The Role of Business in the Development of the Welfare State and Labor Markets in Germany: Containing Social Reforms by Thomas Paster (review)

The capitalist class is perceived by pluralists and Marxists as an important actor in advanced capitalist economies due to its structural control over investment. The structural focus of these approaches, however, comes at the expense of failing to analytically uncover the agency exhibited by its members in dealing with the structural environment in which they are embedded. This new, excellent book by Thomas Paster is a timely contribution to this debate as it explores the presence of variability in the preferences of German employers for social policies. Looking at the behavior of peak associations of industrial employers since Bismarck, Paster illustrates how the particular sets of institutional arrangements that characterize the modern German economy are in fact the outcome of political conflicts.

Paster’s argument is framed in the context of the two sets of literature that have dominated the study of social policies in advanced capitalist economies. In the first, called power resource theory, scholars such as Gosta Esping-Andersen (1985) and Wolfgang Streeck (2009) highlight the central role played by a strong Left, through political parties and organized labor, in introducing and expanding provisions of welfare-state protection and in institutionalizing arrangements of industrial-labor relations that both increase the bargaining power of employees and reduce their market dependency through decommodification. In the case of the first three decades after World War II in Germany, fast economic growth, tight labor markets, and high rates of unionization enabled workers to assert themselves vis-à-vis employers. In this literature, variations across countries in social policies reflect context-specific outcomes of class conflict. In the second, more employer-centered approach, scholars like Isabela Mares (2003), Peter Swenson (2002), and David Soskice (1999) focus on the positive contributions made by employers to protect employees from market vagaries because they believe that these policies fit with their production strategies. They argue that the variations we see in social-policy provisions can be explained to a substantial extent by support of the business community for the development of a skilled and cooperative workforce. In the specific case of postwar West Germany, the support of employers for social policies flowed from the specialization of a large segment of the corporate sector in niches of incremental innovation characterized by a workforce with firm-specific skills. In this employer-centric interpretation, class conflict is not nearly as significant in explaining variations in policies and institutions as sectoral conflict.

In contrast, Paster offers an insightful approach that privileges the political context in which employers are situated. In his account, the extent of German employer’s support for social policy is characterized by variability as it is contingent upon the type of political challenges they face. Paster shows that the support of employer organizations for social policies is greater in the presence of radical challenges from the Left. Their preferences for social reforms in this context constitute a second-best option designed to thwart more radical demands for extensive reforms. In the absence of those radical demands, however, German employers are more likely to be more conservative in their support for social reforms. This strategic approach on the part of German employers has led to a seemingly contradictory position: on the one hand, they do not always oppose improved social protection for employees and the implementation of institutional arrangements that enhance their bargaining power; but on the other, those preferences are contextually contingent and, on the whole, have constrained the overall size of generosity of welfare outputs. By bringing politics back in, but in a contingent fashion, Paster reminds us that the policies and institutions that shape the social market economy are worth fighting over. His approach also contributes to our understanding of the process of preference formation of actors. The preferences of employers for social policies cannot be read in an unmediated manner from their...