Rhineland Model V 2 1 - Van Haren Group

The term ‘Rhineland model’ is a term that was originally used to describe the principles of the economic model and of society in Germany and the countries around Germany. In most cases it is used as opposite to the Anglo-Saxon or Anglo-American model, which gives ample room for the entrepreneurial powers within a free market system, and with as little control from governments as possible.

The Rhineland model is not a model in a literal sense: there is no official manual or such like. However, the term is used more and more, e.g. to explain the aversions and reluctant acceptance in North-Western Europe of widely accepted management models and theories originating from Anglo-American source, e.g. PMBOK Guide, PRINCE2, etc.

The origins of the term Rhineland model

Ludwig Erhard
(god)father of
the Rhineland model

In the 1950s the term Rhine capitalism was used as an allusion to the city of Bonn, the former government capital of the Federal Republic of Germany, at the river Rhine. It also referred to the nearby town of Bad Godesberg where the German Social Democratic Party (SPD) accepted a new kind of capitalism (‘capitalism with a human face’) with the so called Godesberg Program in 1959. Ludwig Erhard (1897-1977), from 1949 to 1966 Economics minister of the Federal Republic of Germany, was the main spokesman.

Apart from West-Germany, Rhine capitalism has been associated with other Northern European economies such as Switzerland, Austria, the Netherlands, the Scandinavian countries. It has also been used to characterize Japan’s economy.

Business Management: the Rhineland model versus the Anglo-American model

In more recent publications on market economy and economic science the term Rhine capitalism was replaced by the term Rhineland model. It is used to describe the ‘Coordinated Market Economies’ (CME), as opposite to the ‘Liberal Market Economies’ (LME), mostly described as the Anglo-American, or neo-capitalist model.

Derived from the use in economic contexts, both terms have been used in several publications to explain different approaches in business management.

In the Rhineland model companies are work communities that only can exist when a permanent value is added. Required capital comes from private investors and bankers with knowledge of the products and markets. A small independent group of regulators forces management to optimize the free cash flow from existing operations and renewing the range of activities.

The model of the United States and of the UK since Margaret Thatcher, is the Anglo-American model. In this model the companies receive their capital through the stock exchange. A rising share price is the key. The shareholders entrust their interests to a CEO. The CEO is a powerful leader with a short-term goal whose compensation largely depends on the realized return. Cost savings, mergers and acquisitions and repurchase of shares are the steps to increase the earnings.

The essential differences between both models are described in this table:

CME (Rhineland):	LME (Anglo-American):
Society
Tripartite agreements.	Minimal government control on society
Companies
Organization as working community	Organization as support
Focus on stake holder value and mid-term and long-term policy; business continuity and labor relations being more important than achieving short term profits.	Focus on share holder value and short term profits.
A well-adjusted balance of power between share holders and managers.	Most power is with the share holders.
Efficiency of social structures	Efficiency of economic structures.
Focus on effective leadership.	Focus on effective management.
Planning and organization.	HRM.
Most companies financed by family capital or banks.	Most companies financed by shares that are sold via stock exchange.
Employees
Labor relations are more ‘co-operative’; government, employers and employees are prepared to work together; shared values by most of the management and employees regarding the ideas of equality and solidarity.	Labor relations are more ‘conflictuous’.
Employees stay longer in the same firm and have higher loyalty towards the company they work for.	Employees stay shorter in the same firm.
Employees are protected against firing.	Employees easily hired and fired.
Generous unemployment benefits.	Modest unemployment benefits.
Wage bargaining more centralized: more income equality.	Wage bargaining more de-centralized: income distribution more unequal.

Acceptance of international management models and theories: the Rhineland model versus the Anglo-American model

In international business we see that the leading management models and theories originate from Anglo-American source. Understanding the differences between the Rhineland model and the Anglo-American model helps to understand why the management models based on Anglo-American culture are not widely or happily accepted in countries such as Germany, Netherlands, etc.

In military organizations the same differences can be recognized. In US army, command lines are based on the idea that in combat or in training soldiers only act upon commands from officers and do not act upon own initiative. In the Dutch and German army soldiers also have to follow commands, but they get much more freedom in finding their own solutions to achieve a certain goal (known as ‘discretionary powers’).

In this table the most important differences in ‘business culture’ in line and project management are described:

Rhineland model	Anglo-American model
Focus on employees’ own responsibilities and personal initiatives from employees on operational level.	Focus on control mechanisms by higher level management and reduction of personal initiative by employees on operational level.
Little attention to risk management.	Much attention to risk management.
Project success as a result of competent team members.	Project success as a result of methods and (control) instruments.
Participation to project teams ‘principal based’.	Participation to project teams ‘rule based’.
Focus on contact and trust in (business) relations.	Focus on contract.
Long lasting discussions with all stakeholders to achieve a compromise. The outcome is often ‘half baked’.	Result orientation.

Conclusion

In recent publications, Matthieu Weggeman, a Dutch author of several publications on the Rhineland model, makes clear that the issue is not to choose between the Rhineland model and Anglo-Saxon model, but to create a Third Way, combining the best of both models. Obviously, this is a typical Rhineland approach. Probably the current global Economic Crisis will be decisive which of both models will proof to offer the best solutions to overcome this crisis.

By Bart Verbrugge

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