The German 'Active Labour Market Policy' has been over its twelve-year history the most elaborate 'welfare to work' programme in the world. It provided job placement, counselling, early retirement, short-time working, job creation and wage-cost subsidies to the economic casualties of the collapse of the old East German industrial sector. This is the first comprehensive analysis of the policy. It is a major contribution to the literature on economic change and labour market restructuring, as well as a globally relevant critique of employment policy reforms in 'social market' and other advanced capitalist economies.