Journal Article

German economic performance: disentangling the role of supply-side reforms, macroeconomic policy and coordinated economy institutions

Wendy Carlin and David Soskice

in Socio-Economic Review

Published on behalf of Society for the Advancement of Socio-Economics

Volume 7, issue 1, pages 67-99
Published in print January 2009 | ISSN: 1475-1461
Published online October 2008 | e-ISSN: 1475-147X | DOI: http://dx.doi.org/10.1093/ser/mwn021
German economic performance: disentangling the role of supply-side reforms, macroeconomic policy and coordinated economy institutions

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Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried out by the private sector using institutions of the coordinated economy, including unions, works councils and blockholder owners. Second, the implementation of orthodox labour market and welfare state reforms created a flexible labour market at the lower end. Third, low growth and high unemployment are largely accounted for by the persistent weakness of domestic aggregate demand, rather than by the failure to reform the supply side. Strong growth in recent years reflects the successful restructuring of the core economy. To explain these developments, we identify the external pressures on companies in the context of increased global competition, the continuing value of the institutions of the coordinated market economy to the private sector and the constraints imposed on the use of stabilizing macroeconomic policy by these institutions. We also suggest how changes in political coalitions allowed orthodox labour market reforms to be implemented in a consensus political system.

Keywords: economic performance; economic reform; capitalism; varieties of; collective bargaining; Germany; United Kingdom; E65 macroeconomic policy; studies of particular policy episodes; J50 labor–management relations; trade unions and collective bargaining; P52 comparative studies of particular economies

Journal Article.  11637 words.  Illustrated.

Subjects: Moral Philosophy ; Corporate Social Responsibility ; Welfare Economics ; Political Economy ; Economic Sociology

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