On the labor side again by definition,
weaker labor protections in liberal market economies.
Weaker trade union and industry/employer associations.
Much more of a reliance of decentralized market mechanisms.
Shorter job tenures, as people job hop from one job to another.
Less training, as a result of those job-hopping proclivities.
And finally, as a flow through of all of that,
an emphasis on the part of workers on developing general skills, that can be
applied across a range of employers in terms of industries or companies.
In contrast, you can see why coordinated market economies would be
systematically different, in all those respects.
So, those are just some examples of why, what kind of system one operates in
may on average, have significant influence on how business is actually conducted.
And we can easily see ways of adding other areas beyond capital and
labor to this consideration of what's different between,
economies that privilege labor in some sense and
economies that privilege stock markets or external equity financing.
So to take another example,
that will make this even more vivid, think about the earnings that
are reported by firms operating in different kinds of environments.
So, in Civil Law environments in countries, in continental Europe, say.
Where the legal tradition is really descended from Roman civil law,
and involves relatively detailed translation of governmental
rules into specific policies, with a minimum of judicial interpretation.
Earnings are treated very differently in those kinds of systems.
Then they are in the traditional Anglo American kind of system,
that often commands more attention.
So in the civil law countries, with their emphasis on
long term relationships amongst different stakeholders.
Earnings as applied to be divided equitably amongst a whole bunch of
different stakeholders public disclosure isn't nearly as
important because the whole system isn't anchored in external investors, and
the internal investors like the families or
the banks, can probably get their information directly from the company.
And pay outs earnings are closely linked to payouts.
And so what basically happens is that, you know,
large reserves are maintained above the bottom line.
And then what gets declared at the bottom line in, terms of net, net income.
Really reflects preferences about how to distribute the total pool
that is available, rather than what an economist would think of as net earnings.
And, if this seems very abstract, it's worth remembering that,
you know, these differences are well recognized and
have huge impacts on how stock markets react to accounting information.
So, we already know from other work in accounting,
that stock markets really make, re, react more to negative surprises.
That those in some respects often have more information content than
increases in accounting income, for instance.
What's interesting is how much the sensitivity varies across
different groups.
In common law countries like the U.S. and
the UK where earnings reported accounted earnings do in fact come closer
to economic measures of earnings or income or profit.
There is a huge negative reaction to negative accounting surprises.
But in continental code or civil law countries or, again, in East Asian
systems which are closer in legal terms to some of those continental systems.
Even the negative accounting earnings re news doesn't really have
much of a negative impact on the stock price,
because everybody recognizes that earnings is a number that is usually managed,
with a view to some of those other considerations that we were talking about.
Ensuring the right levels of payouts to different stakeholders,
rather than simply reflecting economic measures of gains or loss.