Germany

Until the 1990s, German capitalism was widely regarded as a successful synthesis of a highly competitive economy with high wage performance and relatively equal distribution of income. The economic backbone of the German political economy was a strong manufacturing sector specializing in high-quality production in sectors such as automobiles, electronics, chemicals, engineering and machine building, which promoted an export-oriented development model. On the other hand, relatively strong trade unions and a comprehensive collective bargaining system ensured the majority of German workers participated in the overall economic development. Notable too, was the fact that the domestic sector did not lag too far behind the export industries. During the last decades, however, German capitalism has undergone some fundamental transformations which have questioned the efficiency and equality achieved by the former social contract (Streeck 2009). Faced by new external challenges combining the unification of Germany in 1990 with European integration and growing internationalization, Germany entered a period of neoliberal restructuring of its traditional welfare state and labour market institutions. Among other things, this had a major impact on the development of wage policy in Germany leading to a partial erosion and fragmentation of collective bargaining (sections 13.2 and 13.3) as well — and more fundamentally — to a significant change in power relations and the weakening of trade unions (section 13.4).