Choosing Lesser Evils: the Role of Business in the Development of the German Welfare State from the 1880S to the 1990S

Department of Political and Social Sciences Choosing Lesser Evils: The Role of Business in the Development of the German Welfare State from the 1880s to the 1990s Thomas Paster Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Institute Florence, June 2009 EUROPEAN UNIVERSITY INSTITUTE Department of Political and Social Sciences Choosing Lesser Evils: The Role of Business in the Development of the German Welfare State from the 1880s to the 1990s Thomas Paster Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Institute Examining Board: Professor Sven Steinmo, EUI (supervisor) Professor Martin Rhodes, Univ. of Denver & ex-EUI (co-supervisor) Professor Colin Crouch, Univ. of Warwick Business School Professor Anke Hassel, Hertie School of Governance, Berlin © 2009, Thomas Paster No part of this thesis may be copied, reproduced or transmitted without prior permission of the author. b Acknowledgements This thesis has been long in the making and it seems almost like a miracle that I am now finally bringing this big project to an end. Late in my second year at the EUI I returned from a field mission with a disillusioning sense that my original hypotheses, which centered on presumed sectoral variations in interests, were either untestable or unfounded. What I found empirically turned out to be at odds with my initial expectations in important ways and pointed me to the possibility that the organizations I intended to study were following a very different logic of reasoning than what I had initially assumed. I became disillusioned about the explanatory potential of models that, in my understanding, were building overly on clearly defined and hard-wired material interests. Instead, I came to understand the political reasoning and interest perceptions of the actors I intended to study (something also called “preference formation” in this thesis) as being in some important sense filtered and shaped by the political environment they operate in. As a result, the final product now looks considerably different from what I had originally intended. It is the result also of many iterations of inductive and deductive reasoning. There is a long list of people to whom I am indebted and who, in different ways, helped me to tackle the challenges the thesis project involved and without whom the thesis in its present form could not be written. I am deeply indebted to Professor Sven Steinmo, my main supervisor during the crucial final two years of the thesis. Without his guidance I would probably not have managed to bring the project to an end. Sven advised me on my thesis already from the second year of my research and he accepted to become official supervisor towards the end of the third year. He did an excellent job: he carefully read countless draft chapters of my thesis and gave detailed and thoughtful comments on them. I thank him for consistently pushing me to make a clear and simple argument, and to abstract from my case and speak to broader theoretical debates. His encouragement and intellectual questioning has greatly helped me to improve the argument. I would also like to thank Professor Martin Rhodes for his support. Martin was the original supervisor of the thesis and after my switch to Sven accepted to continue to serve as co-supervisor. Martin left the EUI to move to Denver after my first year at the EUI, which clearly made communication more difficult. Despite this transatlantic gap, Martin went to great length to make sure that I made good progress with my thesis and that I did not get bogged down in unpromising tracks. His sense of pragmatism has perhaps been crucial in compensating for my own lack thereof and greatly helped me to bring this project to an end. I would like to thank also Professor Colin Crouch and Professor Anke Hassel, who agreed to serve as external members on the thesis jury. Their comments have helped me to clarify and strengthen the argument of the thesis. I hope I have been able to do justice to their criticisms at least to some extent. i I would like to thank also Emmerich Talos, the supervisor of my master thesis, who, with his critical intellect, spurred my academic research interests. I also thank Claudius Wagemann for his careful advice that helped me to get accepted at the EUI in the first place. Many colleagues have, at different stages of the research project and in different ways, provided useful advice and feedback, by commenting on work in progress, discussing aspects of the research project with me and making valuable suggestions for developing the project further. I hesitate to single out some, lest I slight others. Nevertheless I would like to thank at least those whose advice has been particularly useful. To the many colleagues that generously provided advice and suggestions that helped me to advance the research project belong, in particular, Peter Biegelbauer, Ane Daguerre, Caroline de la Porte, Eva Heidbreder, Gerda Falkner, Marcel Fink, Virginie Guiraudon, Andrea Herrmann, Takeshi Hieda, Evelyne Hübscher, Martin Kohli, Johannes Lindvall, Georg Menz, Espen Olsen, Herwig Reiter, Patrick Scherhaufer, Vivienne Schmidt, Ingmar Schustereder, Steve Schwarzer, Michael Shalev, Catherine Spieser, Oliver Treib, Timo Weishaupt, Nick Ziegler, Annika Zorn and Jan Zutavern, as well as participants of Prof. Steinmo’s political economy seminar at the EUI in 2007. Of course, the responsibility for any imperfections in the work rests entirely with me. The EUI provided me with the ideal working environment for writing a PhD thesis and this is not least because of the excellent services provided by its staff. I would like to thank in particular Marie-Ange Catotti, Maureen Lechleitner and Gabriella Unger at the SPS department for their excellent support; Nicky Owtram at the Language Centre for greatly improving my academic writing and correcting uncounted numbers of pages; David McCourt for correcting the final draft of the thesis; Ruth Gbikpi from the library for greatly facilitating my research by providing excellent interlibrary loan service; Thomas Bourke, who generously helped me with his enormous knowledge of data sources; and Michiel Tegelaars, with whom I discussed and solved even the most intricate problems of bibliographic software. My more than four years of work on the thesis and the involved field missions were made possible by a three-year post-graduate grant from the Austrian Ministry of Science and the mission funding and 4 th year finishing grant provided by the European University Institute. Finally, I would like to express my gratitude to my friends and fellow researchers who have made the otherwise solitary experience of writing a PhD thesis a great experience and have helped me to get out of the “dissertation dumps”, in particular Yordanka Chobanova, Nicole Dörr, Wojciech Gagatek, Mario Kölling, Matthieu Lietart, Georgia Mavrodi, Christa Putz, Alexis Rappas, Herwig Reiter & Vaida Jasuikaityte, Georg Sommeregger, Dionysia Tamvaki, Joost Van Spanje, Michael Vorisek and Annika Zorn plus family. Last, but definitely not least, I wish to thank also Tomas Reiter for his enduring friendship and support. ii Abstract This thesis is an empirical study of the role of organized business in the formation of market- correcting industrial relations and welfare state institutions, relying on a historical-diachronic case study of welfare state development in Germany from the 1880s to the 1990s. How did the formation of the “German model” become possible in the face of employers’ structural power? The thesis confronts two alternative theoretical perspectives for explaining employers’ acceptance of market-correcting institutions: an economic-functionalist explanation (“cross-class coalition thesis”) and a political- strategic explanation (“political accommodation thesis”). The first one focuses on economic benefits derived by specific types of firms from welfare state and industrial relations institutions, the second on political constraints and changes in the political power structure, and employers’ strategic responses to them. The thesis finds that the political accommodation thesis has greater explanatory power and challenges business interest-based explanations of welfare state development. The empirical analysis in the thesis traces the preferences (interest perceptions), strategic considerations, and resulting policy positions of the national employer federations in Germany during three different political regimes: the Wilhelmine Empire (1871-1918), the inter-war Weimar Republic (1918-1933), and the post-war Federal Republic (1949-1990s). The analysis focuses on those historical reform events that, in retrospect, came to shape welfare state and industrial relations institutions in Germany. Process analysis based on historical sources and diachronic comparison are used as methods to reconstruct (i) the motivations of employers for supporting or opposing specific policy options, and (ii) the socio-political and institutional environment within which employers formed their preferences and strategies. The thesis uses Germany as a crucial case study because of the paradigmatic character of this country as a type of non-liberal capitalism that is often understood to benefit certain types of firms today. Empirically, the thesis finds that employers tended to play a constraining role in the development of industrial relations and welfare

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