There is, perhaps, no better measure of a country than how it treats its workers, and Germany, the world’s fourth-largest economy, is a manufacturing powerhouse that is known for its progressive ideals on labor relations.
In this episode of Big World, SIS professor Steve Silvia joins us to discuss labor in Germany and to contrast its labor relations with that of the US. He explains why the German manufacturing sector is so strong (1:50), the differences between German and American attitudes toward unions (4:52), and the way German unions engage with politics (8:41).
What does ‘exporting power’ mean, and why is it so difficult for unions to do (16:31)? Silvia discusses how German trade unionists have tried to export power to German car plant workers in the US (20:08).
After a decade of economic expansion, Germany narrowly avoided a recession at the end of 2018. Silvia breaks down why the country has dealt with several economic hardships over recent years (22:35). He also takes a look into the future to discuss some of the challenges that labor markets in Germany and the US may face in five to ten years (24:10).
During our “Take Five” segment, Silvia tells us some things he would change about labor relations (12:33).
0:07 KS: From the School of International Service at American University in Washington, this is Big World—where we talk about something in the world that truly matters. The twentieth century brought seismic changes to the world in all areas—militarily, economically, technologically, and socially, and there was perhaps no single country more responsible for these changes than Germany. The German Empire, followed by Nazi Germany, merged with German ambitions to cause two world wars. But post-World War II Germany went on to write a surprising third act for themselves. They became a manufacturing powerhouse that combines the best of German practicality, industry, and free market principles with progressive ideals about healthcare access, immigration, and labor relations. And since there is perhaps no better measure of a country than how it treats its workers, today, we’re talking about labor relations in Germany, the world’s fourth-largest economy. We'll also contrast labor in Germany with that of the United States, which is, of course, currently the world’s biggest economy.
1:09 KS: I'm Kay Summers, and I'm joined by Steve Silvia. Steve is a professor in the School of International Service who teaches international economics, international relations, and comparative politics. He researches comparative labor employment relations and comparative economic policy with a focus on Germany and the United States. Steve, thanks for joining Big World.
1:28 SS: Thanks, Kay.
1:30 KS: Steve, I'm guessing that maybe the average American, when they think of German manufacturing, thinks first of cars. I know that's what I think of first. Would you start by telling us a little about the German manufacturing sector? First off, are cars the biggest part of it, and what else are the Germans really, really good at making?
1:50 SS: Yeah, I think it's fair to think about cars, because cars are the biggest piece of the German manufacturing sector, and not only cars, but car parts, and car related things—it's really a big part of the German economy. But when you think of the German economy, the other thing that I often like to say is Germans like to make things that are very big and very small. So, you can get some of the large pipelines and the machinery that goes around large pipelines, and Germans excel at making those sorts of large equipment, manufacturing equipment. And the Germans also have some success in doing nanotechnology, but the key thing, I think, when you're looking at the German economy, where they've focused is focusing on high-end products and often one-of-a-kind products that you can have a high markup on.
2:48 KS: Okay, interesting. I also think of, I guess, the higher-end home appliances like Bosch and [crosstalk 00:03:00].
2:59 SS: Right, Braun, yeah.
3:01 KS: ... is that the right space?
3:02 SS: And in stereos, Blaupunkt. In optics, Ziess. And so, yeah, the Germans tend—There's been a tradition, dating back more than a century, and it's been accentuated since the second World War, to focus on the high-end and to focus on exports.
3:19 KS: Interesting, okay. We know that in the US, manufacturing jobs have decreased over the past three decades, but manufacturing output of goods and products has increased. So, what's the trend line in Germany for manufacturing jobs and output since the 1980s?
3:37 SS: It's a similar pattern, the only difference is that the share of employment in manufacturing is higher in Germany, and has been. So, it's trended down in the United States. It's trended down in Germany. That has a lot to do with productivity.
3:52 KS: Mm-hmm (affirmative). Explain that a little bit. What is that?
3:54 SS: That as we've gotten better at making things without people, using more machines and fewer people, that you have fewer people working, but you're still able to do output. One classic example, that's outside of manufacturing, is farming. Throughout the high income world, if you went back 100, 150 years ago, you'd have 20 to 40 percent of the population in farming. Now, you only have 1 to 2 percent, yet there's more coming off the land, and that's because it's become mechanized, and you need fewer people.
4:29 KS: Interesting, okay. Steve, I'd like to dive more into labor, specifically, organized labor. In the US, this has historically meant collective bargaining by labor unions. To set the stage here, would you list some of the differences between German and American attitudes toward unions, and do Germans even use the term unions?
4:50 SS: Oh yes. Yeah.
4:51 KS: Okay.
4:52 SS: If anything, if you look at a daily newspaper in Germany, chances are, you'll see a story or two that involves unions, whereas in the United States, it's very rare.
5:04 KS: Not at all, right.
5:05 SS: And that's—There's a couple reasons for that. One, unionization in the United States has dropped steadily for a very long time. In the mid '50s, about 30 percent of the workforce was unionized, and now it's around 10, a little less than 10 percent. In Germany, you've had, as far as membership, you've also had a decline. It hasn't been quite as severe, but the big difference in Germany is you have a set of institutions that really give a role to organized labor, to trade unions, that you don't have in the United States, when it comes to labor relations. For the largest companies, there is a requirement to have employees on corporate boards. The advantage of doing this is that it really opens up information flow, and it allows for the other shareholder board members to hear a different story than they would hear from the CEO about how things are going in the company, what are the issues, what are the problems. And so, this system has been very helpful in terms of getting information across that otherwise wouldn't come across, to asking questions that if you have a pure shareholder board, that may not be asked.
6:31 SS: And it also brings about things like, in Germany, the difference between the pay of an average CEO and the average employee is about 20 times. When you look at the US, the difference is over 300 times. I think it really is something that one learns in international relations classes that group think can be problematic, that this is a way to break beyond group think, bring more perspectives to bare, and I would argue is even better for the average shareholder, having that extra voice.
7:09 KS: Yeah, there are a couple of things at play. One, there's transparency. It's that thing about sunlight is the best disinfectant.
7:13 SS: Exactly.
7:14 KS: Because even if they're—They can't go out and say everything that they learn, but just having the workers know, be kind of on the same playing field of knowledge, at least some of them, a representative group of them, gives the other workers more confidence that decisions aren't being made behind a closed door somewhere, where they have no say. And there's also that thing of viewing—this huge divide that you kind of mentioned, with the difference in the compensation between workers and shareholders, or workers and the chairman of the board, or the president. It's hard to continue to vote for that or to vocally support that when those people who are affected by that big difference in compensation are in the meeting with you. It's hard to let yourself be voted a salary that's 300 times the worker if one of the workers is there. It's a very different dynamic.
8:05 SS: Yeah, and they say 80 percent of oversight is just presence.
8:09 KS: Right.
8:10 SS: And this would achieve a lot.
8:12 KS: Interesting. So, we know one area that American unions are pretty active is in politics. During the 2016 election cycle, labor unions in the US spent more than a collective $160 million toward political action committees or Super Pacs and federal elections. Do German unions exert similar influence over national politics? Do they act in any of the same ways politically?
8:41 SS: It's very different. It has a lesson that comes out of the second World War, that—The lesson is that when Hitler was getting more and more votes, and was advancing to power, and when Hitler was elected in 1933, that there was a discussion among the German trade unions. And at that time, there were separate trade union organizations. There was one that was for people who tended to vote socialist. There was a completely different one for people who tended to vote for the old Catholic party, which was called Zentrum or center. And then there was a third one that was just a non-affiliated party. And they talked about maybe cooperating to have a general strike to protest Hitler coming to power, but they never did it. And, as a result, within six months, Hitler had arrested most of the major trade union leaders and really shut down the independent trade union movement.
9:45 SS: So after the war, the people who survived, they decided that they needed to change things. So, they decided to have a single union movement, which is actually—we have a single union movement. We don't have confessional unions like they used to have. But along with that decision, they decided that they would not engage in politics in the same way, in a partisan way. So, they decided to take a nonpartisan approach, where the unions, when you'd have elections, they would state their positions on the major issues of the day, and they would leave it at that. Now in practice, until about 15 or 20 years ago, almost all the trade union leaders were also members of the social democratic party. So, there was sort of this informal leaning in the direction of the social democratic party, but there were no huge campaign contributions, or get-out-to vote activity, or that kind of thing that US unions do. And, in recent years, the unions have become even more neutral in politics. You've had Green Party members rise up, and there's one—the head of one union is a member of the Green Party, and you also have a far-left party that came out of East Germany, and that party also has prominent people in the union movement.
11:23 SS: So, the unions really—they'll state positions, but they don't get involved in politics. And if you asked me, I think it was probably one of the biggest mistakes that US unions made back in the 1930s to get engaged in politics, because they end up spending a huge amount of time and money engaged in politics. They get very little out of it in terms of legislation, and they're not focusing on organizing members and attending to members.
12:00 KS: Steve, it's time in the podcast when we take five. We get to step back from today's problems and challenges and daydream out loud. If you could right now, single-handedly, institute five policies or practices that would change the world for the better, think about what those would be. Specifically, what are five things you would change about labor relations?
12:33 SS: Yeah, I'm not sure I have five, but I'll give it a shot. I would say, looking internationally, that internationally, this is the hundredth anniversary of the creation of the International Labor Organization, and one of the things that that organization has passed, over the years, is a series of conventions about labor standards. And there are hundreds of them, but there are a core set that people focus on. So, the first thing that I would like, if I could wave a magic wand, would be to do something, to borrow something that has been done for intellectual property, that the World Trade Organization has made violation of intellectual property rights something that is an unfair trade practice that can go to the dispute settlement resolution of the World Trade Organization. I think that violation of these core labor standards should also be made as unfair trade practices that could be taken to the dispute settlement body of the World Trade Organization. So, that would be one. It would give teeth to these core labor standards that have never had teeth before.
13:45 SS: When I think domestically, one of the drawbacks about US labor law is the penalties for violating it are laughably minimal—that if you fire someone, and it's found to be an unfair labor practice, that the penalty is the worker receives back pay. Subtracted out of the back pay is if you got a job elsewhere that is taken out of the back pay. So, unfortunately, too many companies look at it and say, "I'm going to violate the labor law, because the cost is so low."
14:23 KS: Right.
14:25 SS: So, the second thing that I would suggest for the US would be that we borrow the civil rights penalties for labor law violations. And that would be triple damages, nothing deducted, and I think that would lead to more respect, and more following of the labor law. And if I were to think of a third thing, this again would be a US one, would be what we were talking about earlier, about giving people more voice in their workplace. When you think about it, we spend a fair amount of our time in the workplace. Some people, they spend the majority of their waking hours on a work day, either in work or going to work. Yet, we don't have even minimal standards in the way we have in our political democracy for people to have a voice.
15:23 SS: We give people a voice in the political democracy not for economic reasons, but because we think it is an inalienable right, and I think giving people a voice in the workplace, where they spend so much time—And, well when think about how people are so vulnerable to arbitrary behavior that giving them a voice would help give some modicum of dignity to people. So, that would be a third thing that I would say, that if I could—If I were king for a day, that would be the thing that I would implement, but being a committed democrat with a small D, I would never be king for a day.
16:04 KS: Okay, so three it is. All right, thank you Steve.
16:07 SS: You're welcome.
16:15 KS: Steve, you've written that German trade unionists have experimented with exporting power beyond national borders. Can you tell me a little more about that, including what has necessitated that experimentation, and what they've discovered? And first of all, what does that mean? What is exporting power?
16:31 SS: Sure. When you think about it, and you look at businesses, that, for well over a century, businesses have been very active in expanding internationally, and it's not—it's something that's not unusual. It's quite commonplace to have businesses operating worldwide, but if you went back a century ago or more, you would have found national businesses, and you would have found national worker's organizations. And so, we've had, in the last century or so, this expansion of business, but labor hasn't followed suit. And so, it poses a puzzle on why. Because if you think back in the late nineteenth century, you had the First International Working Man's Organization, it was just called back then, or the First International, and you had the Second International. And so, you had this activity, and you had this rhetoric among worker organizations about being above countries and being international, yet, in practice, it hasn't happened.
17:37 SS: So, a lot of the puzzle that I've been looking at is, "Well, why hasn't it happened?" And the answer is, it is very hard. For businesses, you can invest abroad in money, in shipping money abroad, and doing those sorts of things is a way to be active internationally, but being a member of a union, it's really sort of attached to the person, and it's hard to send solidarity abroad. And also, unions are very much framed by national law, national tradition, and just the way the organizations are, there's a lot of person-to-person contact in unions that explain how they work in practice. So, it's been very difficult to export them.
18:28 SS: Another factor, in the cultural side of things, is international business people tend to know more than one language, particularly ones whose native language is not English, they tend to know English. For working people, being multilingual is much rarer. So, that ability to interact is hard to do as well. So, you've seen unions, in many ways, left behind.
18:58 KS: Mm-hmm (affirmative). Is there a values piece to this as well? Because I'm thinking the thing about multinational corporations is that money is kind of a common language, but when you talk about, as I said at the beginning, about how a country treats its workers, that's much more of a values piece, and a cultural piece, and it's kind of baked in. And so, to try and export that union mentality, the other country would have to be willing, to some degree, to meet you on the values and the cultural piece of how workers believe they should be treated?
19:28 SS: Yes.
19:28 KS: Yeah? Okay.
19:29 SS: And that's the kind of thing that I've been looking at recently, to see whether this has changed. And there's a couple of reasons why you might think it could change. One is, with globalization, that business is even more active across borders than it was 30 or 40 years ago. The other big thing is, with the change with the internet, and email, and Skype, that the capacity for worker's organizations in different countries to communicate is much greater now than it had been in the past.
20:08 SS: Now, back to your earlier question, one of the things that motivated me in doing this is that the biggest German union, the Metal Worker's Union, that they started to get nervous about the international activities of German companies, that—They weren't so nervous 20 years ago when BMW set up in South Carolina, and they also thought it was for the best when the car companies started setting up in Eastern Europe and places like Hungary, but they found, when we had—when there was the discussions about, perhaps, having a free trade area between Europe and the United States, that's when they started getting a little nervous about the implications. They started getting concerned that not only would BMW, perhaps, send cars over, but in the years since, you've had Volkswagen, and Mercedes set up car plants in the United States.
21:11 SS: So, they thought it was important to try to see if they could help the workers in the United States organize German car companies, and it's exactly the thing you'd put your finger on, that the argument they made to the car companies was, "You have these values of social partnership, of cooperating with the unions in Germany. So, why don't you have those as universal, company-wide values?" The companies have actually even negotiated things that are called framework agreements—global framework agreements—with international union bodies to have a certain set of standards for behavior. So, part of it also was to try to get the companies to enforce some of these agreements that they've signed at the international level and to make sure that they were actually following them in practice.
22:11 KS: Right, that's amazing. So, Steve, Germany narrowly avoided a recession at the end of 2018, after a decade of economic expansion. While the US has steadily recovered from the global financial crisis of '08, although there are differences of opinion as to who has actually experienced that recovery. But, just speaking at the country scale, the nation scale, what explains the difference between that?
22:35 SS: Yeah, I'd say a couple of things. Germany has hit on some difficult things in recent years. The admissions scandal at Volkswagen has been a big issue, and there's been—And it's rippled throughout the car industry, and that's led to a lot of changes in terms of looking at whether you even want to have diesel cars in cities and other places. So, that's something that has hit Germany hard. A second thing that I would say is Germany's neighbors, that the recovery from the Euro crisis has been uneven and soft, and so, that's again big customers to the south, in particular, being hurt. You look to the north, Brexit has certainly not helped Germany either. So, there have been a number of these things that have come that have really concentrated in Europe. Some of them have been homemade, like the diesel scandal. The others have been outside, but they've really hit Germany harder than the US, because they've either been in Germany or in Europe.
23:46 KS: Right. Steve Silvia, to wrap us up here, looking into your crystal ball, which you didn't bring today, I don't know what you were thinking, what sorts of challenges should US and German labor markets anticipate in coming years? And I know there's nothing that an economist likes more than a question about projecting. What's going to happen? Tell us what's going to happen. But, what do you think are going to be some of the challenges for the labor markets in these two countries in five to ten years?
24:10 SS: Yeah, the biggest challenge is demographics, that both societies are aging rapidly. So, the real challenge will be trying to find employment. I mean, not so much—I mean, trying to find people to fill the jobs, and Germany's population is already shrinking. The US is on track to doing that. So, that is really going to be the biggest challenge, and it is—One simple answer that we know has a lot of difficulties with it is immigration, and we've seen in both countries that the thing that has roiled politics, perhaps more than anything else, has been immigration. So, on the one hand, we desperately need it, try to help balance out our economy, keep it growing. So, we need it economically. The difficulty is politically, that it is—It's an explosive issue everywhere.
25:18 KS: Steve Silvia, thank you for joining Big World, and discussing labor relations. It's been lovely speaking with you.
25:23 SS: Well, thank you. I really enjoyed it.
25:25 KS: Big World is a production of the School of International Service at American University. Our theme music is “It Was Just Cold,” by Andrew Codeman. Until next time.