German Thatcherism: The Structural and Historic Limits to Making Germany More "Anglo-Saxon."

By Hoffman, Jonathan | The International Economy, Winter 2005 | Go to article overview

German Thatcherism: The Structural and Historic Limits to Making Germany More "Anglo-Saxon."


Hoffman, Jonathan, The International Economy


The lessons of the Thatcher era--which brought deregulation, privatization, and a reduction in the powers of the trade unions to the United Kingdom some twenty years ago--have not been lost on other countries. Europe in general and Germany in particular have been attentive pupils. Europe's Lisbon Agenda aims to boost growth via the classic Thatcherite methods of deregulation and greater economic flexibility. It stands in sharp contrast with previous European initiatives, such as the Social Chapter adopted during the era of former EU President Jacques Delors at the 1989 Madrid Economic Summit.

Moreover, Germany has adopted a radical program of economic liberalization. Agenda 2010 includes tax reform, cuts in pensions and entitlements for the unemployed, and an increase in the minimum size of a business in order for it to be subject to the laws on the conduct of dismissals. In some respects, Germany has gone even further than the United Kingdom. For example, beginning this year the public pension in Germany is numerically linked to the dependency ratio. If there are more old people in the population, pension payments will fall automatically. Almost all countries face the same pensions "time bomb" as Germany, but to the best of my knowledge no other country has made this direct linkage.

It is also the case that global economic trends are amplifying and reinforcing the German reforms. For example, Baroness Thatcher curtailed the powers of trade unions and successfully resisted the miners' strike in 1984-85. But in Germany, the move within the economy away from industry, which is highly unionized, and toward services, which are much less so, has substantially reduced trade union membership. Since 1998, the membership of the DGB national union federation has declined by nearly 12 percent to 7.7 million. In the summer of 2003, IG Metall--Germany's largest trade union--admitted defeat in an industrial dispute for the first time since 1954. The four-week strike, in eastern Germany, was in support of a three-hour cut in the work week to thirty-five hours, the same as in western Germany. But many workers ignored the call to strike because orders had fallen and unemployment in the east had risen to 19 percent. Another example is the length of the work week, which is rapidly increasing to forty hours from thirty-five. The cause is not Thatcherite legislation. Rather, it is the reservoir of cheap labor within the European Union, in Poland, the Czech and Slovak Republics, and Hungary, to which German companies can easily shift production if local labor costs fail to fall.

DO THEY KNOW HOW MUCH HAS CHANGED?

Those who are most vocal in urging further Thatcherite policies on Germany--they have been called the "AngloSaxon triumphalists"--often do not seem to realize how much has already changed. They place the blame for global imbalances on Europe, omitting any mention of the huge U.S. current account deficit or the heavy under-valuation of some Asian currencies.

Such expressions of "Anglo-Saxon triumphalism" have drawn some robust responses. For example, the United Kingdom's EU Commissioner Peter Mandelson used his first public appearance as Commissioner to criticize what he called "exaggerated gloating." "Today Britain seems to offer its own distinctive model of economic success [and] I'm proud of the country's economic record and achievement," he said. "But let's have no exaggerated gloating about that." He warned of the risks in adopting the Anglo-Saxon model wholesale: "We do need more American-style dynamism in Europe but without emulating the raw divisions of America's more polarized society."

Those who urge further Anglo-Saxon policies on Germany are vulnerable to other criticisms, too.

The first is that "one size does not fit all." In other words, there are limits in transferring the Anglo-Saxon model to non-Anglo-Saxon economies. One obvious difference in the case of Germany is that relations between the government and the trade unions remain good.

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