Foreword: Status of the Documentation

(1)

discussion papers

FS I 89 - 16

NO WAY TO FULL EMPLOYMENT?

The full documentation of the reports, papers, and contributions presented and addressed to an international conference by LME's research area 'Labour Market and Employment^I (LME) in Berlin from 5th July to 7th July 1989

Egon Matzner (ed.) Volume I

December 1989

ISSN Nr. 0722-673 X

Reports, papers, comments, dicussions by

Ambrosi . Appelbaum . Auer . Bhaduri . Beuschel . Blaas . Boyer . BUchtemann . Dercksen . Deutschmann . Ekstedt . Fischer . Funke . Grabher • Granovetter . Gyekiczky . Hanappi . Hankel . Herr .

Hodgson . Holland. Kalmbach . Kregel . Kromphardt . KUhl . Leminsky Mahnkopf . Maier . Matzner . Mertens . Mosley . Odhnoff . Pichierri . Reissert . Rosner . Rothschild . Scharpf . Schettkat . Schmid . Scholz Schulmeister . Schulz . Schwanse . Semlinger . Sengenberger . Skott Sorge . Soskice . Spahn . Steindl . Streeck . Viklund . Vobruba Wadensjo . Wagner . Walterskirchen . Watt. Willenbockel . Zapf

Forschungsschwerpunkt Arbeitsmarkt und Beschiiftigung' (IIMV) Research Unit

Labour Market and Employment (IIM)

(2)

Content Volume I

Foreword: The Status of the Documentation by Egon Matzner

Welcome and Introduction Welcoming Address

by Egon Matzner, Director of LME

by Wolfgang Zapf, President of the WZB

by Barbara Riedmüller-Seel, Senate of Berlin Introduction to the Conference

Why Still Full Employment Research?

by Egon Matzner

1st Session: On Effective Supply Conditions Chairman: Werner Sengenberger

1.1 On the Social and Political Conditions of Diversified Quality Production

by Wolfgang Streeck

Summary of the Discussion

by Barbara Schulz and Andrew Watt

Contributors: Hodgson, Skott, Zapf, Wagner, Auer, Semlinger, Holland, Sengenberger Written Comments:

Robert Boyer Klaus Semlinger Peter Skott

1.2 Labour Markets, Employment and Organization:

Japan and West Germany in Comparison by Christoph Deutschmann

Contributors: Sengenberger, Skott, Holland, Scharpf

3 5 9

11

29

31

77

80 81 85

91

109

(3)

1.3 Against De-Industrialization:

A Strategy for Old Industrial Areas by Gernot Grabher

111

133 Contributors: Sengenberger, Granovetter, Ekstedt,

Hodgson, Wagner, Pichierri, Hanappi Written Comment:

Eskil Ekstedt

Klaus Semlinger (see above l.l, page 81)

136

1.4 Further Papers Presented at the Conference 140 Sectoral Employment Structure, Company Strategy

and Human Resources. Interpreting Cross-National Comparisons of Industrial Microelectronics

Applications 140

by Arndt Sorge

Toward a Qualification-Oriented

Modernization of Trade Union Policy 175

by Birgit Mahnkopf Written Comment:

Birger Viklund 187

Expert Systems and Changes of Work Organization and Job Skills. Research Issues Concerning

the Impact of Artificial Intelligence-Technologies 194 by Werner Beuschel

2nd Session: On Effective labour Market and Social Policies 213 Chairman: David Soskice

2. 1 Trends in Employment and Labour Market Policy:

An International Overview by Peter Auer

215 Summary of the Discussion

248 Contributors: Dercksen, Fischer, Scholz, Wadensjö

Written Comments:

Wi 11em Dercksen Georg Fischer Dieter Mertens

250 252 257

(4)

2.2 On the Institutional Pre-Conditions of Effective Labour Market Policies

by Günther Schmid and Bernd Reissert

297 Contributor: Schwanse

Written Comments:

Willem Dercksen Tamás Gyekiczky Jürgen Kühl

Dieter Mertens (see above 2. l, page 257) Wolfgang Scholz

Peter Schwanse

299 301 320 326 332

2nd Session (Continuation)

Chairman: Angelo Pichierri

337

2.3 Technological and Structural Change:

Impacts on the Labour Market by Ronald Schettkat

359 Contributors: Mertens, Sengenberger, Deutschmann,

Rothschild, Auer, Ambrosi Written Comment:

Dieter Mertens (see above 2.1, page 257)

2.4 More Jobs Through Less Employment Protection? - Lessons from an Evaluation of the West German

"Employment Promotion Act 1985" (BeschFG 1985) by Christoph Büchtemann

392 Contributors: Skott, Auer, Rothschild, Fischer,

Sengenberger Written Comment:

Dieter Mertens (see above 2. l, page 257)

(5)

2.5 Employment and Industrial Restructuring:

A Comparison of the US and West Germany by Eileen Appelbaum and Ronald Schettkat Summary of the Discussion

Contributors: Kalmbach, Ambros;, Scharpf, Stille, Skott, Walterskirchen, Semlinger

Written Comment:

Gerhard Ambrosi

2.6 Part-Time Work, Social Security Protections and Labour Law: An International Comparison by Friederike Maier

Contributors: Fischer, Büchtemann, Rosner, Wadensjö, Written Comment:

Wi 11em Dercksen

2.7 Further Papers Presented at the Conference The Social Dimension of European Integration by Hugh G. Mosley

Employment Policy in a Federal System:

Options and Restrictions by Bernd Reissert

Redistribution of Work and Income in the Crisis: Actors· Problems of Working Time Reduction and a Guaranteed Basic Income by Georg Vobruba

394 449

453

457 476

479

481

512

518

(6)

Volume

II

3rd Session: On Effective Demand Conditions Chairman: Kurt W. Rothschild

531

3. 1 Balance of Payment Restrictions and Options of Fiscal Policies: Theory and Results from an International Comparison

by Hansjörg Herr

533 573 Contributors: Hankel, Spahn, Hanappi, Kregel,

Scharp, Skott, Schulmeister Written Comments:

Robert Boyer Jan A. Kregel Jürgen Kromphardt

577

578 584 3.2 Exchange Rate Instability and the Hard Currency

Option. A Proposal of Monopolistic International Policy Coordination

by Heinz-Peter Spahn

607 Contributors: Wagner, Scharpf, Hankel, Herr,

Holland, Kregel Written Comments:

Robert Boyer

Jan A. Kregel (see above 3.1, page 578) Jürgen Kromphardt (see above 3. l, page 584) Kurt W. Rothschild

609

611

3.3 Further Papers Presented at the Conference

Asset Prices and Real Investment in West Germany:

Evidence from Vector Autoregressive Models 614 by Michael Funke

Mercantilistic Strategies, Cooperation and the

Option of the European Monetary System 639 by Hansjörg Herr

(7)

Competition between the D-Mark and the Dollar.

The Policies of the Bundesbank in the 1970s and 1980s

by Heinz-Peter Spahn

673

Tax Reform and the Dynamics of Business Investment:

The Q Model in Motion 705

by Dirk Willenbockel

4th Session: On Effective Employment Policies and Institutions 751 Chairman: Jan A. Kregel

4.,1 Relaxing the International Constraints to Full Employment

by Amit Bhaduri and Egon Matzner

753

Summary of the Dicussion

767 Contributors: Holland, Steindl, Rosner, Hankel

Written Comments:

Robert Boyer Jan Kregel

Jürgen Kromphardt (see above 3.1, page 584) Josef Steindl

770 771 774 4.2 Balanced Innovation Policies. The Macroeconomic

Trade-Off between Employment Growth and Speed of Industrial Innovation in the Federal Republic of Germany

by Gerhard Hanappi and Michael Wagner

812 Contributors: Hodgson, Skott, Bhaduri, Spahn, Schmid

Written Comments:

Robert Boyer

Ewald Walterskirchen

814 820 4.3 Further Papers presented at the Conference

An Essay on Exchange Rate Dynamics by Stephan Schulmeister

823

(8)

5th Session: Toward a Context for Full Employment Chairman: Jan A. Kregel

907

5. 1 Institutions, Policies and Employment by Egon Matzner

955 Contributors: Scharpf, Hanappi, Hodgson

Written Comments:

Robert Boyer Geoffrey Hodgson Jan Kregel

Dieter Mertens (see above 2. l, page 257) Fritz W. Scharpf

957 958 965 975 5.2 An Afterthought to the Conference

by Egon Matzner

982

Appendix: Reports on the Conference

Arbetslivscentrum Stockholm Wiener Zeitung

WZB-Mitteilungen List of Participants

985 987 991 998 1001

(9)

(10)

Foreword: Status of the Documentation

This publication documents in two volumes the proceedings of the final conference of the old research area 'Labour Market and Employment' (LME) of WZB. It took place at the WZB from 5th to 7th July 1989.

The documentation's content consists of:

l. the reports presented by the speakers and the (guest) fe 11ows at the conference in written or oral form;

2. the contributions to the discussion in a summarized form;

3. the written comments by participants.

The papers of the (guest)fellows aim to give a representative picture of the results of the research period 1984-89. The papers should, in addition, demonstrate that research at LME reflects important interdependen- cies of the 'real world', and interdisciplinary and comparative analysis under one roof allows synergy-effects to be achieved in a planned way.

Thi s documentation attempts a fi rst overvi ew of the work at LME up to 1989. It will be followed by a progress report (in German) and a book with a selection of those papers whose analytical content is particularly

relevant to understand and resolve the (un)employment problem.

I should like to convey my thanks to all who cooperated in this enter- prise: to the colleagues, research fellows as well as the non-scientific colleagues, who were all indispensible co-organizers and co-producers of these volumes; to the guests who participated in the conference and, in particular, to the great number of authors of comments; to Ms. Angelika Zierer-Kuhnle, who produced the final version of the text, and to Mr.

Hecker who reproduced it.

(11)

The success of the conference and the production of the documentation would not have been possible without the skill and competence of Ms. Hannelore Minzlaff. Her contribution demonstrates once more her ability in coping with difficult tasks.

Berlin, 29th September 1989

Egon Matzner

2

(12)

Welcoming Address

by Egon Matzner

Ladies and Gentlemen,

This is the final conference of the old research area 'Labour Market and Emp 1oyment I of the WZB. I had the honour to be its director from 1st October 1984 to 30th September 1989. I am grateful to all who followed my invitation to this conference in which we shall present a selection of our results, which hopefully will contribute to an improved understanding of the problem of unemployment and a way to reduce it.

In October 1985, shortly after I had taken on the position as a director, I organized, together with Professors Kregel and Roncaglia, a conference on the research programme of LME: It is documented in a book published in English (Barriers to Full Employment. Basingstoke: Macmillan 1988) and in German (Arbeit fUr alle ist möglich. Ober ökonomische und institutionelle Bedingungen erfolgreicher Beschäftigungs- und Arbeitsmarktpolitik.

Berlin: edition sigma 1987). The invited speakers dealt then with the topics of our research programme and fellows of LME commented.

In this conference the organizing principle is reversed: My colleagues as well as guest researchers 1ike Ei1een Appel baum, Amit Bhaduri, Gerhard Hanappi and Michael Wagner present results of their research: The participants are invited to give their critical comments. The proceedings of this conference will, again, be documented and published.

I am glad that some of the speakers and participants of the initial conference (Kregel, Rothschild, Soskice, Steindl and Walterskirchen) as well as members of LME's Advisory Board (KUhl, Leminsky, Mertens, Odhnoff) are with us.

(13)

And I appreciate that also my predecessor as director, Professor Fritz W.

Scharpf as well as my successors, Ms. Hedwig Rudolph, Mr. Günther Schmid and Mr. David Soskice, are among us. Two of them also contributed to the first conference.

Before I shall start my introduction to the conference, I should like to ask Professor Zapf, President of WZB, to address this conference.

(14)

Welcoming Address

by Wolfgang Zapf

Ladies and gentlemen, dear colleagues,

Let me cordially welcome you to the WZB and this conference of the labour Market and Employment Research Unit. My special regards go to our guests from other institutions and other countries who again make the WZB an international social science centre. I want to make four brief comments on

- the location, - the occasion, - the actors and

- the topic of this conference.

Location. You are here in a historic building and in a beautiful room.

This was the court room, from 1894 on, of Imperial Germany's social legislation. The restorated old part of the WZB-building was the site of the Imperi al soci al security admi nistrat ion, a real innovation at the time, but in its fusion of the administrative and the judicial functions, also the expression of delayed separation of powers and delayed democracy in Germany. The total WZB-ensemble, from the British architect James Stirling, was given to us last year. The WZB has today about 200 people (some 80 permanent economists and social scientists, some 60 staff, and about 60 guests, visitors, students etc.). They are working in the fields of labour market and employment; work, technology and environment; social movements and political institutions; industrial economics; health;

international relations; and social reporting. Please, explore this stimulating post-modern building and bring the yard to life.

(15)

Occasion. The occasion of this conference is not the end of the labour market and employment unit. The occas ion is the end of Egan Matzner's program period. We shall discuss on Friday afternoon the new program period, and how the elements of continuity and innovation shall be mixed.

This conference is an effort to present LME's achievements; it is a performance and achievement test but a voluntary one.

Institutes like the WZB, with regular public funding, don't have regular site visits and peer review, say every three years, like in other programs. Therefore, we have to look for other ways of evaluation - in addition to refereed projects and publications: that is not a legitimacy problem but an organizational and communications problem. The LME unit got excellent marks end of 1987 by a review commission, and I have no doubts that its work since - inc1 uding the work presented at thi s conference - has proved its achievements. If you like it, we could discuss also the evaluation problem briefly on Friday.

The actors. The actors in this conference are all, or nearly all, of the U1E fe 11ows, together with former fell ows and criti ca 1 co 11eagues from abroad. It is by accident that I was the de facto chairman of the committee wh ich chose Egan Matzner to follow Fritz Scharpf in 1984. It was Egnon Matzner's own decision not to renew his application for a directorship, for which we have asked him. But he will continue his work as a senior researcher at the WZB - and we are looking forward to that new type of his input and output. As to the actors of LME let me first praise all the junior fellows and staff and then single out five senior fell ows:

Sabine Gens;or

Christoph Deutschmann Arndt Sorge

Heinz Peter Spahn Wolfgang Streeck

who have left the WZB in order to accept honorable university chairs. How can you let such excellent people go? I say, that's the way it is and has

(16)

to be! We lose them, we miss them - but they will be, I am sure, highly productive in their new environments, they will spread the WZB reputation, and from the WZB1s point of view this is an investment into networks. I am quite sure that we shall keep contact with all our former fellows, that they wíll be back frequently, that they will be in contact with the new fellows, and that the profession and the WZB will, after all, not lose but win by professional mobility.

The topic. I shall not interfere with Egon Matzner1s introduction to the topic of this conference. But I shall read to you the advisory board1s characterization of LMEls contribution:

U1E differs from research institutes and centers outside WZB by the importance given (i) especially to international comparison, (ii) to the interdisciplinary organization of research, and (iii) to the integration of the micro-, meso- and macro-levels. It is the integration of these elements and the strict concern of research with labour market processes and the volume and quality of employment opportunities which define the profile of LME compared to other research institutions.

I hope that this statement describes LMEls past, present and future contribution. And in this sense, I wish you - I wish all of us - a productive, stock-taking, future-oriented conference!

(17)

(18)

Welcoming Address

by Professor Barbara Riedmüller-Seel, Senator for Science and Research, Berlin, Reception at the Hotel Berlin, 5th July 1989

Gentlemen and Ladies,

It is a pleasure for me to welcome you as guests of the Senate of Berlin to this reception. It is a pleasure for several reasons:

First, you are discussing a very serious problem. As you know, Berlin has an unemployment rate which has stayed at la percent since 1983. This ;s a loss to the individuals concerned. It is a waste of talents and harms the individuals' self-esteem. It is a political danger too, as there is no doubt that the breakthrough of the neonat iana1ist "Repub 1i kaner" in Berlin has a great deal to do with the anxieties which exist in a society with high unemployment and increasing immigration. For all of these reasons, constructive suggestions which result from five years of labour market research at WZB are highly welcome and will receive careful attention by the Senate of Berlin.

Second, I am glad that your conference has found such a great response in the international scientific community. I welcome particularly our guests from abroad. Its international character is one of the comparative advan- tages of WZB, and I hope that it will be continued by the new directors at LME.

Third, I noticed with pleasure that, if one looks carefully at the programme of the three days' conference, one can discover two women among 25 speakers and chai rpersons! That is a quota of 8 percent! Isn 't that great? If you allow me a dream: I have a dream that it will not take too long to arrive at a situation where the full representation of scholarly women will go without saying. I am glad to hear that there is at the WZB

(19)

a women's group, which is actively striving for an improvement of women's representation. They know that dreams alone cannot achieve this.

Fourth, I am glad to welcome colleagues and friends whose research activities I shared until my recent appointment as the senator respon- sible for universities and research institutions in Berlin. You, therefore, will understand that my interest in your conference is a scientific and a political one. I regret that my new commitment does not allow my active participation. I can assure you that the results of your discus- sions will receive my particular attention also as a political woman.

This refers, in particular, to the prospects of service employment in the USA and West Germany investigated by Ms. Appelbaum and Mr. Schettkat.

Also, part-time work arrangements in European countries which were studied by Ms. Maier, are of special relevance. Last but not least, I am particularly interested in the employment effects of innovation policies, simulated by Mr. Hanappi and Mr. Wagner.

Finally, let me say: I am greatly impressed by the research work done at LME during the last five years and before. I am glad, therefore, that the desi gnated directors at LME promi se to conti nue the high quality of problem oriented research which was so successfully initiated and developed by Professors Scharpf and Matzner.

I was told, that among the three designated new directors there ;s the first - I repeat it slowly - the first appointment of a woman as a director at \lIZB. I woul d be glad if thi s trend coul d be enhanced in the foreseeable future under the able presidency of Professor Zapf.

Gentlemen and Ladies! I wish you stimulating days in Berlin, in and outside the WZB and hope you enjoy this evening!

(20)

Why Still Full Employment Research?

by Egan Matzner

Introduction

to the Conference on liNo Way to Full Employment?"

at WZB

from 5 to 7 July 1989

The author is grateful for critical support by Amit Bhaduri, Gernot Grabher, Hansjörg Herr, Günther Schmid, and Wolfgang Streeck.

(21)

(22)

Introduction

I shou 1d 1ike to introduce into the fi na 1 conference of my term as a director of the research area ilLabor Makret and Employment" about

- the aim of our research efforts and the motivation behind it (section I)

- the approaches which we pursued and the organization of research (section II), and

- the gains from interdisciplinary research (section III).

I.

When I succeeded Fritz Scharpf as a director of the Labour Market and Em- ployment Unit (then still International Institute of Management, Research Area Labour Market Policy) on 1st October 1984, I committed myself to direct a research programme which made Rudolf Meidner, then still member of LME's Advisary Board, to characterize LME as the only research institute he knew that still aimed at investigating the conditions of full employment.

vJhy sti11 search for a way to full employment? HavenIt mi 11ions of unemployed in DECO-countries been tolerated by democratic societies? Aren't there problems which arernore important than unemployment? Targets like disarmament, environmental protection, the struggle against poverty in the Third World or the abolition of racism and xenophobia?

I agree that these targets are more important than the abolition of in- voluntary unemployment in rich societies. This is, however, in itself no reason to consi der the unemployment problem in the advanced industri al countries (AICs) as unimportant. On the contrary: it can be argued that it will be easier to achieve disarmament, if those who work in the arma- ment industries find alternative jobs; that it will be easier to reduce eco 1ogiea lly damagi ng or dangerous producti on in the context of suffi-

(23)

cient job opportunities; that minorities will suffer from racism and xenophobia to a lesser extent, if all find work; and, finally, that at full employment in the AICs the Third World Countries will earn more from exports through both volume and better terms of trade, as it is easier for richer countries to allocate (more) resources for development pro- grammes in the poor countries. Enlightened politicians sometimes appear to have a better understanding of the value of full employment- which accrues to both the poor and the rich countri es- than we as scientists (cf. Schmidt 1988, Kreisky 1989).

In some parts of the world, e.g. in Sweden or Germany, the goals of economic growth and full employment have been questioned by ecologists argu- ing that by striving for these targets more damage to the environment and more drain on limited natural resources would occur. This need not be the case, however. Under the influence of the "oil prices shocks", of greater awareness for eco 1agica 1 destructi on, and of eco log;ea 1 catastrophi es, technologies which are both less resource- and less pollution-intensive have been developed and diffused. The new generation of automobiles which consume about half the petrol of those in use 20 years ago, are a case in point. In 1990, the transformation of primary energy in the AICs is slightly above the level of 1970s, though total output has almost doubled. More growth, as a matter of fact, increases the speed at which the ecologically superior technology is put into practice. There exist in addition possibilities for making a context which favours both environment and employment (cf. Leipert/Simonis 1985).

There are still good reasons to dedicate onels efforts to the search for a way to full employment. To cope with the unemployment problem in the 90s ts for Samuelson a particular challenge in which the state has lias the arbitrator the decisive role in the competition in markets- a role which the government of the Federal Republic neglects with its inambi- tious economic policy and the retarded economic growth following from tt"

(Samuelson 1989). Policy does matter! Some time before Samuelsonls judge- ment a similar conclusion followed from a comparative study by Rothschild

(1986) .

(24)

The a priori and a posteriori of LME's research have been that high unemployment is neither "natural" nor socially inevitable. ("Natural" rates of unemployment are at best to be conceived as epiphenomena; cf. Solow 1986: 533; Matzner 1982: 41, 1988: 299). A prioris, however, are not always well respected in the soci aland the natural sciences and yet they are unavoidable (cf. Myrdal 1928/1953, Fleck 1935, Schumpeter 1954).

Therefore it is only fair to make them in good Myrdalean tradition explicit.

This conference ts organized under the heading "No Way to Full Employ- ment?" Although the question mark signals that LME's results allow to give a positive answer, it has to be said that it is not unanimous. There are those who would argue that full employment is, if desirable, politically not feasible or if feasible, due to its social, psychological or ecological cost, not desirable. There is, in addition, the question of defining full employment. For some, full employment is a moving target (this formulation is owed to Wolfgang Streeck): Imagine that those regis- tered in Berlin (West) as unemployed all find jobs. Such a status in all likelihood will not be stable: the supply of labour will be induced to increase by higher participation and by migration, even immigration. Full employment has many complexions, too. I will not question that full employment is a moving target. The measure of unemployment/full employment has accord; ngly undergone signifi cant changes from Keynes and Beveri dge to the present. For our purpose a very pragmatic attitude suffices: Any increase in the number of job opportunities which meets the changing demand for jobs can be regarded to contribute to a path to full employment.

As long as the unemployment rate is in the range of 8 per cent, or more, definitional exactitude is not needed. As a rough measure a ratio of vacancies to unemployed of approximately 1 can be postulated (whereby, of course, due account has to be given to regional, sectoral or skill aspects).

(25)

II.

Let me make a few remarks on the scientific approaches which have been pursued.

Research at LME has been organi zed under a diset plinary and a cross- disciplinary aspect:

l. A strong attention was given to a sociological approach towards orga- nisational, technological, cultural and regional sources and precondi- tions of production and employment. Important results of this research will be presented in Session l.

2. The assessment of the impact of labour market and social policies by quantitative and qualitative methods of political and social sciences has been the largest area of research at LME. It will be presented in Session 2.

3. A new look at the scope of the constraints to fiscal and monetary policy, one of the main sources of growth and employment policies up to the 70ies which have been increasingly questioned was the third research field. It was investigated by a small group of economists which I initiated in 1984. The results will be presented under Sessions 3 and 4.

4. In Session 5 arguments taken from the discussion of LME's results are recollected for an essay towards a theory of comparative institutional advantage. In a second step the discussion is extended and suggestions for the making of a context conducive to full employment are presented.

The reports from LME-research will be presented to this conference under four headings:

(26)

- Effective supply conditions (2nd session), - Effective labour market policies (3rd session),

- Effective demand conditions (3rd and 4th session), and, - Effective institutions, policies (5th session).

There are two organizing principles behind this scheme: First, the idea is to start from the part to the whole, from the micro- and meso supply conditions, through the (partial) analysis of labour market policies to the macro-aggregation at the level of national or transnational economy.

Second, is the significance given to the notion "effective" (cf. also Clower 1963). It is used in this context with a twofold meaning. One is identical with the meaning given to "effective" in every day life. The other meaning transcends this in the sense given to "effective" in theories inspired by Keynes: "effective" includes an expectational dimension. "Effective supply conditions" are given, if an increase in effective demand can be met by the domestic suppliers in a competitive way.

"Effective supply conditions" are ~ given, if an increase in effective demand increases only imports and/or prices instead of domesti c output and employment. "Effective labour market policies" indicate the same twofold meaning: The given policies and their actual impact as well as the potential impact whose harvesting presupposes contextual changes. "Effec- tive demandII is the classical Keynesian concept. As already mentioned, this concept has a strong expectational connotation, reflecting the uncertainty inherent in the future in general and in (deregulated) markets of monetary production economies in particular. "Effective institutionsll

again are intended to mirror the twofold meaning of actual and potential effectiveness, sometimes only to be gained by institutional change.

The emphasis given to the study of instutitions is the most important cross-disciplinary aspect which has been common in all three disciplinary approaches.

Institutions in this context are - similar to technological devices - perceived as human artefacts. Irrespectively of how they may have emerged - by intention or by spontaneity (cf. Hayek 1978) -, they gain importance

(27)

as they assist in coping with societal problems, be they economic, social or political. As institutions establish themselves as problem solvers, they also feed the expectation of individuals in their capacity to do so.

Problem-solving capacity, its utilization and the experience connected with it embody accumulated knowledge essential for viable institutions.

Their societal impact results from the selectivity of institutions. By this very selectivity both a reduction of complexity and uncertainty tends to be achieved.

If there is one general answer which is substantiated explicitly or implicitly by LME-research, then it is the following:

Deregulation in the sense of substituting markets for non-market institutions increases uncertainty; it also increases the complexities of individual decision-making. In general this does not contribute positively to coping with societal problems.

This strong statement, however, need not be misinterpreted as equivalent to a plea for the freeze of the ;nst itutiana 1 status quo (nor of the technological status quo, either). On the contrary: Most AICs have entered an era of material maturity around the seventies: high average income, a high level of education, changing life styles, society's sav- ings increasingly exeeding its investment outlays (Steindl 1979): these are features of a passage to maturity corresponding to the real situation in countries like West Germany, Japan, France, Scandinavia or Austria.

They also tend to be often characterized by high unemployment, if no counter measures are taken. (The United States differ from the situation just described due to its role as emitter of the US-$, the most important international currency.)

It is worth remembering that in his war time reflections on the post war development Keynes cl early foresaw such a scenari o emergi ng around the 70s (cf. Keynes 1980, Guger/Walterskirchen 1988). Keynes also had a very clear vision about the challenge which a passage to maturity would pose to the employment question. Full employment then would require - accord- ing to Keynes - far reaching changes of institutions and of (employment)

(28)

policies. It;s evidenced by LME's research - to be discussed in this conference - that full employment will not follow from dismantling of institutions or deregulation. The more the financial markets come closer to the ideal of a pure competitive market (with transactions approximat- ing infinite speed, almost without transaction cost as in the pre-October 1987 Chicago Futures Market), the more they endanger the functioning of the real economy (cf. Schulmeister 198?). ~Jhat is required is not a blind faith in deregulation or privatization but policies based on an adequate knowl edqe of the interplay between institutions and markets (cf. Kregel 1980, Hodgson 1988).

The "institutional" approach has been at the centre of LME's research program both under my predecessor F.W. Scharpf (cf. Scharpf/Brockmann 1983) and during my directorship. The leitmotif of LME was summarized in its research program 1985-90 by the question:

",

Which institutional and economic conditions must be fulfilled in order to achieve a maximum of socially acceptable opportunities for employmen~ as a result of individual, collective as well as governmental action? (cf.

LME 1985)

Thi s program was evaluated in an ;nternat ^íona 1 conference organi zed in Berlin in 1985 (cf. Kregel/Matzner/Roncag1ia 1988). We promised in 1984 to contribute to an increase in the knowledge about societal interdepen- dance with relevance to the employment problem. In this we shared to an important part the ambition of the French "Ecole de Regulation" (cf.

Boyer 1988; Delorme 1988). While the LfvlE-Research Program always has given great emphasis to the mi cro-1 eve 1, the French approach tends to give greater weight to relations between aggregates.

Research at LME is characterized by its multi- and interdisciplinary approach, its empirical orientation with great stress given to comparative studies of institutions and policies. Such a research program has to carry a heavy load in terms of communication between disciplines and cultures as well as in terms of organization. The level of conflict is clearly higher than in monodiscip1inary establishments.

(29)

The human condition in multidisciplinary research resembles to some extent that which was said to be prevalent during the construction of the tower of Babel, at least in the reading of the biblical account given to it by a modern writer; I may give a full quotation:

"The biblical account is brief: A people wants to build a tower whose top may reach unto heaven, justifying this plan by say-

ing; "l et us make us a name, lest we be scattered abroad upon

the face of the whole earth. I The project fails, ending in the familiar linguistic confusion of Babel .••

Sim; 1ar occurences are fami 1iar to us in... the present as well. Scholars, economists, intellectuals, politicians, they all speak their special languages with the same words, talking at cross purposes. Floor by floor, an invisible tower ;s rising, a structure built of abstractions whose meanings have faded into the lofty distance •..

Something is happening in Babylon, something is running wild, spreading, rising "unto heaven", Perhaps the last word on Baby- lon has not yet been spoken. ~1aybe one day it wi 11 be possi b 1e to translate it from the confused tongues."

(Herbert Zand, IIDer Turmbau zu Babe 1" , in: Träume im Spiege 1, translated by Philipp Antal).

This wonderful account gives both relativity and weight to our efforts.

We agree- most of us at 1east- that anyone not refrai ning from the troubles of multidisciplinary research can gain insights which can not be obtained by monodisciplinary work. However, multidisciplinary work and communication are especially demanding activities: in terms of time, patience, courage needed to express onels ignorance, and - to disrespect the monodisciplinary disrespect towards interdisciplinary work.

~Jhat then are the gains from multi- and transdisciplinary trade? In a first and rough statement, I dare say that we economists can gain illumi- nation in our black boxes (cf. Steindl 1988: 350), while exposing in return the misplaced naturalism from which sometimes social scientists in other disciplines (as well as economists) are suffering. Let me explain this statement in more detail.

(30)

Example 1: The case of trade unions

Research on industrial relations both on the micro-, the meso- and the macro-level have shown that trade unions potentially and actually can contribute to effective supply conditions enhancing high skills, innovation, high competitiveness and high income. Trade unions are thus potentially one of those elements which improve performance. A similar conclusion has also been derived by deductive analysis although without empirical support (cf. Stiglitz 1987).

Example 2: The case of technology

In economics most of the time the role of technology is dealt with in an additive or residual way (t .e, in "black boxes"), and hardly ever in an explicit and integrative form. Qualitative and quantitative empirical studies show quite convincingly that innovation at the micro-level occurs in the course of a history and takes place in a distinct context. The speed of innovation as well as its impacts can only be specified if the past, the given and the changi ng contexts are taken into account. In other words, innovation is neither path-independent nor context free in any autonomous sense.

Example 3: The case of interactive structures in administrative effectiveness

As an economist one may concentrate, for example, on government's money dedicated to promoting employment in regions with high unemployment. By means of a multiplier model the increase in employment can be computed.

However, administrative insufficiency or inadequate "implementation structures II may lead to the paradoxical result that the poor regions do not apply for the funds while the rich ones absorb quickly as much as they can obtain. Without recognition of such a regional administrative disparity the predictive power of economic multiplier analysis will be greatly misinterpreted.

(31)

Example 4: What do supply and demand stand for?

As you may have 1earnt from the anthropo 1agica 1 study on the tri bes of the Econs which was presented by Leijonhufvud (1973) sometime ago, supply and demand are very important beliefs in the Econ religion. They are, however, only concepts constructed to serve an analytical purpose. Too frequently these concepts are used, as if supply and demand can neatly be separated in reality. This can be seen in the distinction made between supply and demand-side policies which has become important both in scientific debate and designing of economic policies. Nevertheless, we must be conscious that the separation of demand and supply is only an ana.lytical device, which in its turn is not always applicable (Stiglitz 1987) , I 1earnt about the inadaquacy of mi xing up analyt ica 1 concepts with the perception of reality also from my political science colleagues.

They explained to me the supply-side aspect of expenditure for selective labour market policies while I, in return, explained to them the demande- side aspects of the same programs. The supply and demand aspects exist jointly, not separately ;n the reality of such programs.

Example 5: Undersocialization in economic theory

While, and as reflected in most of the social sciences, economic actors when doi ng thei r work are ;n reality embedded in the social fabri c by manifold ties (M. Granovetter 1985, A. Etzioni 1988), most theories of Standard Economi cs are based on a fictiti aus construct, "the economi c manu which- bare of any social ties- is constantly engaged in maximizing its utility in a world of perfect foresight within constraints defined by scarce resources and institutions (including regulations), Through cooperation with social scientists, economists can escape from the pitfalls of undersocialized theories of Standard Economics.

There are, however, also cases in which the professional macro-economist can be of heuristical value in interdisciplinary research. It is a role which often raises irritation, as it has to do with the significance to

(32)

be attributed to the results of empirical research at the micro- or meso- level, be they achieved by case studies or interviews.

The ij!st important aspect of which a macro-economist will remind empirical social scientists (and "allout microeconomists" likewise) concerns phenomena not directly or easily observable like money and its inter- relation with uncertainty. Although uncertainty is an important element in major social theories, the organizing power and behaviourguiding in- fl uence typi cal of the uncertai nty connected with money seems to be underrated or neglected. Inspite of its cruci al importance for understanding, e.g. changes in investment, output and (un)employment of human resources (cf. Ginzberg 1985), uncertainty/money rank low in theoretical and empirical social science studies; perhaps because its role and its effect cannot be directly observed? (For one of the rare exceptions cf.

Streeck 1986.)

The second important aspect relates to the question whether the findings of micro-studies can be generalized or not. From a (Post) Keynesian perspective the answer to the social scientist may have to be negative. This has an important policy implication. For example, if by means of case studies the conditions under which an industry in West Germany, or, within West Germany, in the 1and of Baden-Württemberg, have become success stories, the researchers sometimes feel inclined to recommend everybody in West Germany or in Europe or in the world to become like the successful industry, to imitate or to follow the example of flexible specialization to be ooserved in Baden-Württemberg. Efficiency and excellence with respect to 'flexible specialization' (Sabel 1982) however are not suffi- cient for success. I shall like to explain my thesis by classifying the difference in the meaning of "effective" and "efficient",

Let me start with efficiency. This concept deals with an input-output relation and defines a specific locus of that relation as "efficient":

This is, as you know, the case if the value of the inputs to attain a given value of output is minimized, or vice versa. "Efficiency" of an agent, let's assume it to be a firm, is an abstraction. This becomes clear as soon as we recognize that a firm which theoretically is capable

(33)

tion to produce it. It will produce efficiently its ouput only if there are agents who buy its output. The sale of ouput, even that efficiently produced, presupposes effective demand to be actually produced and sold.

On the other hand: An addition of effective demand, let's say originating from public expenditure, will not necessarily create additional output and employment, neither directly nor indirectly. A positive addition in value and employment depends on the potential of the firms to produce and supply the demanded goods and services efficiently. This is what is meant by effective supply conditions.

This interrelationship can be illustrated by a simple analogy: Imagine a country where there is a system of waterways (which stands for the demand side) and imagine there is a shipbuilding industry as well as a shipping industry (which stands for an interrelated supply side). Imagine further that the ship builder produces efficiently ships and that the shipping industry even buys them. Although the shipping industry, too, operates efficiently, there is no guarantee that the existing ships plus the new ships can be put into operation. This depends on the dimension of the waterways and the level of the water.

On the other hand, there is no guarantee that an increase in the level of water and in the dimensions of the system of waterways will increase the sales of the shipbuilding and/or the shipping industry. Such an expansion is completely depending on the capability of both industries to respond to the additional demand. The capability to respond to an increase in effective demand I call - taking up an idea of Wolfgang Streeck - effective supply conditions.

A third example derived from circular flow analysis should warn against a misplaced perception of microoberservations: In the reality of a monetary production economy the expenditure of a private firm is at the same time income to other agents. The single firm can increase its assets by reducing expenditure which also reduces income with others. The same firm, however, would incur losses, if all other firms reduced their expen- ditures, too: in this case our firm would suffer from a fall of its income flow. In the opposite case the firm would incur a loss by unilater-

(34)

ally increasing its expenditure while it would increase the value of its assets if all firms spent more (cf. Bhaduri 1986). Such a fallaci aus reasoning is also common in the public debate of economic policies. Its attraction is based on its simplicity and on individual experience. A prominent example is the identical role attributed to a deficit in a private household and in the state's budget. Empirical social research whose findings do not avoid the pitfalls of fallacious aggregation come close to a kind of scientific "naturalism" or at least "impressionism" which form another variety of what has been called in logic "misplaced con- creteness",

To neglect macro-phenomena like "effective demand" which are not observ- ab 1e at the mi cro-l eve 1 often induces a IInatura 1istic approachII in employment and labour market research. Elements of it can sometimes be observed in the "supply-side researchII of demographic trends and regulation of labour supply. In the political arena, the discussion of immigration or of the question who is eligible for being given political asylum is an equivalent of the naturalistic bias in the political arena. Demand-side research, in the contrary, allows a liberal attitude toward a deregulation of the labour supply on the basis of its proposed effective demand policies.

The cases and examples just given justify and necessitate the construction of strong bridges between the social, economic and political sciences. They can be built, first, on findings derived from social and political studies of institutions. Second on Post Keynesian Theory which gives great emphasis to money-related uncertainty and those institutions reducing it (cf. Kregel 1980). And, third, on Neoricardian Theory which challenges the idea of technology being price-determined or the idea that income shares in value added are exclusively determined by market processes (cf. Roncaglia 1988). Both theoretical approaches offer a good basis for transdisciplinary cooperation, as they open the border to the exploration of a territory which seemingly was already fully occupied by Standard Theory. Only if income shares are not determined, trade unions find a useful place in society; only if the choice of technique is not completely determined by market processes, there is space for ingenuity

(35)

and its sociological discovery. Only if the reduction of money-related uncertainty is regarded as a crucial societal problem, institutions like the welfare state or trade unions are more than rent seeking devices, and a full view for their proper contribution to social production and repro- duction is possible.

r hope r could indicate by these three examples that interdisciplinary cooperation is of value. Even if we did not succeed in finding the "last word" which would "t.rans late the confused tongues II and which is so utterly needed within and between disciplines and yet for epistemological reasons unattainable (Wittgenstein 1954).

Literature

BHADURI, A. (1986), Macroeconomics. The Dynamics of Commodity Production.

London: Macmillan.

BOYER, R., IINew Technologies and Employment in the 1980s: From Science and Technology to Macroeconomic Modelling". J.A. Kregel et al. (eds.).

CLOWER, R.W. (1963), The Keynesian Counterrevolution: A Theoretical Cri- tique. Schweizerische Zeitschrift für Volkswirtschaft und Statistik 99:

1-9.

DELORME, R. (1988), The Welfare State and Jobs. In: J.A. Kregel, E. Matz- ner, A. Roncaglia (eds.).

ETZrONr, A. (1988), The Moral Dimension. Towards a New Economics. New York: The Free Press.

FLECK, L. (1935), Entstehung und Entwicklung einer wissenschaftlichen Tatsache. Basel.

GrNZBERG, E. (1985), Understanding Human Resources. Boston: University Press of America.

GRANOVETTER, M. (1985), "Economic Action and Social Structure: The Prob- lem of Embededness. American Journal of Sociology, 91 (3): 481-510.

GUGER, A., WALTERSKrRCHEN, E. (1988), "Ff sc al and Monetary Policy in the Keynes-Kalecki Tradition." J.A. Kregel et al. (eds .},

HAYEK, F.A. (1978), "The Errors of Constructivism". F.A. Hayek, New Studies in Philosophy, Politics and Economics. London: Routledge &

Kegan.

(36)

HODGSON, G. (1988), Economics and Institutions. Cambridge: Polity Press.

KEYNES, J.M. (1980), "The Long-term Prob 1em of Fu 11 Emp 1oyment (1943)II •

In: The Collected Writings of John Maynard Keynes, Vol. XXVII (edited by A. Robinson, D. Moggridge). London: Macmillan: 320-350.

KREGEL, J.A. (1980), Markets and Institutions as Features of a Capitalist Production System, Journal of Postkeynesian Econmics, Vol. III, No.1.

KREGEL, J.A., MATZNER, E., RONCAGLIA, A, (eds.) (1988), Barriers to Full Employment. London: Macmillan.

KREISKY, B. (ed,) (1989), A Programme for Full Employment in the 1990s.

Report of the Kreisky Commission on Employment Issues in Europe. Ox- ford: Perganon Press.

LEIlJONHUFVUD, A. (1973), Life Among the Econs. Western Economic Journal, 9: 327-337.

LEIPERT, C., SIMONIS, U.E. (1985), "Arbeit und Umwelt". In: Aus Politik und Zeitgeschehen. Heft 32, 10.8.1985.

LME (Labour Market and Employment, Research Area of WZB), "Research Pro- gramme for 1985-1989". Mimeo. Berlin 1985.

MATZNER, E. (1982), Der Wohlfahrtsstaat von morgen. Frankfurt a.M.:

Campus.

MATZNER, E. (1988), "Hohe und anhaltende Arbeitslosigkeit als Anlaß über das Ziel-Mittel-Modell der Wirtschaftspolitik und seiner Ergänzung nachzudenken". In: L. Reyer, J. Kühl (Hg.), Resonanzen: Festschrift für Dieter Mertens. Nürnberg: lAB. (English Mimeo 1987: "High and Per- sistant Unemp1oyment as an Occas ion to Refl ect upon the Means-Ends Model in Policy ~1aking").

MYRDAL, G. (1953), The Political Element in Economic Theory. London:

A11en Unwi n .

RONCAGLIA, A. (1988), The Demand for Labour: The Neo Ricardian View. J.A.

Krege 1 et al. (eds.).

ROTHSCHILD, K.W. (1986), 'Left' and 'Right' in 'Federal Europe'. KYKLOS, 39/3: 359-376.

SABEL, C.F. (1982), Work and Politics. Cambridge: Harvard University Press.

SAMUELSON, P.A. (1989), Interview in Die Welt, 95 (24th April 1989), p. 3 ("Vom Glück, im richtigen Augenblick geboren zu sein").

SCHARPF, F.W" BROCKMANN, M. (eds.) (1983), Institutionelle Bedingungen der Arbeitsmarkt- und Beschäftigungspolitik. Frankfurt: Campus.

(37)

SCHMIDT, H. (1988), FUr einen Marshall-Plan der Industrie-Staaten. Die Zeit, 29 (23rd September 1988). Hamburg: p.37.

SCHULMEISTER, S. (1987), An Essay on Exchange Rate Dynamics. Discussion Papers IIM/LMP 87-8, Wissenschaftszentrum Berlin fUr Sozialforschung.

SCHUMPETER, J.A. (1954), History of Economic Analysis. New York.

SOLOW, R.A. (1986), Unemployment: Getting the Questions Right. Economica 35 (Supplement): 523-534.

STEINDL, J. (1988), New Lines of Research on the Question of Full Employ- ment. In: J.A. Kregel et al. (eds.).

STEINDL, J. (1979), "Stagnation Theory and Stagnation Policy". Cambridge Journal of Economics 3.

STIGLITZ, J.E. (1987), The Causes and Consequences of the Dependance of Quality on Price. Journal of Economic Literature XXV, 1: 1-48.

STREECK, W. (1986), The Uncertainties of Management in the Management of Uncertainty: Employers, Labor Relations and Industrial Adjustment in the 1980s. Discussion Paper FSI 86-26, Wissenschaftszentrum Berlin fUr Sozialforschung.

ZAND, H. (1971), "Der' Turmbau zu Babel". Träume im Spiegel. Wien: Europa- verlag.

WITTGENSTEIN, L. (1953), Philosophical Investigations. Oxford: Basil Blackwell .

(38)

1st Session:

On Effective Supply Conditions

Chairman:

Werner Sengenberger

(39)

(40)

1.1 On the Social and Political Conditions of Diversified Quality Production

by Wolfgang Streeck

Introduction

Little attention is paid in the Keynesian theory of full employment to the operation of the supply side of the economy and to the social and political institutions required for its efficient performance.l For Keynes, full employment was to be achieved through fiscal and monetary manipulation of aggregate demand at the national and, to a much lesser extent, the international level. The mechanisms by which supply was to respond to managed demand, and the process of demand management itself and how it was to be protected from interference by macro-irrational, particularistic political interests were not seen as problematic. It was only in the revisionist literature of the late 1970s, after the eclipse of Keynesian politics, that writers like Ski del sky and others pointed to the remarkably orthodox assumptions underlying Keynesian theory and practice: in particular, of a "free" and "flexible" product and labor market being the optimal mechanism and a necessary precondition of efficient micro adjustment on the supply side; as well as of state institutions sufficiently shielded from popular pressure to be capable of making tech- nocratic decisions solely on the merits of complex econometric analyses unaccessible to a lay public. If the blanks in the Keynesian discourse are taken, as they should be, as indicating agreement with existing 1 The present manu scri pt is a first attempt to synthes ize a number of themes and ideas that have occupi ed the author for some time. It was written in one piece under severe time pressure during a brief stay at the Wi ssenschaftszentrum Berl in für Sozi alforschung, away from the authoris books and notes and without a new reading of the literature.

Therefore, no proper credit is given in this draft to those whose ideas the paper draws on and, undoubtedly, often misrepresents. The author is grateful to Egon Matzner for a challenge on short notice to write up what should long have been exposed to systematic scrutiny. Whether they want it or not, the final version of the paper, if ever there will be one, will be dedicated to the authoris former colleagues at the former

(41)

structures and prevailing orthodoxies, the conclusion should be justified that for Keynes, the size of aggregate demand was to be determined by a small group of experts in the Chancellory and the Bank of England, while the structure of supply was to be left to the two, as it were, minimal institutions of standard economics: competitive markets and managerial hierarchies.

It seems that it was not least the political and economic traditionalism of its implicit institutional assumptions that rendered Keynesianism so defenseless against the onslaught of supply-side economics in the 1980s.

The discovery in the post-war period that the very practice of demand management had changed the "rational expectations" of market participants and thereby "distorted" the market; that furthermore the "flexibility" of markets, particularly for labor, had progressively declined due to institutional qrowth "beyond contractII (Fox 1974); and that macro managerial decisions had become subject to and entangled in democratic electoral politics - inevitably shook the foundations of a theory of full employment that was for its practice dependent on both classical market economics and traditional codes of political authority and deference. Keynes- ians, in spite of their "Keynes-plus" rhetoric, found it hard to object to the call of the new "supply-siders" for a speedy restoration of state sovereignty, market flexibility and management prerogative. While they had placed their hopes on a different use of sovereignty, they had noth- ing to hold against their opponents' insight that in a capitalist society state authority had to be protected from popul ar-democrati c dil ution.

They also, and more importantly, could not but accept the standard economic wisdom that only if firms are left alone by governments, and manage- ments by their workforces, will they end up in the market segments, produce the range of products, adopt the production technology, develop the organization of work, generate the skills, and pay the wages that will allow for full employment. Seen from the perspective of the late 1970s, the debate between Keynesianism and supply-side economics came down to whether or not it was necessary, useful or possible for the national state in addition to provide for an adequate level of aggregate demand.

To the extent that this, for all kinds of contingent reasons, had to be answered more and more in the negative, Keynesians had little to oppose

(42)

the increasingly self-confident demands of their neo-classical opponents for deregulation of product and labor markets and for a return to the institutional minimal ism of market and hierarchy.

Unlike the Keynesian tradition, work at the Labor Market and Employment (LME) unit of the Wissenschaftszentrum Berlin took from early on an explicit interest in the supply side of modern industrial economies. Just as neo-classical supply-side economics, LME research emphasized the crucial importance for full employment of the international competitiveness of an economy's pattern of industrial output and industrial organization.

It also agreed with the, mostly implicit, claim of both economic camps that such patterns are importantly shaped by the structure of the social institutions in which economic action takes place. At the same time, LME research rejected as simplistic and excessively functionalist two major assertions that are explicitly or implicitly made by most economists of whatever denomination: that there is, at least in the long run, only one path towards competitive survival - one homogeneous "best practice" without functional alternatives or equivalents, inside which regional or national differences are essentially insignificant - and that patterns of industrial output and industrial organization ("production patterns", as we will from now on call them) are the more efficient, and therefore the more likely to bring about full employment, the closer their underlying,

generative institutions resemble the neo-classical minimum of unregulated markets and unlimited managerial prerogative, complemented at most by a

liberal (in the European sense of non-interventionist) and, in questions of property right, non-majoritarian democratic state. Even though taking a decided supply-side view of the employment problem and its possible solution, most of the researchers at LME were unwilling to accept a con- ceptual framework for supply-side analysis under which the only constructive contribution of politics to full employment is the dismantling of whatever soc;o-economi c instituti ons overstepped the neo-el assica 1 minimum; that relegates politics to the demand side where its residual func- tion is to extract an equity price from an inherently efficient market economy in exchange for social stability; and that carries with it the pre-conceived conclusion that a return to full employment requires above

(43)

all a reduction of economic institutions to unregulated markets and unlimited private hierarchies.

Departing from both the Keynesian and the neo-classical tradition, part of the work at LME on full employment was from early on aimed at a systematic understanding of what could be called, with a recently fashionable

expression, the social dimension of the supply side of the economy. In different contexts, work at LME tried to support claims like the following:

- that different institutional conditions may give tise to different production patterns that represent functionally alternative, and sometimes functionally equivalent, responses to common economic challenges;

- that to the extent that alternative responses are not equivalent in competiti ve terms, instituti onally impoveri shed economi es that rely solely on markets and hierarchies for the governance of economic activities do not necessarily perform better than societies with a densely organized institutional structure;

- that quite to the contrary an institutional repertory that exceeds the neo-classical minimum may in specific conditions make a positive contribution to competitive market performance;

- that ;n parti cul ar certai n highly successful producti on patterns require for their emergence and survival strong non-market institutions that modify and partly suspend individual market rationality and uni- lateral managerial control and thereby make for higher efficiency;

- that therefore publi c and private chai ces between high wages, stable employment, worker participation and social equity on the one hand, and full employment, monetary stability, competitiveness and efficiency on the other are not nearly as simple as suggested by standard economics in general and the supply-side economics of the 1980s in particular;

- and that given the right kind of institutional regulation and political intervention, a specifically European, i.e., institutionally saturated and politically bargained pattern of production and full employment may be possible which, while different from Japanese and American patterns, may nevertheless be competitive in an open world economy.

(44)

This paper presents, under the label of diversified quality production, a tentative model of a production pattern that may meet these specifica- tions. In the first part of the paper, the model is related to various strands of empirical research and theoretical reflection on national differences and recent trends in product markets, industrial organization, regional economies, technology, work organization, skill formation, industrial relations etc. Special attention is paid to what empirical evidence suggests as to the pattern's institutional substructure and its 1ack of congruence with the mi nima 1ist prescri ptions of standard economics. Following this, the second part undertakes to ground the social and institutional dimension of diversified quality production in what is described as a set of functional requirements of the model which free markets and private-proprietarial hierarchies alone cannot fill. In es- sence, the paper tries to show that societies that want to exploit the employment capacities of advanced forms of product demand, need to develop and cultivate a rich institutional structure capable of imposing en- forceable social obligations on rational market participants, as well as of creating effective opportunities for them to restructure towards higher diversity and quality. Thirdly, the paper explores certain impli- cations of the model for the relationship between equity and efficiency.

The concluding remarks highlight a number of unanswered questions and hint at various, possibly inherent and unsolvable problems.

Diversified Quality Production

Throughout the 1970s and 1980s researchers at LME took part in the world- wide discussion of emerging, "neo-industrial" production patterns combin- ing high wages, skilled labor, a flexible, non-Taylorist organization_of work, a widespread application of information technology in production processes, a diversified product range, and non-price-competitive market- ing strategies. Due to a research experience that was distinctive in both its points of access and its initial theoretical orientation, work at LME moved along a path that only partly coincided with those taken simul- taneously by researchers in the Ilflexible specialization" tradition, the

"new production concepts II approach, the French regul ation school, and

(45)

others. Particularly important became the concept of "diversified quality production", which resulted from an attempt to reconstruct the property space of the neo-industrialism debate so as to relate it more closely both to comparative empirical observations and to possibilities for political intervention under a full employment strategy for mature industrial societies.

In the work of Arndt Sorge in particular, the notion of different and alternati ve product ion patterns deri ved from cross-nat iana 1 campari sons of work organization and, later, responses to technical change. Original targets of Sorge's research were the technological determinism and industrial convergence theories that were dominant in the lIindustrialism" debate of the 1960s. This concern Sorge shared with many other industrial sociologists. But in the multi-disciplinary context of LME and its focus on employment policy, his work soon crossed the boundaries of industrial sociology proper and shaded into a general Wirtschaftssoziologie that undertook to link different national patterns of work organization to different rationales (or rationalities?) in the selection of product ranges and product markets, as well as to explain the resulting complex economic configurations with reference to different institutional endow- ments in the society-at-large. In this way, a society's distinctive "cul- ture", as crystallized in its institutional macro-structure, came to be conceived as á production factor in the widest sense, shaping both the process and the outcome of rational-economic action in competitive markets. This, in turn, made it possible to account for the persistence of observable differences in work organization and technology use in the face of "ídent^í cal " technology, and in patterns of industrial output in spite of "f dent ical " market pressures, as consequences of different institutional conditions generating alternative responses to similar technological and economic stimuli. To the extent that such responses proved functionally equivalent for the survival of firms and industries in competitive world markets, they could be construed as resulting from strat- egic choices - provided the collective, cumulative, incremental, long- term, and often non-intentional character of such choices was properly recognized. Where, alternatively, non-convergence gave rise to relative economic advantage and disadvantage, societies' differing institutional

(46)

endowment caul d be descri bed as a source of either opportunity or con- straint for the successful deployment of capital, technology and labor.

Being grounded in this perspective, the concept of diversified quality production, involving as it does the notion of an institutional basis of rational-economic action, systematically invites an exploration of the social conditions of the production pattern it describes.

Another approach to the analysis of new production patterns was through the study of industri ali nterest politi cs. Comparati ve research on the impact of trade unions and industrial relations on economic adjustment and competitive performance revealed long and complex chains of causation and interdependence. The view that weak and accommodative trade unions, standing for the minimalist institutional environment demanded by neo- liberal and neo-classical prescriptions, are necessarily conducive to superior performance was found to be simplistic and misleading. While some production patterns seemed to thrive on institutional minimal ism in general and the absence of organized industrial interests in particular, others - and clearly not the least successful ones - were found to exist in close symbiosis with a rich institutional underpinning in which strong and assertive trade unions performed a variety of, manifest and latent, positive functions. Very importantly, such functions were not limited to aggregate demand stabil izatian through IIaggressi veil redi stri bution,

"rigid" wage fixing or "cooperative" wage restraint in the Keynesian, demand-side oriented sense. Contributions from researchers at LME to the neo-corporatist debate of the 1970s and 1980s were instrumental in draw- ing attention to the supply-side dimension of neo-corporatist institutions, i.e., to the actual and potential role of an institutionally dense industrial polity and politics in the shaping and functioning of complex and successful production systems. In this way, they helped prepare the ground for a re-orientation of the corporatist paradigm from the Keynes- ian concerns of the 1970s to the structural, "qualitative" concerns of the 19805.

The immediate origin of the concept of diversified quality production was in the analysis of alternative "manufacturing policies" (Willman) related to the absorption of new, micro-electronic production technology. Three