Economic and political governance in Germany's social market economy

Abstract

Germany's system of economic and political governance strongly relies on group decision-making and consensus to solve economic issues. This approach relates to a wide spectrum of decisions, including the social partners with the trade unions and the employers' associations in wage formation, the trade unions in the governance of firms through codetermination and the workers' councils in the operation of firms, but also to relationship banking and to the steering of the university system by codetermination and by a governmental planning approach. In addition, in the governance of government and its federal structure, mechanisms of consensus are an important feature, above all through the joint responsibility of the Bundestag and the Bundesrat in law-making. Distributive federalism is another expression of the consensus mechanism. Looking at all these mechanisms, it is surprising how strongly the market economy is restrained in Germany.