How Institutions Evolve

The Political Economy of Skills in Germany, Britain,
the United States, and Japan

The institutional arrangements governing skill formation are widely seen as constituting a key element in the institutional constellations that define distinctive “varieties of capitalism” across the developed democracies. This book explores the origins and evolution of such institutions in four countries – Germany, Britain, the United States, and Japan. It traces cross-national differences in contemporary training regimes back to the nineteenth century and, specifically, to the character of the political settlement achieved among employers in skill-intensive industries, artisans, and early trade unions. The book also tracks evolution and change in training institutions over a century of development. It uncovers important continuities through putative “breakpoints” in history, but also – more important perhaps – it provides insights into modes of institutional change that are incremental but cumulatively transformative. The study underscores the limits of the most prominent approaches to institutional change, and it identifies the political processes through which the form and functions of institutions can be radically reconfigured over time.

Kathleen Thelen is Professor of Political Science at Northwestern University. She is the author of Union of Parts: Labor Politics in Postwar Germany and co-editor of Structuring Politics: Historical Institutionalism in Comparative Analysis. Her work on labor politics and on historical institutionalism has appeared in World Politics, Comparative Political Studies, The Annual Review of Political Science, Politics & Society, and Comparative Politics. She is chair of the Council for European Studies, and she serves on the executive boards of the Comparative Politics, European Politics and Society, and Qualitative Methods sections of the American Political Science Association. She has received awards and fellowships from the Max Planck Society, the Institute for Advanced Study in Berlin, the National Science Foundation, the Alexander von Humboldt Foundation, the American Scandinavian Foundation, and the German Academic Exchange Program.

Cambridge Studies in Comparative Politics

General Editor
Margaret Levi University of Washington, Seattle

Assistant General Editor
Stephen Hanson University of Washington, Seattle

Associate Editors

Robert H. Bates Harvard University
Peter Hall Harvard University
Peter Lange Duke University
Helen Milner Columbia University
Frances Rosenbluth Yale University
Susan Stokes University of Chicago
Sidney Tarrow Cornell University

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How Institutions Evolve

THE POLITICAL ECONOMY
OF SKILLS IN GERMANY,   
BRITAIN, THE UNITED         
STATES, AND JAPAN           

KATHLEEN THELEN
Northwestern University

PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE
The Pitt Building, Trumpington Street, Cambridge, United Kingdom

CAMBRIDGE UNIVERSITY PRESS
The Edinburgh Building, Cambridge CB2 2RU, UK
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477 Williamstown Road, Port Melbourne, VIC 3207, Australia
Ruiz de Alarcón 13, 28014 Madrid, Spain
Dock House, The Waterfront, Cape Town 8001, South Africa

http://www.cambridge.org

© Kathleen Thelen 2004

This book is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.

First published 2004

Printed in the United States of America

Typeface Janson Text Roman 10/13 pt.     System LATEX 2_e   [TB]

A catalog record for this book is available from the British Library.

Library of Congress Cataloging in Publication data

Thelen, Kathleen Ann.
How institutions evolve : the political economy of skills in Germany, Britain, the United States, and Japan / Kathleen Thelen.
  p. cm. – (Cambridge studies in comparative politics)
Includes bibliographical references and index.
ISBN 0-521-83768-5 – ISBN 0-521-54674-5 (pbk.)
1. Employees – Training of – Europe – Case studies.  2. Employees – Training of – United States – Case studies.  3. Employees – Training – Japan – Case studies.  4. Occupational training – Europe – Case studies.  5. Occupational training – United States – Case studies.  6. Occupational training – Japan – Case studies.  I. Title.  II. Series.
HF5549.5.T7T445   2004
331.25′92–dc22     200404785

ISBN 0 521 83768 5 hardback
ISBN 0 521 54674 5 paperback

To Ben

Contents

Preface

I am well aware that vocational training is not going to strike some readers as the most scintillating of topics, but I hope they persevere long enough for me to make the case that this subject holds many valuable insights for political economy and comparative politics generally. I myself became interested in skill regimes as an offshoot of my interest in what defines and sustains different models of capitalism. Wolfgang Streeck’s pioneering work first drew my attention to the importance of training in Germany’s successful manufacturing economy in the 1980s. In the meantime, a broad consensus has emerged that skill formation is a crucial component in the institutional constellations that define distinctive “varieties of capitalism” in the developed democracies and very possibly beyond. This literature has made it very clear that different skill formation regimes have important consequences for a variety of contemporary political economic outcomes, but it had nothing to say about where these institutions had come from in the first place. This is what I wanted to find out.

   The cross-national component of this book, therefore, explores the genesis of some striking institutional differences across four countries – Germany, Britain, the United States, and Japan – asking the question: “Why did these countries pursue such different trajectories with respect to skill formation and plant-based training?” My research led me back to the nineteenth century and pointed specifically to differences in the coalitional alignments among three key groups – employers in skill-intensive industries (especially metalworking), traditional artisans, and early trade unions. Along the way, I discovered how the development of skill formation in the early industrial period interacted with the development of collective bargaining institutions and nascent labor unions and employer organizations in ways that set countries on different political-economic paths. My analysis identifies important similarities between Germany and Japan (both seen as prime examples of “coordinated” market economies in the contemporary literature) and between Britain and the United States (as “liberal” market economies). However, I also underscore and explain important differences between these pairs of cases in how training came to be organized, with enormous implications for the type of skill formation that each country institutionalized and for organized labor’s role within it.

   As I worked out the historical origins of these divergent national trajectories, I became increasingly intrigued with the related but somewhat different question of how institutional arrangements such as these, which are forged in the rather distant past, actually make it to the present. This is not an idle question, it seems to me, especially given the massive transformation of the political and economic landscapes in all four countries over the late nineteenth and twentieth centuries. This observation prompted me to undertake, alongside the cross-national dimension, a parallel longitudinal analysis in which I set out to track the evolution of German training institutions over a somewhat longer time frame than the other cases, from the 1870s to the present.

   This aspect of the research was organized around a somewhat different, but, I thought and think, even more compelling theoretical puzzle. In the literature on contemporary labor politics, Germany’s vocational training system has conventionally (and quite correctly) been seen as a crucial institutional support for the country’s high-skill, high-wage, high-value-added manufacturing economy. As such, the vocational training system has been viewed as a key element in a larger institutional complex that actively supports a production regime organized around a kind of “diversified quality production” that reconciles Germany’s strong unions with strong performance in world manufacturing markets. As the historical analysis of the genesis of the system had shown, however, the core institutional innovation around which the German system came to be built (in 1897) was inspired by deeply reactionary political motives and was mostly designed to weaken (definitely not strengthen and incorporate) the then-surging organized labor movement.

   The longitudinal part of the study traces the evolution of the German system from a core framework aimed mostly at defeating unions one hundred years ago, to a pillar of social partnership between labor and capital today – essentially asking the question, “how did we get from there to here?” I argue against prominent theoretical perspectives based on a strong punctuated equilibrium model that draws a sharp analytical distinction between long periods of institutional “stasis” periodically interrupted by some sort of exogenous shock that opens things up, allowing for more or less radical innovation or reorganization. In the case of the German training regime, I found that institutional arrangements often turn out to be incredibly resilient in the face of huge exogenous shocks of the sort we might well expect to disrupt previous patterns and prompt dramatic institutional innovation. One of the most striking features of this case is the durability of core elements of the original training system through some rather large disruptions over the twentieth century, which in Germany include several regime changes (including into and out of fascism), defeat in two world wars, and foreign occupation.

   Conversely, though, and as the German case also shows, more subtle and incremental changes occurring in relatively “settled” rather than “unsettled” times can in fact cumulate into significant institutional transformation. The analytic task, therefore, was to make sense of the incredible stability of some elements of the system through a series of major historic breaks, while also capturing the subtle incremental changes that, over time, had turned the system, in political and especially power-distributional terms, completely on its head. What the German case shows is that institutions do not survive through “stasis” or by standing still but rather precisely through their ongoing adaptation and renegotiation in response to shifts in the political, market, and social environments. By tracking changes in the political coalitions on which institutions are founded, this study illuminates the ways in which the form and functions of these institutions could be radically reconfigured over time.

   It is a pleasure now to thank the colleagues and friends on whom I have relied in many different ways over the years in which this book was in the making. Institutional support was provided by the American Institute for Contemporary German Studies, the Kellogg Institute, the Max-Planck-Institut für Gesellschaftsforschung, Northwestern’s Institute for Policy Research, and the Wissenschaftszentrum Berlin für Sozialforschung. Separate and special thanks go to the Wissenschaftskolleg zu Berlin, which provided a most congenial setting for the final stages of writing and whose fabulous librarians and staff made the last steps in the process especially easy.

   A number of colleagues and friends took time out from their own schedules to comment on various chapters. My thanks go out to Lucio Baccaro, Martin Behrens, Hartmut Berghoff, David Collier, Pepper Culpepper, Gerald Feldman, Jacob Hacker, Hal Hansen, Jeff Haydu, Peter Hayes, Gary Herrigel, Chris Howell, Peter Katzenstein, Ira Katznelson, Desmond King, Jürgen Kocka, James Mahoney, Philip Manow, Jim Mosher, Jonas Pontusson, Sigrid Quack, Bo Rothstein, Dietrich Rueschemeyer, Theda Skocpol, Steven Vogel, Kozo Yamamura, and John Zysman. The first half of Chapter 4 is a reworked and augmented version of an article I co-authored with my colleague and friend Ikuo Kume, originally published as “The Rise of Nonliberal Training Regimes: Germany and Japan Compared,” Journal of Japanese Studies 25: 1 ( January 1999). I thank the Journal for permission to use this material, and I am deeply indebted to Ikuo for opening up to me the world of Japanese labor and political economy.

   I had the good fortune to be writing this book at a time when Paul Pierson was puzzling through some of the same theoretical issues explored here, and it would be hard to overestimate the influence our ongoing conversations have had on my own work and thinking about these matters. David Soskice, likewise, has provided ongoing intellectual sustenance and stimulation over the years, and he has always been receptive to my efforts to build on aspects of his work from the slightly different angle from which I approach these things. Jonathan Zeitlin has accompanied this book almost since its inception, and I have benefited tremendously from the expertise and intellectual generosity he brought to bear in reading papers and chapters along the way. I am grateful to my former Northwestern University colleagues Peter Swenson and Michael Wallerstein, with whom I have been discussing these issues for years and whose work has had a deep impact on my own, as anyone reading these pages will surely see.

   There are two scholars and friends to whom I owe a special debt of gratitude. Peter Hall sets the standard for collegiality, critical engagement, and support. This particular work was much improved as a result of Peter’s extraordinary commentary on the manuscript in the final stages of writing, but his contribution to how I think about politics and political economy goes far beyond this and is hard to capture in a single turn of a phrase. Wolfgang Streeck has provided many different kinds of support for my work over the past several years. He continues to be a source of intellectual inspiration and generally keeps me thinking and learning. Wolfgang is also the one who, in response to an early paper, urged me to delve deeper into the politics of skill formation, which proved to be a very rich vein to mine.

   I benefited from exceptionally good research assistance in writing this book. Helen Callaghan and Margitta Mätzke did a superb job with research assignments relating to specific chapters or arguments. Christa van Wijnbergen deserves a separate acknowledgment, as her work on this project and her contributions to improving it went well beyond the usual bounds of research assistance. Sarah Stucky furnished expert help in preparing the index.

   I extend special thanks as well to Margaret Levi for her unending and inexhaustible enthusiasm for this project and to Lewis Bateman and Cambridge University Press for all they have done to promote and improve this work. I am grateful to the SK Stiftung in Cologne, Germany, for permission to use the August Sander photograph on the cover and to Steve Krasner and Caroline Jones for pointing me in Sander’s direction in the first place.

   I have a few personal debts to acknowledge. I begin with three women who immeasurably enrich my life and lives on both sides of the Atlantic – Gisela Kühne, Jessica Ticus, and Sandra Waxman. I doubt they know how incredibly centrally they have figured in sustaining me, not just through this project but generally and every single day – which is why I am writing it down. My family has also accompanied me through this process and each member has contributed in his or her own distinctive way. My wise and wisecracking teenager Andy knew when and how to inject a little levity into the mix, and Amelia’s enthusiasm for foreign adventure buoyed me up when things were difficult. My husband Ben Schneider knows exactly and very well all the ways he has contributed to my completing this work. In the unlikely event that he thinks this may have been lost on me, I dedicate the book to him.