CHAPTER
2: The Political Environment
Key Revision Points
Defining
the Political Environment
Inter-linkages occur in
many ways, for example:
·
Political decisions inevitably affect the economic
environment.
·
Political decisions also influence the social and
cultural environment of a country.
·
Politicians can influence the pace at which new
technologies appear and are adopted.
The political environment is one of the less predictable
elements in an organisation's business environment. The fact that democratic
governments have to seek re-election every few years has contributed towards a
cyclical political environment.
The political environment in its widest sense includes
the effects of pressure groups who seek to change government policies.
Political
Systems
There are
different possible political systems. An open system of government is
democratically elected by the population of a country. Totalitarian systems of
government occur where power derives from a select group (e.g., communism) or
based on the interests of sectional groups (often military-based).
The idea that autocratic regimes have an advantage in
economic development was once quite fashionable. The plausibility of such a
notion lies in the advantages such regimes were said to have in forcing through
development in the long term. An alternative view is that democracy is likely
to foster economic development.
Corruption
remains a barrier to economic development in many countries. Some companies may
survive and prosper by bribing government officials, but the success and growth
of such companies is not necessarily based on the value they create for
consumers.
The importance of monitoring the political environment
It is important for
organisations to monitor their political environment, because change in this
environment can impact on business strategy and operations in a number of ways:
·
The stability of the political system affects the
attractiveness of a particular national market.
·
Governments pass legislation that directly affects the
relationship between the firm and its customers, its suppliers and other firms.
·
Governments see business organisations as an important
vehicle for social reform.
·
The government is additionally responsible for
protecting the public interest at large.
·
The economic environment is influenced by the actions of
government.
·
Government is itself a major consumer of goods and
services.
·
Government policies can influence the dominant
social and cultural values of a country.
Organisations
have to not only monitor the political environment – they also contribute to
it.
Political Ideologies
Political ideologies in the UK have changed through a
series of cycles during the post 2nd world war period.
For business organisations, understanding shifts in
dominant ideologies can be crucial to understanding the future nature of their
business environment. Two important and recurring ideological issues which
affect business organisations are the distribution of wealth between different
groups in society and the role of the state versus the private sector in
delivering goods and services.
- Political Parties
Most members of
parliament belong to a political party.
Political parties
represent an ideological point of view, although it has been noted that in
recent years the ideological gap between the main UK parties has been reducing.
Because political
parties represent a diverse range of ideological issues, it is not surprising
that party leaders often find it difficult to gain the unanimous support of all
members on all issues.
- Social Exclusion
Social exclusion is a
shorthand term for what can happen when people or areas suffer from a
combination of linked problems such as unemployment, poor skills, low incomes,
poor housing, high crime environments, bad health and family breakdown.
In response to these
problems, the UK government created the Social Exclusion Unit in December 1997.
Its remit has been to help improve Government action to reduce social exclusion
by producing ‘joined-up solutions to joined-up problems.’
- Redistribution of Wealth
Governments with socialist leanings have
recognised that there is nothing inherently just in the pattern of market
rewards that reflects the accidents of heredity and the labour skills that
happen to be in demand at the time. A distinguishing feature of the left in
politics is often its belief in a positive role for government.
Minimum wage legislation, introduced in the
UK in 1999 may provide guaranteed levels of income for the poorest members of
society, but higher earning individuals invariably seek to maintain
differentials, leaving minimum wage employees in a position of relative
poverty.
The Structure of Government
Government influence on
businesses in the United Kingdom can be divided into the following categories:
- Central government
- Regional government
- Local government
- European Union (EU) government
- Supranational government
Most countries have
hierarchical levels of government which follow a roughly similar pattern.
Central Government
The government system of most western countries can be
divided into four separate functions.
The legislature, the executive, the civil service and the judiciary.
- Parliament
Parliament provides the
supreme legislative authority in the United Kingdom and comprises the Monarch,
the House of Commons and the House of Lords.
The lobbying of Members
of Parliament has become an increasingly important activity, brought about by
individuals and pressure groups to try and protect their interests where new
legislation is proposed.
- The executive
In
practice, the executive plays a very important role in formulating policies
which parliament then debates and invariably accepts. In the United Kingdom,
the principal elements of the executive comprise the Cabinet and Ministers of
State.
·
The
Cabinet
The main executive
element of central government is made up of the Prime Minister and Cabinet, who
determine policy and who are responsible for the consequences of their
policies.
In practice, the Prime
Minister is particularly dependent upon the support of a small inner cabinet of
senior colleagues.
·
Ministers
of State
The government of the
country is divided between a number of different departments of state. Each
department is headed by a Minister or Secretary of State who is a political
appointee.
- The civil service
The civil service is
the secretariat responsible for implementing government policy.
The fact that civil
servants are relatively expert in their areas and generally remain in their
posts for much longer than their minister gives them great power.
The nature of the
career civil servant is changing with the emergence of Non-Departmental Public
bodies (NDPBs) to take over many of the activities of civil service
departments.
Organisations seeking
to influence government policy must recognise the power that civil servants
have in advising their Minister.
- The judiciary
The judiciary is
independent of government and judges in the United Kingdom are answerable to
the Crown and not to politicians. Through the court system, citizens can have
some redress against a legislature, executive or civil service that acts beyond
its authority.
Business organisations
have become increasingly willing to use the courts to challenge allegedly
incorrect government procedures which have put them at a disadvantage.
Regional
and National Government
Although many European countries have historically had
some degree of regional government, this has been largely absent in the UK. The
end of the 1990s changed the structure of government in the UK with the
emergence of regional elected government. However, this is only a partial
system of regional government covering some parts of the United Kingdom, and
the constitution of powers of each is very different.
In the United Kingdom, assemblies are differentiated by
region:
- Scotland
- Wales
- Northern Ireland
- London
- Other regional assemblies
Local Government
Local authorities in the United Kingdom are responsible
for a wide range of services, from social services and education to refuse
collection and street cleaning.
From the mid 1990s, the basic structure of local
government set up by the 1974 Act has been changed further by the appointment
of commissions to study the needs of local government in individual areas. This
has led to the emergence of ‘unitary’ authorities that combine functions of
District and County Councils.
The relationship between central and local government
It has been argued that local government in Britain is
losing its independence from central government, despite claims by successive
governments that they support a philosophy of less government and a
decentralisation of powers.
In addition, legislation setting performance standards
in education and social services (among others) has limited the independence of
local government to set locally determined standards.
The European Union
The European Union (EU), formerly known as the European
Community (EC) was founded by the Treaty of Rome, signed in 1857.
On 1st January 1994
the European Community linked with five of the seven members of the European
Free Trade Association (EFTA) to create the ‘ European Economic Area ‘ (‘EEA’).
Aims of the EU
The Treaty of Rome initially created a Customs Union and
a Common Market.
There is considerable debate about the form that future
development of the EU should take and, in particular, the extent to which there
should be political as well as economic union.
·
The creation of a common unit of currency has been seen
by many as crucial to the development of a single European market, avoiding the
cost and uncertainty for business and travellers of having to change currencies
for cross-border transactions.
·
Argument continues about the amount of influence the EU
should have in nation states' social and economic policy.
·
Many additional countries have now formally or
informally applied to join the EU.
The structure of the EU
The Treaty of Rome (as modified by the Treaty of
Maastricht) developed a structure of government whose elements reflect the
structure of the UK government. The executive (or Cabinet) is provided by the
Council of Ministers; the secretariat (or Civil Service) is provided by the
European Commission; while the legislature is provided by the European
Parliament. The judiciary is represented by the European Court of Justice.
New legislation is increasingly the result of
co-operation between the various institutions of the EU.
The Council of Ministers
The Council of Ministers represents the governments of
member states and can be regarded as the principal lawmaker of the EU, although
it can only act on proposals submitted by the Commission.
Each member state sends one Minister to the European
Council of Ministers.
The Council of
Ministers adopts new legislation either by simple majority, qualified majority
or unanimity:
The Council of Ministers can generally pass laws even if
the European Parliament disagrees with them, unlike the practice within the UK
system.
The European Commission
Each member state sends one Commissioner to the
Commission (the larger members send two), each appointed by the member
government for a renewable term of four years. They are supported in their work
by a staff of about 14 000 civil servants, divided between 23
directorates-general and mainly based at the Commission's headquarters in
Brussels.
The Commission has an initiation, mediation and
implementation role.
The European Parliament
The European Parliament is primarily consultative and
has relatively little power. Its main function is to monitor the activities of
other EU institutions. It can give an opinion on Commission proposals but only
has powers to amend, adopt or reject legislation, especially the EU budget. It
also has the theoretical power to dismiss the entire Commission.
The
European Court of Justice
The supreme legislative body of the EU is the Court of
Justice. It is the final arbiter in all matters of interpreting Community
Treaties and rules on disputes between member states.
Towards
an EU constitution?
At the Nice summit in 2000, the leaders of member states
proposed a constitution for the EU because its expansion to 27 members in 2007
threatened to slow down the decision-making process to the speed of the slowest
country.
The treaty to establish a constitution for Europe was
agreed by EU heads of government in June 2004, but rejected in May 2005 by
referenda of voters in France and the Netherlands. A revised constitution was
proposed following the Lisbon summit in 2007.
There has also been pressure for the appointment of a
President of the EU for a term longer than the current rotating six-month
presidency. A permanent President would potentially have much greater influence
inside and outside the EU.
Relationship between EU and UK government
Primary legislation is contained in the Treaties of Rome
(and subsequent treaties agreed by an Inter-Governmental Conference) and takes
precedence over national legislation. Secondary legislation is made by the
Council of Ministers and the Commission under authority delegated to them by
the Treaties. Secondary legislation affects member states in several forms.
Effects of EU membership on UK business organisations
The EU is having an increasingly important effect on
business organisations in the United Kingdom. The relationship between a
company and its customers is increasingly being influenced by EU regulations
and directives, for example in the provision of safety features in cars and the
labelling of foods.
To an increasing
extent, lobbying of the UK parliamentary process is becoming less effective as
the United Kingdom is bound to implement legislation emanating from the EU.
Supranational governmental
organisations
National governments' freedom of action is further
constrained by international agreements and membership of international
organisations.
Probably the most important organisation which affects
UK government policy is the United Nations (UN).
In matters of national
security, the United Kingdom is a member of the North Atlantic Treaty
Organisation (NATO) whose role is changing following the end of the ‘Cold War’.
Improving the standards of Government Administration
Standards of public-sector services can be improved by offering rewards to those public bodies that are performing well, while taking funds away from those that are failing.
A number of recent UK government initiatives for improvement are shown below:
·
Government
performance targets
Government organisations have been set
increasingly detailed performance targets. Managers are often paid a bonus
based on their achievement of targets.
An alternative approach is to encourage
public-sector organisations to achieve more general status labels based on
their performance. The Charter Mark and the Beacon Council are good examples of
award schemes introduced by the UK government.
- Joined-up government
Central, regional and
local government can at times seem an amorphous mass of departments, each not
appearing to know what the others are doing. There
have been many documented cases where different government departments have
taken completely opposing policy directions, thereby cancelling each other
out. Creating ‘joined-up’ thinking is
never easy, even within profit-oriented private sector organisations.
Impacts
of government on business operations
The impacts of the political environment on
business organisations can be explained in three levels of effect:
- The transformation of many government
departments into ‘Non-Departmental Public Bodies’ (NDPBs)
The
1990s saw significant developments in the delegation of powers from government
organisations to ‘arms length’ executive agencies, often referred to collectively
as quasi-autonomous non-governmental organisations (QUANGOs), or more
correctly, Non-Departmental Public Bodies (NDPBs).
NDPBs
enjoy considerable autonomy from their parent department and the sponsoring
Minister has no direct control over the activities of the body, other than
making the appointment of the chairman.
- The outsourcing of many government
functions and collaboration with the private sector through public-private
partnerships (PPPs)
Public Private Partnership (PPP) is a term
used to cover a wide range of activities in which the public and private
sectors work together to improve services. One form of PPP is a project under
the Private Finance Initiative (PFI), but PPP could also extend to other forms
of partnership, for example, joint ventures.
PPPs transfer risk to the private sector.
This means that should a project under the PPP overrun its budget, the
Government and taxpayers would not be left to pick up the bill. However the
price inevitably includes a high premium to cover the risk of a budget overrun.
- The effects of governments legislation
on business operations
While large organisations may be able to
afford specialists to handle administrative matters and can spread the cost
over large volumes of output, government regulation can hit small businesses
very hard.
Even the Internet, which was supposed
to simplify many administrative tasks, has led to new government-imposed
burdens on businesses. Worried at the prospect of organised crime using the
Internet, the government passed the controversial Regulation of Investigatory
Powers (RIP) Act. This was bitterly contested by business for its provisions
enabling the interception of emails and electronic correspondence.
The incoming New Labour government of 1997
set out – as with many previous governments – on a mission to reduce
unnecessary regulation, by creating the Better Regulation Task Force.
Influences on Government Policy Formation
A distinction can be drawn between political
parties and pressure groups or interest groups. These latter groups seek to
change policy in accordance with members' interests, generally advancing a
relatively narrow cause. Unlike members of political parties, members of
pressure groups generally work from outside the political system and do not become
part of the political establishment.
·
Pressure
groups
Pressure groups can be divided into a number of
categories. They can also be classified according to their functions. Sectional
groups exist to promote the common interests of their members over a wide range
of issues.
Pressure groups can
influence government policy using three main approaches:
- Propaganda
- Represent the views of the group directly to
policy formers on a one-to-one basis
- To carry out research and to supply
information
·
Role
of the media
The media - press, radio and television and increasingly
the Internet - not only spreads awareness of political issues but also
influences policy and decision-making by setting the political agenda and
influencing public opinion.
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