German companies and labor representation

Germany, as I noted in an earlier post, shows that it is possible for a nation to maintain a high material standard of living while still competing successfully in the global arena.

Germany is the world’s second-largest exporting nation, behind China, and for many years was number one, and it has the world’s third-largest trade surplus, behind China and Japan. Be it noted that there are about 60 million Germans and more than 1 billion Chinese.  At the same time German workers get six-week vacations, generous old age pensions and guaranteed health insurance.

Thomas Geoghegan, a Chicago labor lawyer, has an excellent article about this in the March 2010 issue of Harper’s magazine.  He attributes Germany’s superior economic performance to its system of worker participation in corporate governance which, ironically, was imposed on Germany by the victorious allies after World War Two.

Workers have equal representation on the boards of directors of large corporations with shareholders, although the shareholders have the deciding vote in case of a tie.  The important thing from the workers’ perspective is that they know what’s going on.  They know the financial situation of the corporation, and they know its plans.  If a company is considering moving a manufacturing operation to Asia or eastern Europe, the union can make a counter-proposal to make it economically feasible to stay in Germany.

I don’t think that is the whole story, but I do think it is a great advantage to Germany to avoid the kind of class warfare we have in the United States.  Workers can suggest improvements in efficiency without fearing they will jeopardize their own jobs.

In the 1950s, Walter Reuther, the head of the United Auto Workers, reportedly urged General Motors, Ford and Chrysler to make a line of fuel-efficient cars; the companies reportedly reacted with outrage at this infringement of management prerogatives, and told Reuther to restrict himself for bargaining for pay and benefits.  (I don’t have a historical reference for this, but I find it believable.)

Even if you don’t think worker participation is the cause of Germany’s economic success, the facts show that it hasn’t prevented that success.

You may say that this is all very well for Germany, but its institutions can’t possibly be transplanted to the United States.  But the United States has a long history of adopting good ideas from Germany.  The Joint Chiefs of Staff of the U.S. armed forces are modeled on the Prussian General Staff.  U.S. corporate research laboratories and research universities were inspired by Germany models.  The U.S. interstate highway system is modeled on the German autobahn.  The secret of success is to take other people’s good ideas and improve upon them.


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