Throwing out the ballast: Growth models and the liberalization of German industrial relations

This article proposes a new interpretation of the evolution of German industrial relations focusing on the interaction between macroeconomic dynamics and industrial relations developments and specifically on 'growth models'. It argues that there has been a shift in the German growth model from growth pulled by net exports and consumption simultaneously to almost exclusively export-led growth. In addition, exports of machinery and transportation equipment have become more price- sensitive, implying that wage and price increases now pose a greater threat to growth than in the past. These macroeconomic developments have spurred a set of adjustments in the industrial relations sphere with export-oriented firms seeking cost reductions and liberalizations. Industrial relations changes have in turn contributed to entrench export-led growth by augmenting the systemic importance of the foreign sector and reducing the relevance of domestic demand. The export sector has thrived at the expense of real wage stagnation, particularly (but not exclusively) in labour-intensive service sectors, and pattern bargaining has lost its ability to redistribute across sectors and boost domestic demand. The new German model is much leaner and meaner than in the past. Contrary to recent literature, its erosion and liberalization are not limited to the service periphery but affect the manufacturing core as well.