Ideas, Institutions and Organized Capitalism: Germany, Europe and 21st Century Path Dependent Economic Policy Models

For nearly four decades, coordinated market economies (CMEs) reigned in much of continental Europe and its most hegemonic exemplar was the Federal Republic of Germany. However, for the past twenty years conventional wisdom argued that this institution-based form of capitalism was exhausted and that neoliberal economic models were much more appropriate. But the 2008 international financial crisis and world wide recession have put a brake on calls for more neoliberalism. The paper argues that the rush to neoliberalism ignored deeper and much more basic issues: Why were these German and continental European organized capitalist institutions created in the first place? What ideas created and sustained them? What purpose did they serve? Which actors and social forces embodied them? The institutional and philosophical core of the creation of this model in the 19th century and its successful resurrection under more democratic auspices in the post-WWII years have powerful foundations. These CME institutions were founded at moments of economic crisis, precisely because liberal markets had failed or were woefully inadequate. Once activated, they were based upon the capacity to mobilize physical and human resources and to find comparative advantage without neglecting social infrastructure (Thelen 2004). Are these no longer relevant policy goals in the 21st century? To investigate more fully whether Germany and the EU nations with similar CME models would be wise to embrace their recent turn to neoliberalism rather than attempting to rebuild the spirit – but not the letter – of earlier forms of coordinated market policies, I will test the theory of path-dependent comparative historical institutionalism to ask whether a deeply embedded set of institutional structures, founded on a set of ideas requiring broad-scale and coordinated action that have twice before during the past one hundred and fifty years grown and then faltered, can do so again. The paper probes a question crucial not only for Germany and its role as the economic engine of the EU, but for industrialized democracies more generally. Is this form of organized capitalism – with deep, sticky and path-dependent late-19th century roots – capable of producing a 21st century political economy framework within the EU that can approximate the sustained economic growth, democratic political accountability, and social security and commitment to equality that characterized the developed democracies of western Europe in the second half of the 20th century? Put differently, is this a path toward a renewed European social model? The purpose for using this path-dependent historical institutional analysis is to discern if the institutional logic (comprising durable institutional structures and flexible visionary ideas) from these two earlier periods that could be resuscitated and/or reinvigorated to serve as foundations for a 21st century organized capitalist regime. The answer is not yet clear. In that sense, this inquiry is also joining a forty year old theoretical debate about whether institutions are sclerotic impediments to change (Olson 1965) or whether they can be imbued with properties of dynamic adaptation (Hirschman 1970). The specific indicators to be identified from these two earlier periods are those that comprise an institutional logic that built and reinforced the organized capitalist regimes and pre-empted and/or rejected dominant laissez-faire patterns.