Will Germany’s economic model survive the conflict in Ukraine?
Will Germany’s economic model survive the conflict in Ukraine? As I noted in a recent talk at Harvard University, answering that question requires revisiting recent economic history.
Germany’s economy was transformed after the fall of communism in 1989. Liberalisation of trade with the country’s eastern neighbours had three profound effects at home. First, it led to decentralised wage bargaining. Second, it had a flattening effect on hierarchical management in German firms. And third, it extended German production networks into Central and Eastern Europe.
On the first count, the opening of ex-communist Europe — where labour costs were lower — changed the power equilibrium between Germany’s trade unions and employers’ federation. With the loss of union bargaining power, wage negotiations shifted from the national level to the firm level.
Owing to this new…
