Beyond Stability: Rethinking Germany’s Political Economy

Abstract

From the post-war period up to the early 2000s, (West) Germany was viewed as a paradigmatic case of institutional stability, successfully accommodating different social interests. Yet the past two decades have brought large-scale changes to the structures of Germany’s political and economic life. This article introduces a special issue that seeks to rethink Germany’s political economy by shifting the scholarly lens on Germany from stability to imbalance. After outlining the proposed paradigm shift, and introducing three vantage points from which to study the politics of imbalance, this article presents the main findings that contributors to the special issue unearthed as they engaged this theoretical agenda in their empirical analyses.

It is time to rethink Germany’s political economy. Two decades into the 21st century, it is clear that conceptual schemes developed for analysing Germany during the last century offer decreasing value for understanding patterns of political contestation, economic behaviour, and policymaking today.

In this assessment, we extend Ralf Dahrendorf’s diagnosis of the transformations that were upon political economy as the last century drew to a close (Dahrendorf 1999). For Dahrendorf, a German–British macrosociologist and politician, the 20th century had been a ‘social democratic’ one, a characterisation that emphasises the achievements of the working class, including centre-left parties and labour unions that expanded national welfare states and restructured the world of work (Dahrendorf 1983). Today, other political forces dominate. Welfare states and labour actors are under pressure, and new lines of conflict between (mobile) wealth and (local) citizenship have risen to the fore as economic inequality increased and centrifugal forces engulf parliamentary politics across the advanced democracies. In line with what Dahrendorf (1990) predicted, it is not just the domestic anchors of Germany’s political economy that have been upended. In addition to market-led European integration close to home, the centre of international politics has moved east to Asia, with differential growth rates of populations and economic activity reshaping global political interactions.

How can and should Germany’s politics and economy be analysed today? What conceptual tools hold the most promise, and what kinds of findings could they generate? Finally, what are the broader lessons from Germany for better understanding contemporary political and economic developments in Europe and across the world? This article introduces the main themes of this special issue, which seeks to spur debate about these questions by focusing on imbalances in Germany’s political economy after the social democratic century. In what follows, we elaborate the need for this special issue’s scholarly intervention and outline key features of the proposed conceptual reorientation. The final section reviews the significant shifts in politics, economics, and policies that contributing authors unearthed as they engaged this theoretical agenda in their empirical analyses.

REASSESSING GERMANY: FROM STABILITY TO IMBALANCE

Many political economists have come to describe institutions and practices in contemporary Germany as fluid (e.g. Streeck 2009; Baccaro and Benassi 2017), and real progress has been made in comparative theorising about institutional change (e.g. Thelen 2004; Baccaro and Howell 2017). Yet analysts have generally not examined how recent empirical transformations in Germany challenge long-standing narratives about the country. Neither have studies probed the potential implications of these transformations for broader theories of comparative politics drawn from older German experiences. These are important lacunae. After all, through the decades that followed the immediate post-war boom, (West) Germany was generally seen as the paradigmatic case of stability, with impressive performance in generating steady economic growth and providing reliable social protection, which seemed to prove that the right institutions could productively serve the diverse interests of society (Paterson and Smith 1981; Schmidt 2001). The continuous erosion of this stability over the last two decades suggests the need for a paradigm shift in research on Germany.

As late as the turn of the century, both scholars and policymakers perceived political and institutional stability to be so entrenched that it threatened to turn into stagnation (Kitschelt and Streeck 2003). When unification brought a wholesale transfer of West German institutions to the East, their performance seemed to decline, with Germany framed as offering ‘welfare without work’ (Esping-Andersen 1996) and to have turned into the ‘sick man of Europe’. Since then, assessments of economic strength have shifted multiple times. After the global financial crisis, Germany became a widely heralded role model when the country logged impressive growth and unemployment rates that far outperformed those of most other European countries. More recently, the picture darkened again, with growth having slowed and public attention moving on to risks of a prolonged recession (Fratzscher 2018).

Opinions on Germany’s economic fortunes shifted partly due to large-scale institutional changes. These changes not only challenged descriptions of Germany as a particularly stable entity but set in motion far-reaching real-world transformations that have produced new and varied imbalances – whether, for example, in terms of deepening economic inequality, increasing influence of financial investors, or the growing current account surplus. Emphasising these changes is not to deny that Germany displays significant continuities through time – certainly more than its European neighbours to the East, which reinvented their economic foundations and governance structures after the demise of Communism. For instance, Germany’s strong export-oriented industrial sector still reinforces government officials’ predilection for open borders. Yet, at the same time, tectonic shifts have taken place. In this new context, we observe that theories developed to account for stability and balance offer limited power for explaining change and imbalance. In order to better understand the causal processes driving Germany’s political economy in the current era, this special issue puts the tectonic shifts, and the imbalances they imply, at the centre of analysis.

Existing theoretical work provides important foundations for this endeavour. Most centrally, we continue to treat Germany’s political economy as a system of institutions and practices that ‘fit’ together across different realms of activity. As we articulate in our theoretical contribution to this special issue, this is a feature that has long connected different institutionalist theories of Germany’s political economy – whether grounded in companies’ interests, the power of labour, or institutionalised ideas. Yet, we also find that existing approaches tend to undervalue important forces of change that could – if properly conceptualised – provide useful entry points for a productive study of imbalances in Germany’s post-Fordist political economy, including their roots and linkages.

EMBRACING IMBALANCE: THEORISING PROCESSES OF RECOMPOSITION

This special issue brings together leading scholars and newer voices to explore the political economy of imbalance in Germany. Editors and contributors are united in the belief that Germany remains a crucial case even after the social democratic century, and an important source of theoretical innovation that can guide comparative analysis (Schulze-Cleven 2017). In the article following this introduction, we establish the theoretical orientation that underpins this belief, discussing how Germany provides a productive prism for understanding the processes of recomposition that govern institutions and actors cross-nationally.

Establishing a solid basis for our intervention, we initially return to the different theoretical treatments that rationalised German institutions’ long-time stability, highlighting the degree to which scholarly engagement with Germany has set the agenda for theory development in comparative politics and political economy. Yet, we argue, further theoretical innovation is needed, because empirical developments challenge the notions of balance that each of the three prominent schools of institutionalism developed in their analysis of Germany.

We move toward filling the need for conceptual renewal by proposing three distinct vantage points on imbalance that could guide scholars in examining the processes of recomposition in Germany’s political economy: (1) the systemic properties of capitalism, (2) multivalent policy feedback, and (3) the organisational foundations of creative adjustment. These conceptual angles can be taken up individually or in combination. Moreover, we expect that there are important and distinct points of contact with different schools of institutionalism to explore, and we would like to invite scholars to pursue them.

In our assessment, the three vantage points have the potential not only to provide new direction to the analysis of Germany but also to sharpen existing accounts of institutional transformation in democratic capitalism more broadly. More dynamic than equilibrium-based and comparative-static models, and conceptualising change as continuous rather than restricted to short periods of disruption, accounts inspired by the three vantage points would treat institutional adjustments as often gradual in character and frequently exerting their force through cumulative but transformative effects on political authority over time (Pierson 2004). In addition, they would emphasise change as a constitutive property of any social system, given that even perceived stability requires processes of reproduction and incremental adjustment to maintain institutions’ original properties in changing environments (Thelen 2004; Hacker 2008).

Contributions to this special issue demonstrate the power of this conceptual reorientation as they move beyond the paradigm of stability to examine struggles over emerging imbalances. The resulting accounts of present-day Germany provide much-needed insights into the ‘practices of dynamic order’ (Jabko and Sheingate 2018) that both challengers and defenders of particular institutional elements pursue at different scales of political aggregation as they seek to better align political authority structures with their respective interests. Let us now turn to the articles in this special issue to see how this theoretical reorientation can help clarify the processes of recomposition at the heart of Germany’s evolution.

WORK IN PROGRESS: GERMANY AFTER THE SOCIAL DEMOCRATIC CENTURY

Seeking to underscore how much Germany has become a work in progress, the articles are arranged to address traditional narratives about German stability. The first four contributions cover evolving economic institutions and speak particularly to the themes of institutional complementarities and employer interests. The subsequent three articles engage with shifting patterns of interest intermediation that deeply affect the distribution of power across society. Another set of three pieces explores Germany’s changing macro-economic regime and the ideational background of policymaking. The final article concludes with two responses to the special issue and a rejoinder by the editors.

The Evolution of Economic Institutions

Niccolo Durazzi and Chiara Benassi highlight a nuanced pattern of state activism in Germany’s changing system for human capital formation. As the knowledge economy increased employers’ demand for general skills, the state expanded higher education in general and the offerings of universities of applied sciences in particular. With vocational training declining in importance and enrolment growing in universities, ‘dual-study’ programmes have emerged as a particularly vibrant focus of programme development. Based significantly on collaboration between universities and large firms, they reflect the importance of creative adjustment’s organisational foundations. Given the pattern of state intervention and segmentalism, the authors ask whether skill formation in Germany is capable of continuing to balance the goal of social inclusion against the wish to move ‘up-skill’ in the knowledge economy.

Ute Klammer probes a far-reaching transformation in retirement institutions, which had long been thought to be impervious to change. Her analysis traces how liberalisation and privatisation in the early 2000s reinforced existing inequalities, and even added new dimensions. By gradually redistributing responsibility from the state to the social partners, and especially employers, policy reforms led to a process of negative feedback, with actors’ adaptative behaviour cumulating in larger changes consistent with the exhaustion of social compensation that once underpinned the social market economy.

Benjamin Braun and Richard Deeg explore shifting forms of complementarity between finance capital and firms’ orientation to producing for export markets. Germany’s export-oriented growth model has increasingly relied on wage moderation to maintain exporters’ competitiveness, with the dynamic of capitalist expansion leading to lower unit labour costs that have systemically altered the German model. Now capturing greater profits, many non-financial firms are no longer dependent on banks for capital, which breaks one of the crucial links in the system of patient capital that underpinned the traditional German model. In a striking role reversal, non-financial firms have become net lenders, illustrating a new set of dynamics in the relations between sectors in the German economy and an unanticipated consequence of Germany’s export-oriented growth model.

Thomas Haipeter delves into the changing balance of power between employers and workers in the workplace to critically investigate the impact of financialisation. After carefully examining various hypothesised causal mechanisms, he finds no direct effect of global capital markets’ expansion on German industrial relations. In line with thinking on capitalism’s complex recasting of social relations, Haipeter argues that appreciating the power of financial market actors in Germany’s economy requires going beyond existing conceptions of complementarity to more closely examine the ‘refractive’ dynamics of multivalent policy feedback among multiple areas of regulation, such as labour markets, corporate governance, and industrial relations.

Interest Intermediation in Transition

Stephen J. Silvia explores initiatives by German unions and works councils abroad in response to German multinationals’ globalisation of production and service provision. Covering campaigns by IG Metall and ver.di in the United States and Hungary, Silvia’s analysis discusses some successes but also reveals how lower levels of worker power abroad tilt the balance of power at home in managers’ favour. Emphasising organisations’ creative adaptation and experimentation to counter the effects of German firms’ offshoring and international expansion, this article speaks to underappreciated core dynamics of contemporary capitalism’s evolution.

Martin Behrens and Heiner Dribbusch examine an important aspect of increased managerial discretion by focusing on employers’ obstruction of codetermination institutions designed to support worker voice in the workplace. Providing much needed insight into this understudied phenomenon, the authors report how employers actively resist both the election of works councillors and the everyday functioning of already established works councils. In contrast to what theories of dualisation would suggest, Behrens and Dribbusch find no clear distinction between employer opposition in the core and peripheral sectors of the economy, illustrating instead a broader trend whereby employers have accumulated social power by controlling the workplace.

Björn Bremer explains the recent turn of the SPD into a ‘party without a paradigm’ that has effectively abandoned its social democratic mandate. Characterising the Social Democrats as stuck between the party’s own progressive discourse and their fears of voters’ concern for fiscal prudence, Bremer shows why the SPD was unable to develop an effective economic policy in response to the financial crisis. In emphasising that organisations are frequently pulled in opposing directions, Bremer’s analysis underlines the importance of organisational leadership for effective collective action.

Reinterpreting the Macroeconomic Regime

Brigitte Young questions Ordoliberalism as an anchor for Germany’s contemporary macroeconomic policy. Instead of finding Ordoliberalism guiding policy, her research reveals that policymakers merely invoke ordoliberal commitments as a discursive strategy to achieve political goals in the face of opposition, both domestically and internationally. This strategic use of ideas calls into question the value of Ordoliberalism as an articulation of Germany’s policy preferences, and instead draws attention to the role of discourse in shaping the path of capitalist expansion in the Eurozone to serve Germany’s interests.

Jan Behringer, Nikolaus Kowall, Thomas Theobald, and Till van Treeck focus on the relationship between international macroeconomic imbalances and economic inequality within Germany. Proposing an alternative measure for economic inequality – focusing on wealth, rather than income – they show how the retention of an increasing share of profits among firms that benefited from trade surpluses has boosted owners’ assets and contributed to growing inequalities. As such, the authors demonstrate the importance of integrating analysis of changing firm behaviour with studies of household-level economic inequality and of national accounts to better understand how the various imbalances in Germany’s political economy are interrelated with the dynamics of capitalist expansion under the current growth model.

Wade Jacoby widens institutionalist perspectives on the politics of Germany’s sustained current account surplus by examining the discourses that policymakers employ to justify it. In defending current account surpluses and capital outflows, officials emphasise the competitiveness of domestic industry and an aging society’s need for diversifying investments. Yet, as Jacoby demonstrates, these rationalisations are self-serving, and reflect the social power of business, given that they underappreciate how a falling labour income share of GDP and low public investment both undermine domestic demand and allow for the recycling of corporate profits abroad, which in turn fuels foreign demand for German products.

Walther Müller-Jentsch and Britta Rehder join the editors to debate the claims advanced in this special issue. While Müller-Jentsch argues for the adaptability of Germany’s industrial relations institutions and the continued relevance of conflictual partnership, Britta Rehder looks ahead to potential new avenues for political mobilisation and coalition-building. The article closes with a call for scholars and practitioners to use the volume’s proposed conceptual repertoire for analysing and shaping what will undoubtedly be a challenging future.

ACKNOWLEDGEMENTS

The editors thank all participants, including the many reviewers, of this special issue project. We are particularly grateful to Stephen J. Silvia, the late Wade Jacoby, and Dan Hough: Steve for his initial suggestion to emphasise the theme of imbalance, Wade for his encouragement to approach German Politics, and Dan for his sustained help in bringing this project to fruition. Early versions of many papers included in this special issue were originally presented during a workshop at the Goethe-Institut San Francisco in August 2017. Financial and organisational support were generously provided by the Fritz Thyssen Foundation, the DFG and the DAAD.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the author(s).

NOTES ON CONTRIBUTORS

Sidney A. Rothstein is an assistant professor of political science at Williams College. His research focuses on Europe and the United States, and investigates the politics of digital transformation, seeking to explain how the transition to the knowledge economy reshapes relationships of power, and patterns of inequality, in different countries. His work has been published in Socio-Economic Review, Studies in American Political Development, and Perspectives on Politics.

Tobias Schulze-Cleven is Associate Professor and Director of the Center for Global Work and Employment at the School of Management and Labor Relations, Rutgers University-New Brunswick. His research examines the contemporary political economy of labor market and higher education reforms across the rich democracies. He has published in outlets such as Comparative Political Studies, New Political Economy, and Politics & Society.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.