How Germany’s Trajectory Differs from LPE’s Diagnosis for the US, and Where Germany’s Problems Lie

As Eva Herzog explains in her contribution, the main thesis of the US Law and Political Economy movement is roughly this. First: In the 1970s, the US experienced a fundamental political rupture with the New Deal regime of the mid-century that had allowed broad interventions in the economy and transitioned to a “Neoliberal Regime” that reordered the relationship between state and market by isolating the economy from state intervention. Second: Law and legal interpretation played a role in this shift, although not the main one. US Constitutional law specifically helped isolate the economy from regulatory attempts. 

Historical and sociological research tell us that the larger shift away from the Postwar era that happened from 1970s onwards was a transnational shift that also occurred in Europe and Germany. This raises two questions: First can we find a similarly stark rupture in Germany? And second – and more precisely – what role, if any, did constitutional law play in any such transition?

Largely due to the different structural shape that the German political, constitutional and economic model has, no similarly stark rupture in fact occurred in Germany, and constitutional law and doctrine played no similar role. This does not mean, however, that the German model is currently without problems. But its problems lie elsewhere. Describing them points the way to a promising research agenda.

To explain, I first look at the US rupture and point to some structural conditions why it was so marked. Second, I mention structural reasons why the transition was nowhere near as disruptive in Germany, and why constitutional law took a different role. Third, I instead point to the specific problems in Germany and to ways forward in which constitutional law scholarship can prove adequate to them.

Why the Rupture in the US?

As the historian Jefferson Cowie has explained, establishing the New Deal regime in the first place was itself an uphill battle in the US system. To understand why, constitutional lawyers can draw on recent work done in Comparative Political Science and more specifically Comparative Political Economy (CPE). They have explained how the specific “liberal” structure of the political system and of the US market economy make public interventions generally difficult.

What is important for constitutional lawyers here is that this “liberal” structure is reflected on the constitutional level. First, in the political system: The combination of a two-party system and the tremendous number of veto points in the US checks and balances make collective action generally very difficult. Second, constitutional rights protections and the First Amendment most notably function mainly as a shield that protect the private realm from public interference. Third, on the Supreme Court, the appointments by a simple majority make sure that the Court will eventually follow a dominant political coalition if that coalition is in place for a sufficient amount of time.

These structural features in fact heavily influenced how the New Deal regulations where integrated into US constitutional law. Politically, Roosevelt first needed to win an overwhelming majority in 1933 to put them in place. On the level of constitutional law, the Supreme Court, even after its “switch in time” in 1937, only ever accepted them as constitutional, but never constitutionalized them, that is, never integrated them into constitutional doctrine itself. We can see that perhaps most prominently in the protections for unions under the Wagner Act.

Now, the political rupture of the 1970s was itself facilitated by this framework. The inability of the Carter Administration to come to grips with the stagflation of the 1970s – which paved the way for the Reagan Revolution – was itself in large parts due to the specific liberal shape of the US market economy. The lack especially of a corporatist social partnership under the Wagner Act prevented the necessary wage restraint from the unions.

The rupture also strongly affected constitutional law. The shift there is not just due to the decreasing scruples from Justices that become more militant with each new conservative appointment. Rather, the First Amendment structurally was easily turned into a deregulatory mechanism, for instance in campaign finance or in the deregulation of the broadcasting system that eventually enabled the rise of the right-wing media. In industrial relations, too, the wipe-out of the labor movement from the 1970s onwards was not merely a private push from business but used specific flaws in the Wagner Act protections that the Supreme Court partly had put there itself. This wipe-out pushed both unionization rates in the private sector and coverage by collective bargaining agreements into the single digits and has most likely had a strong impact on the falling labor share in GDP growth in the US.

Was There a Similar Rupture in Germany?

CPE scholarship tells us that the transition in Germany from the 1970s onwards took a different shape than in the US. Its structure as not a liberal but coordinated market economy and the corresponding political system of a “consensus democracy” prevented many of the processes that we observe in the US.

In constitutional law, we can trace this most clearly in how the Basic Law differs from the US Constitution. First, in its timing: The Basic Law is not from 1789, but from the immediate post-War period, that is, from the high point of organized society and the big state. Second, in its tradition: Germany had a corporatist tradition with a strong social democracy and proportional representation, and an emphasis on cooperation between social groups which already in Weimar allowed first attempts at a social partnership between labor and capital. Third, in its underlying coalition: The Basic Law was supported by a Grand Coalition of non-liberals (Christian Democrats and Social Democrats); while the opposition, both liberals and authoritarians, where in a historically weak position after 1945. These historical and political differences reflected in the structure of the Basic Law, not just in its social welfare state provision. It did not erect a clear separation between the public and private sphere, but for instance recognized political parties or in its Art. 9 sec. 3 recognized the corporatist social partnership as it had formed in the early Weimar years and again after 1945.

This general path was then continued by the Federal Constitutional Court. With its 2/3 requirement for appointments, the Court became itself an institution of the Grand Coalitional consensus and built on it in its early doctrine. Most notably, it conceived Constitutional rights not just as strong negative shields against public intervention. Instead, it read central provisions as “objective” guarantees that privilege and in fact demand regulatory intervention from the legislature to ensure the good functioning of the respective institutions – the contrast to the US could not be clearer. Examples are the media guarantee that requires a media system that ensures a diverse democratic sphere; or Art. 9 sec. 3 of the Basic Law, where the Court described the proper functioning of the social partnership as a constitutionally privileged (and mandated) good.

Classic constitutional law scholarship in Germany, too, was aware of these structures. Konrad Hesse, for instance, conceptualized the corporatist intermediaries that the Basic Law constitutionalized; and Ernst-Wolfgang Böckenförde – and before him Ernst Forsthoff – described how the social partnership stabilized itself outside of a tripartite structure, that is, without state intervention – and in the process helped to limit the stagflationary tendencies of the 1970s.

No Clear Rupture

Here lie many of the reasons why there was no similar political rupture in the Federal Republic after the 1970s. As Peter Katzenstein showed in a seminal study, it was precisely the German “semisovereign” state with its corporatist institutions and the grand coalitional consensus that prevented most attempts at deeper economic reform.

For similar reasons, we cannot point to a rupture in constitutional law scholarship or case-law. There are certainly traces, for instance in the Second Senate’s jurisprudence of the 1990s to develop limits on the state’s taxing power from the property rights guarantee in Art. 14 of the Basic Law. But in general, the Constitutional Court kept its jurisprudence notably on the corporatist guarantees largely constant, most prominently regarding media regulation, but also regarding the functioning of the social partnership, as it most recently outlined in its Tarifeinheitsgesetz decision from 2017. What we can see perhaps in constitutional law scholarship was a shift in topics away from these issues; it is harder to imagine nowadays articles like Böckenförde’s on the functioning of the industrial relations system (although there are notable exceptions).

But What Are Specific Problems of the German Model?

All of this does not mean that the German corporatist model is without problems; however, these problems lie elsewhere.

The German model nowadays suffers from the fact that its institutions were built around the highly organized industrial society of the post-war era. These societal circumstances have been shifting for some time, not least since Reunification with the new Länder and their markedly different social structure. We can see that very obviously in the party system, or in the debate around the legitimacy of the public broadcasting companies. We can also see it in industrial relations: Through a number of factors, among them Reunification and the shift to a larger service sector after the Hartz Reforms, the social partners seized being encompassing organizations that represented all different sectors of the economy. What instead arose was a “dualization”: While the social partnership keeps its role in the industrial core, on the “outside”, and most notably in the service sector, membership in unions and employer associations are much lower, and hence is the coverage rate by collective bargaining agreements. As sectoral solidarity thus started shrinking, Germany’s low wage sector began to closely trace the American one in sheer size, most significantly in the new Länder.

Ways Forward

When it is thus a shift in the social structure that hampers the German model, we can no longer rely on the historic self-regulation of industrial society that Forsthoff or Böckenförde described. Ironically, it is instead up to the state to adapt these institutions to their new environment. This task falls mainly on the legislature. What is important for our purposes is that constitutional doctrine does not only not prevent these adaptations, it invites them. For instance, and contrary to what is sometimes claimed, Art. 9 sec. 3 of the Basic Law in fact privileges legislative attempts to shore up the social partnership; the Federal Constitutional Court even confirmed that under specific conditions the provision may demand legislative action. Many things are still uncertain in this regard. More importantly perhaps for a future research agenda: Analytical and doctrinal questions are strongly interconnected in these issues, which means a helpful way forward is to cooperate with CPE to get a clearer picture of the institutional environment and its shortcomings.