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Modell Deutschland was a great success during the golden age of postwar reconstruction and economic expansion and continued to inspire admiration even in the aftermath of the OPEC oil shocks and attendant global recessions and inflation. In the immediate postwar decades, German growth rates were at, or above, average, unemployment and inflation rates remained below average, and economic inequality was modest to low. During the post-OPEC 1970s and 1980s, Germany continued to exhibit respectable export-led economic growth, relatively low inflation, and modest fiscal imbalances.
After the oil crisis, however, unemployment appeared as a growing blight on Germany, and since the 1980s, poor employment performance has been exacerbated by rising labor market dualism and economic inequality. A series of economic shocks – together with international market competition and technological change – have racheted-up long-term levels of unemployment, engendered structural adjustments, and exacerbated labor market inequities. These shocks and structural changes have eroded the already limited capacities among the German state and employers’ associations to achieve national, cooperative, and egalitarian responses to significant postindustrial challenges. The fragmented structure of the German state, coupled with its relatively weak fiscal and employment position within the political economy, has resulted in state failure to promote concertation among the social partners. Employers’ associations increasingly fall short in their capacity to foster the internalization by employers of the external economic costs of employers’ strategic choices and to promote a long-term perspective of employers’ collective interests.
At the dawn of the twenty-first century, varieties of capitalist democracies seem worlds apart. Despite globalization and industrial restructuring, the Scandinavian countries have largely retained “macrocorporatism.” In Germany and other continental European countries, economy-wide negotiations are on the decline, although economic sector-based coordination is resilient. Finally, an aversion to cooperation appears bred in the bone in the Anglo-liberal lands of the United States and Great Britain: “Pluralist” associations organize employers and workers, and the representation of business interests remains a highly individualistic affair.
Whereas it is tempting to conclude that these patterns of cooperative engagement versus laissez-faire individualism are indelibly imprinted on national psyches, a century ago they were much less distinct. Employers and their political allies across the west shared many beliefs about developmental capitalism and national movements struggled in parallel fashion to develop highly coordinated peak business associations to push these industrial policy agendas. The late nineteenth century was a period of enormous political transformation, as capitalist development and the first wave of globalization created pressures for national industrial policies. Even in the United States, communities were noteworthy for their Tocquevillian patterns of cooperation, and the movement for national business organization sought to emulate these community efforts in nonmarket coordination. Yet in the process of nationalizing political engagement, the “virtuous circles” of coordination failed to thrive beyond the community level in the Anglo countries, even while they ultimately took hold in continental Europe.
We are organised for nothing except party politics.
At first glance, Britain appears to be the quintessential pluralist country, gripped by antagonistic industrial conflict and committed to laissez-faire liberalism since early days of the industrial revolution. Until 1965, three encompassing associations purported to represent employers – the Federation of British Industries, the British Employers Confederation and the National Association of British Manufacturers; these finally merged into the Confederation of British Industry. Yet, Britain has periodically sought high levels of labor market coordination at various points in the twentieth century, and Margaret Thatcher’s extreme liberalism seems at odds from the more collectivist sentiment in British public philosophy.
This chapter explores how Britain came to create fragmented, pluralist employers’ associations, punctuated by periods of corporatist experimentation. We argue that the failure of institutions for coordination reflect the limited incentives for cross-party cooperation in a two-party competition. Strong economic divisions (between free traders and protectionists, and financial and manufacturing interests) and the absence of a guild tradition (with craft-based unions seeking to control skills) also contributed to employers’ inability to sustain lasting coordination. We consider the impact of bipolar partisan competition at two critical junctures in the evolution of employer representation. First, party structure helps to explain the failure of a national, multisector group to develop at the end of the nineteenth century, when employers elsewhere formed peak associations. Employers were distributed between the Conservative and Liberal parties and neither party would reap obvious rewards by rallying a strongly organized business association.
Despite the influential estate tradition in conceptions of German society, the organization of employers is significantly weaker in Germany than in Denmark. Multisectoral encompassing peak associations are limited in both collective bargaining and policymaking, and coordination transpires at the lower level of the industrial sector. The peak associations are functionally divided, with one set devoted to industrial relations and another to political negotiations and intraindustry collaboration. Moreover, the state plays a virtually nonexistent role in institutions for nonmarket coordination but delegates authority over collective bargaining, finance-producer relations, and the provision of collective business goods to the labor market partners. Of course, the German political economy and institutions for coordination have varied tremendously across profoundly different epochs. To grasp fully the ongoing revisions of the German model, one must explore the specific historical context at critical junctures, emergent political coalitions that capture and convert older forms for shifting purposes, and the evolution of German managerial control. Yet postwar business institutions share significant features with those of the Weimar Republic, and we seek to understand how sector coordination was created and renegotiated across the changing political landscape.
We argue that the structure of political competition shaped the collective articulation of business interests before and after World War I: German sectoral coordination reflects the political dimensions of multiparty competition within a federal government. Both the predemocratic elite parties and Weimar parties specialized in regions and were weakly developed at the national level; thus, no national party held most employers. Federalism reinforced regional economic diversity, sustained high levels of regional (especially Prussian) legislative power vis-à-vis the national Reichstag and made it easier for industry groups (often with pronounced regional identities) to retain power at the sectoral level. The first wave of multisector groups created by the authoritarian state to compensate for the deficiencies of ineffectual, decentralized parties and the later industrial relations associations had different purposes. Absence of a robust national business party combined with employers’ disgruntlement with state interventions in industrial relations during Weimar (and the Third Reich) encouraged business to resist state interference in labor market negotiations. All of these contributed to torpid peak multisector associations and stronger sector coordination.
It is almost more important to have a good employers’ association than a good government.
The exceptionally high levels of equality in Scandinavian today are underscored by equally impressive levels of social and economic coordination. For example, for much of the post-war era, the peak associations for the social partners – the Confederation of Danish Employers (DA) and the Danish Confederation of Trade Unions (LO) – negotiated broad collective bargains and engaged in corporatist tripartite discussions with government to develop a wide spectrum of public policies. Although collective bargaining was decentralized to sectoral level cartels in the 1980s, wage setting remains relatively coordinated even at the decentralized level and policy making continues through tripartite channels.
This institutional exuberance for consensus is attributed to various causes: Perhaps cultural exceptionalism explains the high levels of coordination, as citizens of the frozen north simply have a more collective esprit des corps. Modern cooperation may reflect historical patterns of industrial conflict, because well-organized and aggressive Scandinavian labor movements wrested power away from an upper class divided between agricultural and industrial elites. As a late industrializer, Denmark may have been motivated to develop high levels of coordination and cooperation in order to catch up to other advanced nations. Tales of cultural harmony and class warfare, however, are a bit difficult to reconcile, and one wonders how employers cast their lot with cooperation over conflict.
On one of the darkest days of the year, an author made her way by multiple trains to a small, wind-swept village in northern Jutland and continued on foot to a factory on the outskirts of town. Battered by relentless wind and sleet (albeit fortified by a piece of Danish pastry en route), she felt like a science fiction protagonist when she suddenly stepped into a utopian vision of the twenty-first century. The factory floor was a hotbed of experimental methods and collaborative spirit, what with its use of the raging winds for power, state-of-the-art technology, and teams of managers and workers striving for continuous productivity improvements. Perhaps most surprising to the uninitiated, however, was the firm’s means for obtaining a skilled workforce, the linchpin of the system. Many employees came from the ranks of the long-term unemployed, who had been trained by the government’s active labor market program – Denmark’s version of welfare reform. Through an elaborate job rotation scheme, the firms’ own workers went to school for retraining and the trained unemployed (subsidized by the state) took their places on the shop floor to gain practical experience. Eventually, the unemployed were moved into regular jobs and the cycle began once again.
This happy story of cooperation raises obvious questions: What factors go into the development of dynamic cooperative and relatively egalitarian societies and, in particular, how do governments convince employers that social investments will better their bottom line? High levels of business cooperation were essential to the success of the active labor market programs that sustained the hiring strategy in our wind-swept Danish village. Firms viewed the programs as “win-win” arrangements, that expanded employment, greatly reduced the welfare rolls, allowed companies to fill unproductive positions (with subsidized workers), and maintained labor stability and wage equality (as low-wage positions were subsidized by the state). Yet, whereas the benefits of the programs might seem compelling in hindsight, the great puzzle is how employers came to believe in this win-win logic.
What we want to suggest, however, is that this era of “organized capitalism” … has, in certain societies, come to an end, and there is a set of tremendously significant transformations which have recently been literally “disorganizing” contemporary capitalist societies (Lash and Urry 1987, 2)
In the late twentieth century, globalization, deindustrialization, slower economic growth and the rise of neoliberal ideologies challenged countries’ capacities for collective political engagement. Nations with robust collective social identities and substantial labor market coordination were considered particularly vulnerable to the assaults of a changing economy. Cooperation is always easier when resources are plentiful, and deindustrialization and depressed growth rates reduced the fiscal slack available for easing social tensions. Thus, coordinated market economies were expected to decentralize collective bargaining, and to converge on a neoliberal model of limited state intervention in the market.
American business organization appears exceptional from a cross-national perspective. Whereas most other advanced nations created a single peak employers’ association to represent business interests, the United States developed two umbrella organizations by 1912 that have competed for power for the past 100 years. The first of these, the National Association of Manufacturers (NAM), initially sought to cooperate with labor and the state, and then led the corporate attack on its former allies. Thus, one wonders why America developed a pattern of fragmentation and redundancy with its multiple umbrella organizations – at a time when other countries were consolidating business representation into unitary organizations – and why NAM switched positions and used coordination to resist rather than to work with the state and labor.
As with Britain, the American experience initially seems easy to explain: A neoliberal, individualistic cultural imperative drove political and economic development. An immense and regionally diverse terrain complicated collective action by employers and a huge domestic market diminished the need for cooperative supports in foreign markets. Weak, craft-based unions did not motivate high levels of business coordination to resist labor, and the absence of an influential guilds tradition worked against the collective production of worker skills. Yet NAM’s puzzling early trajectory does not mesh with the foundation myth of the triumph of American exceptionalism: At its inception, NAM organizers sought to become an encompassing, corporatist peak association to represent all of business and held policy positions (for skills and nonmarket coordination) similar to those of contemporaneous European manufacturers. NAM’s distrust of labor and the state developed only with a sea change, a decade into its organizational life.
Bringing to mind the old Chinese curse, we have the dubious privilege of living in interesting times. The global financial crisis of 2008 set off a new attack on economic truisms and political leadership, thrust advanced industrial nations into a new period of soul searching and suggested that economic well-being may well be doomed by the fits and starts associated with outrageous fortunes. Public opinion seems insecure, both condemning the folly of unregulated markets yet questioning the wisdom of governmental oversight. At this dark and terrible moment, one wants a lantern to guide us through the chaos.
This final chapter reflects on how the global economic crisis might affect governments’ capabilities for sustaining the social democratic model and abilities to draw employers into coalitions in support of social investments. Earlier chapters explore two transitional moments in industrial relations, the rise of advanced industrial capitalism and the advent of the postindustrial economy. We show that some governments’ efforts to create and to sustain institutions for coordination among the social partners had a major impact on the evolution and survival of programs to enhance skills and to reduce long-term unemployment. But the financial crisis may well ushere in a new era of economic constraint: Major service sectors (in particular finance and real estate) have faltered badly and globalization seems in remission. Thus, one wonders if the institutional structures that sustained economic and social coordination against globalization, deindustrialization, and neoliberalism continue to have the same impact in the new economic climate. Will the havens of security gain the upper hand or does the old logic break down? Crises of capitalism can lead to new openings: new forms of policy regimes, new institutions and new relations among nations; and with this in mind, we speculate about the possible outcomes in a new world order.
Britain offers a startling counterpoint to the Danish story of social investment in low-skilled workers. Despite extravagant claims to the contrary, the Blair administration only marginally improved the plight and skills of lower-class Brits, and ultimately did little to attract business and labor to the cause. Even though Blair’s New Deal active labor market program to combat low skills and poverty was modestly social democratic, public investment actually declined and the income gap between rich and poor expanded. Employers participated in only a minimal way to enhance the human capital of low-skilled workers and few jobs for the long-term unemployed were created in the private sector by Blair’s labor market initiative – about 40,000 out of 540,000 new jobs in the early years of the program. There is a tendency to conclude “plus ca change, plus la meme chose” about this story, and why would we ever expect much in the way of support for a seemingly impenetrable underclass in this land of Hobbes and Dickens? In this vein, the Blair experiments have been explained by long-standing structural constraints.
Yet, Britain’s fate at the end of the twentieth century may not have been quite so inevitable. After nearly two decades of Tory rule, Blair assumed office with a mandate to strike a “New Deal” between state and society, business and labor, the haves and have-nots. The New Labour government made substantial investments in programs for the long-term unemployed; indeed, Britain and Denmark spent exactly the same percentage of the GDP on improving the public employment service. In addition, Blair’s promised renaissance may have come at an auspicious time. With the advent of services, jobs for blue-collar manufacturing workers with mid-range skills have greatly disappeared, vocational training programs are less important than general education programs for service workers, and general education is a more viable institution in the British liberal market economy. Blair’s substantial investments in education partly paid off: Britain had lagged 14 points behind Germany in its proportion of 19–21 year olds who attained Level 3, and by 2003 roughly the same percentage in each country had reached this educational level. Yet these gains did little to alter the economic circumstances of the long-term unemployed.
Many societies use labor market coordination to maximize economic growth and equality, yet employers' willing cooperation with government and labor is something of a mystery. The Political Construction of Business Interests recounts employers' struggles to define their collective social identities at turning points in capitalist development. Employers are most likely to support social investments in countries with strong peak business associations, that help members form collective preferences and realize policy goals in labor market negotiations. Politicians, with incentives shaped by governmental structures, took the initiative in association-building and those that created the strongest associations were motivated to evade labor radicalism and to preempt parliamentary democratization. Sweeping in its historical and cross-national reach, the book builds on original archival data, interviews and cross-national quantitative analyses. The research has important implications for the construction of business as a social class and powerful ramifications for equality, welfare state restructuring and social solidarity.
Government social policies are often a mixed bag for employers: Although they may enhance workers’ productivity through skills training or health provision, they also add to the costs of labor. One can dwell on what the right hand giveth or what the left hand taketh away, and therein lies the difference between a business community accommodating growth in government services and one resisting expansion of the public sphere.
This chapter grapples with the deceptively simple question of what matters to the formation of employers’ preferences for state social policies. In particular, we study the relative balance between economic imperative and institutional constraint in guiding human action. We ponder whether business managers – seeking to identify their social preferences – strive to fulfill objective interests grounded in the material characteristics of their firms; or whether institutions, ideas and peer pressure have an impact on how managers interpret (or socially construct) their interests? Thus, the first part of the book explores the origins and evolution of the associational forms of business, and the second part investigates how these institutions of coordination influence employers’ engagement with the welfare state.
What counts in making a happy marriage is not so much how compatible you are, but how you deal with incompatibility.
What magical ingredients create societies that seem to have it all, in achieving their policy goals with a balance of efficiency and equality, economic growth, and social security? Is there something in the bubbling brew of civic engagement that permits some countries to obtain collective goals with benefits for a broad cross section of society? Why are some nations better able than others to reinvent their institutional commitments to growth and equality at points of major economic transformation? Can business managers be persuaded to develop strategic preferences for public policies and to sign onto the social deals that seek to balance economic growth and social protections? If so, what factors bring employers to cooperate with workers and other social groups, rather than to view the world as a stage for pitched economic strife?
Tolstoy’s quote about happy marriages at the beginning of this chapter captures a central theme of this book: Processes of collective engagement matter. The signature way that people come together to solve problems has enormous impact on whether they make it through the trials and tribulations of marital life. In like manner, nations evolve characteristic processes of collective political engagement among citizens and groups; and while these processes are themselves a work in progress, a characteristic manner of problem solving seems to endure, even as it evolves, across epochs.