The paradox of post-war European politics is that the most democratic economy in Europe, the German Social Market Economy, has underpinned the stability of continental currencies. The rights available to German workers and citizens both individually and collectively have been, and remain, amongst the most extensive of any capitalist economy known to history. Ironically, to achieve this, it was necessary to conceal the institutions of democratic economic governance behind a facade of fiscal orthodoxy and Central Bank autonomy. The tragedy of Europe today is that the stringent requirements of the Maastricht convergence criteria are threatening not only the social guarantees embodied in the model but also the substantive practices of production that provided Germany with its industrial durability. In the name of creating a homogeneous ‘European Economic Space’, the conditions of economic nationalism are being created. This is not new. As Karl Polanyi has argued, the ever more intrusive commodification of human beings, nature and money has proved increasingly incompatible with human solidarity, and has furnished modern society with a fateful source of conflict for more than two centuries.
The discipline of political economy founded by Townsend, Malthus and Ricardo was built upon two potentially irreconcilable premises. The first was that the economy was independent of society and based upon an equilibrium of supply and demand between the factors of production—labour, land and money. The second element emphasized the importance of statecraft and the policies necessary to sustain social stability and increase prosperity.footnote1 An abstract definition of the economy was combined with a substantive conception of politics. While self-regulating markets were invariably established by the newly sovereign nation state throughout the nineteenth century; the state subsequently acted to resurrect the non-commodity status of labour, land and money it had been instrumental in abolishing. The first half of the twentieth century was characterized by different forms of political economy in which politics subordinated economics.footnote2 Regimes as diverse as New Deal America and
It is now a central tenet of political and academic opinion that this relation has been reversed. The globalization of trade and innovations in communication technology have led to novel and severe constraints being placed on the capacity of political and social institutions to refract and assimilate the pressures of commodification.footnote3 Globalization, it is argued, necessitates a state economic policy predicated upon effectively cultivating national comparative advantage through ensuring attractive conditions for Direct Foreign Investment by eliminating those societal practices which impede self-regulating markets.
Within this framework, the ‘flexible’ British economy is upheld as an exemplar of market efficiency in contrast to Germany, in which democratic work practices, the necessity of managerial negotiation and constrained capital markets are said to hinder innovation and a rapid response to changing demand. High unemployment and sluggish growth are the results. This is a view promoted most vigorously by the Bundesbank and the German Employers’ Federation. National unification, European integration and the prevailing economic consensus have provided an unprecedented opportunity to dissolve the Social Market Economy by the political imposition of market rules.
The argument that Germany is stagnating due to its institutional rigidities, however, does not conform to the facts. Manufacturing exports were up 7 per cent between March and July of this year.footnote4 Exports to Eastern Europe and Southeast Asia increased by more than 10 per cent.footnote5 There has been a revival of economic activity in the Eastern Lande. While unemployment remains deplorably high, the welfare arrangements available to the unemployed in Germany are much more generous than those prevailing in Britain and the United States. Attempts by Kohl to whittle away welfare provision have met determined resistance from the trade unions. Even on the chosen terrain of neoliberal economics, the performance of the economy retains an edge since Germany has displaced Britain as the recipient of the largest Direct Foreign Investment in the European Union.footnote6 $14.7 billion of foreign investment came into Germany in the first half of 1997, compared to $11.6 billion into Britain.footnote7 Exports of cars, chemicals and machine parts continue to rise. The causes of internal German deflation and unemployment do not lie in the institutions of the Social Market. It is the fiscal orthodoxy imposed through the terms of the Maastricht convergence criteria, not democratic work practices, that have put the brakes on the German economy.footnote8 By generating domestic deflation and then exporting this by means of con
While every major state in Western Europe developed a strong central bank, extended welfare rights and adopted an industrial policy after 1945, the degree of democracy established within the German economy was greater than in any other country participating in the world economy. The Bundesbank has always had representatives of the Lande on its governing council, while large companies have had to take account both of banks and, to a lesser extent, the workers’ representatives on their boards. But these arrangements did not in themselves exhaust the institutional underpinning of the Social Market model. Not financial policy but industrial practice was the motor of social restoration, and this demanded new institutional arrangements within the labour market. Limitations on managerial prerogative concerning strategy, job-definition and the organization of production led, in defiance of the prevailing definition of economic rationality, to successful enterprise adaptation to technological changes without sacrificing productive capacity.
The fundamental feature of the Social Market Economy was that social institutions mediated between market and state in order to preserve the non-commodity status of labour and knowledge. The most important institution in terms of education and ethical self-regulation within the economy is the artisan’s Handwerk organization. This represents all artisans, enforces apprenticeship laws, administers the vocational training system and distributes masters’ licences. The Master’s Certificate of Competency requires a seven-year apprenticeship culminating in the production of a masterpiece and the passing of theoretical exams which include accounting, tax law and marketing courses. Any firm practising recognized artisan trades without the appropriate accreditation is liable to prosecution by the organization.footnote10 These trades range from chimney-sweep to precision optician, carpenter to orthopaedic shoe-maker, butcher to barber, car mechanic to neon-sign producer.footnote11 Local chambers have the power to determine whether a firm is suitable to train apprentices, and withdraw a firm’s training licence if this is not the case. This imposes public inspection of work practices and ensures certain standards are upheld.footnote12 Vocational training in Germany is thus publicly regulated and vocationally administered.