Book2part3 – The Political Environment


1. Significance of political environment

1.1How politics impacts on businesses

a.  Government as regulator

i.         Explicit rules & regulation à shape the competitive advantage or disadvantage of particular organization

-         eg. regulation governing monopoly and competition

-         eg. governments issue specific permissions or refusals for particular types of economic activity to take place or to take place in specific locations

-         eg. governments routinely intervene directly by imposition of price and wage controls, by credit rationing, by differential taxation, or by direction of investment and the formation of national plans

ii.  Informal rules (normal in one country or at one time, may be seen as highly unethical in other countries or at other times eg. payment of commission

b.  Pressure groups

-         External power / bodies such as media organizations which can influence public taste or morals à affect the relative competitive position of different organizations.

-         Social groups with power and influence can use resources to promote activity in which enhances their power, or inhibit activity which challenges it.

-         Alliances between powerful social groupings and major economic actors can produce a very uneven playing field for other organizations.


c.  Overseas risk assessment

-         Exporters or via subsidiaries e; demand risk assessment

-         Political risk eg. banks generating higher return on assets in the 1970s by lending at higher margins to developing countries.

-         Risk of political growth of consumerism

-  Strategic decision making process country risk

-         Even ignoring war, revolution and debt repudiation, politically generated economic growth or recession makes a great difference to the attractiveness of making an effort to develop given oversea market.


d.  Government as economic actor

-         Government itself is a major economic actor in terms of both infrastructure provision and direct action as a competitor or supplier via nationalised industries.

-         Government is also a very major customer.

-         Trend – monopoly position enjoyed by gov’t à consumers have no choice but to pay whatever price à privatization.


1.2  Value of political involvement

-         Managers may not be able to control political events, they may be able to optimise the strategic positioning of their organisation by taking specific account of them, and designing their actions accordingly.

-         We may sometimes be possible to change political constraint by lobbying or by bringing sufficient political pressure to bear (pressure group politics).


1.3  Monitoring or scanning of political environment (Book 2 P.119-121) – similar to the method mentioned in Book 1 – the key is whatever method is used, it is vital to be open-minded and critical in the use of information.


2. Understanding the political environment – Rational model

2.1 Public choice theory of political action

a. Rational pursuit of self-interest

-         the theory of public choice assert that political decisions can be seen in terms of the rational advancement of the interests of individual voters (Selfish approach)

-         Parties would attempt to take the position of the median voter (median voter theorem/ majority voting à the candidate with the largest number of votes wins).


b. Individual attitudes and beliefs (a choice between political parties)

-         Please refers to Book 2, p.129 figure 8.2 – a cognitive model of voting (voter’s pursuit of goals and values can be pursued for a variety of reasons, including non-rational ones, and that for different voters the influence of habit, reason and emotion will vary).


2.2. Playing games

-         Game theory – attempts to model the way in which human interact with each other in a whole variety of situations and has been used to consider the best strategies.

i.  Prisoners’ Dilemma

-         This game is used to argue the case for co-operation (even without communication between participants). Details refer to book 2 p.130-131

-         Individual rationality leads to a worse outcome.

-         Egs. arms race, price wars, informal or formal cartel.


ii. Tit for tat

-         strategy – doing whatever the other player did on the previous move.

-         It is a nice, retaliatory,forgiving and clear strategy – one which is never the first to defect.

-         Niceness – prevents it getting into unnecessary trouble.

-         Retaliation – discourages the other side from persisting whenever defection is tried.

-         Forgiveness – helps restore mutual co-operation

-         Clarity – makes it intelligible to the other player, thereby eliciting long term co-operation.


2.3 Zero-sum games / non-zero-sum games

-  Zero sum games are those where one player’s gains can be only at the expense of the other à non-co-operative.

-         Non-zero sum games are those in which the total combined scores of the players can vary, depending on the different combinations of moves in which they make à co-operative.

-         The prisoners’ dilemma is a non-zero sum game, which is why co-operation can evolve.

-         In politics, general elections are zero sum games in that what one side loses, the other wins.

-         Egs of non-zero-sum game. Please refers to book 2 P. 135-136

-         In the real world, one cannot know the outcome of the interaction of strategies in advance, and one cannot ascribe objective weights to the outcomes. On the other hand, one does in fact have to make choice between strategies as if one knew the results that might be expected (that is, one acts in anticipation of particular results). à Payoff matrices are common sense guesses only.


2.4  Chicken

-         communicating your strategy in advance, for details, please refers to book 2, P.141-142.


3. Non-rational political behaviour

a.  Voting behaviour is a historical forces – successive generations entered the electorate and carried their voting preferences with them throughout a lifetime – party identification model. ( Party preferences were reinforced by pressures of neighbours and family, to support a given party was an affirmation of identity)

b.  Interactionist model – Heath et al.

- eg. British electorate as polarised around two broad collections of values ( Labour and the Conservatives), the ability of the parties to win support depends on their skill both in moving the preferences of individuals around this two dimensional map and in moving themselves to where the voters are.

-         the fastest growing market segment was social authoritarian / free market position.


c.  Radical model – Patrick Dunleavy

-         People vote in accordance with the interests of their social location, though political parties and the mass media both influence the interpretation of these interests.


-         Dunleavy sees interests as fundamentally group-based, caused by particular locations in the social structure and reinforced by inequalities of class, status, and power. (Book 2 P.159-160)


4. Which model for which circumstances?

-         The shorter the time period and the fewer the number of actors, the more suitable seemed to be explanations with a rational basis.

-         Over longer periods with greater numbers of actors, we might choose to make more use of causal explanations.


5. Discontinuity

-         Continuous social changes give rise to discontinuities in the political environment.

-         Eg. the changing age structure of the population, the growth in literacy and education, the progressive failures and problems of the Soviet economy.


6. Influencing the political environment

6.1 Stakeholders (Please refers to book 2 P.166-168)

6.2 Pressure groups (local, national and international levels)

-         think of how attempts by organisations to move to at least tacit co-operation with activist groups. (You might read Pattakos’s article 10.1, p.171-177)


7. Press and Public Relations (Pls refers to P.183-189)

-         Media contact

-         News stories

-         Media events

-         Press office

8. Lobbying

-         Dealing with government – you must understand the dynamics of decision making on public policy issues

-         Four basic need in lobbying

a.   monitor

b.  talk

c.   argue

d.  apply pressure

-         The technique of dealing with government can be summarised as belows:

a.  Who makes the decision?

b.  Who can influence the decision-makers?

c.  Who do you make your case to?

d.  How do you make your case?

e.  How do you obtain access to Government?

f.    How do you monitor Government?

g.  When is the right time to monitor, talk, argue or lobby?