Streeck on German Codertermination

[Zhiyuan Cui <zcui@xxxxxxx>]

>>>>>Financial Times
>>>>> MONDAY JUNE 1 1998
>>>>>
>>>>>One Europe, two systems
>>>>>[Peter Norman]It has become a truism
>>>>>that the euro and
>>>>>globalisation will greatly increase
>>>>>competition in Europe. But the challenges facing Rhenish capitalism,
>>Germany's
>>>>>corporatist version of the market
>>>>>economy, are only slowly becoming clear.
>>>>>
>>>>>>>     The heightened transparency brought by
>>>>>>> the euro should throw into sharp relief
>>>>>>>         the merits and demerits of Germany's
>>>>>>>                special institutions of economic
>>>>>>> management and corporate governance.
>>>>>>>      Already the spotlight is focusing on
>>>>>>> Mitbestimmung, the system of worker
>>>>>>>       co-determination which under Germany's
>>>>>>>                two-tier board structure gives employees
>>>>>>> and unions more say in company management
>>>>>>>     than in other European Union countries.
>>>>>>>
>>>>>>>                Never a favourite among international
>>>>>>>
>>>>>>>      investors, Mitbestimmung received a boost
>>>>>>>                when Daimler-Benz decided to take over
>>>>>>>    Chrysler of the US and incorporate the
>>>>>>>
>>>>>>>       new company under German law.
>>>>>>>
>>>>>>>       The system was praised by Jürgen
>>>>>>>
>>>>>>>            Schrempp, Daimler's chief executive, who
>>>>>>>                is better known for chasing shareholder
>>>>>>>   value. Last week it was agreed that
>>>>>>>
>>>>>>>    United Autoworkers (UAW) of the US should
>>>>>>>                take one of three trade union slots among
>>>>>>>      the 10 worker representatives on the
>>>>>>>
>>>>>>>             20-strong Daimler-Chrysler supervisory
>>>>>>>                board.
>>>>>>>
>>>>>>>       But, as Klaus Murmann, president emeritus
>>>>>>>                of the German employers' association,
>>>>>>>        observed last month, it would be wrong to
>>>>>>>                see Daimler's incorporation in Germany as
>>>>>>>                a vote for Mitbestimmung. Other factors
>>>>>>>                such as generous tax treatment of losses
>>>>>>>                carried forward played a bigger role.
>>>>>>>
>>>>>>>                Mitbestimmung comes at two levels:
>>>>>>>                through workers' councils in factories
>>>>>>>                and offices, and through the
>>>>>>>                representation of workers and trade
>>>>>>>                unions on supervisory boards. Thanks to a
>>>>>>>                1951 law, some 400,000 employees in 45
>>>>>>>                companies in the mining and steel
>>>>>>>                industries enjoy parity of representation
>>>>>>>                in their supervisory boards. A 1976 law
>>>>>>>                gives near parity to an estimated 5.2m
>>>>>>>                employees in more than 700 companies with
>>>>>>>                more than 2,000 employees.
>>>>>>>
>>>>>>>                Two or three years ago Mitbestimmung was
>>>>>>>                in bad odour. Worker directors, it was
>>>>>>>                said, had failed to prevent scandals such
>>>>>>>                as the alleged misappropriation of
>>>>>>>                subsidies at Bremer Vulkan, a
>>>>>>>                shipbuilding and engineering group that
>>>>>>>                went bankrupt, or huge losses at
>>>>>>>                Daimler-Benz under its previous
>>>>>>>                management.
>>>>>>>
>>>>>>>                Now, with the German economy picking up
>>>>>>>                and exports booming, a different view is
>>>>>>>                heard. According to Wolfgang Streeck,
>>>>>>>                director of Cologne's
>>>>>>>                Max-Planck-Institute for Social Research,
>>>>>>>                Mitbestimmung has almost certainly helped
>>>>>>>                manufacturing cope with structural change
>>>>>>>                over the past four years.
>>>>>>>
>>>>>>>                Professor Streeck, a specialist on
>>>>>>>                comparative industrial practices, has
>>>>>>>                helped produce a study on Mitbestimmung's
>>>>>>>                future commissioned by the Bertelsmann
>>>>>>>                and Hans-Böckler Foundations,
>>>>>>>                respectively media and trade union
>>>>>>>                think-tanks. The study drew on the
>>>>>>>                expertise of a commission of academics
>>>>>>>                and practitioners from both sides of
>>>>>>>                industry.
>>>>>>>
>>>>>>>                In a consensual society such as Germany,
>>>>>>>                it is not surprising that the commission
>>>>>>>                concluded that Mitbestimmung is a "good
>>>>>>>                thing" that can survive, with
>>>>>>>                evolutionary reforms at plant and company
>>>>>>>                level, in the 1990s.
>>>>>>>
>>>>>>>                But Mr Streeck makes a strong case for
>>>>>>>                Mitbestimmung, not least because he has
>>>>>>>                overcome his own reservations. "I am more
>>>>>>>                than ever convinced the German system
>>>>>>>                provides a competitive advantage for
>>>>>>>                companies that implement it properly," he
>>>>>>>                says.
>>>>>>>
>>>>>>>                He argues that Mitbestimmung has helped
>>>>>>>                Germany's export-oriented manufacturers
>>>>>>>                stay competitive by fostering a culture
>>>>>>>                of co-operation in which companies have
>>>>>>>                developed human capital as well as
>>>>>>>                invested in plant and equipment.
>>>>>>>
>>>>>>>                One possible outcome has been Germany's
>>>>>>>                slow de-industrialisation relative to
>>>>>>>                other economies. He calculates 37.5 per
>>>>>>>                cent of Germany's labour force worked in
>>>>>>>                industry in 1996 against Japan's 33.3 per
>>>>>>>                cent, the UK's 27.4 per cent and 23.8 per
>>>>>>>                cent in the US.
>>>>>>>
>>>>>>>                Manfred Dammeyer, minister for European
>>>>>>>                affairs in the state of North Rhine
>>>>>>>                Westphalia, goes further. He claims
>>>>>>>                Mitbestimmung allowed the Ruhr, alone
>>>>>>>                among the heavy industrial regions of the
>>>>>>>                western world, to restructure away from
>>>>>>>                coal and steel without becoming a slum.
>>>>>>>
>>>>>>>                Such insights are rare outside Germany.
>>>>>>>                "We must accept that abroad our labour
>>>>>>>                laws are considered to be ossified and
>>>>>>>                that Germany's system of worker
>>>>>>>                co-determination is not regarded as a
>>>>>>>                plus for inward investment," says Mr
>>>>>>>                Murmann.
>>>>>>>
>>>>>>>                Foreign corporations often have problems
>>>>>>>                coping with the idea of workers'
>>>>>>>                councils, perhaps because they unjustly
>>>>>>>                conjure up visions of old Soviet
>>>>>>>                traditions. German managers can also find
>>>>>>>                Mitbestimmung trying. Gerhard Cromme,
>>>>>>>                chief executive of the Krupp engineering
>>>>>>>                group, says there are "many advantages"
>>>>>>>                in the way Mitbestimmung is practised in
>>>>>>>                Germany. "What doesn't help is that the
>>>>>>>                German consensus system seeks compromises
>>>>>>>                that always take longer and which are
>>>>>>>                rather more expensive."
>>>>>>>
>>>>>>>                Mitbestimmung can appear old-fashioned in
>>>>>>>                an increasingly competitive world, with
>>>>>>>                ever shorter product cycles, faster
>>>>>>>                technological innovation and impatient
>>>>>>>                investors. The Bertelsmann and
>>>>>>>                Hans-Böckler report admitted it has been
>>>>>>>                supportive of incremental innovation but
>>>>>>>                appears less suited to engendering big
>>>>>>>                leaps forward in technology. If
>>>>>>>                Mitbestimmung has these handicaps, has it
>>>>>>>                much of a future in the context of
>>>>>>>                European integration?
>>>>>>>
>>>>>>>                Mitbestimmung seems sure to survive, if
>>>>>>>                only because it will be protected under
>>>>>>>                the proposals for a European company
>>>>>>>                statute.
>>>>>>>
>>>>>>>                The compromise plan worked out after
>>>>>>>                consultation between Britain's prime
>>>>>>>                minister Tony Blair and Helmut Kohl, the
>>>>>>>                German chancellor, could even see it
>>>>>>>                being applied outside Germany. This is
>>>>>>>                because the most highly developed grade
>>>>>>>                of Mitbestimmung would apply in a
>>>>>>>                transnational merger except where other
>>>>>>>                rules had been negotiated or two-thirds
>>>>>>>                of the workers were to vote against it.
>>>>>>>
>>>>>>>                More important, however, will be the
>>>>>>>                further integration of the European
>>>>>>>                single market and economic and monetary
>>>>>>>                union: developments that will make it
>>>>>>>                much easier to compare how the German,
>>>>>>>                British, French and other models of
>>>>>>>                corporate governance work.
>>>>>>>
>>>>>>>                In these circumstances, the IW economic
>>>>>>>                institute, which is affiliated to the
>>>>>>>                German federation of industry, doubts
>>>>>>>                whether Mitbestimmung will catch on
>>>>>>>                elsewhere. "It cannot be expected that
>>>>>>>                Mitbestimmung in its generous German form
>>>>>>>                will become a successful export to the
>>>>>>>                rest of Europe," it says.
>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>>
>>>>>>>
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