Coordinated-Market Economies vs Liberal-Market Economies
The Financial System
CME’s:
• Bank-based financial system
• Bank loans are the major source of external finance
• Low stock market capitalisation
• Universal banks acts as creditors, shareholders, financial advisors etc.
• Stable and close shareholdings (patient capital); personal relationship between shareholders and
managers
• Restricted market for corporate control
• “Voice rather than exit” - members of the business organisation prefer to voice (to attempt to
repair/improve the relationship through communication) when organisation is demonstrating a
decrease in quality/benefit to the member
LME’s:
• Market-based financial system
• Equity rather than debt; bonds rather than long-term bank loans
• High stock market capitalisation
• Dispersion and fluidity of shareholdings
• No block-holders (owner of a large amount of a company’s shares)
• Arms-length relationship (no intimacy/friendliness) between shareholders and managers
• “Exit rather than voice” - members of the business organisation prefer to exit when they perceive
that the organisation is demonstrating a decrease in quality/benefit to the member
• High incidence of mergers and acquisitions
• Dominant shareholders
• Takeovers as corporate governance mechanisms
• Companies can raise equity capital relatively quickly
• Senior managers’ earnings tied to performance of shares - a degree of short-termism
The Labour Market
CME’s:
• Strong structures governing employee representation (33-50% seats held by employee reps in
supervisory boards)
• Works council (organisation representing workers) - obligation of peaceful cooperation with
management
• Collective bargaining - process of negotiation between employees and employers to regulate working
salaries
• Barriers to laying off staff are strong; firms cannot hire and fire at will. (First cut dividends, then
negotiate shorter working hours, salary restraint and then fire people)
• Minimum wage in construction; general minimum wage in effect since 1 January 2015
• Significant scope for ‘employee voice’; which, increases employee commitment in the long-term
• Down-turn layoffs are not prohibited, the employees get shorter working hours or lower wages
during downturn
LME’s:
• There are only a few structures governing employee representation (weak unions, no socialism or
social democracy)
• No co-determination or work councils
• Barriers to laying off staff are weak: firms hire and fire at will. There is a legal doctrine (“Employment
at Will”), stating that employers do not need to be fair and they may dismiss employees for any
reason.
• Few regulations of working time
• Few rights to industrial action
• Low coverage of collective bargaining
The Financial System
CME’s:
• Bank-based financial system
• Bank loans are the major source of external finance
• Low stock market capitalisation
• Universal banks acts as creditors, shareholders, financial advisors etc.
• Stable and close shareholdings (patient capital); personal relationship between shareholders and
managers
• Restricted market for corporate control
• “Voice rather than exit” - members of the business organisation prefer to voice (to attempt to
repair/improve the relationship through communication) when organisation is demonstrating a
decrease in quality/benefit to the member
LME’s:
• Market-based financial system
• Equity rather than debt; bonds rather than long-term bank loans
• High stock market capitalisation
• Dispersion and fluidity of shareholdings
• No block-holders (owner of a large amount of a company’s shares)
• Arms-length relationship (no intimacy/friendliness) between shareholders and managers
• “Exit rather than voice” - members of the business organisation prefer to exit when they perceive
that the organisation is demonstrating a decrease in quality/benefit to the member
• High incidence of mergers and acquisitions
• Dominant shareholders
• Takeovers as corporate governance mechanisms
• Companies can raise equity capital relatively quickly
• Senior managers’ earnings tied to performance of shares - a degree of short-termism
The Labour Market
CME’s:
• Strong structures governing employee representation (33-50% seats held by employee reps in
supervisory boards)
• Works council (organisation representing workers) - obligation of peaceful cooperation with
management
• Collective bargaining - process of negotiation between employees and employers to regulate working
salaries
• Barriers to laying off staff are strong; firms cannot hire and fire at will. (First cut dividends, then
negotiate shorter working hours, salary restraint and then fire people)
• Minimum wage in construction; general minimum wage in effect since 1 January 2015
• Significant scope for ‘employee voice’; which, increases employee commitment in the long-term
• Down-turn layoffs are not prohibited, the employees get shorter working hours or lower wages
during downturn
LME’s:
• There are only a few structures governing employee representation (weak unions, no socialism or
social democracy)
• No co-determination or work councils
• Barriers to laying off staff are weak: firms hire and fire at will. There is a legal doctrine (“Employment
at Will”), stating that employers do not need to be fair and they may dismiss employees for any
reason.
• Few regulations of working time
• Few rights to industrial action
• Low coverage of collective bargaining
