German model

The term German model is most often used in economics to describe post-World War II West Germany's means of using (according to University College London Professor Wendy Carlin) innovative industrial relations, vocational training, and closer relationships between the financial and industrial sectors to cultivate economic prosperity.

Industrial relations

Under the German model, unions are organized at the industry level and co-exist with work councils at both the plant and company levels. These unions negotiate wage determination with employers' associations. The strength of this setup is the cooperation among unions and management councils. This is unique among Western countries, which have been marked by either substantial weakening of union powers (such as in the United States and United Kingdom) over the last twenty years, or consistent union conflict (such as in France and Italy, where unions have remained strong).

Consensus model

As in relations between unions and employers, the German model also seeks to harmonize relations between regulatory bodies and affected parties, as well as between individual companies to prevent ruinous competition (where this is not, or was not, illegal due to anti-trust laws). Considered an outgrowth of the unconfrontative German postwar culture, finding a common denominator was often the main goal in such relationships.

Vocational training

The system of vocational training is perhaps the most important component of the German model, and is still very prevalent in the German educational system. In Germany, there is a much heavier emphasis on apprenticeships for skilled positions, taught by expert worker/instructors. As such, there is a lower percentage of university students in Germany when compared to other Western countries, but there is a much lower percentage of persons entering the German workforce with no qualifications. Vocational training is required for a large number of occupations. At the end of vocational training, a highly-regarded certification qualification is awarded that is valid for a range of over 400 occupations."See also Berufsschule (vocational school) section within Education in Germany article."

Financial and industrial relations

German banks have a much larger role in shaping the industrial sector than those in other Western countries. Rather than simply collecting savings and investments and issuing loans, most German banks have large interests in the commercial sector. As such, many corporate boards offer seats to high-ranking German banking officials, whose banks are often investors in the corporation. As a result, they seek to promote long-term investment in the overall health of the companies they are working with.

Fall of the German model

Since the German reunification German prosperity has declined compared to pre-unification West German levels, and the German unemployment rate reached record levels: 12.6% (according to national definition) as of March 2, 2005 [http://www.forbes.com/business/2005/03/08/cz_0308oxan_germany.html] , the highest rate since World War II. The failure of the German model to maintain standards of high performance has led experts to speculate about its demise, despite having been adopted successfully in other countries' corporations since its peak. Others see the relative decline as an unavoidable consequence of integrating the much less advanced GDR economy and 17 million new citizens.

Many Germans themselves consider at least parts of the German model as having become too regulatory and mediocre over time as a result of trying to always achieve common consensus and to 'not hurt anyone', for example by refusing to remove regulations or laws protecting industries endangered by new economic trends or rivals.

Much of the political discourse regarding reforms in recent years revolved around the question of how to modify the German model (and the political conditions forming its framework) to sustain it in a globalised economy. Ex-Chancellor Gerhard Schröder's reforms, called "Agenda 2010", made some steps towards such a goal, but also brought with them much controversy. Nonetheless, after years of 'painful' reforms, the German economy seems to have gotten back on track. Unemployment has fallen below 10% (according to national definition) for the first time in years and economic growth reached 2.7% in 2006 [http://news.bbc.co.uk/2/hi/business/6356513.stm] .

Whether this is an ongoing development is however a matter of continuing debate, as are further reforms.

See also

*Economy of Germany
*Ordoliberalism

External links

* [http://www.ucl.ac.uk/~uctpa36/west%20germany%20in%20crafts%20toniolo.pdf West German Growth and Institutions, 1945-1990]
* [http://www.geocities.com/CapeCanaveral/Launchpad/1350/essays/germany.html Economics Essays - Economics of OECD Countries - The German Model]
* [http://wz-berlin.de/mp/ism/pdf/globalization_and_german_model.pdf Sigurt Vitols: Globalization and the Transformation of the German Model]

Further reading

*Edinger, Lewis J. and Brigitte L. Nacos. 1998. "Capitalism with a Human Face." Pp. 145-195 in From Bonn to Berlin: German Politics in Transition. New York: Columbia University Press.
*Streeck, Wolfgang. 1997. "German Capitalism: Does It Exist? Can It Survive?" Pp. 33-54 in Political Economy of Modern Capitalism: Mapping Convergence and Diversity, edited by C. Crouch and W. Streeck. London/Thousand Oaks: Sage.
*Roesler, Jörg. 1997. "The Rise and Fall of the Planned Economy in the German Democratic Republic, 1945-89." Pp. 482-497 in The Economic Development of Germany Since 1870. Volume 2, edited by Wolfram Fischer. Cheltenham, UK/Lyme, N.H.: Elgar.
*Pickel, Andreas. 1997. "The Jump-Started Economy and the Ready-Made State." Comparative Political Studies 30 (Apr):211-241.