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Will German Labor Be The First To Blink? (Int'l. Edition)


Business Week International International Business: GERMANY

WILL GERMAN LABOR BE THE FIRST TO BLINK? (int'l. edition)

Porsche, the luxury sports-car maker, has fought hard for three years to slash large losses, with measures from layoffs to lean production. Now, with sales picking up 23%, to $790 million in the first half of fiscal 1995, CEO Wendelin Wiedeking told the company's Jan. 27 annual meeting that breakeven is finally within sight. But three days later, workers at Porsche plants near Stuttgart walked off the job for half an hour. Porsche is just one of dozens of companies across Germany's industrial heartland handpicked as targets for such guerrilla-style "warning strikes."

It's showdown time in labor negotiations in Germany. The strikes are a tactic being used by Germany's largest labor union, IG Metall, to back its demands for 6% wage hikes, shorter workweeks, and extra Christmas bonuses for Porsche workers and 3 million other members. But though IG Metall officials are talking tough, companies seem well positioned to resist. Labor-market analysts expect them to hold wage increases to around 3%, up from 2% last year but just a smidgen above the current inflation rate.

TIGHT SQUEEZE. That's crucial for Germany's recovery. Led by exports, the economy appears headed for a solid 3% growth in gross domestic product this year. But hefty wage raises now would prompt the Bundesbank to hike its 4.5% discount rate sooner rather than later, putting the economic upswing in danger. IG Metall's contract negotiation will set the pace for Germany's 1995 wage round. Deals due this year for another 7 million workers, from civil servants to chemical workers, will be closely patterned on it.

Union leaders are in a squeeze. They need to sound militant to workers in order to gain recruits. The 16 big unions grouped in the Deutscher Gewerkschaftsbund (DGB) have hemorrhaged 17% of their members since 1991. The public-sector workers union became so alarmed about the trend that it recently floated proposals to limit by law pay awards won by unions to their members--leaving nonunion members to face the bosses alone.

But union officials also know that overblown wage demands will snuff out more jobs by pricing them out of existence. And with unemployment now 3.6 million, or 9.9% of the workforce, that's a growing worry--and a powerful influence for labor moderation.

These days, German unions are dropping a lot of old taboos. In a Jan. 25 meeting of labor, employer, and government representatives, DGB leader Dieter Schulte offered major concessions. He was ready, for instance, to talk about four-day weeks at lower pay and Saturday work without overtime premiums--a pattern set by Volkswagen. But employers are unwilling to pay the price in job guarantees that unions want.

While trying to sound combative to their rank and file, union leaders are arguing to employers and economic policymakers that their demands are in fact modest compared with the real income losses suffered by members over the past three years. Like IG Metall, chemical workers union IG Chemie also wants 6% raises. But, says its chief contract negotiator, Hans Terbrack, it would need to seek 15% hikes to offset higher income and social-security taxes.

HANDICAP. Employers feel just as overburdened, however. They are ready to fight hard to hang on to the double-digit gains in productivity they made last year. At stake is the payoff from painful restructuring undertaken by such companies as Porsche to survive in world markets. Insists Heinrich von Pierer, CEO of electronics giant Siemens: "We cannot pass on [as wage hikes] the full amount of productivity increases."

Amidst unrelenting global competitive pressures, the soaring German mark, up 14% against the dollar since the end of l993, is a severe price handicap for German manufacturers. "It's the dark side of the Deutschemark's safe-haven status," warns London-based Morgan Stanley & Co. economist Brian V. Mullaney. "In many ways, Germany remains a highly uncompetitive place."

That worry is keeping a rein on German union demands as the economy turns up. Labor's restraint is leaving room for employers, particularly companies producing for export, to earn higher profits. It is Germany's best hope for success in its competitive makeover.By John Templeman in Bonn


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