Philip Manow’s Social Protection, Capitalist Production and Tobias Schulze-Cleven and Sidney A. Rothstein’ edited volume Imbalance are necessary and timely contributions to the in-depth study of capitalist typologies. By focusing on Germany, these books advance not only what we know of that country but also our comparative perspective on the functioning of market economies—something this country is particularly well fitted to do because it belongs to the coordinated market economy (CME) ideal type. Crucially, they contribute to two areas of comparative political economy analysis in need of additional empirical work: origins of and change in institutions. Germany is fertile ground for this research, because at least by certain standards it is a successful case (hence it provides an opportunity to understand the origins of the “right” institutions), and after a period of crisis it returned to a growth path, thus offering a chance to analyze effective institutional change.
Manow recovers Gøsta Esping-Andersen’s legacy to claim that we cannot understand capitalist production without incorporating social protection because the welfare state is key for long-term economic coordination. To sustain this claim, Manow intelligently shows how the welfare state accounts for both the emerging pattern of coordination in industrial relations after World War II and the “pathological response pattern” that characterized the German economy from 1970 to the 2000s. Similarly, he carefully depicts how the reform of that welfare state, Agenda 2010, relaunched the German economy.
Following this logic, Manow goes back to 1880 to reconstruct the formative effect of the welfare state on industrial relations (chapter 2). The social policies instituted by Bismarck unintentionally resulted in the consolidation of unions and the emergence of a corporatist mode of interest intermediation in industrial conflict and social policy. By highlighting this mechanism, Manow accomplishes two things. First, he shows that “policy creates politics” through the empowerment of certain political actors who not only are militant in the continuation of that policy but also shape it in specific ways. This finding lends credence to accounts that privilege material and organization resources of political actors rather than focusing on their ideas. Second, he shows how the outcomes of policy may well differ from those originally intended. This means that institutions can neither be the result of a recipe nor easily imported—something that looms large for the study of typologies of capitalism.
To amend Esping-Andersen, who lacks a “clear account of how and why the three regimes [of welfare] developed historically” (p. 6), Manow’s causal chain precedes the welfare state. The author situates the origins of Germany’s social market economy in political coalitions, which result from party systems, themselves the outcome of industrial and national revolutions. Here he traces the German model to a negotiation between Catholic and Protestant social doctrine over how to embed modern capitalism, both morally and socially (chapter 3). Whereas Catholics were in favor of welfare interventionism, Protestants wanted economic liberalism. The outcome was a compromise between the two.
The welfare state is also key to understanding two particularities of the German economy: (1) coordination in industrial relations without an intervening government and an accommodating central bank (chapter 4) and (2) the crisis of the model after the 1970s (chapter 5). Manow wisely sets the record straight on the atypical German wage-coordination model, which follows neither the Scandinavian nor the Anglo-Saxon ideal type. Instead of a “generalized political exchange” between government and unions, as in Scandinavia, in Germany the welfare state keeps wage drift under control and helps unions moderate wage demands—and in this way reinforces a quasi-corporatist model of coordination (pp. 62–67). However, the absence of government action and the cushion role of the welfare state later fuel a “pathological response pattern” (p. 85) to economic shocks that results in high unemployment and a very restricted service sector.
Unsurprisingly, the reform of the welfare state figures strongly in the final case analyzed in the book: Germany’s exit from the pathology mentioned earlier and its overcoming of its status as the “sick man of Europe” (p. 117; chapter 6). Agenda 2010 breaks with the “Bismarckian tradition” by removing authority from the labor institutions that had failed to respond to the crisis. The result is a less corporatist country that creates more employment, albeit of lower quality (pp. 117–28). Although compelling, this chapter leaves us wondering how these reforms became possible and what happened to the custodians of the welfare state.
The edited volume by Schulze-Cleven and Rothstein zooms in on another time in the political economy of Germany, the one following the so-called Social Democratic century. Instead of looking at fitting institutions and equilibria, they focus on change, which follows from the “imbalances” in the book’s title. The editors sharply propose three vantage points that aid the analysis of the “recomposition” of Germany’s political economy: (1) systemic properties of capitalism, (2) multivalent policy feedback, and (3) organizational foundations of creative adjustment (pp. 19–22). Successive chapters deal with the evolution of economic institutions, changing patterns in interest intermediation, and the joint shifts in the macroeconomic regime and the ideational background of policy making.
Chapters 3–6 study key institutions in the construction of the complementarities that have come to define Germany as a CME. Niccolo Durazzi and Chiara Benassi explore the changes in skill formation in Germany (crucial to the typology of capitalism), from vocational training to higher education (chapter 3). This change is guided by the intervention both of the state and of larger firms. Ute Klammer, in chapter 4, takes up the topic of pension reform, documenting the withdrawal of the state and the stepping-up of private companies, which she argues lead to higher inequality. Chapters 5 (by Benjamin Braun and Richard Deeg) and 6 (by Thomas Haipeter) shift focus to the financial sector to show that the export growth model erodes banks’ hegemonic position. Because nonfinancial corporations can now finance investment from retained profits, the power of banks vis-à-vis German industry is undermined—crippling another important pillar of this CME. Chapter 6 challenges the concept of financial capitalism, used to characterize contemporary pressures on industrial relations and working conditions. Haipeter finds that the concept is lacking explanatory power both because of the crowding-out of other explanatory factors and the erasure of agency and social interaction it implies.
Chapters 7 and 8 deal with industrial relations, whereas chapter 9 focuses on the contradictory economic paradigm of the Social-Democratic Party of Germany (SPD). Stephen J. Silvia studies the so far unsuccessful efforts of German unions to export their power beyond borders (chapter 7). Leveraging five case studies across countries and sectors, the author finds that global supply chains are an obstacle for the organization of workers. Martin Behrens and Heiner Dribbusch look at employers’ hostility toward works councils in chapter 8. Although in theory workers’ representation at the workplace is a fundamental part of the German model of labor relations, the authors uncover a great deal of resistance from employers. This resistance, moreover, is evenly distributed among the strong manufacturing sector and the weaker service sectors (pp. 141–48). These two chapters indicate that the German model is bleeding at its manufacturing core, rather than being undermined from the services in the margins—a counterpoint to accounts that stress dualization, instead of liberalization (e.g., Anke Hassel, “The Paradox of Liberalization—Understanding Dualism and the Recovery of the German Political Economy,” British Journal of Industrial Relations, 52 [1], 2014, and Kathleen Thelen, Varieties of Liberalization and the New Politics of Social Solidarity, 2014). In chapter 9, Björn Bremer focuses on the SPD and its inability to create an alternative to fiscal orthodoxy. The author documents a party divided between a left wing that still believes in Keynesianism policies and a right wing overly influenced by supply-side economics (pp. 156–60).
Chapter 10 considers the role of ideology and ideas, whereas chapters 11 and 12 take up a macroeconomic perspective to understand outcomes in income inequality and in Germany’s current account, respectively. Briggite Young challenges ordoliberalism as the explanation for Germany’s economic success and the European response to the crisis (chapter 10). By juxtaposing the basic framework and principles of ordoliberalism with actual policy making, she claims that ideas carry little explanatory power for the country’s economic growth—which she instead attributes to the euro and Germany’s growth model (pp. 183–86). Jan Behringer, Nikolaus Kowall, Thomas Theobald and Till van Treeck document in chapter 11 that inequality in the country is higher than that recorded by household surveys and that it in turn contributes to macro instability. Wade Jacoby, finally, explains the causes of the large trade surplus in Germany in chapter 12. He then shows not only its problematic character but also how German elites have “normalized and apologized” for its consequences (pp. 215–18).
Although extremely valuable on their own, the different chapters could have followed the theoretical contributions sketched in the introduction more closely and engaged with each other’s insights for a more compelling overall achievement. Notably, the reader is left to wonder how the conclusion that ordoliberalism “does not matter” squares with the account of the ideational divisions of the SPD and how inequality, in turn, is connected to the resistance to unions within workplaces.
Although they focus on one country, both books deal with pressing questions in the field: the agents and mechanisms behind institution building, continuity and change in political economies, and the outcomes of these formations on growth and inequality. There is a disagreement on this last point: whereas the authors of the edited volume emphasize increasing inequality, Manow acknowledges it but highlights the stronger growth achieved with respect to the counterfactual of a Germany without reforms. Yet “no reforms” is not the only counterfactual at play, as the edited volume suggests by providing a more granular account of change, including proposals less committed to marketization and corporate political clout. Their contrasting conclusions notwithstanding, the books touch on the question that both political science and politics have been debating since the golden age of capitalism ended: What are the alternatives?
