Change of Governance in Historic Perspective: The German Experience

Change of Governance in Historic Perspective: The German Experience

Harald Baum

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March 01 2005

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  • welfare state • 
  • corporatism • 
  • Corporate governance • 
  • financial market regulation

The shift from the liberal, laissez-faire attitude to the welfare state at the end of the 19th century was accompanied in Germany with an idealized notion of the state that has created a lasting and unfortunate legacy: the persistent and deeply ingrained present-day German belief in a perceived unlimited competence of the state, and a deeply ingrained skepticism against the market mechanism by

the general public that has turned out to be the greatest single obstacle obstructing urgent reforms in 21st century Germany. Nevertheless, the financial overburdening of the modern welfare state has become increasingly visible, and it is confronted with the problem of a growing discrepancy between public expectations and its ability to act. Indicators of change are a large-scale privatization of public utilities and the beginning of a privatization of welfare arrangements. The political economy and corporate governance in Germany are characterized by a corporatist approach. This regime is generally classified as the standard example of an insider-controlled and stakeholder-oriented governance system as opposed to a modern capital-marked-based and outsider-controlled system. Various threads of this insider system have started to unravel, and certain elements typically associated with outsider systems seem to be increasing. The structural changes are accompanied by regulatory reforms that are inspired by a regulatory approach typical for a marketoriented governance model. The emphasis has been on the regulation of information: enhanced disclosure duties, stricter liability for insufficient or misleading information, and more efficient means of private enforcement of mandatory disclosure rules by damages suits.


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Research Member
Max Planck Institute for Comparative and International Private Law