Alternative Corporate Structures: Rhine Capitalism

1
Alternative Corporate StructuresRhine Capitalism

• Professor Stephen BlankHEC, Summer 1999
  Session 4 ab
• May 28 29
• 600-845pm 900am-12 noon

2
Germany after WWII

• The impact of political instability in the 20th
  century
• Key goals Economic recovery, political stability
  and international acceptance
• Focus on financial economic stability
• Continuity of key institutional arrangements in
  German economy

3
The Rhine Model The structure of German
capitalism

• The Social Market economy
• Neither liberal capitalist nor social democratic
• Markets Negotiable mixed goods
• The social welfare state
• Social partners The social responsibilities of
  enterprise and labor
• Organized private enterprise The role of
  government (German as an enabling state)

4
The Rhine ModelThe structure of German firms

• Large firms and the Mittelstand
• Bank capitalism
• The absence of equity culture in Germany
• Stable ownership shareholders in the German
  system
• The role of banks Financial leverage
• The culture of management

5
Workers in the Rhine Model

• The loyalty factor Workers organization
  training long term employment participation in
  management
• Co-determination
• Wage negotiations
• Supervisory boards
• Works Councils

6
Corporate governance in the Rhine model

• Mutual-interest networks
• Two-tier boards
• Stakeholder representation
• Co-determination
• Stakeholder not shareholder focus

7
German business strategyA high cost (taxes,
wages, social benefits) system with high levels
of unionization How does it work?

• German business strategy High productivity
  high quality products high value-added work
  high levels of innovation High wages high
  social benefits

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Assessment The Rhine Model

• Value on growth and expansion as ends in
  themselves
• German economic recovery, performance in
  post-WWII world

9
Ach so

• The German model is a distinctive form of
  capitalism "based on the intentional blurring of
  boundaries between business and society, the
  private sphere and the public sphere, markets and
  politics.
• What look like "rigidities"--constraints on
  managerial power--at the level of the individual
  company turn out to be powerful sources of
  flexibility for the German system as a whole.
• (From Weaver and Allen, "Is Germany a Model for
  Managers?)

10
Questions

• First question Ordo-Liberalism Is this
  capitalism?
• Yesterdays Question Is the Rhine Model a model
  for the future?
• Todays Question Can the Rhine Model survive? Or
  is the model broken?