The Influence of the Political Regimes

Political regime of a state is one of the main factors that serve the aim to protect the country’s interest. However, the way the power is exploited and fulfilled will also have a tremendous impact on its economic situation, frequently with a conflict of interest when it touches business. The aim of this essay is to research and compare how political regimes influence business sphere in two states – China and the USA. My personal preference is given to the USA as potential market. The USA is famous for its two-party electoral democracy, while China has been the one-party state for a long time. The USA population always chooses between the Republicans and the Democrats. China is governed by the Chinese Communist Party. There will be four major points reviewed in the essay: flexibility of the political system, economic stability, people’s confidence in the economy of the state, competitive advantages of practical issues of doing business.

“Many people believe the Western democracy is superior to a one-party system because the rotation of political power gives government the flexibility to make needed policy changes” (Li 2011). Fairly, one would agree that rotating political parties in reign is stimulated by the changing times and thus reflects current needs and interests of the people. Having numerous opinions, therefore, opportunities, simplifies processes involved in business planning and conducting. Meanwhile, most people would assume that Chinese one-party government is changeless, non-flexible and creates obstacles for innovations. However, according to Eric X. Li (2011), a Shanghai scholar and writer for The Christian Science Monitor, “China’s one-party system has proven over time to be remarkably adaptable to changing times”. China has been under the single-party control for more than fifty years since the People’s Republic was established in 1949 (Lawrence & Martin 2012). Now China’s domestic and foreign policies can hardly be recognized. For example, in foreign policy “today, China’s pursuit of an independent course in an increasingly multi-polar world is distinctive among the nations of the world” (Li 2011) compared to close alliance with the USSR in the 50’s. China today proves that the one-party system is capable of self-correction and flexibility. Unlike China, the USA with rotating parties demonstrates that short-term power does not always manage to see and meet long-term challenges. Moreover, the current situation increasingly disturbs business-oriented population. According to David A. Moss, a Professor of Business Administration at Harvard Business School, “a research on the American political system shows that the Congress now is more divided than ever, pulled apart by two starkly different conceptions of government” (Moss 2012).

At the same time, it is a common opinion that the USA can boast its economic stability and transfers it to the rest of the world making other countries dependent on its economic situation. Even though now the USA is not the main world economy driver – China has demonstrated tremendous growth – “it is absolutely the fundamental driver of world economic stability” (Wiedemer 2011). The USA has relatively stable economic and financial system that experienced its “longest recession since the Great Depression” (Financial Stability Oversight Council 2012) only in 2008. Currently the USA economy “is expanding at a moderate pace, but growth has not accelerated to the rate required to make rapid progress” (Financial Stability Oversight Council, 2012) to compensate all the deprivation resulting from the crisis, such as lost jobs, investment spending losses, etc. On the contrary, China demonstrates rather high growth pace; it continues to obtain “an increasingly important role in the global economy” (Financial Stability Oversight Council 2012). The Chinese government took numerous steps to defeat the crisis strike, which resulted into 20 million lost jobs, plummeting real estate prices, etc. For example, in 2008 the Maanshan Iron and Steel Company opened a giant $3 billion steel mill with its own power plant and shipping port to help to meet China’s seemingly voracious growth needs (Barboza 2008). Among other anti-crisis measures were tax cuts aiming to pump growth, announcement of the “buy China” policy encouraging to favor domestic products, huge infrastructure investments, etc. As Stephen Roach, Morgan Stanley Asia chief, told Newsweek in 2008, “The Chinese command-and-control system can actually work more effectively than other market-based systems in times of economic stress” (Foroohar 2009).

Confidence in economic situation plays one of the main roles in decision-making when starting up business and investing. As Daily Times’ Rana Foroohar reported back in 2009, “confidence is worth more than gold and the Chinese people still believe in their system - at least for now”(Foroohar 2009). Nowadays many people still view China as one of the most promising and fast-growing economies in the world. “It appears inevitable that China will overtake a U.S. to become the world’s indispensable economy” (Schuman 2012). According to a Pew Research Center report, 83% of the Chinese people consider their national economic situation to be stable and favorable (Matthews 2012). Though, the reality may occur to be more sophisticated. Some economic analysts believe there is a serious likeliness for China to face next economic crisis. Michael Schuman, a specialist in Asian countries’ economies and a writer for Times, in his article on China’s current economic development states that currently, “we can see the pieces of a crisis falling into place: excessive, misguided investment, including a giant property boom” (Schuman 2012). The crisis in China might be avoided if the government takes measures and changes the economic orientation of the state. The USA, at the same time, cannot demonstrate strong support of its population in economic sphere: “In the U.S. 31 percent see the economic situation as good” (Matthews 2012). To my mind, these figures should not be perceived as if everything is critical in the USA and the situation in China is brilliant. People in China used to be grateful for small mercies, while even the slightest downfall might seems to be frightening to Americans who have lived many years of stable and decent lives. “It’s much easier to boost growth by ordering engineers working in an autocratic system to build roads where there are none, as in parts in China, than to stimulate growth in a developed nation like the US” (Foroohar 2009).

However, one may not leave out of attention merely practical issues when evaluating potential business environment. The USA business is primarily based on services, either service trades or knowledge industry. Meanwhile China is an undisputable leader in cheap consumer goods manufacturing. Thus, in most cases these two countries shall not be competitors when choosing a market for a certain industry. According to the latest International Finance Corporation research of economy rankings, the USA holds the 4^th place among the total of 183 countries by the ease of doing business. Surely, it is not even close to China’s 25^th place (IFS 2012). At the same time, some of the indicators are, on the contrary, higher in China, for example: it is much easier and faster to get electricity for a new organization in China with the overall rank of 3 compared to 17 in the USA. Surprisingly, dealing with construction permits in the USA is 17 and 87 in China. To start a limited liability company in China will take one 38 days for 14 procedures (the total rank for starting business is 16), while in the USA there are 6 days and 6 procedures (the total rank is 13) (IFS 2012). Very informative and important business rank describing getting credit is only 4 for the USA and 67 for China. Interestingly enough that paying taxes ranks are rather low for both countries and stands next to each other – 72 for the USA and 71 for China. Nevertheless, the main summary rank is significantly higher for the USA.

Overall, my choice would definitely fall for the USA as a place to start business. First of all, the USA still strongly holds the fundamental role in the world economy. Secondly, it is a challenge to find a niche in the highly competitive market, which has long been a bureaucratic system with quite rigid and non-flexible, though well-established regulations and procedures. At the same time, such important factors as tax policies are evaluated at almost equal level. Finally, essential for many starting businesses credit and construction procedures are much more favorable in the USA. What really needs to be taken into account is sphere of potential business and the demand for its operation in the market of choice.