The social partnership breaks up
After her re-election, Angela Merkel will again propose to the EU that the German economic model — thrift, probity, austerity and a formal partnership between employers and workers — should be the norm for all Europe. But that partnership, once admired for its fairness, is failing. Now employers revel in local and global inequality.
Klaus Probst, president and CEO of Leoni AG, Europe’s largest supplier of cables and cable systems to the automotive industry, is a perfect blend of world citizen and self-centred industrialist. With his Hollywood looks and light Bavarian accent, he looks and sounds the part, too. The German model may be cracking at the seams, but he remains confident: “Our system really is a model for others. When we look at France and see how the unions react to job cuts, we realise the advantage we have in Germany, where we all manage to agree on a reasonable solution. The social partnership in our country seems very stable to me; I don’t see any threats on the horizon.”
Last year Leoni had sales of €3.8bn and earnings before tax of €236m. It is a leading member of the Bavarian Association of Metal Processing and Electrical Companies (VBM), which represents 600 companies with more than 700,000 employees. Probst says: “The VBM is quite a powerful organisation. It lobbies politicians on our behalf — Horst Seehofer, president of the state of Bavaria, and [Chancellor] Angela Merkel. We lobby on energy policy in particular, because the price of electricity is going up all the time, and that is a threat to some of our members.”
The lobbying aims to circumvent Germany’s Energiewende (energy transition) policy, which is supposed to promote alternative energy but has been diluted by amendments introduced under pressure from lobbyists. One passed in 2011 exempts more than 2,000 companies from an ecotax levied on major consumers of fossil fuels. It is estimated that these accommodations will cost the German treasury €4bn in 2013.
There are also cash donations. Between 2002 and 2011, VBM gave €4.16m to political parties, including €3.7m to Seehofer’s Christian Social Union (1). Only BMW and Deutsche Bank were more generous.
Living in a bubble
Given these figures, Germany’s low wages and lack of job security are outrageous. Between 2000 and 2010, Germany saw the biggest increase (after Bulgaria and Romania) in the gap between the richest 20% and the poorest 20% (2). This does not trouble Probst: “Even if several studies confirm what you are saying, I see nothing like that around me. Social security means that everyone in Germany can live decently. I have two children who are at university, and I am not worried about the society they are living in falling apart.”
Leoni was founded in the 19th century and has been listed on the stock exchange since 1923. During the Nazi era it benefited from the forced labour of deportees. The postwar German miracle and rapid expansion of the automotive sector brought more growth. The euphoria of the period, combined with a ban on “political strikes” and anti-communist policies that intensified with the erection of the Berlin Wall, led to a social consensus unique in Europe, and the Federal Republic of Germany was able to delegate the task of negotiating collective labour agreements to employers’ organisations.
The state refrained from interference and allowed employers to agree working conditions and pay with the unions; the employers undertook to involve employee representatives in the management of their companies. This system, known as “co-determination” (Mitbestimmung) gave unions half of the seats on a company’s governing body — the works council (Betriebsrat) in small and medium enterprises or the supervisory board (Aufsichtsrat) in those with more than 500 employees. The system really only gives equal representation in the metal processing sector: in all others, company directors have a majority of one that allows them to resolve deadlocks.
Though it is the envy of southern European employers, this system is collapsing. “On paper, everything is still fine, but in reality, the social partnership only survives in traditional industries,” says Jürgen Bothner, secretary-general of the union Ver.di for the state of Hesse. It is not relevant to the services sector, the growth of which is eroding the German model. In 2012 only 58% of German workers enjoyed collective labour agreements: 60% in the west of the country and 48% in the east, compared with 75% and 63% in 1997. And in sectors where the social partnership still applies, the delicate balance between the partners is being lost. “The links between the trade union federations and the employee representatives who sit on company boards are under strain, where they are not already broken,” says Bothner. “It is not unusual for representatives elected to defend the interests of the workers to collude with the employers.”
Probst praises the “sense of responsibility” of his social partners. They have been very accommodating: in 2000, and again between 2008 and 2010, workers’ representatives in the metal processing and electronics sector, to which the Leoni group belongs, accepted management demands for wage freezes without question. As a result, Probst says, Leoni “survived the crisis and is doing very well today, which is in everyone’s interest.” His own pay rose by 8.8% between 2008 and 2009 and he is currently the 55th best-paid manager in Germany, with a salary of €1.87m plus other rewards (3).
Offshoring over the last 20 years has also weakened the social partnership. Here too, Leoni has been a pioneer. Only 4,000 of its 60,000 employees work in Germany. “When the iron curtain fell in 1989,” says Probst, “we immediately decided to transfer part of our production operations to Hungary, Poland, Slovakia and the Czech Republic.”
It offshored more in the late 1990s to Ukraine and Romania, and in the 2000s to Tunisia, Morocco and Egypt. Have the Arab revolutions affected this competition strategy? “Not at all,” says Probst. “The maths is easy: in Germany, the cost of labour in the electronics sector is €25 an hour, including social security contributions; in Poland it’s €6 an hour and in Tunisia it’s only €2.” The 12,000 workers at Leoni’s Sousse site in Tunisia, mostly women earning €300 a month, do not enjoy the advantages of the German model. Probst sees hiring these workers as a “modern form of development aid”. “Germany is doing very well. We have never been so close to full employment,” he claims, although that is a surprising statement in a country where four million (12% of the economically active population) earn less than €7 an hour (4), and where an employment agency has published a brochure advising the unemployed to save money by drinking tap water rather than bottled water (5). Germany’s bosses are living in a bubble, increasingly isolated from the real world.
For the past six years, Markus Pohlmann, a professor of sociology at Heidelberg University, has been leading an ambitious study on the global economic elite. In Germany, his team has interviewed 82 top managers from two generations, those who were in charge during the 1980s and 90s, and those who are today, to “determine how far the principles of neoliberalism have permeated the thinking of the decision-makers, and they way they do business.”
According to Pohlmann, German bosses “devote body and soul to their company, far more than they did 20 years ago. They work an average of between 14 and 16 hours a day during the week, and 10 to 12 hours at weekends. They see society only through the filter of the company … For the older generation, there was a kind of social pact by which the search for a consensus tempered the overriding obligation to pursue profit. That concept has vanished. Today it is the principle of human capital that prevails, according to which every individual is responsible for his or her own fate. Those who do the least well — ‘lower-performing’ employees — are eliminated without scruple.”
‘Labour has a price, like pork’
You can hear this in what they say. Over the last few years, the top bosses have tended to be far more direct than their predecessors. In 2005 Walter Norbert, then chief economist for Deutsche Bank, said: “In Germany, we tend to think the head of a company has a duty to pay workers enough to keep their entire family. But that’s not possible in economic terms” (6). Also in 2005, Michael Rogowski, then president of the powerful Federation of German Industry (BDI), explained the workings of the labour market: “Labour has a price, just like pork. In the business cycle, prices are high when pork is hard to come by. When there is a lot of pork about, prices fall” (7). Rogowski has since worked as a consultant to US investment group Carlyle and presented a programme on a private German TV channel.
The greatest change, according to Pohlmann, has been in “ethical values”. The protestant restraint traditionally associated with German capitalism has been abandoned in the pursuit of material gain. “The top management of companies listed on the DAX [Frankfurt stock exchange index] earned four times and a half as much in 2010 as they did in 1995, with an average income of €2.9 million … In 2011 their income rose again substantially, to an average of €3.14 million per board member,” writes sociologist Michael Hartmann (8).
Tax fraud has increased, although this is not a recent phenomenon among major taxpayers: Albert Eickhoff, owner of a luxury fashion retailer targeted in a 2012 tax evasion probe along with several hundred other German millionaires, said that in the 1970s it was already considered “acceptable to hide money abroad” (9). What has changed, according to Pohlmann, is the way company bosses now openly admit their tolerance of the practice: in 2009, after Klaus Zumwinkel, the former CEO of Deutsche Post, was convicted of tax evasion, nearly everyone Pohlmann’s team talked to agreed that the €2-3m Zumwinkel had hidden in an account in Liechtenstein was nothing to make a fuss about.
Siegmar Kleinert, a member of the supervisory council of DZ Bank, Germany’s third largest financial institution with a capital stock of €11bn, is very angry about Germany being tainted by Berlusconi-style corruption. Since Gerhard Schröder began selling his contacts to Russian energy group Gazprom, Kleinert says: “The dykes have been breached and nobody is worried about conflicts of interest any more.” He mentions Wolfgang Clement, economy and labour minister under Schröder, who became an adviser to international staffing giant Adecco and banking firm Citigroup, and Peer Steinbrück, Social Democratic Party (SPD) leader and candidate for chancellor at the September general election, who gave 74 talks, for fees of €15,000-25,000 a time, to Deutsche Bank, Citigroup, BNP Paribas and JP Morgan, between 2009 and 2012.
Profiting from the losses of others
The ease with which secretaries of state (administrative heads of ministries) move from public office to the private sector shows the dividing line between politics and business is becoming blurred. According to Hartmann, only five of 20 secretaries of state at the finance ministry between 1949 and 1999 joined the private sector after leaving government, but seven of the eight who have held office since 2000 have gone on to a career in business or finance.
The revolving door allows movement in both directions. In 2003 the Frankfurt stock exchange recruited Axel Nawrath, a senior civil servant in Germany’s finance ministry and a member of the SPD, as public relations director. Two years later, he moved back to the civil service as secretary of state to finance minister Hans Eichel. Today he is a director of KfW, one of Germany’s biggest banks.
These links are advantageous to the financial sector. Heribert Zitzelsberger, once head of finance at Bayer, where he was responsible for tax optimisation strategies, was headhunted in 1999 by Schröder’s Red-Green government to be secretary of state at the finance ministry. “We have sent our best tax expert to Bonn. I hope he has been sufficiently infiltrated by Bayer and will make the necessary reforms,” Bayer’s chairman Manfred Schneider told a meeting of shareholders (10).
Zitzelsberger’s reform reduced corporation tax from 34% to 25% and exempted profits made by listed companies on the disposal of shares. After these “competitiveness support measures”, which cost the state €23bn, were announced, the DAX index jumped 4.5%. Bayer got a tax refund of €250m in 2001, which it passed on to its shareholders. When Zitzelsberger died in 2003, German bosses paid tribute to the man who had made them “the greatest gift of all time” (11).
Berthold von Freyberg is grateful to Schröder too. He was born into an influential aristocratic family (his brother Ernst is head of the Vatican Bank), and is a co-founder of the venture capital fund Target Partners, which invests its clients’ money in high-tech startups. He complains about the unfair treatment of his sector: “If you invest 100 million [euros], you get an annual commission of 2.2% or 2.2 million — for five years. But for the last 12 months, German investment funds have had to pay tax at 19% on this. Germany is the only country in Europe to have put such a measure in place; even France is more liberal. It damages the whole sector by discouraging investors. We absorb this tax, which means we lose 19% of our profits. We have to tighten our belts.”
Von Freyberg believes Schröder would not have done anything so insensitive: “Schröder created the conditions for wealth that we enjoy today. We owe him far more than we do Merkel. I don’t criticise her for defending the euro, but she hasn’t done even a quarter of what her predecessor achieved in terms of structural reforms of the labour market.”
Yet, according to a study by management consultancy Kienbaum, 78% of German entrepreneurs support Merkel’s Christian Democratic Union (CDU). German bosses are grateful to the left, but vote rightwing: German single-mindedness is weakening.
The same survey also indicates that 66% of the heads of companies still have full confidence in the euro, which they believe is beneficial to Germany. Hans-Olaf Henkel, former head of the BDI, who is campaigning against the euro alongside the Alternative for Germany (AfD) party, has a hard time convincing his colleagues: only 1% of German entrepreneurs would like a return to the deutschmark. “The euro has been a great success for German companies. In spite of the uncertainty, they have confidence in the single currency and in the Merkel government’s rescue policy,” says a senior executive at Kienbaum (12).
Probst confirms this: “Obviously, the depreciation of the euro against the dollar, following the poor economic performance of our European neighbours, has stimulated our exports and enhanced our competitiveness on the global market. If Germany returned to the deutschmark, it would trigger an appreciation of our currency that would be disastrous for German industry. We must recognise that the financial pressure on the EU at the moment is keeping the euro at an artificially low level, which is advantageous to us.”
Profiting from the losses of others seems to be the new German model. Lothar Reininger and his brother run Reininger AG, a Mittelstand company (medium-sized business, traditionally associated with values of integrity, hard work and perseverance). They import medical equipment and supplies: wheelchairs from China, beds from Poland, personal hygiene products from Thailand, and employ 190 people, but Lothar Reininger doesn’t like to be called an entrepreneur. He used to work for Triumph-Adler, but lost his job in 1994 after a protest strike over the restructuring of the group by a US investment fund. Since 2006 he has represented leftwing party Die Linke on the Frankfurt city council.
He is familiar with the Mittelstand contradictions: “In our sector, there are many precarious workers — ‘independents’ — who earn five to six euros an hour doing deliveries or cleaning work that our competitors contract out to them. At Reininger, our own employees do that work, and earn a minimum of 10 euros an hour. No matter what employers’ organisations say, it is still possible, even in the face of fierce competition, to pay people a decent wage and treat them fairly. But for how long? The only way to end social dumping would be to set a federal minimum wage of 9 or 10 euros. By refusing to do that, the Merkel government is threatening the survival of the few employers who want to do an honest job.” In 2012 Reininger AG made a profit of €414,000, which it redistributed to its employee shareholders — “the equivalent of two week’s pay per employee: not enough to go to the Bahamas.” The company may not be able to repeat that performance in 2013.
by Olivier Cyran
Olivier Cyran is a journalist.
(1) Official figures published by the Bundestag.
(2) Source: Eurostat. Quoted by Michael Dauderstädt inEuropas unterschätzte Ungleichheit (Europe’s Underestimated Inequality), Friedrich-Ebert Foundation, Berlin, 2010.
(4) Source: Institut Arbeit und Qualifikation (Institute for Work, Skills and Training), University of Duisburg-Essen. Quoted by Michael Hartmann in Soziale Ungleichheit, Kein Thema für Eliten? (Social Inequality: no Theme for the Elite?), Campus, Frankfurt, 2013.
(6) Interview with the daily Volksstimme, Magdeburg, 11 February 2005.
(7) Quoted by Norbert Blüm, former conservative labour minister, in Ehrliche Arbeit, ein Angriff auf den Finanzkapitalismus und seine Raffgier (Honest work: an attack on financial capitalism and its rapacity), Gütersloher Verlagshaus, Gütersloh, 2011.
(8) Michael Hartmann, Soziale Ungleichheit, op cit.
(9) Interview with Bild Zeitung, Berlin, 13 November 2012.
(10) Quoted by Hans Weiss and Ernst Schmiederer inAsoziale Marktwirtschaft (Unsocial Market Economy), Kepenheuer and Witsch, Cologne, 2005.
(12) “Deutsche Unternehmen vertrauen dem Euro” (German Entrepreneurs Trust the Euro), Kienbaum, Berlin, 26 July 2013.