Thursday, August 15, 2013

Germany's Social Capitalism in Tennessee, and back home

As a key part of their strategy to become the world's largest car manufacturer, Volkswagen has opened a new plant in Chattanooga, Tennessee.  While a foreign auto maker opening a factory in the south is nothing new, VW brings a particularly German culture of organization and labor relations.  The Economist reports that VW, working with their main German union IG Metall, plans to introduce a "works council" in their Tennessee facility.  Required by law in Germany, works councils are a key component of the German system of co-determination in businesses.  Works councils operate ostensibly outside of the union structure, and through them labor elects almost half of the company's board of directors.  This structure brings together labor, management, and capital to help formulate policy and strategy.  And by balancing different stakeholder interests, co-determination tends to favor long time horizons and slow, steady growth, sacrificing some returns for the promise of security.  

It seems that everyone--except, probably, a sizable portion of the Greek protestors in the streets of Athens--has praise for the German economic model in our current turbulent times.  This is a far cry from the conventional wisdom of ten years ago when I started studying what the Financial Times terms Rhenish Capitalism and what the Germans themselves (now proudly) call Soziale Marktwirtschaft (a "social market" economy).  Then Germany's slow growth and high unemployment were seen as emblematic of all of Old Europe's ills, something to be scoffed at rather than emulated.

But times change.  Perhaps slow and steady wins the race.  It is, at any rate, all those German euros in the bank that is keeping Greece afloat.  Programs that encourage cutting back hours rather than laying off workers, investments in infrastructure, among the healthiest public finances not just in Europe but in the world--there is a lot to be admired in the way Germany has handled the financial crisis.  But it comes at a cost, high taxes and high costs of good.  James Surowiecki, writing in last week's New Yorker, says that a long term fix for the U.S. economy will require "consumers to accept significantly higher, and steadily rising, prices."  That will be a tough sell in this country, even if it does recall Henry Ford's pledge to pay his workers enough to afford to buy the cars they were producing.

VW's corporate culture is deeply committed to works councils and co-determination, and they have exported the model to Mexico, Brazil, and China.  What they do in Germany is mostly mandated by law, but in their global operations the company goes far beyond what is required.  They must see value in the proposition.  All the same, while works councils may be on the rise in Tennessee, they are declining slightly in importance in Germany as boards begin reorganizing under European regulations that sidestep co-determination requirements.

1 comment:

  1. The essence of social capitalism is that private markets are the most effective allocation mechanism, and output is maximized through sound state macroeconomic management of the economy.
    social capitalism