The mechanics of German capitalism

Abstract

Germany is no longer characterized by the combination of encompassing coordinated institutions that promote strong macroeconomic results and relatively uniform working conditions for the entire economy. During the 90s, acute economic problems in the form of high unemployment and eroded economic competitiveness led to in-depth institutional reforms in the fields of labour market and industrial relations. This process of institutional change has been shaped by the interests of the exporting manufacturing sector. As a result, a dual economy emerged: while firms in advanced manufacturing industries undertook flexible restructuring processes in cooperation with its core workforce using traditional institutions; institutional change, sharp wage-cutting policies and the expansion of flexible forms of employment were concentrated on a periphery of consumer and business services. Certainly, these reforms have served to meet the goals of full employment and the recovery of the trade surplus, and helped Germany to successfully manage the shock of the Great recession in comparison with neighbouring economies. Nonetheless, the achievement of these objectives was at the cost of growing inequality in employment conditions and the stagnation in domestic demand and working hours, shaping the new nature of German capitalism.