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Henry Farrell, The Political Economy of Trust: Institutions, Interests and Interfirm Cooperation in Italy and Germany (New York: Cambridge University Press, 2009).Jeremy Leaman, The Political Economy of Germany under Chancellors Kohl and Schroeder: Decline of the German Model? (New York: Berghahn, 2009)Wolfgang Streeck, Re-Forming Capitalism: Institutional Change in the German Political Economy (New York: Oxford University Press, 2009)

For much of the past two decades since unification, the literature on the German economy has largely focused on the erosion of the German model of organized capitalism and emphasized institutional decline and the corresponding rise of neoliberalism. The first part of the article analyzes the strains unification placed on German economic performance that caused many observers to call for modification of the model in a more neo-liberal direction. The second part takes a different focus and lays out the main rationale of the paper. It inquires why such a coordinated market economy was created in the first place and whether a renewed form of it might still be useful for Germany, the European Union, and other developed democracies in the early twenty-first century. The third section articulates the origins of the institutional and ideational components of these coordinated market economy models, during both the Bismarckian and Social Market Economy periods. The final portion inquires whether the failure of the contemporary liberal market economy approach in the wake of the worldwide financial crisis and severe recession represents a possible opening for the creation of a third coordinated market economy not only for Germany but for a redesigned European Union.

The Social Democratic parties of Germany and Sweden were part of 'third way' movements common to such political parties during the mid-1990s. By continuing to moderate their positions and move away from their traditional bases towards the centre, they seemed to embody — a generation later — a second embracing of Kirchheimer's 'catch-all' party thesis. But unlike its 1960s' incarnation, each of them in the mid-1990s disregarded their left flanks and saw considerable growth of both Green and Left (former communist) parties fill the policy space that social democracy had relinquished. Both parties no longer lead their governments. This article suggests that the decline of social democracy in Germany and Sweden can be understood by a nuanced interpretation of the Kirchheimer thesis. Ultimately, it is argued that the failure of both parties to maintain electoral dominance results, paradoxically, from their overemphasis on the political centre, which left a lucrative space for left-wing parties to occupy especially in a PR setting. Kirchheimer helps us understand this pattern, because the focus on the centre leaves an ideologically moribund electorate that created space for Left parties to institutionally renew or adapt themselves to address the needs of these forgotten voters. This central hypothesis, along with others that derive from the catch-all thesis, is tested empirically with historical analysis and electoral and opinion data.