German Economic Performance: Disentangling the Role of Supply-Side Reforms, Macroeconomic Policy and Coordinated Economy Institutions

Posted: 15 Dec 2008

See all articles by Wendy Carlin

Wendy Carlin

University College London - Department of Economics; Centre for Economic Policy Research (CEPR)

David Soskice

Duke University

Date Written: January 2009

Abstract

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

Suggested Citation

Carlin, Wendy and Soskice, David, German Economic Performance: Disentangling the Role of Supply-Side Reforms, Macroeconomic Policy and Coordinated Economy Institutions (January 2009). Socio-Economic Review, Vol. 7, Issue 1, pp. 67-99, 2009, Available at SSRN: https://ssrn.com/abstract=1315944 or http://dx.doi.org/mwn021

Wendy Carlin (Contact Author)

University College London - Department of Economics ( email )

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London WC1E 6BT, WC1E 6BT
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Soskice

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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