Coercion without Convergence:
European Models of Capitalism
on the Eve of the Crisis
S t e ff e n L e h n d o r ff
T
pean single market,” it could reasonably
he present economic crisis
be assumed that the broad process of
has sparked a debate about
liberalization would ultimately lead to
the state-market nexus in
convergence among the various models
advanced capitalist societies.
of capitalism.3 Interestingly, though, the
This is hardly surprising. The contrast
between the billions pumped in by govmodels have not stopped working. As
ernments to rescue financial institutions
a short look at these countries shows,
and the previous faith that the “marit is the interaction of the institutional
ket” rather than the “state” achieves
environment, political power relations,
the best possible outcome
and policy objectives of the
was indeed dramatic. As
leading actors that deter. . . it is the
will be argued in what folmines how national modlows, the neoliberal mainels adapt to the neoliberal
interaction of
stream in the years before
pressure for change.
the institutional
2008 has in fact left behind
The Swedish Model
environment,
substantial scarring effects
on all European varieties
The adjustments of the
political power
of capitalism. Nevertheless,
Swedish model to the “librelations,
and
policy continued to materalization process” folter, sometimes reinforcing
policy objectives of lowing the deep crisis in
distinct features of the rethe early 1990s were balthe leading actors
spective national models.
anced by the universal welthat
determines
Three European flagship
fare state and the system
models—the UK, Germany,
of industry-level collective
how national
and Sweden—will serve as
agreements. Trade unions
models adapt to the and employers’ associations
illustrative examples.1
neo-liberal pressure agreed on a shift from the
These countries are often
earlier centralized collective
used as key examples for
for change.
bargaining system to a new
“coordinated” versus “libcombination of centralized
eral” varieties of capital2
and decentralized collective bargaining,
ism in Europe. Given the power with
including a considerable degree of flexwhich the prescriptions of neoliberalism
ibility at firm level. The pension reform
were imposed across Europe over past
introduced at the end of the 1990s, a
decades, not least by means of creating a
period of economic growth, was also
self-propelling mechanism of the “Euro-
P ER S P EC T IVE S ON W ORK
35
a coordinated and
measured adjustment to the liberalization process. The
high level of education, together with
a relatively egalitarian income distribution, made a particularly important
contribution to the
rapid growth that
occurred in Sweden
and other Northern
European countries
from the end of the
1990s onward.4
While the current
center-right
government intends
to weaken the trade
unions’ institutional
power, it does not
call into question the
basic features of the
universalistic welfare state. At almost
50 percent, Sweden,
next to Denmark,
has the highest tax
and social security
contributions rate
in the Organisation
for Economic Co
operation and Development (OECD). Next to various policy
interventions, the highly redistributive
effects of the welfare state proved to stabilize the domestic market of this exportoriented economy in the current crisis.5
The UK Model
From the 1980s, the UK model was
widely regarded as one of the successes
of globalization. However, the increased
social polarization associated with it
gave way to a new policy approach
adopted by New Labour governments
starting in the late 1990s. One of the
cornerstones of this new approach was
36
S UMMER 2 0 1 1 / W IN T ER 2 0 1 2
for employment growth
was now coming from
the state.
While nothing changed
that was fundamental to
the architecture of the
“liberal” British model, the social dimension
was strengthened. But
the model continued to
be largely built on the
quicksand of the financial
markets. The excessive
importance of the City as
a global financial center,
together with the credit
and house price bubble
that was such an important driver of household
consumption, proved in
the financial crisis to be
the Achilles’ heel of the
liberal model’s success.
The German Model
the linking of in-work benefits with a
newly introduced statutory minimum
wage. Given the low level of labour
market regulation, this linkage was unavoidable if an explosion of state-funded wage subsidies was to be avoided.
At the same time, it had the effect of
making the UK one of the few countries
in which the earnings dispersion has
hardly increased in the past ten years.
Another new feature was increased public expenditure on health and social
services. Thus, given the significant decline in private sector employment after
the 2001 recession, the decisive impetus
Compared
with
the
changes that have taken
place in the UK and Sweden, the German model of
capitalism has undergone
radical change. Two decades ago, toward the end
of its heyday, the core of
the German model could
© Fotosearch
be characterized as a combination of economic dynamism and
relative social equality. After German
reunification, however, the idea became
increasingly dominant that the main elements of the model were becoming unaffordable, such as sector-level agreements
providing for pay rises linked to productivity increases, protective labor market
regulations, and encompassing welfare
state arrangements. The parties to collective bargaining have been weakened,
and the coverage of sectoral collective
agreements has declined considerably.
The labor market reforms of the Social
Democratic-Green coalition (SPD-Green)
government encouraged the growth of
social inequality, and tax reforms reduced the state’s ability to counteract
the declining job creation potential of
Germany’s export industries. It is true
that these industries have been able to
reclaim their position as world leaders
that they had temporarily lost, but in doing so, they took advantage of the new
environment of increasing social and
institutional fragmentation, which has
helped them to compete on price.
Consequently, the German model has
developed in a direction in which the attention is increasingly focused on reducing labor costs, while public investment
in skills and technological innovation
lags behind. The result is a vicious circle.
The rapid expansion of the low-wage
sector and the fragmentation of bargaining structures in the private and public
service sectors have reduced the costs of
the German export machine but do not
support adequate domestic demand. The
German model has thus lost its longestablished ability to translate economic
success into social success.
How National Models Adapt to the
Neo-liberal Pressure for Change
True, for a very short period, the impacts
of the crisis on the labor market were
cushioned substantially by a sudden revival of more traditional institutions
and approaches such as “social partnership,” the short-time working scheme,
and working-time reductions.6 However,
in the current economic upswing, the
model based on internal and external
imbalances is being picked up largely
untouched by the crisis, with the possible
implication of undermining the European single currency.7
Irrespective continuous warnings of
an allegedly blind faith in the state over
past decades, it has been state action that
helped European models of capitalism
to survive the Washington Consensus.
Ironically, it has been the same pillars
that proved to work as built-in stabilizing factors during the crisis. That is,
what is at stake here is not “blind faith in
the state” but rather renunciation of the
state that has blind faith in the market.
What might have been a lesson to be
drawn from the experience of the past
few years, appears to be regarded as unfit
with future challenges. As Joseph Stiglitz
observed at the beginning of 2011, “the
New Year’s resolutions made in Europe
and America were the wrong ones. The
response to the private-sector failures
and profligacy that had caused the crisis
was to demand public-sector austerity!”8
Thus, it remains to be seen whether the
social pillars of European models of
capitalism, which were not dismantled in
the pre-crisis years, will survive the years
following that crisis.
Notes
1. The present article is based on the
Dynamics of National Employment
Models (DYNAMO) project, which
was funded by the European Commission. See G. Bosch, S. Lehndorff, and
J. Rubery, eds., European Employment
Models in Flux. A Comparison of Institutional Change in Nine European
Countries (Houndmills, Basingstoke,
Hampshire, Eng.: Palgrave Macmillan,
2009). The cases below draw on three
national chapters from this book: S.
Lehndorff, G. Bosch, T. Haipeter, and
E. Latniak‚ “From the ‘Sick Man’ to
the ‘Overhauled Engine’ of Europe?
Upheaval in the German Model” (pp.
105–30); D. Anxo and H. Niklasson‚
“The Swedish Model: Revival after the
Turbulent 1990s?” (pp. 81–104); and
J. Rubery, D. Grimshaw, R. Donnelly,
and P. Urwin, “Revisiting the UK Model: From Basket Case to Success Story
and Back Again?” (pp. 57–81).
2. P. Hall and D. Soskice, eds., Varieties of
Capitalism: The Institutional Foundations of Comparative Advantage (Oxford: Oxford University Press, 2001).
3. D. Coates, ed., Varieties of Capitalism,
Varieties of Approaches (Houndmills,
Basingstoke, Hampshire, Eng.: Palgrave Macmillan, 2005); W. Streeck
and K. Thelen, eds., Beyond Continuity: Institutional Change in Advanced
Political Economies (Oxford: Oxford
University Press, 2005).
4. T. Sauer, L. Vogel, and S. Bahr, “The
Autonomy of National Fiscal Policy in
a Globalised World: The Experience in
the Scandinavian Countries Denmark,
Finland and Sweden,” IMK Studies, no.
6 (Düsseldorf: Hans-Böckler-Stiftung,
2007); W. Korpi and J. Palme, “New
Politics and Class Politics in the Context of Austerity and Globalization:
Welfare State Regress in 18 Countries,
1975–95,” American Political Science
Review 97, no. 3 (2003), 425–26.
5. D. Anxo, “Flexicurity, Swedish-Style,
against the Crisis: What Impact on Inequality?,” in Inequalities in the World
of Work: The Effects of the Crisis,
ed. V. Vaughn-Whitehead (Geneva:
International Labour Office, 2011),
449–80.
6. S. Lehndorff, “Before the Crisis, in the
Crisis, and Beyond: The Upheaval of
Collective Bargaining in Germany,”
Transfer. The European Review of Labour and Research (forthcoming).
7. G. A. Horn, H. Joebges, and R. Zwiener, “From the Financial Crisis to the
World Economic Crisis (II)—Global
Imbalances: Cause of the Crisis and
Solution Strategies for Germany,” IMK
Policy Brief (Düsseldorf: Macroeconomic Policy Institute, 2009), http://
www.boeckler.de/show_product_imk
.html?productfile=HBS-004580.xml
(accessed April 11, 2011).
8. J. E. Stiglitz, “New Year’s Hope against
Hope,” Project Syndicate, January 2,
2011, http://www.project-syndicate.
org/commentary/stiglitz134/English
(accessed April 11, 2011).
Steffen Lehndorff
Steffen Lehndorff is an economist and senior researcher
at the Institut Arbeit und Qualifikation (Institute for
Work, Skills and Qualification/IAQ) at the University of
Duisburg/Essen, Germany. His research focuses on employment relations and working-time at organizational,
national, and international levels and includes comparative research into European employment models and
industrial relations systems.
P ER S P EC T IVE S ON W ORK
37