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The financial foundation of Germany's manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and "patient" domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely e...
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The financial foundation of Germany’s manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and ‘patient’ domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely e...
Citations
... This reciprocal process underwent a qualitative change in the 2000s as market-based banking (for example, shadow banking and direct financing through capital markets) took off and increasingly supplanted traditional bank-based lending, challenging domestic regulators and making the international financial system more vulnerable to crises (Hardie et al. 2013;Braun and Deeg 2020). In their influential work on the infrastructural power of finance, Braun and Gabor (2020) argue that the US Federal Reserve and the European Central Bank worked with private actors to facilitate the rise of market-based banking, not only deeply entangling the state with international financial markets but also engendering central bank dependence on shadow banking for implementing and transmitting monetary policy. ...
The 2008 global financial crisis and its aftermath provided fertile soil for criticism of and alternatives to the international liberal order, including the rise of financial nationalism. Contemporary financial nationalism is a view of the world that is nationalist in its motivation for political action, financial in its policy focus, and illiberal in its conception of political economy. At the same time, it is fundamentally shaped by its emergence from within the international liberal order, which both constrains the policy options of financial nationalists and provides opportunities for them to draw on transnational financial resources and institutions to advance nationalist causes. This article offers a conceptual analysis of contemporary financial nationalism that explores its fundamental characteristics, explains what is distinctive about it, delineates its four major policy subtypes, identifies the resources and capabilities required to successfully engage in it, and discusses the implications of doing so. It aids researchers in thinking about financial nationalism’s internal workings across different contexts, in understanding why it has lasted as long and spread as far as it has, in considering how it may evolve, and in contemplating how it can affect domestic and international political economies.
... The country has been at the vanguard of debates around financialization, either as a case of least-likely change (Hardie et al., 2013), or as one of unexpected resilience (Goyer 2011). While the comparative political economy literature characterizes Germany as a coordinated, export-led model of capitalism where financial interests are dominated by the manufacturing sector (Hall and Soskice 2001;Baccaro and Pontusson 2016;Braun and Deeg 2020), the steamrolling force of index funds did not spare its equity markets. In 2020, the 'Big Three' were the largest individual shareholders in 40 per cent of Germany's DAX30 firms and in many cases the owners of sizeable block holdings. ...
Universally invested asset managers like BlackRock have established a dominant position in equity markets around the globe. While extant contributions have explored their voting behaviour and role in shaping corporate governance at the firm level, less is known about their potential to build interest coalitions with other business groups, and their leverage over state-level corporate governance institutions. This article investigates conflict over a far-reaching reform to co-determination in Germany. Qualitative content analysis of over 100 stakeholder statements yields that asset managers forge coalitions with short-term-oriented investors to abolish key tenets of corporatist institutions. However, a domestic countercoalition of financial and non-financial firms prevented momentous institutional change. This article improves our understanding of international asset managers’ preferences and highlights coalition building as a key determinant of the political power of international finance. By aligning the costs of institutional change for incumbents, corporatist institutions continue to act as shields against financialization.
... The insights gained from such understanding can help existing strong banks to avoid actions that could lead to bank failure in the future. The literature has examined the failure of weak banks (Braun and Deeg, 2020;Tamirisa and Igan, 2008;Tsagkarakis, Doumpos and Pasiouras, 2021;De Grauwe and Ji, 2013). But there has been very little discussion about the failure of a strong bank. ...
Many bank failures have occurred in history. The lessons learnt from past bank failures remind us that any bank can fail and they fail for different reasons. The first step to avoid the failure of a strong bank is to identify the factors that cause the failure of a strong bank. This paper focus on strong banks and identifies the reasons why strong banks might fail. The reasons why a strong bank might fail are numerous. The insights offered in the article can help existing banks to avoid a bank failure in the future. The insights offered in the article has financial stability implications which needs to be taken seriously.
... The insights gained from such understanding can help existing strong banks to avoid actions that could lead to bank failure in the future. The literature has examined the failure of weak banks (Braun and Deeg, 2020;Tamirisa and Igan, 2008;Tsagkarakis, Doumpos and Pasiouras, 2021;De Grauwe and Ji, 2013). But there has been very little discussion about the failure of a strong bank. ...
Many bank failures have occurred in history. The lessons learnt from past bank failures remind us that any bank can fail, and they fail for different reasons. The first step to avoid the failure of a strong bank is to identify the factors that cause the failure of a strong bank. This paper focus on strong banks and identifies the reasons why strong banks might fail. The reasons why a strong bank might fail are numerous. The insights offered in the article can help existing banks to avoid a bank failure in the future. The insights also have financial stability implications which need to be taken seriously.
... (Stockhammer, 2016) Klein and Pettis (2020) argue that this depression of German domestic demand can be seen in lower consumption as well as government expenditure in favor of maintaining larger trade surpluses. Braun and Deeg (2020) identify negative spillovers from Germany's export-led growth model for German banks, as German non-financial corporations have increasingly grown to rely on retained earnings to fund development and minimize costs. Though Germany is still a central economic power within Europe, the domestic and international effects of that dominance, which owes much to trade, is ambiguous. ...
This paper argues that seeking to maintain a trade surplus may have negative economic consequences. It explains how countries trying to run a trade surplus may generate a paradox of thrift by seeking to reduce their spending on foreign-made goods and depressing growth in both nations. When many nations do this, the result will be slow growth throughout the world. Furthermore, there is no escape from the simple math of trade balances—one nation’s trade surplus must be another nation’s trade deficit. Export-led growth cannot increase global demand. If countries experiencing trade deficits employ policies to create trade surpluses, the result will be economic volatility, which reduces spending, especially investment spending, and slows economic growth.KeywordsBeggar-thy-neighbor trade policyCurrent account surplusExport-led growthBalance-of-payments constrained growthMercantilismParadox of thrift
... As some observers have noted, the function of patient capital and the role of those domestic networks for CMEs and MMEs has been seriously impaired through developments such as the increased dependence on export-led growth (Braun and Deeg, 2020), the decrease of blockholdings and entrance of impatient investors (Fichtner, 2015), or structural changes in global capital markets creating further convergence pressures (Lane, 2003). Consequently, internal diversification and institutional change within those economies have weakened the once tight-knit domestic networks of patient capital provision. ...
... 'Patient' capital plays a key role here because it provides financing beyond quarterly profit expectations. It enables firms to engage in longer-term planning and hence contributes to the establishment of networks and relationships between firms and banks (or other finance providers) typical for CMES and some MMEs (see also Braun and Deeg, 2020). 4. ...
Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research has analyzed foreign state investment as a potential source of patient capital for coordinated and mixed-market economies. However, this patient capital framework cannot explain the recent surge of protectionist sentiments, even among the “good hosts” of state-led investment. Therefore, we go beyond the patient capital argument and develop a novel framework centered on the globalized nature of foreign state investment. We create and empirically illustrate a novel typology based on different modes of cross-border state investment—from financial to strategic—and different categories of host states. Our results provide a new pathway to study the rise and effects of cross-border state investment in the 21st century.
... 6 Meanwhile, nonfinancial firms (NFCs) have further developed access to sources of funding other than bank credit. 7 Ultimately, because they have become dependent on the markets for their own funding, banks that were formerly autonomous in their lending decisions have undermined their financial power in lending to firms. The fact that large globalized banks still provide some credit to the real economy does not per se justify the benevolent position of states toward them. ...
Since the 2008 financial crisis, Europe's largest banks have largely remained unchallenged. Is this because of the structural power banks continue to hold over states? This article challenges the view that states are sheer hostages of banks’ capacity to provide credit to the real economy—the conventional definition of structural power. Instead, it sheds light on the geo-economic dimension of banks’ power: key public officials conceive the position of “their own” banks in global financial markets as a crucial dimension of state power. State priority toward banking thus results from political choices as to what structurally matters most for the state. Based on a discourse analysis of parliamentary debates in France, Germany, and Spain, as well as on a comparative analysis of the implementation of a special tax on banks, this article shows that power dynamics within states largely shape political priorities toward banking at both domestic and international levels.
... The corporate savings rate is estimated to have increased from 10% of world GDP in 1980 to 15% in the 2010s (Chen et al., 2017). Net corporate lending has been possible by suppressing wage growth for workers (Braun and Deeg, 2020;Chen et al., 2017;Glötzl and Rezai, 2018;Lapavitsas, 2012) or perhaps through excessive cash holdings by Western corporations due to divestment and "shareholder value" orientation (Davis, 2018). ...
Has global financial integration allowed firms in the so-called “Global South” to profit from financial activity? Financialization researchers have either neglected these countries and the international economic order in general or neglected firm-level dynamics, a broad sample of emerging markets, and a theoretical and historical explanation for this trend. I attempt to fill these gaps using data on all non-financial corporations across 31 emerging market economies to answer this question. To theorize and explain the recent historical origins of this process in a more sociological and global lens, I draw on the work of Giovanni Arrighi. My results show that financial inflows, but not outflows, increase financial accumulation in Global South firms—specifically short-term investments and cross-border lending. Moreover, nearly all financial income is generated by the largest firms. These results help explain how financial power undermines development in the Global South yet simultaneously empowers local economic elites who benefit from financial integration.
... Turning to the issue of the effects of the drop of the wage share in a wage-led economy, Braun and Deeg (2020) showed that the investment rate (GFKF/VA) of non-financial corporations (NFCs) has remained stable throughout the period 2000-2018, and its development has not been influenced by the evolution of the (growing) profit margin. That is to say, the increasing profits thanks to the widening in the profit share have not been fully reinvested, neither distributed among shareholders nor top managers. ...
Germany is no longer characterized by the combination of encompassing coordinated institutions that promote strong macroeconomic results and relatively uniform working conditions for the entire economy. During the 90s, acute economic problems in the form of high unemployment and eroded economic competitiveness led to in-depth institutional reforms in the fields of labour market and industrial relations. This process of institutional change has been shaped by the interests of the exporting manufacturing sector. As a result, a dual economy emerged: while firms in advanced manufacturing industries undertook flexible restructuring processes in cooperation with its core workforce using traditional institutions; institutional change, sharp wage-cutting policies and the expansion of flexible forms of employment were concentrated on a periphery of consumer and business services. Certainly, these reforms have served to meet the goals of full employment and the recovery of the trade surplus, and helped Germany to successfully manage the shock of the Great recession in comparison with neighbouring economies. Nonetheless, the achievement of these objectives was at the cost of growing inequality in employment conditions and the stagnation in domestic demand and working hours, shaping the new nature of German capitalism.
... Economic actors in Germany's export-led growth regime tend to export capital abroad rather than import it. 144 The German housing market, for example, attracted less global capital than foreign markets at that time, as it was less financialized and more conservative, and correspondingly has not witnessed surging house prices and mortgage debt from the mid-1990s until the Great Recession. 145 While the German homeownership subsidy did not attract capital from abroad-unlike U.S. GSE subsidies-it channeled domestic capital into housing and away from export-oriented sectors. ...
Why do mortgage subsidies vary across countries? Until the 2000s, the United States and Germany provided large-scale subsidies for homeownership. Yet, when both countries faced deep economic crises at that time, their paths diverged. The United States doubled down on state-based support by quasi-nationalizing its mortgage market, whereas Germany responded with market-based solutions of retrenching homeowner subsidies. This article argues that differing macroeconomic growth regimes, and the ways in which housing markets are embedded within these regimes, shape distinct coalitional logics that explain these contrasting policy responses. In the U.S. demand-led growth regime, where housing is a key engine of growth, a longstanding bipartisan political coalition expanded and entrenched mortgage subsidies to stimulate credit and consumption. The German export-led regime, where the domestic housing sector is less central to growth, facilitated the development of a political coalition and bipartisan consensus of sacrificing homeowner subsidies in the name of fiscal consolidation and structural reform to boost competitiveness. Empirical analysis is based on detailed case studies contrasting the quasi-nationalization of government-sponsored enterprises in the United States with the retrenchment of the “homeowner subsidy” (Eigenheimzulage) in Germany. The article contributes to scholarship on growth regimes, economic policy-making in hard times, and the privatized welfare state.
