Work and Welfare as Strategic Complements in Germany’s Postwar Economic Order

Chapter 4 argues that in the three high-growth postwar decades, the welfare state facilitated corporatist cooperation between labor and capital, specifically in the form of wage coordination, thereby avoiding inflation in periods of (almost) full employment. The period of high growth and full employment allowed, in turn, welfare state expansion which was always supported by a grand coalition of Christian and Social Democrats. The chapter reconstructs in more detail how industrial conflict in the metalworking sector—both in the north of Germany, in the shipyards, and in the south of Germany, in the automobile industry—over social rights instead of wages laid the ground for wage coordination (and moderation) German style. It also explains how the welfare state helped unions and employers’ associations to “police the bargain,” to stabilize an inherently unstable arrangement between capital and labor.

The Political Construction of a Coordinated Political Economy

The first chapter motivates the book’s central research question: how did the German variant of capitalism emerge, and what today is its central functioning logic? The chapter argues that past and recent accounts of Germany’s economic performance and economic policy have failed to fully explain how long-term stable economic coordination could have evolved in as large a country as Germany, and that this has also translated into an often biased view of Germany’s current economic policies. The chapter sketches the basic argument of the book—namely that the German welfare state was the prime means of economic coordination for unions and employers, labor and capital—and situates it in two relevant literatures: the Varieties of Capitalism literature on the one hand and the Comparative Welfare State literature on the other. The chapter also presents an overview of the book.

International Complementarities of National Capitalism

The adjustment pattern of the German model to low growth and to the transition to the service economy proved unsustainable in the medium to long term, and ultimately led to a profound welfare state reform that in many respects broke with the quasi-corporatism of Modell Deutschland. This has been associated with the spectacular revival of the German economy, before and after the Great Recession, also because its competitive characteristics were significantly strengthened within the euro area. Yet, the success of Modell Deutschland of course also contributes to the increasing imbalances and to the divergent economic dynamics within the common currency area, which ultimately have the potential to disrupt it. The chapter explains in more detail how wage moderation remained stable in Germany even though the strategic interaction with the German Bundesbank, on which the wage-moderation arrangement for a long time had been based, was a thing of the past after the introduction of the euro. It points to functional equivalents for the disciplining effect of Germany’s accommodating social policy.

Social Insurance and the Origins of the German Political Economy

The chapter reconstructs the parallel emergence of Germany’s corporatist industrial relations and of the Bismarckian welfare state. It traces the influence that the parity representation of organized labor and organized capital on the self-government boards of the various social insurance schemes had (1) on union organization and organizational development, and (2) on the system of corporatist regulation of work and welfare that started to emerge in Germany in the late nineteenth and early twentieth centuries. The chapter argues that the principle of self-administration of the various social insurance schemes was decisive for the development of German unions into industrial unions, and that it provided both capital and labor with extremely important organizational resources which helped in the creation and then stabilization of corporatist coordination between both. It also provided the responsible ministry with a blueprint for regulating industrial conflict.

Modell Deutschland as an Interdenominational Compromise

Chapter 3 argues that the cooperation in the interwar period between, economically, unions and employers and, politically, between Social and Christian Democracy, estranged the liberal Protestant camp from its former pet project, social reform. An important consequence of this estrangement was the birth of ordoliberalism. Ordoliberalism, however, was much less influential in the postwar period than usually claimed. It legitimized a politics of non-intervention, which rather left a void for the corporate actors to fill, so it involuntarily furthered corporatism, not liberalism. Otherwise it provided the inability of the central state to actively manage the economy with a post hoc ideological justification. Thus, Germany’s postwar compromise was “bipolar,” combining corporatist cooperation between capital and labor, heavily reliant on the organizational and material resources of the welfare state, with a central government with limited capacity for macroeconomic steering and without the means of credibly issuing promises of full employment (as the main difference in comparison to the Scandinavian cases).

Conclusion

This final chapter of the book summarizes the argument, discusses its main findings, and situates the German case in a broader comparative framework. The chapter mentions possible extensions of the argument especially with respect to the role of the education system for Germany’s variant of coordinated capitalism (in particular in contrast to its Scandinavian homologue). It then summarizes the argument of how the German welfare state provided capital and labor with functional equivalents for the structures of neo-corporatist concertation which Germany’s federal and “economically liberal” polity lacks. Finally, the chapter discusses the implications of the argument for a comparative political economy of advanced capitalisms.

Pathological Adjustment, Structural Change, and the Welfare State

Once the period of high growth had passed, the welfare state maintained wage coordination by providing labor and capital with the resources to alleviate their deepening distributional conflicts—with an increasingly negative impact on the overall functioning of the German variety of capitalism. The fact that the welfare state provided social actors with the possibility of externalizing the growing costs of adjusting to the period of “diminished expectations” led to a pathological pattern of ever higher non-wage labor costs, poor job growth, and high structural unemployment. This contributed to Germany’s “welfare-without-work”—and “budgets-without-balance”—malaise in the 1970s and 1980s.