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September 2003 • Vol 3, No. 8 •

Hard Lessons in Capitalism for Europe’s Unions

By Jeffrey Fleishman

“There was huge euphoria when the Berlin Wall fell in 1989,” said Ralf Caemmerer, an Otis employee who grew up in communist East Germany and now belongs to the IG Metall union. “But there’s been a terrific sobering in the last five years. We had a different education in the East. We were taught that capitalism was cruel. And, you know, it didn’t turn out to be nonsense.”

The Otis elevator repairmen here and millions of their union brethren across the continent are on the unhappy brink of change.

Government plans to overhaul pension and job protection programs along with the ailing economies of Western Europe’s most populous nations are forcing labor unions to invent strategies to avoid losing wages and benefits packages that are the highest in the world.

The battle goes beyond money and benefits. Proposed reforms or those already passed in Germany, Italy and France, as well as Austria, seek to dismantle the European welfare state that prospered after World War II. Globalization, high unemployment, sputtering economic growth and conservative politicians are rewriting Europe’s social contract. The public also senses it’s time for reform. A recent opinion poll found that most Germans are willing to accept a reduction of social benefits if it will help lift their nation out of recession.

Once as revered as the local church, or soccer team, unions are losing a bit of their cachet. Organized labor remains powerful across much of the continent. Union paychecks are still high: Eight of the world’s top 10 hourly wages in manufacturing are paid in European countries. Strikes can disrupt airlines, classrooms, subways and even symphonies and theaters. Yet, labor leaders understand that changing times, rapidly aging populations and unforgiving markets have arrayed new forces against them.

“There are storm clouds in the skies of Europe,” John Monks, general secretary of the Brussels-based European Trade Union Confederation, told union members in Ireland this month. “Unions [must] seek to protect hard-won gains on pensions, retirement ages and labor standards.”

Those gains are impressive. Manufacturing workers in Germany on average are the highest paid in the world, earning a gross hourly wage in 2001 of about $30, according to the Institute for the German Economy in Cologne. Norwegian manufacturing workers are paid about $29 an hour. Their U.S. counterparts earn about $26 an hour. A German worker takes 43 holiday and vacation days a year. A Spanish worker gets 37 days off; a French worker, 36 days. A U.S. manufacturing employee receives 23 days off a year.

Corporations have long complained that Europe’s high wages and long vacations Germany has been dubbed the “Free Time World Champion” have made the continent less competitive. Business attempts to roll back benefits are met with street clashes in France and crucified mannequins symbolizing workers in Germany. Two advisors to Italy’s Labor Ministry, who supported more flexible labor markets and cutbacks in job protection laws, were assassinated over the last three years by a faction of the ultra-leftist Red Brigades terrorist group.

But economic problems across the continent are forcing Europe’s governments to cut the cost of job entitlement programs.

In France, unions are receiving more muted public support than in past years as center-right Prime Minister Jean-Pierre Raffarin moves to trim government pensions. Millions of Italian union workers have staged sporadic strikes over the last year against Prime Minister Silvio Berlusconi’s crusade to weaken Europe’s most extensive job protection laws. And the social democratic administration of German Chancellor Gerhard Schroeder is seeking to reduce unemployment benefits and company-paid health costs.

“In most European countries the labor unions in the private sector are on a downward spiral,” said Hans-Olaf Henkel, former chief of the Assn. of German Industry, who now heads the Leibniz umbrella organization for research institutes. “People don’t think they need collective representation anymore. They can represent themselves. This has already happened in the U.S. and Britain.”

Perhaps Europe’s most telling labor setback unfolded earlier this month when Germany’s IG Metall—once the world’s largest union—called off a four-week strike aimed at shortening the workweek from 38 hours to 35 hours in east German factories. The workweek is 35 hours in west German companies. Labor’s humiliating defeat revealed the split among IG Metall’s leadership, which represents 2.7 million metalworkers and engineers, over union tactics in a nation with sluggish economic growth and a government winning support for labor market reforms.

Interim IG Metall chairman Jurgen Peters favored the strike and was criticized by many for his militant tone. His critics argued that the walkout highlighted the union’s vulnerability. The unemployment rate in eastern Germany is about 19 percent. Union membership throughout the nation has fallen from 11 million in 1993 to 7.8 million today. And Schroeder’s economic reforms suggest that, as one economist put it, the government has “undergone a certain amount of emancipation” from the unions.

“In eastern Germany, people are just happy to have jobs and they were afraid that the added wage costs would have reduced their competitiveness and put their jobs at risk,” Hagen Lesch, a labor analyst at the Institute for the German Economy, told the German press. “IG Metall obviously badly misjudged the situation.”

Divisions in union philosophy also have marked the labor movement in France as nationwide strikes have not curtailed ã as they did in the past—government efforts to overhaul public sector pension programs. Prime Minister Raffarin’s plan calls for workers to pay into the pension system for 40 years instead of 37.5 years—essentially meaning government workers would retire later. Raffarin has said that without reforms the pension system’s debt could rise to $50 billion in coming decades.

Recognizing that changes are necessary to protect employees in the future, the French Democratic Labor Confederation, representing about 850,000 workers, wants to collaborate with the government on pension and health program reforms. Such pragmatism is spreading throughout Europe. But there is also combativeness. France’s leftist Force Ouvriere, one of the nation’s most aggressive unions, views tinkering with pensions as an opening to weaken labor and has threatened waves of strikes unless the government changes its position.

“We are in a process of self-reform. The labor market and society are changing all the time, and unions have to adjust to that,” said Hans-Joachim Schabedoth, chief policy planner for the German Trade Union Confederation. “Sometimes the medicine is bitter, but you have to take it. And sometimes you need to change the medicine. There will always be countries that can offer cheaper labor than we can. But Europe should be looking more at innovation and quality and investment and research.”

Labor’s larger problem, however, is rooted more in demographics than company spreadsheets.

Europe is home to the world’s fastest-aging population. By the year 2050, according to the United Nations, 29 percent of Europeans will be over 65. The problem is compounded by the continent’s low fertility rate of about 1.4 births per woman. That’s not enough to sustain the current population. By mid-century, the U.N. projects, Europe’s working-age population between 25 and 64 will drop by 27.6 percent.

That puts increasing strain on pension funds that must absorb larger aging populations with fewer workers to replenish them. Governments are moving to trim them; unions are desperate to protect them. Italy, for example, spends 15 percent of its gross domestic product on pensions. Increasing numbers of Germans, who have a tradition of pride in their generous social programs, are worried. A recent poll found 55 percent of Germans believe that the pension system is in trouble.

Things didn’t seem so bad 25 years ago when Caemmerer took a job in an East German elevator factory across from a dance hall on what is now Chausseestrasse. The communist state crimped his personal freedom, but Caemmerer seldom worried about layoffs, or globalization.

Since the grip of the Soviet Union loosened and Germany was able to reunify in 1990, Caemmerer and his IG Metall buddies say they have learned some bitter lessons about capitalism.

Fat was trimmed. Companies were downsized. Enormous pressure mounted on the welfare state.

Now, with a wave of German companies looking to open offices in countries with cheaper labor costs, union workers are scared that a relaxing of job protection laws would lead to layoffs of high-wage employees.

“We were the biggest elevator producer in East Germany and we were glad Otis bought us,” said Wolfgang Koss, head of the labor committee at the Otis maintenance shop. “But we used to have 1,000 people working for us in the East. There’s about 300 left The big companies are still making big profits. But the workers are worried. I’d be willing to make sacrifices if I could get guarantees for job security.”

“Who knows what the future will be for our children?” said Caemmerer, an elevator repairman with two young sons.

Caemmerer’s union friend, Horst Dummer, offered little encouragement.

“My son is 22 years old, “ said Dummer. “He finished an apprenticeship as a car mechanic. His employer couldn’t hire him because the economy is bad. Now, he’s a messenger, but you can’t ride a bike your whole life.”

Los Angeles Times, July 21, 2003





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