The political factors that affect businesses are often given attention. Many aspects of government policy affect businesses. All firms follow the law and business managers must find how existing and upcoming legislation affect their activities. The political climate can impact businesses in many ways. It can add a risk factor and cause a major loss. Therefore, businesses organizations should be able to deal with international and local outcomes of politics.
Political factors are made up of changes in the government policies. The changes can be social, legal or economic. Also, it could be a mix of these factors. Decrease or increase in tax is an example of a political element. A government might lower taxes for some companies and increase it for others. The decision directly affects the businesses of those companies.
In the business environment, the political environment is possibly one of the least predictable elements. Changes in regulation and political stability are two main factors that affect businesses. Lack of political stability can lead to looting, riots, and general disorder. On the other hand, when government alters their regulations, businesses struggle to cope with the new laws. Other political factors that affect business include bureaucracy, corruption level, freedom of the press, tariffs, trade control, education law, anti-trust law, employment law, discrimination law, data protection law, environmental law, and safety law.
Bank regulation is a form of regulation by the government which subjects banks to certain guidelines, restrictions, and requirements, meant to create market transparency between banks and corporations or individuals with whom they conduct business.
A system of bank regulation is required to ensure that no financial institutions have such a concentrated amount of risk that could be detrimental to the financial system. Many people depend on the reliable functioning of the banking system to pay bills, provide their families, and invest. When banks fail to fulfil their duties to the economy due to poor risk assessment or over speculation, it is regulators’ role to step in right the banking industry.
It can be argued that banking regulation prevents growth and innovation. This hurts development and curtails financial institutions to engage in more profit-making arrangements. On the other hand, regulation of banks is necessary to prevent any abusive practice and guarantee fair access for all people. This enables increased opportunities for lending to underserved and poor communities.
It is possible to both under-regulate and overregulates. The government may become too lax in its oversight roles and fail to implement basic provisions of the law. The government can also put in place numerous banking rules that increase banks’ administrative coasts. To positively affect the economy, it is the government’s role to strike a proper balance between laissez-faire and regulation.
More often, in conversation and in media, the concepts of Socialism and Communism are used interchangeably to mean essentially the same political/economical philosophy. Although they have some similarities, they also have very stark differences.
First, both philosophies arose from the Industrial Revolution and mainly as a response to the period when business owners were becoming very wealthy by abusing their workers. Second, both are built on the grounds that individuals’ contribution to the society is based on their own ability. Finally, in both, governments play a big role in economic planning and investment, either in decentralized or centralized form.
In Communism, people are compensated based on their needs in terms of clothing, accommodation, and food. On the other hand, in Socialism people are compensated based on their contributions, so that individuals that work smarter or harder would get more in terms of how smart or hard. In addition, Communism abolishes any religion whereas Socialism allows freedom of religion. Another key difference is that Communism eliminates class differences while in Socialism, the class distinction still exists.
China, Cuba, The Soviet Union, North Korea and Vietnam are examples of Communist states. However, they have never achieved a structure that is purely communist. Some of the communist policies include the elimination of class system and the abolition of money. Similarly, Socialism in Sweden, France, Norway and Canada has never been totally adopted. Some of the socialist policies include a dominant government role in various shared services and free health care.
Politicians and thinkers throughout the ages have debated economic issues; however, they usually attributed a strong economy to goals such as the acquisition of more territory and a centralized government. The Wealth of Nations in 1776, a publication by Adam Smith, brought economics into the contemporary period. Smith focused on how the economy works most efficiently but did not consider the moral goals that economy serves.
Smith is remembered for laying the foundations of the free market economic theory. His publication, ‘An Inquiry into the Nature and Causes of the Wealth of Nations (1776) was a precursor to the current academic discipline of economics. In this publication, he came up with the concept of division of labor and explained how competition and rational self-interest can lead to economic prosperity. In his days, Smith writing style and general approach were often criticized by Tory writers.
According to Smith, the most efficient economy is a free-market economy, with limited government interference. When nations such as Britain began to implement Smith’s theories, vast wealth was created and their economies expanded rapidly. Although economics has changed since his time, we can still confidently argue that we live in Smith’s world.