SURVIVING GLOBALIZATION? Surviving Globalization? Perspectives for the German Economic Model Edited by Stefan Beck University of Kassel, Germany Frank Klobes University of Kassel, Germany and Christoph Scherrer University of Kassel, Germany A C.I.P. Catalogue record for this book is available from the Library of Congress. ISBN 1-4020-3063-0 (HB) ISBN 1-4020-3064-9 (e-book) Published by Springer, P.O. Box 17, 3300 AADordrecht, The Netherlands. Sold and distributed in North, Central and South America by Springer, 101 Philip Drive, Norwell, MA02061, U.S.A. In all other countries, sold and distributed by Springer, P.O. Box 322, 3300 AHDordrecht, The Netherlands. Printed on acid-free paper All Rights Reserved ©2005 Springer No part of this work may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording or otherwise, without written permission from the Publisher, with the exception of any material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Printed in the Netherlands. TABLE OF CONTENTS Acknowledgements vii Chapter 1, Stefan Beck, Frank Klobes & Christoph Scherrer Introduction 1 Chapter 2, Christoph Scherrer Can Germany Learn from the USA? 15 Some Theoretical Observations Chapter 3, Stefan Beck After the Miracle 33 The Exhaustion of the German Model? Chapter 4, Frank Klobes The Dynamics of Industrial Restructuring 69 Chapter 5, Michael Fichter The German Way 93 Still Treading the Path of Institutionalized Labor Relations? Chapter 6, Christian Kellermann Disentangling Deutschland AG 111 Chapter 7, Kai Mosebach Transforming the Welfare State 133 Continuity and Change in Social Policy since 1998 Chapter 8, Kai Mosebach Erosion of the Tax Basis 157 Fiscal Policy and International Tax Competition vi TABLEOFCONTENTS Chapter 9, GülayÇa(cid:247)lar European Integration 179 Consequences for the German Model Chapter 10, Stefan Beck, Christoph Scherrer Explaining the Dynamics of Red-Green Economic Reforms 201 Chapter 11, Stefan Beck, Frank Klobes & Christoph Scherrer Conclusion 225 Subject Index 237 ACKNOWLEDGMENTS The financial support of the Hans Böckler Foundation for the German study on the “Future of the German Economy” and the critical input by members of the “Future” working group of the Otto Brenner Foundation are gratefully acknowledged. Special thanks go to Jean Pietrowicz for translating the chapter “Erosion of the Tax Basis” and for her careful correction of all chapters and to Jan Benedix for his careful editing. The Editors vii Chapter 1 STEFAN BECK, FRANK KLOBES & CHRISTOPH SCHERRER INTRODUCTION When the red-green government and Chancellor Gerhard Schröder came to power in 1998, the future of the German economy seemed very clear. The pressures of globalization and the success of the New Economy gave rise to the conviction, even among Social Democrats, that the institutional structure of the German economy would have to be “modernized” in a way that would strengthen the forces of (new) markets and at the same time weaken its corporatist structure. The predominant model for such a market-style economy was the U.S. economy. In the mid-1990s, propelled by the “New Economy” and the evolution and diffusion of information technologies, a growth pattern emerged in the United States that translated into an unexpectedly long period of economic prosperity, advancing the American Model internationally as a benchmark for economic development. In Germany, a clear econopolitical and institutional convergence with the U.S. was seen increasingly as the only sure path out of its economic quagmire, leading to international competitiveness. Even if the Social Democratic modernization plan was not a radical one, it nevertheless gave the impression that the once admired, corporatistically regulated German Model (Modell Deutschland) could finally be laid to rest for its lack of flexibility and dynamism. Consequently, the red-green government soon moved forward with a reform line that entailed some profound institutional changes to Modell Deutschland. The New Economy’s luster gradually faded and, after the first four years of the red-green government, the economic success of Social Democratic supply-side corporatism (Angebotskorporatismus) was very much smaller than promised. Achieving the two major goals of budgetary consolidation and reducing mass unemployment by means of extensive tax breaks and the strengthening of (financial) capital is only – if at all – possible in times of economic prosperity. Consequently, for many observers it was no surprise that the red-green government failed in these goals. But what is far more controversial is the question whether a continuation of this policy will turn out to be more successful in the end, or will it undermine the comparative institutional advantages of the German economy. Where will the journey take us? Will market-oriented reforms in the tradition of Anglo-American capitalism still attract followers after the return to normality? And even if the U.S. economy were to resume a growth course, there’s still the question of whether its growth pattern can be generalized and transferred. The assumption of 1 S. Beck, F. Klobes, C. Scherrer (Eds.), Surviving Globalization?, 1—14. © 2005 Springer. Printed in the Netherlands. 2 STEFANBECK, FRANK KLOBES & CHRISTOPHSCHERRER a differentiated and path-dependent development of Rhenish Capitalism has surely gained in persuasive force; however, the reach and the long-term consequences of contemporary institutional changes in Modell Deutschland raise the question of the model’s future. In this book we want to investigate the economic and institutional perspectives of Germany in the context of globalization. The proceeding integration of the global economy not only constitutes the framework conditions for an open economy but also gives incentives for the restructuring of branches, firms, and social institutions. We look at important trends and institutional alterations of the German Model; for example, the reorganization of production systems and labor relations, the restructuring of financial markets and the banking sector, the rising pressure on the welfare state, and the growing influence of the European Union in economic policymaking. But globalization and international trends do not determine the economic and institutional future of an economy. What are also important are the reactions and strategies of political and economic actors, which are embedded in and influenced by their historically and spatially defined institutional context. Accordingly, our focus is not on globalization itself but on the articulation of various developments in this specific context and their interpretation by political and economic actors. The various contributions highlight turning points and contemporary trends for selected structural features of the German Model. They are embedded in a general discourse about the German Model, its “challenges”, and the most recent attempts of reforms, which will be outlined in the following. 1.MODELL DEUTSCHLAND: SOCIETAL REALITY AND SOCIAL SCIENCE DISCOURSE In the 1976 election year in Germany, then chancellor Helmut Schmidt held up Modell Deutschland to his European neighbors as a remedy for the fallout of the 1970s economic crisis. Little did he know that he delivered the catchword for a social science discourse that continues to this day. The term Modell Deutschland became the focus of social science debates that contested the normative and analytical definitions of “German Capitalism”. A look at the number and frequency of publications on the “German Model” reveals a publishing boom in the early 1980s and again in the late 1990s. Both times coincided with changes of political administrations, and both times – for different political reasons – fundamental changes were in the works. While in the early 1980s Modell Deutschland stood for a successful crisis regulation model (Esser et al., 1983), at the end of the 20th century its institutional structures were themselves mired in crisis (Streeck, 1999). Both domestically and internationally, the German Model was often associated with the successful marriage between international competitiveness and social consensus. On the one hand, these two factors attested to a high integrating power of the system of political institutions, and on the other, to the German economy’s highly successful competitive position on the world market. Endeavors to pinpoint the heart of the German Model inevitably target the interfaces between market, INTRODUCTION 3 society, and state (Streeck, 1999; Simonis, 1998). Interspersed between these most commonly named elements are the following: First, the high political integrating force of the German Model after WWII was based on the adoption and transformation of corporatist political structures from National Socialist Germany. Liberal capitalism was (re)introduced under political competition between Christian Democrats and Social Democrats, who eventually found common ground in the politically mediated compromise between capital and labor: “This compromise was negotiated and institutionalized at a time when the communist wing of the workers movement and the authoritarian voices of German capital – for various reasons – were excluded from political participation” (Streeck, 1999, p. 15; translation: SB). The partnership between firms and unions manifested itself in manifold institutional structures. Apart from the social partners’ autonomy in matters of wage policy, worker codetermination at plant level and in operations is regarded as one of the special achievements of the German Model and has contributed substantially to social peace. The political coordination forms of concerted action, round tables, as well as modernization and crisis cartels gave birth to a highly complex political decision-making structure which, based on a federalist setup, has rightly been called “negotiation state” (Esser, 1998, p. 123). Second, the material foundation of this “Social Democratic class compromise” (Buci-Glucksmann & Therborn, 1981) consisted in the Federal Republic’s – in the words of Göste Esping-Andersen – “conservative-liberal” form of welfare state. Amid the economic prosperity and full employment growth of the post-war period, this Bismarck-style social state served as social insurance against the (income) risk of joblessness, financed solidaristically and equitably by capital and labor. Hence to a certain extent the German welfare state is the continuation of the class compromise between capital and labor at the social policy level. Third, besides the negotiation state and the welfare state, the German Model was characterized by a relatively large cooperative economic sector. Nested primarily in the communal area, its task has always been to ensure that the Federal Republic’s constitutionally enshrined equality of living conditions is met in those areas where profit-oriented companies hesitate to venture. Its activities crystallized in the transportation and energy sectors, but also in the financial sphere (thrift institutions and agricultural credit cooperatives) and in regional cultural policy. Fourth, Modell Deutschland’s financial system was dominated by large banks engaged in industrial policy, while regionally oriented small and medium-sized businesses capitalized on communally oriented cooperative credit institutes. This peculiar linkage between bank capital and industry capital via cross participations and credit financings of industrial projects is what made German industry competitive and let Deutschland AG enjoy constant export surpluses, thanks also to the Bundesbank’s stability-oriented monetary policy (Voy & Herr, 1989). The German all-purpose banking system played an important role in the industry- political self-organization of German employers, which together with public and state-owned research and technology institutes made up the technological heart of the German Model (national innovation system; Becker & Vitols, 1997).