1

Gerhard Lehmbruch

The institutional framework of German regulation

(published in: Kenneth Dyson, ed., The politics of German regulation, Dartmouth Publishers 1992)

When the German conservative-liberal /CDU/CSU/FDP) coalition came to power in 1982, its
programmatic statements reminded many observers of the "neo-conservative" agenda of the
Thatcher and Reagan governments in Britain and the United States.1 Chancellor Kohl and other
leaders of the new majority appeared determined to effect a Wende ("turn") of profound
significance.2 The inaugural statement (Regierungserklärung) suggested that the new
government had a reform agenda which aimed to strongly revalorise the market and to correct the
expansion of the state that had taken place in the past. This would, after all, have been conform
to a mood that had become quite widespread, in particular among the financial journalists of
some influential dailies and weeklies.

Neo-liberal economists who took this pathos serious soon discovered that their expectations had
gone far beyond what the government really was ready to accomplish, and that free-market
policies - in particular deregulation or privatisation - apparently rank much lower on the priority
scale of the federal government than they did at that same time in the United States and Great
Britain. And in the following years, demarcation from the Social Democratic policies of the
1970s became increasingly irrelevant for the programmatic identity of the conservative-liberal
majority.

With the sudden collapse of the communist rule in the GDR, however, the rhetoric of the free
market received a new and unexpected impetus. This time the term Wende (change) appeared in
the East German vocabulary, of course in a much more profound and radical sense. But for the
West German conservatives it presented an opportunity to re-employ their old electoral slogan,
"freedom instead of socialism", now with a reference to the economic and social heritage of the
GDR. The accompanying economic discourse shifted from the opposition of supply-side policy
against Keynesian interventionism to older topics that had been current in the early post-war
years (when books such as Hayek's "Road to Serfdom" were popular). Such changes in emphasis
and in themes notwithstanding, it appeared that the events helped the conservative-liberal
majority to restore its original image. And the unification policy of the West German government
put all its hopes in the self-regulating power of markets that, through a process of "creative
destruction" (in Schumpeter's sense), should lead to a swift recovery of the East German
economy on a new basis.

1 This chapter is based on the findings of a research project on 'Economic strategy change in cross-national comparison', conducted with the
generous financial support of the Volkswagen Foundation. Research associates in the project were Marian Döhler (on health policy), Edgar
Grande (on telecommunications reform), and Otto Singer (on the impact of economic policy advice). For some of the findings see Döhler (1990,
1991), Grande (1989), Lehmbruch et al. (1988), Lehmbruch (1989a, b), Singer (1991).
2 The pathetic element in this rhetoric was emphasized by the attribute “geistig-moralische Wende ("intellectual and moral change").
Meanwhile, this meaning of the term Wende has become superseded by the more recent East German usage which will be treated below
and signifies the breakdown of the communist regime in late 1989.
 2

In spring 1991, under the impact of escalating unemployment in the former GDR, it became
obvious that this policy had failed. This led to a re-orientation in German economic and social
policies that ended the emphasis on markets and on the withdrawal of government from the
economy. The tax increases which virtually nullified the former tax cuts of the coalition
symbolised this in a drastic manner. Did it mean that the neo-conservative (or, in economic
terms, liberal) agenda was the victim of an unexpected turn of history? Or could it be that in
Germany such an agenda had never had a serious chance of realization? The point can be made
that the institutional framework considerably constrained its chances of realisation.

One reason why the change of political strategy after the breakdown of Helmut Schmidt's
government appeared less radical than - in particular - in Britain was the simple fact that the
makers of West German economic policy had never wholeheartedly been converted to Keynesian
economic policy. Leading economic policy makers of the Social Democrats sympathised with a
rather cautious version of "commercial" or "market Keynesianism"3 in which the role of the state
would be limited to "global steering" of macro-economic aggregates. As for the "micro relations"
of the economy, the pioneer of the adoption of Keynesianism in the late 1960s, Social
Democratic Federal Economics Minister Karl Schiller, always strongly emphasised the primacy
of the market. It was only in the 1970s that policy concepts emphasising stronger micro-
economic intervention (such as industrial policy understood as Strukturpolitik) gained some
ground within the SPD. But they never became official government policy, be it only because of
the growing influence of the FDP on economic policy.

Also, the economic strategy of the Kohl government since 1982 can only to a very limited degree
be understood as a copy of American or British blueprints. Its followed its own logic and, as I
will argue in the following article, this logic was strongly determined by an institutional
framework that differs remarkably from the that which, in the supposed model cases mentioned
before, opened important opportunities for a policy of deregulation and privatisation.

In Germany, as elsewhere, the institutional framework of economic policy has two main
dimensions: the organisation of the state and of its linkages with the organised economy, on the
one hand, and the ideological interpretation of the relationships of state and economy, on the
other. For, as March and Olsen (1989) have pointed out, the institutional definition of the
framework for political action takes place through the "institutionalisation of meaning" as well as
through the "institutionalisation of action".4

1. The "institutionalization of meaning" in economic policy doctrines and the problem of the welfare state
It is important to underline that economic policy doctrines are not, in the first place, a guideline
for political choice. More often, it appears, they serve to "make sense of the world" and as an
"interpretation of life".5 In the case of the West German Wende, the policy choices of the
conservative-liberal majority were perhaps not so much guided but constrained through an
"institutionalisation of meaning" that had its roots in the historical legacy of German economic
policy doctrines. To be sure, diffusion processes played a certain role in the intellectual
environment of the program of the first Wende. Among these was the disillusion with Keynesian
demand management that spread through Western Europe in reaction to the "stagflation" of the
1970s, and the critical discussion of the expansion of the public sector and of growing budget

3 Cf. Weir & Skocpol (1985), 108.

4 March & Olsen (1989), 18 ff.

5 March & Olsen (1989), 39 ff.

 3

deficits (e.g. Ruehle and Veen, 1978). Certainly this international discussion contributed to the
climate of opinion that led to the Wende.

An interesting aspect of such diffusion processes was the introduction of the concepts of
"regulation" and "deregulation". Indeed, the language of "regulation" was not very familiar in
West Germany before the 1970s. Here, as in other European countries, it has been imported from
the United States. "Regulation", one might say, entered the vocabulary retrospectively, riding on
the back of the concept - and the agenda - of "deregulation" when the American deregulation
movement reached the West European countries.6 That the Federal Republic was influenced by
this diffusion process can not be denied.7 Highly reputed members of the economics profession
were amongst the foremost and consistent advocates of a deregulation agenda,8 and it is obvious
that their approach owes much to the doctrines developed by academic economists in the United
States. Also, some important elements of the government agenda - in particular
telecommunications reform - were directly inspired from the American deregulation experience,
and in this sense diffusion has certainly played a non negligible role.

In spite of these intellectual influences it cannot be maintained that the political agenda of the
West German Wende was essentially imitative in character. On the level of concrete economic
policy concepts the backlash against interventionism in the late 1970s was largely nourished
from indigenous West German sources. In that sense, although supported by the international
diffusion of an anti-Keynesian mood, the change of economic policy strategies was an
autochthonous West German development. The Council of Economic Experts had never been
very enthusiastic about Keynesianism. From its annual report of 1976 onwards it adopted a clear
and pronounced supply-side orientation (though it remained sceptical about the "supply-side
optimism" of the Reagan Administration).9 The Federal Bank, for its part, switched to a
monetarist policy since 1973. On the other hand, borrowing from US deregulation as well as
from British privatisation programs remained highly selective.

Some of the most salient features of American "deregulation" policies, particularly of those emphasized
under
the Reagan presidency, were never emulated at all. Particularly significant is that the backlash
against "social" regulation, be it in environmental policy, or in occupational health and safety,
had practically no German equivalent. The implementation of occupational health and safety is
left to the self-regulation by the Berufsgenossenschaften10 and was therefore not likely to stir
similar emotional reactions of employers. Environmental regulation was continued without
essential modifications after the change of government, and the more recent, market-oriented
approaches pioneered by the US Environmental Protection Agency were not even given serious
consideration outside a small minority of academic economists. And in fields such as control of
automobile emissions the new government remarkably accentuated the regulatory emphasis.11

Essentially, the economic and social philosophy of the Wende had specific German roots and
therefore its criticism of the welfare state was ambiguous. To be sure, there was some talk,

6 Cf. Majone (1991).

7 This could probably also be established by a content analysis of business journals and economic commentaries in the general press.
Many economic commentators in the general press and in business journals often referred to these two countries as models to emulate.
8 The Kronberger Kreis is probably the most conspicuous group of economists and legal scholars devoted to the systematic development
of an agenda for deregulation of the German economy.
9 This scepticism concerned, in particular, the "chances of a virtuoso (virtuos) process of expansion with fast auto-consolidation of
rigorous tax cuts" (SVR, JG 1981/82, al.60*).
10 Employer membership in these insurance funds for occupational accidents is compulsory.

11 Weidner(1989).
 4

within the coalition, about the limits of social policy. In particular the liberal party (FDP) and
some elements within the CDU pleaded for a return to virtues such as individual responsibility
and independence and attacked the expansion of the Versorgungsstaat. But the legitimacy of a
policy of income redistribution was never contested in a fundamental sense. To be sure, authentic
"Heart of Jesus socialists" (as the CDU left wingers are sometimes called by their critics at the
party right) are probably difficult to find. "Leftists" in the CDU like Blüm and Geißler supported
fiscal conservatism as well as the -limited - attempts at "deregulation" of the labour market. What
distinguishes them is their outspoken sympathy for an even further extension of the redistributive
welfare state. Yet even the CDU mainstream never considered a "rolling back" of the welfare
state. Hence, in spite of the efforts of Lambsdorff and other FDP spokesmen to emphasise the
"free-market" profile of the smaller coalition partner, no fundamental re-orientation of social
policy was ever seriously attempted within the coalition. Although cuts in some programs were
made to rebalance the budget, strong forces within the CDU continued to press even for new
redistributive programs, in particular to assist families. Finally, in the early 1990s, Norbert Blüm,
the CDU minister of labour and social affairs even led a vigorous campaign, against FDP and
employer resistance and with the tacit support of the SPD, for an important enlargement of the
redistributive welfare state by extending the social security principles to a new insurance to cover
the rising costs of health care of the handicapped elderly (Pflegeversicherung). Here it became
again obvious that the Christian Democrats considered this orientation as vital for maintaining
the party's ideological identity.

This identity continued to depend on the reference to the German ideological tradition of a
"social market economy" defined in terms of a theory of Ordnungspolitik. The remarkable
strength of this interpretation of economic policy is due to the paradoxical combination of an old
historical legacy with the powerful myth of the "social market economy" as a supposedly
fundamental post-war political innovation. First of all, the economic policy discourse in West
Germany was since long dominated by the "Freiburg school" of German neo-liberal economics
founded by Walter Eucken. A characteristic feature of this current was from its very beginnings
its typological reasoning in terms of "Wirtschaftsordnungen", of clearly defined economic
systems, as they are observable in "morphological" historical analysis.12 The easy
comprehensibility of this approach probably explains much of the strong impact it had on a broad
educated public. Central typological categories, employed not only in the specialised economic
literature but in high school textbooks as well as in current journalistic jargon, are in particular
the "market economy" and the "centrally administered economy", which are each supposed to
obey to a specific systemic logic. Such a reasoning was strongly indebted to the theory of
"economic systems" as developed by the heirs of nineteenth century historical economics, in
particular Werner Sombart.13 It was in these terms that since the 1930s - reacting to the
experience of the world economic crisis - the German neo-liberals (Eucken himself, Alfred
Müller-Armack, Franz Böhm and others) developed their conception of an economic "order"
based on the dynamics of a competitive market, but "bound by the state" (staatlich gebunden).14
The fact that this doctrine could be conceived and advocated under the auspices of the official
(national-socialist) "Academy for German Law" is not as surprising as it may appear to those
who identify the economics of the "Third Reich" with the state-corporatist doctrinaires of the
early thirties (which soon became confined to a marginal role) or with the war economy. For, one
the one hand, within the regime there where always powerful advocates of a competitive market

12 Eucken (1939); Eucken (1952).

13 Abelshauser (1991),19.- Walter Eucken, the pioneer of the theory of Ordnungspolitik, was strongly influenced by the tradition of
the "historical school" of German economics.
14 These origins of the doctrine of the "social market economy" have recently been established by Abelshauser, op.cit.
 5

economy based on free enterprise.15 Still more, the ordo-liberal school could refer to an
ideological tradition that was perfectly compatible with the credo of the regime: The
reconciliation of a capitalist economic order with the idea of the Sozialstaat had already been the
central concern of the Kathedersozialisten, those conservative economics professors who, with
their disciples in the bureaucracy, guided Bismarck's social policy innovations. It can even be
traced back to their intellectual mentor and precursor, Lorenz von Stein, with his theory of a
"social monarchy".16 Indebted as it was to this theoretical heritage, the neo-liberal theory of
Ordnungspolitik - as it was further developed after the second world war -, regarded "secondary"
redistribution of incomes through social policy as perfectly legitimate as long as government did
not interfere with the ("primary") allocative functions of the marktwirtschaftliche Ordnung.17

Paradoxically, the strength of the idea of the "social market economy" as guiding interpretation
of social reality seems due to the reinforcement of this historical legacy by the belief that the
"social market economy" constituted a fundamental innovation of the early post-war period under
the leadership of Ludwig Erhard and the Christian Democrats.18 Seen in a historical perspective,
the innovative element of this policy has certainly been overstated. It is of course true that the
post-war version of the "social market economy" with its strong emphasis on competition
contrasted with older, "neo-mercantilist" traditions of German economic policy, with its
protectionist traits and promotion of cartels. But the attribution of the success story of post-war
economic reconstruction to this new emphasis on a competitive economic order is certainly less
uncontroversial as is often assumed.19 Also, the new myth of the "social market economy"
simplified an undoubtedly much more complex institutional reality of the political economy of
West Germany.20

Another ambiguity is created by the infiltration of the Subsidiaritätsprinzip, a concept with

strong roots in catholic social philosophy, into German conservative economic thinking. To be
sure, it means that the state shall act only as a "subsidiary" - but to whom? Some may interpret it
as postulating the priority of market forces. However, other readings of the Subsidiaritätsprinzip
consider the state as the subsidiary to "society" - which may mean, for example, private
associations. A "corporatist" approach would not be incompatible with such an interpretation.

The political implications of this eclectic theoretical background were essentially of two orders:
First, the historical-typological approach of the Freiburg ordo-liberal school permitted -
notwithstanding its ordnungspolitische pathos - an eclectic political interpretation.21 Strict
market liberals as well as the Sozialausschüsse (the "social committees" of Christian labour
unionists) of the CDU left wing could likewise refer to this flexible ideological tradition. It was
hence highly appropriate for the purpose of integrating a political party with a socially
heterogeneous clientele, such as the CDU.

15 Cf., for example, Speer (1969, 368ff., see also 225 ff.). Of course the conservative opposition to Hitler was also aware of and
interested in the ideas of the ordo-liberal scholars about the post-war organisation of the economy; these contacts later led to the strongly
inflated claim that they were a resistance group.
16 Lorenz von Stein (1850; the first version was published in 1842). Later, Stein became until his death in 1890 an extremely influential
academic teacher.
17 Müller-Armack (1956).

18 Erhard (1957).

19 Abelshauser (1983), 32 ff.

20 This was of course already emphasized by Shonfield (1965).

21 Whereas Eucken was highly sceptical toward a policy of full employment, Müller-Armack resolutely supported it.
 6

Second, the fundamentalist neo-conservative reaction against the redistributive welfare state
encountered in the rhetoric of the Thatcher and Reagan governments remained rather alien to the
"institutionalisation of meaning" established in the deeply anchored tradition of conservative
German economic and social policy doctrines. Moreover, these doctrines eventually legitimised
regulating the economy as long as regulation could be presented as being non-discretionary and
thus "in conformity with the market".22

It may be granted that, although dominant interpretations of the ordo-liberal tradition shielded
redistributive social policy against the fundamentalist attack on the welfare state, its specific
emphasis on the competitive market23 had become an important element of the dominant
economic belief system. In consequence, deregulation and de-bureaucratisation had become
prominent issues in the government platform. But then it remains an open question why
deregulation and privatisation did not proceed much faster than actually happened.

2. Policy advisors, bureaucrats, and the institutional segmentation of economic and

technical expertise
Part of the answer to this question is provided by the institutional segmentation of "policy
communities" through which interpretations of reality by the holders of economic and technical
expertise are communicated into the decision making process. Specifically, the isolation of
economic policy expertise in the institutional framework of German politics was an important
constraint on the adoption of a coherent agenda of deregulation.

Whereas in the United States and Great Britain the role of conservative "think-tanks" outside the
government machinery - like, respectively, the American Enterprise Institute and the Heritage
Foundation, or the Institute for Economic Affairs, the Centre for Policy Studies and the Adam
Smith Institute - was vital for the intellectual preparation of the conservative agenda, in West
Germany the paradigm change in economic policy was to a considerable degree prepared by
actors with an official status, namely, the Council of Economic Experts with its legal mandate for
advising the government, on the one hand, and, on the other, the top bureaucrats of the Federal
Economics Ministry themselves.

The most prestigious advisory body is certainly the official - but independent -
Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung (SVR, Council
of Economic Experts). It was clearly established to serve as an instrument of the economic policy
of the federal government. But its relationship to the government is characterised by "loose
coupling": On the one hand, it is de facto an academic body recruiting itself by way of co-
optation.24 On the other hand, it is not permitted to formulate policy recommendations (and
therefore has to phrase its - often outspoken - prescriptive opinions in the form of projections and
causal explanations). As originally intended by Ludwig Erhard when it was established in 1962,
the SVR has a considerable impact on public opinion. Its direct influence on government policy,
however, is much more uncertain.

Some economists have argued that it is precisely its institutional isolation from the process of
economic policy-making which explains the limited impact of its supply-side orientation on the
effective economic policy record of the Kohl government. But this overlooks the fact that, in

22 Müller-Armack (1976, 120 ff.) explicitly justified government regulation of the utilities, transports, agriculture and the credit system.

23 Eucken even defended perfect competition as a supposedly realistic objective of economic policy.

24 Two of its five members are, however, appointed on the suggestion of the employer's organisations and of the labour unions.
 7

spite of the "loose coupling" between academic expertise and government exemplified by the
status of the SVR, its analyses had an important role in the intellectual preparation of the agenda
of the Wende.25

However, it cannot be denied that this kind of academic expertise was never directly translated
into government policy. Rather, decisive intellectual inputs were produced within the top of the
federal government administration. Thus the famous "Lambsdorff paper" which, in 1982, led to
the break-up of the social-liberal coalition government had been prepared, on the demand of
Economics Minister Lambsdorff (FDP), by some top bureaucrats of the ministry under the
guidance of permanent secretary Otto Schlecht, and the head of the Economic Policy Division
(Grundsatzabteilung) Hans Tietmeyer. This in-house expertise of the economic bureaucracy has
a long tradition. Since the times of Ludwig Erhard as Minister of Economics, the
Grundsatzabteilung26 under heads such as Alfred Müller-Armack has carried considerable
weight and was always strongly committed to the market economy. Otto Schlecht, who had
already served in the Grundsatzabteilung under Erhard and became its head under the Social
Democratic minister Karl Schiller, played an important role in the cautious shift of the
Economics Ministry toward Keynesian thinking in the later 1960s. However, since the second
half of the 1970s a gradual and pragmatic re-orientation of officials like Schlecht and Tietmeyer
from global demand management to a supply-side orientation and Verstetigung ("consolidation") of
fiscal policy took place.

Given this important role of top bureaucrats in policy formation, however, another institutional
feature becomes important, namely, the centrality of the Ressortprinzip (the "departmental
principle") in the organisation of the executive. To be sure, according to Article 65 of the
constitution, the "policy guidelines" are formulated by the Federal Chancellor. But in the routine
work of government this power is rather narrowly circumscribed, and Chancellor Kohl has never
seriously attempted to assume leadership in economic policy. Hence the Kanzlerprinzip (the
"Chancellor principle") tends to be superseded by the Ressortprinzip. This "departmental
principle" is based on the stipulation of art.65 that, "within these guidelines, each federal minister
runs his department independently and under his own responsibility". Since the functions of the
cabinet as a collective body (Kabinettsprinzip) remain largely confined to the ratification of bills
and the arbitration of inter-departmental conflicts that cannot be solved otherwise,27 and since
also cabinet committees have not much significant influence, the Ressortprinzip becomes the
central principle of cabinet organisation. The autonomy of ministers as head of departments is
strengthened further by the practice of coalition government where parties consider "their"
departments as a domain that is normally "off limits" to the partners in the coalition.28

One important consequence is the sectoral segmentation of institutionalised policy advice. This
has two different aspects. In theory, the "departmental principle" implies that the formation of
economic policy, in particular macro-economic policy, is in the jurisdiction of the Federal
Minister of Economics. The "Lambsdorff paper" of 1982 implied indeed a claim to political
leadership in this domain. However, the Minister of Economics cannot bind other ministers: for
this a "policy guideline" from the Chancellor would be required. As a consequence, as far as the
formal jurisdictions of other ministers are concerned, in spite of his "generalist" claims the

25 Singer (1991).

26 Strictly speaking, this name would more appropriately refer to its division I A, responsible for "basic problems of economic policy". This
division is in particular responsible for the coordination of the economic advisory institutions.
27 This was first exposed by Böckenförde (1964,168 ff.).

28 On the Ressortprinzip see also Grande (1987, 317f.).

 8

Minister of Economics is confined to co-jurisdiction (Mitzeichnung). His influence on the policy

of other departments is therefore limited to "negative co-ordination".29 Moreover, in 1972 the
Minister for Economics lost the bureau for monetary and credit policy, and hence important
instruments for the implementation of his policy, to the Minister of Finance. Accordingly, his
policy-making power is in reality severely limited.

Another manifestation of the Ressortprinzip is that other important ministries (such as the
ministries for labour, for agriculture, or for technology) develop their own in-house expertise and
maintain their autonomous advisory institutions embedded into sectoral policy networks. In these
networks, different scientific paradigms may guide a sector-specific "institutionalisation of
meaning". Therefore, on the level of government organisation the theoretical ambiguity of the
doctrine of the "social market economy" is reflected in quite different emphases on, for example,
the redistributive implications of the doctrine.

How this sectoralisation of expertise can act as an important constraint on market reform
strategies is well illustrated by the case of telecommunications reform.30 This reform was
prepared by a "governmental commission" which had originally been suggested by the Federal
Ministry for Research and Technology but was finally established in 1985 - in virtue of the
Ressortprinzip - by the Federal Minister of Post and Telecommunications. After long and
laborious negotiations, its twelve members were drawn from different interest groups concerned
by the telecommunications policy and from the political parties. As chairman, the Post Minister
chose a renowned expert in communications policy, Eberhard Witte, a professor of business
economics with close relationships to the dominant firms in the telecommunications industry
(Siemens and SEL-Alcatel) and highly influential in the Münchner Kreis, an "issue network"31 in
telecommunications policy linking experts from universities, industry, and the
telecommunications administration. The Ministry of Economics, in virtue of its claim on
Mitzeichnung, successfully demanded the appointment of a member of its own advisory council,
himself an expert on the deregulation of telecommunications policy, to the "governmental
commission" of the Post Ministry. But Wernhard Möschel, a professor of economic law and
member of the neo-liberal Kronberger Kreis, found himself rather isolated within this
commission. It remained under the firm grip of Witte, and Möschel's minority opinion (pleading,
in particular, for the abolition of the network monopoly of the public telecommunications
organisation) was signed by no more than three other members32 and had no significant impact
on the "Post Structure Law" finally voted in 1989.

The case of telecommunications policy is by no means an exception. Whereas the advisory

councils (wissenschaftliche Beiräte) of the Ministries of Economy and Finance are clearly
market-oriented like the Council of Economic Advisors (Sachverständigenrat) mentioned above,
important expert commissions or advisory councils in the jurisdiction of other ministries remain
much more closely controlled by the sectoral "issue networks". In the domain of health policy,
although market-oriented health economists were increasingly present in the academic discussion

29 Co-jurisdiction means that, according to the Gemeinsame Geschäftsordnung der Bundesministerien, Allgemeiner Teil (GGO I, § 70,II),
the "leading" (federführend) ministry has to "clear" its initiatives (in particular, bills) with other departments who may be affected. The
term "negative coordination" has been coined by Mayntz & Scharpf (1975, 145ff.) to refer to the power of the mitzeichnende
fdepartment to object to initiatives by which it perceives itself as negatively affected. For a long time the Federal Economics Ministry has

been in conflicts of this type with the Ministry of Post and Telecommunications. It had, for example, prevailed upon the latter not to
extend its monopoly to telefax machines.
30 For a detailed analysis, see Grande (1989), 188 ff.

31 In the sense of Heclo (1978).

32 These were the representatives of the German Federation of Industries, of the banks, and of the FDP.
 9

and were even given an opportunity to present their positions in the official journal of the
Ministry of Labour and Social Affairs33, their impact on policy formation remained extremely
limited. The advisory bodies in the health policy issue network continued to be dominated by the
academic representatives of a "non-market economics" approach with a strong preference for
decision-making through associational bargaining.34

The strategic consequences of the sectoral segmentation resulting from the Ressortprinzip were
once more illustrated in the Pflegeversicherung issue in 1991. The political debate - which at the
time of writing is still going on - culminated in a public hearing with representatives of the
interest groups that was organised by Blüm with the obvious purpose to demonstrate to the
employers representatives and to the FDP that they were completely isolated within the social
policy issue network, and that their counter-proposal for a form of private insurance was
generally considered as unrealistic and impractical.35

3. Interest associations and sectoralised policy networks:

The case of the health policy
It was already mentioned that the ordnungspolitische pathos of the "social market economy"
masked a considerably more complex institutional reality. One crucial element of this reality was
certainly the traditional importance of large and often strongly centralised interest associations in
the governance of the German economy.36 Already in the late 19th century the political weight of
the industrial peak associations was such that Bismarck had recourse to their services for his
foreign economic policy,37 And about seven decades later, in 1950/51, Ludwig Erhard -
notwithstanding his personal dislike for the peak associations of business - had to fall back on the
support of the business associations to manage the crises of the supply of raw materials and of
energy . Abelshauser interprets these developments as the beginnings of a "corporative market
economy" that would remain characteristic of the Federal Republic.38

Given this long established "corporatist" role of interest associations, they were also repeatedly
of crucial importance in the settlement of protracted social conflicts in modern Germany. A
relatively well-known example of such "social peace treaties" - as we might call them - is the
Stinnes-Legien agreement between organised business and labour in 1919. It was preceded in
1916 by a modus vivendi concluded between both parties and mediated by the military High
Command for the sake of the war effort.39 The Zentrale Arbeitsgemeinschaft established by the
agreement of 1919 was in a way the forerunner of the Konzertierte Aktion ("concerted action")
initiated in 1966 by Karl Schiller with the participation of organised labour and business, an

33 'Ordnungspolitische Alternativen im Gesundheitswesen', Bundesarbeitsblatt, december 1984. In March 1985 the ministry organised a
symposium on the same subject, where again the market-reform economists were strongly represented.
34 Döhler (1990, 223 ff).

35 The most controversial problem was how to include into the scheme the generation that because of its advanced age would be unable to
afford the contribution to a private insurance scheme. According to the counter-proposal, their benefits would have to be payed from a public,
tax-financed fund. At a moment when concern about the budgetary consequences of German unification was rising it was relatively easy to
present such a scheme as fiscally unsound.
36 This aspect was also underlined earlier by Shonfield, Modern Capitalism (1965).

37 In 1879, the diplomatic rapprochement with Austria was prepared by confidential negotiations - conducted on the
initiative of Bismarck - of the Centralverband der Deutschen Industriellen with the representatives of the leading
Austrian business associations (Böhme 1974, 596 ff.).
38 Abelshauser (1981; 1983, 76 ff.).

39 The importance of this associational arrangement as a historical model is not diminished by the fact that it lasted only for a couple of
years. On its limits and contradictions see Gerald D. Feldman (1970; 1981).
 10

experiment that in spite of its internal contradictions remains an attractive formula for many
political decision-makers.40

Peak associations are, however, more important in some sectors than in others. In the steel
industry, they have sometimes been quite powerless against the interests of big corporations. In
telecommunications policy, we encounter a rather clientelist network which links the
administration to some leading producers. Moreover, West Germany never developed the sort of
overarching trans-sectoral corporatist organisation which was encountered in countries such as
Austria.41 Rather, under conditions of a sectoral institutional segmentation of the state - as
represented by the Ressortprinzip -, German corporatism (where it existed) remained itself a
curiously "sectoralised" phenomenon. Comparatively speaking, one of the political weaknesses
of the Konzertierte Aktion was that (different from the Austrian Paritätische Kommission headed
by the federal Chancellor) it remained essentially a sectoral arrangement by the Minister of
Economics, and that no effective trans-sectoral co-ordination with fiscal policy, let alone with the
monetary policy of the Bundesbank, was achieved.42

Now it is remarkable that this sectoralised character of the German variety of corporatism was a
main reason not only for the "blockade of Keynesian co-ordination" in the 1970s43 but also, in
the 1980s, for the institutional blockade of a policy of deregulation. A salient example is the case
of health policy. The escalation of health costs had been a subject of strong political concern
already during the social-liberal coalition. But anybody who might have expected that the new
conservative-liberal majority would turn to a policy of market-oriented reforms in the health
sector was to be deceived. The "Health Reform Law" which was finally voted in 1988 contained
only a very limited number of "market-conform" elements and left the corporatist character of the
health system intact. And it even extended the jurisdiction of a corporatist body, the
Bundesausschuß der Ärzte und Krankenkassen (joint federal committee of doctors and health
insurance funds), to the domain of pharmaceutical price regulation.44

Health policy-making in Germany, as this example demonstrates, is severely constrained by a

corporatist network of the specialised administration and the associations of doctors and the
public health insurance funds. It roots go back to Bismarck's decision to establish a system of
public health insurance funds on the basis of self-administration (Selbstverwaltung). With the
gradual extension of this system, doctors' fees increasingly became dependent on the health
insurance funds. This collective "traumatic experience" (Döhler) led the medical community to a
strong preference for collective organisational action over the freedom of contract. In 1913, after
a series of doctor's strikes, and after a mediating intervention of the government, the medical
associations finally succeeded in breaking the power exerted by the health insurance funds over
individual doctors by the establishment of a collective bargaining system. In this system, joint
committees with equal representation of both sides were made responsible for the licensing of
doctors to practice in the public health system (Kassenärzte) and for the conclusion of contracts.
The "Berlin agreement" of 1913 thus constitutes a "social peace treaty" that is strikingly
analogous to the arrangements between organised labour and business mentioned before. Its
corporatist character became still more pronounced since the establishment in 1932, of

40 Lehmbruch (1979).

41 Lehmbruch (1979).

42 On the lack of communication between the labour unions and the Bundesbank, see Scharpf (1987), 165 ff., 253 ff.

43 F. Scharpf, op.cit., 301.

44 For the following, see Döhler (1990, 1991) and Manow-Borgwardt (1991). I am particularly indebted to Döhler's (1990, 53 ff.)
historical analysis.
 11

compulsory associations (Kassenärztliche Vereinigungen) to represent the Kassenärzte. These

associations have developed into powerful actors. They not only effectively defend the interests
of the medical profession within the public health insurance system but also enforce the rules
established in these bargaining processes on their - often very reluctant - clientele.

The essential elements of the system successively established since the early century have
remained remarkably stable up to the present time. This stability can be interpreted as the result
of an organisational equilibrium achieved in the triangular relationship of medical associations,
health insurance funds, and the influential sectoral state bureaucracy. When, in the 1970s, the
Social Democrats attempted to legally strengthen the bargaining position of the health insurance
funds in order to check the escalation of health costs this was prevented by the CDU majority in
the Bundesrat (Federal Council). Instead, the Christian Democrats gained acceptance for an
institutional extension of the corporatist bargaining mechanisms through the establishment of the
Konzertierte Aktion im Gesundheitswesen (concerted action in the health sector), modelled again
after the precedents in the relationship of employers, labour unions and government. Admittedly
the "recommendations" of this semi-annual conference of all important public and private
organisations of the sector, where the bureaucracy again plays a leading role, may often be
ignored. But it constitutes the formal nucleus of a bargaining network in which more recently,
under strong pressure from the government, the Kassenärztliche Vereinigungen, as the legally
privileged medical associations, found themselves virtually constrained to make sizeable
concessions.45 They did so in order to preserve the essential achievements of the deal of 1913
which they continue to consider as the institutional basis of the medical community's
professional autonomy. But this is obviously tantamount to an effective protection of the health
policy network against market mechanisms such as those which are advocated by health
economists.

4. Vertical cleavages in the sectoral policy networks:

Economic policy between federal and Länder authorities
Interestingly, although it was the Minister of Economics who in 1982 initiated the Wende with
the "Lambsdorff paper", even in the jurisdiction of this department the progress of deregulation
was slow, and no significant cuts were made in the subsidies for declining industries (such as
bituminous coal) that were such an important part of its traditional activities. This is not simply
explained by bureaucratic inertia or the successful lobbying of interest associations. Rather, in its
own jurisdiction the Ministry of Economics is constrained by the specific German variety of
federalism.

It is well known that the federal government depends to a considerable degree on co-operation
with the Länder: Not only their constitutional role in the legislative process makes federal-state
accommodation essential. In particular their participation in tax legislation gives the Länder
governments a strong voice in fiscal policy. Moreover, in most regulatory fields their
participation in policy implementation is indispensable. Macro-economic policy is, of course, the
chief responsibility of the Federal Minister of Economics. In consequence, however, state
governments often have different priorities.46 Länder ministers of economics put much stronger
emphasis on their regional structural problems and are therefore inclined to assume a more

45 The global sum of doctors' fees - to be distributed by the Kassenärztliche Vereinigungen - is now "capped" and can only rise to the
same degree as the basic wage in the metal industry.
46 This was already made clear in the beginnings of the social-liberal coalition government when Helmut Kohl, then minister president
of Rhineland-Palatinate, said that it was not his job to make anti-cyclical policy for the socialists.
 12

interventionist stance. In particular after the decline of the joint federal-state activities in regional
policy, the Länder have increasingly become active in their own right.47 In the eighties, this
activism was discernible regardless of the political orientation of state governments. The two
conservative strongholds in South Germany, Baden-Württemberg and Bavaria, even got the
reputation of being "neo-mercantilists" because of their active role in industrial policy.

Quite naturally, the Länder also defended their vested interests against the deregulation
initiatives. To take an example, in the Witte commission on telecommunications reform
mentioned above the representative of the Länder, the conservative Bavarian minister of interior
Stoiber, made very clear that the large states were opposed to any reform that might cause a
"withdrawal of the Post Office from the countryside". As a result of Länder opposition, the law
established an "infrastructure council" with eleven representatives from the Bundestag and from
the Federal Council each, to "participate in all decisions of the minister of post and
telecommunications that are of infrastructure relevance and concern essential interests of the
Länder".48 The case of telecommunications is certainly not exceptional. Similar opposition
might be expected in all domains where deregulation initiatives threaten strong regional interests.
Given the quite effective leverage of which the Länder dispose in the complex interdependent
structure of German federalism, it is only by accommodative strategies that the federal
government can realise its political objectives.

5. "Interlocking politics" and the party system

The institutional leverage of the Länder is considerably reinforced by the central position of the
political parties in the interlocking federal network. This dependency is the result of Länder
participation in the legislative process and in policy implementation, in particular in the Federal
Council. It is therefore vital for any government that wants to realise its program to control a
majority in this chamber. The reform agenda of the social-liberal coalition was severely
constrained by this dependency because there was a Christian Democratic Bundesrat majority all
the time.

Until 1990, the conservative-liberal coalition was not confronted with a similar situation.49
However, even in such circumstances the representation of the states in the Federal Council,
through the mechanism of "anticipated reactions" (C.J.Friedrich), results in an increased
sensitivity of the federal government to electoral sanctions. Chancellor Kohl was reminded of
this quite early in the first legislature of his majority. An important issue on its original "supply-
side" agenda was to strengthen employer rights in their relations with labour unions. As a first
important step, the coalition amended § 116 of the Arbeitsförderungsgesetz (which regulates the
functions and competencies of the Bundesanstalt für Arbeit, the Federal Office for
Unemployment and Labour Market Policy) in order to make certain strikes more difficult.50
Dangers arising from the resulting conflict with the labour unions were apparently
underestimated by the CDU. However, after the party suffered heavy losses in subsequent state
elections in Northrhine-Westphalia Chancellor Kohl swiftly moderated his strategy, and

47 For these developments see Hesse & Benz (1990, 158 ff.).

48 Cf. Grande (1989, 228, 237, 345 ff.).

49 From 1989 to 1991, the CDU subsequently lost the control of four state parliaments (Schleswig-Holstein, Lower Saxony, Hesse, and
Rhineland-Palatinate) and, as a consequence, its Bundesrat majority.
50 The amendment abolished the payment of unemployment benefits to workers in plants that were not formally involved in an
industrial conflict but became idle as an indirect consequence of conflicts in other regions. This concerned in particular automobile
plants which could indirectly be paralyzed by a strike against important subcontractors, a problem made more urgent by the spread of
"just-in-time" management techniques.
 13

deregulation of the labour markets almost disappeared from the government agenda. The
confrontational style of 1982 may have been useful to underline the profile of the coalition in the
federal electoral arena. But it was dysfunctional in an institutional setting in which the capacity
for accommodation is often a condition of successful policy formation.

6. German unification and the crisis of the market ideology

The crisis of the free-market agenda came unexpectedly, as a consequence of the breakdown of
the GDR in 1989-90. The decision for a swift monetary and economic union of both parts of
Germany was an improvised response to the perception of crisis within an exceptional structure
of decision-making. This situation favoured miscalculations in the transfer of monetary and
economic institutions due to an ideologically motivated representation of reality. The swift
transfer of these institutions resulted in a serious structural crisis of the East German economy.

In early 1990, to be sure, many foreign observers and the leaders of the coalition expected that
East Germany would experience a swift recovery because of its union with the powerful
economy of the West, and the united Germany would present to the world a new success story of
free private enterprise. Since then, such optimism has been belied by the factual developments.
The East German economy is in a movement of rapid decline that is likely to result in a deep
structural crisis.

In economic terms, the explanation for this dramatic decline is quite obvious: East Germany's
manufacturing and agricultural sector had a much lower productivity. (More pessimistic
estimates put it now below 25 % of West German productivity).51 Given these structural
handicaps, with monetary and economic union almost no sector of the GDR economy was any
longer competitive. Consumer goods lost even their traditional domestic market because of their
inferior quality or simply because of the appeal of West German goods and the superior
marketing efforts of West German distributors. Moreover, by adopting a hard currency East
Germany lost most of its soft currency markets, especially in Eastern Europe and in the Soviet
Union.

At the same time, the propensity of West German (or foreign) business to invest in the East
remains limited. For manufacturing industries, the desolate communications infrastructure makes
it clearly more profitable to produce in West Germany for the East German market than vice
versa. The often enormous ecological Altlasten ("old burdens" that are often still unknown)
involve legal risks that in many cases are difficult to assess. Insecurity about property rights
remains considerable. The unification treaty stipulates the restitution of property confiscated after
1949 to the original proprietors or their successors. It is estimated that checking these claims may
take several decades. Prospective investors, however, insist on clarification of the legal situation
before taking any risks.

What we observe looks like a deep structural crisis of an entire industrial region. Such a situation
has never existed in the post-war history of West Germany. Crises were either linked to the
business cycle, or they were structural crises limited to particular industries. The policy repertory
developed in West Germany after the second world war contains no responses to this entirely
new challenge.

51 Gross domestic product per person employed (Institut für Wirtschaft und Gesellschaft, Bonn, cited in: Der Spiegel, ibid.). According to
this source, this relative industrial productivity was at about 52 % in 1950 and stabilized at about 32 % around 1970 before declining
further since the mid-seventies.
 14

This situation is the outcome of the exceptional structure of decision-making in the unification
process. As I have argued elsewhere, the process of unification was characterised by
improvisation and the lack of any strategic master-plan that might have considered aspects of
implementation and eventual secondary consequences.52 The decision to offer East Germany a
swift monetary and economic union was strongly opposed by the Federal Bank and criticised by
some of the most prestigious economic advisory institutions of the government53 and important
business leaders. Their position was that a separate - but convertible - currency in the GDR was
the condition for a reform of the DDR economy without serious social disruptions.54 The
reaction of the government to this criticism was twofold. The bureaucracy of the Federal
Economics Ministry and other governmental experts argued that the strategy preferred by the
bankers and economists - namely, to maintain a separate East German monetary regime - would
not be viable politically. Hence the external advisors were asked to better reflect about "second
best" solutions.55 This left still open whether the monetary union would not have to be
accompanied by strong interventions aiming at creating the structural preconditions for a
competitive market economy through a re-organization of the GDR economy.56 The majority of
the government party leaders, however, persuaded themselves - and the East German public - that
monetary union and the introduction of a competitive free market economy would by themselves
lead to a recovery comparable to that of West Germany after the currency reform in 1948.

What happened in early 1990 was the temporary breakdown of the quasi-"corporatist" linkage
structure of the West German policy network. Under the unusual circumstances of 1990, the
party system cut its communication channels to other corporate actors in the West German polity
and assumed the position of an unconstrained sovereign decision-maker. This had the further
consequence that its peculiar belief systems which normally serve integrative rather than
operative purposes came to govern its operative policy choices. The belief system that dominated
not only the electoral discourse in 1990 but also the decisions of the government was the myth of
the "social market economy" in an extremely simplified version. According to this myth, under
the guidance of Ludwig Erhard, the CDU adopted a new economic strategy that constituted a
decisive break with the "command economy" of the National Socialist regime and with a similar
command economy that had been favoured in the immediate post-war by socialists and crypto-
socialists in key posts of the allied occupation and the German post-war administrations.
Supposedly, the situation was now similar. The currency reform of 1948 and the subsequent
abolition of price controls by Ludwig Erhard appeared as the key events that supposedly
explained economic recovery.57 This may explain why monetary union was embraced in early
1990, by politicians from the opposition as well as by the government, as the panacea for the East
German economic and psychological crisis,58 and why the promise of introducing the DM
successfully captured the imagination of the East German electorate.

52 Lehmbruch (1990).

53 In particular the Sachverständigenrat (SVR, Council of Economic Advisors) and the Institut für Weltwirtschaft at Kiel.

54 The same position was also taken by the left Keynesians of the Memorandum group.

55 See Otto Schlecht, permanent secretary of the Ministry of Economics, in Handelsblatt, 23 February 1990.

56 Singer (1990).

57 Currency reform is a specifically German economic policy myth: It goes back to the experience of hyper-inflation after the first world
war and the subsequent successful stabilization of the currency in 1923/24. Cf. Abelshauser (1983, 48).
58 Monetary union was first proposed by the social-democratic spokeswoman in the Bundestag for financial policy, Ms. Ingrid
Matthäus-Meier. On the other hand, its most determined critic was Oskar Lafontaine who lost as Social Democratic contender for the
Chancellorship in the federal elections of 2nd december 1990.
 15

The advantage of this interpretation of the "social market economy" was that it permitted a policy
without hard choices for West Germany: Monetary union, abolition of controls, and privatisation
of the East German economy were supposed to lead to relatively swift recovery of the former
GDR territory. No economic sacrifices from an eventual redistribution from West to East would
be required. Against this simple belief system, expert opinions and the pragmatic concerns of
business leaders could not prevail because their cognitive framework would have implied
relatively complex political strategies, developed in a long-term perspective and based upon
broad political alliances. Such strategies, however, were not available within the policy repertory
of a party system that was already engaged in an intense electoral competition. The revaluation
effect of the monetary union on the competitive position of the East German economy was
therefore completely disregarded. And in the electoral campaign of summer 1990 the coalition
asserted that - contrary to the warnings of many experts - no tax increases would be needed to
rebuild the East German economy. This promise had to be broken only a few months after the
election.

By autumn of 1991 the leaders of the governing coalition generally acknowledged that the
expectations which they entertained within this belief system were erroneous. Originally, many
put the blame either on unpredictable events59 or on incomplete information.60 One can argue in
their favour that - because of the strength of the institutionalist tradition of ordo-liberal
economics - many advisors among academic economists focussed "on fixing the institutional
arrangements of a liberal economic order and of a social security system", whereas - in the words
of a critic representing one of the empirically oriented economic research institutes - "a
discussion of the primary economic objectives relating to unification did not take place".61 In the
meantime, however, the myth of the social market economy has lost much of its integrative
power.

In early 1991, the growth of unemployment in East Germany could no longer go unnoticed, in
particular after more and more mass demonstrations against the policy of the Bonn government
took place on the streets that - not much longer than a year ago - had seen the spectacular rallies
against the SED regime. An additional shock was created by the assassination of Detlef
Rohwedder, chief executive of the Treuhand, by West German terrorists. The Treuhand Anstalt
("trust establishment") is a sort of public corporation originally established by the communist
reform government of prime minister Modrow as a holding company to control and re-organise
all former East German state enterprises. Its official mission was re-defined to convert the former
centrally controlled state monopolies into private enterprises. The first step of this task was to
break up the former huge industrial monopolies (Kombinate) which, moreover, were often
characterised by an extreme degree of vertical integration, into smaller units that might be more
manageable in a competitive market environment. This included in particular to divest them of
those ancillary activities that could more profitably be performed by independent producers and
also to reduce the labour force of companies that - as was often the case - appeared to be
overmanned. This reorganisation has already been achieved to some degree. Subsequently, and as
top priority, the Treuhand was supposed to privatise these companies and shut down those that
are no longer viable. However, the Treuhand was often accused of neglecting the social
consequences of its policies and therefore became the symbolic scapegoat for the evolving crisis.

59 The collapse of the East European markets after the breakdown of communist rule and the phasing out of the transfer rouble is
depicted as one such unpredictable development.
60 This is correct in so far as the statistical data that were available on the GDR economy proved much more misleading than was
originally anticipated. However, its basic structural weaknesses were sufficiently familiar to the experts, and common sense should have
taught that, in an economic union, the GDR economy was not competitive.
61 Heilemann (1991). See also Singer (1990).
 16

When labour unions and the Social Democrats asked for a priority to sanieren (rationalisation in
order to save at least part of the jobs) over privatisieren, even if that might mean to keep these
enterprises in public ownership, the stereotypical answer of government and coalition spokesmen
was that privatisation was the best form of Sanierung.

This dogmatic position proved increasingly unrealistic because privatization did not advance as
expected. The chemical industries do not find buyers because of the ecological burdens inherited
from the past,62 steel and shipbuilding are no longer competitive, and the traditional sites of the
automobile industry may only survive as "extended workbenches" of Western companies, with
most of the supplies coming from West Germany. Even the traditional engineering and optical
industries have lost their East European customers and have considerable difficulties in adapting
to the Western markets.

In consequence, less then ten years after the arrival of a conservative-liberal government that
promised to reduce the role of the state in the economy and was always extremely critical of
subsidised public enterprises in Italy or France, the government of the united Germany owns the
largest public industrial complex of all capitalist countries. In the optimistic expectations of
Treuhand spokesmen, most of its tasks will be achieved until 1993. More pessimistic projections
fear that it will be forced to close most of its industrial holdings and risk a social catastrophe of
dramatic dimensions, or to support them indefinitely with exorbitant subsidies.

In early 1991, growing concern about the menace of social conflicts led to a revision of policy.
With respect to property rights, the priority originally given to former proprietors was modified:
If they are not prepared to effect the required investments they may lose their claim to restitution
and instead may be compensated for their lost property. Repudiating its electoral promises, the
government decided tax increases that nullify most of the tax cuts effected since 1982. Most
importantly, the Treuhand and the peak organisations of labour and employers, with the backing
of the federal government, concluded a sort of social contract in order to manage the social
consequences of industrial reconversion of East Germany.

This corporatist pact opened the way to a new phase of the German "corporative market
economy".63 The Treuhand accepted to attenuate the priority originally given to privatisation and
to envisage Sanierung in cases where no buyers are found. And both, the Treuhand and the
employers organisations relented to the union demands for the establishment of "employment
companies" (Beschäftigungsgesellschaften), an instrument of active labour market policy that
originally had been adopted by some West German Social Democratic state governments,64 to
keep at least part of the redundant work-force in employment. In these organisations, the
unemployed may either undergo retraining, or they are occupied with demolishing obsolete
factory premises, or removing the hazardous waste that abounds on many industrial sites.
Besides, many of the unemployed have found temporary ABM (Arbeitsbeschaffungsmaßnahme,
work creation program) jobs. Active labour market policy has thus reappeared on the political
agenda in more force than ever before. Initially, financing these activities has become possible
through the tax increases mentioned above; indeed, from the early summer of 1991 it was often
argued that "money is not the problem". The problem of government debt has at the same time
lost the prominent place it once had in the fiscal policy of the government.

62 To be sure, the government - through the Treuhand - is ready to pay the eventual charges for cleaning up; but obviously this is not a
sufficient incentive for prospective investors.
63 See footnote 36.

64 In particular in the Saarland with its strong structural problems in industries such as steel.
 17

This does not mean that deregulation and privatisation are now dead issues. Some of the
unexpected consequences of unification may even bring them back on the agenda. Rebuilding the
communications infrastructure of East Germany is a task that may overcharge not only
government finances but also its planning and policy-making capacity. Hence the idea to assign
such tasks to private enterprise appeared to gain ground. Also, the administrative vacuum left in
East Germany after the breakdown of the communist regime may in the long run prove a
favourable terrain for new initiatives toward deregulation and de-bureaucratisation. By autumn
1991, the discussion was only in its beginnings. But to the degree that the present crisis is a crisis
of the institutional framework of economic and social policy-making, it cannot be excluded that
profound transformations might take place in the future.
 18

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