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11. Strong Firms, Weak Banks The Financial Consequences of Germany’s Export-Led Growth Model

Author:
Benjamin Braun and Richard Deeg
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
The financial foundation of Germany’s manufacturing success, according to the compara- tive capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and “patient” domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely export- led growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power – and relevance – of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.
Topic:
Banks, Exports, Institutionalism, and Corporations
Political Geography:
Europe, Germany, and Central Europe

12. Changing Perspectives in Political Economy

Author:
Renate Mayntz
Publication Date:
07-2019
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
The history of a research field called political economy dates back to the eighteenth century, giving rise to a variety of disciplinary approaches, and experienced a renaissance as a mul- tidisciplinary field after the Second World War, combining economic, political science, and sociological approaches. The divergence between economic globalization and the nation- ally restricted scope of economic policy directs interest to the relationship between politics and the economy. A quantitative analysis of the articles published in two dedicated political economy journals shows major trends of the developing research field. The relationship between politics and economy is interpreted rather widely, and research is largely focused on Western capitalist nations. In conclusion, two avenues for further research in the field are briefly discussed.
Topic:
Political Economy, Regional Cooperation, Capitalism, and Global Political Economy
Political Geography:
Europe, Germany, Central Europe, and Western Europe

13. Competing with Whom? European Tax Competition, the “Great Fragmentation of the Firm,” and Varieties of FDI Attraction Profiles

Author:
Javier Garcia-Bernardo and Arjan Reurink
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
International tax competition is generally framed as states competing for foreign direct invest- ment (FDI), and analyses of the phenomenon draw heavily on FDI statistics. In and of themselves, however, FDI statistics are merely a quantification of the value of investment projects and tell us little about the heterogeneity of these projects and the distinct patterns of competitive dynamics between countries they generate. In this paper, we create a more sophisticated understanding of international tax competition by pointing out its variegated nature. To do so, we introduce the notion of the “great fragmentation of the firm” to distinguish between five categories of FDI: manufacturing affiliates, shared service centers, research and development facilities, intermedi- ate holding companies, and top holding companies. Using a novel combination of firm-level and country-level data, we identify for each category of FDI which European Union member states are most successful in attracting it, what macro-institutional and tax arrangements they rely on for doing so, and what benefits they receive from it in terms of tax revenues and employment creation. In this way we were able to identify five distinct FDI attraction profiles and show that, rather than being a game of all against all, tax competition in the European Union increasingly takes place amongst subsets of countries that compete for similar categories of FDI.
Topic:
Foreign Direct Investment, European Union, and Tax Systems
Political Geography:
Europe

14. European Social Policy: Progressive Regression

Author:
Wolfgang Streeck
Publication Date:
11-2018
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
European social policy changed with the evolution of European and global capitalism, the scope and shape of European-level international institutions, the size and heterogeneity of “Europe” as a polity, and the politics of the European national welfare state. The paper outlines the long-term trajectory of European social policy, from the intended absorption of national welfare states into one united, federal welfare state to a selective updating of national social policies by European social policies; to multi-level coordination of national systems by special European institutions; to European soft law helping national “modern- ization” on the “Third Way”; to exposure of national systems to international economic competition as an incentive for “structural reform”; and to subordination of social policy, national and European, to the defense of a common hard currency through fiscal consoli- dation – from, in other words, federal social democracy to competitive “adjustment” of national social protection and social life to global markets.
Topic:
Reform, Capitalism, Political structure, Social Policy, Welfare, and Integration
Political Geography:
Europe

15. There Is an Alternative A Two-Tier European Currency Community

Author:
Fritz W Scharpf
Publication Date:
11-2018
Content Type:
Commentary and Analysis
Institution:
Max Planck Institute for the Study of Societies
Abstract:
The performance of EMU member economies is shaped by different and structurally entrenched “growth models” whose success depends on specific macro-regimes – restrictive for export-led growth, accommodating for demand-led growth. These two types of models cannot be equally viable under a uniform macro regime, and their divergence threatens the stability of the EMU. The present attempt to enforce structural convergence in the eurozone appears economically ineffective and lacks democratic legitimacy on the national and the European level. Assuming that complete integration in a democratic federal state is presently unattainable, the paper presents the outline of a more flexible European Currency Community that would include a smaller and more coherent EMU and the member states of a revised “Exchange Rate Mechanism II” (ERM) whose currencies are flexibly linked to the euro. It would restore the external economic viability of autonomous domestic policy choices, and it would protect its members against speculative currency fluctuations.
Topic:
International Political Economy
Political Geography:
Europe

16. Explaining the Growth of CSR within OECD Countries: The Role of Institutional Legitimacy in Resolving the Institutional Mirror vs. Substitute Debate

Author:
Daniel Kinderman and Mark Lutter
Publication Date:
04-2018
Content Type:
Commentary and Analysis
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Two strands of literature have emerged to explain the rise of a new form of private governance, Corporate Social Responsibility (CSR). One camp argues that CSR expansion is likely during periods of economic liberalization because CSR tends to substitute for growing institutional voids and a lack of social regulation. The other camp argues that CSR is likely to diffuse within coordinated economies because it mirrors these institutional settings. While both camps find empirical support for their arguments, no one has yet managed to combine both perspectives. In our study, we develop three hypotheses based on two (rationalist and constructivist/sociological) strands of institutional theory. Based on a new dataset comprising the corporate membership in business-led CSR organizations in over thirty countries from 1981 to 2008, we show that economic liberalization has a strong effect on CSR expansion when the legitimacy of CSR is low. However, when the practice has achieved substantial cultural acceptance, economic liberalization no longer drives CSR expansion. In this setting, CSR expansion is most likely to occur within socially regulated economic contexts.
Topic:
International Political Economy and International Trade and Finance
Political Geography:
Europe

17. Empowered or Disempowered? The Role of National Parliaments during the Reform of European Economic Governance.

Author:
Aleksandra Maatsch
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
This paper investigates how the intergovernmental reform process of European economic governance affected national parliaments’ oversight of this policy area. Which parliaments became disempowered and which managed to secure their formal powers – and why? The dependent variable of the study is operationalized as the presence or absence of “emergency legislation” allowing governments to accelerate the legislative process and minimize the risk of a default by constraining national parliaments’ powers. The paper examines how national parliaments in all eurozone states were involved in approving the following measures: the EFSF (establishment and increase of budgetary capacity), the ESM, and the Fiscal Compact. The findings demonstrate that whereas northern European parliaments’ powers were secured (or in some cases even fostered), southern European parliaments were disempowered due to the following factors: (i) domestic constitutional set-up permitting emergency legislation, (ii) national supreme or constitutional courts’ consent to extensive application of emergency legislation, and (iii) international economic and political pressure on governments to prevent default of the legislative process. Due to significant power asymmetries, national parliaments remained de jure but not de facto equal in the exercise of their control powers at the EU level. As a consequence, both the disempowerment of particular parliaments and the asymmetry of powers among them has had a negative effect on the legitimacy of European economic governance.
Topic:
Politics, Governance, Law, and Reform
Political Geography:
Europe

18. After the Crash: A Perspective on Multilevel European Democracy

Author:
Fritz W. Scharpf
Publication Date:
12-2014
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
At the end of the postwar period, the politically shaped configurations of normatively integrated European political economies differed greatly among “social-market” and “liberal market economies.” Such differences persist even though the characteristic achievements of social market economies have since eroded under the pressures of global capitalism and of European integration. Focusing on European integration from a social-market perspective, there is no question that it has widened the range of individual options. But it has also reduced the capacity of democratic politics to deal with the challenges of global capitalism, and it has contributed to rising social inequality and the erosion of public services and transfers. This paper will first summarize those asymmetries of European integration which have done the most to constrain democratic choices and to shift the balance between capital, labor, and the state by establishing an institutional priority of negative over positive integration and of monetary integration over political and social integration. It will then explain why efforts to democratize European politics will not be able to overcome these institutional asymmetries and why politically feasible reforms will not be able to remove the institutional constraints. The changes that would be required to restore democratic capacities to shape the political economy could only have a chance if present veto positions were to be fundamentally shaken. On the speculative assumption that the aftermath of a deep crisis might indeed create the window of opportunity for a political re-foundation of European integration, the concluding section will outline institutional ground rules that would facilitate democratic political action at both the European and national levels.
Topic:
Economics, Markets, Politics, Labor Issues, Democracy, and Capitalism
Political Geography:
Europe

19. No Exit from the Euro-rescuing Trap?

Author:
Fritz W. Scharpf
Publication Date:
03-2014
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
This paper attempts a normative assessment of the input and output-oriented legitimacy of the present euro-rescuing regime on the basis of policy analyses examining the causes of present crises, the available policy options, and the impact of the policies actually chosen. Concluding that the regime lacks input-oriented legitimacy and that its claim to output-oriented legitimacy is ambivalent at best, the paper explores potential – majoritarian or unilateral – exits from the present institutional constellation that is characterized by the synthesis of a non-democratic expertocracy and an extremely asymmetric intergovernmental bargaining system.
Topic:
Economics, Politics, Financial Crisis, and Democracy
Political Geography:
Europe

20. Challenging Varieties of Capitalism's Account of Business Interests: The New Social Market Initiative and German Employers' Quest for Liberalization, 2000–2014

Author:
Daniel Kinderman
Publication Date:
11-2014
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Do employers in coordinated market economies (CME’s) actively defend the non-liberal, market-constraining institutions upon which their strategic coordination and competitive success depends? This paper revisits the debate over firms’ employer preferences with an in-depth examination of employers in Germany – a paradigmatic CME and crucial “test case” for Varieties of Capitalism. It is based on interviews with key officials and an in-depth examination of a large-scale campaign – the New Social Market Initiative or INMS – founded and funded by German metalworking employers to shape public opinion. The paper argues that German employers have a strong preference for liberalization: they have pushed hard for the liberalization of labor markets, the reduction of government expenditures, the expansion of market-oriented freedoms, and cuts to social protection, employment protection and benefit entitlements. I find no empirical support for the claim that the INSM is an attempt to appease discontented firms within employers’ associations. On the contrary: for many employers, the Agenda 2010 reforms did not go far enough. Following the discrediting of the Anglo-American model in the financial crisis, far-reaching concessions by employees, and the unexpected revitalization of the German economy, employers have moderated their demands – but liberalization remains their default preference. This paper also addresses the role of ideas and the conditions under which employer campaigns can influence policy.
Topic:
Economics, Markets, Labor Issues, and Capitalism
Political Geography:
Europe and Germany