Page 182 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
and the private sector provide a highly developed system of social
welfare.
The German national system of political economy is representative
of the “corporatist” or “welfare state capitalism” of continental Eu-
rope, in which capital, organized labor, and government cooperate in
management of the economy. This corporatist version of capitalism
is characterized by greater representation of labor and the larger soci-
ety in the governance of corporate affairs than in Anglo-Saxon share-
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holder capitalism. Although the continental economies differ from
one another in many respects, in all of them the state plays a strategic
role in the economy. It is significant, especially in Germany, that ma-
jor banks are vital to the provision of capital to industry. While, in
many European countries, employee councils have some responsibil-
ity for running the company, in Germany labor has a particularly
important role in corporate governance. Indeed, the “law of codeter-
mination” mandates equal representation of employees and manage-
ment on supervisory boards. Although the power of labor on these
boards can be easily overstated, the system is a significant factor in
Germany’s postwar history of relatively smooth labor relations.
Ever since Chancellor Otto von Bismarck took the first important
steps toward the modern welfare state in the late nineteenth century,
the German state has assumed a major role in providing public wel-
fare for every citizen. This national commitment to advance the over-
all welfare of the German people has rested on the extraordinary ef-
ficiency of German industry. In the modern era, pairing industrial
efficiency with public welfare has been made manifest in the concept
of the “social market.” Germany emphasizes the values of domestic
harmony and community. Worker benefits include a greatly reduced
workweek, unemployment insurance, health care, and lengthy vaca-
tions. By one reckoning, the cost of benefits is equal to about 80
percent of a worker’s take-home pay. The nation’s high rate of pro-
ductivity growth has enabled the German nation to provide these gen-
erous social welfare benefits, but these especially generous welfare
programs have imposed a large burden on German business.

Economic Role of the State
The most important contribution of the German state to the eco-
nomic success of their economy has been indirect. During the postwar
era, the German federal government and the governments of the indi-
vidual Lander (states) have created a stable and favorable environ-

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Katzenstein, Corporatism and Change.
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