A Tale of Two Systems
By Kevin C. Brown
Remapping Debate
December. 21, 2011
http://www.remappingdebate.org/article/tale-two-systems

American autoworkers are constantly told that high-wage
work is an unsustainable relic in the face of a hyper-
competitive, globalized marketplace. Apostles of neo-
liberal economic theory - both in the public and private
sectors - have stressed the message that worker
adaptation is necessary to survive. Indeed, Steven
Rattner, President Obama's "car czar" during the
restructuring of General Motors and Chrysler in early
2009, spoke last week of his regret that the federal
government had not required the United Auto workers to
take a wage cut at that time to enhance the
competitiveness of those companies, comments similar to
those he made in a recently published book (after the
outcry created by last week's remarks, Rattner yesterday
backed away from them, though reiterating his view that
more "shared sacrifice" would have bolstered American
competitiveness). Apostles of neo-liberal economic
theory - both in the public and private sectors - have
stressed the message that worker adaptation is necessary
to survive.

Governments, too, the globalists have contended, should
not think that markets can or should be controlled. As
Remapping Debate reported earlier this year in an
article about the role of large consulting firms in the
promotion of the notion that national policy can and
must allow global capital a free hand, McKinsey & Co.
was already arguing back in 1994 that "a national
government has no choice but to move forward to embrace
the global capital market unless it wants to harm its
own citizens, its economy and its own purposes."

But the case of German automakers - BMW, Daimler, and
Volkswagen - tells a different story. Each company
produces vehicles not only in Germany, but also in
"transplant" factories in the U.S. The former are
characterized by high wages and high union membership;
the U.S. plants pay lower wages and are located in so-
called "right-to-work" (anti-union) states.

It turns out that "inevitability" has nothing to do with
the differing conditions; the salient difference is
that, in Germany, the automakers operate within an
environment that precludes a race to the bottom; in the
U.S., they operate within an environment that encourages
such a race.

Sales and profitability

In 2010, over 5.5 million cars were produced in Germany,
twice the 2.7 million built in the United States.
Average compensation (a figure including wages and
employer-paid benefits) for autoworkers in Germany was
48.97 Euros per hour ($67.14 US), while compensation for
auto work in the United States averaged $33.77 per hour,
or about half as much as in Germany, all according to
2007 data from the Bureau of Labor Statistics. For
Germany-based auto producers, the U.S. is a low-wage
country.

Despite German companies' relatively high labor costs in
their home markets, these firms are quite profitable. An
examination of the latest publically available financial
statements of BMW, Daimler (Mercedes-Benz cars), and
Volkswagen reveals strong sales and profits even in the
midst of the currently weak consumer markets in Europe
and the U.S. In 2010, for example, BMW, produced 1.48
million cars (63 percent of them in Germany), and earned
a before-tax profit from its automotive division of 3.88
billion Euros. The Mercedes-Benz car division of
Daimler, likewise produced 1.35 million cars (72.4
percent in Germany) in 2010, and earned a before-tax
profit of 4.65 billion Euros.

Race to the bottom in the U.S.

Officials in anti-union states have long sought to lure
businesses with the promise of free rein in relation to
labor (and to regulation more generally). Sen. Lamar
Alexander (R -Tenn.) delivered the weekly Republican
Party address this past June, telling his listeners
frankly that, when he was Tennessee's governor in 1979,
the state's right-to-work law was part of his successful
pitch in getting Nissan to open an auto plant. It turns
out that "inevitability" has nothing to do with the
differing conditions; the salient difference is that, in
Germany, the automakers operate within an environment
that precludes a race to the bottom; in the U.S., they
operate within an environment that encourages such a
race.

Alexander participated in a ceremony celebrating the
opening of a new Volkswagen assembly plant earlier this
year near Chattanooga, and again he cited the state's
right-to-work law as among the reasons that Volkswagen
chose to come there.

At that Chattanooga plant, according to a company
spokesperson, new employees earn $14.50 an hour, with
wages gradually rising to $19.50 after 3 years on the
job.

A representative of BMW's Spartanburg plant declined to
divulge wages employees earn in its South Carolina (non-
unionized) facility, but the Washington Post reported
last year that employees at the plant earned $15 per
hour.

Workers at American companies have seen their wages
eroded. As Remapping Debate has reported, the UAW has
made significant concessions on wages, especially
through the creation of a permanent "Tier 2" level for
all new employees. Whereas incumbent "Tier 1" workers
earn about $28 an hour, all new UAW hires at the GM,
Ford, and Chrysler earn around $15 per hour.

The companies have argued that this new tier is
essential. Marci Evans, a Ford spokesperson, told
Remapping Debate, "It is our [Ford's] preference to
build competitively in the markets we sell in." She
added, "reduced cost through introducing an entry level
[Tier 2] workforce" is an important part of that
strategy.

Gary Casteel, the Region 8 director of the UAW, the
region covering the whole southeast of the country,
acknowledged the creation of "Tier 2" as
"concessionary," and said, "It's never attractive to not
have equal pay for equal work, but when you've got
Nissan hiring in Mississippi for $12.50.and Volkswagen
for $14.how are we going to maintain a wage level when
our competition is doing this?"

The counter-example in Germany

Workers in the German auto industry maintain high wages
and good working conditions through two overlapping sets
of institutions. First, in the auto industry, virtually
all workers are unionized members of IG Metall, the
German autoworkers' union. With such union density,
workers have considerable power to keep wages high.
German autoworkers have the right to strike, but as
Horst Mund, head of the International Department of IG
Metall explained to Remapping Debate, they "hardly use
it, because there is an elaborate system of conflict
resolution that regularly is used to come to some sort
of compromise that is acceptable to all parties."
According to historian and author Marko Maunula, "There
is no real industrial nationality anymore."

In addition to high trade union density supporting the
power of German autoworkers' wages, the German
constitution itself includes a second mechanism for
keeping employees involved in the decisions of the firm
for which they work. The Works Constitution Act provides
for the creation of Works Councils in each factory. The
Works Councils provide a mechanism through which a
company's management must work with employees, whether
they are in a union or not, on issues affecting work
life, such as shop floor conditions, scheduling shifts,
and other issues particular to the factory. This system,
according to Mund, institutionalized "direct contact for
workers' representatives with management at various
levels, from lower to middle to senior management in
daily affairs. So you exercise some kind of dialogue
where you don't always wear your management pin or your
union pin."

Mund points out that the German example goes "against
all mainstream wisdom of the neo-liberals. We have
strong unions, we have strong social security systems,
we have high wages. So, if I believed what the neo-
liberals are arguing, we would have to be bankrupt, but
apparently this is not the case. Despite high
wages.despite our possibility to influence companies,
the economy is working well in Germany."

Are German unions nice and American unions nasty?

Mund says "there are strong contradictions between the
way companies that.are used to dealing with unions in
Germany, behave differently when they go elsewhere, not
only in the U.S., but also in other countries." What
accounts for the differences?

Michael Maibach, president and chief executive officer
of the European American Business Council, described
this apparent difference by saying that union-management
relations in the U.S. were "adversarial" as opposed to
the "collaborative" German model. J. Ed Marston, a
spokesperson for the Chattanooga Area Chamber of
Commerce, likewise told Remapping Debate that "Workers
councils in Germany promote cooperation between workers
and mangers and they deliver value and they continue to
thrive.Compared to UAW, where there is an adversarial
relationship." German union official Horst Mund sees the
lauding of "cooperation" in the German context as
profoundly misleading, saying companies "would not talk
to us either if they had the choice."

According to Mund, however, "The accusation that
American unions are more radical and destructive ...
definitely has to do with the hostile environment in
which the unions have to act. How can they be
constructive and friendly if their asses are kicked all
the time?" Mund sees the lauding of "cooperation" in the
German context as profoundly misleading, saying "they
would not talk to us either if they had the choice."

Mund emphasized the importance of the trade union and
works councils in maintaining workers' participation and
high levels of remuneration, and said that the focus was
not to maintain the good will of individual firms. He
said, "Companies in Germany, while they are bound by law
to work with us in works councils, and we are present on
supervisory boards, they just have to do this. For most
of the companies, not for all, it is not something they
would do if they were not forced to do that. The
companies are there to make profit, and in the eyes of
many managers we are not conducive to making as much
profit as possible, but rather a hindrance."

"Because they can get away with it"

Marko Maunula, a historian and author of the book, Guten
Tag, Y'All: Globalization and the South Carolina
Piedmont, 1950-2000, told Remapping Debate that foreign-
based manufacturers like BMW "are very cognizant of the
political climate of communities," and they behave
differently depending on the legal and social context
within which they find themselves. Globalization over
the last 20 or 30 years, Maunula suggests, has resulted
in a situation where "there is no real industrial
nationality anymore." Though "BMW is a German company
and it has a very German hierarchy and management system
in Germany.when they are operating in Spartanburg they
have become very, very easily adaptable to Spartanburg
business culture."

Coming from a very different perspective, Maibach told a
very similar story: unlike in Germany, where
unionization and high wages are normalized by law and
custom, "the U.S. has a different tradition" and
"companies have a choice to make" about where to locate
their facilities, often deciding on places where the
risk of unionization is lower.

Mund relates the initial perplexity of his American
counterparts in response to the anti-union stance taken
by German automakers in the U.S.: "In the past we
frequently had the impression that our American
colleagues thought we would just have to talk to
management here in Germany in the sense that `look,
behave decently, you know us, we're the good guys, our
American colleagues from the UAW they are equally good,
so behave mutually and everything will be fine.'"

"But," Mund said with understatement, "It is not working
like this."

When asked why German firms operate so differently with
respect to labor in different countries, Claude
Barfield, a resident scholar at the American Enterprise
Institute where he studies international trade and
globalization, told Remapping Debate that they do so, in
part, "because they can get away with it so far."

Though a Volkswagen-Chattanooga spokesperson told
Remapping Debate that "it is up to our production team
members to decide" whether to join a union, Barfield
points out that all of the German-based auto
manufacturers in the U.S. located in right-to-work
states are "not unhappy with the situation they have
now," citing the fact that they "have more authority,
they have more power" than they would in a unionized
context.

Barfield said that factors other than wages brought the
German carmakers to right-to-work states. A central
reason for their interest in those states, he says, "has
to do with not wanting to.get involved with work rules
and seniority." They have, he continued, "a much greater
flexibility just in assigning work, and to be able to
have plants change as conditions change. So, they're not
unhappy with that. They would not say they are happier
with this than the system they deal with in Germany, but
they probably are."

Making choices

Returning to the experience of Germany's domestic auto
industry, Mund says that, while "it is not a law of
nature that you have to be non-unionized to be
successful," companies are clearly choosing not to be
union where they don't have to. "When the Democrats were
in [full control of Congress] under Obama, they promised
to change" - making it easier for unions to organize
through a card check system - but "that didn't happen."
- Claude Barfield, American Enterprise Institute

Could conditions in the U.S. be changed to produce a
structure that, like Germany, protects workers against
declining wages and conditions?

Barfield noted that "you'd have to change major state
law as well as federal law." His prognosis is not that
it is impossible as a legal matter, but that, as a
practical matter, "it will never look like Germany."

"In the U.S., there's no prospect that we will change
our laws," he continued. "When the Democrats were in
[full control of Congress] under Obama, they promised to
change" - making it easier for unions to organize
through a card check system - but "that didn't happen."

More broadly, Barfield said, "It's a different tradition
of business, government, and labor relations. Three
pieces of things all together in Germany and the U.S.
never had that. So I don't think it's just that the laws
per se, it's the attitude of corporate leaders and union
leaders and governments. Not because of one specific
piece of legislation."

If he is right - and no one we spoke with disputed
Barfield's short-term political assessment -- conditions
for labor in the U.S. auto industry will continue on
their current path, a path described by the UAW's
Casteel as "spiraling downwards."

On the other hand, despite Barfield's reference to
tradition, the "tradition" in the U.S. through the 1970s
was having a highly unionized auto making industry, one
that paid good wages. Indeed, the tradition was such
that the initial forays of German automakers into the
U.S. saw them accept unionization in their transplanted
factories (see box below).

	A different beginning

	Despite the current differences in auto industry
	labor practices in Germany and U.S., German auto
	firms' foray into manufacturing in the U.S.
	initially conformed to the high-wage, unionized
	mode of German industry. As part of a wave of
	foreign direct investment in the U.S. by
	European-based firms, in 1978, Volkswagen opened
	the Westmoreland Assembly Plant, 35 miles
	outside of Pittsburgh. At the time, most
	autoworkers in the United States were members of
	the United Auto Workers, and Westmoreland became
	no exception, and the plant rapidly unionized.

	Volkswagen's quick acceptance of labor
	organizing at its first American plant was
	apparently not out of the ordinary for newly
	arrived foreign-based firms. In 1981, two
	economists asked in the U.S. Labor Department's
	Monthly Labor Review, "Do foreign owned U.S.
	firms practice unconventional labor relations?"
	Noting that "it is very possible that
	unionization may pose no great problem for
	foreign-owned firms, especially those with
	European parent companies, because they have
	been dealing with unions successfully for many
	years," the authors' survey of unions and firms
	in the U.S. concluded that "foreign owned
	companies do not differ from domestically owned
	companies in their approach to most labor
	relations issues."

Casteel and Mund hope for a return to that tradition,
with Casteel saying, "Corporations aren't going to give
back to the workers unless they are made to." The UAW
has said that it is renewing its efforts to organize the
southern transplants, but has not released specifics on
its strategy or timetable.

___________________________________________

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