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The codetermination bargains: the history of German corporate and labour law
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The codetermination bargains: the history of German corporate and labour law

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  • McGaughey, Ewan

Abstract

Why does codetermination exist in Germany? Law and economics theories have contended that if there were no legal compulsion, worker participation in corporate governance would be ‘virtually nonexistent’. This positive analysis, which flows from the ‘nexus of contracts’ conception of the corporation, supports a normative argument that codetermination is inefficient because it is supposed that it will seldom happen voluntarily. After discussing competing conceptions of the corporation, as a ‘thing in itself’, and as an ‘institution’, this article explores the development of German codetermination from the mid-19th century to the present. It finds the inefficiency argument sits at odds with the historical evidence. In its very inception, the right of workers to vote for a company board of directors, or in work councils with a voice in dismissals, came from collective agreements. It was not compelled by law, but was collectively bargained between business and labour representatives. These ‘codetermination bargains’ were widespread. Laws then codified these models. This was true at the foundation of the Weimar Republic from 1918 to 1922 and, after abolition in 1933, again from 1945 to 1951. The foundational codetermination bargains were made because of two ‘Goldilocks’ conditions (conditions that were ‘just right’) which were not always seen in countries like the UK or US. First, inequality of bargaining power between workers and employers was temporarily less pronounced. Second, the trade union movement became united in the objective of seeking worker voice in corporate governance. As the practice of codetermination has been embraced by a majority of EU countries, and continues to spread, it is important to have an accurate positive narrative of codetermination’s economic and political foundations.

Suggested Citation

  • McGaughey, Ewan, 2015. "The codetermination bargains: the history of German corporate and labour law," LSE Research Online Documents on Economics 61593, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:61593
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    Cited by:

    1. Grzegorz Jedrzejczak, 2016. "Aging Poland: Can the Doomsday Scenario Be Avoided? (Starzejaca sie Polska. Czy mozna uniknac scenariusza katastrofy? )," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 14(59), pages 60-72.
    2. Kraft, Kornelius, 2018. "Productivity and distribution effects of codetermination in an efficient bargaining model," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 458-485.

    More about this item

    JEL classification:

    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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