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The Legal Framework Governing Business Firms & its Implications for Manufacturing Scale & Performance: The UK Experience in International Perspective

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  • Simon Deakin

Abstract

This paper reviews empirical studies examining the economic effects of laws governing the formation, financing and organisation of business firms with the aim of putting the UK experience in a comparative perspective. The literature identifies two models of legal support for manufacturing which imply different directions for policy: on the one hand, the Silicon Valley model of venture capital funded growth which depends on liquid capital markets and flexible labour markets, and the northern European and Japanese model which is based on long-term innovation, stable ownership, and institutionalised worker-management cooperation. The UK has some of the legal features of the Silicon Valley model, but important parts are missing: for example, the Californian rule under which post-employment restraints ('restrictive covenants') are void on the grounds of their anti-competitive effects has no equivalent in the UK. Conversely, although the UK has certain elements of the northern European or east Asian model of institutionalised corporate governance, it is unlikely to be able to replicate the 'productive coalition' approach of these countries as long as the legal framework prioritises shareholder rights and the market for corporate control, and provides limited encouragement for job security. The Silicon Valley and 'productive coalition' models are ideal types which can distract from the fact that most countries, the UK included, are hybrid systems with some of the characteristics of each model. Rather than designing laws and policies exclusively with one model or the other in mind, it may be preferable to consider specific laws and policies on their own merits, while bearing in mind that a given legal rule or policy does not operate in isolation from others and that there may be some 'network effects' in operation due to the way that particular rules interact.

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  • Simon Deakin, 2013. "The Legal Framework Governing Business Firms & its Implications for Manufacturing Scale & Performance: The UK Experience in International Perspective," Working Papers wp449, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp449
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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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