chapter  5
17 Pages

Germany: binding agreements preferable to voluntary CSR

ByAXEL HAUNSCHILD, FLORIAN KRAUSE

According to Hall and Soskice (2001), Germany is a typical representative of a co-ordinated market economy (CME), in contrast, for example, to the UK as a liberal market economy (LME). CMEs can be roughly defined by reference to close relationships between companies, their major suppliers and customers, by cross-shareholding between companies and by joint memberships of companies and other actors in societal institutions. Also, the internal structure of firms and their decision-making processes are, in comparison with LMEs, much more based on consensus and less centred on management. Collective bargaining remains comparatively strong and takes place mainly at the industry level (Hall and Soskice 2001). The German business system can be characterized further as having a comparably well regulated labour market, as applying a long-term approach towards company finance, and as benefiting from a dual education system that combines practical training with class room instruction (Whitley 1992). Overall, these specific features lead to a collaborative or even highly co-ordinated business system (Whitley 2000). Within Germany, the country’s business system is referred to as ‘social market economy’ (soziale Marktwirtschaft) or as ‘Rhenish capitalism’ (rheinischer Kapitalismus) (Windolf 2002). The social market economy is distinguished by a high degree of market regulation, a high level of income redistribution and a highly skilled labour force (Dörrenbächer 2002). Education is provided mainly through a dual training system, which combines on-the-job training and class-room instruction. Besides its wellknown large MNCs, for example in the chemical and car industries, Germany is also home to highly specialized and globally operating small and medium-sized enterprises (SMEs). At the core of the social partnership model is the system of co-determination, which gives employees a say in certain fields of a company’s decision making. Legislation prescribes codetermination for specific types of companies, chiefly those with more than 2,000 employees. Although only 10 per cent of German companies have co-determination institutions, these cover 45 per cent of all employees (Ellguth and Kohaut 2010). It has been argued that globalization and a higher degree of interdependence between markets would force the German system to converge on the US model. However, it has also been argued this might not necessarily be the case for the whole national business system and that certain German institutions would persist, such as co-determination (Windolf 2002). Indeed, during the economic crisis that started in 2008, the German system revealed its strengths: based on the country’s corporatist structure, the social partnership model and support from the state, firms were able to react flexibly to decreasing demand. They did so in co-operation with their workforce, for example with employees avoiding severe salary cuts by working reduced hours. As a result, Germany has performed comparably

well in many indicators, such as employment and consumer spending (Ebert 2012). In contrast for example to the UK, Germany has maintained a comparatively large manufacturing sector contributing about 30 per cent to total GDP (Statista 2012).