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Beyond Nostalgia Past, Present, and Future of the German and Nordic Models

Beyond Nostalgia Past, Present, and Future of the German and Nordic Models. 6 September 2010 Prof. Dr. Henrik Enderlein Hertie School of Governance. German long-term growth. The old Germany success model. „Semi- Sovereign State“ Peter Katzenstein,1987

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Beyond Nostalgia Past, Present, and Future of the German and Nordic Models

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  1. Beyond Nostalgia Past, Present, and Future of the German and Nordic Models 6 September 2010 Prof. Dr. Henrik Enderlein Hertie School of Governance

  2. German long-term growth

  3. The old Germany success model • „Semi-Sovereign State“ Peter Katzenstein,1987 • Federalism, Party System, Parapublic Institutions • Corporatism • Largelyapoliticaldecision-taking • Main featuresoftheold „Deutschland AG“ • In-House training (apprenticeship, highlyspecificskill-sets) • Lifetimejobs (highflexibility in workplace, low wage pressure) • Wage compression, egalitarianoutcomes • Strong companynetworks (long-termcontracting) • House-Bank principleasbasisofcorporatefinance • Roleofthestate: largelyhands-off • Generouswelfarestate – becauseit was not used

  4. The old German Model was highly apolitical • Important interplay between Bundebank and Unions • De jure: Bundesbank guarantees price stability, unions gurantee low unemployment • De facto: Bundesbank stabilized employment since unions stabilized prices • German companies strongly supported the model • Example 1: Daimler under Edzard Reuter • We pay taxes to support the German model • His successor Schrempp changed this • Example 2: Corporate Governance at Siemens • Lifetime employment and company responsibility • The semi-sovereign State as a strength

  5. But the German model has vanished • Deutschland AG disentangledandunderpressure • Corporate networksaregone • Companies dependent on theirmarketvaluation • Capital marketfinancingprogressivelyreplacesbankfinancing • Education systemnolongerworks • Apprenticseship-model ill-suitedforjobflexibility • Share of „Abitur“ anduniversityeductionfartoolow • Coordinated wage bargaining still works, but differently • Wage restraint duringthefirstdecadeof EMU • But inequalitiesrisefasterthan in anyother OECD country • State isfinanciallyover-burdened

  6. Cross-shareholdings of German Firms (1996) Höppner/Krempel 2005 Höppner/Krempel 2005

  7. Cross-shareholdings of German Firms 2004 Höppner/Krempel 2005

  8. Deutschland AG disentangledandunderpressure Corporate networksaregone Companies dependent on theirmarketvaluation Capital marketfinancingprogressivelyreplacesbankfinancing Education systemnolongerworks Apprenticseship-model ill-suitedforjobflexibility Share of „Abitur“ anduniversityeductionfartoolow Coordinated wage bargaining still works, but differently Wage restraint duringthefirstdecadeof EMU But inequalitiesrisefasterthan in anyother OECD country State isfinanciallyover-burdened But the German model has vanished

  9. Learn from Nordic models (but: don’t copy-paste) • Don‘tbeafraidofcentralization • Solvethe „joint-decisiontrap“ (Scharpf) • Mainly in eductionandfiscalpolicy • Don‘tbeafraidofhighertaxes • Solvethe German debtproblem • Invest in education • But don‘tforgetthat Germany ispartof EU and EMU • Monetarypolicyisgone • Internal marketisatwork (low-wage sector!) • Tax competitionis real • Thereisno easy „returnofthestate“

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