Institutional Differences Between the British and German Economic Models: Corporate Sector and Labour Market

The aim of this paper is to compare some of the significant institutional differences between the British and German economic models. This paper builds on a methodological framework developed by institutional economics. Comparative research carried out in this paper focuses on three institutional fields in both market economies: control of management, corporate finance and labour market. In the UK, we can find evidence suggesting an important role of the market for corporate control, exerting pressure on management to deliver good corporate performance. On the other hand, in Germany, we find an important role of banks that exert direct control over firm´s management and its strategic decision-making. As for corporate finance, British companies tend to make use of highly liquid financial markets and short-term finance, whereas German companies form strategic partnerships with banks which provide them with long-term credits. Lastly, labour market in the UK is more flexible compared to German labour market as its labour law favours short-term contracts, unemployment benefits are less generous and the power of trade unions to protect workers is limited.