Economic Lessons from Abroad: Workers, Wages, and Inequality

There are many varieties of capitalism, and, given our current travails, we in the U.S. are starting to realize that we may have a lot to learn from other ways of organizing the economy. 

By law, half of the board of directors at German companies are elected by the workers through a system of "works councils." This is a remarkable fact, and introduces all sorts of different incentives into corporate strategy (as compared to a narrow focus on shareholder value).

Adam Davidson, writing in the NY Times Magazine this week, notes the "beneficial constraints" the German system of worker/capital "co-determination" has on manufacturing there.  Similarly, Davidson shows how Harley Davidson has worked with his highly paid and skilled workers to turn around their failing production. He wonders if this would have been possible without experienced union workers.   

(I write about co-determination in my new book, and have blogged about VW's work's councils and their efforts to institute one at their new Chattanooga facility.)    

And it is not just our other OECD countries that have lessons--and cautionary tales--to offer. Levels of income inequality in the U.S. have over the last decades approached the level of developing countries. The Times today reports that middle class consumption is steadily eroding--from hotels to appliances to restaurants, the high-end and the low-end are growing at the expense of the middle. The Harley workers appear to be the exception. This may result in what Alain de Janvry, writing about developing countries, calls a "disarticulated economy," put simply, one in which workers cannot buy what they make, the opposite of the Fordist promise (to pay workers enough to afford the cars they make).       

Brazil in recent years has made great strides in re-articulating its economy, pulling millions into the middle class and stimulating domestic consumption. Perhaps, then, we should look to Brazil as well as to Germany for economic policy ideas.

Distribution of Value in Anglo-American and German Firms (based on Vitols 2004:371)

	Anglo-American (early 1990s)	Germany (early 1990s)	Germany (late 1990s)
labor	62.2%	85.3%	78.4%
credit	23.5%	5.4%	4.3%
government	14.3%	5.2%	6.8%
retained earnings	3.2%	5.2%	7.8%
dividends	15.0%	2.0%	2.8%