Page 184 - Global Political Economy_Understanding The International Economic Order

SYS TEMS O F POLI TICAL ECONO MY
German labor in a way that the American Federation of Labor/Con-
gress of Industrial Organizations cannot for American workers. Japa-
nese organized labor, on the other hand, is fragmented into company
unions and has almost no influence on either company or national
affairs. The system of codetermination at the level of the firm has
made German labor a partner, albeit a junior partner, in corporate
governance.
German industrial organization has certain noteworthy features.
One element is the prominent role played in the economy by medium-
sized, privately owned firms, called the Mittelstand. Despite the inter-
national prominence given to Germany’s large corporations, such as
Siemens or Daimler-Benz, the Mittelstand constitute an important
reason for German economic success. They are major exporters and
are especially strong as suppliers of such intermediate goods as chemi-
cals and machine tools. The second major component in German suc-
cess is the publicly owned corporations whose shares are traded freely
on the German stock market. Nevertheless, corporations such as
these are much less important in the German economy than in the
American economy. In fact, in the 1990s, there were only about six
hundred fifty German companies listed on the stock market, and only
about one hundred twenty were actively traded. The firms that are
most important in the overall structure and governance of the Ger-
man economy are the bank-linked corporations.
The integration of finance and industry has been a noteworthy fea-
ture of corporate governance in Germany. Although more informal
than the Japanese keiretsu, long-term bank-corporate ties are a cru-
cial element in the system. The major universal banks (i.e., those that
perform all financial services) such as the Deutsche Bank and the
Commerzbank are worthy of particular attention. Representatives of
these banks and of the large German multinational corporations sit
on one another’s boards of supervisors. In important ways the system
of cross-ownershipand interlocking boards resembles the Japanese
keiretsu with their integration of financial, industrial, and distribution
activities; the system facilitates the sharing of vital information, pro-
vision of less expensive investment capital, and coordination of
economic planning. Also, like the keiretsu, the system emphasizes
long-term relationships based on negotiated prices and supply ar-
rangements among corporations. However, German participants in
these arrangements seek to advance the interests of their particular
firm rather than those of the whole organizational alliance. It is im-
portant to note that as the German economy has globalized, the link-
ages between banks and industry have weakened.
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