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Political Environment: Understanding Government Roles and Influences

Explore the political landscape and its impact on businesses through a macro PEST analysis. Learn about government roles, ideologies, electoral systems, and international influences. Understand measures of economic activity and government control of inflation.

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Political Environment: Understanding Government Roles and Influences

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  1. Lesson 2b Macro PEST Analysis Part 1

  2. Political Environment Basic Assumptions • Political systems have a heritage • Political change is a feature of the system • Politics are supra-national • Impact of government measures may vary according to size and exposure

  3. Political Aspects What is the role of government • Legislator • Coercor • Regulator • Participator • Laissez-faire

  4. What do governments do? In other words • Balance the books • Keep everybody happy • Protect the state

  5. Political Aspects - the ideology • Truly democratic • Centrally directed • The nanny state! • What are the policies of the major political parties?

  6. Political Aspects • Rate of change - • What is the electoral system? • Different directions - • right wing left wing the third way

  7. Political Attitudes • Competitiveness • Social responsibility • Environmental matters • Customer protection • Membership of the international community

  8. The Power of the State • Devolution of powers • Central versus local government • European Union

  9. Political Aspects • Formal politics = Political Parties • Informal politics = pressure groups • National, Regional, and Local • Money = Power.

  10. Political Aspects - Influencing • Lobbying • Petitions to your local rep... • Acting on behalf of interest groups • Tobacco Industry • Road Hauliers Association • Direct appeal / media campaigns • Contributions to party funds...

  11. The European Union - Institutions • The European Commission BRUSSELS • The Council of Ministers - Rotating • The European Parliament - STRASBOURG • The European Court of Justice -

  12. Political Aspects - International Aspects • There are different systems across the world • Is the system / regime basically stable • Is it progressive or conservative • Degree of democracy • What other strong influences are there ARMY? • What is the strength of the Trade Unions • What is the administrative set up - bureaucratic? Efficient? • What is the attitude towards (free) trade • What is the attitude towards foreign companies • How are decisions made?

  13. Measures of Economic Activity • National Income • Gross Domestic Product • Gross National Product (Income) • Net = less capital consumption/depreciation

  14. Purpose of National Income • Measure standard of living - in economic terms • Measures economic welfare • Monitor changes • Assist in macro planning

  15. PSBR - National Debt • Public sector borrowing requirement • Represents the shortfall in running the country - hopefully from time to time.Has to be financed by higher taxation or borrowing in the form of Government Stock • Mobile phone licence auction.

  16. Employment/Unemployment • Economically a waste of resources - labour is a factor of production • Types of unemployment- • Frictional • Seasonal • Structural • Cyclical

  17. Full Employment? • What is it? • How can Government intervene to create jobs?

  18. Inflation • What are the causes? • Why is it so bad? • What can government do to affect it?

  19. Inflation • Current figures are underlying rate increase year on year = 1.1% • This is an increase in the annual rate of increase noted in previous months • Overall inflation including mortgage interest rates was 2.3% year on year • What is the background to these figures and what is the likely reaction of the Monetary Policy Committee

  20. Inflation - the Causes • Demand PULL • Cost PUSH • Import COSTS • Increase in the money supply - spending..

  21. Why is inflation bad? • Loss of confidence • Wage price spiral • Weakened competitive position interantionally • Increased social spending • .

  22. Government Control of Inflation • Attack the causes • Interest Rates

  23. Devaluation • “The pound in your pocket… • Reducing unilaetrally the price that the government will sell its currency • EG £1 = 3.00DM at 23.59 ---- £1 = 2.40 dm AT 00.01 am

  24. The Impact of Devaluation • Jaguar Cars • UK cost = £40,000 • exchange rate £1 = $1.50 • US Price? • Exchange rate £1 = $2.00 • US Price?

  25. The Impact of Devaluation • Jaguar cars continued… • If the engine is bought from Dodge at cost of $12.000 • What is the marketing response to devaluation - currency fluctuations?

  26. The Impact of Devaluation • Is this an easy option? • What can / will happen? • When is it right to devalue • Floating exchange rates = market demand!

  27. The Business Cycle • Aka the Trade Cycle • Not to be confused with the product life cycle or the stages in the growth of a business or the family life cycle or • There are four phases : • DEPRESSION • RECOVERY • BOOM • RECESSION

  28. Fiscal Policy • Taxation • Public ( Government Borrowing ) • Public Spending • Interest Rates

  29. Taxation • Direct versus Indirect • Tax Burden what has happened to it? • Reasons for taxation?

  30. Direct versus Indirect • Direct • Income Tax, Corporation Tax Capital Gains Tax - as a result of a basic activity • Tax on the factors of production. • Indirect • taxes on spending • avoidable? • Flexible • National Insurance?

  31. Interest Rates • The price for investing not spending. • Should reflect inflation rates • Can be used as a tool to dampen down consumer demand notably reduces net incomes - disposable incomes. • The income elasticity of demand for necessities is inelastic which means luxury goods tend to be elastic

  32. The Black Economy • Tax avoidance/evasion • Cash - Barter • Shortages - government attempt to ration - ie artificially affect the market.

  33. Monetary Policy Regulation of the economy by controlling:- • The money supply • Availability of credit • Interest rates

  34. International Aspects • Basis of trade? • Trade Blocs not Blocks • Multinationals • Barriers to trade • Key Institutions

  35. Barriers to trade • Tarriff - direct • Non tariff - subtle

  36. Key Institutions • IMF • WTO -bananas need for reform • World Bank - I B R D • OECD • Group of Seven G7

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