 Okay, I think we can begin We were Working on the German case Guten Morgen, meine Damen und Herren We have been working on the German case And we shall be Continuing with it Last time we started off with a discussion on German lands in historical perspective so so milestones state tradition So this morning my plan is to continue with it complete that discussion and and jump on to Political economy of economic and social policies. So once again the plan is intact as usual will Continue with state tradition states in history Then we'll start talking about political economy governance and policymaking participation and interest representation and then followed by Some some discussion on current debates We were working on the third Reich And then the Weimar Republic Hitler coming to power Having Having conquered much of Europe Had attacked Excuse me the USSR and then ladies and gentlemen and then And then concentration camps well extermination camps holocaust This was This was a phenomenal event in history or series of events In Germany's more than six million Jews Roma and homosexuals were persecuted the unwanted had been evaporated Whose lives had been seen as worthless and exploitation in the concentration camps translated into extermination in the extermination camps and this was through a systematic and bureaucratic apparatus of the state So this is the definition of genocide So in the early stages everything began with racist attacks anti-semitic propaganda Then taking away of rights of Jews Not only rights, but also property then Jews were being confined to ghettos especially in large cities and and then Millions were bystanders Millions watched things roll out But the point here I want to I want to remind you is that all state institutions were involved that this was carried out through the apparatus of all Apparatuses of the state Directly or indirectly so military Industry including private industry banks science medicine They all cooperated against the unwanted. So so this was This was a shock in world history Anyway, so so this is where we had left off and We're fast-forwarding. This is the map. You'll remember where Hitler went into parts of USSR much of Europe almost all of Europe except for Sweden up north Spain and Portugal down south Turkey was was the buffer there And And this is the devastation The Reichstag of 1945 Frankfurt alle 1945 The Brandenburg gate 1945 you see cars toppled. This is what it looks like in the contemporary period This is the Ontodain Linden basically, I think it's it's from that side Ontodain Linden the main avenue in Berlin What it looked like back in 1945. That's 1990s for you These were the pictures that that looked alike. So I brought them with me here All bombarded all plastered This is the Berlin Cathedral 45 and now 97 but I think that building was also under renovation I think that the new I should bring a new photo because I think this building no longer exists That the modern building So fast-forwarding everything to 1990s But before then we see German lands under occupation in that for about Four to five years. We have West Germany the Federal Republic of Germany under Under Allied control Bundesrepublik Deutschland and the other part is the GDR the Deutsche Demokratische Republik German Democratic Republic under Soviet control. So so occupation Germany divided into two For a period then from 1949 1950s onwards we see in the early period right after occupation We we have emerges of two units neither of which are were fully sovereign. So so they were under under some kind of Power or some kind of block or some kind of influence from from either of the sides So under under Cold War conditions heavy hefty Cold War conditions the the Federal Republic Saw increasing levels of political stability in time so and political stability brought with it democracy So the West Got democratized in time Full-fledged democracy Rapid economic growth through What's called regulated market economy? We'll talk about Details later on But but we see The Western part growing Democracy consolidating political stability sustained and we see high levels of welfare for citizens and we have a large comprehensive welfare state so the German miracle built also side-by-side with with the with the economic miracle There was a welfare state very comprehensive welfare state Which had its origins back in Bismarckian times late 19th century? But this was the time when the German welfare state was consolidated when the what when the German welfare state was became a comprehensive protective apparatus Protecting citizens against risks in the labor market and the idea remember I showed you the map of You know 1500s Holy Roman Empire then Prussia the ideas of the idea of Principalities Kingdom city-states Are now the German Lander the land the provinces the state level so so we have strong regional governments within at a federal unit in the in the West in the East this was The DDR the GDR was controlled by the Socialist Unity Party Communist Stalinist Party Very high levels of educational attainment Another type of welfare state so humongous, you know very serious social protection full employment We all thought when I was growing up when we were all growing up the the East Was also end out with high levels of technology, but when you know 1990s came We realized that this wasn't the case So so anyway it the economy was not as vibrant It was more or less a command economy under Soviet type of planning Then comes After 1990, but but this is I'm sorry. This is what the East and the West looks like 11 Lander here five Lander here And this is going to be United Back in 1990 We celebrated the 25th anniversary Back in November last year Now in nine in 20 of 2015 so One doesn't realize how much I mean how fast time time passes so Reunification and after immediate aftermath of reunification this was a rapid process Summer of 1990 there was a currency reform the East decided to adopt the Western Deutsche mark So with the with the currency Adoption by the GDR of the day mark German mark Deutsche mark There was much change. I mean there was I mean there had been some change in the East that there was There was some some discontent there was also Some misgivings against the regime much resentment against the Eastern regime So so all of this came into For all of this crystallized Into a massive movement So so migration westbound migration Then a referendum on whether to to reunify or not and the referendum Produced yes, let's reunite and this resulted in excuse me the incorporation of five Eastern Lander into the the 11 Western Lander so so we have the Federal Republic of Germany So this is a case of in a way an annexation of the East This is your East to the West's okay So so the Federal Republic of Germany enlarged that is to say through this unification or re-unification process 26 years ago around these days But this has brought with it all kinds of costs to We're on the part of the Western well before what used to be the Western But now the Federal Republic of Germany or German government The The the Chancellor of the time Helmut Kohl 1990s he and his cabinet in a way miscalculated the costs As I just said we were really thought thinking that the communist economy was strong But everybody realized that it wasn't as strong as as expected or as one would be thinking of And technology was not as not as advanced as as we were thinking Please Well one explanation One explanation is that of course that that this was a command economy Markets were not functioning Democracy was not the rule And that this was more or less a repressive regime and in the East there was massive economic growth Political democracy had been there from almost day one Elections were continuing In in an uninterrupted way So this was a booming economy And in the West in the West and and the West was The East would also seen some economic boom, but it was through it was managed through centralized planning Political rights were curtailed whereas in the in the East In the West, I'm sorry. You had political democracy going hand in hand with With markets, so so the West's prospered the East's Remains somewhat backward And it was also controlled by By the Soviet Union the USSR of the time. So it was in a way Kind of a satellite state under the Soviet block Ruled by the party the Communist Party so So so that that that is one explanation There are other explanations one is a more historical one the East of the Elbe River Had always been backward the West's of the Elbe River had always been much more open and Open to ports market activity was much higher much much larger much more intensive So there are there were historical roots or historical. Yeah historical reasons why the East Was backward and the West? Had been more developed. So industrialization came much later to the East Industrialization had always been part and parcel of the Western life We also had City states Trading states in the northern part of Germany Hamburg Bremen So these were lively areas that made up in the in the in the medieval times that made up What was called the Hanseatic League? Hansa so so the Hansa area We had in the medieval times two Vibrant areas up north is the Hansa the Hanseatic League of city states trading states with ports and we had Lombardia in the south no northern Italy So so as you can see the difference between southern Italy versus northern Italy and also Northwest Germany and Southeast Germany So so you there are more historical reasons as to how or and why The West and the East had been decoupled in terms of political as well as economic development so Strains on the budget on the Western budget with the reunification Backward technology unemployment jumped to 20% in the eastern Lander 20% unemployment from about two to three percent Unemployment so see imagine the shock to to the eastern Germans and imagine the burden Excuse me on the on the on the Western Germans Western system Costs had been rising Unemployment benefits had to be provided to the eastern Germans The eastern Germans had had also been migrating to the west and many had seen that that they were getting the jobs of Of the Westerners so so because because they were pleased to work Some of them were pleased to work at a lower lower wage than the Western Germans. So so massive economic costs of reunification adjustment to the process of You know to the to the what's the term here, it's like very abrupt change, okay, so so this was and This was this wasn't done gradually this was done very abruptly and that there was not much time for adaptation and Then rebuilding costs also Were very important in the east Technology had to be brought to the east the state apparatus had to be rebuilt in the east infrastructure had to be rebuilt in the east Schools hospitals all kinds of services had to be Brought together into the Western type system. This meant that there were huge costs on the budget so early 1990s and this was a time when Europe was going through a recession Which had some of its part because of this reunification process? and The cold government said fellow German citizens in order to absorb all this In order to help adapt our system. We need to raise taxes so there was for a moment What's called a unification tax which was 7.5% on on personal incomes. So So more taxes all of this change Was not quite popular which brought the end of Conservative governments under Helmut Kohl and that there was a new coalition in the second half of 1990s a red green coalition now headed by SPD Social Democratic Party and the Greens and the Chancellor was Gerhard Schröder So so this is what I wanted to discuss In terms of state tradition in historical perspective The milestones Political milestones in German history now. I'd like to continue with political economy The German political economy is an example of a coordinated Market economy remember we talked about different varieties of capitalism that there was liberal market economies exemplified by Britain and also the US and Coordinated market economies exemplified by Germany. So this is one example of a Coordinated market economy networked capitalism cooperative network of small and large businesses coming together and You have vested interests of Different types of firms in different industries Vested interests in one another Okay, so you have a bank Attached to it is an industrial firm Do we have a pen here so imagine we have This is your industrial firm. Let's say a glass factory. Okay, and this is your bank The day mark What's now the euro? so so these Different firms had been coordinated in the sense that The the the the executives here are sitting in the boards of the executive boards of the bank and their executives are also sitting in their boards Okay, so so this was known as the bank centric model of economic development and also another way to describe this is the is coordinated capitalism in which you had different different firms different firms cooperating as if they were a part of a large network and And these are local regional banks in in most of the cities if you've ever been to Germany you always see spark as a turn spark as a brain and these are the these are the savings banks of Courage Colloined savings banks of Raymond So so small for small banks regional local banks Working hand-in-hand with domestic well actually regional local industries and each Have each has a vested interest in the life of the other unit So so they're they're carefully coordinated and carefully monitored So and and we we call this Bank-centric model of economic development when you look at the second half of 20th century you see German economic miracle also being facilitated through this system This is also another example of as we shall be talking about later As opposed to shareholder capitalism. This is an example of stake holder capitalism Okay, that that each Firm has a stake in the life of the other and this firm has a stake in the life of the other So so this is more of a historical, you know the the German model in a nutshell Pre-World War two before 1870s. We had regional economic growth Trading cities up north medieval times But all of this economic growth Were translated into a major success with the software I'm first early 19th century and The unification process in in Germany so so massive economic growth Early industrialization all throughout 19th century and by the end of 19th century We had Germany emerging as the super industrial power of the time. So 1900 manufacturing outputs Germany was unmatched and And In this period in the 20th, I'm sorry in the in the 19th century that sulfur ion facilitated all this the customs union facilitated all this 1870s remember we talked about autophon Bismarck's We are like unification of Germany through the hands of the elite Landed aristocracy yonkers on the one hand and the bourgeoisie industrial bourgeoisie and this was sometimes referred to as the marriage of iron and rye rye represents Yonkers landed aristocracy and Iron represents the rising industrial bourgeoisie of the time so when and And and each one needed the other So so that's why we refer to it as the marriage So there was a symbiotic relationship between the land of the aristocracy as well as the The the industrial bourgeoisie rising bourgeoisie and Bismarck himself started using railroad development To unify these interests to mediate these interests because in order to build railroads you need you need support Right and you need coal and iron You get those from the Yonkers and once the railroad railroad start operating The Yonkers will also be transporting their products from their farmlands to To the harbors and be able to to to export their their produce in in world markets State is quite active In the economy which was facilitated by coordination between government business and banking banking and business this was the the The model and and also we shall be talking about Neocorporatism so the state's role is is crucial here the state in a way mediates Interests When we talk about the social marked which off the social market economy Well, we'll talk about more more about this but but what I want to emphasize here is that there is a tradition Even before World War two even in the 19th century that there is State the state trying to mediate interests not only marrying iron and rye But also trying to mediate interests of capital and labor so so Policy-making interest in intermediation had always been part and parcel of the German story 1918 war reparations 1923 hyperinflation The the gold mocks have been used in this stove The Third Reich Emerges with Hitler represses workers slave labor Produced military armaments Those of you who've seen Schindler's list the movie which is which was Which was a very interesting movie and and you still see some German large It could like large firms industrial firms being brought to the court Even even in the contemporary period Krupp for example was brought to the court For having a hand in this extermination process Which is now part of Tiesen The company which builds escalators elevators which we also have in this country We probably have some at weekend too So so this is the 19th century post-World War two Now let me emphasize that this is another model remember in when we talk about the US model and the British model We generally refer to less affair right? In the French model Excuse me, we generally refer to model of economic policymaking as French model of economic policymaking as in history I Hear dirige isn't very good here. We see the social market economy, okay Social marked vets of social market economy. Let's me let me Excuse me Talk to you about economic policy side of The economic side the market side of the social market economy This is a model So what kind of market is this it's a market of It's it's a regulated market. It's a combination of efficient competitive markets competitive economy Alongside a generous comprehensive welfare state. This is why it's called the social market economy, okay, so so Generous comprehensive welfare state alongside a competitive dynamic market dynamic economy and Policies so what kind of policies are we talking about? This is very much unlike the Anglo-American less affair system But it's also unlike the the French dirige ism etatism system we have Some We have state intervention, which is indirect Which is only supportive so we do not have over-regulation So remember we talked about iron triangles in the US case this results this may result in regulatory capture this also Means that the US economy that there are many Exceptions to the rule of less affair that there was a series of regulation this in this system we have this the state intervening in a much less direct way, so there is no massive regulation behind Supporting the markets So no over-regulation It's a more of a flexible system The state provides framework Legislations, I'm sorry framework regulations, which in a way set the rules of the game So it prepares conducive ground for firms to flourish Unlike the US case where we have In the second half of ninth 20th century The for example the federal aeronautics board and The federal authorities regulating airlines Restricted the size of sandwiches provided in order to you know In order to provide a competitive fully functioning competitive Economy so prices were regulated there were price dealings on on air fares We didn't we never had This in in Germany or much less so In comparison to what was happening Across the Atlantic We have a smaller amount of smaller size of nationalized industry and we have Cooperative federalism in the sense that we have a powerful land government state government and there is much delegation of power to The lands the land level so in that respect there is There is much Delegation to the land level and in that it is in this context that we can speak of a flexible type of regulation Bank-centric model Which is an example of stake holder capitalism that we have a bank local regional bank attached to a Local regional industry and and we have you know Each we have each having a vested interest in the life and therefore profits of the other Other firm we have in Germany What's called the socially responsible capitalism and Socially responsible capitalism means that we have a high wage high productivity and high welfare Economy but despite high wage and because of high productivity and Also because of high welfare we have a competitive economy The Germans would like to see their their system as you know socially responsible capitalism We have high skills or skill development We have works councils and we have R&D strategies all you know coordinated by at the firm level but also facilitated by the state high skills means That the education and training system Had been there the the German word maister masters You know in you know tradesmen craftsmen had always been there You know in especially in the era of proto-industrialization early industrialization. This was very important apprenticeship system had always been very important apprentices working with The maister so vocational training systems had been very important In Germany historically, so skill development Was is or has been one of the most important goals in this in this economy We also have very competitive Industries the German cars car industry automotive industry chemicals Machine tools industrial Electronics and and all that of course are are all hallmarks of the German competitive markets competitive industries Works councils is another institution which has been a central part of the socially responsible capitalism These are firm level institutions Elected whose members are elected by workers By those firms you're already or in those firms to voice their interests So so works councils are important institutions Organized at the at the industry level at the firm level. I'm sorry We have We have workers Coming together Elected by other workers Representing all interests of these workers to the management of the workers so so In a way in a way in a way. This is the firm level Union in a way. This is the firm level Union of at the or a union organized at the firm level Very autonomous, but of course accountable to the workers. Okay, so so there is there is Negotiation There is consultation. There is collaboration. There is cooperation at the level of the firm Between management and capital I'm sorry between management and and employees labor in capital So so these are not unions, but in a way a coordination mechanism within Within the firm and they also implement Vocational training programs. They also help implement vocational training into a firm Within the firm vocational training programs. They also help Train apprentices in that particular firm so so they help Coordinate some of the firm's Activities so that they're multifunction units and R&D Research and development. What's research? What's development? We may have talked about this. Where do you do research? What's research? What's development? What's development? We know what research is we have an idea about what research is what's development any ideas There is research That's a Turkish word for it research and development are ashturma geliştürme but It has something to do with technology you do research Then What's development? We hear research. We hear about research Huh, okay. Okay. So so you modify something and you make some some other Product or a service Research is what we do at universities at in labs in private or public labs, right? We know we have an idea about what research is and has something to do with science has something to do with observations and And we also, you know, this is the science behind it. This is the research behind it when we When we develop it that research We have a marketable product for sale in the market. So this is the product of research first then development Because it's sold in the market. Okay, so it's a developed product You you develop a service or a good product to be able to be exchanged in the market So so the German system Also is known for its emphasis on R&D adapting to to new technologies refine Competitive sectors which result in high levels of competitiveness worldwide and one last element of the economic policy aspect of the German model is the Bundesbank the Bundesbank With the memory of hyperinflation back in 1920s 1922 Had always been very cautious about The specter of inflation Had always been very cautious about any rise in inflation very sensitive to the chief economic evil in its From where it stands Inflation so so price stability I'd always been very important goal of the German central bank Yes fiscal policy had been expansionary, but monetary policy had been quite Quite tight when you look at the 20th century when you look at the second half of 20th century because of the Because of the memories of 1920s remember we talked about hyperinflation and that the worry of Inflation again, so so there is there is many never-against in this country so inflation never again war never again, okay, so so these have been and and especially For for many Germans It was in a way infuse in the culture that It was this this inflationary period which really produced Hitler so so so in order to avoid this Never again, so we don't there is there's much aversion towards inflation and Because inflation is associated with all kinds of ills one is fascism and other is You know total war total destruction so so inflation an aversion to inflation and a an emphasis on What's called stability culture an Emphasis on price stability and emphasis on sound money and emphasis on stable finances Okay, which which in a way facilitated the German Economic miracle in the post-World War two period, please Yes, of course first World War Hey They paint some yeah, I have to part of it They started paying but then Hitler came and said I'm not paying all that The central bank the bundes bank Before World War two and bundes bank after World War two you have you have two different logics Well, the bundes bank was was founded after World War two The central bank of the period Really could not resist The political events so so in that period 1920s after World War two I'm sorry World War one Creativity of Versailles the government felt That it needed to print money In order to repay the reparations the war reparations the compensations the the humongous debt Which was you know twice the size of German GDP so what can you do you had to print money? you had to pay them to The Western powers the Allied powers and then at home What does a? Gold mark mean it just means nothing It just basically meant that this was the value of the gold mark had been you know had been plastered really so so so So the the psyche of bankers at the bundes bank the stability culture Never again No, we we do not we we detest inflation. We do not want to see inflation so price stability stable finances sound money Had always been very important in the eyes of Central bankers so so which which really facilitated a period of massive economic growth with very low levels of inflation even after The world economic crisis of 1970s so so even when we had Rampant inflation worldwide. We did not we did not have much inflation in Germany Excuse me in the 1970s also in the 1980s so so very low inflation And by doing this the state Prepared in a way a conducive ground for a cannot for the economic miracle to happen I think I should stop here and then discuss the social policy aspects of the Social mark which after next time Any other questions no