The assumption that the developed economies are currently undergoing profound changes sparked by a technological ′revolution′ and fueled by broad liberalization in the international economy is no longer seriously debated. Where opinions diverge is on the effect this process, commonly referred to as globalization, has on the different models of capitalism. A widely held view is that of eventual convergence under the influence of similar pressures. Proponents of this perspective usually further argue that coordinated market economies (CMEs) will be the victims of this convergence as the model of capitalism fitter for survival is that of liberal market economies (LMEs).
This essay will argue, however, that the German system, as an example of a CME, will remain distinct from the US/UK model, as examples of LMEs, for the foreseeable future. This is indeed to a great extent due to what Soskice (1999) calls the "interlocking complementarities between the different parts of the institutional framework". But other factors, such as firms themselves exploiting institutional comparative advantages, institutions acting as shapers as well as takers of change, and explicit political choices also play a decisive role.
One of the main arguments of the varieties of capitalism-approach is that institutions matter, i.e. that both CMEs as well as LMEs have an institutional backup (Kitschelt et al. 1999). In the case of LMEs, most of these are found to be rather weak and some of them even non-existent. The main institution on which the model is based is thus the market, or rather the various markets for labour, products, corporate governance, capital etc. Information asymmetries between management on one side and owners, workers, unions, customers and competitors on the other are resolved through these respective markets. Little to no non-market coordination takes place (Hall and Soskice 2001).
CMEs, by contrast, are characterized by a whole array of institutions other than markets on which they rely for their functioning. Labor laws, for example, establish various co-determination mechanisms through which workers are involved in company matters, such as works councils and board membership. Moreover, employers are bound into employer associations and mandatory membership of chambers of commerce.
Table of Contents
1. The German model in the face of globalization
Research Objective and Topics
The primary objective of this essay is to analyze the future stability and sustainability of the German model of capitalism amidst the pressures of globalization, specifically questioning whether it will inevitably converge toward the liberal market economy (LME) model of the US/UK.
- The role of institutional complementarities in maintaining economic systems.
- Distinction between Coordinated Market Economies (CMEs) and Liberal Market Economies (LMEs).
- The impact of exogenous changes, such as the internationalization of finance, on domestic institutions.
- The significance of political choice and social agency in shaping economic paths.
- The adaptive capacity of the German vocational training system and quality-oriented production.
Excerpt from the Book
The German model in the face of globalization
The assumption that the developed economies are currently undergoing profound changes sparked by a technological ‘revolution’ and fueled by broad liberalization in the international economy is no longer seriously debated. Where opinions diverge is on the effect this process, commonly referred to as globalization, has on the different models of capitalism. A widely held view is that of eventual convergence under the influence of similar pressures. Proponents of this perspective usually further argue that coordinated market economies (CMEs) will be the victims of this convergence as the model of capitalism fitter for survival is that of liberal market economies (LMEs).
This essay will argue, however, that the German system, as an example of a CME, will remain distinct from the US/UK model, as examples of LMEs, for the foreseeable future. This is indeed to a great extent due to what Soskice (1999) calls the “interlocking complementarities between the different parts of the institutional framework”. But other factors, such as firms themselves exploiting institutional comparative advantages, institutions acting as shapers as well as takers of change, and explicit political choices also play a decisive role.
Summary of Chapters
1. The German model in the face of globalization: This section establishes the theoretical framework of Varieties of Capitalism to argue that the German institutional system possesses sufficient complementarities to resist convergence with liberal market models.
Keywords
Globalization, Varieties of Capitalism, German model, Coordinated Market Economy, Liberal Market Economy, Institutional Complementarities, Institutional Equilibrium, Vocational Training, Radical Innovation, Incremental Innovation, Diversified Quality Production, Political Choice, Adaptation, Economic Stability.
Frequently Asked Questions
What is the fundamental focus of this essay?
The essay examines whether the German economic model is likely to survive the pressures of global market integration or if it will inevitably collapse and converge into a liberal market system.
What are the central thematic fields?
The central themes include institutional economics, the comparative study of capitalist systems (CME vs. LME), the impact of financial internationalization, and the persistence of national institutional differences.
What is the primary research question?
The research asks if the German system of capitalism, defined by its institutional interdependence, can sustain its distinct characteristics in the face of globalization.
Which scientific approach is utilized?
The author employs the "Varieties of Capitalism" approach, which focuses on how institutions act as inputs and support systems for economic activity.
What is covered in the main body of the work?
The text discusses the concepts of institutional equilibrium, the role of non-market coordination, the benefits of incremental innovation in CMEs, and the potential for institutional adaptation rather than total demise.
Which keywords define the work?
Key terms include Coordinated Market Economies, institutional complementarities, globalization, and comparative advantage.
How does the author define the "backbone" of the German model?
The author identifies the coordination between companies—specifically within the context of vocational training and wage setting—as the core mechanism that enables all other institutions to function effectively.
Why does the author argue that CMEs are not necessarily less stable than LMEs?
The author suggests that while LMEs are "simpler," CMEs benefit from a self-reinforcing institutional setup that provides a stable basis for high-quality production, which is a significant comparative advantage in the global market.
- Quote paper
- Ralf Segeth (Author), 2002, The German Model in the face of globalization, Munich, GRIN Verlag, https://www.grin.com/document/8771
