Understanding the Role of Institutions in Industrial Relations: Perspectives from Classical...

Understanding the Role of Institutions inIndustrial Relations: Perspectives from Classical

Sociological Theory

GREGORY JACKSON and TIM MUELLENBORN*

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Theories of industrial relations have called for a stronger integration of the eco-nomic and social. Whereas economists have studied economic functions of insti-tutions, neo-institutional approaches in sociology have strongly rejected economicexplanation in favor of seeing institutions as taken-for-granted cognitive assump-tions. To further dialogue among these perspectives, this study reconstructs theconcept of institutions in the classical sociological theory of Durkheim andWeber. Both classical perspectives place the dynamic tensions between the eco-nomic and social at the center of their theories, but develop these in distinct ways.The study illustrates the potential and limits of these four theoretical perspectiveson institutions with regard to the empirical case of codetermination in Germany.

Introduction

THE INSTITUTIONAL ANALYSIS OF THE EMPLOYMENT RELATIONSHIP HAS FORMED thetheoretical core of industrial relations (IR) as a field of study (Ackers and Wil-kinson 2008). For decades, IR scholars have focused their study on the role offormal institutions such as unions, state regulation, and so on (Dunlop 1958).Yet, the theoretical understanding of institutions and how they should be ana-lyzed remains contested. Here, IR has drawn inspiration from very differentdisciplinary traditions (Frege 2005). Whereas economists have been concernedwith the economic functions of institutions, neo-institutional approaches insociology stress how institutions are rooted in taken-for-granted cognitiveassumptions and issues of legitimacy. While this pluralism makes institutionaltheory a rich field of inquiry, the disciplinary segmentation has prevented adialogue between the economic functions and social legitimacy of institutions.One consequence has been the polarized views of understanding institutional

The authors’ affiliation is Institute of Management, School of Business and Economics, Freie Universi-erlin, Germany. E-mail: [email protected], [email protected]. The authors thankBeckert, Anke Hassel, Anja Kirsch, Guenther Roth, Allan Silver, and two anonymous reviewers forl guidance and suggestions. Any errors that remain are our own.

STRIAL RELATIONS, Vol. 51, No. S1 (April 2012). � 2012 Regents of the University of Californialished by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

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Understanding the Role of Institutions in Industrial Relations / 473

stability and change within IR (Howell and Givan 2011; Thelen 2009). Amongrecent reflections on IR scholarship, Budd (2006) and Kaufman (2010) bothargue that a more integrated approach to understanding the economic andsocial aspects of the employment relationship is required.To progress a more theoretically integrated approach to understanding insti-

tutions, we return to the classical sociological writing of Durkheim andWeber.1 The Dukheimian and Weberian perspectives offer two distinct andvaluable ways of understanding the interplay of the economic and socialwithin institutions. While Durkheim stressed the function of institutions for thesocial integration of individuals, Weber saw institutions as embodying differentsets of values and rationalities across various domains of society. Despite theirdistinct emphasis on the functional or value-rational aspects of institutions, thetensions between economic functions and social values remained an explicitfocus of both Durkheim and Weber. Our central argument is that these ‘‘clas-sic’’ perspectives offer useful building blocks for theoretical integration by IRresearchers that goes beyond most strands of the contemporary institutional lit-erature in both economics and sociology.This study develops our claim by comparing four theoretical perspectives on

institutions grounded in economics, neo-institutional theories in sociology, andthe classic perspectives of Durkheim and Weber (see Table 1). Each of theseperspectives differs in the theoretical model of action that is assumed, and con-sequently for the understanding of how institutionalization occurs. Economicssees action in terms of self-interest and institutions as an equilibrium outcomeof incentives, but ultimately presents an undersocialized view that is too exclu-sively focused on the economic effects of institutions. Meanwhile, neo-institu-tional theories see action as guided by legitimacy and see institutions as aresult of isomorphism around shared rules, norms, and taken-for-grantedunderstandings. This perspective presents a somewhat oversocialized view ofinstitutions that stands too far outside economics. By contrast, our theoreticalreconstruction of Durkheim and Weber stresses their more interdependentunderstanding of the economic and social logics of institutions. Durkheim’smodel of action is focused on the non-contractual conditions of contracts andsees institutions in terms of how individual exchange is socially regulated byprofessional groups and associations. Similarly, Weber stresses how action isbased on both ideas and interests and sees institutions in terms of defining andenforcing legitimate forms of economic action. In these classical views, theeconomic and social remain in dialogue with one another. Durkheim sees theorganic solidarity that underwrites institutions as under constant threat of

1 While Marx is also considered part of classical sociological theory, Marxist approaches to understand-ing employment relations have been covered widely elsewhere (Frege, Kelly, and McGovern 2011).

TABLE 1

FOUR THEORETICAL PERSPECTIVES ON ACTION AND INSTITUTIONALIZATION

Economicperspective (1)

Sociologicalperspective (2)

Durkheimianperspective (3)

Weberianperspective (4)

Model of action Actors pursueabstractself-interest

Actors pursuelegitimacy orfollow taken-for-grantedcognitive scripts

Actors undertakevoluntary actionsubject tonon-contractualconditions of thecontract

Actors pursueideas within thecontext ofinterests orinterests framedby ideas

Model ofinstitutionalization

Equilibriumoutcome ofincentives

Isomorphism (e.g.,coercive,normative,mimetic)

Regulative role ofprofessionalgroups andassociations

Enforcement ofvalue-rationalrules bylegitimate formsof organizedauthority

Relationshipbetweeneconomic andsocial logics

Undersocializedview

Oversocializedview

Tension betweenorganic solidarityand anomie

Tension betweendifferent sets ofvalues or conflictsbetween instrumentaland value-rationalaction

View oncodetermination

Codeterminationas trade-offbetween cost andefficiency

Codeterminationas pressure fromhost countryenvironment

Codeterminationas non-contractualconditions of thecontract (statusrights)

Codeterminationembodies tensionbetween logic ofproperty rightsvs. logic ofdemocracy

474 / GREGORY JACKSON AND TIM MUELLENBORN

erosion and anomie. Weber stresses how institutions embody conflicts amongdifferent sorts of value-rational orientations having irreducible but competingclaims. One advantage of these perspectives is to offer a more open anddynamic view of the origin and change of institutions.To make plausible the utility of the classics, we apply these four perspec-

tives (the economic, neo-institutional, Durkheimian, and Weberian) to under-standing a specific IR case: the institution of codetermination (Mitbestimmung)in Germany. Codetermination encompasses both the representation of employ-ees on the supervisory board (Aufsichtsrat) of large corporations, as well as inwork councils (Betriebsrat) with both the right to exercise voice in manage-ment of the workplace and the obligation for faithful cooperation with theemployer. The case of codetermination is taken here as a typical case of IRinstitutions and selected because it has been widely analyzed with respect toits economic functions as a ‘‘beneficial constraint’’ on employment conditionsand with regard to its historical origins in the specific social and political his-tory of Germany. Our aim is not to provide a systematic review or synthesis


of this extensive literature. Rather, we adopt a selective and illustrativeapproach that highlights the strengths and shortcomings of the theoretical per-spectives.We develop our argument in several steps. The first section briefly compares

the definition of institutions and implicit models of action in the recent eco-nomic and sociological literatures on institutions. Next the Durkheimian andWeberian perspective on institutions are presented. Finally, we discuss thesimilarities and differences among these approaches, drawing out the implica-tions for institutional theories of employment relations.

The Competing Logics of Economic and Sociological Institutionalism

Industrial relations is strongly influenced by institutional approaches devisedas an alternative to classical economic theory (Commons and Parsons 1950).Economic approaches to institutions abandon the assumption of completeinformation and focus on the incomplete nature of the employment contractand transaction costs arising from a model of action which is characterizedthrough ‘‘self-interest seeking with guile’’ (Williamson 1996:6). In particular,where transactions are repeated and involve relationship-specific assets, thesetransactions may be efficiently bundled together under the hierarchical gover-nance structure of the firm. Similarly, agency theory has examined employ-ment as a system of incentives between principles and agents (e.g., betweenmanagement and employees, or owners and managers) looking at optimalforms of contractual governance (Prendergast 1999). In their generic form, thevarious mechanisms of governance over the employment relationship areunderstood as institutions. Following North, institutions are ‘‘the rules of thegame in a society or, more formally, … the humanly devised constraints thatshape human interaction’’ (North 1990:4).But what is the model of institutionalization in economics? As Williamson

(1990:17) notes, ‘‘economic institutions of capitalism have the main purposeand effect of economizing on transaction costs.’’ Similarly, North (1984:255)states that institutions shape and are shaped by transactions costs. Conse-quently, this perspective sees actors as creating or maintaining institutionswhen the gains from an institution outweigh the costs of establishing andenforcing it. Thus, institutions may be interpreted as an equilibrium outcomeemerging from the self-interested behavior of actors (see discussion in Aoki2001). Certain types of transactions become institutionalized to the extent thatactors have no rational incentive to change their strategy, and thus, institution-alized arrangements may help overcome or solve collective action problems.


The economic analysis of institutions has played a long and distinguishedrole in IR research (Kaufman and Levine 2000; Smith 1991). IR scholars havetended to focus more on the economic effects of formal institutions related tounions or employee voice and spent less time looking at the origins andchange of these institutions. For example, Freeman and Medoff (1984) andFreeman and Lazear (1995) distinguish between the voice and monopoly func-tions of employee representation. The voice function may help to aggregateand communicate employee preferences to managers, thereby reducing transac-tion costs by creating a credible commitment of managers to the workforceand reducing the chance of opportunism or favoritism. But because of themonopolization of labor supply, employee representation also results in theextraction of rents and redistribution of wealth from shareholders to the workforce.Employment institutions can thus be analyzed with respect to positive- ornegative-sum aspects: productivity-increasing functions of voice or redistribu-tive effects of monopoly. Similarly, transaction cost perspectives have high-lighted the role of relationship-specific versus transferable assets in different‘‘varieties of capitalism’’ (Hall and Soskice 2001). Complementarities amonginstitutions of industrial relations, training, finance, or inter-firm relationshipsare used to explain cross-national differences between more liberal or coordi-nated market economies. In sum, as Kaufmann (2010) has recently argued,institutional economics makes an important theoretical contribution to under-standing the employment relationship, as well as related phenomena such asinternal labor markets or national-level industrial relations institutions.In contrast to the economics tradition, the neo-institutional theories in sociol-

ogy argue that people are not guided primarily by the concern to maximize bene-fits. Rather, the sociological model of action stresses how actors search forpractices that are legitimate and appropriate in a given situation. This search forlegitimacy leads to a diffusion of common rules, norms, or cognitive frameworkswithin a particular field of action (Scott 2001). Neo-institutional scholars thussee institutions as having distinct pillars resting on coercive, normative, ormimetic processes of isomorphism, through which organizations become moresimilar over time (DiMaggio and Powell 1983). Importantly, institutionalizedforms of behavior become ‘‘taken-for-granted’’ and able to withstand challengesbased on instrumental grounds (Davis, Diekman, and Tinsley 2004: 198). Over-all, this perspective highlights how actors follow legitimate rules, are socializedinto certain norms, and imitate certain cognitive schemes—even to the extent thatinstitutionalized action may occur without awareness.Most IR literature has stressed the regulative aspects of formal institutions in

ways parallel to the neo-institutional tradition. However, other aspects of institu-tions stressed by sociological neo-institutionalism have made slower inroads onIR scholars than economics. Consequently, less attention has been given to the


normative and cognitive foundations of IR institutions. However, Price et al.(2011) have sought to explain patterns of child labor drawing on the three pillarsof sociological institutionalism. Similarly, sociological institutionalism has beenused to explain how IR influences outcomes related to training (Tam and Chiu2010), equal opportunity practices (Dobbin and Sutton 1998), or new organiza-tional forms of employment (Currie, Finn, and Martin 2008). A large literaturehas looked at how IR institutions influence the diffusion of HRM practices andpolicies. For example, Kelly and Dobbin (1999) show that the spread of mater-nity leave programs in the United States has driven the particular institutionalseparation of powers within the federal government and related forms of legaluncertainties. Looking at cross-national diffusion, Giardini, Kabst, and Muller-Camen (2005) explain how IR institutions of collective bargaining, co-determi-nation, and vocational training influence the adoption of U.S.-style humanresource management practices in Germany, arguing:

Human resource management in Germany is rooted in its historically grown andlegally shaped institutional environment. HR practices from the US are notignored, but quite the opposite, often initially taken up without critical reflection.However, organisations adapting to societal demands in order to survive are even-tually forced to analyse whether these practices may be customized to the nationalbusiness system. Thus, a strong position towards a universalist HRM approachmay be at odds with institutional demands requiring firms to take context intoaccount in order to gain legitimacy. (77)

The Dilemma: Models of Action and Institutionalization. The different log-ics of economic and sociological approaches to institutions have been debatedextensively elsewhere (Hall and Taylor 1996; Immergut 1998; Kato 1996;Pacheco et al. 2010; Scott 2001). The central issue remains that each approachadopts different theoretical assumptions about the underlying model of actionand institutionalization (see Table 1, columns 1 and 2). Economic institution-alism rests on behavioral assumptions of individual self-interested behavior,stressing the voluntaristic aspect of institutions based on efficiency consider-ations. Both transaction cost economics and agency theory see the market as adefault model of organization and ‘‘explain’’ institutions as deviations fromthis baseline that produce more efficient outcomes under certain specified con-ditions. Meanwhile, sociological institutionalism sees institutions based onnon-rational considerations, arising in relation to taken-for-granted cognitiveassumptions or more generally how actors follow ‘‘appropriate’’ logics ofaction in conformity with rules and norms.While each perspective highlights important aspects of institutions, a prob-

lem remains for employment relations scholars because of the lack of theoreti-


cal integration between these two perspectives. Whereas economics gives an‘‘undersocialized’’ account of institutions that misses how actors define theiridentities and interests in social contexts, sociological neo-institutionalism runsa danger of an ‘‘oversocialized’’ view of action that overemphasizes the con-formity with institutional rules. In the former theory, actors’ interests aredefined too abstractly, apart from the social context that shapes their identitiesand perceptions (Granovetter 1985). In the latter, people follow routines, hab-its, and schemes unconsciously. This perspective misses how actors behavestrategically toward institutions and engage in conflict, deviance, or resistanceto power (Oliver 1991). Consequently, we argue that the respective limitationsof each view create an unresolved tension between understanding institutionsas a voluntary construction of individuals in economics or as external con-straints on individuals as in sociology.

An Illustration: Codetermination in Germany. The tension between theseeconomic and sociological approaches to institutions may be illustrated bylooking at a case: the institution of codetermination in Germany. Institutionaleconomics has sought to interpret codetermination from an efficiency perspec-tive and posits that codetermination will only persist if it serves some positiveeconomic functions, such as reducing transaction costs.This point remains hotly debated in the theoretical and empirical literature

(Addison and Schnabel 2011). In relation to board-level codetermination, oneset of arguments stresses that by giving decision rights to employees, codeter-mination increases the agency costs to shareholders (Roe 1999). Codetermina-tion may create poor managerial accountability by dividing the supervisoryboard into factional benches, diluting the board’s overall powers, and promot-ing collusion between management and employees (Pistor 1999). Althoughsupported by some econometric results (Gorton and Schmid 2004), methodo-logical problems exist in defining a control group or measure of employeeinfluence in the supervisory board (Hopner and Mullenborn 2010). Most stud-ies conclude that no systematic evidence exists to suggest that strong employeevoice at the board level has a significant negative effect on firm performanceor share prices (Baums and Frick 1998; Fauver and Fuerst 2006; Hopner2004; Kraft, Stank, and Dewenter 2009; Wagner 2009).2 In relation to works

2 Jackson, Hoepner, and Kurdelbusch (2005) show that since the mid-1990s, the strong role of labor inGermany did not prevent the adoption of managerial practices oriented toward shareholder value, but con-versely shareholder value did not undermine the strong role of employee influence and commitment to long-term employment practices. Fauver and Fuerst (2006) argue that employee power is used in coalition withshareholders to promote greater accountability and thereby actually decrease agency costs by monitoringmanagerial pay, fighting for transparency, opposing prestige investments, and also sometimes siding withshareholders in corporate restructuring.


councils, a large number of studies show that codetermination does improveproductivity (Renaud 2007) and reduce labor turnover and preserve firm-spe-cific human capital (Werner and Zimmermann 2005). While some studies sug-gest that this also enhances profitability (Mueller 2011), others suggest thatthis may come at some expense of firm value during periods of restructuring(Atanassov and Kim 2009).Both levels of codetermination figure prominently in arguments regarding

how complementarities among institutions contribute to competitive advantagesin industries characterized by incremental innovation in Germany (Hall andSoskice 2001; Soskice 1999). Unlike the agency interpretation, long-termshareholders may benefit from stable long-term employment, investment inworker training, and cooperative industrial relations (see for example, Backes-Gellner, Sadowski, and Frick 1997; Frick 1996). Conversely, this ‘‘patientcapital’’ is a precondition for credible commitments of managers to employeerepresentatives. Management is able to build long-term organizational capaci-ties by drawing upon both long-term investment and the high-trust work orga-nization. Other complementarities are shown by Hubler and Jirjahn (2003),who provide evidence that works councils in companies covered by industry-level collective agreements tend less to rent-seeking activities than workscouncils in companies that are not covered by collective bargaining agreements(see also Allen 2006). In sum, institutional complementarities are seen as keyinstitutional preconditions for the dynamic efficiency in lower volume, high-quality product markets that require high skills (Streeck 1992a, 1997).While the economics literature focuses on the efficiency side of codetermi-

nation, neo-institutional theory has examined codetermination as an organiza-tional practice shaped by pressures of institutional isomorphism. This approachis most evident in studies of multinational companies and how they adaptwork practices to the German institutional setting (Brewster, Wood, andBrookes 2008; Woywode 2002). Gooderham, Nordhaug, and Ringdal (2006)find that the subsidiaries of U.S. companies clearly adapt their use of individ-ual performance appraisals, reward systems, and the monitoring of trainingprograms to fit the German institutional environment. Schmitt (2003:336) alsofinds that American and British subsidiaries in Germany are as likely to havea works council as local German firms. By contrast, institutional theories havealso been used by Tempel et al. (2006) to explain the limited adaptation ofAmerican firms to German IR institutions. Here, the pressure exerted byAmerican headquarters to submit to companywide HR policies outweighs theisomorphic pressure of the German institutional environment predicted byneo-institutional theories.Despite their insights into the institutional logic of codetermination, studies

inspired by neo-institutional sociology have significant limitations. As Zucker


(1991:106) warned: ‘‘Institutional theory is always in danger of forgetting thatlabeling a process or structure does not explain it.’’ In this sense, it is strikingthat the description of actors like the headquarters’ management, work coun-cils, employee representatives at the board and unions, and their interaction,which constitute the field of industrial relations, are relatively thin, particularlywithin more quantitative studies. While institutions such as codeterminationexert isomorphic pressures for the adoption or non-adoption of HR practices,neo-institutional theory has done less well in understanding the economicinterests driving change in HR systems and thus how institutional compro-mises are negotiated and stabilized over time.As argued above, the case of codetermination illustrates some theoretical

tensions inherent to the economic and sociological views of institutions. Whileeach theory highlights important aspects of institutions, the two interpretationsstand at odds with one another with few points of dialogue. The economicdebates on codetermination largely miss the role of isomorphic pressures thatpromote its institutionalization. Given the different predictions or distributionconsequences of economic models, whether or not codetermination is viewedas efficient or not depends on other non-economic factors, such as socialnorms about ‘‘fairness’’ (Budd 2006) or the diffusion of understandings aboutwhat constitutes a legitimate employment contract (Bendix 1956). For exam-ple, Hopner (2004) notes that many employers have opposed the introductionof codetermination, but once adopted firms redefine their own interests in waysthat are consistent with codetermination. Meanwhile, the sociological debatesmay underestimate or even overlook the strategic responses that multinationalfirms may have toward institutions, in part because of the specific economiccosts and benefits associated with adaptation toward the host country environ-ment depend strongly on the socially determined capabilities embedded withinorganizations (Sorge 1991, 2005). In the next sections, we show how ideasderived from Durkheim and Weber may provide a fruitful avenue to overcomethe theoretical problem of over- or undersocialization and institutionalizationassociated with contemporary theories of institutions.

The Durkheimian Perspective

In this section, we review the concept of institutions in the classical writingsof Durkeim. As Durkheim (1982 [1893]: 45) noted, ‘‘… one may term aninstitution all the beliefs and modes of behavior instituted by the collectivity;sociology can then be defined as the science of institutions, their genesis andtheir functioning.’’ Durkheim’s view of institutions is closely related to thedynamic tensions between individual differentiation and collective regulation


or between the economic and the social. Starting with a non-voluntaristic viewof social action, Durkheim examines institutions as non-contractual conditionsof the contract that regular individual exchange (see Table 1, column 3).Durkheim strongly denies that institutions arise in private individual experi-ence—rather, institutions are collective phenomenon that are outside the indi-vidual and confront them historically as ‘‘social facts.’’ This tension betweenthe economic and social, or anomie and organic solidarity is first described inDurkheim’s The Division of Labor in Society.

Non-contractual Conditions of the Contract. Durkheim (1984 [1893])explores the forms of social solidarity that occur as the division of laborincreases. In his view, as population density increases, people try to avoid con-flict through specialization. The division of labor is a progressive adaptation ofmodern societies, but also one with destructive tendencies as it decouples theindividual from a more homogeneous set of pre-modern moral regulations andbeliefs. He notes that societies with low degrees of labor division regulatethemselves through the collective or common consciousness (Durkheim 1984[1893]:39). This ‘‘mechanical’’ form of solidarity is expressed through repres-sive law, whereby the penal character of law expresses the similarity of moralbeliefs and sentiments within the group. However, the increasing division oflabor causes the collective consciousness to decline in scope and function.This decline of ‘‘mechanical solidarity’’ is associated with a potential forgrowing anomie—a state of normlessness resulting from a break-down insocial regulation or an excessive proliferation of different and unrelated norma-tive systems (Fox and Flanders 1969).Durkheim seeks to find what makes continued association possible without

disintegration into anomie. His solution stresses a new ‘‘organic’’ form of soli-darity expressed in a different form of social regulation. Specifically, Durkheimlinks the increasing division of labor with the emergence of restitutive law inwhich sanction ‘‘comes down to a mere restoration of the ‘status quo ante’’’(1984 [1893]:68). Restitutive law is not based on a moral sentiment common toall, but embodies specific functional relationships of people to things, other per-sons, or social functions. The administration of law also grows more diffuseand the involved parties become responsible for soliciting legal action (Dur-kheim 1984 [1893]:69–71). Restitutive law guarantees the rights of people, suchas the obligation to refrain from harm or to repair damage, but does nothing tobend the will of different persons to common ends (Durkheim 1984 [1893]:73–75). Hence, while being necessary for solidarity, this ‘‘negative’’ law presup-poses existing cooperation. Restitutive law facilitates organic solidarity, basedon the regulation of functional dependencies or cooperation, but functionsthrough its embeddedness within a particular societal division of labor.


Durkheim sees contract law as paradigmatic for cooperation within the divi-sion of labor (1984 [1893]:79), because contracts are specific agreementsbetween particular parties such as lender and borrower or employer andemployee. However, for Durkheim, contracts are possible only because theytake place before an institutional background that he expressed poignantly interms of the ‘‘noncontractual conditions of the contract.’’ These rights andobligations are not in themselves subject to the negotiation in the contract:

For in a contract not everything is contractual. The only undertakings worthy ofthe name are those that are desired by individuals, whose sole origin is this freeact of the will. Conversely, any obligation that has not been agreed upon by bothsides is not in any way contractual. Wherever a contract exists, it is submitted toa regulatory force that is imposed by society and not by individuals: it is a forcethat becomes ever more weighty and complex. (Durkheim 1984 [1893]:158)

While a contract may stipulate rights and obligations, the interests of theparties will remain distinct and often conflicting. Beneficial compromises can-not be determined in advance (Durkheim 1984 [1893]:160), but law maydetermine the ‘‘legal consequences of those of our acts which we have not set-tled beforehand’’ (Durkheim 1984 [1893]:161). Restitutive law provides aninstitutional constraint on the exercise of self-interest by externally imposingobligations. Noncontractual conditions thus make contracts possible in light ofthe inherent uncertainty of most exchanges by endowing parties with general-ized rights and obligations over and above the stipulations of contract, hencesetting a basic norm for all similar contracts (Streeck 1992b). Durkheim stres-ses that society never simply assures that contracts are carried out, but alsodetermines ‘‘in what conditions they are capable of being executed and, if theneed arise, restore them to their normal form’’ (Durkheim 1984 [1893]:162).The division of labor thus has a ‘‘moral’’ character in that the individualbecomes bound ‘‘to act in accordance with ends that are not his own, to makeconcessions, to agree to compromises, to take into account interests superior tohis own’’ (Durkheim 1984 [1893]:172–173). These institutional constraintsprovide stable reference points for actors to distinguish ‘‘between the possibleand the impossible, what is just and unjust, legitimate claims and hopes andthose which are immoderate’’ (Durkheim 1952:253). Without such moral regu-lation, society will suffer from anomie. This emphasis on normative aspects ofinstitutions sets his view apart from neo-institutional sociology, which hasstressed institutions as a cognitive phenomenon based on taken-for-grantedideas of individuals.Durkheim’s approach stresses the economic functions of institutions. But in

contrast to institutional economics, Durkheim distinctly rejects the view ofinstitutions originating out of instrumental economic action (Dallinger 2007).


Similarly, his view also makes a pointed contrast to most contemporary ‘‘lawand economics’’ approaches, which examine the interplay of formal rules withrational individual agents in markets. Here Durkheim contests the very idea ofparticularistic interests leading to general institutional rules. Rather, Durkheimargues that the collective character of institutions requires normative underpin-nings. Social institutions represent as a necessary condition for economicexchange rooted in shared norms. Without these, we do not have a free mar-ket, but rather unregulated individuals in a state of anomie. For example,Durkheim argues that labor contracts do much more than guarantee the remu-neration of the worker in proportion to the labor exerted. The inherent inequal-ity in status entails that ‘‘there cannot be rich and poor at birth without therebeing unjust contracts’’ (Durkheim 1952:383). Justice and equality of externalconditions must be assured elsewhere, outside the contract by society (Dur-kheim 1952:338). Consequently, his organic solidarity arising through the divi-sion of labor involves that contracts are underpinned by norms or traditionswhich cannot be subject to contracts. As Poggi (1971:239) explains, ‘‘The nor-matively sanctioned stability and generality of those elements, [Durkheim]argued, allow individual parties to establish contractual relations which are, onthe contrary, intrinsically non-permanent and highly diverse in their concreteconfigurations.’’Durkheim provides no detailed examination of how the division of labor

comes to be regulated by such ‘‘non-contractual conditions’’ found in restitu-tive law and expressive of broader organic solidarity. The growing division oflabor is associated with a shift from mechanical solidarity based on normativeregulation to a functionally differentiated or ‘‘organic’’ form of solidarity. Butthis observation presents a theoretical dilemma: the division of labor is onlypossible in the presence of some normative foundations, yet it is precisely thistype of normative consensus that the division of labor progressively under-mines. Ultimately, Durkheim paradoxically ‘‘… traces anomie back to thesame processes of differentiation from which a new morality is supposed toarise ‘as if by a law of nature’’’ (Habermas 1987). In this analysis, the stateplays an important role for restitutive forms of law which embody differenti-ated relations between people and things, occupational groups, and societalfunctions within the division of labor. However, Durkheim ultimately viewsthe state as being too remote. Rather, he argues that occupational or profes-sional groups could provide a more adequate means of integration. The occu-pational group has a particular closeness and moral power capable ofcontaining individual egos and maintaining a common solidarity in the con-sciousness of its members. This intermediate level of association, between theindividual and society at large, is particularly important for Durkheim and hisanalyses of education, state policy, occupational groups, and law. In his later


works on religion or education, Durkheim repeatedly stressed the emotionalcore of social bonds rooted in collective effervescence and collective represen-tations of the group (Fish 2003)—even where these forms become more com-plex and differentiated, or even based on the quasi-religious cult ofindividualism itself (Mestrovic 1988; Schoenfeld and Mestrovic 1991).

A Durkheimian View on Codetermination. The Durkheimian idea of non-contractual conditions of the contract is a crucial starting point for sociologicalviews of codetermination. Wolfgang Streeck (1992b) develops this approachby seeing codetermination as a form of ‘‘industrial citizenship’’ where non-contractual rights or status shapes the employment contract in Germany. Ingeneral terms, non-contractual status rights relate to contract in three ways: sta-tus prevents contract (e.g., unequal parties cannot be said to engage in freecontracts), contract establishes status (e.g., when rights and duties are diffuseand status-like), and contract presupposes status (e.g., contracts emerge againsta background of rights and duties taken to be given).Streeck argues that rational voluntaristic arrangements based on contract

alone are unlikely to produce stable IR institutions, even when it may be inthe interests of the actors involved. In short:

… successful self-interested, utilitarian behaviour in market environments requiresthe presence of collective resources, common values and shared expectations thatrationally acting individuals cannot normally generate, protect or restore even ifthey fully recognize their vital importance. (Streeck 1989:89)

Coercive, externally enforced constraints may be necessary to force rationalcapitalists to make more efficient use of individual and collective factors ofproduction. Such constraints may assure the investment necessary for the‘‘supply side’’ of capitalist economies, which would otherwise erode.Streeck asks how status can be politically reconstructed as a basis for

organic solidarity. Whereas an economics view of codetermination might see itas arising based on mutual productivity gains, Streeck (1995:188–189) cri-tiques this voluntaristic argument by observing that employee participation ishistorically related to broader political demands by workers. The social institu-tions regulating capitalism have often been interpreted with regard to the per-sistence of different pre-modern status orders (Gerschenkron 1966; Marshall1964; Moore 1966). For example, in nineteenth-century Germany, traditionalstatus-based forms of employment constrained contracts by giving employerspaternalistic rights of authority (e.g., the notion of employer as Herr im Haus)that were often backed by coercion from the state, as well as paternalistic obli-gations toward employees. However, during different phases of politicaldemocratization in Germany, these past status-like elements of contract were


reinterpreted in favor of employees and ‘‘traditional’’ status became morewidely generalized through politics. This provides an interesting contrast toEngland, where earlier political democratization had formally given workersequal rights as individuals engaged in the free exchange of products, ratherthan embedded the employment contract within dependent, status-like relationsof authority (Biernacki 1995).In the case the codetermination, status is institutionalized through politics by

the creation of industrial citizenship. Here, state intervention is critical in twoways. First, participation is more universal and less dependent on the marketpower of unions; second, the establishment of a legal framework for participa-tion removes certain parameters from the realm of negotiation at the level ofthe workplace, and local industrial relations are relieved of many contentiousissues. Streeck (1995:189) sees these constraints as mutually beneficial because‘‘legislation may thus make both sides devote their efforts and inventivenessto cooperative pursuits and positive-sum games, protecting employers from thetemptation to seek advantage in creating a ‘union-free environment’ and work-forces from the need to hedge against employers defecting from participationregimes and reasserting their managerial prerogatives if they see fit.’’ Manag-ers, unions, and employees all had to first learn how to use the new institutionin economically productive ways and thereby turn constraints into cooperation(Jackson 2005; Streeck 1992a). Over the years, these particular constraintshave proven to be crucial for the comparative institutional advantage of thepost-war German economy, particularly in the sectors characterized by ‘‘diver-sified quality production’’ (Streeck 1992a). Conversely, the weakening of theseconstraints on firms operating globally and opening of these institutions to the‘‘economizing’’ logic of regime competition has led to a substantial erosion ofGerman IR institutions in the last decade (Streeck 2009).In a Durkheimian view, codetermination is not based on private contracting,

nor as state regulation over the employment contract. Rather, Durkheimstressed the notion of professional groups as an institutional basis for ‘‘organicsolidarity.’’ Crucial here is how codetermination provides the private interestassociations of employees with public status. The quasi-public function of thisinstitution endows it with a dual function of representing economic interests ofemployees vis-a-vis management, but also involves a recognition of the inter-dependency of professional groups (e.g., blue-collar, white-collar, and manage-ment) for their mutual survival. As such, works councils must ‘‘internalize’’and represent diverse interests of employees, but also regulate and even disci-pline employees to produce politically stable compromises with management.The regulatory functions of codetermination as an institution are not directlyundertaken by the state. Rather, codetermination functions because of the self-governance of professions or occupational groups that are shaped by wider


social networks among union representatives and management respectively,and the embeddedness of enterprise-level representation within wider sets offormal associations and institutions of collective bargaining (Durkheim 1985).In particular, studies looking at changes in codetermination need to look at thetensions between its public status and growing ‘‘contractualization’’ of workscouncils roles in light of economic pressures (Streeck 2009).

The Weberian Perspective

In Durkheim, the role of institutions remains a paradox: although institutionsare needed to support the modern economy, they derive their normative forcefrom non-economic values and norms. Durkheim claimed that although socie-ties may possess a stock of pre-existing ‘‘mechanical solidarity’’ based on tra-ditional social relations, they may need to create new forms of ‘‘organicsolidarity’’ to govern their economies. Turning to Max Weber, he also stressedthat modern institutions do not arise through simple expressions of moral dis-approval. His alternative was to elaborate an sociology of institutions as com-plex historical configurations of both ideas and interests (see also Lepsius1990). Weber’s view of action sees interests as shaped by ideas, which givemeaning to certain goals or justify means. Ideas are guided by interests, whichplace ideas in a concrete context of action. Institutions reflect particular config-urations of ideas and interests—institutions shape interests, as well as givelegitimacy to ideas within a particular context of action (see Table 1, column4). This approach stresses tension between instrumental and value-rationalaspects of institutions, as well as the conflicts among ideas between differentinstitutional orders of a society.Many neo-institutional approaches have been inspired by Weber’s analysis of

legitimacy and his ideal-typical comparisons of authority relations. In Weber’sown work, these ideal-types were applied to dynamic historical processes in theform of secular theories (Roth and Schluchter 1979). Weber was particularlyinterested in the particular carrier groups of institutions, looking at both thedevelopment of ideas but equally the interests that made these ideas relevant.Institutionalized forms of order result in Weber’s analysis (1978:52–53), whencompulsory forms of association or organization are able to impose order uponall action within a certain sphere. Weberian institutions are closely linked to theidea of enforcement by a third party (Streeck and Thelen 2005:9–11), as wellas the notion of legitimate forms of authority. But whereas Durkheim’s analysishighlights the tension between the economic and social aspects of action,Weber went further to also look at the development of institutions in terms ofconflicts among contradictory sets of social values and their carrier groups.


Legitimate Authority and Value Conflict. Throughout his writings, MaxWeber argues that the development of modern capitalism in the West requiredthose societies to at least partially overcome traditional orientations towardtechnique, social relations, and ultimate ends. Modern capitalism is intimatelytied to the ‘‘freedom’’ from constraints imposed by tradition, emotion, and cer-tain ethical imperatives (1978:72). Yet like Durkheim, Weber sees economicexchange as being socially embedded or requiring a ‘‘regulation’’ or constrainton self-interest. Exchange entails the resolution of a previously latent conflictof interests by means of a compromise (1978:72). Because conflict occursbetween buyer and seller over price or over the opportunities for exchangebetween rivals in the same market, self-interest alone is often an insufficientbasis for compromise. Exchange often presupposes that one party is under thecompulsion of need or the other’s power (Weber 1978:73). Likewise, consen-sual relationships require the assumption that parties will uphold their agree-ment and treat this ‘‘expectation’’ as fact. Rational exchange based on self-interest requires the calculability of fulfilling one’s promises (Weber1978:328). Echoing Durkheim’s notion of law, Weber (1978:336–37) arguesthat legal authority is necessary to facilitate market exchange and sanction ille-gitimate behavior.Beyond Durkheim’s concern for social integration, Weber is interested in

the way modern capitalist firms and the bureaucratic state emerged historicallyand embodied new instrumentally rational (zweckrationale) orientations. Webersees instrumentally rational action as based on the expected behavior ofobjects or persons, where ‘‘these expectations are used as ‘conditions’ or‘means’ for the attainment of the actor’s own rationally pursued and calculatedends’’ (Weber 1978:24–25). This type of action contrasts with value-rationalaction ‘‘determined by a conscious belief in the value for its own sake of someethical, aesthetic, religious, or other form of behavior, independently of itsprospects or successes’’ (Weber 1978:24–25). In order for modern capitalismto emerge, rational self-interested exchange had to overcome the barriers ofpast social norms and values predominant in pre-capitalist societies (Weber1992:55). Most famously, Weber stressed how a capitalistic ‘‘spirit’’ emergedhistorically in the West once the ethical sanctions of the moral Christianworldview began to ease and thereby facilitate the ‘‘disenchantment’’ of thepractical world. Particular ‘‘elective affinities’’ (Wahlverwandtschaften) arosebetween the economic interests of particular groups and the internal develop-ments of religious rationalization. Shifts in religious interpretation under Prot-estantism linked the ‘‘ideal interests’’ rooted in religion with a particularpractical, capitalist ethos based on a vocational culture. Protestantism not onlyfreed a bourgeois stratum from certain ethical conflicts involving economicactivity, but gave individuals a sense that it was their duty or even calling to


increase wealth (Weber 1992: 52). Ascetic Protestantism thus served to givenew moral sanction to continuous and impersonal calculation.Just as capitalism had to overcome value conflicts with religion, Weber

stresses that conflicts exist among the value orders or institutions that ‘‘regu-late’’ capitalism. For Weber, ‘‘modern’’ capitalist societies rest upon the for-mal rationality embodied in three central institutions: positive law, bureaucraticdomination, and capitalist enterprise. The differentiation of these formallyrational institutional domains leads to an increase in the number of conflictsamong substantive value commitments.3 To understand this, it is important tounderstand that rationality has a variety of meanings in Weber’s work. Forexample, Weber’s extensive analyses of industrial work utilize ideal-type offormal instrumental rationality (zweckrationalitaet) in understanding themotives of workers to increase their wages and the resulting conflicts of aimswith employers (see Ackroyd 1974). In contrast to instrumentally rationalaction, Weber describes value-rational action as being ‘‘determined by a con-scious belief in the value for its own sake of some ethical, aesthetic, religious,or other form of behavior, independently of its prospects or success’’ (Weber1978:24–25). Weber examines processes of rationalization according to partic-ular ‘‘departments of life’’ or ‘‘value spheres,’’ each with their immanent‘‘logics’’ or ‘‘inner dynamic’’ (Eigengesetzlichkeit). He has no systematic the-ory about the conflicts among institutional orders, nor a systematization of dif-ferent spheres. Weber most often discusses value conflicts when outliningsecular theories, such as his theory of the Protestant ethic or the rise of ratio-nalism in the West. These theories have limited historical scope, but are devel-oped by Weber with reference to ideal-types of various institutions or forms oforganization.4

The value-spheres concept is most comprehensively discussed in EconomicEthics of the World Religions, which explores conflicts between religion andpractical activity in other ‘‘spheres’’ (Weber 1946a). The term ‘‘spheres’’refers variously to religion, the kinship group, the economic sphere, the politi-cal order, the esthetic and erotic spheres, as well as the realm of cognition andscience. Likewise, the concept of Eigengesetzlichkeit describes the irreduciblenature of distinct logical, religious or moral, and esthetic values. Weber’svalue spheres possess various combinations of three logically independentdimensions: ‘‘Conduct within a sphere may take place according to its ownlaws (causal autonomy), may have its own inherent dignity or intrinsic value

3 Weber stresses conflict between institutionalized orders of action, such as the formally rational activityof capitalist enterprise and individual commitments to values. Weber’s view thus differs markedly from a‘‘clash of civilizations’’ perspective of conflict between ultimate value positions (Huntington 1993).

4 For a discussion of typologies, secular theories, and situational analysis in Weber’s work, see Roth(1987), Roth and Schluchter (1979), and Schluchter (1981).


(axiological autonomy), or may generate its own norms and obligations (nor-mative autonomy)’’ (Brubaker 1984:83).For Weber, value conflicts are irreconcilable and increase along with histori-

cal processes of rationalization. In Economy and Society, Weber engages inhistorical and comparative analysis across four functional spheres: religion,law, economics, and politics. These spheres may be rationalized to differentdegrees and in different directions. However, the more each sphere is rational-ized, the more it becomes institutionally differentiated from other valuespheres. The more a domain follows its own particular logic in a systematic,rationalized fashion, the more it comes into conflict with other values aroundit (Roth 1987:295). As Weber (1946a) explains, ‘‘For the rationalization andthe conscious sublimation of man’s relations to the various spheres of values,external and internal, as well as religious and secular, have then pressedtoward making conscious the internal and lawful autonomy of the individualspheres; thereby letting them drift into those tensions which remain hidden tothe originally naive relation with the external world. This results quite gener-ally from the development of inner- and other-worldly values toward rational-ity, toward conscious endeavor, and toward sublimation by knowledge.’’Capitalist enterprise is a central case in point. Weber (1978:161–62) outlines

conditions for the formal rationality of capitalist enterprise, whereby meansand ends are fully rationalized by accounting procedures according to the crite-ria of realizing profit. This formal rationality is institutionalized externally bycompetitive pressures, which sanction actors who fail to orient themselvestoward profits. Likewise, money provides an impersonal metric to subjectivelyobserve the correctness or success of the action. Action thereby becomesinstrumentally rational, because ends may be pursued with regard to their‘‘marginal utility’’ in terms of relative costs and benefits. But as Weber(1978:28) elaborates:

Value-rational action may thus have various different relations to the instrumentallyrational action. From the latter point of view, however, value-rationality is alwaysirrational. Indeed, the more the value to which action is oriented is elevated to thestatus of an absolute value, the more irrational in this sense the corresponding actionis. For the more unconditionally the actor devotes himself to the value for its ownsake, to pure sentiment or beauty, to absolute goodness or devotion to duty, the lessis he influenced by considerations of the consequences of his actions. The orienta-tion of action wholly to the rational achievement of ends without relation to funda-mental values is, to be sure, essentially only a limiting case.

As a consequence, modern institutions express an opposition between thevalue commitments and (formally) rational action, which involves orientationto objectified, impersonal, and ultimately meaningless ends.


How can instrumentally rational action become differentiated and legitimateas institutional orders, such as capitalist enterprises? For Weber, relationsbetween the different orders of modern society meet and become regulated inlaw (1981:92). Law limits the claims of actors within various institutionaldomains through legal norms of behavior. Enacted laws provide procedures tosettle conflicts of interest, but as in Durkheim, it remains unclear how suchlegal norms arise. Intentionally created, ‘‘positive’’ law turns a command intolaw only in relation to certain principles of enactment (Schluchter 1981:101–2).Legal authority may be legitimated in terms of the legality of these procedures,based on the constitutional separation of powers and the granting of inalien-able rights, for example. While law is externally imposed and sanctioned, legalprinciples ultimately are nonetheless the product of human intention and derivevalidity only with regard to agreement in some sense (see also Habermas1987:257–68).So while instrumental action can be legitimated with reference to law, legal

principles remain a source of conflict. Weber (1978:882–94) sees an irresolvabletension between the substantive and formal tendencies of law, each of whichcounteracts the other. For example, capitalism relies on legal formalism and itsgreater predictability of interpretation and calculability of enforcement. Impor-tantly, legal formalism can only be achieved through an ‘‘ethical minimum’’aimed at outlawing a narrow range of criminal or fraudulent practices (see Sch-luchter 1981:113). But these substantive considerations mean that legal interpre-tation of contracts inevitably takes extralegal norms into account, such as the‘‘real’’ intentions of parties, which weaken positivistic legal formalism and pre-cision. Consequently, modern law is itself open to demands for substantive jus-tice arising outside of law—such as through struggles for political legitimacy,conflicts between antagonistic class interests, or the interests of the legal profes-sion itself (Weber 1978: 894). Capitalism does not exist as a stable and legitimateorder, but must be continuously legitimated with reference to values outsideitself, which in turn, it perpetually threatens to undermine.More generally, Weber’s approach suggests studying institutions with regard

to the differing or competing values and criteria of rationality institutionalizedwithin them. As Weber (1946b) stated in his famous speech, ‘‘Science as aVocation’’:

The various value spheres of the world stand in irreconcilable conflict with eachother … Fate, and certainly not ‘‘science,’’ holds sway over these gods and theirstruggles. One can only understand what the godhead is for the one order or forthe other, or better, what godhead is in the one or in the other order.

Ultimately, we can already see two ways in which Weber’s approach is dis-tinct from more contemporary strands of institutionalism. First, in contrast to


institutional economics, rationality in Weber’s analysis is treated not as anexogenous form of instrumental rationality available to individuals, but ratheras a cultural technique shaped in ongoing struggles between different valuespheres. Second, while sociological neo-institutionalism certainly takes itsemphasis on legitimacy from the Weberian tradition, theoretical models ofinstitutional isomorphism have tended to downplay the importance of compet-ing sets of ideas and the dilemmatic nature of value-rational decisions. Thenotion of struggles or conflicts is often forgotten or downplayed by the logicof appropriateness or taken-for-granted cognitive frames, which often appearas a single logic that dominates a particular institutional field. By contrast,Weber highlights how institutions embody antagonistic values. The institution-alization of values relates to both ‘‘ideas’’ as well as the material interests ofhistorical actors. Ideas shape material interests because people must interpretand endow them with meaning in reference to specific sets of values. Like-wise, interests shape ideas, because values exist in practical relation to theworld and can only be actualized in practical situations that involve accommo-dation or compromise with the world. The resulting tensions between ideasand interests (or different sets of values) not only pose a logical or ethicalproblem for individuals, but are sociologically important sources of conflict.

A Weberian View on Codetermination. A Weberian view on codetermina-tion can be illustrated by looking at its historical development. Codetermina-tion embodies different value orientations, and these have evolved over time intension with one another—paternalism and cooperation, on the one hand, anddemocracy, on the other (Jackson 2005). The idea of ‘‘codetermination’’(Mitbestimmung) arose in the mid-nineteenth century having complex roots inChristian, socialist, and romantic philosophies, as well as the notion of parity(Paritat) and economic democracy (Teuteberg 1961). Codetermination repre-sented a socially integrative alternative to revolution or socialism, but had dif-ferent meanings to different people. Employees framed codetermination as ademand for ‘‘industrial citizenship’’ often analogous to constitutional rights inpolitics. Meanwhile, employers saw it as a paternalistic practice that usedemployee representation in company welfare schemes as a way to fosteremployee loyalty. The state saw codetermination as a device to integrateemployees, avoiding socialism but also circumventing independent unions.This political compromise resulted in a dual orientation of works councils to

represent the interests of employees, but promote cooperation with manage-ment in the business interests of the company (Fuerstenberg 1958). For exam-ple, the seminal article by Kurt Brigl-Matthiass (1926) documents the highlyambiguous set of value frames facing Weimar works councils and contradic-tory institutional pressures or conflicting ‘‘faces’’ of codetermination—as


representatives of rank-and-file employees, as part of the broader labor move-ment alongside political parties and industry-wide unions, and in their legalrelationship of cooperation with management. This ambiguous role left manylatent alternatives that could develop in different directions. In the early phasesprior to the Weimar Republic, unions saw codetermination as a paternalisticrival to industrial unionism. But this view was transformed by the post-warperiod, during which unions increasingly came to embrace and utilize codeter-mination to project union power onto the shop floor. Likewise, managementopposed codetermination, but later learned to use codetermination as a meansto reduce post-war labor conflicts and improve employee commitment in sup-port of Germany’s high-skill, high-quality manufacturing sector. Recently, thepost-war compromise is being renegotiated again in light of new capital marketpressures and corporate governance reforms (Vitols 2004). The ambiguousmeaning and dual orientation of codetermination allowed actors to ‘‘pull’’ thisinstitution in different directions as new situations emerge. Rather than a fixedset of constraints on action, institutions infuse action with value-rationalaspects and lead to interpretative struggles over the meaning of those values asthey are interpreted and applied to new and evolving situations.More generally, the Weberian perspective offers useful tools for understand-

ing the interplay of ideals and interests. In fact, institutions embody particularideas that help define the identities of actors and thus influence how actorsinterpret their interests (Lepsius 1990). For example, employees may definethemselves and interpret their interests in various ways based on class, occupa-tion, or enterprise (Streeck 1993). The individual and collective identities ofemployees influence the pursuit of different types of interests and models ofunion organization, such as industrial, craft, or enterprise-based unions. Thesemodels of organization may become stabilized within broader sets of institu-tions (e.g., corporatism, pluralism, and paternalism). Importantly, Streeck seesthe causal sequences not only as running from identity to interest to organiza-tion, but also vice versa, meaning that different forms of politics, institutions,and organizations also influence the perception of employee interests and helpsocialize employees into different identities. Thus, Streeck (1993:1) concludesthat the usefulness of Weberian ideal-typical models lies in their ability to dis-tinguish between and conceptualize the conflicting and often irreconcilablerelations and tendencies that often coexist simultaneously in reality.This Weberian view helps to interpret and give meaning to the tensions

between different sets of ideas and interests in German industrial relations as aunique configuration of class, occupational, and enterprise elements. Whilecodetermination at the plant and in the company institutionalizes enterprise-based interests, tensions exist with German industrial unions based on broadclass interests. For example, local cooperation between works councils and


management may undermine broader-based class solidarity. Strong cooperationat the company or workplace levels may make codetermination less compatiblewith the pursuit of class interests across the spectrum of many different enter-prises. However, German unions have come to integrate the company modelby capturing seats in works councils and by using them to monitor the imple-mentation and sometimes adapt collective bargaining agreements (Thelen1991). Likewise, works councils are strengthened by expertise and indepen-dence through ‘‘outside’’ union support.5

This brief analysis suggests how institutions may embody divergent princi-ples of rationality, which create value conflicts but also facilitate political com-promise and may even have positive economic functions. The dual orientationof works councils and institutionalization of class conflict has been criticizedfrom a liberal perspective of industrial relations, which emphasizes the repre-sentation of clear and distinct class interests (Dahrendorf 1967). However, aWeberian view suggests that competing values or logics of action may reducethe internal ‘‘coherence’’ of an institution, but also complement each other bymaking up for their inherent one-sidedness, at least in part.6 In fact, an impor-tant reason for the success of German unions is the balance that exists in thelogic of class politics between the orientation to the enterprise and the atten-tion given to the role of different occupations. Enterprise and occupationalinterests are strengthened through the backing of class-wide organizations.Still, the interweaving of these different logics does not lead to a transcen-

dence of the inherent conflicts among them. Here, Weber’s separation betweentypological models and situational analyses is useful. Ideal-typical models helpoutline potential conflicts and their dynamics, but the actual ‘‘working out’’requires historical analysis. This is certainly true of German industrial rela-tions. The German model was not a straightforward product of institutionaldesign; it was based on an unintended series of temporary compromises(Streeck 2001). The value-rational notion of democratic participation withinthe firm has likely become subject to increasing conflict with notions of share-holder value and the logic of property rights in light of growing capital marketpressures and related adaptations through more decentralized collective bar-gaining and the use of firm-specific employment practices (for example Rehder2003).

5 Similar arguments apply to occupational interests in the German apprenticeship-based vocational train-ing system. Industrial unions have maintained solidarity among different occupational groups by supportingthe upgrading of skills that leads to fewer and more broadly defined occupations and by encouraging furthertraining that supports the mobility between occupations. This strategy is notably different from the politicsof market closure prevalent among traditional craft unions.

6 Several recent works have discussed the importance of competing or conflicting principles of organiza-tion for maintaining diverse and adaptable economic structures (for example, Crouch 2005).


The Utility of the Classics?

Both economic and sociological perspectives on institutions are evidentwithin the existing literature on employment and industrial relations. In apply-ing these perspectives to Germany’s model of capitalism, we can see codeter-mination as a key source of comparative institutional advantage or as aculturally embedded logic of action that is difficult to transfer. But equally thelack of dialogue between these perspectives limits their respective contribution.Drawing on the sociological classics, we interpret codetermination as theembodiment of historically unique and often contradictory institutional logicsthat embody social values, but equally economic functions. In this section, wedevelop our argument in a more general fashion as to why both ‘‘classical’’perspectives of Durkheim and Weber help to understand and integrate thesocial and economic logics of the employment relations in ways that havebeen lost within more fragmented discipline-based discourse.Durkheimian approaches focus with function and coherence of institutions,

showing how economic action becomes socially regulated. The Durkheimianview is central in explaining how social order is possible when economicexchange is embedded in institutions. For example, Streeck and Thelen (2005:9) define institutions in a Durkheimian fashion as ‘‘socially sanctioned, that is,collectively enforced expectations with respect to the behavior of specific cate-gories of actors or to the performance of certain activities.’’ In contrast to writ-ings on institutions as equilibriums among incentives or taken-for-grantedworldviews, this view emphasizes that institutions are defined by their obliga-tory character, as well as the enforcement of formalized rules by third parties.Institutions are regimes that constrain and confront the individual as a kind of‘‘social fact’’ that—although produced by human action—is independent ofindividual will. But at the same time, institutions act as resources for solvingsocial problems and avoiding anomie.The Weberian view stresses the interpretive aspect of institutions as the

institutionalization of human values that have meaning. Institutions serve tocoordinate action because they have interpretative meaning to actors. In partic-ular, value-rational aspects of institutions provide interpretive frames for actorsto judge the legitimacy of actions and thereby mobilize efforts to enforce insti-tutionalized rules and norms. The Weberian insight is, however, that actors donot simply follow rules. Rather, institutions themselves represent complex his-torical constellations of competing and sometimes conflicting values, whichcan be rationalized or developed in different directions. Weberian sociologyemphasizes that society is comprised of different institutional orders with dis-tinct dynamics, values, and ‘‘logics’’ of action. This approach places greateremphasis on tensions related to the value-rational aspects of institutions and


therefore the dynamics of institutional change. Institutions are not simply theresult of social and political compromises, but embody such compromises atan interpretive level. The meaning of institutions is often ambiguous, but thisambiguity is also important in creating socio-political compromise. Thisemphasis on action goes beyond the view of taken-for-granted cognitiveschemes within neo-institutionalism and places greater stress on actors withcomplex understanding of interests and ideas. These differing perspectives ofclassical sociology have important implications for the study of employmentrelations today. The comparative institutional analysis of capitalism, in particu-lar, has contributed significantly toward our initial understanding of the waydifferent economic systems are influenced by diverse sets of institutional con-straints and opportunities, which result in different competitive strengths. Anequally urgent and perhaps more ambitious sociological task is understandinghow the growing rationalization of those institutions is sharpening conflictsamong the ultimate values that they embody.A second key point relates to the tensions between the Durkheimian and

Weberian perspectives themselves. Whereas Durkheim stresses the regulatoryfunctions of institutions in relation to rational, voluntaristic exchange, Weberemphasizes the value conflicts posed by the differentiation and rationalizationof institutional orders with distinct inner logics. Durkheim and Weber placedifferent relative emphasis on economic functions or ideas and social values inorientating ideal and material interests and action. Durkheim offers a way ofunderstanding how actors overcome the fundamental uncertainty that character-izes exchange (Beckert 1996). But by describing the role of institutions in rela-tion to the fundamental limits to rational voluntaristic action, an unresolvedbut analytically fruitful tension remains in Durkheim between the forces givingrise to organic solidarity (e.g., professional groups, law, etc.) and anomie (e.g.,fragmentation of normative orders, etc.). Meanwhile, Weber highlights a differ-ent tension that goes beyond the distinction between the economic versus non-economic orders. Weber opens up the social aspect of institutions to issues ofinterpretation, where actors face interpretive gaps and confront conflicting val-ues. The contestation and working through of meanings, as highlighted byWeber, are an important source of human creativity and institutional innova-tion. Weber’s emphasis on value conflict within and between institutionalorders reminds us that social integration is by necessity only partial. Whileinstitutions create constraints and opportunities for different types of economicbehavior, the boundaries and legitimacy of those constraints undergo constanttesting and revision because the different principles of rationality embodied ininstitutions are irreconcilable. Consequently, institutions may have paradoxicaleffects, particularly when transplanted from one social setting to another(Sorge 2005). It is exactly these tensions between the economic and


non-economic (Durkheim) and among different rational criteria of decisions(Weber) that should inform institutional analysis.

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