I

STABIliTY AND CHANGE IN THE EMERGIN11G

TIllRD WEST GERMAN REPUBUC I
by Peter Katzenstein
Department of Political Science
Cornell University
Working Paper Series #9
This paper was presented at the Center for European Studies State and Capitalism since 1800 Seminar in April
1988. It appears as Chapter 11 of Peter J. Katzenstein, ed., Industry and Politics in West Germany (Cornell
University Press, 1989).
Three changes are transforming the c01text in
which West
Third Republic finds itself in the 1980s: new currents
I
in international politics, new social movfements in national
politics and new production technologies in industrial plants.
This book has sought to characterize these changes and to examine
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their consequences. for diverse sectors 10f West Germany's
political economy. The analysis points to a conclusion which
. I
seek to analyze further in this essay. Diffjrent sectors of the
West German economy are experimenting with new practices to
respond to the new challenges which
I
.confro,t them at home and
abroad. At the same time West
I
Germany's emerg
I
ing Third Republic
is tied to its predecessors by remarkabl$ institutional and
political continuities in national politics. I
This convergence between experimentati1n and change at the
grass-roots and continuity and stability at I the top is the most
striking political characteristic of the Republic. The big
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change which Chancellor Kohl and his new government called for in
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1983 has not occurred. But innumerablj small changes are
transforming West Germany's economy and society. If there is one
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tendency which one can recognize in the bewildering array of
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change that can be found in West Germany the 1980s, it is a
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trend toward decentralization. Because is occurring
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largely within existing institutions rather ihan outside of them,
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and because change occurs on a small rather than on a large
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scale, it is easy to overlook the cumulative effect that many
1
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small-scale changes may have over tLme. But for the foreseeable
future we must take note of the .major empirical findings of this
book: the convergence between many small changes at the grass
roots and the of large change in national politics.
The title! of this book, Toward the Third Republic,
emphasizes thatl the 1980s is a decade of transition for the
Federal RepublliC. The pattern 'of change that this book
Ld
en
t'f'
a.es ,
,
an c
h
ange at t
h
e grass-roots an
d
.1. .1. experJ.mentatl.on
i, d
continui ty and stability at the top, has not yet fully
established itself in politics. In 1984-85 the elites of the
major interest groups and political parties confronted the
possibility of instituting large-scale change at the cost of
substantial domJstic political conflict and considerable losses
I
in international! competitiveness. In the end they chose instead
to steer developments into well-established inst.itutional
channels. It is Lmportant to point out that political interests
did not succumb to the institutional pressures of West German
politics. Rather they chose not to disrupt seriously those
institutions. L of this writing, the spring of 1988, the
unchanged. In the absence of compelling new'
1
, '1 I, '1 d d b k d b h
po l.tl.ca strategl.es or ea ers an ac e y t every
considerable subcess,
I
as this book attests I of West German
institutions tol respond to a variety of changes, the most
important poli and social actors have chosen to continue
supporting the ekisting institutional arrangements in national
politics. And wkth every passing year that choice is becoming
\
2
I
more unalterable.
But only a self-conscioul acceptance by the
1 , . , , 1 t'
0
f
political elites of existing patterns
multiple changes would securely implant the Republic.
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1. Industry and Change
West Germany in the 1980s is affected! by three different
. changes. Some of these changes find origin in the
international system; others lie in the Isystem of national
politics, in particular the rise of neJ social movements;
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finally, a third set of change can be found ih the new production
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technologies and ways of organizing work I in West Germany's
industrial plants. The chapters in Part I of this book describe
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these changes and suggest some of their possible consequences for
1
, . 1 h . did' .
West Germany's po economy. T e ustry case stu
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Part II focus on the relationships between thlese three changes in
specific sectors of the West German economy. I
I
Three Changes. In her essay Joanne Gbwa argues that the
internationa I economy is anchored in la stable, bipolar
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international system. In contrast to the of
the multipolar system of the interwar yearsl the members of the
Western alliance form a stable core for the trade, monetary and
investment that link states in the 1980s. In contrast to
the 19 30 s, the an eres s 0 e ma or cap.i.tia sates are
. t t f th j I. 1 ' t
fur..::iamentally compatible; each ally has a.
1
major stake in the
security and welfare of its partners. The alliance, as
I
well as the character of the welfare capltalism that emerged
after 1945, implied that nation states WOU1F themselves absorb,
3
at least in part, rather than merely export some of the costs of
economic adjUstlent in the 1970s and 1980s. Despite the waxin
and waning of \ superpower conflicts in the 1980s this basic
structure of the international system is unlikely to change in
the foreseeable future. Ironically the continued division of
Germany is one of the essential ingredients of that stability.
Since the international economic order rests largely on the
distribution of capabilities in the international state system,
the prospects for West Germany having continued access to liberal
. . 1 I k . d .
mar ets goo .
But wi thin that stable order there remains ample room for
change. Two soUrces of change in particular stand out. Since
the 1960s, thi
\
United States has demanded with increasing
insistence that its major allies, including West Germany, abandon
their strategies \ of free riding and instead actively support the
postwar economy. West Germany remains vulnerable
to u.S. pressureJ and is thus likely to continue to fill the role
of the "honest bkoker"l mediating conflicts over issues such as
macxc eccnoma
.
c
I

t
.ra e con
fl'
an
E
as -
W
Plo
l' d

d t
est expo
rt
controls. This role is well served by the low profile which the
Federal Republic has adopted in the 1980s. In contrast to
Japan's . export-iriented firms, West German corporations were
better prepared for the sharp appreciation of the Deutschmark in
1985-1986. In rksponse to a similar experience in 1978/79 West
German firms ado4ted strategies (less expansion of market share,
more liquidity, iore product innovations) that now permit them,
4
I
wi thout undue strain, to absorb substantiall losses for several
years. Similarly, the European Monetary I System
!
(EMS) which
Chancellor Schmidt helped set up in the late 1970s also provided
an effective buffer. It created exchange rates in
Western Europe and thus sheltered about two-thirds of West I
Germany's exports from extreme currency fluckuations. And since
the EC market was partly protected from competition, the
EMS contributed to a dynamic improvement
l
in West Germany's
economic position in European markets. W,st Germany is doing
nothing to divert attention from the trade !conflict between the
United States and Japan. Neither by tempera+ent, inclination nor
ability does Chancellor Kohl seek to emulate I Chancellor Schmidt's
forceful leadership style; and thus he reinfJrces the low profile
,
of the Federal Republic in the internatio1al economy. For a
variety of reasons, West Ge=an demands f1r policy change are
more muted than those of the United States or even Japan.
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Whether this low political profile in fact be adequate
I
in the long-term for diverting the demands lof the United States
within a changing international economy temains to be seen.
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Robert Gilpin, for one, argues that the Breltton Woods system of
multilateral liberalization is being by a new system
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which mixes mercantilist competition, econebmic regionalism and
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sectC"'t'al protection 2 While aCknOwledginJ that a low profile
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has served West Germany well in the 1980s even optimists are
likely to concede that different or domestic
circumstances, including a protectionist Dtocrat in the White
5
I
I
House or a SPO-Green coalition government in Bonn, might quickly
force West into the hotspot of U.S. political attention
reserved in the 1980s largely for Japan and the Newly
Industrializing Countries (NICs). West Germany is unlikely to
remain deaf to rtrong demands that it actively maintain as well
as exploit the system. Should these demands aim, as
I
they have with a more pliant Japan, at greater reliance on
domestic expaniion rather than on West Germany's preferred
strategy of expbrt-led growth, the political ramifications for
national pOliti1s could be very substantial. The conflict with
the United States over interest rates which preceded the crash of
I .
October 1987 se1rves as a useful reminder of how quickly the
Federal can find itself at the center of a major
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international cOftroversy.
A second siource of change wi thin an overarching stable
bipolar security! system derives from the potential instabilities
!
of the international financial system. The overhang of Third
World debt has ckeated the potential for chain reactions of bank
failures. pendihg a change in U.S. policy this continues to be
I .
I
true even after banks have begun in 1987 to follow the
policy of West buropean banks of writing off as bad debts a
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substantial of their outstanding loans to Third World
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states. This is\ likely to shift rather than eliminate the debt
crisis. Tougher feschedUling negotiations between private banks,
now less to threats of default, and Third World states
will leaf to more restrictive economic policies of Third
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6
I
I
World debtor states and thus, indirectly, tolsmaller markets for
u.s. exports. This will prolong the substaltial trade deficits
of the United States as the largest debtor cbuntry in the world.
In short, the fragility of the international financial system is I
likely to continue as a possible source of change that could
affect dramatically West German access to markets.
I
The rapid shifts in financial power in the 1980s are
favoring Japan and, to a lesser extent, Germany make it
plausible to assume that a reorganization If the international
debt regLme, should it occur, would involve substantial
West German financial resources.
I
Jost Halfmann argues that changes in the institutional
structures of the Second Republic opened up Is ome political space
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for new social movements. Although their and political
impact are particular to the Federal Republic, the new social
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movements are signs of a normal rather than df a crisis politics.
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Halfmann stresses the of different social movements,
old and new, and the effect they have Iha d on West German
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politics. "Rights" movements, like the un.ji.ons, articulate the
traditional demands of -social equalitt and citizenship.
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"Redistributive" movements with a strong egalitarian bend cluster
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in the main urban centers. They express the I changing contours of
industrial society: new patterns of work, Ian individualization
of life-styles in some social strata and !the growth of post
material values among selected social groJps and age cohorts.
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These movements or movement are typrcallY opposed to the
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"productivity c\oalitionltuniting business, unions and the major
West German institutions around the objective of export
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competitiveness "Risk" movements, finally, focus on the ha:cnful
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consequences of: technological changes, such as nuclear power.
These movements aim at nothing less than the issue of control
over decision-making processes in both the public and the private
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sector. They seek to restructure the policy process and thus to
enhance individhal autonomy. The political relations between
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these three typrs of social movements are exceedingly complex.
They do not mutually exclusive types of groups or group
claims. Rather \they provide interpretive lenses through which we
can view the risr and fall of West Germany's new social movements
and the differenr demands they make.
The new social movements have had a substantial adverse
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effect on the relative strength of the SPD and thus on the entire
West German POIJtical system. These movements grew in the late
. \
1970s because thr major political parties and interest groups no
longer contrOller fully all of the political space. Economy,
society. and politics became less tightly coupled in the late
\
1970s and 1980s than they had been before. Niches for mobilizing
social constitue1cies and for surviving periods of demobilization
existed in local'l and regional politics. Forty years after the
fall of the Third Reich this reconstitution of West Germany's

""1 "t
y
h
as
\ b
roug
h
t
d "

"""
more
"1"

with democratic JheOry than had been true for the first two West
German
8
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It is important to note that the lJnkS between social
. I ..
movements and new production technologies typically are indirect.
I
I
At the fringes of the West German economy one can find in
agriculture, the crafts, and in industry firms or
organized by followers of one of the new sodial m0vements. But
I
these alternative economic forms of organizdtion rarely involve
any new production technologies. Instead the important I
I
direct links are ideological. They exist, for example, between
social movements and the unions. Ecological hnd peace groups and
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the unions are constantly skirmishing over JhO
I
is most entitled
to press ecological or peaceissues.
3
I
More typical are two indirect effe1cts linking social
movements to new production first The link
operates primarily through the party systeml. Social movements
force new issues, such as ecology or power, on the
I
political agenda. They have in causedl the emergence of a
new party, "the Greens 4 And the Greenib both ref lect and If
accelerate the process of electoral realignmeht.
The international sy.stem is a secohd. link. If West
I
Germany's new social movements are fore::unners of similar
developments elsewhere, the pressures they elert may well create
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growth market for new industrial products, for example in the
area of anti-pollution technologies such as the catalytic
convertor. But if West Germany' s soclial movements are
exceptional in their political prominence, they will burden West
German .producers with new costs thus diminishing their
9
international competitiveness. The scant evidence available to
. I
date suggests I that the truth lies in the middle. Social
movements are fypical of developments in some societies and
atypical of deielopments in others (Kitschelt, 1988b). West
Germany's industrial profile may eventually differ somewhat from
.\" h . 1 B h' d t
t hat 0 f out soca.a movements. ut t .i.s oes no
necessarily mean that the Federal Republic will be condemned to a
loss of internaJional
The third iet of changes are the new technologies that are
beginning
Horst Kern
I
to transform
I
and Michael
the process of in
Schumann emphasize
.
dustrial producti
in their chapter
on.
the
specific skill Jases of the workforce which are favorable to the
introduction of \ new production technologies in West Ge:cnany in
the 1980s. Thesi technologies broaden the spectrum of adjustment
strategies of individual firms, industry segments or industrial
sectors. The n1ew technologies have important consequences for
the POslition of different groups of workers, ("winners"
vs. "losers"), industries, the deployment of labor and
for how producti and production are linked. New production
technologies hare complex consequences. Depending on their
context, they cin encourage the reskilling of workers and the
enhancement on the power of labor on the s h c p f Lc c x .
Alternatively, these new technologies cart also lead to the
deskilling of workers, the segmentation of the labor force and
the decline of labor's power. In either case established
strategies of mass production are being sacrificed as new
10
I
technologies make human work not less but 'moke important to the
I
economic success of individual firms in most Isectors of the West
German economy. Some declining industries, as shipbuilding
or mining, leave little room for the introdudtion of new ways of
I
I
organizing production. Here rationalizatin often means the
I
destruction of industrial capacity. But this is not the typical
d 1
opment
'
West
G
ermany.
I d
t
h'
era
I'
f
."
eve nstea, 0
marked by two trends, a shrinking in the quaJtity of work and an
i
enhancement in. its quality. I
The political implications of these divehgent trends are far
I
from clear. The relative magnitude of the twb trends is not only
. I
technologically but also politically At the extremes
,
we can think of two political models. FirJt, divisions within
I
the labor force might become so deep that thel political basis for
constructing new social alliances rationalization
i
"winners" and rationalization "losers" simply would not exist.
I
Alternatively, changes in production might lead to
I
the persistence of protest among a labor movement.
This could create the political basis for JeoDIls supported by
both the losers and the winners of rationalization. The
I
segmentation and the artichoke models are constructs
that define the range of political The reality of
West GeDIlany's future political economy probably be found
between these two extremes. This at least sJems to be the lesson
. I
of the 1980s. The West German labor moyement is not fully
politicized on questions of new produc1tion technologies.
11
Tradi tional uni10n support is strongest among the "tolerators" or
"losers" of teFhnological change. Yet West German labor has
typically wela:omed rationalization and modernization. The
structural of labor is also illustrated by the
I
divergent experiences of different industries. For example, on
I
questions of hew production technologies unions intervene
forcefully in tJe automobile industry while they play a very low
I
key role in thei chemical industry. Yet the unions must win the
support of ratidnalization "winners" if they want to retain their
shopfloor power.
These international, national and plant-level changes are
I
not restricted Ito West Germany. Changes within the liberal
postwar economy, the rise of new social movements and the
I
development of new production technologies can be observed
throughout the advanced industrial world. The relative
importance of t,ese changes may differ from one state to the
next. And their effects will differ depending on a state's
. . t . . h I. t . 1 "11 h h f
t e In system as we as t e c aracter 0
I
its domestic and \ industrial structures. But there is nothing in
I
the analysis of \Part I that suggests that we are dealing with
idiosyncratic affecting only the Federal Republic.
I
Furthermore,\ only the analysis of production technologies
suggests that thi 1980s may have brought somethina substantially
new and different\. But even in this instance the emphasis is on
the effects of the microelectronic revolution on the increased
I
importance of h!uman work rather than on the prospects. for
12
I
automation and robotization. By way of contr1st, the analysis of
a liberal international economy embedded in a relatively stable
I
bipolar system and of the convergence of rig!hts, redistribution
and risk as the catalysts for old and new solcial movements both
point to substantial political continuitJes. Finally, and
closely related to the question of are the observable
rates of change. The chapters in Part I srggest a descending
order of magnitude as we move from Plant-Ierel to national and
international sources of change. These pat1erns are summarized
in Table 1.
I
Table 1
West Germany Industry. What has been the pattern of
industry response to the three different chlnges affecting West
I
. I
Germany? I the use p term attern rat In this strategy. her than
I
era of transition change and its consequ,nces are not fully
understood. Businessmen, workers, group officials,
party politicians and state bureaucrats hJve grafted recently
acquired coping raachan.Lsme onto established Ihistorical practice.
The term "strategy" would dignify a bJwildering range of
I
responses in different parts of West Ger.man1's political economy
wi th an intellectual order and a degree olf self-consciousness
I
13
Table 1: THREE SOURCES OF CHANGE
Sources of Change
International National Plant
1.
Particular tr w.
Germany No No No
2. Discontinuity in Development No No Yes
3. Rate of C h a n ~ e Low Medium High
I
I
I
which simply dies not exist.
At the same time the pattern of industry response is very
clear. As GeJd Junne points out in his chapter, the distinction
between sunset industries such as steel and shipbuilding, sunrise
industries such as microelectronics, telecommunication and
biotechnology, and core manufacturing industries is of limited
use in underst'rnding. the West German economy. West Germans do
not think in trr.ms of sectors rising and falling. Instead they
conceive of n\ ew technologies which are diffused throughout
industry. Similarly, typically they do not view services such as
banking and insbrance as part of a post-industrial economy, a set
of activities independent of and separate from manufacturing.
Rather they see services as an integral and growing part of a
mcdezn industrirl economy. 5 These views make the similarity in
the response across a broad spectrum of West German industries
less surprisinJ than one might expect at first. West German
I
industry modernizes not through epic struggles between industries
that rise and
I
decline but through
-
the quick and quiet diffusion
\
of core technologies throughout all of the major
\
sectors. And the institutions of the Federal Republic appear to
be very well suited to diffuse new production technologies
throughout the manufacturing sector.
6
Furthermore the growth of
information technologies and other services typically is not
a process which rccurs apart from changes in manufacturing but is
linked intimately to it. This is not to argue that there are no
industrial sectJrs or sector segments which are being closed
14
down. In their chapter Josef Esser and Wolfgang Fach, for
example, refer to among others shipbuilding as a case which is
noteworthy precisely because it differs so greatly from the
experience of all of the other major sectors discussed in this
book.
For the purpose of presentation only the discussion that
follows will group the three core industries (autos, chemicals
and machinery) and compare them with other industries ( steel,
shipbuilding, semi-conductors, telecommunications, biotechnology
and banking) not as often regarded as West Germany's economic
core. The data point to widespread experLmentation in distinct
industrial settings.
The pattern of response is broadly similar in each of the
three core industries: a combination of flexible specialization
grafted onto the existing patterns of either mass production (in
autos and chemicals) or of traditional crafts production (in
machinery) . In automobiles this process occurred, as Wolfgang
Streeck's chapter shows very clearly, in two distinct ways. Mass
producers like VW moved to high volume, specialized production in
the 1970s to avoid competition at the low end of the market. And
specialist producers increased their production considerable as
did Daimler-Benz. In chemicals the distinction between mass and
crafts production was also blurred, if for different reasons.
Because of its great capital intensity and the high rate of
product innovation, this industry had, as Chris Allen argues,
always approximated incompletely the model of mass production.
15
New developments in "high chem" (new materials) and "fine chem"
i
are moving the further away from the
I
production of bUlk chemicals into market segments less threatened
i
by volatile shifts in energy prices and worldwide overcapacities.
And the emerQ1nce of biotechnology promises diversification and
future growth. \ Lacking a tradition of mass production or science
I
based innovatiJn the machinery industry, as Gary Herrigel shows,
is reaching a new synthesis of traditional and high-tech craft
production. I
I
The institutional order in which the spread of new
production tehhnOlOgieS occurs varies across these three
industries. 11 the automobile industry our attention is focused
almost exclusively on West Germany's stable, cooperative
I
industrial system. The relation between the unions (IG
I
\
Metall) and tlhe works councils inside the plant is subtly
shifting so as to favor the latter, especially on the questions
which arise in, the application of new production technologies.
But the between unions and councils remains symbiotic on
many crucial quJstions: a long-term perspective geared to success
in international markets, support of energetic measures to train
and retrain al already highly skilled labor force, and a
I
willingness to 4XPlOit the opportunities of technological change
as well as SUffrlx tbr: costs that it imposes. In the chemical
industry, since the early 19705, relations between management,
union officials hnd works councils have been even tighter than in
I
automobiles; the relative importance of the works councils
16
ha s been greater. Furthermore, a far-Jt.eaching internal
I
decentralization of the three dominant 9hemical producers
provides for a large number of relatively autonomous centers run
I
by scientists which collaborate with central Ilaboratories . The
I
flexibility in research and development and tte adaptability and
innovation that this form of organization endourages is matched
. I
in other parts of the industry because of Fhe existence of a
large number of specialized, medium-sizer firms and their
ancillary subcontractors. This systei reproduces the
competitiveness that the large firms gain thrrUgh their internal
decentralization. Finally, the machinery infustry features, in
Gary Herrigel's words, two industrial orders: I an autarchic order
in which centrally administered works hots are vertically
integrated and remain isolated from their setting, and a
I .
decentralized order consisting of loose confederations of 1
independent firms which rely on extensive netJorks of private and
I
public institutions. Changes in international market and
production technologies are encouraging concentration of
firms in the autarchic order as well as a decentralization within
I
firms; and they are leading to extensive in subcontracting
I .
in the decentralized order as well as within and
among the supporting private and public institutions that provide
I
technical information, marketing assistance and capital.
West Germany's social movements have had no noticeable
I
effect on the machinery industry. And iome of the issues
championed by the new social movements the construction of an
17
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I
I
extensive interstate highway system, the issue of a general
I
I
lLmitation of and the peril to West German stemming
from automobill pollution -- have had a surprisingly small effect
I
,
on the evolutibn of the auto industry. The chemical industry on
I -
the other han4 has been a prime target of the opposition of
ecology moveme*ts first and the Greens later. In 1985-87 the
Greens and thel SPD formed a coalition government in Hess"e. A
prominent of the Greens became State Minister for the
I
Environment in \Hesse, a traditional area of concentration of the
,
industry. -TH.is political experiment might have provided a
I
serious threat Ito established ways in which the industry governs
,
itself and with public officials. But the coalition
was short-live4. The primary effect of the Greens and the
I
ecology . thus are likely to be indirect through the
political they set for the established parties or through
their reliance \ on the courts or popular mobilization around
ecological such as the massive chemical spill in the Rhine
in 1986.
With the \exception of the decentralized order in the
machinery indU$try, state policy affecting these three core
industries is indirect. Even in tLmes of the greatest
I
crisis of VW, I, West Germany's largest automobile producer,
I
Chancellor insisted on a private solution to the
grave problems the company faced in the mid-1970s. In the
chemical the regulatory framework which the state sets
is based on principle of self-regulation which is deeply
18
entrenched in Germany's political history. 7 Only in the
I
decentralized part of the machinery industty' can we find a
f . I I
general acceptance of state support to the adjustment
of small and medium-sized firms to changing market conditions.
I
The exception is noteworthy because it generates conflicts about
I
the proper role of state intervention. Baden- Wurttemberg's
I
governor, Lothar Spath, favors state intervention to strengthen
I
the regional economy of Southwest Germany. But his activist I
conception is shaped by the French statist tradition of
I
intervention rather than the concertation modeil which West German
small business favors while seeking support I from a variety of
I
and private sector institutions. i
At the international level technological change and
I
international competition interact in such I complex ways that
their effects cannot be sorted out clearly. In all three sectors
I
West German producers are encountering new competitors from Japan
I
as well as other parts of Asia, the Mideast Jnd the Third World.
Furthermore,
I
new competitors have led fO renewed efforts
throughout the advanced industrial to enhance
I
competitiveness. The role which a more integrated European
Community might play in the future thus is O!f great importance.
I
For the automobile industry, a more Europe might
. I
become a possible solution should Japanese competition seriously
I
threaten the market segment into which West German producers are
I
now moving. West German producers could easily endorse the more
I
protectionist stance of French, Italian andI British producers.
19
I
I
\
The European maxket is already of overwhelming importance for
West German firms. And the history of the catalytic
convertor showsl that West Ger.man producers are very much aware of
I
the strategic I importance of Western Europe. In the case of
chemicals, on other hand, with its enormous investments in
I
the United States and its global outlook, closer Western European
I
integration might become a possible problem. While the European
market is impbrtant, cartel-like arrangements among European
firms are to be costly for West German producers who are
confident tha1i-
I
they can face the competitive pressures on
European as well as world markets. For the machinery industry,
finally, with highly specialized and decentralized production
profile Europe \ is neither a possible solution nor a possible
I
problem. it is part of a global market in which the
industry competJs.
complemedting mass production systems flexible
specialization,!made possible by the emergence of new production
technologies, become an important element outside of the core
manufacturing Wolfgang Fach and Josef Esser argue in
their chapter I,that through specialization, diversification,
I
mergers and oth1er means West German steel producers for many
management mistakes in the 1970s, particularly efforts
years have adopted policies that have moved them out of crude
I
steel In contrast in the shipbuilding Lndust ry
I
to compete
I .
for too long inl the market for large bulk carriers and tankers
produced much rore cheaply in South Korea and Japan, have
20
virtually closed down the industry. The specialization which is
I
occurring now in the production of specialtYi ships and in the
I
future perhaps in the development of new'marirte technologies are
occurring on a scale so small that the contizaat; with steel is
I
. overwhelming. West Germany remains today thr largest and most
efficient steel manufacturer in Western Euro
P
r
I
precisely because
it adopted early and far-reaching programs favoring
specialization. Gerd Junne shows that in htgh-tech industries
such as electronics and flexible
I
specialization takes other forms. Nixdorf, ifor example, is an
excellent example of a relatively small and Idynamic firm which
succeeded by finding profitable market such as the
I
provision of in-house, integrated computer systems for the
banking industry. And the West German gianl Siemens shows its
I
own variant of flexible specialization. Behind some of its
I
Japanese, North American and European cpmpeti tors in the
I
development of hardware it seeks to specialize in the
I
construction of integrated systems that require expertise and
I
market presence in both and telepommunications. In
this instance flexible specialization from large firm
size. West Germany is not first in the adoption of new core
technologies but it is a close second.
!
IFor the quick and
I
efficient diffusion of technology the Federal Republic relies on
I
a host of rarely noticed institutions, espeliallY on a regional
basis" to assist small and medium-sized firms. American-style
I
venture capitalists , spin-off firms or parks are
I
21
relatively unLmportant.
I
11 I d t' 1 '11 t t th
F y, us a so us ra e e convergence
of flexible ipecialization, as in banking, and with mass
production, as lin insurance. But in contrast to manufacturing,
I
Martin Baethgb and Herbert Oberbeck argue, services also
I
illustrate with particular clarity a point acknowledged
I
explicitly by Horst Kern and Michael Schumann in their chapter.
New production \ technologies can enhance central control rather
I
than decentralization. And they can increase rather than
i
decrease stressful work.
Aschraopsed.s variable institutional mechanisms
have plants as they were affected by new
production The main institutional innovation in
the steel indJstry
I
has been a move to reorganize corporate
I
structures so as to isolate as fully as possible the traditional,
unprofitable stJel-making operations from the profitable parts of
the business. IThe shrinking scope of the parity provisions of
i
the codeterminat.ion legislation governing coal, iron and steel
I
are only one political consideration among a host of fLnancial,
economic and ones that pushed the managers of the steel
industry in thiS! direction. 8 While corporate reorganization such
as the setting Jp of small, independent, innovative firms funded
I
by industrial such as Siemens remains the exception in
West Germany, nJw production technologies have consequences for
how established \ institutional mechanisms work. Collaborative
I
arrangements in bollective problem solving or in the application
22
of new technologies bring teams of middle management and skilled
I
I
workers together. And these teams have ambi1quous relations to
both top management and the works councils as the traditional
I
representatives of business and labor. jFurthermore, while
acknowledging that the individual's job Isituation and job
I
satisfaction may well Gerd Junne lists in his chapter a
I
whole range of possibly adverse effects lof new production
I
technologies on West GeDIlany's system of cofetermination. We
lack at present adequate empirical evidehce to reach firm
i
conclusions. But based on substantial emPirtCal data in a wide
I
range of service industries the argumentl recurs in Martin
Baethge's and Herbert Oberbeck's chapter. Ani it also resonates
with the argument about the trade-off between the quality and the
quantity of work which is a central point in the essay by Horst
I
Kern and Michael Schumann. I
I
The importance which West Germany' s movements have
I
had for these industries has varied a great deal. In the steel
. I
and shipbuilding industries social movements have played only a I
i
minor role to date. But since the mid-1980s the Greens in
I
particular are attempting to press ahead with some of the union
I
demands about a "national solution." I For the Greens
nationalization would become part of a economic strategy
or.l.ented more toward domestic than fore.l.gn focused on
ecologically sound regions, and concentratinF on the retraining
of labor for innovative ecological products .1 Politically these
programmatic demands have been without practiba+ consequence. In
23
the two main steel-producing regions, North-Rhine Westfalia and
I
the Saar, the treens failed to get 5 percent of the popular vote
necessary to Jain representation in the state parliament. In
I .
high-teChnOl01 industries, on the other hand, the new social
movements act as a constraint in some instances while at the
same tLme possible opportunities for future growth in
I
others. The n1clear industry, like chemicals, has been a central
focus of the tion of West s social movements and
the Greens. in microelectronics and biotechnology social
I
attitudes are ,ore ambivalent. Clear-cut opposition exists only
against the potential for controlling or manipulating
the population, \ as in the case of broadband telecommunications or
genetic engine1ring. Social movement supporters are, as Gerd
Junne argues, an important segment of society consuming new
electronic products. Often they favor opening up possibilities
for more decentkaliZed and less polluting forms of productions.
,
Furthermore, strong opposition of social movements to other
I
I
high-risk, pollJting high-technology industries may intensify the
support for miCkOelectronics and biotechnology among members of
I
the economic azid political establishment. Direct constraints
. d I
Ulpose on some may l ead to Jondirect opportunities for other
high-tech industries. Finally, the effect of the new social
I
movements on thel service industries appears to be slight at best.
'I
Traditionally Ctose relations between employees and employers
appear to be l01sening in the banking industry; but we simply do
not know the extrnt to which this phenomenon can be attributed to
24
I
I
I
a change in the character of West Gexman society and the rise of
I
social movements. I
I
The form of state policy also varies across these
I
industries. In steel we encounter cases in which a succession of
I .
different forms of state intervention have been tried in order to
assist in the shrinking of overcapacity. models of
I
concentration were tried in the 1970s in t1e Saar and in the
I
1980s in the Ruhr steel regions. Because lof the deternuned
I
opposition of individual states and against any
central solution the effort of reorganizing the industry on a
national basis, under the guidance of Westi Germany's banking
I
community, failed in 1982. Since 1983 gdvernment subsidies
I
I .
totalling about three billion deutschmarks I have provided the
context in which each corporation haj tried to adapt
modernization programs suited best to its Particular situation.
Since 1987 there have been renewed efforFs by the federal
government, in cooperation with business and ]abor, to seek again
i .
a national solution. And the experimentatidm 'with corporatist
I
crisis management at local and regional has continued.
I
Because the economic importance of the industry was
smaller the failure of corporatist methods ob crisis management
I
at the regional level, in contrast to steel, never led to efforts
I
of developing a national political sOlution.1 In the high-tech
industries the shift in policy by and large has been from direct
I
subsidies to a few large firms like Siemens in the 1970s to
I
indirect forms of assistance in the 1980s grartted to medium-sized
25
and smaller aiming at an acceleration in the diffusion of
new productio!n technologies. Finally state policy affects
service like bankLng or insurance indirectly, through
the regUlatory! framework which it provides. In the domestic
economy governdent oversight follows a familiar German pattern of
self-requlatioJ by the industry. In the international economy on
the other hand \government policy has provided the industry with a
substantial of protection.
9
Internatiohal competition and technological change both are
closely related in shaping an industry's competitiveness. This
at least is tJe pattern suggested by West Germany's core and
high-tech induJltries. On the other hand it was primarily the
I
competition of less efficient but heaVily subsidized West
European producbrs, as in steel, or the competition of low-cost,
government-subs\idized shipyards in Asia, as in shipbuilding,
which the decline or demise of these two industries.
I
In sharp contrJst, in banking and insurance the primary factor
affecting compebitiveness was technological change rather than
I
international cdmpetition.
Finally, aJ the international level there is the role which
\ .
Western Europe \playS in the variable fortunes of West. Germany
I
industry. The German steel industry, for example, has been
I
severely hampered by the subsidization of its less
efficient competitors in Western Europe. But because. of West
Germany's depehdence on open export markets for its other
industrial prohucts, including the exports of manufacturing
26
I
I
I
products of other divisions of west Ge:cnany's major steel
producers , political demands for protectio1ism have remained
muted. Indeed, in the steel trade conflicts brtween the European
Communities and the United States, the West Ger.man government has
I
typically chosen to play the role of broker. for reasons of both
I
interest and ideology West Gennany can at bestl' as in the case of
I
steel, act the role of a "soft" protectionislt. Europe and the
larger world beyond have been important as almarket for banking
and insurance; but to date they have neitheJ! been a particular
problem nor a possible solution for West Ger.mJn business in these
I
two service sectors. This, however, is like+y to change as the
American pressure for free trade in is bound to grow.
I
In the area of high-tech industry, on thle other hand, the
European "option" is a valuable way of diminishing West Germany's
technological dependence on certain US The link-up of
I
Siemens and Phillips for the joint productioni of a megabyte chip
is a good example. And precisely because weist German producers
like Siemens specialize in the production of high-tech components
and systems rather than individual productsl they are to some
I
extent sheltered, as Gerd Junne arques, from the creeping I
protectionism with which other European statjs support their own
national producers.
I
The message of the six sector studies is I clear. West German
I
remarkably well.
industry has come through the turbulen
l
Success was neither prel!
1970s
>rdained
and 1980s
nor is it
inevitable. In each of the cases reasons
I
for concern exist. Now
27
that market is no longer easily gained at the expense of
other European! producers will West Germany's automobile industry
I
be able to compete against the advantages Japanese producers have
in design? West Germany's chemical industry succeed in
mastering the \new research and product development requirements
of biotechnology? Can a modern industrial economy succeed in the
long-term wi t1hout a world-class, competitive semi-conductor
industry? Is iwest Germany's' machinery industry alert enough to
avoid a disast10us repeat of the misjudgment of market trends as
happened in thJ machine tool industry in the early 1980s? Only a
few years ago, \ in the early 19 80s, answers to these questions
were often pesJ\LmistiC. And even today apparent success stories
in machinery, automobiles and chemicals record some shortcomings
. \
of West Germany(s industrial order that could prove very damaging
1n the future. \
Yet these studies also show that rapid changes in production
technologies, the rise of new social movements and volatility in
international markets have done little to undermine the
comparatively performance of West Ger.many in the 1970s and
1980s. As Tablb 2 demonstrates, given the deterioration in the
perf ormance ofl all ma j or capitalist economies since 1960,
compared to thl other major industrial states West Germany's
policy of a way" has held its own .10 This i,:; true in
\
particular compared to the United States which, the Reagan
. I
RevoI utJ.on to contrary notwithstanding, was rapidly losing
ground internltionallY. This is indicated by a sharp
28
I
I
I
deterioration in its trade balance, and unemployment
I
rateS which exceeded corresponding West Gernrn figures and no
superior growth performance as measured by relal GDP per capita.
Compared to Japan, however, between 1979 and I 1985 West Germany
I
lost ground. But the sharp appreciation of Yen since 1985
and the projected dramatic decline of new into the West
German labor market in the early 1990s, makes lit likely that the
Federal Republic will do comparatively better in the 1990s.
I
I
TABLE 2
I
I
Examining the recent past offers no insight into
what may happen in the future. When asked
I
about the future
Keynes is reported to have paused for a llng while and then
I
answered, "the future will come." While this IboOk is prospective
rather than retrospective none of the authors pretend to have
I
magic foresight. What they offer is eVidenice from the recent
past that shows convincingly that West Germani industry has coped
very well with multiple sources of change in the 1970s and 1980s,
certainly better than the average reader of lithe American press
might suspect.
Table 3 summarizes the responses of West German industry to
the three sources of change. The central point of this schematic
summary as well as the discussion which Ipreceded it is to
I
29
I
Table 2: Economic Performance of Major Industrial States, 1960-85
(1) (2) (3) (4) (5)
Chauge in the IlnempLoyment; aa % of Change in Real Trade Balance as Sum of Ranks
COUBuDler Price Index Total Labor Force GDP per Capita % of GDP of Cola. (1)-(4)
Rank % RUllk % Rank % Runk % Rank Sum
West GeJ;many
1973/74 - 79 1 4.7 ____2_ -- -3-.5---2--.-5----2.5-
6.5
1979/80 - 85 2 4.2 2 6.5 2.5 1.4 1 1.7 2 7.5
1960 - 85 1 3.9 2 2.8 3 2.7 1 2.1 1.5 7'
Japan
19"1''-/74 - 79 3 10.0 1 1.9 2.5 2.5 2 0.4 2 8.5
- 85
1960 - 85
1
3
3.6
6.4
1
1
2.4
1.7
1
1
3.3
5.7
]
2
1. '.
0.8
1
1.5
6
7
United States
1973/74 - 79 2 8.5 5 6.7 5 1.4 4 -0.4 4 16
1979/80 - 85 3 6.8 3 8.0 2.5 1.4 5 -1.6 3 13.5
1960 - 85 2 5.3 4 6.0 4 2.1 5 -0.2 3 15
France
1973/74 - 79 4 10.7 4 4.5 1 2.6 J -0.2 3 12
1979/80 - 85 5 10.2 4 8.3 5 0.6 4 -1.1 5 18
1960 - 85 4 7.4 n.d. n.d. 2 3.1 ]
0.1 n.d. n.d.
United Kingdom
1973/74 5 15.6 3 4.2 4 1.5 5 -1.0 5 17
1979/80 - 85 4 8.9 5 9.8 4 1.1 2 1.5 4 15
1960 - 85 5 8.4 3 4.2 5 1.9 4 -0.1 4 17
Source: Organization for Economic Co-operation and Economic Development, Ecollornic Outlook: Statistics/Perspectives
(Paris: OECD, 1987), pp. 39, 44, 68, 83.
underline the differences in the pattern of resFonse of different
industries. At the plant level distinctive I responses combine
established industry practi.ces with new wayjs of coping with
change. The institutional mechanisms which arle triggered by the
convergence of mass production with flexible Jpecialization vary
a great deal. At the national level the of social
I
movements for different industries also diffe,s as does the form
of state policy. And at the international lejel the relation of
international competition and technological ctil:ange varies across
industries as does the role of Europe.
TABLE 3
I
I
No single variable or small set of vJiableS -- regional
setting, corporate characteristics, stre1gth of the labor
movement, technological aspects of productiorl, concentration of
industry, position in world markets,
I
influence in national
1

po l.tl.CS to name
b
ut a
f
ew
Ld I
pxovi, eSI an
d
a equate
d
an
parsimonious explanation for the pattern suw"arized in Table 2.
Instead the central point of this table ii to emphasize the
variability of conditions and patterns of in specific
industries. Widespread experimentation in meeting change is
visible everywhere. We are watching a fluid of industrial
production. In myriads of smaller ways WhiC1 do not make front
30
'j'ah1e ,3: Industry nesponses to Change
f!ftLlt Level
Flexible
Specialization
or
/1ass Production
Instltut ional
f1.::chanism
WtUQfia 1 Level
Importance ot
Social Homents
Form ot
State Policy
Inlgrnational Level
competitiveness
affected primarily
by international
competition or
technologial
change
Hole ot Europe
si.t P Illdg.
!;.ge.<cl _
Both
Variable
Low
Direct
PrlmQrily
International
competition
Olle Source
ot the problem
Allt0f!
Both
Variable
Medium
(Opport.)
Indirect
Both
possible
Solution

Hoth
Variable
lIigh
(Constraint)
Indirect
Both
possible
Problem
t1
'l'radJ tional
Crafts and
lIigh 'l'ech Crafts
Variable
LoW
Partly Direct
Partly Indirect
Both
lin Impcr t er;

Uoth
Variable
Hixed
(OpIVConstr.)
Par.tly Direct
Partly Indirect
Uoth



80t:h
Variable
Low
IndLrect:
l'rllllorlly
To c h n o log I'c a I
Chauge
lin 1 illjlort:ill\t:
page news. multiple changes are affecting Germany in the
1980s. Individuals, institutions andl industries are
I
experLmenting in new ways to respond to these I changes. The Kohl
government may have failed to bring about the big change
in national politics. But small-scale change land experimentation
I
is nonetheless pervasive in the Federal Republ!ic.
2. Institutions and Change
The convergence of pervasive change in low politics with
institutional continuities in high politics is distinctive of
West Germany's Third Republic. This is in Sh:arp contrast to the
I
politics of the First and the Second
.
Republi6.
I
Then as now one
. ,
could observe dynamic social and economic change. The 1940s and
I
1950s witnessed, for example, the influx of than 12 million
I
ethnic German refugees first from Eastern Europe and later from
I
the German Democratic Republic. In the 195Qs like the rest of
I
I
the DECO states West Germany lowered its tairiffs substantially
and reestablished free convertibility. in the 1970s in
I
growing numbers West German corporations belan to move some of
their operations abroad and rationalized their production
I
facilities at home. These and other changesj affecting the very
base of West Germany's economy and society accompanied by
major institutional changes. This of course was very evident in
the prelude to the First Republic when, after 1949, the
institutions of postwar Germany took shape in intense battles,
for example, over the character of federalismj, codetermination or
the role of the social welfare system. But it was also
31
characteristi
1
of the "second founding" of the West German
Republic in mid-and late 19605. Cooperative federalism, the
universities, system of labor market administration and the
consultation the major political and economic actors about
economic poliet all represented important insti changes
I
initiated to what was then perceived as a pressing agenda
of social refor.k and economic modernization. But in the 1980s
pervasive has not led to institutional blockages, crisis
and change. ID West Germany, pervasive changes in low politics
provide instead
\
an opportunity for recalibrating institutions
I
piecemeal than acting as a catalyst for more fundamental
,
institutional
Changes in! the Relative Position of Institutions. Change
occurs within ekisting institutions rather than outside of them.
I
I
It does so in three different ways. Anew context can privilege
institutions had been less central politically; it can
disempower ins\titutions that had been central; or it can
transform the *ole institutions play in the larger political
economy. I
I
The change Ifrom the First to the Second West German Republic
in the 1960s lllustrates how a new context can privilege
institutions which had been less central before.
In the 1950s
the overriding question for in and analysts of West
German politics were the similarities and differences between
Bonn and Weimar.
Attention was riveted on the formal insti
tutions of West Germany.' s young democracy:
Parliament, the
32
executive, the Judiciary, federalism and the system. Would
I
these institutions take hold in an authoritarian society defeated
I
I
I
in war, suffering through the trauma of nrtional partition,
i
bloated by a refugee population which at any m?ment might turn to
an irredentist politics, and harboring mill!ions who had been
I
commi tted Nazis? The "economic miracle" of the 1950s, everyone
I
I
recognized, promised an answer too easy many of these
I
troubling questions. Indeed the fear, stili lingering in the
19705, was that West German democracy might I be no more than a
fair weather democracy. Without the inducemehts of a prosperous
I
economy the Germans would probably turn, as they had before, to
a nondemocratic politics.
I
The Second West German Republic shifted the focus of
I
attention to a second set of institutions. TJe peak associations
of business, a centralized labor movebent, centralized
I
professional organizations and a wide r4mge of parapublic
I
institutions were viewed as critically impo:ttant components of
"model Germany." West German democracy was Lo longer feared to
I
be unstable; rather it was criticized at tiimes fo= being too
I
stable. Neocorporatist politics was as centralized,
secretive and technocratic. Suiting well tephnical criteria of
I
efficiency it was viewed uneasily as in democratic
I
participation. As the West German economy most of
its competitors after 1973, political unease
l
began to focus on
I
I
the evident limits of a neocorporatist politics to attract the
political loyalties of the young and other members of
33
oppositional social movements.
I
The coming of the Third West German Republic is beginning to
I
shift attentioh once again from the fOl:IIlal institutions of a
I
- liberal democracy and the peaks of the institutional oligarchies
\
I
of West Germany's neocorporatist democracy to other institutions
I
\
such as the wQrks councils and the vocational training system
I
I
dispersed thr04ghout West German society. The acceleration of
i
technological change, the reinvigoration of civil society through
i
new social mov'ements and the changes imposed from abroad are
providing new opportunities and constraints that appear to
require institJtional links between developments at the grass
I
I
roots and natidnal-level institutions .It is too early to say
anything about the range of these institutions. But
they probably include political action groups with informal ties
I
to established !parties, social self-help groups that are often
I
linked to the
I
Istate's social service delivery agencies, and
"alternative" culture and you-t.h groups often relying on public
I
subsidies. Thesle diverse groups slgnal some of the changes which
I
affect West Gerfany in the 19809. And the institutional links
that exist between them and the state as well as its ancillary,
I
large private bUreaucracies are a distinctive political feature
I
of the Third Rep?blic.
I
This shifting perspective on the Lmportance of
I
different West Grrman institutions over time points to a dualism
in both politi,al form and substance that has continued to
\
the Lmagination of political analysts and historians of
34
Germany, France and the international system ,ore generally. In
his pathbreaking study Bread and Democracy inl Germany Alexander
Gerschenkron, for example, distinguished betw1en the large land
holding, extensive farming and c c n c endxa t.Lcn of power
I
characteristic of authoritarian Prussia and! the small plots,
intensive farming and dispersion of power 10f the democratic
South-West of Germany. 11 Similarly in a brillliant little book
Edward Fox distinguished between a maritiIrie, outward-looking
I
France organized around the major ports and a inward-
Rosecrance.
13
I .
looking France.
12
Since ancient times that distinction has
I
driven important analyses of poli tics, most
I
recently in the works of Paul Kennedy and RiFhard
Twentieth century history has had an unieven impact on the
I
analogous patterns that we can discern in German politics in
the 1970s and 1980s. In the area of "high" pOilitics, the loss of
I
World War II and the division of Germany have affected a
fundamental transformation in the character of West Germany's
centralized political order. A democratic, 10rporatist style of
politics has replaced its authoritarianr and totalitarian
precursors. The history of the first two Weist German republics
revealed the strength and adaptability of thpse institutions to
cope with the changes of the first three posttar decades. In the
area of "low" politics, illustrated by Gary IHerrigel's analysis
as well as other regional studies, we find Emportant historical
I
continuities across the abyss of the 1930s land 1940s. As the
I
Federal Republic moves toward its Third Republic the existence of
35
I
this second institutional order, illustrated here by the "low"
I
poli tics of Fhe vocational training system, provides for
continuities in policy and politics that have proven to be
important espJciallY since not all sectors of the political
I
leadership of hhe country have fully embraced the institutional
order in both Jigh and low politics that I have identified here.
Over timl a new political context can also lead to
institutional Fringe political parties are an excellent
example. . RefJgee parties in the First Republic were always
suspect as potehtial supporters of an undemocratic politics. The
center of SUCh! a political challenge to West Germany, it was
feared, was a of neo-NaZi parties as well as political
splinter to the left of the SPO. In the 1950s
extremist parti1s were outlawed and refugee parties garnered just
under 10 of the national vote. During the first postwar
recession of the votes for the neo-Nazi party in several
I
state elections approached 10 percent. And the party missed by a
hair receiving percent of the national vote in 1969 and thus
entering the BuAdestag. But the sharp economic downturns of the
mid-1970s and eArlY 1980s have not led to a revival of extremist
parties. West society has absorbed and assimilated the
overwhelming mabority of fonner refugees. And neo-Nazi and
Communist splinJer received less than 1 percent of the
national vote in! the 1980s. The passing of tme, the dynamics of
electoral compeJition among the large established parties and
state policy have helped in bringing about this a trophy of
36
the radical political parties of the 1950s and11960S.
The fate of institutionalized policy convjrsations among the
political and economic leadership of West Gjrmany is a second
example of institutional atrophy. ConvenedI by the Economics
. I
Minister the It concerted actionIt was a quarterly meeting of the
I
leaders of the major West German institutions. I The meetings were
I
voluntary. No votes were taken. And no minutes were kept. The
I
main purpose of the open-ended discussion [was a sharing of
information on the condition and likely future of the West German I
economy. Rather than creating an institiutional forum for.
coordinating central decisions, the concerted was designed
to avoid or limit unnecessary distributional IstruggleS based on
f aul ty economic pro j ections. Its heavily technocratic and
I I
secretive character did not withstand thei pressures of the
economic turmoil of the 19705. When the Federation of Employers
I
challenged the constitutionality of an extensilon of the principle
of codetermination before the Constitutional Court, the unions
decided to withdraw in 1977. Chancellor 5ihmidt proceeded to
orches trate other di s cussions serving Isimilar political
objectives. In the Third Republic such meeTings have occurred
very rarely and they serve largely the sYmbolic purpose of
signalling the existence of open lines of cam1unication between a
center-right coalition government and West Germany's trade
unions. Secret, all-embracing, top-level conversations
are not central to running the political and leconomic affairs of
the Third Republic. 37 I
I
Thirdly, '" finally,
besides empowering or disempowering
institutions, a new context can also affect the role institutions
I
play in the larger political economy by altering their relative
I
. \
positions. West German federalism and regional economic policy
are cases in \point. In the First Bonn Republi.c federalism
centered largkl
Y
on the jurisdictional and constitutional
struggles betwJen
I
the federal and state governments. Of all the
I
issues this hJd in fact been the most contentious which the
Parliamentary douncil confronted while drawing up the Basic Law,
West Germany's constitution, in 1948-49. The states were
jealous of their strong position and ultimately opposed to any
I
encroachments by the federal government. But in the 1960s
awareness grew that the states often lacked the resources
necessary to coke with economic and change and to live up
to the constihutional mandate of assuring equal social and
economic opporthnities to all citizens r irrespective of their
place of resideJce.
The instithtional at the outset of the Second
Republic thus iJcluded provisions for the cooperation of federal
I. umb f
It
. k . 1
and state governments an a n er 0 tas s, It a.nc uding
I
regional industr!r. policy. West Germany's system of "cooperative
federalism," it \ was originally thought, would lead to stronger
influence and cbntrol of the federal government. Instead, in
numerous policy larenas, including regional industrial policy, a
carefully calibJ\ated system of distributive politics prevailed
that defied quick adjustment through centralized control.
38
,
Economic and social pressure eventually shiflted away from the
underprivileged, marginal rural areas in 1960f and 1970s toward
the congested urban areas and old manufacturinb regions suffering
in the 1980s from a crucial shortage of priced housing
and often double-digit unemployment. Thus sJate governments in
I
the growing South and in the declining North ;ave expanded their
role in economic management. Lothar Spath, governor of Baden-
Wurttemberg, built his political reputation on having managed
aggressively and successfully a deliberate policy of regional
I
industrial modernization.
14
In neighboring Bjvaria, the CSU has
followed for decades a strategy of rural
!
industrialization, supplemented by the efforts of CSU
leader Strauss of concentrating some of t1e major high-tech
armament and aerospace manufacturers around IMuniCh .15 Between
1979 and 1984 North-Rhine Westfalia funded ar ambitious program
of regional industrial development thus hoping to revive its
I .
declining centers of heavy industry in the i Ruhr valley. And
I
further North the city states of West Berlin,j Hamburg and Bremen
are trying to make themselves once again atfractive especially
for investments by high-tech industries. The upshot of these
I
different developments has been the same Small and
I
medium-sized firms in particular are relying increasingly on
I
institutional support cu.ltures--university rfsearch institutes,
technical universities, vocational schools, ,local and regional
'Chambers of Commerce prOViding consulting for marketing
and sales, and a variety of technological assistance institutes-
39 I
I
that are designed to help them in the transition from artisinal
to high-techJalOgy production. In addition the federal
government isl assisting with sectoral policies designed to
accelerate thel spread of new' production technologies. West
\
German
I
states I have clearly become more important actors on
questions of ihdustrial policy. Their initiatives rather than
what remains ofl the federalism of the Second Republic
mark the poliJics of the Third Republic. As in many other
instances, 'the \ signals point here to decentralizing tendencies
within politicaQ and economic structures that are stable at the
national and international level.
Three Stalbilizinq Factors. Why does the wide-spread
experLmentationland change affecting West German industry at the
grass-roots not!result in large-scale" institutional hanges in the
1980s? Why West Germany's Third Republic appear to be so
I
stable? The Jeason is threefold. It lies in the enduring
.international siructure which circumscribes West German choices,
in the institttional continui ties 0 f West Germany's semi
sovereign stateI and in the tight institutional links between
experLmentation \at the grass-roots and national-level political
I
institutions. . I
West GermaJy has been the clearest demarcation line in the
bipolar postwa1 wor1-.l order that .rcanne Gowa has analyzed.
Germany' s and the political relations between the two
superpowers been part and parcel of the same bipolar
. structure. tLme international tensions along the Iron
40
Curtain have lessened. Berlin no longrr is a serious
international trouble spot as it had been in the 1940s and 1950s.
I
I
The Western Alliance is no longer an absolutely essential part in
I
the self-definition of all West Germans. international
political arrangements in Europe have become imaginable. Western
I
Europe for example might eventually emerge as la potential buffer
for and supporter of West Germany. But majo
l
institutional and
I
political change in West Ger.many would probably require more than
an intensification of intra-European A neutralist
West Germany or an isolationist United States are possible,
I
though hardly probable, alternative futures. IBut short of these
I
or some other dramatic changes in the Istructure of the
international state system, and political
continuities in West Ger.many are reinforced byl the very slow rate
I
of change in the international system. I
A second reason for the stability of +e institutions in
West Germany's Third Republic is the strong I
,
legacy of a dense
network of parapublic institutions .16 They briidge the public and
private realm and facilitate a relativelYI
i
quiet process of
formulating and implementing public POli1. Many of these
institutions date back to the nineteenth clntury while others
were created only after 1945. They include corporate bodies,
I
foundations and institutes that typically ajre organized under
I
public law. Examples include Chambers of and Commerce,
I
I
professional associations, public radio and tv stations. These
I
institutions express a general German of organization:
41
I
I
independent gqvernance of social sectors under the general
supervision of fhe state. The political intent is to marshal the
i
expertise of major social and economic sectors under the
auspices of authority and thus to make the exercise of
state power botp
I
technically more informed and politically less
I
oppressive. pJrapublic institutions act like shock-absorbers.
They. induce ty both directly and indirectly. political
controversies ake typically limited in the process of policy
I ..
implementation. I And the very presence of these institutions
limi ts the of policy initiatives. This distinctive
I
institutional sbructure dates far back in Gennan history and
covers most pOlley sectors since 1945. Political conflict among
different social interests finds precious little open space in
I
the Federal Republic.
The optimistic conclusion of the case studies
=itten by poli scientists and sociologists points to an
intriguing The very condition that economists
especially from r0rth America often point to as most serious
impediment to West Germany's economic growth, these case studies
identify as thle very key to West Germany's international
I
competitiveness. I West Germany has prospered because of the very
denseness of institutional life. This has not led to the
institutional arFiscelerosis brought abou; by four decades of
peace and prospeiity.17 The advantages of these institutions for
I
. it . d' k h .
re
d
u c i.n q u n c e z an rJ.s (or w at e c orromLs tra call
I
transaction apparently are greater than their
42
I
I
disadvantages for efficiency. The suggestionlis intriguing, not
definitive. There exist other p LaueLbLe ecJnomic explanations
!
for West Germany's relatively successful which these
I
case studies did not investigate systematica+ly. In the years
I
ahead institutional economics will probably take unsystematic but
I
suggestive findings such as these to devel!oP better ways of
locating the point where the benefit of reducing
uncertainty equal the costs in diminiShingerOnomic efficiency.
At which point, for example, do dense institutions lead to
I
rigidities in labor markets that stifle the of employment
I
opportunities? Or is West German economic sFccess inextricably
linked to its failures? These are imPortant questions. Until
modern economic analysis provides at least so,e tentative answers
to questions such as these West Germany's in the 1970s
I
and 1980s contradicts the overgeneralized claims for the relative
I
I
efficiency of unconstrained markets that have filtered from
economic analysis to the editorial pages of !newspapers and into
the speeches of politicians.
I
Insistence on the elementarY fact that iarkets are socially
embedded and politically. constructed, than God-given,
harbors its own risk of overgeneralization. A large number of I
institutions exist in the local and regional
I
economy that have
proven e s s errt.LaL to the adaptability, fJr example, of the
!
machinery industry in Southern Germany, in Italy and in
Japan. This much we know from existing studies that criticize
i
conventional economic analysis.
18

But
I
describing that
43
institutional richness at the micro-level is not the same as
explaining thel pattern of West German, Italian and Japanese
ad to ? ange econOm2CS an po ns ea e
' I h' 'd' 1" I t d th
I
task at hand iJ to specify the particular West German pattern of
I
adjustment from a distinctive institutional and
I
political configuration in national politics. To some extent
\
industrial sec1tors have their own life in local and regional
!
I
economies as well as in the international division of labor. But
I
I
the contours ofl that life are largely defined politically by the
national of politics and policy.
A third reason for the stability of West German
institutions isl intimately linked to the second. There exist
i
tight links bettween changes at the grass-roots of West German
I
industry and institutions in national politics. In the
automobile to name but one example, adjustment to
I
I
change was facijlitated by the close links between a vocational
training systemI and a skilled labor force, between engineering
I
schools and middle-management, between factory councils and
unions, and betteen thousands of small suppliers and the ma jar
car producers. \ Technological, economic and social changes are
thus filtered ihto existing institutions rather than bypassing
them and pressiJ9 for fundamental institutional change. I shall
I
illustrate this \ political feature of the Third Republic wit:h
I
I
reference to Germany's system of industrial relations and
I
\
vocational training.
I
West has a dual system of industrial relations in
44
which unions are responsible for cOllectire bargaining and
participation in codetermination in the board Iroom while
works councils help organize working conditions, inside plants and
I
at the workplace. The relation between unions/and works councils
is symbolic. Eighty percent of the elected works councillors are
I
union members. Modified and extended iF the 1970s both
institutions together have resulted in a cooperative management
I
of the conflictual relations between labor and business. The
I
legal protection that codetermination has granted West German
labor has made manpower policy a permanent Objjctive of corporate
management and has maintained corporate'fleXlbility in the face
of technological change.
19
The strong role of the work councils
I
in recruitment, dismissal and the assignmentl of workers within
the plant has similarly encouraged a long-term approach to
I
manpower policy that has been conductive to accommodating
I
technological change. On the other haid new production
have shifted the relative power/from the unions to
the works councils. The entire system of industrial relations is
I
becoming more decentralized and based .azound individual
I .
enterprises. But national unions remain imPortant actors. They
are now offering organizational support and I expertise to works
councils rather than defining uniform regulations covering entire
I
industries.
I
West Germany's vocational training sysrem provides for a
different kind of dualism. The young are eduGated in schools and
trained in firms. 20
The system centers I
I
round West German
45
business in providing an adequate number of vocations training
positions to hsorb successive generations of youngsters that
I
enter German labor markets each year. But it also involves
the peak ass1ciations of business and the trade unions in
cooperativelJ defining the school curriculum and job
qualifications 10f a large number of occupations and trades. And
. I
finally it:.. reciuires the backing of the state to sanction as
public policy Jhe agreements hammered out by the various groups.
I
This elaborate Isystem of organizing this very important feature
of West Germant's political economy links individual firms to
top-level When, as has been true of the 1980s, the
I
number of apprentices exceeds the number of open
positions the rb\verberations are felt right up to the office of
the Chancellor. I The expected severe apprentice shortage in the
I
1990s wi.ll probably also link grass-roots and national level
institutions lin ways which are hard to foresee today.
Technological
I
like demographic change also links the. different
levels of
I
the system. The adoption of new production
technologies a respecification of the qualification
requirements of la worker. This is an elaborate and slow
process involvink all of the major actors, including the unions,
and resulting ih new state regulation only when a consensus
solution to all has been found.
West system of industrial relations and vocational
training serve only as examples of the tight links between
changes at the and national level institutions that
46
are a crucial political feature of the fh.ird West German
Republic. Together with a deeply rooted sYrtem of parapublic
institutions and West Germany's position in the international.
state system these tight links help to account for the absence of
large-scale institutional change despite "the I presence of wide
spread experimentation and change affecting German industry.
I
Poli tical Interests in Insti tutionall ty. The
!
flexibility of West German industry and the eper.imentation with
. I
which business and labor seek to adjustl to new economic
I
conditions is to some extent reflected in the political conflicts
!
and progrannnatic debates over the future couirae of West German
politics. But even these conflicts and
I
debates within and
I
between the major political parties, the business community and
the unions show that large-scale institutional
I
change was in the
. I
end politically unobtainable and unappealing. It was
I
unobtainable for the simple but important reason that the
constitutional provisipns are such that only solid majority in
the Bundestag and a two-thirds majority in Jhe Bundesrat would
I
have given the eDU/eSU the power to far-reaching
ins titutiana1 changes without taking acooimt; of the poli.ey
preferences of either the FDP as its partner or the SPO
I
as the major party. As is true ofl the United States,
in i.ts own ways West Genmany's politi.cal and order
also tends to disperse power. And this necessarily inhibits
I
affecting large-scale institutional change. I
I
Whatever its temptation, in the end largb-scale change also
47
looked unappeating. The years 1984-85 raised the possibility
,
that West Genrtan politics might be transfoxmed by very major
I
changes. A bitterly fought strike over the introduction of the
35-hours workw1ek in 1984 'and heated discussions over' changes in
the rules governing strikes and lockouts in 1985 signaled a sharp
deterioration ln the country's political climate. 21 The west
I
German Left increasingly apprehensive that a change in
I .
government and fhe political clLmate in the country might lead to
a major overhl,aul of key institutions with the intent of
dramatically wJ1akening the position of the labor movement A
,
variety of political conflicts all pointed to the
possibility tha1lt conservative political interests might try to
leverage their I temporary political strength into large-scale
insti tutional Itransformations. But the metalworkers union
!
succeeded in rrllYing its unenthusiastic rank-and-file for a
bitter strike yhich, whatever its economic merit, served the
I
political of sending a clear signal to business not to
I
underestimate \ union power and reminded especially large
,
corporations of (the great of social peace.
I
In 1984-851 important social groups and political parties
made a against a fundamental overhaul of the
institutional otder that defined West German politics in the
1970s. But have not yet made a self-conscious decision for
embracing that order. Instead one has the impression that
interest group leaders and party elites are looking for concepts
that help them to better understand and respond to the conditions
48
I
of the 1980s and 1990s. The institutional 10Jic of West German
I
politics in the 1980s embodies the political I consensus of the
first two republics: social welfare and econokic efficiency are
I
not antithetical but mutually reinforcing. lEach passing year
I
reconfirms that consensus implicitly by giving Ithese institutions
further room for play. The public demonstrations of steel
workers threatened by a further lay-off in thl fall of 1987 did
I
I
not constitute a potentially serious cri/sis 1 as had the
I
demonstrations of 1984-85. The demonstratiions were no less
militant. But they occurred in a period ih which the major
po litical groups had implicitly agreed ~ o t to challenge
!
fundamentally established political institutions. This
!
stabilizes the social and political fabric of the Third Republic.
I
And each passing year makes clearer how diffidult West Germany's
, I
pol'itical elites find it to think of large d!epartures from the
institutional networks in which they act. The Third Republic may
not implant itself securely because 1 after a period. of intense
searching for new political concepts 1 West lermany' s political
elites self-consciously reaffirms tha eXisfing institutional
order. Instead that process of Lmplantation mky occur by default
I
as the effort to think of new ways of Orgtizing politics is
stymied by the heavy hand of West German institutions which make
I
I
"thinking the unthinkable" so difficult,. I
I
By the mid-1980s the exhaustion of tHe economic policy
I
I
approaches of the 1960s and 1970s had become evident to the
I
I
leading party theoreticians of economic p o l i ~ Y l Kurt Biedenkopf
49
for the CDU, w9lfgang Roth and Oskar Lafontaine for the SPD and a
I
group of authors for the Greens. Yet confronted by structural
unemployment, +ColOqiCal crisis, and international competition,
in their diffrrent ways the books they published reflect a
convergence hi etween cautious traditionalism and radical
reorientation. Biedenkopf's book is noteworthy because it seeks
I
to find a solution for a society that no
longer relies dm the pushing and hauling among interest groups
I
and political barties. 22 For Biedenkopf that solution centers
I
around the "ordo-liberalism" which Ludwig Erhard, the economics
I
minister of the! First Republic, and briefly its Chancellor in the
1960s, had popular in the 19505. Society is a self
\
regulating which uses market competition and general
I
I
state to maintain freedom, justice and order. But
Biedenkopf's \traditionalism is compatible with policy
prescriptions td which the mainstream of the CDU does not respond
naturally for example, a shorter work week or a vigorous
protection of environment. Furthermore, Biedenkopf accuses
his own party,!rather than the SPD, for having traded, in the
late 1950s, Erh!ard I s version of liberalism for an electorally
I
popular social wrlfare state funded by the temporary dividends of
I
economic growth. 1
Wolfgang ioth s book also exemplifies a fundamentally I
traditional orlentation.
2 3
Roth defends a growth-oriented
I
economic that seeks to eliminate unemployment.
Significantly is silent on how to reach an objective Ln the
i
50
future which scores of special state programs failed to address
in the past when the SPO controlled the levers of power in Bonn.
Yet the book is explicit in defending matket institutions,
I
acknowledging the need for investments by
,
business and in courting business to suppczti
I
state industrial
I
policy. Roth also seeks to integrate the Iprotection of the
I
environment into his economic program. of
I
capital and labor in the running of West Germarl industry is to be
enlarged to accommodate representatives of interests.
And new environmental technologies and pbOducts should be
I
I
fostered as areas of future economic growth.1 Roth's" social-
ecological" market economy is tailor-made to I build a bridge to
the Greens which have undermined the prospects of the
I
SPO more directly than those of other Whether such a
I
bridge might become a viable structure forl future coalition
governments is one of the central questions In the evolution of
I
the Third West German Republic. I
I
Dskar Lafontaine is by far the youngest of the SPD's
top leadership and a likely candidate flor the office of
,
Chancellor in the years ahead. Although on of foreign
I
I
policy he is to be counted as a prominent of the party's
left-wing, Lafontaine's views on economic and social issues are
I
weI: to the right of the mainstream of the and especially
the labor movement.
2 4
Because 1f
the growing
internationalization of the West German Lafontaine
regards the objective of full employment as through
51
I
!
national Instead he proposes to redefine the very
concept of worJ by including socially useful, unpaid employment.
This enlarged of work should be secured for all citizens
through a vari,ty of social policies including social security,
social assistanre, unemployment compensation and state subsidies
for education fnd vocational tra;ining and retraining programs.
At the same t4e Lafontaine favors a further reduction in the
I
workweek even 1t the cost of sacrificing wage increases. While
they are attacked by the unions, these ideas have found
I
a sympathetic lear among West GeDIlan business and among the
I
leaders of the (FOP. The assertion of individual identities and
changes in ve solidarities within existing institutions
for Lafontaine tVidentlY is not only a challenge for established
union policies !but also an opportunity for the gPD to end its
political through a renewed coalition with the FDP.
Because of their heterogeneous character the Greens do not
have one econom!.ic policy program. 25 But the demand for the
forCefUlimPlemJntation of long-term objectives, such as defense
I
of the envirorunent, the yearning for smaller-scale forms of
. . I. 1 1
organ.J.z.J.ng aocaa and po i tical life, the. preference for
I
combatting unemployment through a "green industrialization"
I
,
policy and the I attempt to transcend partial perspectives on
emerging policyl problems appear to be central to Green
i
program on how fO manage a rapidly changing, modern industrial
economy. These tenets overlap with parts of the programmatic
writings of Bi\edenkopf and Roth. The convergence between
I
52
I
traditionalism and reorientation thus is in the 1980s
I
I
even among the most radical critics of West Germany's political
and economic practices.
I
These programmatic discussions are to soJe extent reflected
in the conflict within political parties. Lother Spath, eDU
Governor of Baden-Wurttemberg, West Germany's I Massachusetts , and
Frank-Josef Strauss, leader of esu and of Bavaria,
exemplify different forms of state In Baden-
I
Wurttemberq's decentralized regional economy I state activity is
geared primarily to assisting medium-sized I and small firms.
I
Bavaria, by way of contrast, features addition large
corporations active particularly in the defknse and aerospace
industries which require stronger and more dilect forms of state
intervention. These differences between
I
eDU and esu are, I
however, small compared to the shrink.ing state influence
demanded vocally by the right-wing of the FDP. To the small
numbers of West German supporters of sUPPlyfside economics and
deregulation state intervention from the right has as little
I
. J
redeeming features as does state intervent.1.on from <the left.
I
Ater 1983 this has led to a celebrated confrdntation between the
FDP and the esu over the partial of Lufthansa
I
Airlines which has been stalled by the opposition and
skillful maneuvering of Bavaria's Governor Strauss.
Within the SPD the rifts over economic are concealed by
I
I
the search for a political alliance strategy with the Greens.
But the party represents in
I
positions. One
53 '
group favors mixture of nationalization, tripartite industry
wide consultafion or investment planning, and an aggressive
development of high technology>industries. Looking for possible
alliances with the Greens a second group seeks, as do the Greens,
to develop a decentralized modernization strategy around
pollution-free industries. Finally, a third and probably the
largest group prefers a more centrist course of modified
Keynesianism focuses on the elimination of unemployment and
I
accommodates tefhnOlOgiCal change.
These political debates and conflicts occur also in the
business communlty and in the labor movement. Large corporations
and small are pressing for greater flexibility,
particularly in! the deployment of labor and in the allocation of
I
work-time. But! in contrast to small and medium-sized business
big need to take into account the position of the
I
unions in wesf Germany's social market economy. Weakening
organized labOr\too much might foster union irresponsibility and
undermine an e1sential pillar of West Germany's economy. As
Wolfgang Streeck argues in his essay, the "old" social movement
I
of capi talism at transforming West Germany's political
economy perhaps I, more than do the "new" social movements of the
Greens. Althoug.h this conflict wi thin the business community
I
surfaced in 1981\, during the prolonged strike for a shortened
workweek, it' built into the technological changes and
I
political characFer of the emerging Third Republic. The labor
movement sUffersl from other strains stemming from the same, new
I
54
I
I
context. Technological change, as and kchumann argue, is
empowering some groups of workers but nbt others. More
I
importantly, the growing importance of labor within the
!
major firms has strengthened the position of !the works councils
I
and skilled workers at the expense of the and semiskilled
I
or unskilled labor. And traditional working !class solidarities
!
are naturally threatened in an era of fundamental structural
I
changes involving entire industries and regionk of the country.
I
The unwillingness of important actors to tear I asunder the fabric
of national institutions as well as the 90nvergence between
!
traditionalism and reorientation in the i progtammatic discussion
I
explain the absence of sustained pressure for
!
i
fundamental institutional or political change at the national
level. I
I
Because their stability is so at first glance
the national institutions of the Third Republic do not appear to
!
respond to economic and .social change. The remarkable 1
continuities between the Second and thJ Third Republic,
I
furthermore, reinforce this impression. But isonly a small
i
part of the story. The structure of the .international state
I
system and the legacy of its semisovereign do not permit
I
easily large-scale institutional change. However, national I
institutions are open to more subtle changes Jhat give expression
!
to the changes and experimentations occurringlat the grass-roots.
!
Change is occurring within rather than institutions. And
I
the relative importance of these shifts gradually
55 I
I
I
over time. differently, change is not blocked. But it
"
occurs in small doses that make West Germany's political life
I
,
rather predictJble.
I
I
3. The Third IRepublic in Comparative Perspective
,
Three The pattern of policy change
I
characteristic of West Germany, flexibility in "low" politics and
stability in "lfigh" politics, raises the intriguing question of
how the movemenf toward the Third Republic compares to the Second
and the First
Remarkable! about West German politics is the fact that most
of the major inhovations in foreign and domestic policy were made
I
,
in 1949-1952, the prelude to the First Republic and in 1966-69,
the transition the Second. Even though the final capstone was
laid only with the Paris Agreements in 1955, in the first three
years of his Cfancellorship Konrad Adenauer basically put into
place the for his policy of Western integration.
I
Similarly, the years 1966-69 were an essential preparatory phase
for Chancellor \ Brandt's successful completion of his Eastern
policy in 1969
J
It is true that \ in Adenauer's case the
t1972.
initial three were more important; Brandt's Eastern policy,
on the other hahd, was primarily executed between 1969-72. Yet
I
in both instartces West Germany's two major foreign policy
initiatives were\ condensed into two five-year periods.
,
The same true of domestic policy. Central to the first
period was a struggle over the of West Germany's
industrial system. In 1951 Labor won a big political
I
56
victory, equal representation on the boards of fir.ms
in the iron, coal and steel industries. The Iworks Constitution
Act of 1952 on the other hand was a major !defeat. While it
extended the principle of codeterminatiion to the major
corporations outside of these three it granted Labor
I
only one-third of the seats on supervisory bodrds. This subtle,
I
yet decisive change set the agenda for the movement for the
next three decades. The transition to the secbnd Republic (1966
69) was defined politically by the format!:.ion of the Great
I
Coalition between the COU/CSU and the SPO. few years saw
I
innovations in economic policy, in the !bUdget process and
in a variety of institutions linking and state
governments which permitted and innovations in fields such
I
as. regional, labor market, education and refonn
policy.
I
In sharp contrast in the 1980s neither I in foreign nor in
domestic policy have there been any dramatic breaks. This would
I
in any case have been unlikely in 1980-1983
I
when the SPO was
I
gradually losing its grip on power. But Signijficantly it did not
occur either after Chancellor Kohl won .a
i
victory at re
10unding
the polls in 1983. In 1984-1985 some segme4ts of the COU/CSU,
,
the FOP and the business community discussed desirability of
a fundamental change in West Germany's POliti4al order. Conflict
with the labor movement increased sharply in a bitter strike over
I
the 35-hours work week in 1984 and changes I in. the legislation
covering strike actions and lock-outs. Bnt in the end the
I
57
important actprs preferred not to disrupt well established
political and institutions.
I
For the years of the First and Second Republic, as
I
well as the" movement toward a Third Republic that we are
I
I
wi tnessing' in the 1980s, they have been utterly devoid of
dramatic politiFal gestures or substantial deviations from well
tested pOliciesl. Political problems do of course exist. But
they are broken up and factored in an orderly manner within the
. I
dense institutibnal policy network so distinctive. of the Federal
I
Republic. Thisl institutionalization of virtually all political
I '
problems into almold which generates a centrist politics explains
the frustrationf which critics on the political left and right
have throughout the postwar era. West German neo-
I
Marxists oftenl point to the latent crisis of West German
capitalism. Tol some extent this is the political credo of neo
Marxism everywhere. But in the case of West Germany, one might
argue, that are correct in sensing' movement and
,
change the secure institutional blanket that
distinguishes w1st German politics. But while they are correct
in sensing movement underneath neo-Marxists mistake the process
I
of breaking pOlifical and policy problems into smaller components
for a process of social fermentation and the prelude for large
.scaLe political change. frustrations exist on the
opposite side I of the political spectrum. West German
conservatives OfFen express the desire to deal with political
problems direct action which would tear asunder the
58
I
I
densely' woven institutional fabric of west! German politics.
I
I
Because they inhibit forceful political the density
and multiplicity of West Ge:cnany's. rich ins1itutional life is
anathema to many conservatives. Somep.ow West German
conservatives feel robbed of the deeper meadings of political
action and political life in a system that it' difficult to
raise the arm and virtually impossible to Wieli the axe.
Why, we may ask, was large-scale politica+ and policy change
possible only in the early years of the First and in the
I
I
transi tion to the Second Republic? wp.y did political
incrementalism prevail in the remainilng tJree decades? In
i
particular, why has movement toward the Republic been
marked by a fundamental continuity in the bigjpolitical picture?
,
Two factors in particular control the of large-scale
change: fundamental changes in the system and
I
basic realignments in West Germany's party The shift in
American foreign policy which had occurred in was reinforced
I
dramatically by the outbreak of the Korean Wfir. Thus was made
possible Adenauer's strategy of Western rather than
I
the SPD' s preferred policy of neutralis$ and unification.
I
I
Similarly, the non-proliferation treaty of and the detente 1
167
policy pursued by the two superpowers' after Richard Nixon's
I
election to the Presidency created an constellation
I
favorable for the preparation and of Chancellor
Brandt's Eastern policy. In the realm of Iparty
I
politics the
early years of the First Republic saw dramatic
I
movement toward
59
\
the of the of the CDU/CSU. Its electoral
share from 31 percent in 1949 to 45 percent in 1953
I
the spOIls strength stagnated just under the 30 percent
mark. And the \ Great which CDU/CSU and SPO formed in
the years gave the government total control of the 1966
r1969,
Bundestag and the federal machinery.
I
In contrasf to these earlier periods of large-scale change
the early 1980s \ witnessed not structural changes in international
or domestic politics but merely a deterioration in the
I
international clLmate and a realignment among political parties.
I
The deteriorati6n of American-Soviet relations and the decline in
\
the internatioinal economy seriously affected the political
capacities of the Schmidt government to itself in power.
. I
They did not, amount to a break in the structure of
c9nstraints and opportunities in which the Federal
Republic had Ifoved since its The existence of
American deterrfnce and a liberal international economy were
I
questioned by some segments of the population on both sides of
I
the Atlantic.' But political support for a continuation of :the
!
Western Allianci system never was in doubt. And the Schmidt
government was toppled by the decision of the FDP to realign
itself with the \CDU/CSU rather than see its electoral prospects
perhaps \irretrievably, by the evident cr:3is of the SPo.
While the rise of the Greens has affected the position of the SPO
I
more adversely ttian that of the other major parties the electoral
majority of the CDU/CSU and FOP continues, as had been true of
60
the SPD-FDP coalition in 1976 and 1980, to v,ary around the 55
percent mark. In sum, the conditions which possible large
scale changes in the prelude to the First RJpublic and in the
I '
transition to the Second did not exist in the 1980s.
Three Capitalisms. The politics of West clerman industry can
be compared to that of other capitalist staJes. West Germany
resembles most closely the stable corporafist politics and
flexible economic policy distinctive of th1 smaller European
democracies.
26
This is no surprise. partition after
1945 made the country smaller and enhanced i its perception of
vulnerability and dependence on world markers. . A consensual
style of politics came to prevail over the tical extremes.
And centrist political parties and interest groups
. I
fashioned a democratic style of politics. Ovef time the question
of national reunification receded in imPortadce while questions
of economic productivity and social welfaJe assumed central
importance.
I
I
In a broader perspective West Germanl's major economic
rivals, the United States and Japan, typify liberal and statist
I
political arrangements that respond different:ly to economic and
social change.
27
Liberal states like the States press for
international liberalization and at the same itime often seek to
export the costs change to other countries.: Because they lack
the political means for selective intervenhion in their own
economies, they often adopt a variety of lilited protectionist
policies. Such action normally creates a temporary breathing
61
space for producers hard-pressed by international competition.
But it rarely addresses long-term structural shifts in
international lcompetitiveness. Conversely, statist countries
like Japan are lendowed with the means and institutions to preempt
the cost of chlnge through seeking structural transformations in
their Because it seeks to meet head-on structural
changes in tJe world economy this strategy often requi.res
protectionist at least in the short-and medium-term.
Liberal Jnd statist adjustment strategies result from
distinctive structures. American's liberal regime is
shaped by a \strong busines s community which has become
politically Ilss secure since the ]'930s. The feeling of
insecurity is nlt a function of objective political circumstance,
but derives. instead from the erosion of a position of
unquestioned primacy which business had enjoyed between the Civil
War and the GreJt Depression.
28
Industrial unionism in the U.S.,
on the other haJd, emerged late and never succeeded in making its
presence felt a1 an independent political force on the national
scene. In akdi tion, the American state is poli tically
fragmented. IJ may even be labeled weak if we consider the
I
appa.rently heavy-handed legal intervention in
economic and soclal affairs to which the U.S. government often is
driven preCiself for lack of other instruments of power and
control. An arms-length relationship between industry and
finance exists a result of the structure of America's capital
markets.
29
Goveknment-business relations tend to be distant and
62
adversarial rather than integrated and And the U.S.
I
labor movement basically is excluded from thel crucial decisions
affecting investment and employment both in politics and
I
I
at the level of the plant.
I
In Japan's statist regime business plays 'the central role in
I
what one book has called a system of creatilve conservatism. 30
Business, especially big business, is at tihe center of the
political coalition which has sustained the! LDP in power for
I
three decades of uninterrupted rule. After I a brief period of
explosive growth in the immediate post-war Japan's labor
movement has since not succeeded in escapingI from. the relative
political isolation in which the Left in post-war Japan has found
itself. The Japanese state, on the other handI,
I
has been a strong
and important actor in the evolution ofl Japan's post-war
economy. 31 In contrast to the U.S., the nrtwork linking the
different actors in Japan's political is relatively
I
tight. Japan's .financial system is based I not on autonomous
capital markets but on a system of adminisltered credit which
I
accords the state a prominent role in influencing investment
I
flows in the economy. Government-businrss relations are
integrated and cooperative by ti.s , standfds. And labor,
excluded from the corridors of power at the I national level, is
incorporated into decision-making rt the plant level,
not uniformly to be sure, but in ways which differ significantly
I
from the exclusion of U. S. labor at both /national and plant
levels ..
63
of West German politics is the relative equalit
I
in the distribJtion of power among different actors .32 No great
dispari ties by the standards of U. S . and Japanese
politics. In ,est Germany business and labor are politically so
well entrenched that they can accommodate themselves with
I
relative east changes in government control by successive
center-right lor center-left coalition governments. The
organizational strength and institutional presence of both
business and labor, though variable, is impressive by u.s. and
Japanese standa1ds. These actors are relatively closely linked
to one another, thus resembling Japan more than the U.S. The
relation industry and banks is close, based on a system
of competitive 9argaining, rather than of private capital markets
or credits adtninistered by the state. Government-business
relations are s!tronger than in the U. S ., and government-labor
relations are
I
closely knit than in Japan. Tight links
between interbst groups, political parties and state
bureaucracies an inclusionary politics.
These broad
I
characterizations of the political strategies
I
and structures df "liberal democracy" in the U.S., "productivity
democracy" .in and "industrial democracy" in West Germany
offer an esseJtail reference point for understanding the
IOf the West German response to change in the
1980s. In the !united States and Japan industrial sectors are
typically viewe4 as growing and declining, either autonomous ly
through shifts in market competition or under state guidance;
64
West Germany with its stable industrial sthcture emphasizes
I
renewal and .change within existing industrilal sectors. The
I
United States and Japan think in the of a "big power",
either in terms of military-political dominatfon or of economic
I
technological preeminence; West Germany thinks I like a small state
I
in terms of the exploitation of market n.Lches in a favorable
!
political environment. Finally strong tendencies in
the labor force exist in the United States thrFugh deskilling and
wage differentiation and in Japan through a solidarity
which encompasses a minority of the total l*or force; in West
Germany these segmentation tendencies are strength in
I
the 1980s but still remain much weaker. I
4. The Argument Refined and Qualified
Refinements. Big changes, I have argued are not necessary
in . the Third Republic because myriads of small changes are
creating decentralization tendencies within existing I
I
institutions. I shall try to support this indirectly by
briefly looking at the more centralized respohse of industry and
I
politics in two prior sectoral crises, in the 1960s and
textiles in the 1960s and 1970s. government policy
affecting especially high-technology industries
I
also favored a
more centralized approach in the 1960s and
When the world coal glut finally hit weft German
I
in 1957 it was the beginning of a prolonged crisis of
I
one of West Germany's key industries. For pqlitical reasons the
I
allies decentralized the industry after 1945 land, in the form of
65 I
I
the Schumann ptan, made it part of the cornerstone for a more
inteqrated Wes-tern Europe. Finally, as in iron and steel, the
II
unions won thS right for parity codetermination in the coal
I
industry thus themselves of half of the votes on the
II
supervisory boards of coal corporations. Between 1957 and 1967 a
variety of government assistance programs failed to
stop the of the industry, especially in terms of
employment. economic recession of 1967 finally trigqered
I
forceful actionlof the federal government. A special law passed
in 1968 providei for the concentration of most of the industry in
one large nati6nal
I
company, the Ruhrkohle AG. A new Federal
,
Commissioner fot Coal Mining was appointed. Under the auspices
of the Bundesrat a Coal Advisory Council was set up which
I
included all of Ithe relevant actors. And the industry became the
I
first traininq II ground for developinq an active labor market
policy providing. for more generous separation pay as well as
I
retraininq and allowances. This was possible politically
I
I
because of the strong position of the unions in the industry as
I
well as the role of the SPO in national politics and its
I
I
Plar:gme.J.sntentstaPtOes.J.anf.J.donhomien North-Rhine Westfalia, West Germany's
... of most of the mininq industry. The
I
I
overall response:
I
thus was to centralize control largely in the
I
hands of the federal to share power with the unions
I
in the key and to assist business by offering a
guaranteed streak of income instead of uncertain future profits.
I
Concentration concertation aptly summarize the response to .
66
the coal crisis.
West Germany's textile and garment I industries also
experienced a serious structural crisis in )he late 1960s and
early 1970s. 33 An intense labor shortage rather than foreign
!
competition were the primary impetus f o ~ a far-reaching
I
investment program favoring rationalization, I capital deepening
and a strategy of mass production. To reduce labor costs further
I
West German producers opted for a strategy of outward processing,
leaving the most labor intensive stages of prbduction to Eastern
I
European or Mediterranean producers who woulF ship the product
back to West Germany for finishing. As a I result, employment
declined by a third. While the federal government was not
I
involved in this program of structural adju,tment, West German
banks were. West Germany/.s leading textile firm at the time,
Delden, invested 200 million deutschemarks in less than six
years. A long-term investment perspective ank access to capital
markets were thus provided by banks intent on modernizing the
industry and making it again competitive in Iworld markets. By
the mid-1970s the experiment appeared to have succeeded. In
terms of value textiles and garments exportl
!
rivalled those of
I
iron and steel. And between 1975 and 1982 the annual growth of
I
exports of textiles and garments was above 10 percent, thus
I
making it one of the most successful export iindustries. 34 West
Germany's "private" policy became a model for its West European
competitors. Adjustment had been timely
I
a n ~ its international
dimension, outward processing, ev
I
entually became part of the
I
67 I
policy model advocated by the European Communi ties. West
Germany's of liberal market solutions to the problems the
textile and clbthi.p.g industry have faced since the late 1970s
I
I
would have less plausible had it not experienced a
successful restlructuring of this industry with the help of its
i
centralized, private banking sector.
10s
.
In the 198
I
:
neither public nor private interventions have
I
been as in addressing crisis conditions in particular
industries
II
of particular firms. In both steel and
shipbuilding federal government has studiously avoided to get
,
itself too deepiy entangled. Instead it has preferred delegating
responsibility to individual states, as in shipbuilding,
or to advisory councils which were charged, as in steel, to I,
i
prepare reorganization plans. S.imi.larlyi the failure of West
Germany's banks lito rescue in the early 1980s AEG, West Germany's
second largest, electronics firm, was an important signal
indicating that
I
\ the era of a centralized private industrial
policy was over. This is not to argue that the federal
I
government or the banks could never be drawn directly into
sectoral crises 1 But the threshold for centralized public or
private crisis management has risen substantially.
Past governkent policy seeking to influence the evolution of
,
West Germany's high-technology industrie!=: also favored a more
I
approach than appears to be distinctive of the Third
I
Republic. 35
TJe putative technology gap between the United
I
States and West Germany spurred efforts in the mid and late 1960s
I
II
68
to give general indirect aid not only for bas1ic research in the
universities and research institutes like the iax-Planck Society,
but to focus indirect aid on specific projects in four areas:
nuclear energy, aero-space, data processing aAd marine research.
In the 1970s a more interventionist-minded SPD1gOVernment created
a new Ministry for Research and Technology to meet the challenge
of modernizing the West German economy. The1federal government
adopted a sectoral approach to problems of industrial structure
aiming, among others, at the support of t1Chn010GY diffusion
through direct government subsidies for individual projects. At
I
the same tLme the federal government also programs and
political structures for a sOCiallY-Orientedl technology policy
which involved the labor movement in devising programs to avert
I
some of the negative consequences of techno'logical change for
workers.
I'
State centered or corporatist style
I
teOhnology policy has
become less important in the 1980s. The g10wth in government
programs has slowed down dramatically from 7.4 percent in 1975-79
to 2.4 percent in 1983-87.
36
And the for the largest
and most centralized research program, the nublear industry, has
been slashed in half. 37 Instead suPpoJt for production
I
technologies are increasing disproportionatelti but in 1987 this
I
area accor-ntia for only 1 percent of the federal research
and development budget. While the federal gbvernment continues
to be concerned over the international compltitiveness of West
German industry, it has discontinued direct!
I
funding of product
69
development and has adopted instead a comprehensive plan for the
development of I communications technologies which is administered
I
by different ministries and agencies. While there exist strong
t a ea
, I
governmen
l'
rom econ e
d
con a.nua,
' 't'
a.n
t
po
f th
e
S d t
0
th Th'
Republic a tendfnCY toward decentralization is also evident.
The telecommunications industry is a case in point. 38
Changes in and deregulation in the United States since
the late 1970s I have provided the context for several government
reports and PudiiC debate of the monopoly position of the German
Post Office Ln ' this crucial industry. ; Significantly1 the West
I
German telecommUnications regime has remained very stable. The
Post Office crntinues to be part the system of public
administration. Attempts to turn the Post Office into an
independent' pJblic corporation have failed. Privatization
appears to be oit of the question. And the trend to opening the
domestic markeJ to foreign suppliers has been slight. The
institutional Istability in this industry is striking. Yet
significant chaAges are nonetheless occurring. Deregulation in
the teJ:minal market is enhancing limited competition.
And even in J1he core telecommunications equipment market
relations between the Post Office and its traditional suppliers
ch
.
as more
.. b '

dd

.
proce ures
f
are
I

d
or
telecommunicatiohs equipment have been adcpt.ed , Decentralizi...g
tendencies are Jltering relationships that for decades had been
very tight. I
QUalificatilns. This book covers the main sectors of West
70
German industry as well as a central segment of its service
I
industries. The industries included are core I sectors which have
I
been the economic backbone of West Germany ai3 well as the main
I
I
source of its success in the international economy. This is not
to argue that all important sectors have beeJ included and that
I
all of them share in the pattern of response described here.
I
Agriculture is a case in point. A powerfu], centralized peak
I
association of farmers has succeeded for thiirty years, through
I
electoral and bureaucratic politics, in subsidies
sufficiently large to avoid adjusting to worlk market conditions
I
and to stop a growing gap between agricultriral and industrial
I
incomes. The EC' s Common Agricultural Policy has given this
I
policy sector a strong international dimenSifn in the last two
decades. But this has not stopped the West government in
the 1980s from unilaterally subsidizing its against the
I
express opposition of its European trading partners. In this
I
sector the political imperatives of domeftic politics have
clearly outweighed the demands for mirket competition.
Agriculture is an important exception and could be cited.
But the core of West Germany's politicall economy evidently
combines widespread economic experimentation in the face of
I
change with institutional stability.
I
A second, more serious con/ems not the number
and range of sectors covered in this book bUr its primary focus
on sectors. This focus magnifies the achievements and disguises
I
some of the costs of the West German way of renewing its
71
competitiveness. The most visible of these is the rise in West
I
Gexmany's unemployment rate from 2-3 percent in the 1970s to 8-10
percent in th1e 1980s. Over the next five to ten years the
implications df substantial unemployment for West Germany are
sufficiently important to deserve special attention in the
concluding section of this chapter.
it is clear that West Germany no longer
welcomes workers. Among foreign workers residing in the
Federal Republlc the Turks in particular, as the largest group of
I.. f f d' .. .
f are many arms a
Am
ong
I
a large numBer of factors two deserve pride of place:
I
unemployment West Gennan workers and the difficulty of
assimilating IJlamic and Central European cultures. While it is
difficult to generalize about the extent of political
discrimination which the Turks suffer, it is clear that the
I
federal governJent seeks to stem the growing influx of refugees
from the Third states.
West GerJan social policy also reflects significant
adjustments to Ithe economic conditions of the 1980s. Virtually
I
all major programs have been pruned. And the poorest sectors of
West German society have suffered most from the savings programs
which the government has imposed. But it would be wrong
to mistake fislal frugali ty and a recal:ibration of the' West
German welfare Jtate for an all-out attack on the principle of of
I
an active policy. Demographic changes now transforming
West German soc1iety will make some fundamental policy changes
72
,
especially in the structure of the social system almost
inevitable after the year 2000. But unti!l the end of the
century, and perhaps a few years beyond, thd existing programs
can be financed. The success of West industry in the
1980 s occurs wi thin a broader social in which the
consensus on the principle of the social state endures.
J
The concept of success or failure the thorniest
problem of all. It is easy to talk about the leconomic success or
failure of individual firms in adapting change. It is
I
I
somewhat harder, though still possible as t;he case studies in
this book show, to talk about the econom2c anf political success
or failure of different segments or sectors industry. But it
I
is virtually impossible to talk with about the
political success or failure of the Third or for that
I
manner of any political order. Each state distributes the
benefits and costs of its policies in particu1ar ways. We lack a
I
metric for comparing, for example, the accruing to the
I .
craft producers of machinery with the costs of unemployed Turkish
I
steelworkers. Successful political regLmes rre admired because
they are effective in concealing the costs of I their policies, not
I
because they are not incurring any costs. This makes comparisons
I .
between states so difficult. West Germany's Third Republic is no
I
exception to this generalization. Its regained industrial
I
prowess is inextricably linked to the more difficult conditions
I
,
experienced by the weakest and most marginal of society.
I
5. Faultlines for Potentially Seismic
I
73
I
I
An examination of the changes likely to affect West German
I
politics in the 1990s forces us to make explicit two contrasting
I
I
images of histbrical change that often inform our judgments on
daily events. to the first image the political, social
and economic I universe is fluid and permissive of small
I
adjustments and. changes. In this view change in history is
\
unobtrusi ve and comes in small doses which over time will
I
redefine how political actors conceive of their interests as well
I
as the struct\ures in wh"ich they move. The second image
emphasizes not \ the fluidity but the stickiness of political,
social and economic arrangements. In this view continuities,
I
especially instlitutional continuities, are a central fact of
I
life. Actors \will redefine their interests within existing
I
institutions. fndeed these institutions will have a substantial
effect on how irlterests are defined and pursued. West Germany in
I
the 1980s and 1990s, I have argued. here, supports both images of
i
historical changie. Widespread change in "low" politics points to
I
the fluidity of political, social and economic arrangements while
I
I
the absence of large-scale change in "high" politics serves as a
I
useful reminder of the enduring qualities of West Germany' 5
institutional Which of these two facets of West German
II
politics we judge to be more important depends not only on the
I
question we ask \but'on the unspoken which inform our
analysis of German politics. Those who have lived through
the horrors of the 1930s and 19405 are likely to emphasize the
I
fact that ' g
po
l't'
l.ca
,
er.many
h
as remal.ne the bl.
l
1.
l'
pl.cture l.n West
G 'd
I
14
stable in the 1980s. Oblivious. of the heavy of GeJ:maIlY's
past young students of West GeJ:maIlY point to the pervasiveness of
1
many small changes as the most important development in the
I
I
1980s. Belonging to the middle generation I af trying to steer a
I
middle ground between reading all West Germart developments back
I
I
into German history on the one hand and. being altogether
uninterested in the history of the Federal
I
Republic and of
I
Germany on the other. I
The argument of this chapter seeks teo account for the
I
convergence between a myriad of small scale I changes throughout
West German industry and the instituti01]1al and political
I
stability of the emerging Third IThiS analysis must
therefore be especially sensitive to pointing out political
I
developments or conflicts which might in faclt lead to dramatic
changes in West Germany' s political econo
l
. Domestic labor
markets, international capital markets and cumulative effects
of incremental changes favoring decentralization of political
I
practices and institutions are three areas Iwhich might effect
I
dramatic changes in the political economy of Third Republic.
I
The most important development which I might effect West
German politics is occurring in labor marketsl. The reduction in
the quantity of work (a net loss of 1 million jobs between 1973
I
and 1986 ae compared to a net gain of 24 jobs in the
United States) and a sharp expansion in the of long-term
unemployed (an increase from 14 percent in 19177 to 31 percent in
I
1985 as compared to a two percent change in the United States
I
75
from 7 to 9 percent) are posing serious challenges to the labor
I
movement. 39 retirements and a shortening of the workweek
I
did not
I
the unemployment rate from increasing sharply to
I
about 8-9 in the 1980s. One consequence of this change
is the creatior of a group of politically disaffected younger
West Germans, now between about 20 and 35 years of age. This
group currently has great difficulties finding attractive, well
payingpositionk; once a job has been found this group will find
itself heavily \taxed to finance West Germany's generous social
I
I
welfare programs; and upon retirement thirty to forty years from
now this group\ will receive very little in return. A more
is, as Kern and Schumann argue, a reduction
in the quantity IOf work which is accompanied by an improvement in
I
the quality of Iwork for at least some segments of the skilled
working class. I The result has been to strain the solidarity of
labor as well as weaken its poli tical position. Growing
unemployment has encouraged fil:lDs, backed by their works
I
councils, to impbse tougher criteria for recruitment. The intent
is to
I
a company's workforce and to make its
I
disposition, both in teZES of job allocation and working time, as
flexible as Qualification redundancies of employed
workers and gd1vernment policy favoring greater flexibility
illustrate the \ growing importance of "internal" rather thar_
"external" labor markets.
40
The tendency toward social segmentation is not easily
countered by the union movement. Politically the DGB has found
76
itself on the defensive. Its relations. with the COU-FOP
I
government are strained. It has suffered severely from internal
I
scandals which have led to the sale of the majority of shares of
its own bank. And while it backs a offensive" to
I
take advantage of new production technologies,l the unions have so
I
far not succeeded in developing a program jthz'ough which they
could hope to receive the fir.m support of the! works councils and
I
workers favored by the need for new skills anh qualifications at
the workplace. Compared to virtually all Il abor movements in
Europe the political position of the OGB remains strong. But it
I
is facing a process of a quiet erosion of f9r.mer beachheads of
strength. The dramatic decline in the numbJr of young workers
entering the labor market for the first timJ in the 1990s will
I
undoubtedly increase the market power of. But it will not
eliminate the need for developing concepts and
I
strategies for strengthening worker sOlidaJity and a broader
I
social consensus on the role of labor in ja rapidly changing
economy. Short of developing such concepts! and strategies the
tradeoff between the quantity and the quality)of work will remain
a potential source for political mobilizatibn
I
and demands for
large-scale institutional change.
I
I
The fragility of international capital markets is a second
area which throws a pall over the internationll trading system on
I
which West German industry depends so heavilt.
41
However, since
the Mexican crisis of 1982 the internatioJal debt regime has
proven remarkably resilient. Relations betwben the IMP and the
77
I
I
I
have become closer. The banking industry has
evolved institutional practices that have responded so far
private sector
successfully tl the great difficulties of potential defaults and
debt reschedU11ng. The decision of the U.S. banks to write off a
significant proportion of their outstanding loans as bad debts in
1987 has their position and the stability of the
1 .
international\ financial system. Furthermore, domestic
intervention me\chanisms exist that make unlikely the recurrence
of a collapse 1'\930S style. On the record of the past decade the
crash of 1989 i$ no more probable than was the crash of 1979.
But it W01ld be foolish to mistake a decade-long effort in
successful crisis management for the existence of stable markets.
I
No durable inte1rnational debt regime has emerged in the 1980s.
And changes in international financial markets are occurring at a
1
dizzying speed\. Technological changes and deregulation are
pushing toward the creation of one global capital market.
l
Financial power in that market is shifting with great rapidity to
Japan and, to a lesser extent, to West Germany while the United
States will continue to accumulate enormous foreign debts. It is
too' early to Jauge the consequences of these changes for a.
\
l.iberal international trade system. While Japan has a strong
interest in uJrestricted access to U. S. markets, American
1
politics may 4e turning more protectionist especially if a
withdrawal of fireign capital were to trigger a severe domestic
recession.
Thrrats to a liberal international economy might
stem, as in the f970S, from creeping protectionism or, as in the
78
1980s, from the possibility of financial COlljPse. In the 1990s
destabilizing links between trade and financei, especially in US
Japanese relations, may assert themselves. I West Germany, more
than Japan or the OS, would suffer from such instabilities in the
. global economy.
Finally, there is a third
I
I
for potentially
larger-scale change
would be less
in the
spectacular
politics of the
than dramatic
Third Republic.
I
I
drvelopments in
It
the
structure of domestic labor or international capital markets.
The cumulative effect of the small changes that are creating
pressures toward decentralization in the institutions
of the Third Republic might at some threshold lead
to large-scale institutional change. The structure of West
German federalism which I discussed above is one example.
Possible changes in the structure of the West German party system
are another. The rise of the Greens, on the left of the
political spectrum and of a small wing of fJee market advocates
I
in the FDP and CDU on the right are evideJce of a broadening
spectrum of political positions in the centJist of the
I
Third Republic. A gradual recalibration in the political weights
eventually might have dramatic effects on the domestic balance of I
power that has assured export industries, the banks and the labor
movement a central position in West German politics 1949.
But the evidence presented in this book and the argument of
this chapter suggest that, short of unforeseeable major
upheavals, pervasive small scale change andl experimentation in
79
~
industry is cdmpatible with a large measure of stability in
national
I
institutions and politics without sacrificing West
Germany's intez!national competitiveness. National institutions
are stable bec,!use they acconunodate different types of changes
.. I f . . 1 1 h
c c cuzr a nq a.n Ith e actory, a.n natn.cna po itics and in t e
international system. Political affirmation of these
institutions wohld transform movement towards the Third Republic
I
into an acceptance of its existence.
80
Notes
1. Peter J. Katzenstein, "West Germany's Place in American
Foreign Policy: Pivot, Anchor or Broker?" in Richard
I
Rosecrance, ed., America as an Ordinarl Country: United
I
States Foreign Policy and the Future (Ithaca:
Cornell
II
Universlty Press, 1976), pp. 110-135.
Political Economy
I
of International 2.
Robe rt Gil Pin ,
I
Relations (Princeton: Princeton Press, 1987).
I
3. Heinrich Siegmann, The Conflicts Between Labor and
I
Environmentalism in the Federal Republic! of Germany and the
United States (New York: St. Martkn's Press, 1985).
Herbert Kitschelt, "The Rise of Parties in
Western Democracies: Explaining Innova1=ion in Competitive
I
Party Systems," World Politics (in i press) . Jan C.
I
Bonqaerts, "Was ist Chemiepolik? versUih einer Synopse der
Pos i tionen," Internationales InstitUf fur Umwel t und
I
Gesellschaft, IIUG 87-5, Science Center Berlin, 1987.
I
4. Michael Grewe, "Environmentalism and the Rule of Law:
Administrative Law and Movement Politics lin West Germany and
I
the United States," Ph.D. Cornell University
(1987). Herbert Kitschelt, The Logic of I Party Formation.
I
81
Structure and Strategy of the Belgian and West German
Ecology pakties (forthcoming).
5. Stephen S .1 Cohen and John Zysman, Manufacturing Matters:
The Myth of the Post-Industrial Economy (New York: Basic
I
I
Books, Eberhard von Einem, "Dienstleistungen und
I
Internationales Institut fUr
Management und Verwaltung/Arbeitsmarktpolik, IIM/LMl? 86-6,
Science Center Berlin, 1986.
\ .
. ,
6. Henry "Does Technology Policy Matter? " in Bruce R.
I
Guile and Harvey Brooks t eds., Technology and Global
Industry: Companies and Nations in the World Economy
(Washingtort, D.C., National Academy Press, 1987), pp. 191
I
245. I
7. Peter J. Katzenstein, Policy and Politics in West Germany:
,
The Growth lof a Semisovereign State (Philadelphia: Temple
I .
University 1987).
\ .
8. Katzensteinl, Policy and Politics in West Germany, pp . 125
148.
9. u.s. Congress, Office of Technology Assessment,
Internatidnal Competition in Services, OTA-ITE-328
(WaShingtonl D.C.: U.S. Government Printing Office, July
I
82
'. ,
1987) .
I
10. Manfred Schmidt, "West Gexmany: The Po!licy of the Middle
Way," Journal of Public Policy 7,2 (1987): 135-177.
11. Alexander Gerschenkron, Bread and Democracy in Germany
I
(Berkeley: University of California presis, 1943).
12. Edward Fox, History in Geographic Perspective: The other
I
I
France (New York: Norton, 1971).
13. Richard Rosecrance, The Rise of the State: Commerce
!
and Conquest in the Modern World (New York: Basic Books,
I
1986). Paul Kennedy, The Rise and Fall df the Great Powers:
!
Economic Change and Military Conflict frdm 1500 to 2000 (New
I
York: Random House, 1987).
14. Charles F. Sabel, Gary B. Herrigel, Rid:hard Deeg, Richard
Kazis, "Regional Prosperities Compared: Massachusetts and
Baden-Wuerttemberg in the 1980s." DiscUission Paper ICM/LMP
I
87-10b, Wissenschaftszentrum Berlin
I
I
1987. Christopher S. Allen, "Regionrl Governments and
I
Policies in the Federal of Germany: The
I
'Meso' Politics of Industrial Adjustment," paper presented
at the 1987 Meetings of the SouthernI Political Science
Association, Adam's Mark Hotel, (Charlofte, N.C., November
83
5-7, 1987). Hans E. Maier, "Das Modell Baden-Wiirttemberg.
Uber institutionelle Voraussetzungen differenzierter
1
,
tatsp;-o
duk'
S
k'
paper lIM
/LMP
Qua
I ,

"

87-10a, W!issenschaftszentrum Berlin fur Sozialforschung,
1987.
15. Aline ,. "Regional Differentiation in the Federal
Republic: I Conservative Modernization in Bavaria," German
Studies Newsletter 8 (July, 1986)': 16-20. Aline Kuntz,
"Conservatilves in Crisis. The Bavarian Christian Social
Union anj the Ideology of Antimodernism." Ph.D.
Cornell University, 1987.
I
16. Katzensteinl, Policy and Politics in West Germany_
I
I
17. Mancur Olson, The Rise and Decline of Nations: Economic
Growth, Stabflation, and Social Rigidities (New Haven: Yale
I,
University Press, 1982).
I
I
18. Michael J. Piore and Charles F. Sabel, "Italian Small
Business Deyelopment: Lessons for U.S. Industrial policy,"
in John zysban and Laura Tyson, eds., American Industry in
I
Internatiolnal Competition: Government and
i
Corporate Strategies (Ithaca: Cornell University Press,
1983), pp _I 391-421. David Friedman, The Misunderstood
. Miracle: Industrial Development and Political Change in
84
Japan (Ithaca: Cornell University, 1988).
19. wolfgang Streeck, "Co-determination: Theil Fourth Decade" in
I
B. Wilpert and A. Sorge, eds., International Perspectives on
Organizational Democracy (New York: pp. 391-422.
Streeck, . "Industrial Relations in West I Germany 1974-1985.
An Overview." Paper prepared for the 38t,
I
Annual Meeting of
the Industrial Relations Research Association, December 28
I
30, New York City, 1985. Streeck, " IndUftrial Relations in
West Germany: Agenda for Change," Discussion paper IIM/LMP
I
87-5, Berlin fur 1987.
,
Streeck, "The Uncertainties of Management in the Management
I
of Uncertainty: Employers, Labor Relatlons and Industrial
Adjustment in the 1980s," InternatiJnal Institute for
Management/Labor Market Policy, IIM/LMP, 86-26,
Wissenschaftszentrum Berlin, 1986. Arndt I Sorge and Wolfgang
Streeck, "Industrial Relations and TecMical Change: The
Case for an Extended Perspective," Intehational Institute
I
for Management/Labor Market IIM/LMP 87-1,
Wissenschaftszentrum Berlin, 1987.
20. Josef Hilbert, Helmi sudmezaen, Hajo "Selbstordnung
I
. 1 d' :=J
der Berufsbildung. E1.ne Fa Istu 1.e W;er die Evolution,
Organisation und Funktion ' Privater Regierungen',"
Universitat Bielefeld, Arbeit.sberichte und
I
Forschungsmaterialien, Nr. 18., 1986. Stephen F. Hamilton,
85
I
"APp'rentilceShiP as a Transition to Adulthood in West
I Germany," American Journal of Education 95,2 (February
1987). Wolfgang Streeck, Josef Hilbert, Karl-Heinz
van KevelJer, Friederike Maier, Hajo Weber, The Role of the
I
,
SociaL Partners in Vocational Training and Further Training
"
in the Federal Republic of Germany, CEDEFOP Research Project
I
No. 1236/ 968, Final Report (Berlin and Bielefeld: March
1987) .
21. Stephen .1t Silvia, "Controlling Flexibility: West German
Labor Law land the Struggle over the Factory of the Future,"
unpubliShef1 paper, 1986. Streeck, "Industrial Relations:
I
Agenda for Change."
22. Kurt H. Die Neue Sicht der Dinge: Pladoyer fur
eine freiJeitliche Wirtschafts- und Sozialordnung (Munich:
I
piper, 198P)'
II
,
23. Wolfgang Der Weg aus der Krise. Umrisse einer sozial-
Marktwirtschaft. (Munich: Kindler, 1985).
I
24. Oskar Laf1ntaine, Die Gesellschaft der Zukunft (Hamburg:
Hoffman and
I
Campe, 1988).
I
25. Frank .10 Muller, Reinhard Pfriem, Eckhard
Wirtschaftspolitik
__
Machbare Utopien
Stratmann 1
I
.;:G;.;::r:..;;u_n-.e=-".......-=:..o;o.;;;;,,;;::,=:.=.;==-==::..;:;,:=
,
I
86
- ,
(Cologne: Kiepenheuer & Witsch, 1986).
'.
26. Peter J. Katzenstein, Corporatism and I Change: Austria,
Switzerland and the Politics of Industfv (Ithaca: Cornell
I
University Press, 1984). Katzenstein, States in World
Markets: Industrial poligy in Europe (Ithaca: Cornell I
University Press, 1985). I
I
27 . Peter J. Katzenstein, ed., Between I Power and Plenty:
Foreign Economic Policies of Advanced Industrial States
(Madison: The University of Wisconsin Press, 1978).
I
I
28. David Vogel, "Why Businessmen Distrust I their State: The
Po Li,tical Consciousness of American Executives,"
I
British Journal of Political Science 8, (1978): pp. 45-78.
29. John Zysman, Governments, Markets c and i Growth: Financial
Systems and the Politics of Industri1al Change (Ithaca:
I
.Cornell University Press', 1983). I
I
I
30. T. J. Pempel, Policy and Politics iJ Japan: Creative
I
Conservatism (Philadelphia: Temple univ*rsity Press, 1982) .
.
31. Chalmers Johnson, MITI and the Japanese Miracle: The Growth
I
of Industrial Policy, 1925-1975 Stanford
University Press, 1982). Richard J. The Business
87
II
I
of the Stale: Energy Markets in Comparative and Historical
. I h
(It aca: Cornell University, 1987). Friedman,
I
Misunderst60d Miracle.
I
'I
"
32. Katzenstei4, policy and Politics in West Germany.
I..
33. Folker Frpbel, Jurgen Heinrichs, Otto Kreye, Die neue
Arbeitsteilunq: Strukturelle
I
Arbeitsldsiqkeit in den Industrielandern und die
1
Industrialisierunq der Entwicklunqslander (Reinbek:
I
Rowohlt, 1977). Folker Frobel, JUrgen Heinrichs, Otto
I
,
Kreye, UIrlbruch in der WeI twirtschaft: Die qlobale
I
Strategie: Verbilliqunq der Arbeitskraft, Flexibilisierung I
der Arbei t I, Neue Technologien (Reinbek : Rowohlt, 1986).
,
,
Wayne Nelson, "Maintaining Competitiveness: Lessons
from the Iwest German Textile Industry," M.A. Thesis,
I
Political IS
ca.ence
D
epar
tm
errc
t
,
Massachusetts Institute of
:1
Technology, 1987 . II
I
" I
34. Werner Vath, "Konservative Modernisierungspolitik ein
Widerspruch! in sich? Zur Neuausrichtung der Forschungs- und
Technologi+politik der Bundesregierung." Prokla 14, 3
'I
(Helfc 56, 83-103.
II
35. Frieder Na9chOld, "Technological Politics in the Federal
Republic bf Germany" (International Insti tute for
I
88
I
Comparative Social Research, Berlin,
1983). Vath, "Konservative MOdernisieruhgsPolitik." Ergas,
I,
"Does Technology Policy Matter?". National Science
Foundation, The Science and Technology! Resources of West
I,
Germany: A Comparison with the United IStates (Washington,
I
D. C. : National Science Foundation, speFial Report NSF 86
310, 1986).
I,
, I
36. National Science Foundation, The' Science and Technology
I
I
Resources of West Germany, p. 14.
I
37. Viith, "Konservative MOde=isierunqsPolitlk," p. 93.
I
38. Marcellus S. Snow, "Telecommunications Ld Media Policy in
I
West Germany: Recent Developmen'tis," Journal of
I
Communication 32, 3 (Swmner, Karl-Heinz
I
Neumann, "Economic Policy toward Trlecommunications,
,
Information and the Media in West GeDIlany" in M.S. Snow,
.ed., Marketplace for TelecormnunicationJ:. Regulation and
I
Derregulation in Industrialized Democracies (New York:
!
Longman, 1986), pp. 131-152. Douglas Webber, "The Politics
of Telecommunications Deregulation in tJe Federal Republic
of Germany." University of Sussex, I School of Social
Sciences, Government-Industry Relations 1986.
39. Lindley H. Clark, Jr., "Why Unemployment
I
Stays So High in
89
Germany, " The Wall Street Journal (May 22, 1987): 18.
Frieder Naschold, ed., Arbeit und Politik:
I
I
Gesellscha:fitliche Regulierung der Arbei t und der. Sozialen
Sicherung (Frankfurt: Campus, 1985). Heidrun Abromeit
and Blanke, Arbeitsmarkt, Arbeitsbeziehungen
und Politik
I
in den 80er Jahren (Opladen: Westdeutscher
I
Verlaq, 1987). Manfred G. Schmidt, "The Politics. of Labor
I
Market Pollcy: Structural and Political Determinants of
I
Rates of in Industrial Nations," in Francis G.
!
I
Castles, Franz Lehner, Manfred G. Schmidt, eds ., Managing
Mixed EconJmies (Berlin: Walter Gruyter, 1988), pp. 4
53.
I
40. Hans-Willy I Hohn, "Interne Arbeitsmarkte und Betriebliche
I Mi tbestimmpnq-Tendenzen der 'Sozialen Schliessunq im
!
'dualen' System. per Interessenvertretunq." International
for Manaqement/Labour Market policy
(WiSSenschalftszentrum, Berlin, 1983).
II
41. Miles The Politics of International Debt ( Ithaca:
Corne11 U.
. t
y ress,
1986 ) . \ P
.
I
90
I
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I
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organized within the Harvard Faculty of Arts and Sciences and designed to promote the
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II
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