Softening industrial relations institutions, hardening growth model: The transformation of the German political economy

In contrast with recent literature which sees the German model as either a fundamentally resilient model of coordinated capitalism, or as undergoing liberalization only in the peripheral service sectors but not in the core manufacturing ones, in this paper we make two arguments. First, we argue that a fundamental change is taking place in the German growth model, which is drifting away from the typical wage-led growth pattern of other large Eurozone economies and moving towards exclusively export-led growth. Second, we document a liberalizing trend in German industrial relations institutions in both the manufacturing sectors and in the service sectors, and argue that it stands in a relationship of coevolution with the growth model shift: the liberal erosion of industrial relations institutions has facilitated the pursuit of an economic strategy based on external competitiveness and cost-cutting, while the decline of household consumption as a driver of growth has contributed to lock-in the export-led model and to generate further pressure for industrial relations liberalization.