Werner Abelshauser. The Dynamics of German Industry: Germany's Path toward the New Economy and the American Challenge. Making Sense of History: Oxford University Press, 2005. vii + 168 pp. $45.00 (cloth), ISBN 978-1-84545-072-4.

Reviewed by Gerald Feldman (University of California, Berkeley)
Published on H-German (July, 2006)

Does "Rhenish Capitalism" Still Make Sense?

This is not a book for beginners in the field of German economic history or, indeed, economic history more generally. It presumes some background in the history of German industrialization and economic organization and considerable familiarity with current debates about globalization, "Americanization," and political economy in general. The organization of the book does not make its arguments easy to follow even for someone who has been swimming around a bit in these murky waters. It is based on Abelshauser's 2002 lecture, "Culture Clash: Historical Perspectives on the Sustainability of the German Economy," given in Essen as part of the (endowed) Pott Lecture Series on Technology, Business and Culture. In book form, however, the chapters into which the book is divided do not always follow logically from one another, while some are extremely short and abrupt. This said, Abelshauser is a learned and provocative economic historian who has produced important works in the field. Although he has not provided his readers with a systematic analysis in this study, he has raised very important issues and arguments worth considering at a time when Germany--and not only Germany--appears at a crossroads in its economic and social development.

Abelshauser's point of departure is the proposition that there are varieties of capitalism rather than the single and monolithic capitalist system more or less presumed to exist prior to the collapse of the socialist economies. A substantial literature has developed on different types of capitalist systems with differing comparative advantages rooted in different national paths to industrialization, historical development and political cultures.[1] Abelshauser's special focus is on Germany and the United States and their roads to the "new economy," whose features he defines as "market globalization and the primacy of scientific methods and theory in the production process" (p. 2). In his view, the two countries have different and vying "economic cultures" that are ideal-typical in their nature. On the one hand, Germany is the model "coordinated market economy," in which self-governing economic actors cooperate with one another within a "framework" of legislation and educational institutions provided by the state. On the other hand, the United States is the model for the liberal market economy based on competition and minimal regulation. Although many convergences occurred between the two economic regimes during the century-long march to today's postindustrial information-based economies, Abelshauser postulates a growing clash between the two models in recent decades. While not too long ago there was great enthusiasm for the German model (which was viewed in many quarters as superior to the American one), attitudes have changed considerably, and the United States (with its emphasis on deregulation, shareholder rather than stakeholder values; penchant for short-term rather than long-term investment; stress on mass production for the home market and conflictual relations between industry and labor) seems more attuned to the competitive requirements of the global economy than Germany. This impression is reinforced by Germany's high unemployment rates and a widespread belief that the German system is in dire need of massive reform along American lines.

This is not Abelshauser's view. From his perspective, German history, excluding of course the distorted and misguided policies and practices of the 1933-45 period, has served its economic development well. Where Anglo-American economic culture was formed by common law, the winning struggle against guilds and monopolies and the successful revolt against the absolute monarchy, German economic culture was influenced by the "values and principles" of the craft guilds and reflected a mindset in which "the cooperative contract and the primacy of common interests morally outranked buying, founding, stock trading, and speculating" (p. 38). Absolutist regimes with their paternalism and bureaucracies played the role of the "good policeman" and looked after the common good (p. 43). Abelshauser turns the old Sonderweg charge that Germany suffered from an excess of pre-industrial values and practices on its head, claiming instead that Imperial Germany was ahead of its times and thus was enabled to become the first "post-liberal nation" in taking a path to industrialization that gave it distinct advantages in global competition. He places particular emphasis on the importance of corporatism and interest group intermediation which, despite their setbacks and problematic aspects under the empire and then in the Weimar Republic, he seems to view positively as "the collectivization of economic decision-making and the balancing of society's interests" (p. 56). What failed before 1945 succeeded afterwards--the Social Market Economy, practices of co-determination and a "coordinated market economy" that emerged in the German Federal Republic and became known as "Rhenish capitalism."

All this development, according to Abelshauser, was very well suited to promote Germany's great success in export markets, which rested on "diversified quality production" and a remarkable system of vocational training (p. 78). Such conditions contrasted to the United States, where mass production held sway and training efforts were minimal and not well organized. Here, too, Germany's craft traditions as well as the state role in education played a major role: "The crafts remained the leading wellspring of highly skilled industrial labor even after the Reich Education Act of 1938 introduced industrial vocational training in all sectors of the economy" (p. 85). While Abelshauser gives the United States credit where he thinks credit is due, above all--when it comes to the influence of Taylorism, Fordism, various technological innovations and techniques of corporate management and organization--he appears to think that Germany owes its success to its resistance to American efforts to force its economic culture on Germany after 1945 and even today. While in no way denying the need for Germany to adapt its institutions and practices to current requirements, he thinks that reform must come through building on the strengths and traditions of the German economic culture and its comparative advantages.

One can debate the arguments of this book for pages and pages, and it is in many respects a courageous and provocative work at a time when many would argue that Rhenish capitalism has no future because there is no will to really reform the system and (anyway) that reforming it will necessarily destroy it. I will limit myself here to a few critical points, but I hope that others will engage Abelshauser's arguments, since they deal with vital historical and contemporary issues. Let me confess that I am writing this review on July 4, 2006, a day that reminds me, even in these troubled times, that some histories are happier than others. Whether Imperial Germany was "pre-modern" or "post-liberal," its trajectory was disastrous, and while the later evolution of its vocational system has much to recommend it, 1938 was more famous for other things. Economic cultures and political cultures are interrelated, and this book is marked by a certain tendency to forget this relationship. Germany certainly was a pioneer in the development of the Sozialstaat, which deserves more critical treatment than it received, but it has in any case paid and continues to pay for "taking the lead." Neither this problem, nor the problem of unemployment (which is not even mentioned in Abelshauser's index except under "unemployment insurance") appear to be remediable under the existing German institutional regime, and Abelshauser's optimism about the promise of moderate reforms doing the trick is hard to share. Finally, it is curious that Abelshauser does not reflect on Germany's role in the European Economic Union and the relation between its "economic culture" and that of France, for example, which is even less reform-prone than Germany.

Note

[1]. Peter A. Hall and David Soskice, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (London: Oxford University Press, 2000) and Kathleen Thelen, How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan (Cambridge: Cambridge University Press, 2004).

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Citation: Gerald Feldman. Review of Abelshauser, Werner, The Dynamics of German Industry: Germany's Path toward the New Economy and the American Challenge. H-German, H-Net Reviews. July, 2006.
URL: http://www.h-net.org/reviews/showrev.php?id=12040

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