Comparative European Politics, 2005, 3, (432–463) r 2005 Palgrave Macmillan Ltd 1472-4790/05 $30.00 www.palgrave-journals.com/cep

Pressure from without, Subversion from within: The Two-Pronged German Employer Offensive Daniel Kinderman 214 White Hall, Cornell University, Ithaca, NY 14853, USA. E-mail: [email protected]

This article takes issue with ‘Varieties of Capitalism’s’ portrayal of German employer preferences as structurally conservative. Since the mid-1990s, German employers have overcome their internal disunity and have been subverting existing institutions from without (politically) and from within (in the industrial relations realm). Scholars of German political economy have focused on continuity of structure and, having established this, have inferred continuity of content. Focusing on continuity in formal structures is misleading because this blinds analysts to important changes in content/practices; we see this most clearly in new management strategies, which alter the very essence of workplace labor relations. In addition to new management practices, this paper examines a large-scale public relations initiative founded and funded by German employers — the ‘New Social Market Initiative.’ Programmatically, the New Social Market shows that many German employers desire deregulation and liberalization — a move towards a Liberal Market Economy. The German employer offensive is a result of severe competitive pressures, the failure of the traditional institutions of the German model to satisfy employers’ needs, and a set of circumstances that enable employers to transform the existing system from within while leaving many of its formal structures intact. Comparative European Politics (2005) 3, 432–463. doi:10.1057/palgrave.cep.6110064 Keywords: varieties of capitalism; Germany; employer preferences; employer unity; entrepreneurial worker; post-fordism

Introduction ‘The so-called German model, developed in the 1970s, has long ceased to be a model worth emulating’ -German employer-funded New Social Market Initiative (2003). It is difficult to generalize about the recent dynamics of the German political economy: the current conjuncture seems fundamentally ambiguous. Long hailed as a paragon of institutional stability and continuity, the Germen political economy has recently seen changes in the area of corporate governance as a result of the increasing influence of shareholder value (Ho¨pner, 2003; Streeck and Ho¨pner, 2003), as well as far-reaching labor

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market and welfare state reforms. Yet despite these changes, ‘traditional’ institutions such as works councils and sectoral collective bargaining persist. Emphasizing this continuity, the conventional wisdom sees Germany as a paragon of stability in the midst of stormy seas. In her monograph on German labor relations, Kathleen Thelen remarks that ‘in the end, not institutional rigidity, but resiliency and flexibility, is what accounts for the continued stability of negotiated adjustment in Germany’ (1991). Surveying the 1980s, Peter Katzenstein finds that ‘experimentation and change within a stable institutional framework’ captures the central dynamic of German industry and politics (1989, 308). The recent ‘Varieties of Capitalism’ literature follows a similar tack. Peter Hall and David Soskice predict ‘a bifurcated response marked by widespread deregulation in liberal market economies and limited movement in coordinated market economies’ (2001b, 58). According to Stewart Wood, ‘German employers since the early 1980s have repeatedly failed to bite when offered the carrot of deregulation’ (2001, 408). The effect of efforts ‘to encourage more flexible forms of employment,’ Wood emphasizes, ‘has been small because of low employer interest’ (p. 380). And David Soskice has argued for the ‘bifurcated convergence’ of Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs) on their respective ideal types: their differences should crystallize out and become if anything more apparent than before (1999). According to these scholars, the reason for Germany’s ‘limited movement’ is that employers’ competitive strategies depend upon non-market coordination and regulation. Their basic point seems to be this: employers shouldn’t be unhappy, there is a lot for firms to like about the existing system. The German employer offensive shouldn’t be happening. There is much to recommend the conventional wisdom. However, it also has difficulty accounting for an increasing number of ‘anomalies’ that are transforming Germany’s institutional landscape. As many of the analytical tools utilized by scholars are derived from the old paradigm, they tend to overlook growing evidence of the new, emerging one. In this paper, I argue that the conventional wisdom overlooks important aspects of change in the German political economy. Scholars of German political economy have focused on continuity of structure and, having established this, have inferred continuity of content. I argue that by changing the content, German employers are in fact changing the structure of the German model. Focusing on continuity in formal structures is misleading because this blinds analysts to important changes in content/practices; we see this most clearly in new management strategies, which change the very essence of workplace labor relations. Similar to a wave, which is visible above waterline but draws its impelling force from below, the German employer offensive has a two-pronged structure. German employers are challenging the existing system by attacking the Comparative European Politics 2005 3

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legitimacy of existing institutions in the political realm, and by introducing radical new management strategies in the industrial relations realm. As a consequence of the latter initiatives, a growing number of German employers are unfettered by apparently constricting institutions, such as sectoral collective bargaining and works councils. While employers circumvent these constraints through the introduction of new management and production organization strategies on the shop floor, the existence of the former — largescale public relations campaigns demanding the thoroughgoing liberalization of the German economy — proves that for many German employers, strategies of internal flexiblization do not go far enough. This paper challenges the ‘Varieties of Capitalism’ literature on two counts. First, I take the ‘Varieties’ literature to imply the falsifiable proposition that there’s a lot for firms to like about the existing system: employers wouldn’t want to transform it, even if they could. Under conditions of institutional arbitrage and intense competition on global product markets, firms should redouble and reinforce the non-market coordination that is the lifeblood of their comparative advantage. They should be happy campers. A closer look shows that they are not. Employers in CMEs such as Germany can turn against CME institutions — that is the most basic lesson of this paper. In arguing this point, I make the case against the divergence of CMEs and LMEs, as articulated by Soskice (1999). This attempt to come to terms with the transformation of the German political economy can be placed in the context of broad debates over common trends, convergence and divergence of modern capitalism (Shonfield, 1965; Katzenstein, 1985; Pontusson and Swenson, 2000; Hall and Soskice, 2001a). Second, although Peter Hall and David Soskice are to be commended for ‘bringing the firm and employer preferences’ back onto center stage of analysis, the result is if anything too firm-centric. There is a tendency to lose sight of the fact that not institutions per se, but rather the benefits that institutions provided for workers were distinctive of the German model of political economy. These benefits are threatened by German employers’ two-pronged offensive and by the global competitive pressures that engendered it. Contrary to the pronouncements of the doctrine of ‘comparative institutional advantage,’ the German employer offensive is occurring precisely because existing institutional arrangements no longer satisfy employer ‘needs.’ The organization of this paper follows the structure of the argument. The first half of the paper addresses the political realm of German employer politics. I begin with a cursory presentation of the ‘Varieties’ arguments, which I contest, after which I address the New Social Market Economy Initiative. I use this initiative, a large-scale public relations campaign initiated and funded by German employers, to challenge the conventional view that German employers are structurally conservative in their outlook and orientation: they Comparative European Politics 2005 3

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really want change. The second half of the paper addresses the industrial relations realm. This section shows that employers are not paralyzed by disunity, but rather have been pursuing far-reaching changes within existing structures, subverting them through the introduction of new management and production strategies. I subsequently address the relationship between changes in these two spheres, the pressure from within and subversion from without.

Employer Preferences and Economic Reforms One of the most striking claims of the ‘Varieties of Capitalism’ literature is that employer preferences are qualitatively different in LMEs and CMEs. In LMEs, business will favor liberalization, deregulation and other measures to bring about ‘unfettered’ markets, whereas in CMEs, employers will be careful not to dismantle structures of non-market coordination, which allow them to overcome various collective-action problems. The ‘Varieties’ approach thus purports to explain both the neoliberal radicalism of Thatcher and Reagan in LMEs as well as the structurally conservative employer preferences in CMEs such as Germany. Stewart Wood argues that the greatest constraint on reforms that were designed to advance the interests of firms and managers was provided by employers themselves. [y] German employers since the early 1980s have repeatedly failed to bite when offered the carrot of deregulation (1997, 26; 2001, 408). How different things look today — how dramatically the situation has changed in just a few years! For example, the recent Hartz IV labor market reforms initiated by the SPD government dramatically lower the reservation wage for skilled and unskilled workers in Germany, forcing them to take on lower paying jobs. These reforms have been actively promoted and supported by German employers of all stripes, which flatly contradicts Estevez-Abe et al. (2001) argument that employers (should) support high reservation wages and wage-replacement rates because these are a prerequisite for employee investment in specific skills. Moreover, the disjuncture between the stated interests of corporate actors in Germany and the deductive-functionalist interests ascribed to them by the ‘Varieties of Capitalism’ literature,is striking. According to Hall and Soskice [in CMEs] governments should be less sympathetic to deregulation because it threatens the nation’s comparative institutional advantages. Although there will be some calls for deregulation even in such settings, the business community is likely to provide less support for it, because many firms draw competitive advantages from systems of relational contracting that depend on the presence of supportive regulatory regimes (2001b, 58). Comparative European Politics 2005 3

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However, German employers are clearly unhappy with the rate of change and the limited extent of deregulation. The Bundesverband der Deutschen Arbeitgeberverba¨nde (BDA), the organization that houses virtually all of the German employers associations that negotiate with unions, has bluntly stated: ‘our theme is deregulation’ (Sulk, interview, 2002). The Bundesverband der Deutschen Industrie (Federation of German Industry, henceforth BDI) is of the view that ‘moderate reforms in Germany do not go far enough’ (M Kra¨mer, [BDI, Berlin] personal communication, 23 September 2002). More to the point, the traditional institutions of the German model are increasingly being penetrated and transformed by market forces. The origins of the German employer offensive can be located in the failure of the traditional institutions of the German model to satisfy employer needs. This failure is compounded by three related factors: the severe cost pressures, which pervade contemporary international business, persistently high unemployment and low rates of growth in Germany, and the fierce competition between different European and global production locations [Standortkunkurrenz], many of them with large pools of cheap skilled labor, which employers can play off against one another. Under these conditions, German employers feel empowered to challenge existing institutions politically.1 I am agnostic as to whether German employers’ underlying institutional preferences have changed (as in Sweden during the 1980s and 1990 — see Pontusson and Swenson, 2000, 78), or the new circumstances allow employers to realize preferences that they have long (perhaps always?) held. The German employer offensive can be dated to the early mid-1990s (with the introduction of new management strategies), and it gained speed in the late 1990s (with the overcoming of employer disunity and the establishment of the employer-funded ‘New Social Market Initiative’). Recent years have also seen a precipitous decline in domestic investment by German firms, despite increasing profits. This ‘capital strike’ leads Ganmann to ask whether ‘German capital is leaving German capitalism?’ (2004, 179). Thus, the German employer offensive coincides temporally with ‘[t]he break with organized capitalism [which] came [during] the second half of the 1990s’ (Bayer and Ho¨pner, 2003, 180). To this day, many German employers remain hesitant to publicly question the legitimacy of workers’ collective interest representation tout court.2 Despite their serious problems, unions continue to be too powerful and their societal legitimacy too entrenched for outright attacks of this sort. For the most part, the German employer offensive is more subtle than that. To substantiate my argument that the implementation problem does not derive from ‘low employer interest’ (Wood, 2001, 392), the next section describes a large-scale public relations campaign initiated and funded by German employers to expand their room of maneuver. The aim of this section is to challenge the claim that German employer preferences are structurally Comparative European Politics 2005 3

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conservative. The ‘New Social Market Economy Initiative’ (henceforth NSMI) is the most externally visible prong of the two-pronged German employer offensive and should be interpreted as the ideological umbrella under which employer activities are carried out.

The Social Construction of Regime Change: The ‘New Social Market Economy Initiative’ ‘At last at this point one could say: the new social market economy is identical with the Anglo-Saxon, the American principle [y]’ -Hans Tietmeyer, former Bundesbank president and head of the ‘New Social Market Economy’ initiative (Tietmeyer, 2001, 22). What are the institutional preferences of German employers today? Preferences themselves are not readily observable; some kind of proxy must be found. The New Social Market Initiative, a large-scale public relations campaign founded and funded by the German metalworking industry, is such a proxy. According to one analyst, one could almost say that the NSMI is the ‘marketing department’ of the powerful Federation of German Industry (BDI) (Speth, 2004b, 31). The NSMI is the phalanx of employer’s attempts to accelerate institutional reforms and economic liberalization reforms in Speth, 2004b Germany. While we cannot directly read employer preferences off the rhetoric of this campaign — form and content may be modified by public relations considerations — it is nonetheless probable that it expresses something about what German employers want. The NSMI not only express employer preferences — it also seeks to endow those preferences with normative legitimacy in the public eye. Since (West) Germany’s post-war identity was based substantially on the welfare state, egalitarian income distribution and related components of the ‘social market,’ retrenching these prized institutions is difficult and politically volatile.3 ‘In any social formation, the distribution of burdens and of resources must be normatively legitimated if efficiency losses and open conflicts are to be avoided’ (Lengfeld et al., 2003, 469). The purpose of the NSMI is to provide this legitimation for an increasingly market-centered economic and welfare regime. As Vivien A. Schmidt argues, discourse performs a ‘cognitive function,’ by ‘providing convincing arguments in favor of a given policy program, demonstrating why it is better than past policy programs in providing effective solutions to current problems’ — and a ‘normative function by legitimating the policy program through appeal to national values, generally by showing how the policies build on long-standing values and on deep-seated structures of national identity while creating something new, better suited to new politicoeconomic realities’ (Schmidt, 2000, 280). Diane Sainsbury similarly notes that Comparative European Politics 2005 3

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‘the long-term success of welfare state reformsyrequires a change in the underlying definition of moral appropriateness’ (Sainsbury, 2001, 263). The NSMI aims to do just that. The NSMI can be taken as evidence that German employers desire the farreaching liberalization of the German political economy — in the terminology of the ‘Varieties’ literature, a move from CME towards LME. The following statement by David Soskice is illustrative of the view which I aim to challenge: ‘[I]n nations such as Austria, Sweden and Germany, the mobilizational power of producer groups sets limits on what deregulation can achieve in economic terms and on how much deregulation can be achieved in political terms’ (Hall and Soskice, 2003, 246). The NSMI campaign was founded after a public opinion survey in the summer of 1999 showed evidence of substantial mistrust of business and the market on the part of the general German population. Two-thirds of citizens surveyed in Germany viewed the prospect of upcoming economic reforms with attitude ranging from ‘skepticism’ to ‘fear’ and supported a generous welfare state (Gesellschaft im Zwiespalt, 2000, 16), and 42% favored a third way between capitalism and socialism (Speth, 2004b, 7). The NSMI was founded in order to help bring about a Klimawechsel — a change in the public opinion climate — to facilitate the implementation of the reforms employers desire and advocate. The campaign is titled the ‘neue soziale Marktwirtschaft’ — the ‘New Social Market Economy’ — although according to its managing director, its goal is to restore the ‘old’ social market economy that existed before it was ‘hijacked’ by special interest groups and distorted by excessive welfare-state interventionism (Rath, interview, 2002).4 The social market model is the founding myth of the Federal Republic of Germany, as Haselbach remarks: [t]he social market economy’ constitutes in part West Germany’s selfconsciousness; it forms the specific ‘identity’ of the West German people. In other words, the ‘economic miracle’ and the ‘social market economy’ constitute the founding myth of West Germany (1997, 158). The prominence and currency of ‘social market economy’ discourse in Germany is astounding; it would be no exaggeration to say that it is hegemonic as far as economic and social policy is concerned. One recent commentator declared the ‘social market economy’ to be in all honesty ‘[u]p to now, the most successful conception of economic policy in the history of [hu]mankind’ (Haselbach, 1997, 160). More even — as Haselbach emphasizes, ‘[t]he tale of the ‘‘social market economy’’yis referred to almost every day, somewhere in a German newspaper or political statement; it has become part of the national memory’ (1997, 161). The genius of the ‘social market economy’ lies in its versatility: it is both ‘social’ (fair/just) and a ‘[capitalist] market.’ By Comparative European Politics 2005 3

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emphasizing different aspects of this totality, Left and Right can endorse the ‘social market economy’ from within their own normative vocabularies — much like an ‘overlapping consensus’ (Rawls, 1993). How does the NSMI seek to alter the balance between ‘market’ and ‘social’ in the ‘social market economy’? The NSMI is non-partisan: it has ambassadors from each of the major political parties, in addition to celebrities and public icons, academics, businesspeople and workers. These figures appear on brochures and billboards, and in television and newspaper ads, online advertisements, television documentaries and opinion pieces, public events, press releases, publications and at conferences, and are supported by a budget of 100 million Euros over 10 years. The campaign focuses on ‘multipliers,’ people who are in a position to affect public opinion and who can further disseminate the message. Articles appear almost daily in all major German newspapers and newsmagazines (Speth, 2004a).5 The campaign centers on the disjuncture between the historically evolved social market economy and its ideational origins. In addition to the political recognition of core sections of the labor movement and their integration into mechanisms of corporate governance, the post-war German political economy evolved an extensive welfare state with a dense network of regulations, extensive corporate-governance powers for labor and generous incomereplacement levels. This is the historically evolved social market economy. The ideational origins are more complicated.6 However, it seems that the NSMI’s ideal is close to Ludwig Erhard’s. As Gerhard Schwarz points out, ‘For him [Ludwig Erhard] the social market economy [y] was a sales formula, that should make clear that the market economy is itself social [that is, egalitarian or just]’ (Plehwe and Walpen, 1999, 224).7 Two points illustrate how the NSMI aims to engage with and transform prevailing societal norms of social justice. Firstly, it argues that a social market is a free one, not one burdened by regulation and welfare-state interventionism. As Tietmeyer puts it, ‘the ‘‘market economy’’ and ‘‘the social’’ are erroneously seen by many as separate or opposed.’ The campaign aims to ‘free up Erhard’s original system from the shackles placed on it down the years’ (2001, 29). Secondly, the NSMI advocates replacing distribution of resources with equality of opportunity: ‘Today it is no longer appropriate to promise Wohlstand [material affluence] to everyone. The point is that everyone get a chance’ (2001, 22). The NSMI emphasizes the need for flexiblization and deregulation in general, and of labor markets in particular; and the creation of jobs as both the over-riding goal of social policy and, indeed, the principal requirement of social justice. ‘Badly paid jobs are better than none at all. [y] A guiding principal of the new social market economy is the motto: Just is whatever Comparative European Politics 2005 3

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creates employment.’ (Rodenstock, 2001, 54–55). This motto has come to dominate German public debate, has been adopted nearly word-for-word by governing and opposition parties and is being enacted into public policy. The general thrust of NSMI argumentation is more market, less state. As these examples, and Tietmeyer’s quote above (‘the new social market economy is equivalent to the American principle’) indicate, the NSMI advocates a move of the German political economy from CME towards LME. Organized labor seems to recognize the danger in this transformation: ‘[u]nions say that the [NSMI] initiative is dangerous,’ remarks a director of the NSMI (Rath, interview, 2003). Norbert Reuter writes that ‘a change of the German economic order according to the plans of the NSMI cannot be seen as a further development of the social market economy, but would mean a fundamental break with ‘‘Rheinish capitalism’’’ (Reuter, 2002, 687). To conclude, the NSMI has supported economic regime change in myriad ways. If it is true, as one commentator has suggested, that ‘2003 [and 2004] will go into the records as a year of political climate change,’ then to a substantial part because of the activities of the NSMI (Metzger, 2003). As Rudolph Speth concludes his study, one can reasonably assume that the activities of the NSMI have contributed massively towards changing the orientations of the population and bring into discussion topics such as retrenchment of the welfare state, [lengthening] working time, increased self-reliance, and a reduction of state intervention and expenditure during the past few years (Speth, 2004b, 41). Regarding employer preferences, it is interesting to note that the member associations of Gesamtmetall have criticized the initiative for being too slow. Far from wanting to conserve existing structures, they have been impatient with the progress in direction liberalization and market reforms to date (Rath, interview, 2003). And the NSMI is only the most prominent of numerous campaigns that aim to popularize neo-liberal reforms in Germany today. Are these initiatives to promote liberalization being thwarted by disunity within employers’ associations and Just-in-Time logistics, which allow unions to hold employers at ransom? In the next section, I address this argument.

A Paralyzing Employer Disunity? Kathleen Thelen’s contributions to the study of German labor relations have been particularly insightful and influential. However, Thelen has propagated an argument that — I claim — no longer accurately describes the realities of the German political economy. Thelen argues that ‘German employers, not unions, are the ones suffering the greatest strategic and organizational disarray’ (Thelen and Kume, 1999, 489). She has repeatedly made the case that Comparative European Politics 2005 3

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Just-in-Time logistics make employers unable or unwilling to suffer industrial conflict, leading to employer paralysis and high wage settlements for the firms, which do not flee their associations. Thelen states that ‘employers’ lack of solidarity [is] labor’s number one problem’ and ‘a serious threat to the system,’ elsewhere referring to ‘a growing gap’ and ‘key divisions’ within employers associations such as Gesamtmetall (Thelen, 2000, 85; Thelen and Kume, 2003, 210; Thelen and van Wijnbergen, 2003, 860, 869). In what follows, I attempt to show that this story was accurate and insightful during the mid-1990s, but no longer provides much analytical purchase on the dynamics of German industrial relations and collective bargaining. German employers’ associations have overcome the (very real) pressures exerted on them by labor in the context of Just-in-Time production linkages by establishing association membership without binding wage levels (ohne Tarifbindung, henceforth OT). Since the introduction of this new form of association membership, the claim that the internal tensions within Gesamtmetall are growing is simply not accurate. On the contrary, the tensions within the employers’ camp have diminished as OT membership has grown, while those within organized labor have reached crisis proportions. Showing that the tensions within employers associations are less severe than Thelen claims they are is important for the argument of this paper. Employer disunity, if severe, could preclude the articulation of viable alternatives to the traditional German model as the NSMI seeks to do. The fact that the NSMI is supported and financed by Gesamtmetall as a whole — an association that represents a very heterogeneous sector with a disproportionate number of small- and medium-sized firms — provides evidence that employer disunity has been overcome.8 The managing director of Gesamtmetall, Thomas Vajna, states that the tensions following the 1995 strike in Bavaria were ‘not structural in nature, but rather the result of a failed bargaining strategy’ (Vajna, 2002). What happened in 1995 and 1996 was an isolated mistake, rather than one instance of a general trend. In my interviews with him, Vajna was not the least bit concerned about association flight (Vajna, 2002, 2003, 2004). Gesamtmetall’s press director comments on the internal tension by saying that ‘this has been a non-topic since 1997 [y] unity has been restored’ (Leutz, interview, 2002). Such statements by the organization about itself must be treated with caution, but independent sources confirm them. An official from the Federation of German employers’ associations (BDA) said that ‘this [association flight] was a topic 3, 4, 5 years ago, but not anymore’ (Sulk, interview, 2002). Wolfgang Schro¨der, a member of the IG Metall executive and one of Germany’s foremost scholarly authorities on employers’ associations, states that ‘the tensions [within employers’ associations] have clearly diminished [compared with the mid-1990s’ (interview, 2003). Comparative European Politics 2005 3

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As noted above, tensions within employers’ associations have declined in large part to the introduction of new forms of association membership in which sectorally negotiated pay rates are not binding (OT). Thus, a decline of membership in the area with collectively binding pay rates does not necessarily imply a declining membership in the employers’ association, as many firms remain OT association members. Firms can thus retain their membership in the employers’ association and the legal and consultative services it offers without being obliged to pay collectively agreed wage rates (and the associations can continue to collect membership dues). This option is especially attractive for disgruntled Mittelsta¨ndler (small- and medium-sized firms). The OT strategy has reduced tensions within employers’ associations to the detriment of unions, which have a vested interest in keeping firms in binding wage and benefit agreements — which employers may leave or threaten to leave if collective agreements are deemed excessive. Throughout Germany, OT membership has grown rapidly, to approximately 50% of total association membership in Bavaria and 75% in Saxony in 2004. ‘Since the implementation of membership without binding wage and benefit provisions, we have new members joining [the employers’ association]. 1996 was the turning point,’ explains Vajna (interview, 2003). A cursory examination of Gesamtmetall membership statistics confirms that the phenomena Thelen describes are episodic and not symptomatic of a general trend. However, due to constraints of space, and since the Gesamtmetall figures are for binding wage association membership only (employers carefully guard OT membership statistics), I do not reproduce them here. Not employers, but organized labor is currently in a state of crisis and paralysis in Germany. During the summer of 2003, the metalworkers’ union IG Metall launched a strike in the eastern German metalworking industry to reduce the workweek there to 35 h, the standard that has prevailed in western Germany since the mid-1990s. The utter failure of this strike not only contradicts Thelen’s claims of employer paralysis and vulnerability under the conditions of Just-in-Time production — it also precipitated an acute crisis within the ranks of IG Metall and the German labor movement more generally. As one observer remarked, referring to the divide between ‘traditionalists’ and ‘modernizers,’ ‘[t]he executive, just like the entire organization, is split exactly in the middle. After the defeat, the IG Metall is bedeviled by internal strife’ (Viering, 2003). Another commentator remarked that ‘[n]ever before was the IG Metall as fractured as today’ (Knott, 2003, 3). In light of these developments, some commentators came to view IG Metall’s 2003 defeat and subsequent infighting as a decisive moment in the collapse of the existing system — ‘as a process of creative destruction, in which Germany came to the realization that the labor market is a market like any other’ (Hank, 2003). Comparative European Politics 2005 3

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IG Metall’s failed strike can be seen as a crude test of the ‘Just-in-Time logistics enable labor to coerce firms into high settlements’ claim. In order to further evaluate this hypothesis, I conducted two surveys. While the sample size is small and the evidence is suggestive rather than conclusive, I maintain that this can be tolerated as a ‘first cut’ and in the absence of systematic evidence. In the first survey, I questioned six firms, which were targeted by the IG Metall union’s strikes in summer 2003, shortly after the conclusion of that industrial dispute [Arbeitskampf]. With an average of 463 employees, these firms tend to be small and medium sized, Mittelsta¨ndisch. The purpose of this survey was to determine whether unions can hold firms at ransom [erpreen] and compel high wage settlements because of Just-in-Time production logistics. Despite the eventual failure of the strike, the extended interruption of production under tight production linkages did prompt some automobile supplier firms to settle individually with the union — exactly the scenario Thelen describes. In my questionnaires, I asked ‘whether tight logistical linkages are used by labor to force high wage settlements?’ The evidence is mixed: three of the six firms surveyed (50%) answered ‘yes’ and three answered ‘no.’9 The firms which said that they were forced to accept high wage settlements [erpret] are smaller (with an average of 723 employees) than those who said that that they were not forced to accept high settlements (these firms had 2,537 employees on average). Based on this evidence, size appears to be an important determinant of vulnerability to labor strife. In the second survey, sent to one-hundred firms (most of which are listed on the DAX stock exchange index), I sought to find out whether strikes and labor disruptions [Arbeitska¨mpfe] in the contemporary period are more, the same, or less disruptive than labor disruptions during the 1980s in Germany, before the implementation of Just-in-Time production.10 What does the evidence tell us? The majority of survey respondents, or 18 out of 29 responses11 (18/29¼62%) stated that the damage caused by labor disruptions in the contemporary period is the same as the damage caused 20 years ago/during the 1980s. Seven out of 29 respondents (7/29 or 24%) indicated that the damage caused during the contemporary period is greater than 20 years ago/during the 1980s, and four out of 29 (4/29 or 14%) indicated that the consequences of strikes during the contemporary period are less damaging than during the 1980s. While not a random representative sample, this evidence is suggestive, and it does not provide strong support for the ‘Just-in-Time coercion’ thesis.12 Thelen’s emphasis on the importance of firm size, on the other hand, is supported by my evidence. The firms in my second survey which reported that labor strife [Arbeitska¨mpfe] is more damaging than 20 years ago had 56,300 employees on average; firms which reported that labor strife was just as damaging as 20 years ago had an average of 65,317 employees; and firms which reported that labor strife was less damaging had an average of 214, 844 Comparative European Politics 2005 3

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employees. Based on my sample, vulnerability to labor strife is inversely related to firm size. Finally, the threat and reality of employer disinvestment and production relocation has not only promoted caution on the part of employees and unions when considering strikes which would be deleterious to the competitiveness of their plants — it has also forced them to concede far-reaching concessions on wages and working time. According to Thomas Becker, director of the automobile industry association VDA, unions that are considering strikes are confronted skeptically: ‘leave them [strikes] be! The Eastern European competition is in front of our noses as a comparison!’ (Becker, interview, 2003). CEOs such as Ju¨rgen Schrempp of Daimler Chrysler regularly warn employees who are considering labor action: ‘[w]e were very clear at the talks [with the union],’ Schrempp explains: ‘we said, we have Poland. We have Hungary. We have the Czech Republic’ (Boudette, 2004). Not surprisingly, recent developments in the collective bargaining arena favor the employers. In the summer of 2004, the German electronics giant Siemens concluded a collective agreement at its plants Kamp-Lintfort and Bocholt (which build cell phones), which has been described as a ‘historical break in the economic history of the Federal Republic. And it is perceived as such in politics, in the economy and in society’ (Deckstein et al., 2004, 69). Management had threatened to shut down the two plants and re-locate production to Hungary should the employees fail to lower their labor costs by 30%. In the final agreement, IG Metall agreed to a 40-h workweek (5 additional hours without extra pay) and dramatic wage and benefit cuts. Many other firms soon followed suit, setting into motion a cascade of unfavorable agreements that wiped out the gains that organized labor had made during the previous two decades. These changes have been occurring at breakneck speed, accelerating even between the failed August 2003 strike and summer 2004. As Vajna recounts after the defeat of the union in Saxony, the question arose: what do we do with the collective bargaining agreement? The employers association in the state of Saxony [the most radical in Germany, sometimes called the ‘north Koreans’] pressured to retain the 38-h workweek [which was radical when compared to the 35-h standard which then prevailed in the west]. One year later, an increasing number of firms [all over Germany] have agreements for forty hours. Changes are happening at an astonishing speed [Affentempo]’ (interview, 2004). There can be no doubt about who bears the costs of these recent developments. According to works council Michael Leucker at DaimlerBenz, ‘before, we negotiated eye to eye, but now we’re here,’ he says, pointing his hand towards his knee — ‘no, even lower,’ he exclaims (Deckstein et al., 2004, 74). Evidently, contrary to Hall and Soskice (2001a), low-cost labor can Comparative European Politics 2005 3

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produce high-value high-quality products, and all but 7% of German firms claim to be competing on the basis of price, not on the basis of quality.13 Heiko Massa-Wirth and Hartmut Seifert’s study of German pacts for employment and competitiveness also documents the erosion of the German wage bargaining system at its core. According to Massa-Wirth and Seifert, 23% of German establishments with a works council and 20 or more regular employees have signed concessionary pacts that permit downward deviations from industry standard collective agreements, and 56% of the largest companies have done so (2004, 4). The ‘immediate threat of job loss or plant relocation’ was the most frequently mentioned reason for agreeing to a pact, and while 28% of those who agreed to a pact were experiencing poor product demand, 25% of firms with pacts were experiencing very good product demand (2004, 5). In 1999, 7% of the agreements were asymmetrical in that workforces gained no pledges from management in return for sometimes sizable concessions, and in 2003, that figure was 13% (2004, 7). In 1999, 14% of work councils surveyed conceded that the pact violated existing collective bargaining contract. In 2003, the share rose to 19% (2004, 10). It should be clear from these examples that labor standards are eroding not only at the periphery but also at the core of the German political economy. Next, we turn to changes on the shop floor, the second prong and wellspring of the German employer offensive.

Changing the Structure Through Content: The Paradigm Shift We can discern the outlines of a fundamental change in the way work is organized, structured, and governed. This transformation y is sufficiently far-reaching that looking back from the twenty-first century to the end of the twentieth, many will view the struggles of the 1990s as a disruptive and costly period of adjustment to a new logic of organizing – Walter Powell (2001, 35). German employers’ preferences are visible not only in the political and industrial relations realms — they also have ramifications for the shop floor. While dramatic transformations in the organization of post-Fordist work are not peculiar to Germany — the move from ‘order, predictability and hierarchy’ (Powell, 2001, 38) within the firm to flattened hierarchies and increased employee responsibility has taken place in most (if not all) advanced industrial countries (DiMaggio, 2001) — the transformations are nonetheless spectacular,14 and several aspects of the German transformation are worth dwelling on. Perhaps most importantly, employers use new management strategies to extricate themselves from the strictures of sectoral collective bargaining. Rather than building on the distinctiveness of German industrial relations Comparative European Politics 2005 3

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institutions, as the doctrine of comparative institutional advantage would have it, employers are using new management strategies for subversion from within. The continued existence and binding force of sectoral collective bargaining (which covered approx. 70% of employees in West Germany in 2003; Streeck, 2003, 342) can lead one to underestimate the discontinuity of content/practices in Germany despite the apparent continuity of structure (institutions). Martin Ho¨pner and Gregory Jackson refer to this change as ‘institutional conversion’: institutions can be used by persons and for goals that were not originally intended. While co-determination was originally seen as an institution to transform the German economy into an economic democracy, now, in a different context, it is used as an instrument to defend firms’ classoverarching interests (co-management, micro-orientation). The jurisprudence governing co-determination has not changed, but the institution has. It hasn’t collapsed, or come under serious political pressure. But the pressure of markets has creeped in so far that an activist of the 1970s wouldn’t be able to recognize it (2002, 364). Ho¨pner and Jackson are saying that under today’s circumstances, the institution of co-determination can only be considered nominally the same as it was during the 1970s. Similarly, Klaus Do¨rre finds evidence of a ‘far-reaching transformation of firm-level labor relations within a formally intact institutional framework’ (Do¨rre, 2002, 401). A qualitatively new phenomenon in the German political economy can be located at the nexus of global competitive pressures and post-Fordist management methods. Whether these management practices are necessary to ensure the competitiveness of firms in Germany in global product markets is beyond the scope of this paper. However, given their rapidly increasing incidence, management deems them to be necessary, and from the standpoint of employers, they appear to be effective. Firms with decentralized strategic and operative structures achieved a 22% higher productivity than firms without these measures (Latniak et al., 2002, 157). Before proceeding, a disclaimer is in order. The community of experts is divided about what to make of these developments — even as they are more or less united on the idea that they depart very radically from the traditional German system (G Herrigel, personal communication, 28 April 2004). Scholars such as Martin Kuhlmann (2002) and Hyeong-Ki Kwon (2002, 2003, 2004) point out that empirical reality with regard to management strategies is extraordinarily complex, varied and multifaceted (which is not to deny that there are overarching dynamics). In order to understand and interpret this complex reality, ideal types — characterized by an ‘analytical accentuation of certain elements of reality’ (Max Weber) — are helpful. As reliable quantitative data are not (yet) available, this paper draws on stylized, ideal-typical accounts. Comparative European Politics 2005 3

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These new management strategies have variously been termed ‘indirect control’ (Glimann and Peters, 2001), ‘market-centered control mode’ (Do¨rre, 2002) and the emergence of the ‘entreployee’ (Vo and Pongratz, 1998; Pongratz and Vo, 2003a, b). They are no mere transient management fad, representing instead a far-reaching transformation of the mode of production of contemporary capitalism. Pongratz and Vo view the labor-power salesperson with its three ideal-type characteristics of self-control, selfeconomization and self-rationalization15 as the ‘societal ideal-type of labor power for globalized capitalism’ (Pongratz and Vo, 2003a, 238). According to the works council of IBM Du¨sseldorf, Wilfried Glimann, the origins of this shift can be traced to management strategists of the mid-1980s: General Electric CEO Jack Welch, IBM’s Lou Gerstner and ABB’s Percy Baranevik. In the 1990s, many German firms adopted these strategies (W Glimann, personal communication, 16 September 2002), variously termed Activity Costing, Target Costing, Business Re-engineering and Just-in-Time (Glimann and Schmidt, 2000). The reception of these ideas in Germany was greatly expedited by the broad reception of James Womack, Daniel Jones and Daniel Roos’s book about ‘Lean Production,’ The Machine That Changed The World (1991). The reception of The Machine That Changed The World in Germany coincided with the severe post-reunification recession of the early 1990s, which further impelled the adaptation of ‘Lean’ rationalization strategies by company management. While many of the ‘subversion from within’ developments were incipient in the transition to post-Fordism during the 1980s, they applied with full force in Germany only during the 1990s. During the early 1990s — the ‘turning point’ that initiated the shift towards ‘indirect control’ — capital markets were not (yet) the driving force of workplace rationalization. Schaumburg et al. note that: ‘while at the beginning of the 1990s the question was still posed why firms made such limited use of their [flexibilization] leeway, by the end of the 1990s the situation had changed fundamentally. Newer studies have shown that many firms are pushing to and even beyond the flexibilization provisions contained in sectoral collective bargaining contracts’ (2002, 5). Two detailed studies of the German automobile industry provide an illustration of this shift, Schumann et al. (1994) and Kuhlmann (2002). Despite substantial changes in the organization of work and production, Schumann et al. (1994) show that the 1980s was a decade of continuity compared with the paradigm shift which followed. Kuhlmann (2002) emphasizes the radical nature of the transformations of the 1990s: It cannot be denied that the changes [during the 1990s] described as ‘marketcentered decentralization’ lead to a far-reaching transformation of social Comparative European Politics 2005 3

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relations within the firmy . Following the establishment of Taylorist-Fordist work- and social structures during the 1920s and again since the 1950s, the German automobile industry was characterized by a longer period of continuity of firm-level structures until, hesitatingly during the 1980s and massively increased during the 1990s, pronounced changes in the workingand social structures took place (Kuhlmann, 2002, 331, 386).16 The new management and production organization strategies are Janusfaced, at once imprisoning and liberating (Powell, 2001, 58). On the one hand, they increase the unity of conception and execution in the design of jobs and allow employees increased freedom within their work; reduce control costs and increase productivity for employers; and abolish paternalistic and hierarchical rules of the Fordist era (for counter evidence, see Roth, 1997; Do¨rre et al., 2001). These are important gains for employees compared with Taylorism, which reduced working people ‘to machine-like beings’ (Senghaas-Knoblauch and Nagler, 2000, 73). Axel Honneth remarks that the de-bureacratized firm might even ‘address the need for social recognition [Anerkennung] and interpersonal contacts which remain unsatisfied in day-to-day life’ (1995, 60). However, along with this newly found autonomy, ‘the performance pressure is massively increased’ (Vo and Pongratz, 1998, 134); the new strategies tend to lengthen employees’ working hours without commensurate pay and, in their most radical form, constitute a de facto decentralization of the wage bargaining system, down to the level of the individual employee. Occupational stress and related disorders have increased massively during the past 5 years (Matyssek, 2004). A recent account exclaims that these strategies ‘fundamentally challenge the German system of industrial relations’ (Haipeter et al., 2000, 380). Rather than purchasing labor power, employers are moving towards purchasing finished products from their employees. The result of this, as Vo and Pongratz remark, is the ‘systematically increased self-control of the workers’ (Vo and Pongratz, 1998, 132), even a ‘colonization of the will’ of the employee by economic rationality (Peters et al., 1999, 49). Workers come to see themselves from a microeconomic perspective, as a cost; in identifying themselves with (the survival of) their firm, they come to realize the interests of the firm against their own, for example, by reducing their wages and working longer hours. The ‘entrepreneurial worker’ displaces the external opposition of labor and capital into the employee him or herself, where a struggle over subjectivity is waged. As Vo and Pongratz put it (1998, 152): The entrepreneurial worker assumes such far-reaching control- and management functions, that s/he, as hitherto only management, has almost switched camps and his/her objective interests as labor-power are hard to recognize. Nevertheless, the conflict of interests between labor and capital reappears in unexpected form. Because the labor-power salesperson aligns Comparative European Politics 2005 3

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him/herself with the firms’ interests to such a far-reaching extent and controls the transformation of his/her labor power into labor, s/he brings the conflict of interest within him/herself. [y] The conflict of interest appears less and less in the form of the industrial era between labor and capital, and more and more between two sides of one and the same person — the class struggle is transplanted within the heads and souls of employees. Indirect control methods are widespread in the management of working time. In December, 1998, IBM’s German offices stopped monitoring the working time of their employees — with few restrictions, they were free to come and go as they pleased. Rather than being confronted with their firm’s bureaucratic framework and the hierarchies of management, employees were confronted with the unmediated market itself, or with management’s staging of that market. The new management methods allow employees more freedom in their workplace, which in turn is undercut by the tight coupling to financial markets and profitability objectives. This paradox can be resolved by distinguishing between ‘autonomy in the sense of self-determination and heteronomous autonomy in the sense of self-regulation and self-governance’ (Kocyba and Vormbusch, 2000, 247). The latter applies with such force that workers in workgroups are fearful of leaving their workplace, because the remaining workload will fall as a burden upon their colleagues; the increase of stringent profitability objectives prompts employees to view their less efficient colleagues as ‘slackers,’ which must be rationalized in order to rescue their division or firm from the threat of closure and relocation (Peters et al., 1999). These new management strategies have proceeded furthest in highly skilled, knowledge-intensive services — the competitive edge of deregulated LMEs. However, they are also increasingly widespread in the heartland of German manufacturing. Klaus Do¨rre’s exhaustive study provides an insightful survey of management initiatives in traditional German industries during the 1990s. One worker in a transformer-manufacturing plant describes his situation as follows: Management doesn’t care about how individuals do their work. They say: ‘you have to arrange your place of work in such a way that you can become efficient, and if you can’t, then bad luck, then we can’t hold the job, the division!’ Now the colleagues [workers] do the [process] optimization almost all by themselves [y] but the position of labor is weak, because in the last instance, the jobs are always in danger. And extortion, I can’t find a better word for it, is now on the daily agenda: ‘either you do it, or we have to shut down here, move out, globalize!.’ [y] It is now the case that we compete with Eastern Europe and our costs are lower. And still we get no peace (Do¨rre, 2002, 358). Comparative European Politics 2005 3

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How widespread are these new phenomena? As of yet, there is very little in the way of reliable quantitative evidence for these new developments, even for the largest German industries (Kuhlmann, 2002, 295, 309–310; Peters, interview, 2003). However, it would be a fallacy to infer from this that the phenomena are unimportant. As Manfred Moldaschl observes, conventional statistics are ill suited to capture these new developments: The current categories are naturally not in the position to grasp what is going on within their categorization. One cannot hold this against them, only against those who hold that the ‘within’ is irrelevant [y] Labor market categories are similar to geography: Austria also lies within the boundaries of 1945. But is it still the same? (Moldaschl, 2002). Attempts to measure ‘indirect control’ empirically are fraught with difficulties. First, observers do not agree amongst themselves on what is distinctive and most important about the new phenomena. Second, operationalization presents methodological problems. For example, as a consequence of ‘indirect control,’ the length of the working day is no longer monitored in a growing number of firms. As a result, in the place of reliable statistics about working time, we have only the self-reports of individual employees (and even these are not collected systematically). Nevertheless, there are four proxy measures that may provide some insight: the incidence of organizational decentralization, group work, working time accounts and the introduction of goal- or market-based remuneration systems. First, all of the management strategies surveyed here — indirect control, the labor-power salesperson and the market-centered control mode — imply organizational decentralization. The proportion of firms with a low index of decentralization declined from 68 to 46% between 1997 and 1999. ‘In light of the often-remarked tendency towards organizational conservatism,’ observe Latnaik, Kinkel and Lay, ‘this change must be characterized as dramatic’ (Latniak et al., 2002, 153). Second, according to Ju¨rgen Nordhause-Janz and Ulrich Pekruhl, the incidence of team work increased from 14.9% of all employees in 1993 to 22.7% in 1998, with a continuing upward trend (Pongratz and Vo, 2003a, 11).17 A third proxy indicator is working-time accounts. Unlike rigid working time, working time accounts allow working hours to be spread unevenly in accordance with the firms’ and employees’ needs. During times of peak demand, for example, an employee puts in 48 h without overtime pay, and during times of weak demand, he puts in 32 h. Working-time accounts make labor much more flexible and ‘close’ to market demands and fluctuations, and reduce the incidence of costly overtime pay for firms. ‘In the past three years, the percentage of firms which use working time accounts has increased by ten percentage points, the percentage of employees, by seven percentage points. In Comparative European Politics 2005 3

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the year 2001, 29% of all firms used working time accounts; 40% of employees currently hold working time accounts’ (ISO, 2002, 9-11).18 Reinhard Bahnmu¨ller’s work on remuneration systems provides a fourth proxy measure. According to R Bahnmu¨ller, there is a close connection between ‘indirect control’ and the introduction of goal- and market-based remuneration systems. These remuneration systems make employee pay contingent on the realization of their labor power in the market, or on the attainment of performance-based goals (personal communication, 2002). According to Bahnmu¨ller’s 1998 survey, 61% of firms in the metal- and electrical, textile, clothing, and banking industries employed performancebased pay systems, comprising between 11 and 30% of blue collar pay, 7 and 22% of white collar pay and between 8 and 30% of executive remuneration, with an upward tendency (Bahnmu¨ller, 2001a, 426; 2001b).19 More than onefifth of managers surveyed in 2000 said that they had undertaken ‘notable’ changes to performance remuneration, and 27% of the firms surveyed said they planned on changing their remuneration systems in the near future (Bahnmu¨ller, 2001b, 147, 150). Skeptics can deny the significance of these developments by pointing to the continued existence of traditional institutions of the German model, such as works councils. Will the multifarious management initiatives described above lead to the dismantling of these institutions? While it is hard to be sanguine about their fate given the current political climate, perhaps not in the near future. However, they may render works councils and trade unions ineffectual as guarantors of employee rights. Haipeter et al.’s discussions of works councils under the new conditions is worth quoting at length: The question arises, what tasks remain for the works council when the working time is no longer monitored, because a large part of its bargaining power, as far as this is based upon the works council constitution act [Betriebsverfassungsgesetz], depends upon influence over prolongation or shortening of the firm’s working time [y] but even if working time is monitored by employees, as we have seen above, ‘no employee demands vis-a-vis the employer can thereby be derived’ [y] as an institutional counter-weight to management, the works council is the prerequisite of a ‘culture of trust’ [Vertrauenskultur] within the firm, but because the works council can no longer use the works council constitution act [under conditions of the non-monitoring of working time], this prerequisite erodes. Employees gain autonomy in their work; but they loose negotiating power, which in turn undermines their autonomy. This opens the door to a lengthening of working time (2000, 375, 377, 380). Dieter Sauer concurs with this view, noting that the instruments through which works councils exert influence in the workplace — such as working time Comparative European Politics 2005 3

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regulation — are capacity oriented and ineffective in the context of the new results-based steering systems, over which neither employees nor works council have much influence. Limits set by works councils on the ever-increasing demands on labor have the effect of further exacerbating the already short supply of resources, leading to increased pressure on the employees and possibly even forms of illegal expansion of working time. ‘The only room for maneuver,’ Sauer remarks, ‘lies in the further rationalization of labor processes. The works council becomes a promoter of workplace rationalization’ (Kratzer, 2003, 259; Sauer, 2003, 264–265). Varieties of Capitalism draws our attention to the formal institutional persistence of works councils and their use in firms’ competitive strategies, but this is misleading: the substantive political content of this institution has been dramatically transformed, and in a growing number of cases only approximates a hollow shell of its former self. If employees are free to choose their hours under the new regimes of Vertrauensarbeitszeit (working time on the basis of trust) and wish to work shorter hours, the obvious question is: why don’t they simply work less? Some employees may choose to work long hours, but the new management methods make it difficult for these employees to reduce their hours, as Haipeter et al. explain: ‘When they again desire shorter hours, be it for health reasons, or because other aspects of life become more important to them, they will have great difficulties realizing these desires. They have to present their position not to a firm hierarchy, but to the ‘market.’ They cannot simply convince their superior or colleagues of their need; they have to convince ‘the competition’ (Haipeter et al., 2000, 375). So far-reaching is the transformation described by Haipeter et al. that works councils under the new conditions no longer pose the counterbalance to capital, which was constitutive of the German model. This is the basis for my claim that the introduction of the aforementioned management and organizational methods challenges the German model at its core. There is a subtle but important difference between examining the form of institutions and the political content they deliver. Unfortunately, many observers focus on the former, apparently assuming that the latter follows as a matter of course. The German model cannot simply equal sectoral collective bargaining þ works councils. To consider the German model in this way is to fetishize institutions. At core, what was distinctive about the German model is the rights and privileges these institutions provided for employees in particular and for the populace in general, without sacrificing economic efficiency — as Stephen Silvia has remarked, ‘[t]wo distinguishing features of West Germany for the majority of its brief history were the remarkably high quality of most jobs and the relative evenness of income distribution’ (Silvia, 1997, 157). This high-road approach is being ‘hollowed out’ by the developments sketched in this paper (Albert, 1993; Coates, 2000, 260).20 Comparative European Politics 2005 3

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Organized labor is split between ‘traditionalist/class-conscious’ and ‘modernizing’ poles, and vacillates between a collaborative and conflictual stance on economic and welfare state reforms. This contrasts with the unified stand of employers: Thelen’s claim that capital (rather than labor) suffers the greatest internal discord, while true during the mid-1990s, is no longer accurate. The situation is if anything the opposite of what she described: labor, hobbled by internal dispute, now faces a united front of firms. This is especially true in the aftermath of IG Metall’s failed strike in the summer of 2003. Labor’s discordant response can be easily explained if the new strategies are a prerequisite of firms’ competitiveness. Given current rates of membership decline, organized labor cannot afford to stake out a position that incurs substantial costs on this account. As mentioned above, the fact that some of the new developments do have plusses for workers makes a unified stand against the changes even more difficult for labor (Sauer, 2003, 262). Wolfgang Schro¨der, scholar and member of the IG Metall executive, concurs: ‘now the ‘‘individual’’ is up for grabs, which is difficult for the union, since the identity of being a worker is lost. Confrontation with the phenomenon of ‘‘indirect control’’ has just begun’ (interview, 2003). This does not mean, however, that unions have not struggled to come to terms with the new management forms. Wilfried Glimann, IG Metall works council at IBM Du¨sseldorf, and Klaus Peters are at the forefront of innovative responses to the new management strategies. In 1997, Glimann helped initiate a project termed ‘ich besinne mich’ — ‘I reflect upon my own situation.’ This may seem innocuous compared with traditional forms of labor action, but this is the path which a reembedding of unbridled economic rationality will likely have to take: making people’s own lives and life world, rather than financial or other microeconomic criteria, the benchmark for their actions. As Glimann puts it, ‘these new management forms live from unreflectiveness. One is not supposed to grasp what is happening to oneself. That is why reflection is the most rigorous response [to management]’ (Bo¨hm, 2000, 13). Whether reflection will help to uncover possibilities to transform actual production relations or whether it simply ‘leads one to suffer in an intelligent way’ remains to be seen (Peters, interview, 2003). In sum, indirect control is Janus-faced, characterized as it is by a ‘depoliticization of the ‘‘why’’ and ‘‘what’’ of production and a partial politicization of the ‘‘how,’’’ as Nick Kratzer notes in his study (2003, 254). Increased autonomy within the labor process can be liberating, but this contrasts with greatly increased performance pressure and economization, which are transforming Germany’s post-war settlement. However, Peters, a philosopher who has led several union initiatives to theorize and understand ‘indirect control,’ is adamant: ‘I am of the view that one must absolutely welcome the dismantling of [Fordist, Taylorist] command-and-control Comparative European Politics 2005 3

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structures — but not, as the optimists claim, because this results in a humanization of work, but even though tendentially the opposite is the case’ (Peters et al., 2001, 28). According to Peters, indirect control is progressive insofar as employees are brought closer to the ‘[philosophical] problem of human freedom,’ previously obscured by Fordist paternalist command-andcontrol (Peters, interview, 2003).21 As trends common to CMEs and LMEs, employment insecurity, decentered control and work intensification (including extension of working time) do not strictly speaking entail ‘convergence’ (Smith, 1997, 332). However, the magnitude of these developments may be such that remaining institutional differences between CMEs and LMEs are relatively inconsequential. This is ultimately an empirical question.

Conclusion If correct, the argument of this paper about the increasing prevalence of market coordination in workplace labor relations and the preference of German employers for a liberalized political economy should be damaging for Varieties of Capitalism’s postulation of the divergence of Coordinated and Liberal Market Economies. I have sought to question the ‘Varieties of Capitalism’ literature by showing that German employers are challenging and subverting the German model by undermining its normative legitimacy from without (with the New Social Market Initiative) and transforming its structure from within (using new management and workplace organization strategies).22 Flexiblization and workplace autonomy can be likened to a Trojan Horse transforming Germany’s post-war settlement from within, or to the figure of Oscar Wilde’s Dorian Grey, whose external appearance persists (almost) unchanged while he undergoes fundamental internal metamorphoses until his sudden death. Meanwhile, the New Social Market and myriad other reform initiatives exert pressure from without, driving home the need for far-reaching liberalization (Figure 1). As noted at the beginning of this article, the German employer offensive can be dated to the second half of the 1990s. By this time, internal subversion was well underway (in particular, the use of novel management strategies such as ‘indirect control’); employer unity was being re-established through the introduction of OT-association membership; and the New Social Market Economy Initiative was founded to help make the public more accepting of the reforms employers desire and advocate. Hence, my periodization corresponds to Bayer and Ho¨pner’s analysis of shifts in German corporate governance and of the break with organized capitalism during the second half of the 1990s (2003, 180). Comparative European Politics 2005 3

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200000 100000 0

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level of vulnerability -- greater (1), the same (2), less (3) than during the 1980s Figure 1 The relationship between firm size and vulnerability to labor strife.

There are two specific points that I have tried to argue. First, the changes described above are occurring because, contrary to pronouncements of ‘Varieties of Capitalism’ theorists, the traditional institutions of the German model no longer satisfy employer needs. The result of this failure of the traditional institutions of the German model to satisfy employer needs is employers’ defection from the German model: the two-pronged German employer offensive. Employers’ changing needs are exogenous to the institutions of wage bargaining, and have their origins in economic globalization. Secondly, the continued existence of institutions should not be conflated with a continuity of outcomes or results. We do not value institutions for their own sakes, but rather for what they deliver. Institutionalist political–economic research should not lose sight of the fact that it is not institutions themselves that matter, but rather the political and normative content they embody (Albert, 1993). As a result of these different analytical lenses, I have emphasized more encompassing indicators of continuity and change than the ‘Varieties’ literature — practices and outcomes in addition to formal institutions — precisely because practices and outcomes are important to people, as well as being the subject of vigorous debate and contestation in Germany today. To focus only on formal institutions such as the persistence of sectoral collective bargaining and works councils is untenable under circumstances of ‘institutional conversion.’ It is ironic that many Anglo-American scholars are championing the ‘divergence’ of LMEs and CMEs at a time when many, perhaps most, German scholars and commentators bemoan the liquidation of their model of social and economic organization (for a notable and incisive exception, see Grahl and Teague, 2004). Hall and Soskice’s excessive formalism blinds them to changes of content/practices which, as Gary Herrigel and Volker Wittke note in their recent study, ‘are remarkably convergent’ (2004). Hall and Soskice assert that recent developments ‘have not altered the German economy or indeed the other coordinated economies of Europe Comparative European Politics 2005 3

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beyond recognition’ (2003, 243). On the contrary, the evidence presented in this paper, combined with a focus on the content of institutions and actual practices, puts the burden of proof on those who argue for divergence. Klaus Do¨rre provides the following response — worth quoting at length — to claims that ‘not much has changed’: Firstly: the market-centered control is not simply a matter of ‘a little group work’ and ‘a little flexibilization.’ Instead, it is a system of control that applies to all levels of corporate governance. The result is generalized social insecurity that reaches far into the core workforces of even large firms. Secondly: in terms of working conditions, one can clearly observe a deterioration. The main problem for the ‘core work force’ is the intensification of performance pressure. Thirdly, from the perspective of Anglo-American capitalism, the problems of the German core workforce may seem comparatively luxurious. But for German employees, that is not the frame of reference. They think in a ‘national’ framework (personal communication, 19 January 2004). The fate of the German model will depend upon whether employees can be mobilized to re-establish a new positive-sum social compromise, and upon whether such a compromise is possible under the duress of global competition and the influence of liberalization-disposed media. Labor’s strategy in these hard times can be gleaned from a recent IG Metall brochure: ‘first: each person must reflect upon what is good for him or her. Second: no one can do this in isolation from each other!’ (Peters et al., 1999, 10). As employers apply pressure from without and subvert structure from within, the future prospects of the German model look grim indeed (with unionfriendly commentators already lamenting the ‘liquidation’ of the model; Hoffmann, 2004). The onus is on defenders of the ‘Varieties’ thesis to show that German employer preferences really are structurally conservative; that the contemporary transformations of the German political economy do not imperil the values which these institutions embody; and that the German employer offensive is not a result of the failure of the traditional institutions of the German model to satisfy employer needs.

Acknowledgments I gratefully acknowledge support from the German Academic Exchange Service (DAAD), the Province of Ontario (Canada), the Canadian Centre for German and European Studies (CCGES), the WSI of the Hans-Bo¨cklerStiftung and the Department of Government, Cornell University, which made this research possible. I would also like to thank Christopher Anderson, Klaus Comparative European Politics 2005 3

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Do¨rre, Eckhard Heidling, Dorothee Heisenberg, Gary Herrigel, Kurt Hu¨bner, Torben Iversen, Hans Pongratz, Peter Katzenstein, Peter Swenson, Michael Wallerstein, as well as two anomymous commentators for this journal and participants at colloquia at FIAB/Ruhr-Uni-Bochum, Cornell and Yale Universities, and at the 2004 American Political Science Association annual meeting in Chicago, where this paper has been presented. Special thanks go to Jonas Pontusson, for two sets of detailed comments, and to Christopher Way, without whom this project would never have come to fruition. None of the above are responsible for any errors. Notes 1 After all, it is hardly new that employers express dissatisfaction with policies and institutional arrangements: they have an incentive to present institutional arrangements as burdensome in order to gain beneficial policy concessions. In this sense, German employers always desire(d) a more favorable institutional and policy environment than the status quo. Nevertheless, a more fundamental change in German employer preferences is discernable. 2 The metalworker’s association in Saxony, the VSMW, is one notable exception. Hartmut Fiedler, managing director, Verband der Sa¨chsischen Metall- und Elektroindustrie, states that: ‘the purpose of the association is to reject [the demands of] the union’ (Fiedler, interview, 8 August 2003). The association reportedly applied to disband itself during the IG Metall’s summer 2003 strike in order to foil the goals of the union. 3 As Dieter Plehwe remarks, ‘neoliberal forces realize very well that a principled neoliberalism may have to be implemented against the wishes of [the] bourgeois parties [such as the Christian Democrats]’ see Plehwe (2004, 36). 4 When exactly this occurred is not clear. Already in 1958, when German social policy was in its infancy, the Ordoliberal theorist Wilhelm Ro¨pke thought that West German economic policy had taken a turn towards excessive interventionism. He declared that the state should place itself as a ‘guardian of the market’ above societal interest groups (Haselbach, 1991, 172). 5 The message presented tends to be remarkably uniform across different new social market contributors. See, for instance, Hans Tietmeyer, ‘Ein Blick zu unseren Nachbarn,’ Handelsblatt 12/13 April 2002, and Roland Berger, ‘Von anderen La¨ndern lernen,’ Handelsblatt 19/20 April 2002. It is striking that these two articles by different authors, appearing in the same newspaper within a week of each other, are almost identical. 6 However, one should emphasize that the traditions of Ordoliberalismus and Anglo-American free market liberalism are dissimilar in many respects. 7 I will leave open the extent to which the redistribution of wealth was integral to the ideational concept of the social market economy, or an element necessitated by cold-war regime competition. Alfred Mu¨ller-Armack, one of the ‘founders’ of the soziale Markwirtschaft in Germany, describes the class compromise as ‘reconciling the principle of market freedom with that of social equalization.’ See his ‘Soziale Marktwirtschaft,’ Handwo¨rterbuch der Sozialwissenschaften, Vol. 9, Stuttgart, p. 390. Other members of the Ordoliberal school, such as Alfred Mu¨ller-Armack and Alexander Ru¨stow, emphasized the need for state intervention and social policies. Alfred Mu¨ller-Armack believed that the ‘point of the social market economy is to connect the principle of free market relations with that of social compensation’ (Ro¨ller and Wey, 2001, 11). Comparative European Politics 2005 3

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458 8 This is not to totally dismiss the employers’ associations’ internal tensions emphasized by Thelen, which were severe during the period from the early to the mid-1990s (Leutz, interview, 2002). However, the view that the tensions within the employers’ camp exhibited most vividly in the 1995 Bavarian strike and again in 1996 are permanent and general instead of episodic has not been confirmed by interviews with scholars or relevant officials, nor by surveys or recent statistics on association membership: these 2 years were aberrations, not the norm. Moreover, it is important to keep in mind that the employer disunity in question is particular to the metalworking sector in general and the automobile industry in particular — to assert its generality would be misleading. 9 For more specific details about the methodology of this survey, please contact the author at [email protected]. 10 It is important to note that the firms surveyed were not necessarily affected by strikes, either during the 1980s or during the contemporary period. In that case, respondents gave their estimation [Einscha¨tzung] of the impact of strikes in the contemporary period compared with their impact 20/30 years ago. 11 Two respondents who filled out the exchange-rate component of my survey did not respond to my questions regarding strikes [Arbeitska¨mpfe]. 12 For more specific details about the methodology of this survey, please contact the author at [email protected]. 13 In a 2002 survey by the employer-funded Institut der Deutschen Wirtschaft, 60% of firms responded that competition over price was ‘very severe,’ another 34% of respondents responded ‘severe.’ Only 6% of firms said that they did not compete on the basis of price (Gesamtmetall, 2003). 14 In a 2002 survey by the employer-funded Institut der Deutschen Wirtschaft, 19% of employees stated that their work and working conditions had changed dramatically during the past 5–10 years, and 48% stated that the change has been ‘substantial.’ Only 7% work under the same conditions; for 23% conditions have undergone minimal changes (Gesamtmetall, 2003). 15 ‘Self-control refers to the increased autonomous planning, direction and monitoring of one’s own occupational pursuits; self-economization refers to the increasingly active goal-oriented ‘‘production’’ and ‘‘marketing’’ of one’s own capabilities — on the labor market as well as within firms; self-rationalization refers to the growing conscious organization of one’s everyday life and one’s long-term life and a tendency to rationalize one’s manner of living.’ See Pongratz and Vo (2003a, 24). 16 According to Kuhlmann, the goal of the decentralization of firm-level structures has been pursued by all German automobile firms since the early 1990s (Kuhlmann, 2002, 301). 17 Team work is likely to be associated with, but is not a necessary prerequisite of, Management by Objectives (MbO). For example: In Volkswagen’s 5000  5000 project, groups of workers receive a set rate to manufacture a preordained quantity and quality of minivans. Should they fail to achieve these objectives, they must work longer (without any extra remuneration) until they achieve these goals. However, while group work almost invariably implies MbO and ‘indirect control,’ the latter do not necessarily imply group work; thus, their prevalence almost certainly exceeds that of these figures. 18 Since they continue to count labor time as a yardstick for remuneration, working-time accounts are a weaker form of flexibilization than the other variations of work organization discussed in this paper; but like these other forms, they aim to make labor power as flexible and readily available as water out of a faucet. 19 By contrast, in Great Britain, commonly taken to be an exemplar of marketized flexibility, only 6% of employee pay was tied to performance-based pay systems. See Bahnmu¨ller (2001a, b). Comparative European Politics 2005 3

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459 20 In his book Models of Capitalism, Coates states: ‘continuity of institutions is less important than discontinuity of outcomesy . The architecture of institutional arrangements may not be changing, but what the architecture delivers (especially for workers) definitely is y though the form of the models may stay, the substantive differences they once represented for the rights and rewards of workers are beginning to evaporate’ (Coates, 2000, 260). 21 In Hegelian–Marxian terms, Peters refers to the ‘abolition of alientation under alienated conditions’ (2003). 22 My analysis of the employer offensive is not exhaustive, and may miss important parts of the picture. According to sociologist Heiner Ganmann, the trend of net investments in Germany (i.e. investments minus depreciation) has declined since 1991, and especially sharply since 2000 — right about when the NSMI was founded. In Ganmann’s view, this ‘investment strike’ will put pressure on employees and politicians to accept and enact the reforms which employers desire and advocate (H Ganmann, personal communication, 31 March 2003).

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