Saturday, December 11, 2004

Germany's New Reality

From the Washington Post

Layoffs by Automaker Confirm Labor's Diminishing Power

By Peter S. Goodman and Petra Krischok

Friday, December 10, 2004; Page E01

BOCHUM, Germany, Dec. 9 -- During much of Germany's postwar economic boom, as prosperity mounted and car sales multiplied, workers at the Opel
automobile factory here became accustomed to getting their way: six weeks of vacation, a 35-hour week and some of the highest factory wages on earth. Whatever was left of that era ended on Thursday.

Undercut by vastly cheaper labor in neighboring Poland and by increasing global competition, the union at Adam Opel AG acceded to a plan by General Motors Corp. to cut 12,000 jobs throughout Europe -- 10,000 of them in Germany and an estimated 4,000 at the Bochum plant alone. The job reductions will be voluntary, and GM, which owns the Opel, Saab and Vauxhall brands, is offering buyouts, early retirement and retraining worth hundreds of thousands of dollars for the most senior workers.

Though geared to help GM rebound from its global slide in the auto market -- the company has not been profitable in Europe since 1999 and expects to save $665 million a year through the jobs cuts -- the deal underscores the extent to which globalization has torn at the social consensus governing Germany and much of Western Europe.

Rigid labor rules are blamed for European unemployment rates stuck around 9 percent, compared with less than 6 percent in the United States. Economic growth has also lagged, and labor-market reform is cited by many economists as an important step toward changing that.

When Opel workers went on strike for five days in October, it was clear how times were changing. They went back to work with nothing more than the promise of talks and the lingering threat that many of the Bochum plant's 9,600 jobs would be shifted to Poland, where labor costs about $4.70 an hour, compared with $29 an hour here.

"It's not negotiations, what's happening now," said Peter Jaszczyk, who worked at the Opel plant for 40 years and formerly headed the worker's council. "Management is just dictating conditions. The union doesn't have the power anymore."

Around the world, labor is grappling with the impact of capital flowing to lower-cost countries. Textile workers in Mexico are losing ground to China; software engineers in the Silicon Valley succumb to skilled counterparts in India. The changes in Western Europe have been particularly wrenching because labor has occupied such a powerful perch for much of modern times -- one that has, until recently, cushioned against the restructuring and layoffs that have occurred elsewhere.

Now, labor in Europe's wealthiest countries is reeling as capital flows eastward. Investment is pouring in to new members of the European Union such as Hungary, Poland and the Czech Republic, where workers earn roughly one-sixth what they do in Germany and France, and farther away to still cheaper Romania, Turkey and China. Unions once accustomed to wage increases and sweetened bonuses submit to slashed pay and benefits in a desperate bid to keep jobs.

In Germany -- still struggling to integrate its wealthier western half with the formerly communist east -- the export of jobs is exacerbating an unemployment crisis. More than 4 million people are out of work, and unemployment is 10 percent.

A recent survey conducted by the economist Horst Wildemann found that 6 in 10 German companies were preparing to establish a manufacturing base outside the country in the next four years. That could cost as many as 400,000 jobs a year. A similar study by the Boston Consulting Group found that transfers of work abroad could eliminate one-fourth of Germany's industrial workforce by 2015, wiping out 2 million jobs.

Germans have long taken pride in their social harmony and benevolent welfare state, which has virtually guaranteed decent living standards and generous health and vacation benefits. Now, the country is bitterly debating proposals to roll back benefits, particularly those for workers and the elderly. Meanwhile, a society once accustomed to upward mobility revises its expectations downward. In a poll conducted by TNS Infratest in October, nearly two-thirds of the respondents said they would be willing to give up some of their salaries to make their jobs more secure.

"Germany is now confronted with a process of fundamental change," said Ulrich Beck, a sociologist at the University of Munich. "We will have to redefine the notion of work and our entire social system. The notion that we can return to full employment is a great illusion. It will be a conversion from a society of having more to a society of having less."

Siemens AG, the archetypal German electronics giant, now employs more people outside of Germany than within. It recently persuaded its German workforce to accept longer hours for the same pay by threatening to transfer jobs to Hungary. German manufacturer Robert Bosch GmbH used similar threats of shifting work to the Czech Republic to extract longer hours from workers in France, where unemployment is near 10 percent.

The transfer of work to the lower-cost east is particularly intense in the auto industry. In 1990, only about one-fourth of the cars produced by German brands were manufactured outside the country. By 2003, the share was close to half. The German wheel producer Continental AG employed about one-third of its workforce outside Germany in 1980. Last year, it was 60 percent. The company will soon churn out 16 million wheels a year at its factory in Temesvar, Romania, where wages are about one-tenth what they are in Germany.

"We have to adapt our labor costs at least to those in Western Europe," said auto expert Ferdinand Dudenhoeffer. "If we maintain our current standard, then everything will melt away."

The experience in Germany's Ruhr Valley suggests that the disparity with the east is so vast that minor adjustments will have little effect.

Bochum was dominated by coal until the 1950s, when lower costs in the United States shut down the mines. The Opel plant, opened in 1962, created jobs for 4,000 people. They built about 50 no-frills sedans for lower-middle-class families in an eight-hour shift.

By 1970, sales were exploding, with sports cars and higher-end sedans added to the mix. The factory was churning out 1,000 cars per shift with 20,000 workers on the floor. It was the largest employer in the region.

The factory was a key source of parts for other plants in Germany, giving workers here in Bochum outsized power. When they were rebuffed in demands for increased Christmas bonuses, a three-day strike secured the extra pay. In 1973, another three-day walkout yielded a lump-sum bonus. Longer strikes in the 1980s delivered the 35-hour workweek.

Germany's largest union, IG Metall, negotiates with an association of employers for a contract covering basic wages for metal and textile workers throughout the country. But worker councils at individual factories are free to negotiate for wages above those contract minimums, which the Bochum workforce regularly did successfully.

"The Opel workers were always the aristocrats of the German labor force," Jaszczyk said. "Usually, we would get wages 20 percent higher than the IG Metall contract. It was normal for us to get salary increases of 8 to 9 percent a year. But it didn't come for free: Opel and GM were making good profits."

At vacation time, workers set off with their families in late-model Opel sedans they helped produce, driving to the beaches of Italy with an extra half-month's salary for their trips.

The first tensions came in the mid-1980s as management began installing robots on the shop floor. No one was laid off, but workers who retired were not replaced. By 1985, the workforce was about 14,000.

In 1991, Opel opened a factory in Eisenach, in the former East Germany, where wages were one-third less than those at Bochum, diminishing the company's dependence on its traditional workforce. About the same time, it set up an engine factory in western Hungary.

The sentinel moment came in 1997 when Opel opened a factory in Gliwice, in western Poland. "People weren't worried at first," Jaszczyk said. "They figured the Polish workers would produce lower quality, older models for sale in the Polish and Russian markets."

By last summer, the workforce at the Gliwice plant had doubled to 1,200 and the German press was filled with rumors of layoffs. In October, GM confirmed the dark talk. At a news conference at the company's European headquarters in Zurich, it said it would transfer the production of 120,000 minivans a year from Bochum to Poland.

"People are angry," said Benjamin Dreher, an assembly line worker. "They feel like they're getting sold out."

At city hall, Mayor Ottilie Scholz frets about the prospect of lost jobs while calling on bureaucrats in Berlin and Brussels to intervene -- how exactly, she isn't sure.

"There's nothing we can do as a city," she said. "This is part of a worldwide phenomenon." The head of the workers council, Dietmar Hahn, sounds resigned to a future in which the workforce is far smaller, if the factory is even open.

"The situation is very difficult," he said. "We've been shown proposals by management that we don't like. There's so much fear. I don't think long-term anymore."


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