Trust and Germany's Economy

Seminar paper from the year 2005 in the subject Business economics - Business Management, Corporate Governance, grade: 1,0, University of Constance, course: The Governance of European Local Production Systems, language: English, abstract: 'Social capital can be defined simply as the existence of a certain set of informal values or norms shared among members of a group that permit cooperation among them.' Francis Fukuyama 'When economic and political negotiation is embedded in dense networks of social interaction, incentives for opportunism are reduced. Dense networks of interaction probably broaden the participants' sense of self, developing the 'I' into the 'we'.' Robert D. Putnam When we talk about the idea of European local productions systems that exist, the differences in social cohesion and cooperation among European regions might be interesting. This idea has been examined by scientists for a couple of years, now. Trust and the development of cooperation have been studied by behavioural as well as social and political scientists. In 1993, after the Communist Block in Eastern Europe collapsed, Francis Fukuyama published his book 'Trust' where he examines trust and social capital as an economic factor in the industrialized and industrializing nations. A large part of his book is dedicated to the success of Germany's economy. Fukuyama refers to the successful cooperation of horizontally (e.g. inter-capitalistic) and vertically interdependent agents (e.g. shop-owners and their employees). Indeed, the cooperation of business owners, or their managers, with their employees can be described as unique among large industrialized nations. Nevertheless, the 'Mitbestimmung'-legislation (codetermination) and the 'Deutschland AG' (Germany Inc.) conglomerate have been the object of severe criticism during the last decade. Attempts were made in order to cut back inter-firm dependencies and union-involvement in the German industry. With the latest scandal in the Volkswagen AG the 'German Trust Model' seems to become a 'lame duck'. In this essay it will be focused on the interdependencies of firms and investors, and the role trust and social cohesion play in today's German economy. Fukuyama's thesis will be compared to the reality of German or Rhenish capitalism. Financial interdependencies and cooperation among Germany's companies will be examined and it will be asked if they have changed during the last decades.