Globalisation and national varieties of capitalism: The contested viability of the ‘german model’

Abstract

It is often argued that globalisation is eroding differences between national varieties of capitalism and enforcing convergence. This study takes up the debate – triggered by declining economic performance – about the viability of the ‘German model’ of a coordinated market economy, examining the arguments about its alleged seminal transformation over the last decade. It goes on to identify a number of flaws in the literature and questions whether the case for fundamental change in Germany has really been made in a credible and convincing way. In addition, it points to significant elements of continuity in areas such as industrial relations and emphasises the importance of political decisions in determining the fate of national economic models.

Notes

*For helpful comments to earlier versions of this paper I am grateful to the participants of the workshop on ‘The Politics of Economic Reform in Germany’ at the University of Cardiff, 16–17 September 2004, and the participants of the conference on ‘Die Politische Ökonomie der Europäischen Wirtschafts- und Währungsunion’, hosted by the Political Economy section of the German Political Science Association at the Max Planck Institute for the Study of Societies in Cologne, 3–4 December 2004. I have also benefited from detailed comments by the editors of this volume and from Martin Höpner and André Nilsen. I am grateful for all advice, even if occasionally I chose not to follow it. This article was finished during my time as a visiting fellow at the Social Science Research Centre in Berlin (WZB) to which I extend my gratitude.

1. For an introductory overview of the debate see Andreas Busch, ‘Unpacking the Globalization Debate: Approaches, Evidence and Data’, in Colin Hay and David Marsh (eds.), Demystifying Globalization (Basingstoke: Macmillan, 2000), pp.21–48.

2. Colin Hay, ‘Contemporary Capitalism, Globalization, Regionalization and the Persistence of National Variation’, Review of International Studies 26/4 (2000), pp.509–31.

3. Fritz W. Scharpf and Vivien A. Schmidt (eds.), Welfare and Work in the Open Economy. Volume II: Diverse Responses to Common Challenges (Oxford: Oxford University Press, 2000).

4. To give a few examples out of many: the ‘German model’ (or ‘model Germany’) features in Fritz Scharpf's comparative analysis of Social Democratic economic policy in the 1970s, Fritz W. Scharpf, Sozialdemokratische Krisenpolitik in Europa. Das ‘Modell Deutschland’ im Vergleich (Frankfurt am Main, New York: Campus, 1987); in Karl-Heinz Paqué's description of the long-term challenges to Germany's labour market, Karl-Heinz Paqué, ‘Unemployment and the Crisis of the German Model: A Long-Term Interpretation’, in Herbert Giersch (ed.), Fighting Europe's Unemployment in the 1990s (New York: Springer, 1995); in Kathleen Thelen's insights about the persistence of employers’ interests in cooperative relations with trade unions, Kathleen Thelen, ‘Why German Employers Cannot Bring Themselves to Dismantle the German Model’, in Torben Iversen; Jonas Pontusson and David Soskice (eds.), Unions, Employers, and Central Banks: Macroeconomic Coordination and Institutional Change in Social Market Economies (Cambridge: Cambridge University Press, 2000), pp.138–69; and in Helmut Wiesenthal's description of the political system's institutional conservatism, Helmut Wiesenthal, ‘German Unification and “Model Germany”: An Adventure in Institutional Conservatism’, West European Politics 26/4 (2000), pp.37–58.

5. See Scharpf, ‘Sozialdemokratische Krisenpolitik in Europa’ for a detailed description.

6. Rudolf Hilferding, Das Finanzkapital. Eine Studie u¨ber die ju¨ngste Entwicklung des Kapitalismus (Wien: Verlag der Wiener Volksbuchhandlung, 1910).

7. Alexander Gerschenkron, Economic Backwardness in Historical Perspective. A Book of Essays (Cambridge, MA: Harvard University Press, 1966), p.14.

8. Hans-Ulrich Wehler, Deutsche Gesellschaftsgeschichte. Band 3: Von der ‘Deutschen Doppelrevolution’ bis zum Beginn des Ersten Weltkrieges: 1849–1914 (München: Beck, 1995), pp.662–80.

9. Andrew Shonfield, Modern Capitalism. The Changing Balance of Public and Private Power (London: Oxford University Press, 1965).

10. For the concept of ‘parapublic institutions’, in which associations play an important role, and which are considered a characteristic of the German political system, see Peter Katzenstein, Policy and Politics in West Germany. The Growth of a Semisovereign State (Philadelphia: Temple University Press, 1987) and Andreas Busch, `Shock-Absorbers Under Stress: Parapublic Institutions and the Double Challenges of German Unification and European Integration', in Simon Green and William E. Paterson (eds.), Governance in Contemporary Germany: The Semisovereign State Revisited (Cambridge: Cambridge University Press, 2005), pp. 94--114.

11. On the latter episode see for example Andreas Busch, Staat und Globalisierung. Das Politikfeld Bankenregulierung im internationalen Vergleich (Wiesbaden: Westdeutscher Verlag, 2003), chapter 5.1; and Manfred Pohl, ‘Die Entstehung und Entwicklung des Universalbankensystems seit der Mitte des 19. Jahrhunderts’, in Norbert Kloten and Johann Heinrich von Stein (eds.), Geld-, Bank- und Börsenwesen. Ein Handbuch (Stuttgart: Schäffer-Poeschel, 39th edn. 1993), pp.187–93.

12. Will Hutton, The State We're In (London: Vintage, 1996).

13. Michael E. Porter, Capital Choices: Changing the Ways America Invests in Industry (Washington, DC: Council on Competitiveness, 1992) and Michael E. Porter, ‘Capital Disadvantage: America's Failing Capital Investment System’, Harvard Business Review (Sept.–Oct. 1992), pp.65–82.

14. For more detailed empirical information about globalisation see e.g. Paul Hirst and Grahame Thompson, Globalization in Question. The International Economy and the Possibilities of Governance (Cambridge: Polity, 1996); Dani Rodrik, Has Globalization Gone Too Far? (Washington, DC: Institute for International Economics, 1997); David Held, Anothony McGrew, David Goldblatt and Jonathan Perraton, Global Transformations. Politics, Economics and Culture (Cambridge: Polity, 1999); Busch, ‘Unpacking the Globalization Debate’; OECD, Measuring Globalisation. The Role of Multinationals in OECD Economies, Vol. 1: Manufacturing Sector; Vol. 2: Services (Paris: OECD, 2001).

15. A survey of the respective economic literature can be found in e.g. Günther G. Schulze and Heinrich W. Ursprung, ‘Globalisierung contra Nationalstaat? Ein Überblick über die empirische Evidenz’, in Andreas Busch and Thomas Plümper (eds.), Nationaler Staat und internationale Wirtschaft. Anmerkungen zum Thema Globalisierung (Baden-Baden: Nomos, 1999), pp.41–89.

16. Jeffry A. Frieden and Ronald Rogowski, ‘The Impact of the International Economy on National Policies: An Analytical Overview’, in Robert O. Keohane and Helen V. Milner (eds.), Internationalization and Domestic Politics (New York/Cambridge: Cambridge University Press, 1996), pp.25–47.

17. Douglass C. North, Institutions, Institutional Change and Economic Performance (Cambridge/New York: Cambridge University Press, 1990); Oliver E. Williamson, ‘Transaction Cost Economics and Organization Theory’, in Neil J. Smelser and Richard Swedberg (eds.), The Handbook of Economic Sociology (Princeton: Princeton University Press, 1994), pp.76–107.

18. James G. March and Johan P. Olsen, Rediscovering Institutions. The Organizational Basis of Politics (New York: Free Press, 1989), p.167.

19. See the quotes at the beginning of the article as well as Busch, Staat und Globalisierung for a more extensive review of recent results.

20. Colin Hay and Ben Rosamond, ‘Globalisation, European Integration and the Discursive Construction of Economic Imperatives’, in Journal of European Public Policy 9/2 (2002), pp.147–67. See also Tom Conley, ‘Globalisation and the Politics of Persuasion and Coercion’, Australian Journal of Social Issues 39/2 (2004), pp.183–200.

21. Interview in Die Zeit, 9 May 1997, p.19, quoted after Roland Czada, ‘Reformloser Wandel. Stabilität und Anpassung in politischen Akteursystem der Bundesrepublik’, in Thomas Ellwein and Everhard Holtmann (eds.), 50 Jahre Bundesrepublik Deutschland [PVS Sonderheft 30/1999] (Opladen/Wiesbaden: Westdeutscher Verlag, 1999), pp.397–412.

22. Jürgen Beyer (ed.), Vom Zukunfts- zum Auslaufmodell? Die deutsche Wirtschaftsordnung im Wandel (Wiesbaden: Westdeutscher Verlag, 2003).

23. Jürgen Beyer, ‘Einleitung: Unkoordinierte Modellpflege am koordinierten deutschen Modell, in Beyer (ed.), Vom Zukunfts- zum Auslaufmodell?, p.11.

24. Wolfgang Streeck and Martin Höpner (eds.), Alle Macht dem Markt? Fallstudien zur Abwicklung der Deutschland AG (Frankfurt/Main/New York: Campus, 2003).

25. Henry Hansmann and Reinier Kraakman, ‘The End of History for Corporate Law’, in Jeffrey N. Gordon and Mark J. Roe (eds.), Convergence and Persistence in Corporate Governance (Cambridge: Cambridge University Press, 2004), pp.33–68. (First published in Georgetown Law Journal, 89 (Jan. 2001), pp.439–67).

26. Martin Höpner, Der Organisierte Kapitalismus in Deutschland und sein Niedergang. Unternehmenskontrolle und Arbeitsbeziehungen im Wandel (Wiesbaden: Verlag für Sozialwissenschaften, 2004), pp.300–321.

27. Wolfgang Streeck and Anke Hassel, ‘The Crumbling Pillars of Social Partnership’, West European Politics 26/4 (2003), pp.101–24.

28. This had become very clear on the occasion of the attempted hostile takeover of Thyssen by Krupp in 1997, when Deutsche Bank advised the ‘attacker’ Krupp while simultaneously holding a seat on the supervisory board of ‘victim’ Thyssen.

29. Jürgen Beyer and Martin Höpner, ‘Corporate Governance and the Disintegration of Organised Capitalism in the 1990s’, West European Politics 26/4 (2003). [Special issue on ‘Germany: Beyond the Stable State’, ed. by Herbert Kitschelt and Wolfgang Streeck].

30. For the historical roots of this criticism and precedents for such cross-party coalitions regarding the ‘power of the banks’ see Busch, Staat und Globalisierung, pp.108–9 and 134–5.>

31. Michel Albert, Capitalism against Capitalism (London: Whurr, 1993).

32. Pieter W. Moerland, ‘Alternative Disciplinary Mechanisms in Different Corporate Systems’, Journal of Economic Behavior and Organization 26 (1995), pp.17–34; H.W. De Jong, ‘European Capitalism: Between Freedom and Social Justice’, Review of Industrial Organization 10 (1995), pp.399–419.

33. Peter A. Hall and David Soskice (eds.), Varieties of Capitalism. The Institutional Foundations of Comparative Advantage (Oxford/New York: Oxford University Press, 2001).

34. Viven A. Schmidt, The Futures of European Capitalism (Oxford: Oxford University Press, 2002).

35. Bruno Amable, The Diversity of Modern Capitalism (Oxford: Oxford University Press, 2003).

36. Wolfgang Streeck, ‘On Institutional Conditions of Diversified Quality Production’, in Egon Matzner and Wolfgang Streeck (eds.), Beyond Keynesianism: The Socio-Economics of Production and Full Employment (Aldershot: Elgar, 1991), pp.21–61.

37. Focusing on problems here does not mean to deny that there have been substantial benefits as well. The fact that the D-Mark does not alone have to shoulder the recent violent exchange rate fluctuations of the US dollar is only the most readily evident.

38. Carola M. Frege, ‘Transforming German Workplace Relations: Quo Vadis Cooperation?’, Economic and Industrial Democracy 24/3 (2003), pp.317–47.

39. Christine Trampusch, ‘Vom Klassenkampf zur Riesterrente. Die Mitbestimmung und der Wandel der Interessen von Gewerkschaften und Arbeitgeberverba¨nden an der betrieblichen und tariflichen Sozialpolitik’, Zeitschrift für Sozialreform 50/3 (2004), pp.223–54.

40. Süddeutsche Zeitung, 9 Dec. 2004, p.34.

41. The Economist, 28 Aug. 2004, pp.65f.

42. Süddeutsche Zeitung, 18 Sept. 2004, p.19.

43. Süddeutsche Zeitung, 21 Sept. 2004, p.27 and 16 Nov. 2004, p.34.

44. Martin Höpner and Gregory Jackson, ‘An Emerging Market for Corporate Control? The Mannesmann Takeover and German Corporate Governance’, MPIfG Discussion Papers, Vol. 01/4 (Köln: Max-Planck-Institut für Gesellschaftsforschung, 2001).

45. On the case of the EU takeover directive, see e.g. Erik Berglöf and Mike Burkart, ‘European Takeover Regulation’, Economic Policy 18/1 (2003), pp.171–213; Lucian Cernat, ‘The Emerging European Corporate Governance Model: Anglo-Saxon, Continental, or still the Century of Diversity?’, Journal of European Public Policy 11/1 (2004), pp.147–66.

46. Mancur Olson, The Logic of Collective Action Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965).

47. Thelen, ‘Why German Employers Cannot Bring Themselves to Dismantle the German Model’.

48. See for example Marc Goergen, Miguel C. Manjon and Luc Renneboog, ‘Recent Developments in German Corporate Governance’, Finance Working Paper, Vol.41 (Brussels: European Corporate Governance Institute, 2004); Andreas Hackethal, Reinhard H. Schmidt and Marcel Tyrell, ‘Corporate Governance in Germany: Transition to a Modern Capital-Market-Based System?’, Journal of Institutional and Theoretical Economics 159 (2003), pp.664–74; Eva Terberger, ‘The German Financial System: Great Institutional Change and Little Effect?’, Journal of Institutional and Theoretical Economics 159 (2003), pp.707–16. Considering the small, but detectable normative bias the latter two authors have in favour of an Anglo-Saxon style system (a ‘modern’ system, as the first authors put it, while the second writes about ‘limited success of German reforms’), these assessments are particularly interesting.

49. See Mary A. O'Sullivan, Contests for Corporate Control. Corporate Governance and Economic Performance in the United States and Germany (Oxford/New York: Oxford University Press, 2000); Marco Becht, Patrick Bolton and Ailsa Röell, ‘Corporate Governance and Control’, in George Constantinidis, Milton Harris and René Stulz (eds.), Handbook of the Economics of Finance (Amsterdam/London: Elsevier/North-Holland, 2003), section 7.1.

50. It should be noted that already Albert spoke of the ‘star quality’, ‘excitement’ and ‘charm’ of the neo-American model, which he contrasted with its inferior performance. Albert, Capitalism against Capitalism, p.10.