Investing in Exports: Finance and the German Growth Model

Over the last thirty years, dramatic change in the German financial system has coincided with continuity in the export-led growth model. That model has been further honed since the demise of the bank-centered network of cross shareholdings that defined ‘Germany Inc.’ (‘Deutschland AG’). This raises the question of whether we observe incidental compatibility or positive complementarity. Is it simply that the (largely) unchanged parts of the financial system – the public and cooperative pillars parts of the banking system – are the ones that matter to export success? Or are there deeper complementarities between the export-led growth model and a dispersed corporate ownership structure dominated by large foreign asset managers? This paper argues in favor of the latter interpretation. The export-led growth model depends on keeping wages and domestic consumption down, and thus corporate profits up. This effectively neutralizes an often-cited barrier to the entry of foreign institutional investors and asset managers: the bargaining power of trade-unions and the presence of labor representatives on company boards (codetermination). Conversely, predominantly passive asset managers provide ‘patient capital’, but do not count German workers among their stakeholders. And while capital’s capacity for self-organization has no doubt diminished, its structural power has not. Previously concentrated within the large German banks, this structural power is now embedded in a broader European coalition in favor of deeper capital markets and more equity financing.