Schroeder's Choice

Article excerpt

Streamlining Germany Inc.

In recent years, the economic inclusiveness promised by the old German economy has increasingly become a myth.

Unemployment close to 10 percent has been blamed largely on the overly protective policies of the "Germany, Inc." system. Germany's president, Gerhard Schroeder, is in the difficult position of having to satisfy the populist pressures for maintaining this old wage-bargaining system. But if Schroeder wants to achieve the populist goal of eliminating unemployment, he will have to commit more fully to innovative, business-friendly policies.

Germany, Inc. has its roots in the nationalization of the German states in 1871. As with the nationalization of the state, the new economy became defined by consensus among groups, rather than by competition. Partnership between different firms created corporate solidarity, while partnership between employers and workers created solidarity in wagebargaining. This system of consensus made for a regulatory culture in which there were tight restrictions on the liberal professions, strict closing hours in the retail sector, and stringent environmental regulation.

Through the early 1990s, German workers enjoyed higher wages, fewer working hours, and greater worker benefits than their European and American counterparts. But with a rising German commitment to international affairs engendered by German interest in stabilizing Eastern Europe and fostering interest in European unity, the domestic system has come under increasing strain. International integration placed emphasis on the idea of companies as production centers, present in many different countries and with production and distribution organized on a transnational basis. This phenomenon has most affected fast-growing sectors such as financial services and telecommunications. The new emphasis is on speed of decision, reduction of costs, flexibility of employment and working practices, more innovative methods of raising capital for new ventures, and more internationally experienced managers.

With its mixture of insider corporate governance and regulatory culture, Germany has defensively confronted rather than actively shared in globalization. Reforms are made difficult by federalist structures and neo-corporatist practices at the sectoral level that give enormous scope to vested interests to block reform. German economic decline has been the inevitable result of the meeting of these two different systems. Real GDP growth rates have declined since the 1970s. Since 1975, unemployment has mounted with each recession, with succeeding booms failing to reverse prior increases.

Schroeder was elected in 1998 on a promise to increase employment, and pledged to improve the economy without abandoning the Germany, Inc. model. A poll taken shortly before his election indicated that Germans wanted "change without risk."

Schroeder has supported the Germany, Inc. model on many occasions. In fall 1999, Schroeder rescued the debt-ridden Holzmann construction company. At the same time, he criticized British media giant Vodafone's hostile bid for Mannesmann, Germany's largest telecommunications company. He justified his stance on both issues as crucial to saving jobs. These tactics were seen by political analysts as a shrewd way of winning votes for his party in the February 2000 elections. …