View article

Since unification, the debate about Germany's poor economic performance has focused on supply-side weaknesses, and the associated reform agenda sought to make low-skill labour markets more flexible. We question this diagnosis using three lines of argument. First, effective restructuring of the supply side in the core advanced industries was carried out by the private sector using institutions of the coordinated economy, including unions, works councils and blockholder owners. Second, the implementation of orthodox labour market and welfare state reforms created a flexible labour market at the lower end. Third, low growth and high unemployment are largely accounted for by the persistent weakness of domestic aggregate demand, rather than by the failure to reform the supply side. Strong growth in recent years reflects the successful restructuring of the core economy. To explain these developments, we …