But this regrettable failure was not fatal

THE GERMAN MODEL

IN QUESTION

by Fabrice Pesin

and Stressel Christophe

Economica, 178 pages. 15 euros

This book is much more than a new description of the famous "Rhenish model" and the difficulties that it crosses. more than an update of the thesis which was of this model, early 1990s, the only credible alternative to "anglo-saxon capitalism". It is primarily a reflection on the possible differentiation of economic and social systems. A rebuttal, in sum, the belief in the inevitable convergence towards the anglo-saxon system.

For authors, the Rhine model will probably disappear by the set of circumstances and inadequate policy responses. But this regrettable failure was not fatal. The German model is or was based on three principles: a market including the social economy was left to the responsibility of the social partners, the participation of employees in corporate governance, close and lasting links between banks and industry. These three principles are found destabilized for reasons that the book very convincingly. Social protection expenditures are increased as a result of the ageing of the population, of drift of the health system, the rise of unemployment and the transfers for reunification. Protection of employment and the co-management have slowed redeployments to the high technology industries, while the conditions for entry into the euro have weighed on competitiveness. Finally, the difficulties encountered by the banking system were partially broken banks-industry relations and reduced access to credit for SMEs.

The Red Lantern

These challenges economic policy has sought to limit social spending, more flexible labour market and reduce tax levies. In wanting to promote the reallocation of funding, it prompted banks to identify their industrial interests. All this has dampened demand and cut budget deficits without restructure and revitalize the production. And, ultimately, the Germany became the Red Lantern of European growth.

That Fabrice Pesin and Christophe Stressel criticize these policies to the blow-by-shot, it is to have poor picture. It is certainly possible to bear expensive social protection, but it must then work more and longer; It must also achieve high productivity gains, which implies significant investment in education and research. Contrary to fashion (the fable of the boundary in technology), in which the work appears to adhere to, it is not demonstrated that the protection of employment be contradictory with the development of advanced technologies. First, because the mobility of men and qualifications can be in the business. Then, because only certain industries such as biotechnology require long-term labour and capital commitments. But this requires a financial environment that protects the industrial logic, i.e. a stable ownership and robust financial institutions.

In other words, there are complementarities between institutions which depend on the consistency and performance of an economic system. The effectiveness of each of its elements depends on the manner in which it interacts in the whole organization.

Pessimistic conclusions

This is why there is not, a priori, of economic and social system optimal, but a number of also performing institutional connections. It is also why the conclusions of the book are perhaps too pessimistic. Because the imbalances which have destabilized the German model seem not irreversible. It is hard to believe, as suggested by the authors, that the return of the Germany to the top of the world exporters is an "industrial success in trompe l'oeil." Policy to ensure that the system found its consistency are sufficiently well identified and are not out of scope: investment in higher education and research, restructuring of the banking sector. Moreover, activity restarts, if it is sustainable, should bring to the Government of new margins of manoeuvre. Would this more happy ending, that is please to be hoped, make that better analyses of this deep and very well documented book.