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Home , Liberalism in Germany

Neoliberal influence in non-liberal varieties of ? The cases of and Japan

Dieter Plehwe, Berlin Social Science Center

Abstract

Japan and Germany are frequently set apart from Anglo-Saxon liberal market economies in the comparative and historical literature on capitalist development. German economic ideas play a specific role to explain certain Japanese developments with regard to economic planning and coordination. The story line of a long lasting continuity of non-liberal capitalism in Germany and th Japan has several shortcomings. The romantic of 19 Century Scottish serves as a standard against which an allegedly comprehensive conservatism in Japan and Germany are judged. Post WW II discontinuities in the defeated countries and the confluence of domestic and transnational neoliberal influences with regard to Western and world market integration as well as the restriction of trade union movements are all subordinated to a strong narrative of organized capitalism at the national level. Myopia in terms of neoliberal influences in Germany can be demonstrated on the basis of historiography dealing with the organized neoliberal networks of the Mont Pèlerin Society. While neoliberals were not hegemonic in post-war Germany and the early European Communities, their influence was considerable in important areas and phases of economic institution building. Based on these findings the paper suggests to repolicate the method of historical social network analysis to empirically study the history neoliberal influence in post-war Japan, and suggests both trade policy and industrial relations as promising areas.

Introduction: narratives of liberal, non-liberal capitalism – what about ?

Japan and Germany are frequently described as examples of non-liberal , coordinated capitalist systems in contrast to the liberal market economies of the United States and the United Kingdom in historically oriented social science research. Michel Albert, for example, juxtaposed the modèle rhenan and the modèle Nippon to the modèle néo-américaine (Albert 1991). At the center of the Japanese model informal corporate Keiretsu alliances and the Ministry of International Trade and Industry (MITI) created a powerful basis for industrial development. In Germany, three major banks (Deutsche, Commerz, Dresdner) were at the center of interlinked business groups and various ministries in charge of energy, postal and other state related service arrangements. In both cases, domestic path dependencies and a strong resilience against external challenges are held responsible for the historical evolution of institutional configurations that favor cooperation and coordination between companies, between management and labor (in Germany more than in Japan), and

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between business and the state. The two versions of embedded “market economies” (Karl Polanyi) are held to control competition and the profit motive rather than allowing market forces and 1 competition to dominate social relations (Streeck and Yamamura 2001).

Beyond the parallel evolution of embedded market economies with a certain affinity with each other, historical research has pointed to the considerable influence of German ideas and institutional models on the Japanese development during the Meji and Showa periods in particular (Lehmbruch 2001). Due to the defeat of both Germany and Japan in WW II, German influences in Japan vanished according to Lehmbruch, replaced by influences from the United States in particular, although British influence from Keynes to Beverigdge played an important role as well (Hadley 1989, Nishizawa 2002, 2014). Yet the core of the argument of the histories of non-liberal capitalism lies in path dependent local development, which can integrate external influence without disrupting domestic affairs in a strong way (“translation”, “selective emulation” are the key words rather than “transfer” or “copy”). Similar answers were given to similar questions, one might argue, and, therefore, answers or certain elements of answers that were previously given in Germany were of particular use in the Japanese context until WW II.

Gerhard Lehmbruch employs a historical institutional and discourse coalition framework in his study of Germany and Japan that is very useful to link the history of ideas to the history of intellectuals and organizations that carry influence in society to the origins and evolutions of social and political institutions like corporate governance arrangements, collective bargaining systems, vocational training provisions or associational orders, but also the legal and government institutions in a more narrow sense (e.g. the constitution, executive or legal agencies etc.). Intellectual history is contextualized in this framework, linking ideas to the social forces and organizations that carry them and give weight to certain ideas rather than others. In this way we are implicitly if not explicitly looking at discourse in social power relations, which extend to the realm of ideas, ideologies, discourse as explained by conceptual historians (Olsen 2012). Lehmbruch’s effort in fact is targeting what he calls hegemonic discourses, which can be the result of combinations and amalgamations of ideas from different sources and social bases. This was the case with the integration of labor in German business affairs, for example, which had roots in socialist and conservative-paternalist

1 German and Japanese company networks around major banks have continued an earlier history of cartelization in this reading. Cross-holdings and house banking is held to limit competition for finance, and to bias in favor of long-term “patient” capital needed to provide stable industrial relations. Welfare policies are held to reinforce industrial development strategies focused on skilled segments of the workforce. While the developmental state is central to the Japanese version of coordinated capitalism, corporatist relations between capital, labor and the state are at center stage in the German model. While many elements of the political, economic and cultural system set Japan and Germany apart, of course, the higher degrees of coordination are set against the liberal Anglo-Saxon traditions and institutional configurations (Streeck and Yamamura 2001). 2

thought, carried forward by the reformist wing of the Social Democratic Party and WW I civilian and military war leadership, respectively.

In the following paper I would like to first revisit Lehmbruch’s study in order to firstly ascertain the state of the art of the reading of German and Japanese histories of coordinated capitalism, commonalities and differences on the one hand, and of the particular influence of German ideas and 2 institutional role models in Japan on the other hand. Secondly, I will take issue with the exclusive if not one-sided focus of this narrative on allegedly non-liberal dimensions of German and Japanese capitalism, which is possibly due to a narrow focus on hegemonic discourses. Concessions to competing forces and the integration of marginalized social strata central to Antonio Gramsci’s notion of hegemony require a greater sensitivity to the composition and possibly contradictory elements of hegemonic coalitions. Lehmbruch does examine the ordoliberal dimension of the post- war hegemonic German discourse coalition to be sure. But instead of recognizing neoliberal influence in the German post-war model (and beyond Germany, in the early formation of the European Communities), he subsumes the pragmatic social discourse under the general label of non-liberal institutionalization.

Contrary to this perspective, I will argue that there is a need to pay closer attention to the neoliberal tradition and influence in Germany to avoid apparent contradictions in the non-liberal narrative of German (and Japanese?) histories. I will also argue the need to go beyond methodological nationalism apparent in Lehmbruch’s approach in order to appreciate Swiss-German, Austrian and Anglo-Saxon neoliberal influences in post-war Germany and Japan. But although I can discuss and demonstrate the reach and limits of neoliberal influences in post-war Germany, I will only be able to raise questions with regard to a similar role and relevance of neoliberal discourse coalitions in post- war Japan. However, the very existence of significant neoliberal networks of intellectuals and organizations in Japan much like in Germany points to a situation in the land of the rising sun similar to Germany. Japanese neoliberals may be hard to recognize in frameworks that place Japan squarely in the history of organized capitalism. But even if Japanese neoliberals were not hegemonic during the 1950s-1980s it is worthwhile to examine if and to what extent there ideas and capacities exerted influence in specific policy areas, possibly in conjunction with other agencies, both domestic and

2 Scholars have paid more attention to the influence of the German Historical School on Japanese economists, of course. Compare Nishizawa 2001 and Yanagisawa 2001, for example. A great critique on the myth of Meji conservatism and the specific role of the German Historical School in directing the German (and by extension) th Japanese) “Sonderweg” has been written by Grimmer-Solem (2005). The author points to the mid-19 Century British liberalism, the romantic individualism of Mill and its hostility to the modern state as the basis of judgment of the real world liberalism. While Germany and Japan looked different in terms of the discourse on the state, the regulatory practices were quite similar across the different countries. The problems addressed by th Grimmer-Solem rooted in 19 Century Scottish liberalism standard can also be considered relevant for the assessment of allegedly “non-liberal” post WW II capitalism. 3

foreign. In any case I am arguing that the recognition of neoliberal influences in the earlier post-war histories of the two countries helps to make visible and explain the transnational and local dimensions of further reaching neoliberal transformations in Germany and Japan from the 1980s onward, which otherwise seem to constitute an odd disruption of the allegedly coherent non-liberal institutional configurations in both countries. Contrary to the non-liberal narrative, I am thus arguing there are a certain amount of neoliberal planks built in the pathways that are hidden by the mainstream interpretations of German and Japanese varieties of capitalism.

Early Modernization: selecting and interpreting German influences

th Both Germany and Japan had to catch up with the leading economy of the 19 Century, the United Kingdom, and were coming from behind to compete for the pole position in the imperialist rivalry of th th the late 19 and early 20 Century. Both countries plus the United States, however, were also rapidly developing, and challenged the superiority of the UK and other competitors like France, the Netherlands or Belgium, and each other, of course. In Germany and Japan, specific institutional configurations are held to explain the stunning success of rapid development. The state and certain degrees of planning and coordination between the public and the private sector, not the market, competition and mostly unrestricted exchange, are held to account for a peculiar variety of German and Japanese capitalism. rather than was the figurehead of late development. Although high degrees of coordination and planning seem to be almost at odds with th the very notion of capitalism, Marxist scholars have analyzed the early 20 Century age of “organized capitalism” (Hilferding 1915) in general, which informed Social Democratic reform strategies in competition with revolutionary Marxism (Boshevism/Leninism). Comparing different national versions of more and less organized capitalism, mixed economies and capitalism, in any 3 was the task set by historians and historically minded social scientists.

The comparative institutionalism literature on the history of capitalism is quite sensitive to the history of (economic) ideas, and also to the transnational dimensions of discourses. Gerhard Lehmbruch emphasizes the relevance of discourse coalitions in his account of the impact of the German model in Japan. Institutional borrowing in Meji Japan relied on Germany’s bureaucratic liberalism and the accompanying philosophy of (preemptive) revolution, better: modernization, from above. Prussia’s defeat in the Napoleonic wars strengthened economic reformers inspired by

3 While historical institutional scholarship does preserve the Marxist interest in corporations, links between financial and industrial capital, corporate governance and competition, a broader range of institutions is looked at to understand the diversity of national systems and to distinguish the various capitalist systems. Scholars examine education and training, industrial relations and welfare, for example. (Streeck and Yamamura 2001). 4

enlightenment traditions, which resulted in the specific combination of Smith and List in the German case: A developmental notion of state-led capitalist development combined with a paternalistic welfare state designed to counteract the strength of the working class movement and its political arm, the Social Democratic party. The essence of such imaginations is contrary to the prevailing early liberal discourse (laisser faire), which was pitching the market against the state, still reflecting liberal ideas that aimed at restricting the pre-capitalist state rather than employing a bourgeois state to further capitalist development. Not before the period after WW I did notions of “new liberalism” attempt to increase the space for social responsibility, which helped turning traditional more fully into political liberalism in the UK (Tribe 2009). Political and in turn generated the need for its liberal right wing alternative, which insisted on the primacy of economic, albeit politically and otherwise better secured liberalism: neoliberalism. In contrast to the th Anglo-Saxon discussion, right wing liberalism in Germany in the late 19 Century was already then hardly fitting the Anglo-Saxon laisser faire stereotypes, and liberalism was rather weak in general between Marxism and Conservatism (Neumann 1967).

On the other hand, in Germany (and Japan), the economic efficiency ideas of bureaucratic liberalism and development contributed to the creation of a business friendly notion of state-corporate relations. Furthermore, only after the financial crash of 1873, and during the long deflationary crisis following, Germany turned away from policies to support heavy industry and agrarian interests. National welfare was now conceived as an object to be achieved by a set of policies including public service (mass transportation), public utilities at the municipal level, regional policies (to equalize living conditions) and social security. Various segments of society were integrated into the new order by way of organizing interests in chambers (of industrial, trade, agricultural and craft interests). State led development ideas in turn can be traced from the Hegelian Lorenz Stein to social reform bureaucrats around Bismarck, and gain institutional character in specific associations, notably the Verein für Socialpolitik set up by the conservative economist Gustav Schmoller, and other reform oriented academic think tanks (like the Evangelisch-Soziale Kongreß or the Gesellschaft für soziale Reform) (Lehmbruch 2001, 54-55). The notion of revolution from above or “passive revolution” in Antonio Gramsci’s terms, found expression in the idea of Kathedersozialismus and “Monarchy of social reforms” (Schmoller). Additional elements of German reforms were composed of Catholic social doctrine and Social Democratic reformism. Subsidiarity ideas of Catholicism and the high degree of self-organization of the Social Democratic working class eventually helped enabling the inclusionary character of social relations in Germany.

Lehmbruch traces the influence of German economic and social ideas in Japan -during the Meji era based on the work of Kenneth Pyle and other social historians. A good example of the relevance of

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the German historical school was the founding of Shakai Seisaku Gakkai (Society for Social Policy) in 1896, which was modelled after the Verein für Socialpolitik (Lehmbruch 2001, 59). “The Japanese Association … was established … in order to investigate factory laws abroad. It came into existence just after the Sino-Japanese War had spurred rapid industrialization. Faced with domestic labour disputes, the Association aimed to prevent class conflict and to maintain social and industrial harmony through a combination of economic and state intervention. …The Association organized an annual conference and discussed not only factory legislation but also tariffs, small industries, the peasantry, and other issues” (Nishizawa 2014, 237). Nishizawa attributes high importance to this association because it was the only formal academic association dealing with world economics (ibid.).

Long before the Society for Social Policy was founded in Japan, the import or rather translation of German ideas began when the Japanese scholar Hirobumi Ito travelled to European countries to study constitutional law. Ito later on served several times as prime minister, and was highly influential in the process of developing the Meji constitution. Ito met with German leaders like Bismarck and reformers like von Stein. German scholars influenced by von Stein like Hermann Roesler in turn were appointed to the Imperial University in Tokyo, where Roesler helped drafting the Meji constitution. Lehmbruch describes the ensuing transfer of ideas as “selective emulation” (following Westney 1987), because concepts like “constitutional monarchy” or “communal self- government” from Germany were changed in the Japanese context, adapted to neo-Confucian concepts of the emperor as head of a family like ethnic community and a centralized top-down version of the role of municipalities, respectively (ibid., 61).

Interestingly, Germany’s internationally most frequently “copied” reform projects, namely social policy programs in occupational and general health and old age pensions, did not make their way into Japan at this point in time in spite of the spate of Japanese authors and social policy bureaucracies that embraced German social philosophy. Lehmbruch argues that Japanese social policy did not constitute another example of selective emulation, but developed in an indigenous framework of neo-Confucian philosophy instead. The difference is due to incompatible notions of the meaning of society, which was based on notions of individual subjects and dependence in the German case, and on the ie or house notion of Japanese society, which later on played a role at the level of firms. Lehmbruch relates the Japanese ie notion to parallel older – pre-liberal – European discourses of the house or oikos. Unlike in Germany, Japanese social developments did not constitute an independent minded social structure from below during Meji times. The German dimension of social inclusion thence was not needed, and the industrial relations regimes differed siginificantly as a result. Following Lehmbruch, the Japanese reinterpretation of German social policy was business

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and state centered paternalism, which lacked the dimension of cooperation and inclusion of a separate class. Germany altogether was a more evenly and highly organized society at this point in time (Lehmbruch 2001, 67). This also means that Japan remained less problematic in traditional liberal perspective because social responsibilities remained strictly subsidiary at the level of family, neighborhood, community etc.).

Business and War Planning: Adopting and adapting German Influences

Following up on the interest in similarities (and differences) between German and Japanese capitalism, and the specific German influence, the 1920s until the end of WW II yield additional insights. WW I had a great impact on the advance of coordination of business activities. In Germany, the head of AEG and leading liberal intellectual, Walter Rathenau, was heading the resource procurement department of the Kaiserreich. Under his leadership, industrial enterprises were more strongly directed in production than ever before. Continuing coordination was subsequently achieved through the formation of the key business association, the Reichsverband der deutschen Industry, which united previously competing peak associations. Rathenau’s senior manager colleague at AEG, Wichard von Moellendorf, developed his much noted theory of Gemeinwirtschaft, a not for profit sector of the economy targeting the meeting of specific needs in society. Moellendorf’s work was strongly influenced by Taylor, not Marx or Bebel. Efficient management, not socialism, was the primary concern of the complementary sector, though trade union related developed its own perspective of the mixed economy transformation (Naphtali). Also still during World War I, works council were granted to the workforce in exchange for the mandatory assignment law in support of war production. Based on the establishment of workers’ participation, the post-war transition relied on a social partnership agreement between peak associations of employers and trade unions, united in skepticism against state planning capacities on the one hand, and revolutionary economic council movement perspectives on the other hand. Social partnership institutions were temporary only at this point, however, and considered transitory by the right wing of traditional business elites. But circumstances provided for first experiences in cross class collaboration and institutions dedicated towards this end.

Compared to the previous transfer of some core discourses from Germany to Japan, which were weakly influential due to the local institutional entrepreneurship and a strong Japanese interpretation of the original discourse, the learning from the German war economy was stronger and more straightforward (though compulsory cartelization with unlimited and arbitrary powers of the ministry was introduced in Japan and Italy before Germany, for example, Neumann 1967, 266).

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Japanese reform bureaucrats came to Germany in the 1930s to study industrial rationalization and concluded that cartels, cooperation and control were more promising instruments than competition (Nobosuke Kishi). The sources of influence of the Showa era at the same time were more diversified than previous German inspiration for state led social reform and neo-mercantilism. Keynes and Schumpeter as well as Marxian influences figured prominently even if the era became authoritarian nationalist. The most important think tank of the era was the Showa Research Association. The work of the reform bureaucrats in this arena converged on notions of the “managed economy” according to Gao 1997 (cited in Lehmbruch 2001, 75). According to Gao, the managed economy perspective united three elements. Firstly, a strategic perspective of the economy, secondly, a restraint on excessive competition and thirdly, the opposition to the profit motive in management.

Among the German institutions emulated in Japan, the creation of business associations figured prominently. At the center of Japan’s planning for total war, Nobosuke Kishi became vice-minister of commerce and industry. The new economic governance system was modelled closely after the Nazi organization of business. Although the role of workers was strengthened vis-à-vis stockholders or owners, and managers, the business interests prevented further reaching limitations on their position in the commercial code. Japanese control (business) associations modelled after the Nazi German Wirtschaftsgruppen and Fachgruppen were only hampered by the lack of previous traditions in associational self-governance, which reduced the effectiveness of the integration of the firms in the new structures in Japan. Instead of the business association, the Zaibatsu became the dominant agency in the new governance structure. Murakami (1984) considers this as a continuation of the limiting house principle in the modern architecture of Japanese society.

Last but not least, Germany’s Nazi labor organization, the Deutsche Arbeitsfront (DAF), was the model for the Japanese Patriotic industrial Society (Sanpo). Sanpo replaced the independent Japanese labor unions much like DAF replaced Germany’s political and industrial unionism of the Weimar Republic. However, Sanpo’s organizational principle was company centered, which later helped to frustrate efforts to advance industrial unionism, although the organization did also help to build up organizational capacity and experience in structuring labor management relations. The defeat of radical labor organizations and the control of labor at the plant level in any case was one of the dimensions of German and Japanese varieties of capitalism traditional business interests and neoliberals did not complain about too much, which played a significant role in the post-war Japanese case in particular.

Post-war experiences: No (neo)liberalism, no German influences?

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For the time after WW II, Lehmbruch did not observe German influences. With the two countries defeated, the allied countries and the United States in particular became central in terms of external influences in Germany and Japan. Both countries continued to rely on institutions that had previously been developed to be sure, though more on those developed prior to the fascist and Nazi periods 4 (compare Allen 1989). Lehmbruch’s overriding concern in his chapter is the allegedly non-liberal model of capitalism, however, which may have inadvertently contributed to myopia in terms of observing post WW II (neo)liberal influences in Germany based on forces at home and from abroad.

For Germany, Lehmbruch relates the story of strong institutional continuity by way of distinguishing between the ordoliberal ideas of the Freiburg School (Eucken, Böhm etc.), which are rightly considered at odds with coordinated capitalism, and the hegemonic ideas of the social market economy (as conceived by Müller-Armack, Erhard etc.), which Lehmbruch considers to be more in line with non-liberal traditions. Although it is important indeed to not fully liken rigid ordo-liberalism to the way more pragmatic social market economy concept, a strong separation of and the original conception of the social market economy obscures the strong ordoliberal influence on Germany’s institutional configuration after the war, and misses the common opposition of ordo- liberalism and social market economy to Keynesian style macro-economic planning.

It is hard reconcile Lehmbruch’s take with the findings of the comparative study on Keynesianism across nations, for example, which has clarified the absence of Keynesianism in policy making in Germany and Japan (and Italy) in the early post-war period (compare De Cecco, Allen and Hadley in Hall 2009). In the three cases economic orthodoxy (or anti-Keynesian neoliberalism?) and conservative parties were reinforced by the American military occupation backing Ludwig Erhard and decontrol in Germany, and forcing the Japanese leadership into an anti-inflation austerity regime in 1948 (the Dodge line, compare Dover 1999, 540f.). Joseph Dodge moved from Germany to Japan in fact. In Germany, the Colm-Dodge-Goldsmith plan of 1946 in fact was the blueprint for the subsequent currency reform (Kindleberger and Ostrander 2003, Buchheim 2004), which placed the burden on savings and thereby also strongly increased the labor supply. Both in Germany and Japan, the confluence of external and local forces backing economic orthodoxy, neoliberal austerity and supply side ideas need to be taken quite a bit more serious.

Albert O. Hirschman attributes the different experiences in the occupied and allied countries to the different role American Keynesian advisers were allowed to play: Since Keynesian economists were hired in advisory, not managerial positions, they were working alongside traditional military and

4 Allen argues that supply side orientation, social protection and associational governance prior to the Nazi period were central to Germany’s post-war configuration. In the Japanese case the administrative continuity was arguably providing for stronger continuities. 9

business leaders and lawyers in charge in the Japanese and German occupation forces. In the allied countries, however, they were the only American voices offering expertise and assistance to the allied partners instead. “In the militarily occupied countries”, adds Hirschman in brackets, “…there was often conflict between the top administrators and the Keynesian advisors within the U.S. military government.” (Hirschman 1989, 352). Hirschman qualifies his hypothesis, because it is based on his own participant observation memory (restricted to Germany), and calls for archival research. It is important in our history, because it does point to transnational right wing alliances between orthodox or traditional forces from the United States and local forces in Germany and Japan, although Hirschman appears to emphasize if not isolate the foreign dimension. The composition of the post-war non-Keynesian discourse coalitions instead really needs closer attention vis-à-vis the claim to non-liberal traditions or unspecified “American influence”, because the anti-New Deal and anti-Keynesian forces in and from the United States are precisely the backbone of the Anglo-Saxon interpretation of capitalism. A nation state centered analysis of cross-national influence misses on the formation of these forces in the realm of the Mont Pèlerin Society, for example, which was set up by Friedrich August von Hayek, Wilhelm Röpke and others in 1947, and included a strong membership in Japan (see Nishizawa and Okeda 2015, forthcoming, for a first overview).

Ordo- and other right-wing liberalism had a strong position in Germany partly because it was less damaged by association with Nazi-Germany than planning approaches even if the Freiburg School 5 was not simply in opposition to the Nazis (Lehmbruch 2001, Tribe 1995, Ptak 2009). But some leading German neoliberals, namely Wilhelm Röpke and Alexander Rüstow, had escaped from Nazi Germany and represented a “clean” “white” conservatism much like the returning progressive economists from the New School for Social Research in New York and elsewhere. In alliance with the remaining Freiburg school economists and legal scholars around Eucken and Böhm, the Röpke and Rüstow were in an extremely strong position between the occupation forces on the one hand, and the new German leaders in the Christian Democratic Party on the other hand. Ludwig Erhard, who had eventually chosen to join the Christian Democrats, became the most prominent political face of the social market economy in Germany after the war, and relied heavily on a crew of ordoliberal advisers including both Röpke and Rüstow.

As economics minister and as head of the government, Erhard pursued a clear neoliberal agenda at odds with the continuity story of coordinated capitalism, although not at odds with some Nazi continuity: In his first government leadership position in Bavaria in 1947 he was toppled in fact by the American occupation forces because it was heavily loaded with Nazis (Baukloh: 1965, S.1011).

5 The Third Reich did not have a coherent economic policy perspective. Planning perspectives were dominant, but the Freiburg ideas of efficiency through competition were not alien to Hitler and other Nazis, linked to right wing “survival of the fittest” notions of Social Darwinism informed by Spencer. 10

Erhard’s post war claims of opposition work against the Nazis because of his links to one of the leaders of the attempt on Hitler’s life, Carl Friedrich Goerdeler, were always a bit one-sided because his post-war planning on behalf of the German industrial association was also tied to leading SS officials, namely Otto Ohlendorf and leading industrial circles like the Europakreis (including Hermann Josef Abs), which had the blessing of Hitler personally (Nordmann 1994). The Freiburg school wing of economists in the Nazi-era was by no means isolated from political and corporate elites, and well prepared to present an alternative to the Nazi economy after the war because they were not isolated from the owners of the means of production like the progressives in exile, Social Democratic Keynesian and Marxist economists.

German ordoliberals insisted on a clear alternative to coordination and planning, which post-1945 worked both against Nazi past and Keynesian future perspectives. While the evolving German social market economy was a mixed economy to be sure, ordoliberal perspectives must be considered a truly important bulwark against an even more coordination oriented economic system, insisting on private competition in state related sectors, on privatization of state owned companies, and on a competitive market order in general and principle. This perspective positioned German ordoliberals against certain traditional corporate interests eager to preserve monopolistic structures and the advantages of cartelization. Certain continuity in coordination after WW II in Germany was achieved against the inclinations of both academic ordoliberals and the political leadership in charge of the implementation of the social market economy concept, not because of the alleged compatibility of social market economy ideas with coordination in contrast to ordoliberal ideas.

It is extremely important not to underestimate ordoliberal influences in the original concept of the social market economy. Instead we need to distinguish the original concept from the social and economic relations that were built as a compromise between a wider set of social forces. The key elements of social market economy pragmatism were the idea of the benefit of countervailing forces in society and the so called irenic formula: peaceful relations after so much violence (compare Ptak 2009).

If the recognition of countervailing forces are simply a commitment to a certain amount of pluralism in society (against the totalitarian state vision), the interest in peaceful relations does not primarily translate into social redistribution ideas. Müller-Armack and many other neoliberals in Germany were looking and arguing for spiritual integration, because the Nazi past was partly blamed on modernism and materialism. Both Röpke and Müller Armack in fact favored an early modern economy and society before the formation of large scale capital, characterized by small town manufacturing and individual mixed economies: farming and gardening in addition to some manufacturing occupation in terms of the working class. This perspective turned them against 11

materialist economic growth programs developing in the wake of Keynesianism (Harrod-Domar), and against the early European Community ideas. Erhard, Röpke and Eucken favored a settlement of political union ideas before economic integration, which seems counter-intuitive from today’s perspective. While a wide range of neoliberals had developed federalist perspectives until 1945, the post-war circumstances in many countries made them worried about the character of a new European federation. The competitive federalism they had in mind was quite unrealistic if most member states were favoring macro-economic planning, redistribution and cooperative federalism (Wegmann 2002). While the opposition against the treaty of Rome by Röpke, Erhard and Müller- Armack was doomed to fail, we will come back to their relevance for the construction of European integration below.

Contrary to Lehmbruch’s account of post-war reconstruction of coordinated capitalism in Germany, neoliberal economists and historians have tried in the meantime to relate an almost diametrically opposed version of Germany’s post-war history as a neoliberal zero hour (on the neoliberal interpretation of discountinuity see Giersch et al 1992; compare Schulz-Forberg on the zero hour concept used to both claim distance to the past, and to plan for the future). In this reading, the social market economy principles established by Ludwig Erhard in particular were the basis of Germany’s economic miracle. Most prominently, the currency reform and the parallel removal of product rationing and price controls secured the rapid revival of the economy. Later on, competition law and the independent central bank’s control over monetary policy making stabilized the market economy according to the neoliberal perspectives. While there were compromises with the Christian wing and Social Democracy, overall the Erhard course secured a sound model until it was compromised by Social Democracy and trade unions after the change of government in the late 1960s (Giersch et al. 1992). Can we reconcile the Lehmbruch continuity and the Giersch discontinuity hypothesis? No, but nor does the truth lie in the middle. It is distributed along different places between the arguments, depending on policy and issue area, and on more precise questions of time.

To be sure, Eucken and Müller-Armack did not reject progressive taxation, for example, as more recent radical neoliberal interpretations would suggest, nor where they opposed to a certain amount of redistribution out of hand, but nor can they be considered precursors of a Social Democratic welfare state. Social policy was not to distract from the job to create a clear cut competitive market order. In the political battles of the time, however, Erhard, his Staatssekretär Müller-Armack and his supporters of the Arbeitsgemeinschaft für eine Soziale Marktwirtschaft and the Mont Pèlerin disciples did indeed fail to become hegemonic, although they did carry considerable influence in a wide range of political, economic and social policy decisions. The hegemonic discourse of the time after all was favoring macro-economic management and planning, backed by war experiences and

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the shift of economic discourses toward Keynesianism. The position of neoliberals as relevant outsiders in terms of Germany’s hegemonic discourse coalition was reinforced by the American occupation forces first, and by U.S. allies and European allies (in the Benelux, but also in De Gaulle’s France) in a number of policy matters later on. We will look at a number of policy fields next to assess neoliberal influence in Germany’s post war reconstruction period in greater detail.

Labor Representation: Co-Determination, limiting industrial unionism and -- the state

Ludwig Erhard and his ordoliberal friends opposed the far reaching demands of trade unions and Social Democracy (and parts of Christian Democracy) for working class representation in micro- and macro level economic planning, for example. The established German co-determination model reflects competing interests because industrial and macro-level demands were thwarted, and the far reaching parity representation at the board level of big corporations was restricted to the coal and steel industries. Micro-level co-determination at the plant level in turn was introduced as a co- management function rather than as a worker representation office based on trade union organization (shop stewards). While ordoliberals and social market economy proponents could not prevent co-determination altogether due to the power relations after the war, the influence vis-à-vis competing forces from Social Democracy and Christian Unionism wings was considerable. Over time only, trade unions managed to obtain an important position with regard to the plant level representation because they managed to gain the strongest share by far of the elected works council members (Deppe et al. 1969). Board level representation, in particular of the weaker type, always constrained the union movement because trade union influence on investment planning, labor market and regional development policies were subordinated to corporate strategy, and difficult to coordinate. While the industrial relation system was based on industrial unionism, co-determination provided a strong institutional position at the company level only: Much less than the unions had wanted to better control capital. Collective bargaining autonomy in turn enjoyed paradoxical support from both trade unions and neoliberals because of the recognition of independence and autonomy on the one hand, and the principle of self-regulation on the other hand, i.e. decentralized regulation without the state. Unions were happy to embrace collective bargaining autonomy because of the strong position this provided to their own organizations subdued by the state during the Nazi era, and neoliberals regarded collective bargaining autonomy as a useful subsidiarity mechanism, keeping important aspects of rulemaking outside the sphere of state planning (Steiner 2009). Autonomy and decentralization were compatible reasons, but not identical. The institutional outcome may look like a higher degree of coordination backed by many forces, but neoliberal support for decentralization was looking forward to preserve limits to coordination, and to eventually advance decentralization: Hayek’s advice in his booklet “Wettbewerb als Entdeckungsprozess” (competition as a discovery

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process) with regard to collective bargaining was to cut back redistribution by way of decentralization, linking wages to productivity. This perspective in the meantime has gained a lot of support in German IR practices, which has seen a move towards company centered exceptions, defections from the collective agreements, and the weakening of industrial unionism since unification. German collective bargaining as a result is much less coordinated nowadays than it was in the past, and much more in line with the very neoliberal ideas in support of collective bargaining autonomy.

Central Bank Independence, Competition Law and the Revaluation of the DM

Fortunately, for Germany we now have a detailed comparative analysis of the relevant neoliberal forces in post-war policy making. Max Bank (2013) has compared the key neoliberal circles -- not only Freiburg based ordoliberals -- by way of examining the networks of the Mont Pèlerin Society, and related think tanks like the Arbeitsgemeinschaft Soziale Marktwirtschaft (ASG). ASG was founded by Rüstow and others explicitly to provide support for Erhard’s position in government (Schindelbeck/Illgen). Mont Pèlerin circles and their bases at universities and research institutes were key to wage public campaigns (against economic planning) and to coordinate elites behind the scenes.

Bank has chosen three political battles important to assess the relevance and extent to which neoliberals influence the post-war institutional configuration: the law that established the German Central Bank, the competition law and the debate around the measure to revalue the German currency. Bank has carefully reconstructed the individual participation of members of the highly organized group of neoliberal intellectuals in each of the policy debates. His findings reject the self- aggrandizing interpretation of Mont Pèlerin history, which claims credit for neoliberal influence without due recognition of the confluence of influence, and establishes a balanced assessment of the limits, but also of the reach of neoliberal influence in post-war Germany.

The law that established the Bundesbank owed at least as much to the international anti-inflation mainstream at the time according to Bank (2013) as it did to the individual neoliberals who were nevertheless involved in the drafting of the law. Germany’s competition law in turn involved many more neoliberal militants than there were at work for the Bundesbankgesetz, but in this case they failed to prevail against the experts from industry groups and associations as soon as the allied forces left it to the Germans to sort out the anti-Trust rules. This of course speaks against the “Americanization” thesis with regard to anti-Trust policies advanced by Marie-Laure Djelic (1998). Despite the fact that establishing anti-trust legislation was a step forward with regard to a liberal market economy, many exemptions allowed a relative continuity of coordination that dealt

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neoliberal inclinations a blow rather than speaking of a neoliberal success story (as also Wegmann 2002 has it, emphasizing the very introduction of rules and playing down the loopholes). In terms of ordliberal influence we have to nevertheless register limited success, of course: Without the neoliberal agenda, there may not have been an anti-trust code at all, or one with even stronger limitations. The strong emphasis of neoliberals on competition law and anti-trust also needs to be assessed with regard to the European Communities. On the one hand, cross border planning and coordination was a strong feature in the agricultural market and with regard to coal and steel production (to militate against a revival of nationalist attitudes and mercantilism). On the other hand, neoliberals secured a strong provision for a market order and competition law, which have led many observers in the meantime to speak of a predominantly neoliberal character of European integration. Even if the neoliberals lost more than they won in the German and European anti-trust battles in the short run, they arguably won more than they lost in the European battle in these areas in the long run (compare Wegmann 2002), though the reasons for this development cannot be attributed to the influence of the neoliberals during the immediate post-war era. The primacy of supranational competition law enforcement and the cut back on paragraph 3 exemptions from competition in the EEC treaty came much later, in the wage of the single market and more general neoliberal hegemonic constellations (Plehwe et a. 2006). Specifying time is exceedingly critical in efforts to assess specific influence, historians will confirm.

Last but not least, Max Bank shows that neoliberal militants and Ludwig Erhard defeated industrial interests and their allies in Adenauer’s government in the late 1950s and early 1960s in the battle over the revaluation of the DM. Export interests were served by keeping the DM undervalued. Neoliberals were able to defeat the opposition in government and industry against revaluation, which was again partly due to the alliance with external forces (from the United States and Nato partners). But Bank does demonstrate that the strong organization of neoliberals in Germany in this case was critical for Erhard to succeed.

Early neoliberals and the European Communities

Beyond the post-war reconstruction and building up of economic and political institutions in Germany, a history of ideas and comparative capitalism has to deal with European integration. The treaty of Rome was signed in 1957 to officially establish the European Communities on January 1, 1958. The interdependence of national and supranational institutions actually rules out to discuss strictly national models, but for our purposes it is not only interesting to challenge the story of “non- liberal” German capitalism due to the postnational space of the original six EC members (France, Italy, Germany and the Benelux countries), but also to continue to reflect on the question of neoliberal influence in the construction of the EC regimes. Since neoliberals are opposed to macro-coordination 15

of the economy, the way in which the EC regime was conceived is of high relevance for the discussion of economic ideas and European capitalism.

Milène Wegmann’s (2002) study on early neoliberalism and European integration offers rich insights with regard to the complicated position of neoliberals in the 1950s. Until 1945, a large number of leading neoliberals had advocated European federalism to overcome nationalist and imperialist exigencies. But as mentioned before the mainstream orientation toward economic planning and Keynesianism led them to step away from the federalist concept, because they were no longer sure a subsidiarity conception of competitive federalism could be secured. This is the reason, why Ludwig Erhard, Müller-ARmack and others opposed the economic integration approach of the treaty of Rome: a highly regulated agricultural market, and cross border coordination of steal and coal were not in line with the preferences of the ordoliberals nor of the leaders of the social market economy. Wilhelm Röpke in particular strongly opposed the EC, and advocated a global perspective of cosmopolitan nationalism instead.

While the neoliberals in opposition to the EU were numerous, there were also supporters of the treaty of Rome including Jacques Rueff who was advising de Gaulle, for example. The pro- and contra EC neoliberals were influential in the debates. Based on the work of Haberler, Röpke, and Viner they agreed on the basics of neoliberal integration theory, which can be summed up as “negative integration” (Pinder 1968), the removal of obstacles against economic activities within and across border: consolidation of market economies, free trade, competition, and maximum division of political power (competitive federalisms) no matter if at national or if opportune supranational levels. Conjointly with pressures from the United States, the market economy perspective was strongly established in paragraph 2 of the treaty of Rome, qualified to a certain extent by exemptions listed in paragraph 3. Apart from agriculture, neoliberals became less hostile to the EC over time, because the various GATT treaties liberalized trade and the EC proved not be an obstacle in this process. Again, the joint pressure from neoliberals from within and from the United States from without secured a stronger position of neoliberal influence at a time when nobody could speak of neoliberal hegemony. The same can be said about the EC emphasis on competition law, although Wegmann’s story relates the German case as a neoliberal success in contrast to Bank who observes the deviation of neoliberal ideas for the German law and the implemented version. EC competition law arguably became a greater resource for neoliberal transformations in Europe because it constituted a supranational lever against obstacles against cross border economic activities. No similar lever existed in the treaty to build a European welfare state, instead. (Scharpf 2009)

In the case of Gottfried Haberler, neoliberal influence can also be detected at the international level. Haberler was commissioned a GATT report on primary goods in 1957, for example, which observed a 16

decline in the terms of trade. While this sounded much like the earlier published findings of Raul Prebisch’s and Hans Singer (the so called Singer-Prebisch thesis), Haberler opposed Prebisch’s ECLAC study on the secular trend of changing terms of trade published in 1964 (when he became ECLAC chairman) because he denied a systemic character, which served to underpin a fundamental need to build up an industrial base in order to escape from under-development. The case for state led industrialization obviously becomes quite a bit weaker if countries can also hope to successfully pursue alternative economic strategies based on their traditional sectors.

Instead of Conclusions: What about Japan?

In this paper I have argued that we may need to be careful about a strong continuity perspective of German and Japanese capitalism, which sets the two countries apart from Anglo-Saxon varieties of liberal capitalism. If the liberal gold standard judged against the German Sonderweg and Meji th conservatism was mid-19 Century Scottish liberalism, which should by no means be equated to th liberal practices in the UK in the 19 Century in terms of the regulatory state, for example (compare Grimmer-Solem 2005), post WWII opposition between liberal market economics and coordinated capitalism likewise suffers from a selective perception of both economic ideas and institutions. Furthermore, Lehmbruch’s attention to German influences in Japanese economic thought and institution building before WW II and his careful examination of the hegemonic discourse coalitions in Germany and Japan is not followed up in the post war reconstruction. Here Lehmbruch’s interest in a strong path dependent development argument led him to underestimate ordoliberal influence in the post-war concept of the social market economy and in the institution building in Germany and the European Communities. Although neoliberals in Germany and the EC were not hegemonic during the 1950s and 1960s, there influence was considerable in important areas partly because it was backed by the U.S. emphasis on a market economy and openness, secured by international institutions like the GATT. The mix of coordination and market prerogatives really is what makes the German case interesting. Many years later, the British conservatives looked at post-war Germany and the social market economy concept as a model for Thatcherism: privatization, competition between private enterprises, but also between private and public commercial entities made Germany (or Switzerland) an arguably more liberal economy than the British welfare capitalism before Thatcher, for example.

Lehmbruch’s story of strong continuity of bureaucratic elites, managerial capitalism and the rise of the J-Firm after WW I is likewise focused on elements of coordination in support of the central argument. Much like in his discussion of the German case, he does not totally neglect possible counter evidence like the Dodge line and the destruction of the radical industrial trade unionism, but 17

the restrictions to company unionism and the rise of the export oriented economy are not considered in terms of possible neoliberal influence, possibly akin to the confluence of domestic neoliberal perspectives and American interests (as expressed in the Dodge line). Both the field of labor relations and the field of international trade in any case are promising areas to look for influential contributions from Japanese neoliberals. Among the Japanese contingent of Mont Pèlerin members, many came from the private sector in addition to academics. Nobutane Kiuchi, a president of the Japanese Institute of World Economy from 1955 onwards, for example, served as economic adviser to several post-war cabinets. And the Japanese sample of MPS members includes high ranking political leaders like Takeo Fukuda, a long time minister (of finance, agrigulture and foreign affairs) and one time prime minister or Toru Haguiwara, a high level diplomat (MPS database, additional research by Tamotsu Nishizawa). Like in the case of Ludwig Erhard and other MPS members in government, high ranking political positions alone are not sufficient to claim neoliberal hegemony since neoliberal positions may compete with other influences in government, but it is quite unlikely to find MPS members in high leadership positions in business and politics apart from the academic world, and to find little or no influence of organized neoliberalism in Japan.

Was there really no German influence? Maybe not strictly German, but the Mont Pèlerin Society included German, American, and Japanese members among others, and the discussions at MPS meetings as well as the flow of publications through MPS circles make for quite likely influences across these channels. Wilhelm Röpke in particular was no alien in Japan, and ordoliberal ideas were on the mind of Kazutaka Kikawada, an influential corporate and business association leader. Max Bank’s (2013) method of looking at the evolution of the sample of German MPS members to detect the widening networks of German neoliberals could be applied to Japan followed by a closer look into some of the important policy debates around post-war economic and political institutions of the Japanese industrial and trading nation. A leading export nation with limited domestic resources is almost doomed to pursue neoliberal open economy perspectives if the imperial control over vast territories attempted by the fascist leadership is no option. A developmental state without strong unions and limited welfare appears to be not such a bad option on the road to world market integration, and may turn out to be a leading neoliberal variety of capitalism even if there is a higher dose of coordination of economic activities than in the United States or the United Kingdom, for example.

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