33-

CRISIS IN GERMAN DECENTRALIZED PRODUCTION:UNEXPECTED RIGIDITY AND THE CHALLENGE OF AN ALTERNATIVE FORM OF

FLEXIBLE ORGANIZATION IN BADEN WÜRTTEMBERG

Gary HerrigelUniversity of Chicago, USA

Abstract

This paper discusses the current crisis in the Germanindustrial district of Baden Württemberg. Consideredto be a flagship example of flexibility and internationalcompetitiveness for European manufacturing duringthe 1980s, producers in the district - both large andsmall - have fallen upon hard times in the 1990s. This

paper suggests that the explanation for the crisis can-not be traced either to high wages or low levels ofproductivity in the region. Rather, the problem con-fronting the producers in Baden Württemberg- andby extension in German industry as a whole - is that

they are being challenged by an alternative system offlexible manufacturing that is superior to their own.Rigidity in the system of production in Germany canbe traced to institutional arrangements that were

previously thought to be a source of strength: broadyet nonetheless specific skill categories and distinct,functional divisions within management. Successful

adjustment in Germany today will have to involveprofound self-reflection on and debate about thereform of some of the most taken-for-granted dimen-sions of German industrial order.

Introduction

Renewed competitiveness of small and mediumsized producers, timely decentralization on the partof large producers and a robust infrastructure forsupporting decentralized flexible production allcontributed to a very heady atmosphere withinmany German industrial regions during the laterhalf of the 1980s. The southwest province ofBaden Wurttemberg, in particular, was heraldedwithin Germany as a AliiJterl3ndle (a model orshowpiece Land) and was widely admiredthroughout Europe and North America for itsdynamic, high quality producers and its effectiveindustrial policy (Cooke and Morgan 1990a,1990b; Funck and Becher 1994; Hassink 1992;Herrigel 1993; Semlinger 1993). Moreover, at atime when it seemed that things could not getmuch better, the Berlin ivall fell and Germany wasunified, giving a new boost to the business cycleand longer life to the already very extended boom.As the 1990s began, it truly appeared that flexible,

decentralized production in Germany, and inparticular Baden Wurttemberg, had hit upon thesecret for enduring competitive success in aturbulent, rapidly changing international marketenvironment (Katzenstein 1989; Simon 1992).

This impression did not last long. By 1992 theGerman economy had fallen into the deepestrecession of the entire post-war period, and theAfiisterlatidle Baden ivvrttcmbcrg was by no meansspared (Association of German Economic ResearchInstitutes 1992; Atkinson 1994; Heilemann 1993;Isaak 1992). Indeed, in 1991, GDP growth rate inBaden Wurttemberg (2.8 per cent) fell beneath theFederal average of 3.4 per cent for the first timesince 1978, placing it behind all other westernGerman provnces except the Rheinland Pfalz.Investment rates, especially in investment goodsbranches, fell off dramatically while job growth inthose sectors fell off alarmingly: the total numberof jobs in the Baden Wurttemberg investmentgoods industries fell by 11.4 per cent between 1991and 1993. Large and small firms in a variety of

34

sectors - especially, machiney, auto andelectronics-related - announced sometimes

dauntingly large losses and lay-offs: Daimler-Benz,for example, announced in 1992 that it planned tolay off 29,000 workers and engage in massiveinternal restructuring. Berthold Leibinger, aprominent machine tool industry executive, was soalarmed by the dramatic downturn in orders forGerman machine tools in 1993 that he predictedthat nearly half of the industry’s jobs would have tobe cut by mid-decade (Cooke, 1994; Cooke el al.1993; Engelmann et al. 1994; Iwer 1994).’Bankruptcies (both personal and business) ingeneral increased dramatically in the FederalRepublic during this period. From a tow of 12,437in 1990 totalling DiN,16.82 billion, the number ofbankruptcies increased by 1993 to 19,264 in 1993,totalling some D.,N129.03 billion (Industrie- undHandelskammer Heilbronn: V’irtschaftsdienst

1994).Most interesting about this recession is that

Nirtually no one in Baden Wurttemberg believedthat it was simply a cyclical downturn. On thecontrary, most voices clearly understood thedownturn to be some kind of structural crisis andthere was nearly universal agreement on theprimary symptoms of the crisis. For example, bothan elite, heavly business dominated,Zukunfiskommission (Commission for the F’uture),which was appointed by the Government of BadenWurttemberg to study the economic problems ofthe region, and a study by the IMU Institutecommissioned by the IG A’Ietall trade union,concluded that the crisis in the region was due tothe incapacity of regional producers to keep pacewith increasing international competition. Relativeto their main competitors in Japan, the rest of thePacific Rim and in North America, the two studiesagreed that Baden BVürttemberg producers, largeand small, had the following failings:

. They brought new products to market moreslowly than their foreign rivals.

. They had more difficulty continuously andquickly integrating new technologies into theirproducts.

~ They had a tendency to ’overengineer’ theirproducts.

. They were unable to lower their productioncosts into competitive ranges.

Both parties further agreed that producers hadbecome overly rigid and bureaucratic (Iwer 1994:50-9 and 66-82; Zukunftskommission Wirtschaft2000 1993). Finally, though both groups werewriting about Baden BVürttemberg, both intimatedthat the problems they identified applied far morebroadly to German manufacturing as a whole.2 2

Despite this surface consensus on the symptomsof crisis, fundamental disagreements existedbetween the parties regarding the underlyingcauses and possible remedies of the crisis. Thegovernment and employer side claimed that thedecisive problem for German competitiveness wasthe high comparative level of German productioncosts and in particular wage costs (e.g.Zukunftskommission Wirtschaft 2000 1993).Labour and academics sympathetic to labour, onthe other hand, claimed that the real problem laynot in wages, but in the failure of government and

management to raise productivity and engineer ashift within the economy to more modem and

growth intensive industries and technologies, suchas information technology, biotechnology, newmaterials technologies and energy, aerospace andenvironmental technologies (Iv-er 1994; Naschold1994). One side wanted to shift the blame andultimately the burden of adjustment onto labour,the other side onto management.As politically weighty as each of these positions

may be, neither one is altogether satisfactory as anexplanation for the crisis. Though it is true thatGerman wages are higher than most of their majorcompetitors’ (and particularly those of the Japaneseand Americans), the gap is moderate and,moreover, has not changed appreciably from theperiod of the 1980s when German competitivenesswas being celebrated (Iwer 1994: 30-43).Likewise, German productivity levels have alwaysbeen out of line with many of their foreigncompetitors in many sectors, largely becauseGermans traditionally have very successfullyemphasized the production of lower series, highquality niche products that their primarily volume-producing international competitors did not andcould not produce. (The production of suchproducts was always cost intensive and resisted

35

productivity enhancing rationalization.) Thedifference now is that the distinction between aniche product and a volume product has begun tocollapse and Germany’s competitors have been ableto maintain their higher levels of productivity whileentering German high quality markets (Naschold199-I). This, moreover, has nothing to do with afailure to enter new ‘growth’ markets: Germancompetitors are gaining market share in traditionalGerman markets such as machine tools andautomobiles! The problem is not simply that theGerman employers have been unable to maintainlevels of productivity. Rather, it is that Germanmanufacturers can’t compete in world markets

using the market strategies and productionpractices that have made them successful in thepast.

An altenzative view

This paper will present an alternative to both of theabove explanations of crisis. It suggests that thecurrent crisis afflicting German producers stemsfrom the fact that they are now confronted ininternational competition with forms of flexibleorganization that are superior to their own.Adapting to and adopting some or all of thefeatures of the alternative system will involve

profound restructuring in many of the most taken-for-granted dimensions of German industrialpractice: in particular the central structuring role ofskill distinctions within German workplaces andfunctional divisions within the managerialstructures of German firms. Reforming thesedimensions of German industrial order will forcethe Germans to reconsider the adequacy ofinstitutional solutions to labour and product marketprocesses that have been in place for much of thecurrent century and, moreover, which have longbeen considered to be sources of Germany’scompetitive strength in world markets.The current crisis in German manufacturing, in

other words, cannot be resolved by shunting theburden of adjustment onto either labour ormanagement. Instead, successful adjustment willhave to involve the collective reconsideration of theinstitutional mechanisms that both define and

regulate relations between all parties in labour andproduct markets. Crises are moments of collectiveself-redefinition in which the order of relations,roles and institutions in social life is recomposed.The current crisis in German manufacturing, thispaper will show, is provoking a set of debates andexperiments which aim at nothing less than thereconception of the actors within and theboundaries of industrial practice in the Germanpolitical economy.

Finally, before getting started it is important toaddress the fact that like many of the participantsin the debate referred to above, I will make here ageneral argument abut industrial transformation inGermany through a close analysis of the experienceof producers in Baden Wurttemberg. This mayappear paradoxical to those familiar with thearguments for the peculiarity of BadenBVürttemberg’s industrial structure during the1980s, but the paradox is easily clarified. Thesignificance of Baden BVürttemberg during the1980s largely had to do with the striking success ofdense networks of small and medium sized firmsthere. Baden ivfmembcrg was constructed inpublic debate as an industrial district and .

contrasted with the competitive and organizationalstrategies of larger scale firms elsewhere inGermany; and, indeed, within Baden lVurttembergitself (see for example Herrigel 1989).~ 3

In the current period, hov;~ever, both large scaleproducers and the dense networks of small andmedium sized producers are suffering competitivedecline together in international markets. Thepremise of this paper is simply that it is plausiblethat the problems that large and small firms have incommon stem from characteristics they share,rather than from their differences. Ironically,because Baden ivirttcmberg, unlike many otherGerman regions, has important concentrations ofboth large scale and decentralized small andmedium sized producers, close analysis of theexperience of producers there can be taken to becharacteristic of the experience of producersthroughout the German Federal Republic.

36

Competing with new forms of flexibility:automobiles and machine tools

The experiences of the machine tool and theautomobile industries provide paradigmaticexamples of what has happcncd to flexibledecentralized production in Baden Wurttemberg inthe 1990s. In both cases, the traditional strategy forsuccess had been to aim for the high qualitysegments of markets for particular technologies orproducts and attempt to narrow (or, as in the caseof Mercedes Benz, manage) the price gap betweentheir higher quality good and standardized variants.This strategy was made possible by a unique arrayof social roles, political and economic practices andinstitutional mechanisms that shaped and regulatedlabour and product markets among producers inthe region:

a In general there were relatively high levels ofskilled labour in production.

0 Significant dimensions of the specialtyproduction processes utilized craft or batchproduction organizational principles and notmass production ones.

0 Among industrial workers and managers in theregion, in large and small firms, there existed astrong social norm according social honour tothe successful performance of a Emf or skilledvocation.

0 Relations among producers were constitutedvertically through extensive and collaborativesub-contracting relations and horizontallythrough long-standing arrangements for thestabilization of competition and the co-ordination of specialization.

0 Finally, many costs and risks that especiallysmaller and medium sized producersencountered w ere socialized across a supportiveexoskeleton of institutions for technologytransfer, vocational training, export promotion,market stabilization etc.

This system of industrial order in southwest

Germany relied on quality and customersatisfaction to compensate for what where

traditionally considered to be, given the way theywere produced, the Î1n’an’ab!)’ higher costs of theproducts it manufactured.; 4

The Achilles’ heel of this strategy and possibly ofthe entire supportive social economy, it nowappears, was that it depended on the existence of arelatively stable space in markets for higher qualityand/or customized products that were moreexpensive than standard variants. This space seemsto have disappeared in the 1990s, not becausethere are no longer consumers interested in highquality and customization, but because a wholehost of producers in these industries, particularly inJapan and the United States (though not onlythere), adopted production methods that enablethem to supply this demand at a much lower pricethan the Germans can. Moreover, thesecompetitors can do this while driving the pace ofinnovation to levels even the historically highlyinnovative Germans are not accustomed to (see forexample Schumann et al. 1994).~The key advantage the new alternative

production methods have over the traditionalGerman form of decentralized industrial order isthat they organize production in ways that not onlybreak down boundaries Between firms, as thedecentralized Germans have done, but that breakdown internal divisions within their productionunits as well. Extremely flexible organizationalforms have been diffusing, in different ways indifferent countries, bringing production,purchasing, sales and development departmentstogether, often along with suppliers, to co-operatein the ’simultaneous engineering’ of products.These changes have been accompanied by and areintegrated with the broad diffusion of group orteam work in direct production, modularization ofproduction, the proliferation of U-shapedproduction lines, and the institution of zero defectand continuous improvement policies managed byteams themselves. All of this is organized aroundand enforced by the maintenance of extremely lowinventories throughout the production process(Aoki 1988; Koike and Takenori 1987; Nishigushi1992; Rommel et al. 1995; Shingo 1987, 1992;IVomack et al. 1990).Such systems attempt to orient the entire process

chain in production, from development and designto the assembly of the final product, around theneeds and desires of the customer. The key to thesystem’s tremendous fleacibility is the fact that iteffectively reunites the conceptual development of

37

product and production design with their actualmanufacture within production units by removingall fixed roles in the workplace. Product teamsdesign and produce a good and specific tasks aredefined and allocated through tire process ofdevelopme7it and productioll itself. The key to thesystem’s remarkable innovativeness rests in theclose and continuous self-monitoring practices thatthe new product teams engage in under conditionsof extremely low inventory: because buffers areextremely small, each position in the productionprocess has an incentive to get information aboutand communicate with the entire set of positions inthe process to optimize How and avoid bottlenecks.This structure engenders a continuous discussionin production about its organization and the natureof its product. At its limit, the logic of thisalternative system causes the old style ’firm’ todisintegrate entirely into an infinitely recombinableset of roles and relations that the participantsthemselves reflect upon and structure (Sabel199~).6 6Experience in direct competition has proven the

superiority of these alternative methods over thetraditional forms of decentralized flexible highquality production that have existed in Germanregions such as Baden Wurttemberg. Thesignificance of the growth of Toyota’s Lexus luxurymodels and Nissan’s Infiniti, for example, has beenwidely appreciated as a threat to German luxuryautomobile producers, especially Daimlcr-Benz’sMercedes Benz marques. Without (at least theperception of) any drop in quality, Nissan andespecially Toyota, using the alternative productionmethods, managed to produce luxury cars muchmore cheaply than Daimler-Benz and quicklygarnered a very large section of the Americanluxury automobile market during the later half ofthe 1980s. By the early 1990s, the Japanese wereturning towards European markets.

If there were any doubts at Daimler-Benz thatthe production methods deployed by the Japanesewere superior to those in place within its ownfactories, these doubts werc dispelled when it wasrevealed that their main assembly plant inSindelfingen was the notorious &dquo;anonymous highquality but low productivity European plant’ in theMIT Automobile Project’s famous study of theworld automobile industry, TJie4la<fiine That

Challged The lvorld (BVomack et al. 1990: 91; Cookeet al. 1993). According to the MIT Report, thisplant was ’expending more effort to fix problems ithad just created than the Japanese plant requiredto make a perfectly new car the first time’.7

7

Daimler-Benz itself estimated in 1993 that its

production costs were roughly 35 per cent higherthan its main competitors’ in Japan. In that sameyear, the company announced a record D1~II.8billion net loss (Morgan 1994).The competitive disadvantages of the

decentralized German craft manufacturing systemrelative to the more flexible and lower cost one

increasingly being adopted by the best of theirmajor competitors is if anything even more clear inthe case of the machine tool industry. Here, too,the Germans have performed badly relative to theJapanese and rejuvenated US producers during the1990s (Finegold et al. 1994; Schumann et al. 1994:371-528, esp. 406f). As in the automobile case,high German production costs and the highquality, greater flexibility and relentless innovationof competitors have been to blame. Producers ofhigh quality standardized computer guided tools,such as Traub Maschinenfabrik of Reichenbach/Fils and the Index-~Verke of Esslingen, have beenradically out-produced by Asian, especiallyJapanese producers: the Japanese have been able toimprove their machines to be able to perform thesame kinds of procedures as the latter twocompanies’ machines can, and the Japanese can dothis, moreover, at a much better price, and withbetter service and delivery conditions (Schumann eial. 1994: 404-5). At the high end of lower volumespecialty machines, German producers arc beingsqueezed on the one hand by the ever improvingquality and flexibility of Japanese standardmachines (which can be used in increasingly broadmanufacturing realms, formerly only accessible tospecialized machinery); on the other hand,competition in those remaining markets has beenintensifying with the resurgence of Americanproducers (Finegold et al. 1994; USDC,International Trade Administration 1994).The inefficiency of German production relative

to the Japanese can readily be seen in the fact thatdespite a 74 per cent increase in productionbetween 1983 and 1990, rates of labourproductivity (value added per employee) in the

38

Taklt 1. Performance and costs of German machine tool enterprises

Note: . Average values for firms with more than 500 employees. In 1990, these producers represented 19.7 per cent ofall firms in the industry, 63.3 per cent of all employment, a significant proportion of production and the bulk of exportsin the industry.Source: Table adapted from Engelman et al. (199~: 37).

German industry were well beIow those in theJapanese industry, which grew at an even morespectacular rate (see Tables 1 and 2). Labourproductivity in the German industry, moreover, didnot keep pace with increases in output over theperiod, while in Japan they did. The gravty of thistrend appears, however, only when Germanperformance in international markets in the 1990sis taken into account. The incursion of Japaneseand American producers into markets the Germansonce dominated is indicated by the movement ofworld production and trade figures in the 1990s(see Tables 3 and 4). Since 1990, both Japaneseand German production levels have fallen relativeto the United States, Italy and China, but theGerman descent has been much more precipitousthan the Japanese. More ominously for theGermans, benveen 1992 and 1993, Germany’stotal share of world machine tool experts declined

by 17 per cent, while the share of the Japaneseincreased by 25 per cent (despite nearly constantappreciation of the Yen) and that of Americanindustry increased by 20 per cent. Theattractiveness of German products in exportmarkets is simply falling off. By 1994, Japaneseproducers of CNC lathes accounted for 25 per

cent of the Gen7iaii market for such machines

(Cooke 199994..

Internal reorganization: the end ofGerman-style decentralized craftmanufacturing?

’

The decisive difference between the highly flexiblesystem of production increasingly being deployedby successful producers throughout Japan, theUnited States and elsewhere (each, naturally, todifferent degrees and in its own way) and thesystem of flexible production as practised amonglarge and small producers within the industrialdistrict of Baden BVürttemberg lies in the former’sfar more open and flexible organizational practicesinside production units. This is extremelyparadoxical, because it was thought during the1980s that, in addition to the capacity to utilizespecialized sub-contractors, the flexibility of smalland medium sized German firms (as well as, to aconsiderable extent, even that of large volumeproducers in the region such as Robert Bosch)rested on the tremendous resourcefulness and

39

autonomy of broadly skilled workers in productionand the close, co-operative relations between thoseskilled shopfloor workers and higher levels ofmanagement within the firm. The competitor ’lean’or ‘open’ or ’simple’ forms of flexible organization,however, rely on far greater worker autonomy andcross-functional and cross-departmental co-operation within the firm than is currently possiblewithin the traditional internal organization ofGerman craft producers (Herrigel and Sabel 1994;Kern and Sabel 1993; Naschold 1994).The sticking points within German firms arc

roles, jurisdictions and hierarchies that date back toan earlier period of recomposition in the industrialsystem. In my book (Herrigcl 1995: chs 2 and 5), Ishow that through the construction and elaborationof an industrial structure of co-ordinated

specialization in the first part of this century, smalland medium sized specialist producers in Germanyimposed a degree of stability upon themselves asproducers that allowed them to rationalize theorganization of work within their factories.Homologous processes of rationalization alsooccurred within large firms at that time (Herrigel1995: chs 3 and b).8 Out of this rationalizationprocess emerged two clusters of roles and

institutions which have become so pervasive in theorganization of German industrial order that theyare taken for granted as quasi-natural features ofthe organization of industrial work: broadly definedyet nonetheless distinct skill divisions within the

production process; and functional divisions withinGerman managerial hierarchies. Theseinstitutionalized features of German industrial life

played a very significant role in the success ofGerman producers after the Second World War.But they now constitute, at least in their currentform, obstacles to effective adjustment to thechallenge of alternative forms of flexibility.

The creation of specific skillsThe first outcome of the early r<ventieth-centuryrationalization process was a system of specific andcircumscribed skill categories in production, forwhich an entire infrastructure of vocationaleducation exists and within which hierarchicalcareer ladders have emerged. Prior to that firstgreat period of rationalization at the beginning ofthe twentieth century, the internal structure ofmost small and medium sized producers and many

Table 2. Performance and costs of Japanese machine tool enterprises j~

Notes:

t Converted using 1989 exchange rate.* Average values for firms with more than 500 employees.Source: Table adapted from Engelman et al. (1994: 37).

40

Table 3. World shares of machine tool production 1990-93 (%)

Source: American Machinist & MTTA.

Table taken from Cooke (1994: 8).

Table 4. Export share of world machine tools, 1992-93(%)

Source: American Machinist.Table taken from Cooke (1994: 8).

large scale craft producers as well, was very open:skilled workers were cut off both socially andph}~sically, from the old craft (Haudmerk) systemand deployed their abilities and developed theirskills according to the needs of the firm and itscustomers. Since firms themselves. tended to

produce a wide variety of specialized products,skilled workers within the firms tended to developvery general and broad skills. Just as in the old craftsystem, where artisans learned all of the operationsassociated with the craft, the transplanted industrial

craftsmen learned as many operations as werenecessary for the production of specialtiesassociated with the enterprise that employed them(Adelmann 1979; Lee 1978).

During the period of rationalization, firmscollectively limited themselves to the production ofa limited range of product in order to stabilizeproduct market competition in a broad array ofspecialized manufacturing industries (Herrigel1995: ch. 2). These reforms in the structure ofproduct markets had significant consequences forthe organization of production and labour marketswithin specialized producers: in particular, it madethe very broad and general knowledge typical ofnineteenth-century skilled craftsmen no longernecessary. Through a long and intense process ofsocial and workplace struggle between managementand labour, rationalization ultimately transformedthe identity and the role of the skilled worker inspecialist production: specific kinds of skills wereconstructed as specific specialties with specifichierarchies of learning and social and workplacestatus associated with them. Masters in factories,for example, went from being generalists in broadareas of craft production (e.g. machine making orironworking) to being specialists with particular,circumscribed areas of vocational expertise, such aslathe operation, tool-making or the repair ofelectrical circuitry. This process of rationalizationwas exacerbated in the early decades after theSecond ivorld War when many industrial marketsbecame more concentrated and product cycleschanged more slowly: relative stability encouragedthe proliferation of specialized jurisdictions at theworkplace. (On these processes see Freyberg 1989;Herrigel 1995; Kern and Schumann 1970; Preller1949; Seyfert 1920.)Through this process, very specifically

circumscribed skills and associated job ladderswere gradually naturalized and integrated into theway that people thought, not only about industrialwork and its organization but about vrtue, honourand status for industrial actors in German society.9A skilled worker (Facharbeiter) demonstrated his orher integrity and acquired prestige through theperfection of his or her craft. Social standards forthe evaluation of achievement existed because itwas possible to distinguish one group of people’sspecial skills and contributions to the production

41

process from others, both on the shop-floor and inthe formal negotiations with employers. Moreover,individual hierarchies of job ladders within skilldistinctions gave rise to social status distinctionsboth in the workplace and outside (Kern andSchumann 1970; ~1ooser 1984).These relatively fixed role identities involving the

possession of a particular skill, distinct from others,have formed the basis for the emergence of anestate-like (what the Germans would call aStairdisclre} position for skilled industrial workerswithin Germany today: skilled machinists, forexample, are inculcated with an ethic of the valueof their own expertise for the firm and of thesignificance of their skills for the prosperity of theGerman economy in the post-war period from thevery beginning of their apprenticeships. Theiridentity as a skilled worker provides them with ameasure of dignity, and their capacity to exercisetheir skill and develop it contributes to their é/all,not only within the factory among their fellow s, butalso in the broader society as word and evidence oftheir expertise spreads throughout theircommunities. Skilled workers form the backbone ofthe strong German labour movement and dominatethe institutions of workplace representation inGerman factories, such as works councils.

Finally, although the status of Facharbeiter groupsskilled workers from all trades equally within thegeneral space of social positions within Germansociety, within all indivdual skill categories there isa fairly rigid paternalistic hierarchy. Older mastertool-makers, for example, direct less experiencedones and supervise the shop-floor training ofapprentices. They organize the labour market andtransfer by example and through instruction thevalues associated with their trade. Once the statusof skilled worker has been achieved, moreover,hierarchy continues to structure the career of theFacharbeuer, as those with greater dexterity orenergy (or both) are allocated greater responsibilityand given more challenging tasks (Hildebrandt1991; ivdtz ei al. 1974).This social world of skilled workers has been

periodically modified over the course of the post-war period, and quite significantly in the 1980s: inorder to facilitate workplace flexibility, the numberof discrete skill designations has been decreased(Streeck 1987). But, for all of these reforms, the

underlying principle of specialized skill as aparticular role with its attendant jurisdiction andinherent hierarchy continues to play a veryimportant shaping role in German workplaces andthe institutions that attend to them.

Functional departments in managementThe second taken-for-granted feature of theGerman manufacturing system that emerged out ofthe period of the first great period of rationalizationin the early twentieth century consists of the formaldepartments for the various functions ofmanagement: for example purchasing, marketing,development, finance and production. Thesedepartments, which exist in all but the very smallestof enterprises, are typically staffed by a mixture ofmanagers who have been recruited out of the shop-floor milieu and those with more academic training.They, too, have particular conceptions of the roletheir department plays in the success of thecompany and, like the skilled workers, have careerhierarchies and status hierarchies based on andcultivated by performance and experience withinthe milieu of thc department itself (Chandler 1990;Hartmann 1959). Initially, such functional divisionswithin firms had relatively modest consequencesfor the degree of bureaucracy within functionaldepartments. But as firms grew larger, particularlywith the diffusion of mass production during theSecond World War and in the 1950s, bureaucratichierarchies of specialized managerial positionswithin each of these functional departments grewvery large and the ranks of middle managementgrew tremendously (Guillen 1994; Pross andI3oettieher 1971; Thanheiser 1975).

If not quite an estate like their blue-collarcounterparts, management in Germany hasnevertheless a very robust sense of its own positionin society and of the kinds of achievements,credentials and social entitlements that should beassociated with its role in the economy. Unliketheir American counterparts who, with the typicallB1BA, receive a very broad and largely non-technical business education, most Germanmanagers are technically trained, either asengineers or as Betriebsmirterr, the latter being the

42

far more specialized and technical German variantof the American business degree (Lawrence 1980;Locke 1984 and 1989). Once employed, Germanmanagers typically are cultivated by superiors,nursed along and inculcated with the traditions andnuances of life in the firm and often in the

department of the firm. Technical expertise andseniority are the prerequisites for the promotionand for the acquisition of social status.

During much of the period following the SecondWorld War, German mangers were unique,certainly compared to American managers, for thedegree of familiarity they showed with theproduction process and the technical characteristicsof the products their firm produced. Indeed, theconfluence of technical expertise and status in thecareer path of managers appears to have had theinteresting result of facilitating verticalcommunication within German firms without

jeopardizing the hierarchy of distinctions: manyoutside observers have noted the ability of Germanmanagers to communicate and co-operate with

production workers and their representatives, whileno one confuses even the lowest levels of

management with industrial workers. Suchcommunication allowed for considerable flexibilityin production, because production managementand labour were able to quickly reach agreementabout problems and work together to adaptstandard procedures to particular market needs.

Paradoxically, the same factors allowing forvertical communication within firms worked againsteffective horizontal or cross-functionalcommunication and co-operation. Technicalexpertise was always specific (e.g. mechanical orchemical engineering; accounting or marketing)and then it was made even more specific as onegained experience in the firm: e.g. mechanicalengineers learned about the manufacture of aparticular area of machine tool-making;accountants the ins and outs of financial and tax

regulations for the particular sector and size of firmthat employed them. The process of gainingexpertise and status turned managerial heads awayfrom one another and focused them on thefunctional world in which expcrtisc could be gainedand careers made. All of this, naturally, contributedto the maintenance of hierarchy within firms as awhole because the only ones able to co-ordinate

the operations of the various functionaldepartments were those at the very top of the firm(Lawrence 1980; Pross and Boetticher 1971).

For all of the many strengths and successes ofthese two ’doxic’ features (Bourdieu 1977) ofspecific skill jurisdictions and functional divisionswithin management over the course of the periodsince the early twentieth century, both of theseclusters of roles and institutions within the Germanindustrial system are proving to be disadvantageousunder the current conditions of extremely rapidproduction and technological change (Herrigel1995; Kern and Sabel 1993; Naschold 1994;Schumann el al.: 643-64). The vulnerabilities ofthe system become clearest in the case of theintroduction of new products. Each time a newproduct or a new technology is introduced - asopposed to an old one that is customized for acustomer - the various roles that each of the

categories of skill and management will play in theproduction and development of the new productmust be bargained out. Each currently existingcluster of expertise and institutional power,naturally, wants to participate; each has its ownideas and solutions; each defends its turf againstencroachments from the others; each takes forgranted that it should have a legitimate place in thenew arrangement within the firm.’Electricalmasters and technicians, for example, will fightwith mechanical ones both on the shop-floor and inthe design studios over different kinds of technicalor manufacturing solutions to problems that havedirect consequences for the amount and characterof work that each will have to do and on the overallvalue that their role within the firm will contributeto the value of the product.

If the new product involves the increasinginterpenetration of formerly distinct areas oftechnology and expertise - such as micro-electronics and mechanical engineering - it willtake some time to iron out all of the potential areasof conflict. If the market is stable for the productand doesn’t change very rapidly, it might bepossible to wait until all of these conflicts have ebeen resolved before deciding upon the final designof the new product. But, as is the case in the1990s, if the market is turbulent and unstable andthe lifespan of the current technology is clearlygoing to be limited, firms are forced to bring their

43

products onto the market while these internalconflicts are still being worked out. More oftenthan not, impatient and nervous senior managersunder time pressure but with no greater knowledgeof the technology or the market than thecontending specialists, is forced to broker acompromise between the players in a way thatallows the solutions of each - to the extent that

they are not contradictory - to be built in to theproduct. All of this simply to get the new productto the market before it (the market) is completelyinundated with even newer products andtechnologies (Schlichter 1994). It should not besurprising that the products of such compromiseswill appear to the customer as inelegant, overpricedand ’over-engineered’ - they are.

Dealing with self-blockage: successes andfailures

This is what is going on in German factories today.Jurisdictional disputes driven by the need toaccelerate new product introduction at a momentwhen the boundaries between traditional skill and

management divisions are being technologicallyeroded is driving up the cost and driving down thequality of products. Such jurisdictional conflictsdon’t exist in the alternative flexible system that theGermans are competing against because there arefewer fixed jurisdictions or occupational identitiesin that alternative system. Because they are able tocombine the work of development departments andproduction (simultaneous engineering) and utilizemodular sourcing and U-shaped, team managed,production lines, many Japanese and especiallyAmerican competitors can bring out new productsrelatively rapidly that are more simply and elegantlydesigned, of high quality, produced at very Iow- costand which are attentive to customer needs.This is extremely difficult to do in the German

system as it is constituted today in Baden«urttemberg: to implement more boundaryblending forms of co-operation (both vertical andhorizontal) in development and production, thesystem of discrete skill jurisdictions, careerhierarchies and functional pillarization within firmshas to be deconstructed and/or its elements

recomposed in a new more flexible way. Given thecentrality of skill and technical expertise within thesocial organization of small, medium-sized andlarge producers in Germany, however, this has notbeen proving easy to do.Most firms, not only in machine tools and

automobile but throughout the manufacturingeconomy, have recognized the need to change,especially since the onset of crisis in the early1990s and the emergence of the remarkable gapsbetween German levels of productivity and those ofcompetitors.10 Yet few producers, large or small,have had success up until now in being able toovercome the opposition of entrenched groupingsof skilled workers threatened with the loss of status

through incorporation into teams that deny theboundaries of former jurisdictional specializationsor of independent departments, reluctant to havetheir functional areas of power within the firmsredefined and diluted through recomposition withother areas. It is difficult, after all, to tell workersand managers who with considerable legitimacyunderstand themselves as having contributed

’

significantly to the traditional success of high .

quality manufacturing in Germany that their rolehave become obstacles to adjustment.

’

The following section will outline how suchconflicts have in many cases given rise to furtiveand self-undermining efforts of adjustment informerly successful specialized German firms. Twoexamples of self-blockage, drawn from a pool offirms examined during a research sojourn in BadenWurttemberg in the summer of 1994, will bepresented.’ Both cases show a dynamic of selfblockage driven by entrenched jurisdictionalinterests at work, yet in one it is labour that is theprimary sticking point, while in the other it ismanagement.These two examples of self-blockage will then be

followed by two cases in which the resistance ofentrenched interests has apparently beenovercome. These cases will make the importantpoint that the absolute decline of Germanindustrial competitiveness in the currentenvironment is not inevtable. They will alsounderscore, ho~;~ever, the point that successfuladjustment today can be achieved only through areconceptualization of the fundamental features ofsocial identity and industrial governance that have

44

heretofore been considered central to German

competitiveness.

Two cases of self-blockage:The first example of self-blockage is that of theElectric Turbine Works in southwest Germany of aEuropean electro technical multinational(Interview, June 199-1- name of firm withheldupon request). The globally active parent Europeanconcern has very systematically attempted toimplement many of the characteristics of thealternative form of flexible system mentionedabove. It has cultivated the development of a newkind of management career in which indivdual

managers move throughout the organization, cross-functionally, accumulating knowledge of thecompany, its products, its suppliers and itscustomers. Promotion within the Europeanmultinational is increasingly becoming contingentupon having successfully participated in co-operative product development teams that involvemembers of different departments as well as keysuppliers. To encourage this, the mother companyhas introduced what it calls a ’Customer Focus

Programme’ (CFP) throughout all of itssubsidiaries. This programme brings managerstogether across subsidiaries as well as acrossfunctional departments on a regular basis to fosterdialogue on the improvement of company productsand the development of new technologies. Notsimply a discussion group, how ever, CFP also,because it constitutes itself regularly, acts as a kindof monitoring forum for projects and subsidiariesthroughout the organization. In many of the largefirm’s subsidiaries, this collaborative, team andproduct oriented organizational practice has beentaken right down to the shop-floor in the form ofgroup work, product oriented, low inventoryproduction.Not so in the southwest German Turbine works.

Hierarchy flattening has occurred within thedepartmental structures above the shop-floor,where a number of CFP groups exist. But the

production process itself remains dominated by theold workshop based system of skill distinctions andthe old skill based hierarchies. The plants in

southwest Germany continued to be organizedaround specialized machine and/or partproduction. Typically, any given workstationoperated with an inventory of up to five days.Operators working on particular machinesdedicated to the production of a specific range ofparts had little idea where their work object fittedinto the larger product the plant was constructing -one machinist had no idea where the parts he was

making were going to go next in the line ofproduction. Masters and foreman set up machines.Why this continued existence of the old system

of skill jurisdictions system beneath an increasinglyopen, flexible, management structure? In part theansw er stems from the strategy that the local firm

pursued after the German turbine work’s formerparent company was merged with anotherEuropean electromechanical producer in the late1980s. Prior to the merger, the German plant wascapable of making complete electrical turbinegenerators. After the merger the plant was brokenup and parts of the production process were shiftedto facilities in other locations. The southwestGerman plant was specialized on large partproduction. Thousands of lay-offs resulted fromthese changes in the location of production.Perhaps understandably, given the massive joblosses, the works council and trade unions havebeen reluctant to engage in additional restructuringwithin the production lines that remain for fear ofadditional lay-offs. The local labour representationwas persuaded that additional losses wouldredound to its disadvantage and therefore defendedthe traditional structure of jurisdictions and thejobs that were associated with them. Labourrepresentatives resist the new structures, in otherwords, because the defence of traditional roles andstatus for those that they represent is considered tobe essential for the reproduction of their ownpow er and position within the firm and institutionalposition in the labour market. But management,which is committed to the larger European parentcompany, not to the southwest German location,becomes increasingly frustrated and focused onfinding other more profitable locations forproduction.The second case of self-blockage is a medium

sized machine tool company, which is located insouthern ~Vurttemberg. Here, an important

45

obstacle to the adoption of the new system hasbeen management, not labour (Interview, June1994 - name of firm withheld upon request). Thismachine tool company manufactures large scalestamping machines for the automobile industry.This company has made tremendous stridestowards completely revamping its productionprocess through the introduction of integratedproduct islands and group work. The traditionalworkshop system has been modified so thatmachines are now grouped around the productionof particular groups of products rather than aroundparts for all products. All set-up, productionplanning and delivery scheduling tasks (whichformerly were performed by the masters, andforemen of the individual machine shops, or by alevel of middle management located directly abovethe floor of the plant) have been integrated into thenew product islands. h’iembers of productdevelopment teams, moreover, now continuallymove between activity in the production teams andthe relocated engineering rooms on the shop-floor.Technicians, programmers, engineers and skilledmachine operators now work side by side in closeco-operation and to some extent interchangeablywithin the teams. Groups within the islands have ebegun electing their own representatives tofacilitate the co-ordination of their own internalduties as well as to maintain contact with the

operations of the other groups and other productislands.There are two factors within the firm, however,

which significantly disturb the operation of theseislands and constrain their ability to producesignificant gains in efficiency and cost reduction.First, the changes in production have only beenintroduced in the areas of direct mechanical

production - areas of work preparation (such astool-making and materials purchasing) have neitherbeen organized into teams nor adapted to the needsof teams. As a result, teams have only limitedcontrol over their overhead costs. Since the idea ofthe introduction of teams is to devolve

responsibility for holding down costs to the teamsthemselves, lack of control over overheadsengenders frustration on the shop-floor - andscepticism regarding the effectiveness of the newsystem. Changing this arrangement, however,involves attacking the privleges of somc of the

most highly skilled workers in the plant (tool-makers) and the prerogative of purchasingmanagers - something the management of the firm,at least until now, has been unwilling to do.

Second, changes in production have not beenaccompanied by corresponding efforts todeconstruct the hierarchical relations between topmanagement departments and the newly emergentproduct team structure. Management has retainedthe right to veto group decisions which it believeswill not result in the cost savings it desires. It hasalso retained control over the budgets of theproduct islands: company management, not theteams, makes investment decisions and ultimatelyevaluates the performance of the teams. A speakerof one of the product islands as well as the head ofall manufacturing at the firm claimed that thislimitation on local autonomy and the continuedexistence of hierarchy threatened to undermine theeffectiveness of the product islands and teams.When members of the group believe that theirsuccess or failure is the direct result of theircollective efforts, all have an incentive to makecontinuous improvements. Without local autonomy,however, such incentives do not exist and thecommitment of team members to the success of theteam is undermined. -

Both examples show that a partial movementaway from the old principles of specific skilljurisdictions and functional departments riskmaking the new organizational principles appear tothe participants as a charade. Making a fullcommitment, however, means taking prinilege andauthority away from those with little desire to givethem up. Clearly there is no equilibrium with thecurrent arrangement: doing nothing will lead to thegradual erosion of morale and enthusiasm withinthe new product islands; returning to the oldsystem of specific skill jurisdictions and functionaldivisions within management will price the firm outof the market; moving fonvard will involve thespilling of blood. Someone is going to lose thisbattle, and the stakes in the world market at themoment are such that it may be the firm itself.Given that conflicts of this kind are legion at thepresent time throughout Baden Wurttemberg, andthe German industrial economy generally, it is easyto see that the current situation is indeed a graveone for German industry.

46

Self-blockage transcended: Germanyreinvented?

The follow ing two examples are intended tointroduce a ray of hope into the gloomy picture thepreceding examples have painted. In both cases,producers have been able to overcome entrenchedinterests and transform the entire organization andstructure of the way in which they produceindustrial goods. Both cases also demonstrate,hov-ever, that successful adjustment poses veryprofound questions about identity, authority andinstitutional design in labour and product marketsnarrowly and in German society more broadly.Indeed, moving from these isolated cases ofsuccess to a general process of successfuladjustment will ultimately have to involve acollecti~~e process of self-reinvention on the orderof that transformative social discussion that took

place during the first great period of rationalizationat the beginning of the twentieth century.The first example of a producer that has

apparently succeeded in breaking from the oldsystem of skill jurisdictions and functionaldepartments and adopted a more open and flexiblealternative is the medium sized family firm, Getrag,located in northern BVürttemberg. The firm is amanufacturer of high performance gear units forstandard shift automobiles. Getrag began to initiatemajor changes in its organization in 1987 in orderto meet stringent cost and quality terms beingdemanded in a new contract with the large Germanauto producer, the BTB1BV AG - itself a companythat has made great strides towards the adoption ofthe alternative system (see Herrigel 1995: ch. 6;Sabel et al. 1991). According to a spokesman forGetrag, the reorganization was to be guided by theidea that the new organization would be definedmore by a process of change, rather than by aspecific organizational structure. The companyliterally and somewhat naively set out to constitute’trusting’ relations among all actors within the firm,regardless of role or position in the organization,which were informed by mutual respect. Itdiscouraged thinking in terms of hierarchy andstatus and made all information about the company(its finances, its products, its suppliers, itscustomers) available to eveyone within it.To realize this, product teams were created that

combined the previously separate departments ofde~-elopment, planning, purchasing and production.The many levels of management hierarchy in theold system between top management and shop-floor were reduced to three. Relations with Getragsuppliers were also reformed so that their parts andmaterials would be delivered according to thestringent cost and quality standards of the Kanbansystem.

It is at the level of the production process,however, that the departure from the old systemcan be seen most clearly. In the restructuring, theproduction process was broken down andcompletely reorganized. All line and workshoporganization was eliminated and production andassembly islands, governed by autonomous workteams, were introduced. Members of the teamsallocate work among themselves and take

responsibility for most aspects of their qualitycontrol and maintenance. Island teams possess asmall budget to help them perform these tasks.Teams also have the option of turning to differentsuppliers - inevtably also outsiders - to ensure thattheir quality responsibilities are met. Workers inthe teams are multi-skilled and are not constrained

by old skill categories: their responsibility is to keepthe island performing at exacting cost and qualitystandards in the best way that they can.

Clearly, one of the central ways that they do thisis by interacting with the other work teams andwith suppliers so that the entire production flowcan be continually optimized and improved. In aneffort to encourage this kind of cross-boundarycommunication both within and across teams, eventhe old apprenticeship system is being brokendown: rather than training workers in specifictrades away from the production process under thestewardship of masters, the firm attempts tointegrate the apprentices into the teams from thestart. Rather than learning a specific craft skill,newer apprentices are trained in the much moredemanding trade of general problem-solving andco-operation.The new system, which the firm has been

introducing piecemeal over the last seven years, hasbeen tremendously successful. The firm has ratesof machine utilization above 80 per cent in the

teams, while serviceability rates on the sameproduction machinery (time not spent in repair) are

47

over 90 per cent. Moreover, over the course of thelast seven years, the firm has introduced three new

generations of its product.A second example of successful adjustment is

the small machinery firm Mettter Toledo, a makerof electronic scales and weighing devices on theSchwäbische Alb in southern Wurttemberg. Thisfirm has nothing to do with BNINNI or theautomobile industry. Rather, reorganization atMettter Toledo was brought on by a financial crisisassociated with an unsuccessful shift to new micro-electronic variants of their product during the mid-1980s. The crisis brought in new management witha mandate to radically restructure the company.Management made two major moves. First, allproduction was shifted onto area suppliers so thatthe company could focus its energies fully onproduct development, product assembly and sales.Relations with suppliers, which were already veryclose and co-operative before the reorganization,were intensified so that important providers weredrawn directly into the development process.

Second, all remaining activities within the firmwere reorganized into teams: no functionaldivsions or departments survived thereorganization and all levels of formal middlemanagement associated with those areas wercdissolved. The company was reorganized aroundproducts and processes. Teams organized bythemselves the development and production of newproducts and dealt with the continuing needs ofexisting customers. The emphasis was on totalprocess optimization and improvement. Teamsmaintained intimate and open contact with the

assembly workers about individual orders.Assemblers worked as individuals and had

responsibility for the complete assembly of aproduct. They could call on team members foradvice and service at any time. As at Getrag, thisreorganization at R’Iettler’I’oledo led the firm toattempt to get away from the old specific skilljurisdiction-based system of apprenticeship and toattempt to integrate apprentices right from thebeginning into production and team work.

Neither of these successes was achieved

painlessly. Both were initiated in periods offinancial and market crisis for the firms. Theelimination of hierarchy involved the dislocation ofmany unnecessary jobs in middle management.

The introduction of teams made it possible forfewer workers to perform more operations - hencemaking many others redundant. Hundreds ofworkers and managers lost their jobs at Getrag andinlettler Toledo over the course of the longtransition to the new system. Moreover, the casesare fairly isolated within the landscape of Germanindustrial producers and their situation is uniquebecause of the early onset of crisis. Nevertheless,they are important to note because they make itdifficult to claim that the Germans can’t changeand that they must live or die by the old system ofspecific skill jurisdictions and functionaldepartments.Moyement beyond these isolated cases, however,

will inescapably involve profound rye-evaluationamong all actors in the German industrial system(labour, management, associational, educationaland governmental) of their own roles and of theirrelations to one another. The examples of theeffect of team work on the way in which firms viewvocational training is one example of how processesof reform w ithin firms also involve institutional

systems that go well beyond the firm’s boundaries.At both Getrag and at IBlctùer Toledo, teams areflirting with illegality by integrating apprentices intoactual team work - there has been a long tabooagainst using apprentices for productive labour inproduction. It is by no means clear that thevocational system will be reformed to accommodatethis kind of behaviour: reform would make it easierfor other producers to do the same, yet it wouldalso jremove an institutional support for the old

system of jurisdictions. There is likely to beopposition to this not only among skilled workersand their representatives in plants (such as thelarge turbine works mentioned above?), but frominstructors in Berufschrrleu and Farhhoclrscht~len aswell, who themselves possess identities and roles inthe educational system that correspond to the oldsystem of skill jurisdictions in the plants (as well asto old distinctions betw een management and labourin production). Accommodation at a generalinstitutional level in a way that would allow

experiments to become generalized wouldinvariably call into question these secondaryidentities, roles and relations within the supportinginfrastructure of institutions surrounding theindustrial economy.

48

Will the creation of new kinds of workers andnew institutional arrangements within firms resultin the creation of new kinds of educators and a new

system of disciplines in the academy capable ofserving the industrial economy? It is not possible toanswer this question now, but it is easy to see inthis case how debate and experimentation aboutthe reform of roles and positions within firms mustlead to re-cvaluatian and debate about the

relationship between the firm and the identities,roles and structures of supporting institutions insociety. Failure to engage in this process ofcollective self redefinition could ultimately bedevastating for German internationalcompetitiveness; doing so will involve a massivereconceptualization and recombination of theidentities, roles and relations constituting industrialorder in Germany.This example of the relationship between

internal reform of production and the reform ofvocational training is only one among a myriad ofinterconnected processes of change currentlytaking place in Germany. With more space, itwould be possible to show how teams are creating asystem of workplace representation that couldpotentially rival, if not supplant, the one thatcurrently exists in German workplaces. How wilttrade unions deal with self-governing work teamsin which the old distinction between managementand labour no longer applies? NVhat will happen totraditional conceptions of the firm and of privateproperty if existing firms recompose themselvesinto self-governing production teams with theirown budgets, capable of acquiring their ownmaterials etc? None of the old actors in theGerman industrial system is unaffected by thecurrent changes, and all will be participating in thepublic dialogue that will invariably change it.Though nothing is certain, it seems fairly clear thatwhatever happens, the roles and identities of actorsand the institutional structures that help to supportand govern them will be (re)constitutedsimultaneously in and through the process ofdialogue itself.

Conclusions

The moment in which this is being written is a verycrucial period for German manufacturing. If firms,large and small, succeed in constructing (adoptingand adapting) arrangements within themselves thatare capable of the same kind of low inventory, lowcost, high quality manufacturing achieved by theirmost sophisticated competitors, it could very wellresult in a complete transformation of the kind ofdecentralized industrial production that has existedin regions like the southwest of Germany for muchof the twentieth century. Already extensive externaldecentralization (i.e. the existence of collaborativeties beyond the boundaries of the firm) will bematched by the dissolution of the internalarchitecture of the firm in a way that integratesdevelopment and purchasing with the shop-floor inthe form of self recombinatory teams.

If, however, the entrenched interests in the olddepartments of management and among thevarious skilled groupings on the shop-floor succeedin blocking movements in this direction, it isdifficult to imagine, given the dramatic productivityand cost differentials currently separating Germanproducers from their major competitors, how thedecentralized industrial order can continue to

reproduce itself in the form which it had adoptedin the 1980s. This article thus ends with flexibleGerman manufacturing in an historical situationnot unlike the situation it was in at the beginning ofthe twentieth century during the great period ofrationalization and then the diffusion of mass

production. An unprecedented and extremelystrong challenge from abroad is creating theconditions as well as the incentives for producers tobreak out of and recompose existing arrangements.Time will tell how plastic the current systemactually is and how much of it, if any at all, will bereconstituted in the new environment.

AcknowledgementsI would like to thank Lowell Turner, RichardLocke, Charles Sabel, Jonathan Zeitlin, PeterKatzenstein, Nick Ziegler, David Finegold, TomErtman, Horst Kern, Bruce Kogut and twoannonymous reviewers for help and comments inthe writing of this paper. All mistakes are the sole

49

responsibility of the author. I would also like tothank the Center For European Studies, HarvardUniversity and the Akadamic fur1’echnikfolgenabschNtzung in Baden BVürttembergfor support during the conduct of the researchupon which this paper is based.

Notes

1Iwer (1994) points out that average annual rates of jobgrowth fell even more precipitously in the narrowerStuttgart/B&ouml;blingen region. Investment goodsindustries had 15.5 per cent fewer jobs in 1993 thanthey did in 1991.

2 Indeed, the Zukunftskommission solicited membersfrom all over Germany, not just Baden W&uuml;rttemberg.The IMU study was sponsored by the IG Metall,which obviously regards events in BadenW&uuml;rttemberg, its strongest and most prosperousdistrict, as crucial for developments elsewhere in theFederal Republic.3 Indeed, much of the debate about Baden W&uuml;rttembergduring the 1980s involved whether or not this claimwas true - or at least to what degree it was true relativeto other German regions. For dissenting views seeCooke and Morgan 1990a and 1990b.4 For an elaboration of the concept of industrial order in

the Baden W&uuml;rttemberg context, see Herrigel 1993and Sabel et al. 1989.

5 It is important to emphasize in the presentation ofwhat I am calling the new production methods that Iam in no way suggesting that these productionmethods should be associated with practices of allproducers in a particular country - such as Japan orthe United States. As the world and Europeaneconomies become more integrated and nationalboundaries become less significant, best practice inmanufacturing is increasingly located everywhere andnowhere: that is, examples of the highly successfulflexible production of the kind to be described insubsequent paragraphs can be found all over theadvanced industrial world (even in Germany).Producers in different national and regionalenvironments implemented the new methods indistinctive ways and they encounter distinctiveobstacles to adaptation and adoption. This paperoutlines the distinctiveness of German producers inthis process.6 There is no intention here to suggest that the

alternative system being described in the text existsanywhere in the full form outlined in the text, nor thatit must be adopted in the same way in all places. On

the contrary! But it is the case that the principlesmentioned in the text are at the centre of debateworldwide about the reorganization of production, andmany have diffused in one form or another, above allin Japan and the United States. For a discussion of thediffusion of these principles, with examples taken fromthroughout the advanced industrial world, especiallyJapan and the United States, see Sabel 1995.

7 Daimler’s reaction to this news is discussed in Morganet al. 1992: 13f.8 It is perhaps obvious, but I think nonetheless

important, to remind the reader that rationalizationshould not be understood as the implementation ofmass production techniques. Rather, rationalizationinvolved the clarification and definition of procedures,norms and roles in any kind of production process.Werner Abelshauser makes the point that most of therationalization in the interwar period occurred in batchproduction processes and involved the optimization ofthe deployment of skilled labour. See Abelshauser199-1: 2.9 For a theoretical description of this kind of socialunderstanding as an institution, see the essays inDiMaggio and Powell (1991), especially theintroduction. Bourdieu (1977) refers to such deeplyentrenched understandings of the world of practice as’doxa’ while Schutz (1962) uses the term ’culturalsedimentation’ to describe social understandings andpractices, such as those described here, which havebecome a kind of grammar for social behaviour in ahistorically specific social formation.

10 Naschold (1994: 16) claims that despite the scepticismthat emerged around the debate about lean productionin Germany there is a consensus within the currentdiscussion of work reorganization on the need for afundamental reorientation. In particular, most peopleagree on the need for: zero defect manufacturing,customer oriented process chains, decentralizedresponsibility in production, new constitution of therelationship between conception and execution withinthe firm as well as the institution of processes ofcontinuous improvement in production.

11 The cases presented in the text have been selectedfrom over 30 interviews with German manufacturers,trade unionists, government officials and associationbureaucrats conducted in Baden W&uuml;rttemberg in Juneand July of 1994 by the author and Charles F. Sabel ofMIT.

References

Abelshauser, Werner (1994) ’Two kinds of Fordism: onthe differing roles of the automobile industry in the

50

development of the two German states’ unpublishedmanuscript, Department of History, University ofBielefeld, Bielefeld, Germany.

Adelmann, Gerd (1979) ’Die berufliche Aus- undWeiterbildung in der deutschen Wirtschaft 1871-1918’, in H. Pohl (ed.) Die berufliche Aus- undWeiterbildung in der deutschen Wirtschafi set dem 19.Jahrhundert, Franz Steiner, Wiesbaden.

Aoki, Masahiko (1988) Information, Incentives andBargaining in the Japanese Economy, CambridgeUniversity Press, New York.

Association of German Economic Research Institutes

(1992) ’The economic situation in Germany’, inIntereconomics 27 (6): 301-4.

Atkinson, Rick (1994) ’Germany forced to reexaminekey elements of economy’, The Washington Post, 9August: A12.

Bourdieu, Pierre (1977) Outline of A Theory of Practice,Cambridge University Press, New York.

Chandler, Alfred (1990) Scale and Scope, HarvardBelknap, Cambridge, MA.

Cooke, Philip (1994) ’The Baden W&uuml;rttemberg MachineTool Industry: Regional Responses to GlobalThreats’, Research Paper Centre for AdvancedStudies, Universiy of Wales, Cardiff, May 1994.

Cooke, Philip and Morgan, Kevin (1990a) Industry,training and technology transfer: the BadenW&uuml;rttemberg system in perspective, British Council,Cardiff City Council, Welsh Development Agency,Welsh Office.

Cooke, Philip and Morgan, Kevin (1990b) ’LearningThrough Networking: Regional Innovation and the Lessonsof Baden W&uuml;rttemberg’, Regional Research Report,University of Cardiff.

Cooke, Philip, Morgan, Kevin and Price, Adam (1993)’The future of the Mittelstand: collaboration versus

competition’, Regional Industrial Research. Department ofCity and Regional Planning, Unirersity of Wales College ofCardiff, Report 13 (April).

DiMaggio, Paul and Powell, Walter (eds) (1991) TheNew Institutionalism in Organizational Analysis,University of Chicago Press, Chicago.

Engelmann, Frank C., Ileyd, Christian, K&ouml;stler, Danieland Paustian, Peter (1994) ’The German machine toolindustry’, Appendix 2 of Finegold et al., Machines onthe Brink.

Finegold, David, Brendly, Keith, Lempert, Robert,Henry, Donald and Cannon, Peter (1994) MachinesOn the Brink: The Decline of The US Machine ToolIndustry and Prospects For Its Recovery, Santa Monica,CA: RAND DRR-496-OSTP, Prepared for theOffice of Science and Technology Policy.

von Freyberg, Thomas (1989) Industrielle Rationalisierung

in der Weimarer Republik Campus, Frankfurt.Funck, R. and Becher, G. (1992) ’Regional developmentand technology policies: some lessons from theGerman experience’, European Planning Studies 2.1:81-96.

Guillen, Mauro (1994) Work, Authority, and Organizationin a Comparative Perspective, University of ChicagoPress, Chicago.

Hartmann, Heinz (1959) Authority and Organization inGerman Management, Princeton University Press,Princeton.

Hassink, Robert (1992) Regional innovation policy: casestudies from the Ruhr area, Baden W&uuml;rttemberg and theNorth East of England, Faculteit RuimtelijkeWetenschappen Rijksuniversiteit Utrecht.

Heilemann, Ulrich (1993) ’Mo’ money? Medium termperspectives of the West German economy’ inEconomie Appliqu&eacute;e, 46 (1): 63-82.

Herrigel, Gary (1989) ’Industrial order and the politicsof industrial change, in Peter Katzenstein (ed.)Industry and Politics in West Germany, CornellUniversity Press, Ithaca, pp. 185-220.

Herrigel, Gary (1993) ’Large firms, small firms and thegovernance of flexible specialization’ in Bruce Kogut(ed.) Country Competitiveness. Technology and theOrganizing of Work, Oxford University Press, NewYork.

Herrigel, Gary (1995 forthcoming) IndustrialConstructions: The Sources of German Industrial Power,Cambridge University Press, New York.

Herrigel, Gary and Sabel, Charles (1994) ’Craftproduction in crisis: industrial restructuring inGermany during the 1990s, Paper delivered atGlobalization and Regionalization: Implications andOptions for the Asian NIEs, East West Center,Honolulu, Hawaii, August.

Hildebrandt, Eckhardt (ed.) (1991) BetrieblicheSozialeverfassung unter Veraenderungsdruck. Konzepte,Variante, Entwicklungstendenzen, Sigma Berlin.

Industrie- und Handelskammer Heilbronn: Wirtschaftsdienst,June 1994, page 14 (table: ’Insolvenzen:Schadenhoehe stark steigend’). Monthly publication ofIHK-Heilbronn.

Isaak, Robert (1992) ’Germany: economic powerhouseor stalemate?’ in Challenge, 35 (5): 41ff.

Iwer, Frank (1994) Industriestandort Stuttgart 1994.Entwicklung und Perspektiven der Metallindustrie,Regionale Branchenanalyse im Auftrag der IG MetallVerwaltungsstelle Stuttgart, Munich: IMU-Institut f&uuml;r

Medienforschung und Urbanistik.Katzenstein, Peter (1989) Industry and Politics in West

Cermany: Toward a Third Republic, Cornell UniversityPress, Ithaca.

51

Kern, Horst and Sabel, Charles (1993) ’Verbla&szlig;teTugend. Die Krise des deutschenProduktionsmodells’, in Soziale Welt, Sonderband:Umbr&uuml;che gesellschaftlicher Arbeit.

Kern, Horst and Schumann, Michael (1970)Industriearbeit und Arbeiterbewusstsein, EuropaischeVerlagsanstalt, Frankfurt.

Koike, Kazuo and Inoki, Takenori (ed.) (1987) SkillFormation in Japan and Southeast Asia, TokyoUniversity Press, Tokyo.

Lawrence, Peter (1980) Managers and Management inWest Germany, St Martin’s Press, New York.

Lee, J.J. (1978) ’Labour in German Industrialisation’, inPeter Mathis and M.M. Postan (eds) The CambridgeEconomic History of Europe, Volume 7, The IndustrialEconomics: Capital, Labour and Enterprise. Part One:Britain, France, Germany and Scandinavia, CambridgeUniversity Press, Cambridge, pp. 442-91.

Locke, Robert (1984) The End of the Practical Man-Entrepreneurship and Higher Education in Germany,France, and Great Britain, 1880-1930, JAI Press,Greenwich, Conn.

Locke, Robert (1989) Management and Higher Educationsince 1940: The Influence of America and Japan on WestGermany, Great Britain, and France, CambridgeUniversiy Press, New York.

iBlooser, Josef (1984) Arbeiterleben in Deutschland, 1900-1970, Suhrkamp, Frankfurt.

Morgan, Kevin (1994) ’Reversing attrition? The autocluster in Baden-W&uuml;rttemberg’, Paper given atExplaining Regional Competitiveness and theCapability to Innovate: The Case of BadenW&uuml;rttemberg, Stuttgart, June.

Naschold, Frieder, (1994) ’Jeneseits des baden-w&uuml;ttembergischen ’Exceptionalism’: Strukturproblemder deutschen Industrie’, ms, Berlin.

Nishigushi, Toshihiro (1992) Strategic Industrial Sourcing,Oxford University Press, New York.

Preller, Ludwig (1949) Sozialpolitik in der WeimarerRepublik, Franz Mittelbach Verlag, Stuttgart.

Pross, Helge and Boetticher, Karl W. (1971) Managerdes Kapitalismus, Suhrkamp, Frankfurt.

Rommel, G&uuml;nther, et al. (1995) Simplicity Wins: HowGermany’s Mid-Sized Industrial Companies Succeed,Harvard Business School Press, Boston.

Sabel, Charles F. (1994) ’Learning by monitoring’, inNiel Smelser and Richard Swedberg (eds) Handbook ofEconomic Sociology, Russel Sage and PrincetonUniversity Press, Princeton, NJ.

Sabel, Charles F. (1995) ’Boostrapping reform:rebuilding firms, the welfare state and unions’, Politicsand Society, Winter.

Sabel, Charles, Herrigel, Gary, Deeg, Richard andKazis, Richard (1989) ’Regional prosperitiescompared: Baden W&uuml;rttemberg and Massachusetts inthe 1980s, Economy and Society, 18 (4).

Sabel, Charles, Kern, Horst and Herrigel, Gay (1991)’Kooperative Produktion. Neue Formen derZusammenarbeit zwischen Endfertigem undZulieferern in der Automobilindustrie und die

Neuordnung der Firma, Hans Gerhard Mendius andUlrike Wendeling-Schroeder (eds) Zulieferer im Netz.Neustrukturierung der Logistik am Beispiel derAutomobilzulieferung, Bund Verlag, K&ouml;ln, pp. 203-27.

Schlichter, Carsten (1994) ’Karriere im SchlankenUnternehmen. Ver&auml;nderte Rahmenbedingungen f&uuml;rdie Mitarbeiterentwicklung’ Personalf&uuml;hrung, 5: 386-95.

Schumann, Michael, Baethge-Kinsky, Volker,Kuhlmann, Martin, Kurz, Constanze and Neumann,Uwe (1994) Trendreport Rationalisierung. AutomobileIndustrie, Werkzeugmaschinenbau, Chemische Industrie,Sigma, Berlin.

Schutz, Alfred (1962) Collected Works, Volume 1: TheProblem of Social Reality, ed. by Maurice Natanson,Martinus Nijhoff, The Hague.

Semlinger, Klaus (1993) ’Economic development andindustrial policy in Baden W&uuml;rttemberg: small firms ina benevolent environment’ European Planning Studies,1: 435-64.

Seyfert, E.W. (1920) Der Arbeiternachwuchs in derdeutschen Maschinenindustrie, Julius Springer, Berlin.

Shingo, Shingeo (1987) Non-Stock, Production: The ShingoSystem for Continuous Improvement, Productivity Press,Cambridge, MA.

Shingo, S. (1992) The Shingo Production ManagementSystem. Improving Process Functions, Productivity Press,Cambridge, MA.

Simon, Herman (1992) ’Lessons from Germany’s mid-sized giants’ Harvard Business Review March-April.

Streeck, Wolfgang (1987) The Role of the Social Partnersin Vocational Training and Further Training in the

Federal Republic Germany, CEDEFOP, Berlin.Thanheiser, Heinz (1975) ’Strategy and structure inGermany’ in Heinz Thanheiser and W. Dyas TheEmergence of the European Enterprise, MacMillan,London.

US Department of Commerce, International TradeAdministration (1994) Industry Outlook 1994: Chapter16 Metalworking Equipment, US Government PrintingOffice, Department of Commerce, Washington DC.

Weltz, Friedrich, Schmidt, Gert and Sass, J&uuml;rgen (1974)Facharbeiter im Industriebetrieb. Eine Untersuchung inMetalverarbeitenden Betrieben. Athenaeum Verlag,Frankfurt.

52

Womack, James P., Jones, Daniel T. and Roos, Daniel(1990) The Machine That Changed the World, RawsonAssociates, New York.

Zukunftskommission Wirtschaft 2000 (1993) Aufbruchaus der Krise, Bericht der ZukunftskommissionWirtschaft 2000 von Baden W&uuml;rttemberg,Staatsministerium Baden W&uuml;rttemberg, Stuttgart.