Managers Ponder amid Crisis in Europe

By Peak, Martha H. | Management Review, June 1993 | Go to article overview

Managers Ponder amid Crisis in Europe


Peak, Martha H., Management Review


For the past decade, Western Europeans readied for EC '92, that seemingly magic date when a single market would prevail from the Baltic to the Mediterranean. Then in 1989 and 1990, as the Soviet bloc dissolved, Europe turned with enthusiasm to the challenge of introducing its former socialist neighbors to capitalism.

Today, breathless euphoria has been replaced by harsh reality. The Maastricht vote effectively postponed pan-European economic union, and recessionary storm clouds are brewing across the continent. The task - and costs - of modernizing the East have proven much greater than anyone imagined, and they have come at a time when the West is experiencing record unemployment levels. Worse, war has broken out in the former Yugoslavia.

Restructuring leads every corporate agenda, and doom-and-gloom seemed pervasive when top German, Swiss and Austrian executives gathered in Berlin earlier this spring to attend an American Management Association/international conference and discuss Europe's medium- and long-term place in the global triad. Many attendees seemed more concerned with discussing short-term strategies to survive their current economic woes.

But the biggest challenge to Western Europe today lies directly to the east.

Eyes East

"Europe will be judged by how it handles the problems of the East" said Franz Steinkuhler, chairman of IG Metall, the German metalworkers' union. Sixty million people in the East are unemployed - and this number is growing daily. "Walls can't keep them out [of Western Europe]"' he warned.

Per capita, immigration to Western Europe - particularly to Germany - during the past three years has been double that experienced in the United States, according to Dr. Herbert Henzler, chairman of McKinsey & Company Deutschland. At least 10 million people in the East should be considered as possible immigrants, he said.

"The more we commit ourselves to contribute on-site in Eastern Europe, the better off w will be," agreed Dieter Spethmann, an attorney based in Dusseldorf. "The sooner we build jobs there, the more people will stay in the East rather than put on their hiking boots."

Despite the criticality of the issue, no ideas emerged at the conference on how to create jobs or rebuild the East. Everyone agreed, however, that the challenge would be neither easy nor inexpensive. "We must each contribute a little from our pockets to resolve this problem" Steinkuhler said. "The lower economic strata of society know what is fair."

There is also a long list for possible membership in the European Community, Henzler pointed out. "Countries as well as people want to become members of Europe," he said.

Despite immigration figures and national enthusiasm for joining the EC, legally mandated social regulations, paid for through high personal and corporate taxes, are providing disincentives for doing business there. As a result, investment capital is increasingly leaving the industrialized West, and one obvious "off-shore" location for new plants is Eastern Europe, where labor rates range from one-tenth to one-twentieth what they are in the West.

Corporate restructuring in the EC is complicated by the fact that it is difficult - and expensive - to lay off people. More than one American company, accustomed to more relaxed employment-at-will standards, has run afoul of regulations that vary from country to country but which typically require the company to provide a financial cushion whenever workers lose their jobs.

Executives at the conference consider job entitlement to be a significant disincentive as Europe becomes globally competitive: "Nobody has the right to a job," consultant Heinz Goldmann, chairman of Geneva's the International Foundation for Executive Communication, told his audience. "We must get away from this European sense of complacency. Everyone must earn his or her job every day. …

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