Germany after unification: liberalising but not liberal? John Leslie reviews labour-market developments in Germany in the last two decades.

• Author: Leslie, John
• Position: Report

From the 1950 until the 1990s the Federal Republic of Germany (FRG) seemed to defy economic gravity: its economy grew rapidly at the same time that incomes became more equal. Other OECD countries responded to 'globalisation' in the 1980s and 1990s with neo-liberal policies. The FRG resisted neo-liberalism, yet continued to rival the United States, a country more than three times its size, as the world's leading exporter. Through this period the FRG also remained politically very stable. Rising incomes and narrowing social divisions limited extremism and drove the major parties to compete over voters in the centre of the electorate.

Twenty years after unification, Germany still vies for the title as the world's leading exporter--now with China--but income divisions have grown and electoral politics have become messier. Post-unification Germany presents an ambiguity: clearly many of the political, social and economic elements that contributed to its post-war success are still in place. At the same time, however, changes, some quite dramatic, have driven the FRG from its distinct development to look more 'liberal'. It bears a closer resemblance to its OECD counterparts like the United States, United Kingdom and New Zealand. The FRG's economic institutions were able to adapt to 'globalisation' in the 1970s and 1980s, but have been less successful since unification.

'Globalisation', 'European integration' and 'German unification' have forced Germans away from post-war practices on issues ranging from corporate governance, pension and healthcare policies to reform of state institutions. These changes have taken place in both the substance and practice of policymaking. Substantively, liberalisation has reallocated risk and responsibility away from collective actors toward individuals. In terms of process, the post-war practice of negotiating reforms with 'corporatist' interest groups (for example, unions and employers' associations), which then assisted with their implementation, has given way to a greater role for the German state in policy formation and implementation. Yet, while this transformation has been dramatic, it has also been incremental, occurring across two decades. Even today, unmistakable remnants make it impossible to say that postwar Rheinland capitalism has exhausted itself, inevitably to disappear as an alternative to liberal, Anglo-Saxon variants.

[ILLUSTRATION OMITTED]

Transformation in Germany's labour-market regulations demonstrate clearly how the relationship between corporatist interest groups and the German state has evolved in the two periods of globalisation. In the 1970s and 1980s interest groups like unions and employers' associations contributed positively to the FRG's adaptation to the more competitive global environment. Since unification, these interest groups have failed to facilitate adaptation and have been replaced, in a gradual liberalising development, by the state and markets as important regulators of the economy.

Supply-side policies

Like the other advanced industrial democracies, changes in the world's economies in the 1970s and 1980s transformed the FRG. These changes included: collapse of the post-war Bretton Woods exchange rate system, tightening labour markets, fluctuating commodity prices, the 're-launch' of European integration and a changing division of labour in the world's economies, resulting from the rise of Japan and Asia's newly industrialised countries. These changes put enormous strains on industrial societies in western Europe and North America. In many countries, politicians--from Right and Left--introduced 'neo-liberal' policies aimed at forcing firms and households to respond to market signals rather than governments' distributive capacities. With 'supply-side' policies neo-liberals attempted to increase incentives for private investment and thereby the competitiveness of firms and individuals. Conventionally, such policies restricted government (re)distribution of resources, reduced the public sector and attacked interest groups making demands on government, especially labour unions.

'Supply-side' policies in the FRG in the 1970s and 1980s also sought to increase private investment, but not by resisting interest group demands. Rather, West Germany's supply side policies targeted investment in particular forms of production and integrated interest groups, like unions and employers' associations, into policy-making to make such investments effective. The early stages of globalisation did not destroy corporatism in the FRG. They reinforced it.

In democratic societies, 'corporatism' refers to a symbiotic relationship between the state and selected interest organisations. State actors give certain organisations a monopoly over representation of particular interests. State-licensed monopoly promotes centralisation, hierarchical organisation and functional differentiation between organisations representing different interest groups. In return interest groups supply the state with information useful for policy formation, assist in policy implementation and tacitly or explicitly legitimise government authority. Peter Katzenstein described this relationship in the FRG as 'the semi-sovereign state and centralized society.' (1) Centralised interest groups not only facilitated and legitimated policy-making, they also provided insurance against re-centralisation of authority in the state.

Concerted action

In the post-war era corporatist interest groups and state actors co-operated to manage demand in the West German economy. Most famously, unions, employers' associations and the state co-operated to co-ordinate wage restraint and investment policies in the 'concerted action' of the late 1960s and early 1970s. 'Concerted action' permitted actors to overcome collective action problems and maintain income growth without fuelling inflationary pressures. The success of these policies prompted some observers to raise West Germany as a model for other societies to emulate. (2) Even as such accolades were written, however, globalisation was transforming the advanced industrial economies, including the Federal Republic's.

[ILLUSTRATION OMITTED]

During the 1970s and 1980s West...