Collective Bargaining Autonomy in a Crisis of Legitimacy? An Analysis of Historical Debates

Lesch, Hagen; Bach, Helena; Vogel, Sandra Article Collective Bargaining Autonomy in a Crisis of Legitimacy? An Analysis of Historical Debates Journal of Contextual Economics – Schmollers Jahrbuch Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Lesch, Hagen; Bach, Helena; Vogel, Sandra (2022) : Collective Bargaining Autonomy in a Crisis of Legitimacy? An Analysis of Historical Debates, Journal of Contextual Economics – Schmollers Jahrbuch, ISSN 2568-762X, Duncker & Humblot, Berlin, Vol. 142, Iss. 1, pp. 41-66, https://doi.org/10.3790/schm.142.1.41 This Version is available at: https://hdl.handle.net/10419/292608 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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An Analysis of Historical Debates By Hagen Lesch,* Helena Bach,** and Sandra Vogel*** Abstract In Germany, free collective bargaining was introduced after the Great War in November 1918. Tough, it has constitutional status, we can observe that the state monitors and sometimes steers the collective bargaining process. This can be explained by using the Principal Agent Model as an analytical framework. The state acts like a principal, whereas the social partners behave like agents. Whilst the state leaves the regulation of wages and working conditions to social partners, it expects their loyalty in return. In this sense, collective bargaining autonomy must legitimise itself by being useful. The analysis of historical debates since 1918 shows: If social partners fail to contribute to the economic and social policy goals of the state, the state uses various steering instruments to restore their loyalty. Overall, we can observe some learning processes and path dependence of the institutional setting. Furthermore, the state should keep in mind that future steering of collective bargaining autonomy should strengthen social partners’ responsibility. JEL Codes: J50, J53, J59, K12 Keywords: Free Collective Bargaining, Social Partners, Contract Theory, Labour Law 1. Research Question Collective bargaining autonomy plays an integral role for the economic order of the Federal Republic of Germany. Its current institutional status, often taken for granted, only came about during a long political and historical process (Höpfner 2021, 45 ff.). From a social science perspective, autonomy in collective bargaining is an institutional arrangement between the state and social partners (Lesch 2021, 713 ff.). The state leaves the regulation of wages and working conditions to social partners but expects their loyalty in return. It should be noted that social partners are always integrated into the “objectives of society as a whole”and derive “certain tasks”from this (Weitbrecht 1969, 162, translation by authors). While a democratically elected government must consider the social welfare, social partners primarily * German Economic Institute (IW). Konrad-Adenauer-Ufer 21, 50459 Köln, Germany. The author can be reached at [email protected]. ** German Economic Institute (IW). Konrad-Adenauer-Ufer 21, 50459 Köln, Germany. The author can be reached at [email protected]. *** German Economic Institute (IW). Konrad-Adenauer-Ufer 21, 50459 Köln, Germany. The author can be reached at [email protected]. Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 pursue their members’interests. This can lead to conflicts of objectives, so that the collective bargaining autonomy is subject to constant scrutiny of its legitimacy by the state. Collective bargaining autonomy has constitutional status in Germany. Any political steering of collective bargaining must take this status into account as it is at the government’s and parliament’s disposal only within narrow limits. This restricts the possibilities of political interventions. Legitimacy is to be understood as usefulness from the state’s point of view. Hence, the state’s belief in its usefulness justifies the autonomy of collective bargaining and therefore its legitimacy (ibid., 162). State steering of collective bargaining autonomy may become necessary if social partners do not contribute to solving social and economic problems from the state’s point of view. A current example is the debate on declining collective bargaining coverage. From the state’s perspective, too low collective bargaining coverage undermines the institution’s functioning because it leads to “precarious wages”and “blank spots”in the collective bargaining landscape (sectors not regulated by collective agreements). Whether the behaviour of social partners is perceived as useful may depend on the current expectations of politicians, the economic framework conditions or the governing coalition and their chances of being reelected in the coming elections. Twenty years ago, for example, politicians expected social partners to contribute to reducing the then high unemployment level in Germany. Today, when employment is high, their main concern is to ensure fair pay and good working conditions for as many workers as possible through collective agreements. These considerations raise the questions of which instruments the state can use to steer collective bargaining autonomy, whether decisions once taken lead to path dependencies, and whether learning processes can be observed over the decades. To answer this, various historical debates, raising the question how useful collective bargaining autonomy is, are analysed. The methodological basis is a heuristic approach using a “challenge-response approach,”which has proven successful in the analysis of historical processes (Bach, Lesch and Vogel 2022; Fehmel 2010; Fehmel 2011; Lesch, Schneider and Vogel 2021; MüllerJentsch 2021). To this end, the current state of research will first be reviewed (section 2). Based on this, an institutional analytical framework is derived in section 3 to identify historical debates that posed a challenge to the collective bargaining system and ultimately resulted in state control of collective bargaining autonomy. The state implements its control by using four types of steering mechanisms (legal, tripartite, political and semantic steering, see section 4). Section 5 contains conclusions that also include implications for the current debate on strengthening collective bargaining in Germany. 2. Research Overview According to Fehmel (2011, 273), collective bargaining autonomy is an institutionalised arrangement that distributes regulatory competence between the state and social partners. Within the framework of an exchange, the state leaves the regulation of wages and other working conditions to social partners because it can thereby externalise its political legitimacy risks.1In return, the state bears potential follow-up costs incurred by the wage policy 1According to Fehmel (2011, 276), political legitimacy is essentially fed by neutrality and a commitment to the social welfare. Any direct state regulation of wage policy would be exposed to Hagen Lesch, Helena Bach, and Sandra Vogel42 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 through its social policy. This arrangement enables social partners to pursue members’interests (Fehmel 2010, 81). Since there are financial limits to this barter transaction, the state has an interest in containing the follow-up costs of this arrangement. It controls collective bargaining autonomy in order to “adapt collective bargaining autonomous action to changing economic conditions and challenges and the resulting state expectations”(Fehmel 2011, 284, translation by authors). To prove this thesis, Fehmel (2010) analyses various cases within the framework of a heuristic approach.2In the analysed cases, it does not directly scrutinise collective bargaining autonomy. Instead, state actors communicate that collective bargaining autonomy is not sufficiently functional in a given situation (Fehmel 2011, 284). The semantics chosen by the state plays a special role and Fehmel (2010, 124) identifies three different types of approaches to steer social partners’behaviour: indicative (appeals, threats), cooperative (attempt to coordinate behaviour), and an imperative (direct, immediate intervention) approach. Even if collective bargaining autonomy as such was never at stake, this process can lead to collective bargaining autonomy mutating into the “state-controlled autonomy of the associations”(Fehmel 2011, 290, translation by authors). Lesch, Schneider and Vogel (2021) and Bach, Lesch and Vogel (2022) take up the idea of “steering episodes”and link it to considerations on the functioning of collective bargaining autonomy as postulated by Weitbrecht (1969, 33). The central thesis is that the social partner actions are viewed and evaluated by the state in the context of society as a whole. The starting point here is also a barter transaction in which the state leaves the regulation of working conditions to the social partners and expects appropriate solutions in return. It follows from this institutional arrangement that collective bargaining autonomy must legitimise itself by being functional. To this end, the state examines the “effectiveness”(ibid., 162) or “usefulness”(Lesch, Schneider and Vogel 2021, 377) of collective bargaining autonomy at two levels: (i) the internal procedures, characterised by an operational conflict regulation mechanism, which ensures the internal working of collective bargaining autonomy; and (ii) the economic framework conditions, from which –depending on the preferences of the government in office –certain requirements for the social partners arise. As already explained in section 1, these requirements include the task of achieving a social balance of interests and placing collective bargaining policy in the context of the government’s overall economic objectives. If these requirements are violated due to dysfunctionality in the internal relationship between the social partners or in the relationship between the social partners and the state, a state review occurs. If the review is publicly debated, the review becomes a challenge, which can lead to a state response with which the state seeks to eliminate the diagnosed dysfunctionality. Accordingly, we speak of a legitimacy debate when the dysfunctionality of collective bargaining autonomy becomes a challenge which, as a result of political or social attention, leads to a response (Lesch, Schneider and Vogel 2021, 189).3 risking violation of the neutrality principle and could result in a loss of state legitimacy. Therefore, the state does well not to interfere in collective bargaining relations. 2See in detail Fehmel (2010, 122 ff.). Selected cases include the Concerted Action, the revision of Section 116 of the Labour Promotion Act (Arbeitsförderungsgesetz, AFG), wage gap requirements as part of public job creation measures, the “Alliance for Jobs, Vocational Training and Competitiveness” and the enabling of company-based alliances for jobs by law (statutory opening clauses). 3According to the challenge-response approach, a disruption only leads to a response when “disruptive impulses”reach public awareness and elites’agendas (Best 2007, 19). Collective Bargaining Autonomy in a Crisis of Legitimacy? 43 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 The cases are also selected heuristically here (ibid., 188 ff.): With the help of two fundamental debates and nine debates from contemporary history, different types of challenges and responses are derived. If challenges are triggered externally, the state first tries to involve the social partners in a tripartite manner (ibid., 385–6). If challenges are triggered internally, state intervention only occurs when they become external challenges (for example, impairment of the social welfare through negative third-party effects in industrial disputes) or are perceived as part of an external problem (for example, in the case of unemployment or social injustice). In two fundamental debates, each of which dealt with the introduction of autonomous collective bargaining principle after the two world wars, the question arose as to the level at which wage determination should be organised (individual, company, branch or state level). These fundamental debates show that alternative institutional arrangements would have been conceivable but did not represent preferred solutions from the point of view of all actors (in the sense of a barter deal that was advantageous for all).4 The analysis of debates in contemporary history shows that tripartite arrangements in which concrete barter deals were to be agreed upon to solve external problems remained without lasting success (ibid, 390–1). State wage policy (through state compulsory arbitration, emergency decrees, or a statutory minimum wage) may be a short-term substitute for problem-solving deficits on the part of the social partners. However, in the long term it does not promote their willingness to reach agreements autonomously. A state extension of collective bargaining coverage (via general applicability of collective agreements) did not stimulate a greater will to shape collective bargaining independently, nor did it strengthen social partners’organisational capacity. More successful were attempts to improve internal workings by adapting the rules of the game, especially when it came to avoiding negative external effects as a result of industrial disputes. Finally, Lesch (2021) describes the institutional arrangement between the state and the social partners as a principal-agent relationship. Here, the state acts as principal, granting social partners as agents the autonomy to regulate wages and other working conditions. In the case of loyal behaviour, this relationship leads to an optimal representation structure (ibid., 717–8). Endogenous (non-loyal behaviour) and exogenous influences (structural and cyclical crises) can disrupt this optimal structure. To demand the loyalty of the agents –they should take the social welfare into account and react appropriately to exogenous disturbances –the state has very concrete steering instruments, which are categorised according to the strength of the intervention (strong, medium, low) (ibid., 715–6). An important result of the analysis is that it contains not only legal and tripartite steering measures, but that the effects of political strategy changes and the influence of outsider competition must also be considered. 3. State Control of Collective Bargaining Autonomy: Methodological Framework for Analysis The structuring and deductions made in the contributions cited above are based on a rather small number of case studies. However, they are coherent and plausible. It should be crit4Abolishing the collective bargaining autonomy would raise constitutional questions and would also not be a realistic option from an institutional theory point of view due to enormous sunk costs. A readjustment of the institutional framework can be initiated not only by the state but also by social partners themselves. Hagen Lesch, Helena Bach, and Sandra Vogel44 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 ically noted that the debates are categorised without addressing the institutional economic distinction between rules of and moves within the game. This means that there is no further questioning of whether state measures are a matter of regulatory or process policy control. Moreover, a specific classification of semantic steering (appeals, threats) is missing. Finally, the analysis of tripartite governance remains incomplete. It is true that the various tripartite attempts failed to achieve barter deals with binding agreements. What is not discussed, however, is that tripartite governance can alternatively be organised in a purely informal way, as happened, for example, with the economic summits in the course of the economic and financial crisis of 2008/2009 (Lesch, Vogel and Hellmich 2017, 14ff.). This raises the question which benefit informal coordination has as a state steering instrument. In the following, these points of criticism will be taken up. We examine how the state steers and thereby controls collective bargaining autonomy, whether certain debates are comparable, and whether there are learning processes and path dependencies –there is also a clear parallel to the current political debate on strengthening collective bargaining in Germany. In particular, the question of what experience the state has gained with regulatory and process-political control will be examined. The basis is an analytical framework that interprets collective bargaining autonomy as a principal-agent structure and links it to the challenge-response approach. Distortions of the optimal representation structure are understood as a publicly debated challenge that entails a response (based on a rational decision-making calculus). Figure 1 schematically illustrates the linkage of the approaches. Within the framework of the principal-agent relationship, the state, which is committed to the social welfare, leaves the regulation of working conditions to the social partners (collective bargaining autonomy) and expects their loyalty in return.5For the social partners, this results in a trade-off: when maximising members’interests, they must ensure that public welfare concerns are sufficiently considered. In this case, various restrictions must be taken into account. For example, trade unions that are insider-oriented have to pay more attention to outsider interests when unemployment is high, or companies have to make more wage concessions when there is a shortage of labour. These aspects will not be dealt with further in this analysis, because the principles of state control logic are to be presented here. This basic structure results in an equilibrium that describes an optimal representation structure. This equilibrium can now be disturbed by exogenous and endogenous events (Lesch 2021, 697 ff.). Exogenous disturbances can be cyclical downturns (recessions) or exogenous shocks with a structural impact (e.g. oil price shocks). Both types of exogenous events make adjustments to wages and collective bargaining policy necessary. Since the social partners also pursue members’interests in addition to their duty of loyalty to the state, adjustments to wages and collective bargaining policy may not be made, though changes could be deemed necessary by the government with a view to the national economy. 5The assumption that the state maximises welfare is an ideal-type modelling. On the one hand, every government can have its own ideas of optimal welfare, and on the other hand, every government pursues re-election interests, so that in the short term it is more likely to cure symptoms than causes. But even with such a distinction, the government would have certain expectations of the bargaining parties’ behaviour. If this is not met, it intervenes in a steering manner. Accordingly, the thesis of public interest orientation seems to be a simplifying but sufficient assumption in our modelling. Collective Bargaining Autonomy in a Crisis of Legitimacy? 45 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 In order to optimise the representation structure, the state uses its various steering instruments as a response (see figure 1).6Semantic governance includes appeals and threats, tripartite governance aims at consultations, arrangements and agreements between actors, legal governance addresses the institutional framework, and political governance coordinates monetary, fiscal and wage policies and the resulting incentives for the responsible institutions (central bank, government, social partners). If this is not the case, the state can steer through regulatory or process policy. Regulatory policy control starts with the institutional rules of the game in order to influence the moves of the (rational) players. Regulatory policy aims to set the right framework conditions for economic activity and maintain them (Hüther, Losch and Neubauer 2012, 7). A control becomes process policy as soon as it directly influences the moves (Pies 2002, 175). Process policy “consists of interventions in the decisions of the individual actors and thus in the market process; it pursues the goal of directly bringing about certain results”(Hüther, Losch and Neubauer 2012, 7, translation by authors). Figure 1: State and Collective Bargaining Autonomy as Principal-Agent Structure Source: Figure based on Lesch (2021, 695) 6A very far-reaching answer would be to change the system completely. High transaction costs are a reason which do not support this strategy. Historically, such systemic changes only took place in the context of changes to the political system in 1918, 1933/34 and 1949. Hagen Lesch, Helena Bach, and Sandra Vogel46 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 Semantic steering, which is neither a regulatory nor a procedural intervention, is possible in two ways: On the one hand, appeals are made to rationally acting actors, which usually do not bring about a change in behaviour (Pies 2002, 175). On the other hand, threats are issued that can lead to changes in behaviour if the threat is credible. The actors must –in contrast to the appeal –expect to be sanctioned if they do not change their behaviour. The threat refers to changes in the constituting and regulating principles of an institution. It is thus of a regulatory nature. The implementation of a threat as a legal measure, on the other hand, can also be of a procedural nature.7 Tripartite governance offers the opportunity to agree on barter transactions in order to use potentials of mutual benefits. Rules of the game, but also moves can be the subject of barter transactions (Pies 2002, 179 ff.). However, tripartite governance can also be limited to a non-binding exchange of information that makes the preferences of the actors more transparent, reduces information asymmetries and creates trust. This can enable occasion-based give and take without actors committing themselves beyond the occasion. Legal and political steering measures can also influence moves or change the rules of the game. Laws constitute an order and define a legal framework. But they can also restrict options for action and in this way intervene in market processes. The statutory minimum wage is an example of this. Political governance is based more on informal regulatory principles. A specific regulatory network of relationships (policy mix) is generated via an assignment that assigns clear objectives to the economic policy instruments.8Changes in the assignment affect the price mechanism by changing the opportunity costs of a policy strategy. They are of a procedural nature (see section 4.3).9 The next step is to clarify which debates are relevant in terms of the challenge-response approach. Figure 2 depicts various exogenous and endogenous challenges since the year 1918, which were also followed by a response. The beginning was chosen because this was the year in which collective bargaining autonomy was first institutionalized in the Stinnes-Legien Agreement. Triggers for state intervention episodes were changes of the political system (1918, 1933/34 and 1949), economic crises (1923, 1929/30, 1966/67, 1973/74, 1979/80, 1992/93, 2001/02, 2008/09), negative third-party effects from labour disputes (1984, 2001 to 2015), distribution problems (2006 to 2014, since 2020), or declining collective bargaining coverage combined with organizational weakness of the social partners (since 2017). We will not discuss the systemic changes further here, as they are already described in detail elsewhere (Bach, Lesch and Vogel, 2022; Lesch, Schneider and Vogel, 2021). For the present context, it is important to note that the reintroduction of collective bargaining autonomy in 1949 was a continuation of the Weimar model. This established a path depend7Alternatively, a reward can be held out in prospect. It would have to be redeemed in case of success, whereas a threat does not have to be redeemed in case of success (Scharpf 2000, 253). 8According to Koll and Watt (2018, 17) in the traditional assignment of instrument and objective, monetary policy is responsible for price stability, wage policy for employment, and fiscal policy for stabilisation. 9Changes can occur because in the traditional assignment each macro policy instrument is neither self-sufficient with respect to its own objective nor neutral with respect to the objectives of the other instruments (Koll and Watt 2018, 17). There are interdependencies. In addition, there are dual roles. For example, wage policy has the role of contributing to both a high level of employment and price stability (Ott 1968). Priorities can change here. Collective Bargaining Autonomy in a Crisis of Legitimacy? 47 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 Figure 2: Challenges and Responses from 1918 until today Source: Authors’illustration. Hagen Lesch, Helena Bach, and Sandra Vogel48 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 companies tried to keep their skilled workers for the coming upswing. Instead of making redundancies, overtime and hours on working time accounts were first reduced, minus hours built up and short-time work registered (Bellmann, Gerner, and Upward 2012, 30). Social partners in the largest industry, the metal and electrical industry, supported this course of labour hording. In the 2010 collective bargaining round, IG Metall not only waived a concrete wage demand, it also signed a collective agreement that further reduced the costs of short-time work and opened up additional room for manoeuvre for companies bound by collective agreements. The collective agreement allowed companies that had exhausted the legal maximum period of 24 months of short-time work to reduce the weekly working hours of their employees to 26 hours per week. In return, they had to grant partial wage compensation. The agreement was valid until the end of June 2012 (Bispinck and WSI-Tarifarchiv 2011, 18). While the state had provided an answer to the threat of mass unemployment by extending the period of eligibility for short time working allowances in 2008 and 2009, the parties to the collective agreements flanked the federal government’s employment policy course in these years with their collective agreements. Ultimately, a non-binding exchange of information created trust, resulting in a kind of informal exchange. In this respect, tripartite steering that is occasion-related and limited to situational action has proven its worth. 4.3 Political Steering The political steering episodes include the monetarist turn (Scharpf 1987, 168 ff.) of the German central bank (Deutsche Bundesbank) after the strong inflationary impulses of 1973/74 as well as the abandoned socio-political alimentation of the collective bargaining policy within the framework of the Agenda 2010. While the central bank is not a state but an autonomous actor, it receives its autonomy from the state and its actions were decisively determined by state decisions on exchange rate policy after the Second World War. It was only with the transition to floating exchange rates after the collapse of the Bretton Woods system15 in 1973 that the central bank gained control over the money supply and thus became autonomous in its monetary policy (Scharrer 1998, 320).16 After becoming autonomous, it decided to take a monetarist turn, which had a considerable impact on wage and collective bargaining policy.17 In addition to the changed exchange rate regime, the central bank faced a variety of challenges in 1973/74: At the turn of the year 1973/74 there was a drastic increase in oil prices, which called into question the central banks’aim of reducing the inflation rate. At the same time, wage demands were made in collective bargaining rounds which were supposed to keep workers free from any adjustment (SVR 1974, 122). Employers did not offer much resistance to these demands because they trusted they would be able to pass the costs on to consumers. Both sides (unions and employers) assumed that monetary policy would give way. The social partners believed that the central bank would stand idly by and watch a further acceleration of inflation after the oil price increase (Scharrer 1998, 321). They ignored warnings from the central bank, and subsequently 15 Cf. on the Bretton Woods system: Deutsche Bundesbank 2016, 34 ff. 16 Similarly, Scharpf 1987, 169. 17 However, the Federal Chancellor Helmut Schmidt publicly supported the central bank’s paradigm shift (Scharpf 1987, 170). Therefore, the monetarist turn can be interpreted as a (governmental) political steering episode. Collective Bargaining Autonomy in a Crisis of Legitimacy? 55 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 average wage earnings rose by 13 per cent in 1974, after consumer prices rose by 7.1 per cent in 1973 and 6.9 per cent in 1974. Since the central bank was unwilling to accept a further rise in inflation, a stabilization crisis was unavoidable. A wage-price spiral ensued, which could only be broken by shock therapy (Scharrer 1998, 321). In response to rampant inflation in 1973/74 and to prevent such crises in the future, the central bank decided to publicly announce a quantitative money supply target (Neumann 1998, 326; Scharrer 1998, 321; Spahn 2017, 431). This signalled to the relevant actors that they would bear responsibility for undesirable economic developments as soon as they breached the set target. From then on, wage policy had to take into account that the “employment problem cannot be solved with the help of an expansionary monetary policy”(SVR 1974, 120).18 By announcing a money supply target, the central bank burdened the government and, above all, the trade unions with the adjustment efforts required to successfully coordinate the different policy areas (Scharpf 1987, 175–6). Finally, the social partners were disciplined by a stabilization recession (Scharrer 1998, 322). The change in the distribution of roles did not originate with the state, but with the central bank. However, it was a direct consequence of the change in the exchange rate regime. The monetary policy’s stability objective could no longer be hampered by exchange rate targets or the obligation to intervene in the foreign exchange market. This resulted in a change in the wage policy regulatory framework. This change has persisted to the present day, but a similar stabilization crisis followed the reunification of the two Germanies. Here, too, political steering was ostensibly based on a conflict between monetary and wage policy. In fact, as in the 1970s, the state was involved in the background. For it was a government decision to convert eastern German wages at a ratio of 1:1 (Ost-Mark to D-Mark) in the course of the German-German monetary, economic and social reunion. By setting this exchange rate target, the German government created the breeding ground for the unions’strategy of bringing eastern German wages into line with western German levels as quickly as possible without taking productivity differences into account (challenge). The central bank felt compelled to stop the wage-price spiral by adopting a more restrictive monetary policy in response. Ultimately, the central bank succeeded in credibly institutionalizing its commitment to the price stability objective. The option of absorbing wage-induced unemployment through loose monetary policy was eliminated (Lesch 2021, 723). However, the state’s social policy provided another policy area that social partners could instrumentalize for their purposes without a clear role assignment of economic policy responsibility (Streeck 2001, 83). The consequences of an employment neglecting collective bargaining policy were mitigated, among other things, by a reduction in the collectively agreed working week. But above all, the social partners were “largely relieved of employment considerations”(ibid.,88, translation by authors) by the statutory promotion of collectively agreed partial retirement models and generous support payments to the unemployed. The unions’attempt to solve labour market problems by redistributing work (via shorter weekly and lifetime working hours) led to another challenge: Germany had one of the highest inactivity rates among OECD countries in the late 1990s (ibid., 91). Moreover, this ap18 This change signaled to the social partners that monetary policy would not solve employment problems caused by their collective bargaining policy (SVR 1974, 134–5). Hagen Lesch, Helena Bach, and Sandra Vogel56 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 proach encountered financial restrictions. The labour market crisis became a “major cause of the […] financial crisis of the welfare state”(Heinze, Schmidt and Strünck 1999, 31, translation by authors). Non-wage labour costs rose, putting a strain on international competitiveness and jeopardizing the preservation of profitable, well-paid industrial jobs. The red-green federal government that came into office in 1998 chose various responses to loosen the encrusted labour market structures: First, it tried to solve the employment problems with the help of an Alliance for Jobs (see section 4.2). After the attempt to incorporate the social partners into a macroeconomic strategy had failed, Federal Chancellor Gerhard Schröder threatened to introduce statutory opening clauses in his March 2003 government declaration (see section 4.4). In addition, he also announced a radical social policy change in the wake of Agenda 2010. This paradigm shift led not only to changes in the legal framework but also in the institutional arrangement itself. Collective bargaining autonomy was no longer an arrangement in which the state assumed the follow-up costs of social partners’ adopted wage policies. In both political steering episodes, there was an awareness, at least among the acting political elites (central bank and government), that a lack of social welfare orientation presented a challenge that required government steering as a response. The rules of the game were changed by a clearer assignment of economic policy goals and instruments. With monetary policy no longer pursuing employment goals and the state scaling back on cushioning unemployment with social policy measures, combatting unemployment primarily became the social partners’task. Since opportunistic behaviour was now directly sanctioned –the state no longer acted as a “banker of last resort”(Streeck 2001, 98) –social partners were forced to adjust their moves. 4.4 Semantic Steering Politicians regularly appealed to social partners during collective bargaining rounds in the past who rejected appeals with equal regularity. Such appeals had no effect on collective bargaining and did not trigger a serious debate on collective bargaining autonomy. Since they do not constitute a state response in the sense defined here, they will also not be analysed further.19 The situation is different with the political threat made in 2003 to introduce statutory opening clauses and thus change the institutional structure of wage determination. The background to this was the failed attempt by the ‘red-green’federal government to combat high and structurally entrenched unemployment with the help of an Alliance for Jobs (see section 4.3). The phenomenon of hysteresis in the labour market had existed since the early 1980s without the social partners having made an effective contribution to reducing it. The trade unions in particular called for a redistribution of labour via a collective re19 A prominent example is the collective bargaining round in the public sector at the beginning of 1974. The appeal by Federal Chancellor Willy Brandt that a double-digit agreement must be ruled out this time was seen by Heinz Kluncker, negotiator on the side of the unions, as a provocation that could be interpreted as an attack on collective bargaining autonomy. After a lengthy labour dispute, a deal of more than 12 percent was finally reached (Scharpf 1987, 166). A current example showing the nonbinding nature of appeals is an interview by the Federal Minister of Labour and Social Affairs, Hubertus Heil, in May 2022, in which the minister emphasizes that employees have “a right to appropriate wage increases,”while also conceding that as Federal Minister of Labour he will, however, “not interfere in collective bargaining”(Heil 2022). Collective Bargaining Autonomy in a Crisis of Legitimacy? 57 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 duction of working hours. After German reunification, they became entangled in the goal of raising eastern German wages to western German levels as quickly as possible. This endogenous problem was exacerbated by the organisational weakness on the part of trade unions and employers which led to a decline in collective bargaining coverage. At the same time, there was a proliferation of “wild”decentralisation, i.e. companies that did not withdraw from employer organisations but deviated from the provisions of the sectoral collective agreement through company alliances, sometimes without a legal basis. As the social partners seemed unwilling or unable to solve these challenges, Federal Chancellor Gerhard Schröder threatened the German Bundestag with legal opening clauses. The chancellor announced that if partners did not make collective agreements more flexible, the state would do it (Deutscher Bundestag 2003, 2487). The threat worked. In the biggest German industry, the metal and electrical industry, social partners concluded the so-called Pforzheim Agreement in 2004. It simplified and legalised deviations from the sectoral collective agreement in individual companies. In this way, social partners demonstrated their ability to act. The government did not have to realize its threat (Lesch, Schneider and Vogel 2021, 311f). The semantic steering was a second response by the federal government after the tripartite strategy had failed. While it was successful in terms of its employment goal, it initiated a new, distribution-policy debate. The reason was that now the growing low-wage sector was perceived as a problem. 5. Lessons for the Current Debate Table 1 summarises the different steering episodes once again and structures them according to the type of intervention. Federal Chancellor Schröder’s threat to introduce legal opening clauses has proved to be an effective form of semantic steering –unlike the appeals which were not analysed further here. If it had been implemented, it would have led to legal steering that would have changed the rules of the wage-setting process. However, such procedural intervention was no longer necessary, as the social partners adjusted their moves. With this change in behaviour, this threat had the effect of regulatory intervention. While the economic summits in the wake of the economic and financial crisis 2008/09 were rather informal in character, the Concerted Action and the two job alliances of the 1990s were about trying to reach binding agreements by making political barter deals. However, in none of the three alliances, relevant actors could agree to binding wage guidelines on a permanent basis. Nonetheless, there was at least temporary voluntary wage restraint on the part of the trade unions during the Concerted Action and during the job alliance and the bargaining round of 2000. Together with the experience from the economic summits 2008/ 09, it can be concluded that tripartite formats can be successful if they take place on an ad hoc basis, are based on voluntariness, create trust, and actors do not derive expectations for future action from the temporary measures. In such a framework, social partners adapted their moves voluntarily, i.e. without being restricted in their alternative actions by changing the rules of the game. Hagen Lesch, Helena Bach, and Sandra Vogel58 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 Table 1: State Control According to Steering and Intervention Types Steering type Intervention type Semantic Tripartite Political Legal Regulatorypolicy control Threat of introducing statutory opening clauses (2003) Concerted Action (1967-1977); Alliance for Jobs (1998-2003); Economic Summits (2008/09) § 116 Labour Promotion Act (AfG, 1984); Collective Bargaining Unity Act (TEG, 2015) Processpolicy control Monetarist turn (1974); “Agenda 2010” (2003-2005) Arbitration Ordinance (SVO, 1923); Emergency decrees (NVO, 1930-1932); Act to Strengthen the Collective Bargaining Autonomy (TASG, 2014); General Minimum Wage Act (MiLoG, 2014); Act to Increase the Statutory Minimum Wage (MiLoEG, 2022) Source: Authors’compilation Political steering, on the other hand, changed the rules of the game and thus had a procedural effect. The monetarist turn and the Agenda 2010 forced social partners to take on more responsibility for employment policy. An important learning process was that wage policy assignment (in the sense of committing wage policy to the goal of employment stability) must be flanked not only by monetary but also by fiscal policy. In terms of legal steering, there were not only regulatory interventions based on the legal framework for industrial action (section 116 AfG and TEG), but also procedural interventions (arbitration and emergency decrees, minimum wage legislation). Striking about these is that they were undertaken in the context of a poorly functioning collective bargaining partnership. The interventions in the Weimar Republic contributed to the further erosion of collective bargaining relations. State wage policy established itself not as a complement to collective bargaining, but as a substitute. The most recent interventions through the minimum wage legislation (2022) do not yet allow such a conclusion.20 The political target of a minimum wage of 12 euros shows, however, that the statutory minimum wage is not intend20 An evaluation of collective bargaining before and after the introduction of the minimum wage concluded that the introduction of the statutory minimum wage in 2015 did not reduce social partners’ willingness to reach agreements (Bispinck et al. 2020). However, the politically decided increase to 12 euros intervenes more strongly in collective bargaining. Collective Bargaining Autonomy in a Crisis of Legitimacy? 59 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 ed to be purely complementary. The federal government is pursuing purely income policy goals. This objective can prejudice collective agreements or even damage the incentive to negotiate collective agreements in areas affected by the minimum wage. This would not be in line with collective bargaining autonomy in the sense of the Basic Law, “the spaces for […] individual responsibility and social partnership become ever narrower in this way” (Creutzburg 2022, translation by authors). A strengthening of collective bargaining commitment or the organisational capacity of the parties to collective agreements is also not to be expected. The expansion of collective bargaining coverage sought by the TASG through easing rules on extending collective agreements generally and inclusion of all sectors into the AEntG also represent procedural interventions. A company that is not bound by collective agreements is prohibited from applying an employment contract that falls short of collectively agreed standards as part of the extension of collective agreements –be it through the revised rules of the TASG or the AEntG. These revisions did not only change the rules of the game, but also prevent certain moves (such as paying below collectively agreed standards). In this way, the federal government wants to strengthen collective bargaining coverage without addressing the actual cause –social partners’organisational weakness (Lesch, Schneider and Vogel 2021, 392). The new governing coalition of the SPD, the Greens (Bündnis 90/Die Grünen) and the Liberals (FDP), which came into office in 2021, aims to strengthen collective bargaining. To this end, the federal government wants to make public procurement dependent on compliance with a representative collective agreement in the respective sector (SPD, Bündnis 90/Die Grünen and FDP 2021, 71). This regulation amounts to the same problem as the measures taken in the TASG. It extends collective bargaining coverage but does not strengthen the organisational capacity of social partners. Even if the planned Act on Compliance with Collectively Agreed Standards leads to previously collectively bargaining-free enterprises applying collective agreements to obtain public contracts, it will not create an additional incentive for companies to join an employer organisation at the same time. The company can still apply its own regulations that deviate from the sectoral collective agreement for contracts from the private sector. The incentive for workers to join a union is likely to be reduced. The unorganised workers receive the collectively agreed wages anyway –as in the case of extensions via TASG or AEntG. Why should they pay union dues for that? Thus, the new federal government continues to doctor the symptoms of social partners’ organisational weakness without taking targeted measures to fight its causes. Such measures could mainly consist of addressing free riders’behaviour. Those who are paid collectively agreed wages but are not union members could pay a solidarity contribution. This approach seeks to remove disincentives by no longer rewarding free riding. On the company side, policy should create more “experimental space.”However, this should not be done through dispositive collective bargaining legislation, but rather by allowing companies to undergo collective bargaining on a trial basis. If a company joins an employer organisation under the current law, it can leave again. However, it remains bound to the collective agreements that the employer organisation has concluded so far (the so-called “after-effect”or Nachwirkung). This reduces the incentive to join an employer organisation. Hagen Lesch, Helena Bach, and Sandra Vogel60 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 The debate on designing the minimum wage as a “Living Wage”(Lesch, Schneider and Schröder 2021) took place in the course of the politically imposed minimum wage adjustment to 12 euros per hour starting from October 2022. We expect that this will not remain the last episode of state wage policy as a paradigm shift took place: a process has been set up in which the state must intervene as soon as the minimum wage moves away from the level of a living wage. Currently, a minimum wage of 12 euros roughly corresponds to a living wage. If the Minimum Wage Commission sticks to its previous adjustment procedure of a lagging adjustment of the minimum wage to the general wage dynamics and if the effective wages rise more strongly than the standard wages in the next few years, the minimum wage will fall behind the living wage. The state will therefore have to intervene again in an unplanned way. In addition, with the social policy orientation of a minimum wage now undertaken, the federal government is not only intervening in the wage structure and thus in the systematics of wage formation. It also calls into question the logic of the system. Through the new socio-political requirement of the statutory minimum wage, social partners must decide whether the collective wage is primarily a socio-political instrument or whether it should reward work performance. The analysis of historical debates shows that state steering of collective bargaining autonomy is not a new phenomenon but began immediately after the Stinnes-Legien Agreement. Over the decades, the state repeatedly had to find answers to exogenous and endogenous challenges in order to promote what it sees as an optimal representation structure by its social partners. A significant path dependence can be observed: On the one hand, this is reflected in the fact that collective bargaining autonomy was reintroduced in 1949 despite its first failed attempt. On the other hand, it can be seen in the fact that state steering since 1949 has no longer aimed at a fundamental system change. This is undoubtedly a learning process from the Weimar experience. There, collective bargaining autonomy was so undermined by state compulsory arbitration and emergency decree policies that the will of social partners to reach agreement on their own was lost. The current political efforts to increase collective bargaining coverage can be seen as evidence that politicians certainly want to strengthen collective bargaining autonomy as an institutional arrangement. However, the increasingly observable interventions in process policy also give cause for concern regards a revival of state wage policy with the potential consequences for collective bargaining autonomy hardly being reflected at present. Hopefully, policymakers will learn from the consequences of process management during the Weimar Republic or the last decades when it comes to their management of collective bargaining autonomy today. Historical experience shows that it is difficult to achieve a social welfare orientation of social partners through a state wage policy or tripartite approaches. A differentiated approach combining certain types of governance has been more successful. A combination of threat, growing outsider competition and less state alimentation of social partners’misbehaviour has proved particularly effective (Lesch 2021, 726). State steering of collective bargaining autonomy should therefore always strengthen social partners’responsibility. The Concerted Action against Price Pressure convened in summer 2022 will show whether the federal government takes these lessons into account. Collective Bargaining Autonomy in a Crisis of Legitimacy? 61 Journal of Contextual Economics 142 (2022) 1 OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/schm.142.1.41 | Generated on 2023-10-13 12:13:41 References Bach, H., H. Lesch, and S. Vogel. 2022. Die Legitimität der Tarifautonomie in Deutschland. Wirtschaftspolitische Lehren aus historischen Debatten von 1918 bis heute. IW-Analyse No. 148, German Economic Institute Cologne. 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