This document compares and contrasts Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs). It notes that LMEs, like Anglo-American systems, privilege shareholders over other stakeholders and focus on short-term profits. Management is empowered and stock prices are a key performance indicator. In contrast, CMEs like Rhinish capitalism have a stakeholder model where companies are accountable to workers, suppliers and local governments in addition to shareholders. They focus on high quality, skilled labor, long-term investment, and competitive based on product quality rather than price.

1. Characteristics of LMEs and CMEs
LMEs – Anglo-American
 Importance of private companies, shareholders and stock market as market for corporate
control
 Key issue of how organisations are owned and controlled – corporate governance
 Firm as a nexus of contracts (Parkinson 2005)
 Profit driven – short-term profit
 Shareholders tend to be privileged over interests of other stakeholders
 Anglo-American capitalism influenced by owners and providers of finance – banks,
shareholders
 In such systems stock markets critical role - share price as barometer of business health
 Exert discipline on companies and ‘enhancing shareholder value’ is ‘driver’ of much
business activity
 Much of focus is on meeting short-term profit targets
 Share price a key determinant of health of an organisation, takeover threat is real if share
price is under pressure
 Threat of takeover the main ‘discipline’ on management
 Management ‘empowered’, esp. in US system, often limited shareholder pressure – can
have disastrous consequences, see Enron, WorldCom – Sarbanes-Oxley Act (2002)
 See ‘Financialization’ thesis (Froud et al 2006) – narrow conception of business as financial
assets to enhance shareholder value
 Leads to a short-termist focus, cost consciousness and targeting price sensitive markets
 Constant focus on economies and cost cutting to maintain share price – cuts often borne by
labour – see lean production, downsizing as phenomena of LMEs
 ‘Hire and fire’ mentality in management of people
 L/T investment discouraged has implications for training, strategy, learning organisations
and knowledge economy
CMEs: Rhinish Capitalism
 See work of Hutton (1995)
 Streeck (1997) ‘Diversified Quality Production’
 Stakeholder model of ownership – a company is more than its owners, has wider
responsibilities and accountabilities underpinned by legal rights
 See Co-determination system
 High quality of education, commitment to training means skill levels high and often in
excess of normal requirements
 High cost base for economy
 In German system – stakeholder model – business exist not solely to make profit
 Shareholders limited in number, family control often still important in many German
companies
 Large-firm sector provides legal rights to a number of stakeholders, shareholders are not
uniquely favoured. See influence of:
• Workers
• Suppliers
• Local Government
 In addition to that of shareholders so have to consider wider effects of decisions on groups
 Volkswagen – Wolfsburg: home to VW HQ and city originally built for housing the workers
of VW
 High cost model relies on workforce delivering high productivity
 High levels of capital intensity, labour is so expensive so substituted by capital. High
capital/labour ratios in Germany

2.  High cost makes competition on basis of price difficult, leads to a focus on quality of goods
and services – design and customization of products important – Bosch, AEG, Miele,
Daimler-Benz, BMW