Great Britain and the development of a liberal market economy

Seminar paper from the year 2005 in the subject Business economics - Economic Policy, grade: 1,3, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, language: English, abstract: In an attempt to extend the perspectives of institutional variations that have dominated the study of comparative capitalism in preceding years, Hall and Soskice have developed a 'varieties of capitalism' approach, which presents further perspectives to compare and explain the different forms of capitalism. As part of their approach, they have conceptualized two types of political economies, liberal market economies (LMEs) and coordinated market economies (CMEs), by reference to the way in which firms resolve coordination problems as well as to the spectrum nations can be arrayed. In CMEs non-market relationships allow for inter-firm coordination stressing strategic interaction among firms and other actors, among owners and managers, among employees and firms, and among top managers. Collaborative relationships contribute to building the competencies of the firm through extensive relational contracting and the exchange of private information inside networks. Regarding the corporate governance structure, generally different firm constituencies take part in decision-making processes, characterizing a stakeholder model. In contrast, in LMEs demand and supply conditions of competitive markets set the equilibrium outcomes of firm behavior. Competition, hierarchies and formal contracting, rather than collaborative relationships, coordinate the firms' activities. Market institutions and marginal calculations based on neoclassical economics influence the actor's willingness to supply and demand goods or services. The shareholder model of governance prevails over the stakeholder model as shareholders have the main role in decision-making while other constituencies dispose of very limited influence only. In an attempt to reconstruct the development process of the UK into a liberal market economy, the paper intends to describe and analyze key aspects as well as difficulties of economic policy making. Furthermore, it seeks to present and clarify strategic differences between the two political economies by comparing the presented varieties of capitalism with special emphasis on corporate governance and labor market policies as found in Germany (a CME) and the UK (a LME). [...]