The Economy in Germany

The “Rhenish” model stands for the social restraint of capitalism; the Anglo-Saxon model for its unleashing. In an interview with goethe.de, the economic sociologist Richard Münch makes a plea for the preservation of cultural diversity – especially in respect to capitalism.

Professor Münch, to what extent is capitalism itself a cultural phenomena?

In his study on ascetic Protestantism and the spirit of capitalism, Max Weber showed that modern capitalism is a child of Western culture. Within this culture, in turn, the methodical-rational conduct of life, which took shape in the forms of Protestantism influenced by Calvinism, formed a decisive cultural basis for modern capitalism. The religious and the middle-class entrepreneurial way of life thereby entered into a symbiosis.

According to Weber, the entrepreneurial attitude towards the world, in which capital is invested so as to increase it rather than dissipated in a luxurious living, became a major cultural driving force of modern capitalism. He attached great importance to the distinction between corporate action carried on in well-planned and rationally controlled businesses using double-entry book-keeping and other forms of capitalism, particularly to what he called “adventurers’ capitalism”. This latter kind of capitalism is focused on speculation and short-term profit.

Has capitalism changed the cultural framework?

At the end of his study Weber draws a picture of a capitalism that, having reached its full expression in the nineteenth century, possessed such a life-determining power that it groomed exactly the type of human being it needed for the continued existence of the methodical-rational conduct of life. If the entrepreneurial culture was the creation of the commercial bourgeoisie, and if in the twentieth century the mass of the population was dominated by an employee culture, then currently we are experiencing the generalization of business culture for every man and every woman, down to “You Inc.”.

Conversely, don’t cultural peculiarities also shape capitalism?

Starting from its origins in the industrial revolution in England of the last third of the eighteenth century, and as part of its global expansion, modern capitalism has entered into unique connections with the cultural traditions of each of the countries where it has gained a foothold. The early days of the German Empire at the end of the nineteenth century brought forth a different form of capitalism from that in England, one in which the state and the banks in particular played a crucial role as midwives.

Thus it is still clear today that capitalism has, in each case, a specific symbiosis with different cultural traditions. The prime example in the 1980s was Japan, after Japanese products conquered the United States and Europe, especially the car and electronics markets. The “total quality management” and production principles such as “zero buffers, zero defects” that management researchers discovered in Japan became the guidelines of corporate management in America and Europe.

Cooperation and conflict – a question of culture

What exactly are the differences, about which we hear so much, between the Anglo-Saxon model and so-called “Rhenish capitalism”?

Social market economies are primarily oriented to incremental innovation, that is, to perfecting existing technologies (for example, in automotive engineering and tool making); liberal market economies to radical innovation – for example, to the introduction of new technologies such as micro-electronics and bio-technology. The focus on incremental innovation is combined with a long-term credit financing by banks associated with the businesses – what has been called “Germany Inc.” – with a social partnership between employers and unions, structuring of the labor market by vocation training, professional careers, long-term employment and the cooperation of companies in promoting technological progress.

The typical institutional arrangement for radical innovation, on the other hand, is financing companies through the free capital market, conflict-ridden relations between employers and unions, the greater role of general education with higher flexibility in employment, and competition among companies for patents, which aims at preventing competitors from entering the market.

Cultural diversity is necessary for survival

And how does culture affect the form of the economic system and management

The different cultures of capitalism that I’ve sketched each imply a specific form of management. In German or “Rhenish” capitalism, co-determination and work councils stand for a form of management that sees employer and employee in a comprehensive social partnership and mutual responsibility. Changes in the company are therefore always undertaken in consultation with representatives of the workforce. In the liberal capitalism of the United States, the relation between management and workers is seen as one of human resource management, which is directed to the individual employee and not to the workforce as a whole. Here people are hired, promoted and fired on a short-term basis. In the Japanese model, decisions are made by consensus and in consultation with company unions, which makes the decision-making process very slow.

Can cultural conditions curb capitalism?

Cultures form capitalism and are formed by capitalism. The Rhenish culture has harnessed capitalism more than the Anglo-Saxon has done. But since the 1990s, globalization of the economy has led to a significant invasion of neo-liberal reforms in previously conservative or social democratic countries and so brought liberal variants of capitalism to worldwide dominance. The world finance crisis of 2008 has clearly shown the risks of the homogenization of capitalism. This suggests that the preservation of cultural diversity is in every sense a necessity for the survival of mankind.