How much should the operator of this drill press earn? (photo: evershedm on Flickr)

Why is it that Germany and other European countries are able to support a strong system of economic support for their people in good times and bad? For decades, the US economic press and punditry have been predicting the end of what they deride as Socialism in the European Union. It requires a heavy tax burden for everyone, and a lot of government spending, which the corporatists in the US hate. So why hasn’t the German system collapsed? Why does it have the support of all major German political parties?

Tom Geoghegan’s book, Were You Born On The Wrong Continent, was the subject of Saturday’s Book Salon. Geoghegan discusses Germany’s approach to capitalism, which has been very successful. He points out that a significant factor in their version of capitalism is their system of works councils, unions, and co-determination. Works councils are groups selected from among employees, and have a significant role in day-to-day operations. Unions bargain for wages, and work with members of works councils. In companies with more than 2,000 employees, the workers elect 50% of the members of the board of directors, which they call co-determination. This gives them a significant voice in the overall approach of German businesses.

Taken together, this gives workers a big say in German businesses. The political upshot is that German businesses have to take the interests of their workers into account when closing down, importing from other nations, and setting hours and wages. In turn, workers have a distinct interest in making sure that their employers are competitive, internally, in the EU, and in broader international trade.

Involvement in the operation of business teaches workers the value of politics. As a result, German workers understand and support their system of social benefits, including the big five: pensions, health care, education, child care and strong transportation systems. They don’t vote for parties that don’t support that system, and there are a lot more workers than US-style predatory capitalists.

In Saturday’s New York Times, we see the other main reason. It works, and as a result, Germans have good jobs and the middle class is thriving. Germany, with its 83 million people who work 300-400 fewer hours per year than we do, had exports of $1.2 trillion in 2009. It is ahead of China, with 10 times the population working heaven knows how many hours under heaven knows what kind of conditions. Germany’s economy grew by 2.2% in the second quarter, leading the EU to solid growth of 1%, despite problems with some of the weaker member nations, like Greece and Spain. Germany’s trade surplus was 60.2 billion Euros. It has no international debt, meaning that it has financed its growth internally.

Even more important is the quality and sophistication of German industry. The German reputation for high-quality machines is unparalleled. Now they are pushing forward in green industry, including wind and solar power, led by Government support and German engineering excellence.

Another NYT article provides this explanation:

The strong growth figures will also bolster the conviction here that German workers and companies in recent years made the short-term sacrifices necessary for long-term success that Germany’s European partners did not. And it will reinforce the widespread conviction among policy makers that they handled the financial crisis and the painful recession that followed it far better than the United States, which, they never hesitate to remind, brought the world into this crisis.

Of course, cutting unemployment benefits and easing rules for hiring and firing get first billing, but the article at least mentions the cooperation between labor and management as a third factor, even if it doesn’t explain why it happens. Geoghegan points out that the changes to unemployment and hiring practices were tweaks, and that at the same time, other benefits were improved. Now Germany’s big problem is finding good engineers.

In the US, businesses seem to think they should be able to get machinists, who are the most skilled industrial workers, to work for $13 per hour, a rate that infuriates these crucial people. In Germany, machinists are respected. Maybe that’s why Germany is succeeding in a tough export climate against the rest of the world. Maybe we should try something like that.

Ed Walker



I read a lot of books.