Germany Shows the Way on Labor

Germany Shows the Way on Labor

“Policy,” says David Rolf, the Seattle union official chiefly responsible for the first successful campaigns for a $15 minimum wage, “is just frozen power.” By which measure, the problem with U.S. trade policy for the past quarter-century is that it reflects the growing imbalance of power between investors, able to profit from global markets, and workers, who have lost the institutions that once enabled them to improve or at least maintain their jobs and incomes.

Beyond question, the entry of China, India and the former Soviet bloc into the world labor market has exerted downward pressure on jobs and wages throughout the advanced industrial world. In the United States, that pressure has been particularly intense and widespread. As one paper published last year in the Review of Economics and Statistics concluded, U.S. workers forced out of their jobs by globalization between 1984 and 2002 saw their wages decline by between 12 percent and 17 percent. And that was before the full weight of Chinese competition descended on American manufacturing and an additional 55,000-plus U.S. factories shuttered their gates.

But globalization has not had so grim an aspect in every advanced economy. Like the United States, Germany is home to a large number of iconic manufacturers — Volkswagen, Daimler, Siemens, to name a few — that have factories all over the world. Yet Germany frequently has the world’s largest trade surplus while the United States perennially runs the world’s largest trade deficit. More remarkably, German manufacturing workers make a good deal more than their American peers: Their hourly compensation averaged $46 in 2012, $10 more than the U.S. average, according to a Labor Department survey.

To be sure, Germany’s advantage is partly due to the euro’s undervaluation of German goods. But the fundamental difference between Germany’s experience of globalization and our own is the result of a vastly different balance of power between capital and labor. German worker organizations wield power in ways that would astound their U.S. counterparts — above all, by virtue of the legal requirement that the boards of all sizable corporations be equally divided between workers and management.

On Tuesday, I met with eight leaders of IG Metall — the union of Germany’s manufacturing workers, and by most measures the most powerful union on the planet. Like workers throughout the advanced industrial world, they’ve not been able to stop the decline of some of their older industries. “We’ve lost jobs every day in steel and shipbuilding,” said Horst Mund, the union’s international director.

But in auto, aerospace, electronics, high-speed rail and defense technology, their experience has deviated completely what we’ve seen in the United States.

The strategy of the German unions has been to allow, often reluctantly, their globe-trotting corporations to perform the less skilled, lower-value work in lower-paying nations but to insist on keeping the most highly skilled and compensated work in Germany. With world-class worker training, the union and the companies “continually upgrade our productivity,” said Reinhard Hahn, a union leader who also is a member of Siemens’s board. Workers in China do the final assembling of the Airbus A320, but that constitutes just 3 percent to 5 percent of the plane’s total value: The precision parts are made in Germany, many by small firms linked to the global production chain through the union’s own efforts, Hahn said.

With Airbus soon to open a similar assembly plant in Alabama, U.S. workers now compete not with Germans but with Chinese for low-end jobs. As predicted some years ago by the Boston Consulting Group, low-wage Southern labor has begun to erode the Chinese advantage in low-cost production, and foreign firms are flocking there. The role of the South in the global production chain increasingly resembles that of the pre-Civil War era, when it provided the cheapest labor in a chain that created the millionaire clothing manufacturers of Manchester, England.

Congress is poised to vote on a measure that would ease the passage of a massive trade deal, the Trans-Pacific Partnership. My Post colleague Dana Milbank has written that any such deal should be linked to major increases in infrastructure projects, to compensate for the lost jobs, and in worker training programs. I’d go Dana one further:

When we set the standards for globalization, we need to ensure benefits flow to workers as well as investors, and that won’t happen absent the kind of fundamental shift in power from shareholders and management to labor that the German system embodies. Like earlier trade deals, the Pacific pact offers no such rebalancing. It freezes policy — and the rewards of globalization — to reflect our massive imbalances of power and income.


This has been reposted from The Washington Post.


Stock photo © Dale Robins