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International Labor and Working-Class, Inc.

The United States and the Shaping of West Germany's Social Compact, 1945-1966
Author(s): Volker R. Berghahn
Source: International Labor and Working-Class History, No. 50, Labor under Communist
Regimes (Fall, 1996), pp. 125-132
Published by: Cambridge University Press on behalf of International Labor and WorkingClass, Inc.
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The United States and the Shaping

of West Germany's Social Compact, 1945-1966

Volker R. Berghahn
Brown University

Given the destructiveness of the Nazi regime, the major tasks of recon
struction that the Germans faced after the defeat of the Third Reich, and
the centrality of labor relations to the political economies of advanced
industrial societies such as Germany's, it is not surprising that the role of
the organized working class and of trade unions in particular should have
been hotly contested, first in the western zones of occupation and, after
1949, in the Federal Republic. What emerged over the years from this
contest is what some people have called the "German model" of industrial
relations, in which the peculiar system of codetermination (Mitbestim
mung) is usually highlighted and extolled as centerpiece.
Codetermination, to be sure, does give labor an important voice in the

management of large corporations, and probably a greater one than in

many other comparable countries. For the period covered by this article
(i.e., before Mitbestimmung was extended, albeit in modified form, to
large enterprises in all branches of industry), it applied only to heavy
industry. Here it meant both equal representation of capital and labor on
the supervisory board (Aufsichtsrat) of major coal and steel companies
under a "neutral" chairman and a "worker director" as an equal member of
the management board (Vorstand) in charge of labor relations. This ar
rangement, first introduced by the British occupation authorities in the
Ruhr in 1947, was confirmed in the 1951 Codetermination Act, but the
unions failed to obtain the extension of this model to the rest of industry.
Instead they were given the 1952 Works Constitution Act, which required
all large companies to hold elections for a works council. Representatives
on these works councils had no decision making powers like those of the
labor representatives on supervisory councils and "worker directors" under
the 1951 Codetermination Act. Their role was advisory. Still, the manage
ment was obliged to discuss major developments with them, such as pro
posed layoffs, mergers, and so on.

The obvious imbalances of power between labor and management/

shareholders that were behind this constitutional structure have led many
scholars to argue that West Germany's unions largely lost out in the post
war contest for the reorganization and recasting of industrial relations.
Labor, they point out, may have retained a foot in the door, but achieved
much less than leaders and members expected to gain in 1945-1946. There
is a good deal of truth in this assessment. In 1945, managers and owners,
many of whom had been deeply implicated in the Nazi regime, were dis
International Labor and Working-Class History

No. 50, Fall 1996, pp. 125-132

? 1996 International Labor and Working-Class History, Inc.

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ILWCH, 50, Fall 1996

credited and demoralized. By contrast the unions, due to their opposition

to Hitler and their persecution, enjoyed considerable moral authority and
were determined to assume a major role in reconstruction and the reshap
ing of industrial relations in accordance with their conceptions of macro
economic management. These conceptions involved a program of national
ization and the idea of "economic democracy" {Wirtschaftsdemokratie) as
conceived and discussed during the 1920s as a way of transforming capital
ism into socialism at the national, regional, and company levels. What

became of these early postwar ambitions? Viewed bleakly, the idea of

economic chambers {Wirtschaftskammern) as organs of high-level econom

ic planning foundered by the late 1940s. And the unions, as we have seen,
did not get as far has they had hoped in the effort to win an equal voice at
the company level.
Nevertheless, we are in danger of overstating the extent of the rollback
if we see all this as a conservative restoration {Verhinderte Neuordnung).
Diethelm Prowe was among the first to question the pessimistic view of
what happened in this field in postwar Germany. While admitting to the
existence of radical forces in the rank-and-file after the fall of Nazism, he
saw the reemergent unions and their leaders as factors seeking order to a
chaotic and highly volatile situation. Above all, he wrote of labor's search
not for a transformation of capitalism into socialism but for "a corporatist
compromise." This means that however central the question of the overall

balance of power between capital and labor may be for understanding

postwar German labor relations, we must also ask whether there were
forces inside the unions contesting majority notions of a thoroughly trans
formed industrial system. To what extent did the gradual ascendancy of
these forces help to forge the subsequent "corporatist compromise"?
With the benefit of hindsight it is easier to recognize the existence of

such forces. Given the general anticapitalist climate of 1945-1946 they

were, to be sure, initially weak. After all, in these early days a fundamental
critique of capitalism did not come just from the extreme Left. Disillusion

ment with capitalism was widespread. Here's how the system was per
ceived: It produced the Great Slump. It helped Nazism gain power. It

collaborated with Hitler's rearmament?with his war of exploitation and

extermination. And it was complicit in the "catastrophe" of 1945. Such
views were held by many Catholics, Protestants, academics, and intellec
tuals; similar voices in the labor movement would be important in the
future, even if they carried little weight at the moment.
Taking these positions seriously offers two advantages. First, it consid
erably broadens the analytical framework within which the much-vaunted
German model of labor relations is usually evaluated. Second, it brings the
influence of an external factor, the United States, into the picture. Earlier
scholarship has tended to see that influence as purely negative: as helping
to block early reconstruction attempts within Germany and as promoting a
restoration of capitalism pure and simple. Here, by contrast, it is seen as

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The United States and The Shaping of West Germany's Social Compact 127
having strengthened the hand of those inside the unions who wanted a
reformation of capitalism, though not its transformation into socialism.

And just as the above-mentioned notion of economic democracy repre

sented a revival of Weimar ideas, the concepts of these "moderates" were

likewise rooted in the 1920s. At that time, too, there had been forces
within the labor movement that advocated forms of worker participation

short of an equal share of power at the company and national levels,

provided it was complemented by an expansion of both living standards

and welfare provisions for the mass of the population. There was a brief
period in the mid-1920s when there might have been a chance for these

"liberal-corporatist" ideas to gain ground?all the more because there

were influential voices within the employers' camp that saw the advantages
of tripartism and a reduction of class tensions.
The Great Slump put a stop to these developments. Thenceforth the
more radical elements on the Left perceived politics in terms of outright
class struggle against the employers and the Reich government, a position
that slowly widened into a rejection of capitalism and the parliamentary
Republic altogether. Only the "moderates" in the labor movement came to
the defense of the Weimar Constitution against its enemies on the Right
and Left; no less important, they began to develop practical alternatives to

the orthodox economic policies of Reich Chancellor Heinrich Br?ning.

Their activities culminated in the publication, in December 1931, of the
WTB Plan, named after its authors, Wladimir Woytinsky, Fritz Tarnow,
and Fritz Baade. The Plan contained in essence a proto-Keynesian solution
to the worsening crisis. The three authors, instead of waiting with the
others at capitalism's deathbed, wanted to overcome the depression with
the help of deficit spending, closer economic management, and job cre
ation. The WTB Plan was ignored by Br?ning, and after 1933 Hitler pulled
the country out of the depression with the help of a "military Keynesian
ism" that pursued different objectives and was inspired by a totally differ
ent vision of society and politics from that of the Plan's authors?or, for
that matter, of Keynes.
However, the Plan's long-term significance was much greater. While
Woytinsky's fate is uncertain, Baade, true to his earlier beliefs, reemerged
on the Right as an economic expert for the postwar West German Social
Democratic party. Tarnow, who had traveled to the United States in the
1920s to study Fordism and the advent of a mass production and mass
consumption society, went into exile in Sweden during the war and re
turned to Germany after 1945 to become the main rival of Hans B?ckler,
the leader of the German Free Trade Unions (Deutscher Gewerkschafts
bund [DGB]), first in the British zone and later in the Federal Republic.
There is some evidence that the two were initially not that far apart ideo
logically, and that Tarnow, like B?ckler, was thinking more in terms of
transformation and "economic democracy" than of reform within the exist
ing economic structure. But it also seems that Tarnow remembered well

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ILWCH, 50, Fall 1996

what he had seen in America; Swedish Social Democratic thought about

the welfare state also seems to have left its mark. Keynes was also an
influence. His arguments had by then been more fully developed and were
being discussed not merely among economists but also among businessmen
and politicians in Britain and the United States; from there they traveled to

In considering Tarnow's background?and also the psychological im
pact of the incipient Cold War, which destroyed all notions of a third
"German" way between communism and capitalism and moved most Ger
mans, including many trade unionists, toward the West?it is not surprising
that he began to lose interest in the DGB's discussions about fundamental
economic restructuring. He did not want to transform parliamentary de

mocracy as it emerged in the Western zones of occupation. Nor did he

propose to bend capitalism before it was ready to break, as others advo
cated. Instead he turned his attention to working within the existing consti
tutional framework, to the building of a tripartist consensus between
unions, employers, and government over basic questions of the national
economy, and to the promotion of higher living standards in Fordist fashion

through greater productivity and lower prices, supported by an extension

of the welfare state for vulnerable parts of the population. In institutional
terms, Tarnow became an early advocate for abandoning the embittering
struggle for full equality of representation and decision-making in industry

and for cooperation between the "three sides of industry." In political

ideological terms, he was one of the fathers of the expansive Lohnpolitik
(wage policies) adopted by the DGB in the mid-1950s, of union modera
tion, and of the 1959 Godesberg Program. Through these programs the
Social Democrats completed their own postwar metamorphosis: From a
party of radical economic and constitutional reform that changed into a
movement that recognized parliamentarism and supported a liberal
capitalist?but also welfare-statist economic order.
On this latter front, much progress was made during the boom of the
1950s. The liberal-corporatist aspects of what the "New Social Democrats"
in the DGB stood for were finally implemented in 1966-1967 when, during
the first serious recession since the high-growth 1950s, Karl Schiller, a

Keynesian economist, became economics minister in the Bonn govern

ment. He applied, with apparent ease, "global steering" of the national
economy and, with the support of a "concerted action" roundtable com
posed of unions, employers, and ministerial officials, engineered a WTB
style Aufschwung nach Mass (textbook recovery). It was at this point that
the Federal Republic completed the reshaping of its system of industrial
relations which had begun in 1945. Clearly, it was not the system that the

radical Left or even the more moderate B?ckler had had in mind. But

looking at its institutional arrangements, including codetermination and

works councils, and at the consensus-building climate that had emerged as

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The United States and The Shaping of West Germany's Social Compact 129
a result of the "liberal-corporatist compromise," it is clear that the end
product was more than a conservative restoration.
At the same time, it would obviously be wrong to give the "New Social
Democrats" in the DGB and the SPD all the credit for this achievement.
There were other forces that contributed to the recasting of labor relations
and the forging of a new social compact after 1945. Among them were
employers who rejected a return to the authoritarian capitalism of the past
and the "class struggle from above" that the managers of the Ruhr com

bines had been waging so fervently during the Weimar Republic. The
metamorphosis and also the generational shifts that occurred among own
ers and managers have been analyzed in some detail elsewhere and need
not be rehearsed here. The role of Ludwig Erhard in this picture has also
been given due credit. What still requires further exploration and integra
tion into the research on German domestic politics in this field is the
position of the United States.
It is generally known how the contours of Pax Americana took shape
in World War Two against the background of the "New Order" that the
Germans and Japanese were trying to build at the height of the conflict in
1941-1942. American peace aims can be found in the Atlantic Charter or
in influential articles such as Henry Luce's piece in Life Magazine, entitled
"The American Century." It was essentially a Wilsonian vision, postulating
the establishment around the world of civil liberties, constitutional govern
ment, and a multilateral liberal-capitalist trading network. With the defeat
of Nazism, however, U.S. peace aims began to be translated into political
action, and it was in Germany and Japan that Washington, as the hege
monic occupying power, had the greatest leverage for implementing spe
cific reforms. The importance of these policies is that they worked to
stabilize volatile situations in some areas (and it is important to remember
the chaos that existed in Europe in 1945), but recast them in others. As far
as the economy was concerned, what was certainly to be eliminated was the
highly organized and cartel-regulated authoritarian capitalism that had ex
isted in Germany (and Japan) up to 1945. Monopolies were to be broken
up and competition in the economic marketplace was to be restored, just as
a multiparty system was to be reestablished in the political marketplace. In
this vision, political democracy was inseparably linked to "industrial de
mocracy," American style, and extended beyond the idea of antitrust legis
lation. Indeed, it also aimed at the recasting of German (and Japanese, and
ultimately even European) management traditions and labor relations.
Targeting these traditions was based on the impression, no doubt justi
fied by their behavior under Nazism, that German industrialists were au
thoritarian, inflexible, and socially irresponsible, and lacked understanding
of the problems and concerns of their employees. Accordingly, the occupa

tion authorities as well as the Marshall Plan administration started an

"economic" reeducation program which paralleled schemes for the politi

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ILWCH, 50, Fall 1996

cal reeducation of Germans. Like other American policies it relied primar

ily on "gentlemanly persuasion" and the expectation that seeing the Amer
ican industrial system firsthand would induce German managers to import
the U.S. model of organizing and running a modern enterprise. Promoted
by Paul Hoffman, the Marshall Plan administrator for Europe and a for
mer president of the Studebaker Corporation, study tours were arranged
mass production centers between the East Coast and Chicago. The partici
pants produced reports on their experiences that were widely circulated
back home. Travel accounts were given at associational meetings. Bosses

were encouraged to send promising managers to the Harvard Business

School or to introduce courses based on the American model in their

region. Some, like Ludwig Vaubel, later the chief of Vereinigte Glanzstoff,
took the cue. The first German graduate of Harvard's Advanced Manage
ment program in 1950, he returned to the Rhineland convinced of the need
to spread the American gospel and founded the Wuppertal Circle for the
promotion of a modern management training.
Meanwhile Der Arbeitgeber, the journal of the German Employers'
Federation, also publicized new ideas from across the Atlantic. Its issues
from the early 1950s are full of articles on social-psychological and educa
tional topics. "Human Relations," the concept under which the new ideas

were advertised, became?in its English original?a prominent catchword

in the Federal Republic.
While American management methods and human relations were be
ing promoted in West German industry, Hoffman and other U.S. adminis
trators also focused on the labor unions. Werner Link was among the first
to analyze, partly on the basis of interviews, the many contacts that were
forged between the DGB and the American Federation of Labor in the late

1940s, and more recently Michael Fichter has looked at the U.S. High
Commission and its policies toward the unions. What emerges from this
work is that American labor representatives inside and outside the occupa
tion administration made a major effort, first under Military Governor

Lucius D. Clay and later under High Commissioner John J. McCloy, to

insure what they thought was the correct democratic development of the
West German labor movement. To them this did not mean nationalization
of industry, nor codetermination and economic democracy. Staunchly anti
communist themselves, they deemed all these post-Nazi labor relations
reforms dangerous and subversive to the Western effort to build barriers
against the perceived threat from the East. It was also in this basic spirit
that American labor representatives supported Clay's delaying tactics with
regard to all German attempts to introduce socialization and codetermina
tion clauses into various Land constitutions and to initiate legislation on
these matters in the regional diets. This, they believed, was a matter for a
future West German legislature to take up.
Instead they praised the blessings of labor-management cooperation
of the kind that had developed in the United States during World War Two.

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The United States and The Shaping of West Germany's Social Compact 131
Struck by the hierarchies that pervaded the DGB, where strict seniority
and top-down rulings seemed to be the pattern, the officials in the Office of

Labor Affairs (OLA) made a special effort to "sell American concepts to

labor leaders at the local level" and to educate them in "the American way
of life." As in the field of management, this was done not by fiat, but by
offering information and by "otherwise help[ing] but never attempting] to

force or indeed seek[ing] to persuade German labor leaders to follow

American ideas."

West Germany, the industrial powerhouse of postwar Europe, was

indeed a promising starting point. Attitudes were beginning to change even
in the more radical labor unions, spearheaded by men who were not com
mitted to transforming capitalism but to the mobilization of capitalism's
productive potential for the benefit of the mass of the population. They
opted for this solution to postwar reconstruction, together with an accep
tance of Keynesian management, "global steering," and tripartist coopera
tion. This was the meaning of the revival of Fordism in the Federal Repub
lic during the 1950s.

To conclude: This paper has addressed two major problems in the

study of West German labor relations, broadly defined. First, it proposes
to shift the debate of labor relations away from the conventional postwar
framework of German codetermination. By looking at the alternatives to

"economic democracy" in the DGB, we can identify a Keynesian

productionist-consumerist tradition, dating back to the Weimar Republic.

It is this tradition that eventually won out not only at Godesberg, but also

in the question of codetermination. For if the DGB is so proud of the

"German model" today, it is not the early postwar B?cklerian model but its
transformation under the impact of tripartist management to which it

Second, we see that this model was not simply homegrown, but was
also heavily influenced by what came from across the Atlantic after 1945.
This therefore raises the question of the "Americanization" of West Ger
many's society and economy. It cannot be stressed too strongly that this
"Americanization" was not the overrunning of an indigenous German in
dustrial culture by a hegemonic economic system across the Atlantic. As
we have seen repeatedly, there was conflict, there was skepticism, there

was negotiation, and and there was compromise. Ultimately therefore

"Americanization" must be viewed as a process of cultural blending. The

relative mix that emerged was at times marked by stronger German ele
ments; at other times, imported American practices and mentalities came
through more strongly.
It is the task of future research to determine the composition of these
"mixes" more precisely in different spheres of society, and then to move
toward a comparative history of this problem. Such a project should com
pare the experience of other industrialized countries and their responses to
the recovery policies promoted by the United States and discussed in this

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132 ILWCH, 50, Fall 1996

article. The German experience of the postwar "social compact" was not


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