Corporate Governance Versus Economic Governance: Banks and Industrial Restructuring in the U.S. And Germany

WZB Labor Market and Employment Working Paper No. FS I 95-310

51 Pages Posted: 22 Oct 2004

See all articles by Sigurt Vitols

Sigurt Vitols

WZB Berlin Social Science Center

Date Written: November 1995

Abstract

This paper critically examines the debate on corporate governance and the claim (often made in Anglo-American companies) that the close links between German banks and industry are primarily responsible for the longer-term investment strategies and greater quality competitiveness of German manufacturing. Instead, it is argued here that manufacturing investment and bank behavior must be examined within a broader system of economic governance. In particular, the regulation of labor markets is a key factor influencing company choices between price and quality-competitive strategies.

The corporatist regulation of German labor markets has encouraged quality-competitive strategies by keeping labor costs out of competition to a greater extent than in the US, where a collapse in pattern bargaining in core manufacturing industries and the strategic use of bankruptcy was motivated by companies' attempts to gain a comparative price advantage on the basis of lower labor costs. This argument is supported through a case study of the restructuring of the steel industry in Germany and the US in the 1980s.

Keywords: Financial systems, regulation, banking

JEL Classification: G2, G3

Suggested Citation

Vitols, Sigurt, Corporate Governance Versus Economic Governance: Banks and Industrial Restructuring in the U.S. And Germany (November 1995). WZB Labor Market and Employment Working Paper No. FS I 95-310. Available at SSRN: https://ssrn.com/abstract=607641 or http://dx.doi.org/10.2139/ssrn.607641

Sigurt Vitols (Contact Author)

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

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