand for greater consumer protection and product liability.
The scene was set for Government to challenge the power of Business. What followed the passage of the 1895
Sherman Anti-Trust Act was 30-40 years of constitutional wrangling over the power of the federal government to
interfere in the everyday life of businesses.
The federal government won that first round just before the Second World War, and what followed the war was
half a century of developing federal administrative agency law. The pervasiveness of federal regulation is
impressive: we all recognize the alphabet soup - EPA, OSHA, the SEC, NLRB, and EEOC - even NAFTA.
But what has happened very recently - just in the last few years - is a sea change in thinking about regulation and
the federal government is giving ground both to businesses and to state governments in some areas. It started
under President Reagan, picked up speed after the 1994 Congressional elections, and continues today under the
current Bush Administration and the Supreme Court under Chief Justice William Rehnquist.
We have also witnessed an amazing transformation in business in the last decade as a result of "globalization"
that has fundamentally altered the relations between Government and Business. Did you know that of the world's
largest economies, 51 are now corporations and only 49 are nation-states? One hundred multinationals now
control 20% of global assets. The sales of GM and Ford are bigger than the GDP of all of sub-Saharan Africa.
Wal-Mart has higher revenues than most East European nations. And corporations are using their enormous
muscle power to gain advantages. Borden Chemicals has had $15 million of corporate tax wiped off its bill in
Louisiana over the past decade in an effort by the state to keep the corporation domiciled there. In Arkansas, the
state spent $10 million to attract Frito Lay to Jonesboro in 1998, at a time when Arkansas is not exactly the
richest state in the country. Wal-Mart pays no property taxes in Ohio. States (read local people) find themselves
begging corporations to set up home in their areas to provide jobs, and to do so, they'll waive property taxes that
support the local school system, and lower corporate taxes that support the state welfare program. If they don't,
the corporation just goes elsewhere -- like Indonesia.
Dominant corporations are increasingly beyond the control of the traditional nation state and democratic
institutions. They decide for themselves where to invest, where to pay tax, and how much to pay. These are
interesting times we live in: the legal environment in which Business operates is changing all around us even as
we study this subject.
For anyone contemplating going into business, the course is a great primer on the forces that have shaped todays
business environment, and a good introduction to the rights and responsibilities of business people in the United
States.

Constitutional environment in India

The Constitution of India was drafted by the Constituent Assembly. The Constituent Assembly held its
first sitting on the 9th December, 1946. It reassembled on the 14th August, 1947, as the sovereign Constituent
Assembly for the Dominion of India. The proposed Constitution had been outlined by various committees of the
Assembly like:
a) Union Constitution Committee
b) The Union Powers Committee
c) Committee on Fundamental Rights.
It was after a general discussion on the reports of these Committees that the Assembly appointed a
Drafting Committee on the 29th August, 1947. The Drafting Committee, under the Chairmanship of Dr.
Ambedkar, embodied the decision of the Assembly with alternative and additional proposals in the form of a
'Draft Constitution of India which was published in February, 1948. The Constituent Assembly next met in
November, 1948, to consider the provisions of the Draft, clause by clause. After several sessions the
consideration of the clauses or second reading was completed by the 17th October, 1949. The Constituent
Assembly again sat on the 14th November, 1949, for the third reading and finished it on the 26th November,
1949, on which date the Constitution received the signature of the President of the Assembly and was declared as
passed. The provisions relating to citizenship, elections, provisional Parliament, temporary and transitional
provisions, were given immediate effect, i.e., from November 26, 1949. The rest of the Constitution came into
force on the 26th January, 1950, and this date is referred to in the Constitution as the Date of its Commencement.
Preamble :WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN
SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens:JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity;
and to promote among them all
FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation;
IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT AND
GIVE TO OURSELVES THIS CONSTITUTION.

Purpose of Having a Preamble:The Preamble to our Constitution serves two purposes: A) It indicates the source from which the Constitution derives its authority;
B) It also states the objects, which the Constitution seeks to establish and promote.
The Preamble seeks to establish what Mahatma Gandhi described as The India of my Dreams, "an
India in which the poorest shall feel that it is their country in whose making they have an effective voice; an
India in which all communities shall leave I perfect harmony. There can be no room in such an India for the curse
of untouchability or the curse of Intoxicating drinks and drugs. Woman will enjoy as the same rights as man."
Fundamental Rights :The Fundamental Rights embodied in the Indian constitution acts as a guarantee that all Indian citizens can
and will lead their lifes in peace as long as they live in Indian democracy. These civil liberties take precedence
over any other law of the land. They include individual rights common to most liberal democracies, such as
equality before the law, freedom of speech and expression, freedom of association and peaceful assembly,
freedom of religion, and the right to constitutional remedies for the protection of civil rights such as habeas
corpus. Indian Government have provided six basic rights to every citizen India. So, as to provide a democratic
environment for the people of India to live in. Here, we are describing each fundamental right in detail to help
you in understanding our constitution.
In addition, the Fundamental Rights for Indians are aimed at overturning the inequities of past social
practices. They have also been used to in successfully abolishing the "untouchability"; prohibit discrimination on
the grounds of religion, race, caste, sex, or place of birth; and forbid trafficking in human beings and also the
forced labor. They go beyond conventional civil liberties in protecting cultural and educational rights of
minorities by ensuring that minorities may preserve their distinctive languages and establish and administer their
own education institutions.
Originally, the right to property was also included in the Fundamental Rights; however, the Forty-fourth
Amendment, passed in 1978, revised the status of property rights by stating that "No person shall be deprived of
his property save by authority of law." Freedom of speech and expression, generally interpreted to include
freedom of the press, can be limited "in the interests of the sovereignty and integrity of India, the security of the
State, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court,
defamation or incitement to an offence"
Here we have defined the six fundamental rights as per the constitution of India:1. Right to Equality
2. Right to Particular Freedom
3. Cultural and Educational Rights
4. Right to Freedom of Religion
5. Right Against Exploitation and
6. Right to Constitutional Remedies

Fundamental Duties :These Fundamental rights have been provided at the cost of some fundamental duties. These are considered
as the duties that must be and should be performed by every citizen of India.
Official And Regional Languages Of India :Subject to the provisions of articles 346 and 347, the Legislature of a State may by law adopt any one or
more of the languages in use in the State or Hindi as the language or languages to be used for all or any of the
official purposes.

Official language of the union:The part that describes the official language of the Indian democracy have to be written to promote a
feeling of unity among Indian citizens. As we know that even today anywhere between 300 to 1,000 languages
are spoken in India, this makes an integral part of the Indian constitution.
The official language of India shall be Hindi in Devanagari script. The form of numerals to be used for the
official purposes of the Union shall be the international form of Indian numerals.
Notwithstanding anything in clause (1), for a period of fifteen years from the commencement of this
Constitution, the English language shall continue to be used for all the official purposes of the Union for which it
was being used immediately before such commencement: Provided that the President may, during the said period,
by order authorize the use of the Hindi language in addition to the English language and of the Devanagari form
of numerals in addition to the international form of Indian numerals for any of the official purposes of the Union.
Notwithstanding anything in this article, Parliament may by law provide for the use,
after the said period of fifteen years, ofThe English language, or The Devanagari form of numerals, for such purposes as may be
specified in the law.
Regional Languages:Article 345. Official language or languages of a State:Subject to the provisions of articles 346 and 347, the Legislature of a State may
by law adopt any one or more of the languages in use in the State or Hindi as the
language or languages to be used for all or any of the official purposes of that State:
Provided that, until the Legislature of the State otherwise provides by law, the
English language shall continue to be used for those official purposes within the State for which it was being used
immediately before the commencement of this Constitution.
Article 346. Official language for communication between one State and another or between a State and the
Union: The language for the time being authorized for use in the Union for official purposes shall be the official
language for communication between one State and another State and between a State and the Union: Provided
that if two or more States agree that the Hindi language should be the official language for communication
between such States, that language may be used for such communication.
Article 347. Special provision relating to language spoken by a section of the population of a State: On a demand being made in that behalf the President may, if he is satisfied that a substantial proportion of
the population of a State desire the use of any language spoken by them to be recognised by that State, direct that
such language shall also be officially recognized throughout that State or any part thereof for such purpose as he
may specify.

Special Directives: Article 350. Language to be used in representations for redress of grievances: Every person shall be entitled to submit a representation for the redress of any grievance to any officer or
authority of the Union or a State in any of the languages used in the Union or in the State, as the case may be.
Article 350A. Facilities for instruction in mother-tongue at primary stage: It shall be the Endeavour of every State and of every local authority within the State to provide adequate
facilities for instruction in the mother-tongue at the primary stage of education to children belonging to linguistic
minority groups; and the President may issue such directions to any State as he considers necessary or proper for
securing the provision of such facilities.

Article 350B. Special Officer for linguistic minorities: There shall be a Special Officer for linguistic minorities to be appointed by the President. It shall be the
duty of the Special Officer to investigate all matters relating to the safeguards provided for linguistic minorities
under this Constitution and report to the President upon those matters at such intervals as the President may
direct, and the President shall cause all such reports to be laid before each House of Parliament, and sent to the
Governments of the States concerned.
Article 351. Directive for development of the Hindi language: It shall be the duty of the Union to promote the spread of the Hindi language, to develop it so that it may
serve as a medium of expression for all the elements of the composite culture of India and to secure its
enrichment by assimilating without interfering with its genius, the forms, style and expressions used in
Hindustani and in the other languages of India specified in the Eighth Schedule, and by drawing, wherever
necessary or desirable, for its vocabulary, primarily on Sanskrit and secondarily on other languages.

Regulatory frame work in India

Clarity and coherence in legislation and policy is the key determinant of regulatory efficacy, therefore
model legislation for infrastructure regulatory regime in India be developed and recommended to the
Government. The essential attributes of independent regulation referred in this report elsewhere should be
considered while framing such model legislation. Incumbent regulation should get a specific mention in
that, up front.
Identify and compile good practices provided in different existing regulatory regimes in India, and
elsewhere as well, so that a good template could emerge for adoption across the board.
Sector specific apex regulatory bodies are required at the centre, given the volume of work most Indian
regulators have to deal with, which should be complimented by well-endowed and supported economywide regulatory and competition authority in the states.
An omnibus Regulatory Appellate Tribunal for all appeals against sect oral infrastructure regulators
needs to be established, which will include subject experts and judicial persons. If the work load increases
in any one sector, it can be hived off.

 Interface between regulators and the competition authority needs to be formalized, so that there is no
conflict between them, and impugned parties do not take advantage of the same.
Capacity building efforts on regulatory issues need to be scaled up immediately. Such training
programmers should cater to the specific needs of different stakeholders, which should incorporate the
local context.
Multi-stakeholder participation should be the way forward, which can effectively take care of several
concerns with regard to regulatory efficacy and accountability.
Consumer organizations need to be strengthened with resources so they can be effective advocates.
Financial resources can be raised through a consumer cess on billing.
Benchmarking followed by an independent review over the years; and resourcing CSOs to perform a
watchdog role; these are highly recommended to hold independent regulators accountable.
Compliance with regulatory directives in the electricity sector needs to be investigated to assess the
extent of their efficacy. That will help in understanding the practical challenges regulators are facing
presently.
Background:In collaboration with the Planning Commission of India, CUTS organized a seminar on 14 January 2005 at
New Delhi. The aim of the seminar was to facilitate brainstorming amongst stakeholders and contribute to the
Planning Commissions ongoing work on developing an appropriate regulatory framework for infrastructure
sector in India.
In his opening remarks, Dr. Montek Singh Ahluwalia, Deputy Chairperson, Planning Commission,
presented a strong case for having an independent economic regulator irrespective of the extent of competition in
a market. Outlining the broader regulatory objective of facilitating competitiveness, he emphasized upon the need
for having independent regulation, especially in the case of government monopolies. This is necessary because
establishing transparent systems and protecting consumer interests are the major responsibilities of any
independent economic regulator. More than 100 participants from across the country representing different
groups of stakeholders including the Planning Commission, regulators, policy makers, civil society organizations,
diplomats, academia and media participated in the seminar.
Scott Jacobs, noted US-based expert on regulatory issues, also shared his experiences from across several
developing countries in Asia. Many of the problems that he identified in his presentation applied to India also.
Here follows the interpretative summary of the discussions that took place in the seminar:
1. Need for Independent Economic Regulation:1.1 An independent and accountable regulatory framework is a specific response to the general mantra of
promoting economic growth. Given the fact that most of infrastructure services are inherently non-competitive,
establishing a transparent and coherent regulatory regime can attract necessary investments to meet out the huge
demand-supply gap and unlock economic growth potential.
1.2 A regulators role is vital in establishing transparent systems, especially in matters such as cross-subsidy and
taxes. An Independent regulator is needed to establish transparency and protect the interests of consumers
particularly in not-so-competitive sectors such as the infrastructure services. Therefore, transparent regulation is
essentially desirable even in case of government monopolies.
1.3 In addition to tariff setting, the independent regulator has to look at achieving the other important objectives
such as promoting competitiveness and efficiency, protecting consumer interests, maintaining quality of services,
safety and so on.

2. Deficiencies in Existing Regulatory Approaches in India:2.1 More than ten years experience of independent regulation in India suggests that so far the government has
not been able to create and follow a cogent and coherent approach vis--vis independent regulation. Quite often,
the policy objectives that the government wishes to achieve out of independent regulatory regime are not spelt
out clearly in the legislation. At times, the regulatory mandate falls short to achieve the stated policy objectives.
Multi-stakeholder approach is nearly missing in most of the sectors and given the rather ambiguous regulatory
mandate as well as the limited regulatory capacity, this evolving form of governance is falling short of the
expectations so far.
2.2 For instance, existing legislation in most transport sectors remain nearly silent on several important aspects
such as Universal Service Obligation (USO), quality of services, safety etc. Even good practices in one sect oral
regulatory legislation do not find place in others. Appointment and removal of regulators is practically left with
the executive for their discretion, and these independent bodies are not empowered to even determine the nature
and number of their staff or to appoint consultant without approval of ministry concerned.
3. Essential Attributes of Independent Regulation:3.1 Spelling out a regulators role in an unambiguous manner is the precondition for having effective regulation.
Therefore it is necessary that the legislation as well as the policy, both should specifically set the regulatory
agenda in rather concrete terms. So far, the policy makers in South Asia, and in India as well, have not tapped the
potential of the market to meet out the unmet demand for these services. Doing that would require a credible and
consistent policy environment and predictable regulation.
3.2 More than anything else, an independent regulator is an instrument by which the government achieves its
policy objectives. Therefore it is necessary for the government to spell out its policy objectives in a concrete
manner and adequately empower the regulator through legislation, to accomplish the state policy objectives.
3.3 It appears, separating the policy-making function with that of service-providing is one of the major objective
that the government wishes to achieve by establishing an independent regulatory regime, so that equal
opportunities exist for all competing service providers to invest and earn reasonable returns. Nevertheless,
actually doing that would require empowering the regulator through far more clear legislation and unambiguous
policy objectives.
3.4 Regulating the incumbent, especially the government-owned, is a challenging task not just in India but
elsewhere as well. There are several instances across the sectors when regulators find themselves unable to
enforce compliance of their directives by the state-owned incumbents. Public sector service providers hardly
compete with each other for better economic efficiencies. Therefore, incumbent regulation is a tricky area in any
sector. This is one major challenge that regulatory authorities are facing across the board. As long as the regulator
remains vulnerable to the discretionary powers given to the executives of the related ministry to whom normally
state-owned incumbents report, it would be impractical to expect the regulator to effectively push the state-owned
incumbent to a level-playing field with rest of the service providers. Addressing that would require regulators
having specific strategies to ensure the compliance of their directives and developing an arms-length and
objective relationship with the government.
3.5 This applies to the legislative provisions with regard to functional independence for regulators, including the
provisions regarding their appointment as well as removal. Several other provisions too undesirably influence the
regulatory process.
3.6 Imparting financial autonomy can substantially enhance functional independence of regulators. Therefore, it
is desirable that the legislation allows a regulator to raise resources on its own, to the extent possible, through a
fee/levy etc.
3.7 Once the independent regulator is assigned with a specific agenda, which is reasonably challenging in any
case, it must be provided with the necessary wherewithal to perform the job effectively. Since the regulators job
is demanding, it requires adequate skilled staff to attain the effective regulatory environment. Therefore it should
be essentially left for the regulator to determine the nature and strength of its staff as well as to appoint

consultants. Nevertheless, such decisions should always be subject to public scrutiny and comparison with
standard practices being followed in other sectors and elsewhere in the world.
3.8 Regulatory powers with regard to dispute resolution are another gray area. It has been observed that at times
market players take the avoidable route of litigation for seeking judiciary intervention, which costs the sector
hugely in terms of delays. To the extent possible, the regulatory framework should aim at minimising the chances
for judicial intervention. This can effectively be done by following a rigorous consultation process to reach upon
equitable decisions; and by setting up a specialised appellate body. Anyhow, it needs to be explicitly examined
whether sector specific appellate bodies are required, or an omnibus Regulatory Appellate Tribunal.
3.9 Furthermore, conflicts between the regulator and the new competition authority are envisaged due to both
immaturity and legislative handicaps. These need to be sorted out by examining the sector-specific laws, and
through a concurrence party decide on the forum where such cases will fetch the best solution. A competition
authority has an economy-wide remit, while the sectoral regulator has a subject-wide remit, thus one cannot oust
the competition agencys jurisdiction over competition abuses in any particular sector.
3.10 Attaining a multi-stakeholder approach in regulatory process is highly recommended to arrive at logical,
equitable and enforceable decisions. Active stakeholder participation offers effective checks and balances that
largely determine the quality of regulation. Yet, so far this is largely missing for several reasons. Presently,
regulators at large are not putting adequate efforts to proactively reach out and engage different stakeholders in
consultations. Neither the important stakeholders, such as consumers, have the required capacities to comprehend
this evolving form of governance that essentially involves a complex mix of techno-economic, legal, and polity
dimensions.
3.11 Regulation is required because of the fact that a desirable level of competition does not exist in a market.
Still, given the limited resources, the government must have a clear priority in various sectors to restructure,
based upon the potential net outcome. Similarly, regulatory resources are limited as well. Hence, any regulator
must set the priorities for it to work upon. Instead of exercising its powers on each and every aspect of the
market, the regulator should deal with those areas up front which are intrinsic to promote competitiveness in the
sector. For instance, interconnection should be the primary priority for telecom regulator, rather than engaging in
issues like numbering patterns to be followed by service providers.
4. Capacity Building :4.1 Presently, capacity building on regulatory aspects is drastically lacking. Though independent regulation was
introduced in India more than ten years ago, efforts to create necessary facilities to offer training on this subject
are lagging behind. Some multilateral donor agencies such as the World Bank facilitate short-term training
programmes on an ad hoc basis. Other than that, hardly any effort to create a sustaining facility has been
attempted so far.
4.2 Importantly, capacity building on regulatory aspects is highly desirable, not just for regulators and their staff
but for other stakeholders as well. Given the fact that regulatory decisions are essentially the outcome of
stakeholder consultation, capacity building of other stakeholders is equally crucial to attain regulatory efficacy.
For instance, government officials need to be adequately trained to negotiate with investors, and meaningful
interventions from consumer groups can only be expected once adequate inputs and skills are provided with.
4.3 Equally important is incorporating the local context in capacity building and training modules. While learning
from others experiences is desirable, there are certain local peculiarities which demand application of local
wisdom to find optimal solutions. Therefore, any efforts to train the stakeholders have to incorporate the local
context.
4.4 Nevertheless, for the government to establish such facilities is not recommended. Instead, the government and
industry both should facilitate and support such efforts that can be initiated by professionally managed
institutions of repute.
5. Independent Regulation and USOs:-

5.1 Given the fact that meeting the Universal Service Obligations (USOs) has to be a major policy objective for
any government, it should unambiguously spell out the regulatory mandate, which often is not the case right now.
It is desirable to incorporate the policy objectives, such as access to services, providing these services to poor at
concessionary rates, and so on, within the legislation.
5.2 Cross-subsidies are essentially another form of tax. Therefore it should be the Parliament which decides the
extent to which additional charges should be imposed on certain consumer classes/sectors to support poor
sections. Currently, such decision making is vested with the related government department. In fact, excessive
taxes on certain consumers are necessary at times to meet out social obligations. But, this has to be within
reasonable limits.
5.3 Once such limits for cross subsidies are put in place at the highest level, it is the regulators job to establish
transparent and objective-driven procedures so that public and private utilities both can get indiscriminate
allocations to deliver social obligations, in a transparent manner.
6. Regulatory Efficacy and Accountability:6.1 As far as accountability is concerned, what is needed is a workable solution for holding the regulators
accountable. Presently, most of independent regulators in India are supposed to present their annual report before
the Legislature. Unfortunately, this has been followed merely as a token. In addition to this existing provision,
empowered CSOs and consumer groups working as watchdogs can potentially hold the independent regulators
accountable. This will work as an effective deterrent against possible regulatory capture by service providers as
well. Such arrangement can potentially offer a workable solution to the accountability concern, provided these
CSOs are appropriately mandated and adequately resourced. Perhaps a part of the USO Fund in each sector can
be set aside to fund consumer advocacy objectively.
6.2 Regulatory efficacy should be measured against the policy objectives that are spelt out in the regulatory
mandate. To the possible extent, parameters for judging regulatory efficacy should be defined in quantitative
terms in a transparent manner. Such evaluation criterion should be communicated to the regulators in advance so
that the quality of regulatory decisions is broadly guided by the evaluation criteria.
6.3 Arranging for independent/peer reviews on periodic basis is another way to further strengthen the regulatory
accountability mechanism. Though, in such case, the benchmarks should be set bearing in mind the prevailing
conditions around, and increase them gradually.
7. Consumer Interests vis--vis Independent Regulation:7.1 All stakeholders are supposed to represent themselves before the independent regulators to raise their voice
and put forth their legitimate concerns. Still, during the evolving days of independent regulation in India, it is
apparent that some stakeholders, primarily consumers, are not in a position to represent their interests
appropriately for varied reasons. In such circumstances, the regulatory framework should have enabling
provisions to support these stakeholders so that their genuine concerns are adequately represented, and regulators
could effectively balance the conflicting interests.
7.2 The Government offering performance-linked resources to consumer groups and facilitating the process of
addressing their capacity building requirements are some of the measures that need to be taken up immediately.
Unless these groups are sufficiently resourced to hire professionals and gather other necessary inputs to make
meaningful interventions, the quality of regulations likely to remain compromised.
7.3 In those sectors where the regulatory bodies are not mandated to take up individual grievances, it is the
responsibility of the regulator to ensure that some functional and effective mechanism to address such individual
complaints is in place.
8. Interface and Overlaps:8.1 This can only be addressed through enabling and coordinated legislation for regulatory bodies. Overlapping
mandates of regulatory and competition authority and that of appellate bodies and/or judiciary can only be

avoided if government ensures that every new regulatory legislation follows certain essential norms in this
regard. Perhaps the Ministry of Law can be entrusted to ensure such coherence and uniformity across the sectoral
regulatory legislation.
8.2 It is not desirable to have separate regulatory bodies for each sector or sub-sector. Rather, an attempt should
be made to restrict the number of sectoral regulatory bodies without compromising the quality of regulation. For
instance, there is a strong case for having a regulatory body for the entire energy sector; rather one each for
electricity, coal, gas and petroleum. Similarly, it is advisable to have one overarching regulatory body for the
entire transportation sector, instead of having separate bodies for different modes of transport such as road, rail,
aviation or marine. Similar logic applies for the financial sector too.
8.3 Looking at the volume of the work before the economic regulators, it is strongly recommended to follow the
model of having a sector-specific regulatory body at the central level, which is effectively facilitated and
supported by an omnibus multi-sectoral regulatory and competition authority in the states.

Method of technology
There are many reasons that a company might want to expand its operations on an international
level: growth, profitability, and local market saturation are just a few examples (Beamish, Morrison, Ink pen, &
Rosenzweig, 2003). Because different types of companies have different priorities when they expand into global
markets, it is important to choose an appropriate method of internationalization. The purpose of this paper is to
discuss the benefits and challenges associated with four basic methods of internationalization and to compare and
contrast the methods. Finally, this paper will evaluate how changes and advances in technology have served to
drive the internationalization of business.
Methods of Internationalization:The four basic methods of internationalization licensing, exporting, joint ventures, and wholly owned
subsidiaries each have their own benefits and challenges. Below, all four methods are described and compared.

Some methods are clearly more appropriate for large, well-established organizations, while others could be used
by small or large businesses alike. Understanding the similarities and differences among these four methods is
important when a company is trying to identify its approach to expanding internationally.
Licensing occurs when one organization authorizes another organization to independently sell/resell their
technology and collects a licensing fee, typically called a royalty payment. Licensing is a method used by
companies looking to expand their product lines into new markets, not for globalizing internal business
processes. The benefits of licensing are the low level of investment required and the high margin generated
through sales in a new market. However, licensing relationships tend to include restrictions, such as that the
licensor will not sell in the same region as the licensee. These types of restrictions don't give the licensor much
control over revenue growth and profits.

Technology transfer
Technology transfer is the process of sharing of skills, knowledge, technologies, methods of
manufacturing, samples of manufacturing and facilities among governments and other institutions to ensure that
scientific and technological developments are accessible to a wider range of users who can then further develop
and exploit the technology into new products, processes, applications, materials or services. It is closely related to
(and may arguably be considered a subset of) Knowledge transfer. Related terms, used almost synonymously,
include "technology valorization" and "technology commercialization". While conceptually the practice has been
utilized for many years (in ancient times, Archimedes was notable for applying science to practical problems), the
present-day volume of research, combined with high-profile failures at Xerox PARC and elsewhere, has led to a
focus on the process itself.
Transfer process:Many companies, universities and governmental organizations now have an "Office of Technology
Transfer" (also known as "Tech Transfer" or "TechXfer") dedicated to identifying research which has potential
commercial interest and strategies for how to exploit it. For instance, a research result may be of scientific and
commercial interest, but patents are normally only issued for practical processes, and so someone not necessarily
the researchers must come up with a specific practical process. Another consideration is commercial value; for
example, while there are many ways to accomplish nuclear fusion, the ones of commercial value are those that
generate more energy than they require to operate.

The process to commercially exploit research varies widely. It can involve licensing agreements or setting up
joint ventures and partnerships to share both the risks and rewards of bringing new technologies to market. Other
corporate vehicles, e.g. spin-outs, are used where the host organization does not have the necessary will,
resources or skills to develop a new technology. Often these approaches are associated with rising of venture
capital (VC) as a means of funding the development process, a practice more common in the US than in the EU,
which has a more conservative approach to VC funding. Spinoffs are a popular vehicle of commercialization in
Canada, where the rate of licensing of Canadian university research remains far below that of the US
Technology transfer offices may work on behalf of research institutions, governments and even large
multinationals. Where start-ups and spin-outs are the clients, commercial fees are sometimes waived in lieu of an
equity stake in the business. As a result of the potential complexity of the technology transfer process, technology
transfer organizations are often multidisciplinary, including economists, engineers, lawyers, marketers and
scientists. The dynamics of the technology transfer process has attracted attention in its own right, and there are
several dedicated societies and journals.
In recent years there has been a marked increase in technology transfer intermediaries specialized in their field.
This was stimulated in large part by the Bay-Dole Act and equivalent legislation in other countries, which
provided additional incentives for research exploitation.