Can America Emulate Germany's Economic Success?

A willingness to implement long-term plans focused on what's best for the country, rather than scoring cheap political points, might go some way to explaining why Germans respect their politicians more than Americans do.
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Watching Fox News recently, commentators were in a flux about whether the latest nominees to the United States National Labor Relations Board were pro-union and anti-business. The framing of the debate was symptomatic of what passes for insightful commentary in much of the US media today: an increasingly aggressive presentation of two apparently irreconcilable viewpoints, but no discussion or debate on the seriousness of the issue or the relative merits of each side of the argument, not to mention attempts to find common agreement.

Of course, the idea that businesses and unions have necessarily juxtaposing and irreconcilable interests predominates on both the left and the right in the United States, well beyond media circles. So does the framing of the political debate as a battle between two irreconcilable worldviews. Unfortunately, the worldviews that dominated American politics throughout the 20th century now encumber the nation's attempts to solve the problems it faces in the 21st. Pitting unions against business can damage the interests of both managers and workers. The frame also hinders the positive role that government can play in setting a better institutional framework for the economy, forcing it into the role of arbiter rather than leader.

Here, much could be learnt from German experience and practice. Germany has weathered the current economic storm better than most. Unemployment is at historically low levels, and Germany's manufacturing industry is a world leader with a growing trade surplus. Despite the looming Eurozone crisis, on a visit to Berlin organized by the Friedrich Ebert Stiftung -- in December last year, union and business leaders as well as government officials seemed serenely calm and optimistic about their economic and political future, as Ezra Klein noted. This is a dramatic turn around from where the nation found itself just over a decade ago, when many were characterizing the country as the sick-man of Europe.

So what are the secrets to Germany's success? And what lessons can America learn?

For one, the interest of labor and business are not always irreconcilable. When it comes to labor relations, German law obliges the creation of works councils. These are fora that bring labor and management together, facilitating information sharing within a firm, providing an opportunity to resolve differences collaboratively. They also help generate a shared sense of purpose within the firm. Union representatives also sit on the supervisory boards of major German companies. As part of a culture of co-determination, both labor and management steer the future of the company, and are commonly prepared to make shared sacrifices.

Second, strategic government intervention works. In Germany, collaborative policy-making extends beyond this institutionalized social partnership within firms to generic relations between government, private sector and labor -- as Andy Stern has noted. The recent German experiment with "worksharing" - credited by some with saving almost two million jobs during the current global recession - speaks well to his experience. When the recession hit, government not only worked in partnership with the private sector to subsidize vulnerable employment, it also undertook a massive information campaign to ensure labor and management were informed of the policy. Once implemented, Olaf Scholz, then Minister of Labor, held regular meetings with Dax 30 companies and major unions, to both evaluate the current policy and improve its future usability and effectiveness. The results speak for themselves.

Thirdly, structures, institutions and planning mater. Germany's success owes much to earlier structural reforms of labor markets and welfare systems. Gerhard Schroeder's Agenda 2010, implemented almost a decade ago, set out to ensure that labor markets become more flexible while maintaining robust and sustainable welfare, and thus ensure the viability of the German social model. It sparked much controversy. Unions were accused of being too stubborn in defending the interests of privileged industrial workers and the Social Democratic government of betraying its electorate. The private sector also used the threat of relocation to Eastern Europe and to Asia relentlessly to extract concessions. Yet despite these pressures, a break-down in communication never occurred, and cooperation prevailed. Germany's legal structures have created a dependable and enforceable framework for managing change. There is a certain stability and predictability, even when tempers fly.

While a driver of Germany's current strength, Agenda 2010 was politically costly for Germany's Social Democrats. Gerhard Schroeder was defeated in the Federal elections that followed in 2005. The emergence of reactionary leftist party -- De Linke -- would also damage electoral chances in 2009. But Schroeder and the Social Democrats are now respected at home, having illustrated leadership that was able to rise above the to-and-fro of political opportunism. A willingness to implement long-term plans focused on what's best for the country, rather than scoring cheap political points, might go some way to explaining why Germans respect their politicians more than Americans do.

Is it perhaps this final lesson that is the one most worth learning in Washington, D.C.

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