The German Model

The German economy has experienced success post the Second World War. The country’s economy is usually presented as the ideal economy that other European nations should emulate (Hall 2015, p. 43).

The application of the German model is useful because it shows how the economy of a country can be influenced by the performance of the political economy (Hall 2015, p. 44).

The organization of a country’s politics can support coordination among firms and other players in the economy. The players in an economy include industrial relations, corporate governance, technology transfer, standard settings, and skill formation (Hall 2015, p. 44).

Though most economic analysts have extolled the values of the German model, it has faced erosions and breakdowns in the recent past.

This essay examines the signs of erosions in the German model and the causes of these erosions.

Erosions in the German Model

The German-managed capitalist mode of politics and economy is under threat from both domestic and international pressures.

The model, which has gained traction in the world is based on collective bargaining autonomy, industrial relations codetermination, monetary stability, free trade, and general welfare state provisions.

As seen below, the model is, however, facing multiple threats due to a changing world economy.

Erosion in Industrial Relations

Industrial relations has been one of the pillars and successes of the German model. The model is based on the dual structure of interest representation.

This means that conflicts between labor and capital are separated and dealt with separately according to interests, actors, and modes of enforcement (Jacobi et al. 1992, p. 219).

The changes in the labor force in the country have led to challenges in the country’s industrial relations.

In the early 2000s, there was a shortage of staff in the service industry of the country. The government responded by developing policies that created jobs in the service industries (Hall 2015, p. 48).

The effect was more jobs being created but at the expense of social benefits and wages. An erosion in social benefits and wages is a breakdown in the German model since the model has been known for superior industrial relations.

Price competition and a rise in non-union sector employees in Germany have also contributed to industrial relations erosion.

In a bid to cut down on costs, firms in the country have used non-union employees to cut on labor costs and become flexible.

This is common in the sales and service industries where there are low or weak collective bargaining institutions.

The challenges in the German model are also present in other developed economies.

Japan has a dual labor market with one section that has good jobs and enjoys social benefits and another section of the workforce that have low social benefits and wages. Japan has been following the coordinated economy model, which is similar to the German Model (Hall 2015, p. 48).

Firms in the United States have also eroded their industrial relations through the exploitation of the workforce in sectors with weak collective bargaining mechanisms (Doellgast 2008, p.8).

Erosion in the Collaborative Capitalism

The German Model is based on a collaboration between the political economy, the social set up, and the financial economy. Over the years, this collaborative set up has been eroded due to globalization.

In Germany, the collaborative capitalism erosion has been due to initiatives from the European Union (EU).

The universal banks in the country have reduced their influence over the industrial sector in Germany. The banks have expanded their business internationally.

The labor market has also been affected where few employees are registering in workers’ union leading to a reduction in the collective bargaining coverage (Hall 2015, p. 47).

Due to the changes in the German economy has led to the country’s poverty and inequality rates edging upwards.

The economy of Germany is also being affected by the size of its labor force.

A low birth rate means that the labor force is dwindling and the country has been forced to depend on immigrant workers.

The issue of immigration is controversial, politically unpopular, and the immigrant workforce lacks the high levels of certified skills that are needed in the manufacturing sector (Hall 2015, p. 47). This sector is the backbone of the German economy.

Causes of Erosion in the German Model

Different factors have contributed to the breakdown of the German model. One of the contributors to the erosion of the model is the levels of investments in the country (Hall 2015, p. 50).

Investments in the private and public sector play a significant role in the size of the economy of a country.

Low production in the economy means that the government has fewer resources to maintain the general welfare of the population.

The levels of investment in Germany have been attributed to expensive labor where firms have thus devised methods of reducing the unit labor costs.

The public sector has reduced its level of investment due to an increase in social program expenditure.

Liberalization of the economy has reduced the collaboration that German firms had. This collaboration was a contributor to the public good in the country.

Globalization means that the country is facing intense pressure from foreign competition and this has led to the changes in the way German firms operate.

Countries that have emulated these models are also facing similar challenges. Doellgast (2008, p.8) posits that firms in the United States and Germany are facing stiff competition and thus they have devised methods to reduce costs like outsourcing.

Conclusion

The German economy has been prosperous, and therefore it has been regarded as an economy to emulate.

Over the recent years, the German model has faced erosion due to specific factors that are either domestic or international.

To cope with these challenges, adjustments in the German model are needed.

The changes in the model should be geared towards the prosperity of the German economy.

References

Doellgast, V., 2008. National industrial relations and local bargaining power in the US and German telecommunications industries. European Journal of Industrial Relations, 14(3), pp. 265-287. https://digitalcommons.ilr.cornell.edu/articles/1218/

Hall, P., 2015. The fate of the German model. In: Brigitte Unger, Ed. The German model seen by its neighbors. Brussels: Social Europe. https://scholar.harvard.edu/files/hall/files/hall2015_germanmodel.pdf

Jacobi, O, Berndt, K and Muller-Jentech, W., 1992. Germany: co-determining the future? In A. Ferner and R. Hyman (Eds.), Industrial relations in the new Europe (pp. 218-269). Oxford, UK: Blackwell.