My book recounts the transformation of the German political economy after the end of the postwar growth period in the 1970s. Germany is often presented as a paragon of "coordinated," "organized," "socially embedded," European-style capitalism. This is why the break-up of its "postwar settlement" - its gradual but continuous liberalization over several decades, in parallel with the worldwide advance of neoliberalism - appears to be of general interest. Indeed the second, longer half of the book develops a number of theoretical conclusions concerning the nature of institutional change in contemporary capitalism and the way social science may learn to understand it better.
For empirical reference, the book looks at the long-term evolution of five institutional spheres: collective bargaining, the organization of capital and labor, social policy, public finance, and corporate governance. It documents, mostly beginning already before German unification, a decline in the coverage of employment conditions by collective agreements, followed by increasing wage differentials and rising low-wage employment; declining membership in trade unions and employer associations; a transformation of social policy from social protection to economic "activation;" increasing public debt and an attendant decline in fiscal capacity; and a dissolution of the German company network under the impact of "financialization" and structural change in the banking industry, combined with a profound transformation of workforce participation in the management of large firms. All of these developments point in the same direction: a withering away of social regulation and a growing role for markets, very much in line with what was happening simultaneously elsewhere in the capitalist world, under the leadership of the United States.
In the book, institutional change in the German political economy after the 1970s is described as a "re-forming" of capitalism - a slow but continuous process through which German capitalism became more capitalist after its temporary domestication in the postwar period. Even an exemplary European-style "social market economy" like Germany, the book shows, is subject to general forces of capitalist development, in the form of powerful endogenous pressures for an expansion of market relations. These pressures, it is suggested, are common to all capitalist political economies. While there is variety in institutional structure and economic performance between different national versions of capitalism, the book argues, based on in-depth study of the German case, that such variety is not categoric, and that the commonalities of capitalism that matter more than its varieties, and increasingly so.
Going beyond the limits of a country study, in the second half of the book I develop a number of general points that, I believe, are illustrated and supported by my narrative. First, the idea of an alternative, socially embedded, domesticated kind of capitalism, as embodied by the so-called "German model," was a reification, very much for political purposes, of one short moment in an ongoing historical stream of capitalist development. What really matters is not so much the differences between national "capitalisms" at a given point in time as the historical trajectory on which they are together moving as a family, and how they hang together in a global context.
Second, the evolution and transformation of a capitalist political economy, even a prototypically European one like Germany, can only be understood if its capitalist nature is taken seriously. Above all this means that we need a theory in which the expansion and the containment of market relations occupy a central place. In my book I draw on a core concept of Rosa Luxemburg who described capitalist development as a process of Landnahme, or land-grabbing. Land here includes the social relations through which people connect and societies cohere. Capitalist Landnahme is a self-driven process of commodification of values and of marketization of social transactions. In the book I undertake to show that it is endogenous pressures for a continuous widening and deepening of market relations that is the main dynamic force in capitalism as an evolving social order.
Third, market expansion must not be conceived as linear and consensual. To the contrary, it is a contentious, conflicted and contradictory process that typically moves forward in fits and spurts. Here Karl Polanyi's theory of the transformation of the historical capitalism of the nineteenth and twentieth century has served me as an indispensable road map. Polanyian theory enables us to understand the profound tension between the needs of social communities and the creative, or less creative, destruction of social relations through the "vagaries" of self-regulating markets, with their unpredictably fluctuating relative prices not just of goods but also for land, labor and capital. A society in which markets have free rein cannot develop the stable social fabric that human beings need to develop their full potential. This is why market expansion always calls forth counter-movements that resist it, making capitalist development proceed as a "double movement" of market expansion followed by efforts to contain and re-socialize the commodified social relations that it gives rise to.
Fourth, my book takes issue with recent theories of political economy and "varieties of capitalism" that it finds both empirically flawed and normatively disturbing. One of my central contentions is that social institutions, including those that deal with the economy, cannot be explained as rationally constructed devices to provide for the comparative advantage of national economies. In my empirical chapters I try to show that social systems include a multiplicity of goals, and that the interests that exist inside them differ, requiring political adjudication. In fact I argue that the process of institutional change that I have documented cannot by any stretch of the imagination be narrated as a story of progress toward ever higher efficiency. What I found is, rather, the gradual decomposition of an institutional order that for a while successfully contained market forces and their pressures for greater inequality, less security, higher rewards for the winners and more severe punishment for the losers. While institutional change in this direction continues to be contested, sometimes forced to move two steps forward and one step back, its overall result was and is increasing social division and economic exclusion.
Re-Forming Capitalism is far from a nostalgic celebration of a golden past. It insists, however, that we still need to find replacements for the postwar institutional containments of the capitalist maelstrom that have with capitalist progress become obsolete. I agree with the historian Tony Judt that, "Rather than seeking to restore a language of optimistic progress, we should begin by reacquainting ourselves with the recent past. The first task of radical dissenters today is to remind their audience of the achievements of the twentieth century, along with the likely consequences of our heedless rush to dismantle them." The capitalist pressures for free markets that I show to be at work even in a presumably highly socially regulated political economy have overwhelmed the governing capacity of the nation-state of the twentieth century. Nobody knows as yet how to control the growing risks that emanate from an increasingly ungoverned and ungovernable capitalist economy for ordinary people and their societies.
The book was written before the Great Recession and was sent to the printer in the fall of 2008. While its dust cover shows a hurricane gathering over the United States, I did not expect the crisis to come that fast. The book includes deteriorating public finances among the causes of the gradual liberalization of the previously "socially embedded" political economy of Germany. It also recounts the contribution of expanding financial markets in the 1980s and 1990s to the dissolution of the German company network, Deutschland AG (or Germany Inc.). But it fails to anticipate the financial crisis that unfolded in 2008. When I wrote I saw a crisis coming in the intersection between work and life, especially family life, where I expected a growing gap between the demands of ever more flexible labor markets and the conditions necessary for social integration and the physical reproduction of society. As it turned out, the crisis that, unknown to me, was brewing in the world financial system came faster.