International -- Europe Cover Story
THE NEW FACES OF LABOR (int'l edition)
The unions know Europe needs cuts in pay and benefits to compete with Asia. Can the leaders deliver on this colossal task?
"You b----, you don't belong in the street!"
Insults flew fast and furious, as the petite, blonde labor leader marched with tens of thousands of striking workers in Paris in mid-October. Head held high, staring straight ahead, Nicole Notat took the heat for four hours from workers angered by her support of some government welfare reforms. When the 49-year-old head of the 640,000-strong French Democratic Labor Confederation was headed back to her car, things got even hotter: A crowd of strikers chased after her, hurling beer cans as she sped away. She told reporters grimly: "This will not stop my determination."
Notat is called French labor's "Iron Lady." Yet she shows her tough side as much to her own union members--including public-sector, industrial, and service workers--as to the managers and government officials she deals with. The former schoolteacher is one of a handful of new leaders struggling to drag Europe's labor movement into the late 20th century. From Britain to Italy, these leaders have traded rumpled leather jackets for crisp business suits. They've jettisoned their predecessors' shrill, left-wing ideology for a muted tone more acceptable to industry and government leaders.
Above all, this new breed has recognized that the global economy has changed forever the role of Europe's unions. If unions are to survive, these leaders realize, they can no longer push for the ever-higher wages and benefits they have demanded for the past 20 years. Instead, workers will have to accept significant cuts in their safety net, while unions find new ways to boost productivity. "The union agenda should be competitiveness, and making things smarter and more efficiently," says John Monks, 51, who heads Britain's Trades Union Congress.
That sounds good, but can these leaders deliver on such a colossal task? Europe's wages are far higher than those in Asia and Central Europe, where many manufacturing jobs are heading. Expensive fringe benefits make European workers a bad bargain compared with their U.S. counterparts. In the best case, these reformers may only slow down Europe's hemorrhage of industrial jobs while improving the climate for hiring workers in growing service and high-tech businesses. It may take an even deeper employment crisis before the majority of Europe's unions agree to more sweeping change.
Business welcomes the first signs of labor moderation but is pushing for more. "I sincerely hope we've entered a period of radical change," says Werner Stumpfe, head of the German employer federation, Gesamtmetall.
But even these first efforts at change are putting the new crop of leaders in a politically dangerous position. In the past few months, workers in France, Germany, and Italy have all walked out to protest cuts in sick pay, reductions in health-care spending, and other welfare reforms.
WELL-TRAVELED. The moderates are caught in the difficult role of mediators. That is, they must explain the need for reforms to their own workers--and to other labor leaders. If they get too far ahead of the rank and file, they risk losing their credibility.
The most prominent among the new risk-takers are Notat, Monks, Italy's Sergio Cofferati, Spain's Antonio Gutierrez, and Germany's Hubertus Schmoldt. College-educated, in their 40s and early 50s, most have traveled extensively, giving them a broader world view than earlier generations of labor leaders. Most important, they rose to the top of their unions after Europe's nasty industrial struggles of the 1960s and '70s, which forged the hardline stances of their predecessors. Europe's labor pragmatists have left "all the crazy radical Marxist stuff" behind them, says Richard B. Freeman, an expert on labor issues at the London School of Economics.
Take Cofferati, head of Italy's 3.3 million-member Confederazione Generale Italiana del Lavoro (CGIL). He is pushing for a streamlined welfare state, a new position for the 48-year-old former communist. Cofferati opposed government efforts to overhaul Italy's expensive pension system because such a move would mean rolling back benefits for workers.
WELFARE SURGERY. Eventually, however, Italy's endless budget crisis changed Cofferati's mind. Last year, he hammered out a compromise plan with the government of then-Prime Minister Lamberto Dini. It raised the official retirement age by five years, to 65 for men and 60 for women, axed cushy special benefits for government workers, and allowed private pension funds for the first time. Cofferati's backing helped get the deal approved, despite opposition from other labor leaders. "We need a reform of the welfare state," Cofferati argues. "The big problem is jobs."
Although a lifelong socialist, Notat, too, has been pushing for welfare surgery in France. When the conservative government of Alain Juppe came to power in 1995, she immediately began to build rapport with his Cabinet ministers. Her reasoning: It's shrewder to have a voice in creating government social policy than to try to change it after the fact. Sensing Juppe's willingness to tackle France's deficit-ridden health-care system, she lobbied for a plan that would spread health-care taxes across a broader section of the population, including retirees, without slashing benefits for workers.
But when Juppe announced a raft of money-saving proposals a year ago, public-sector workers shut down the country for four weeks. With her painstakingly negotiated health-care deal at risk, Notat urged her union members to leave the barricades and return to their work. Outraged, they pummeled her with sandwiches instead. Still, the feisty leader remains unfazed at the opposition within her own ranks. "There will always be people with different opinions. That's democracy. But you can't wait until there's complete unanimity to move forward," she says.
As if coping with nearly bankrupt governments isn't enough, the labor moderates are trying to boost efficiency in European industry. While that may mean short-term job losses, over the long run union leaders hope that stronger companies will protect jobs. One pioneer is Hubertus Schmoldt, 51, the head of IG Chemie. A believer in labor agreements that avoid "narrow, corset-like rules," he was one of the first in Europe to introduce the flexible workweek, in 1990. It allows companies to vary the length of the workweek to between 35 and 40 hours. As a result, companies can control their output to match demand without paying overtime, as long as the average week equals 37.5 hours for the whole year.
REFLECTIVE. The approach has since spilled over into other industries. Even the hard-nosed German metalworkers' union, IG Metall, has adopted the flexible workweek. At Adam Opel's Bochum plant, which produces the Astra subcompact, for example, employees recently agreed to work from 30 to 40 hours a week with no overtime premium so long as the average over three years is 35 hours a week. The plan could help cut the company's labor costs by 10%. "There is a serious attempt on the part of the unions to address cost problems," says David J. Herman, Opel's CEO.
Schmoldt, a reflective man who resembles an accountant more than a union boss, knows that additional concessions will be necessary to counter Germany's labor-cost disadvantage. For that reason, IG Chemie has agreed to a two-tier wage system, which will allow companies to pay first-time employees 10% less than their co-workers for one year.
He's also willing to allow companies in keenly competitive industries, such as tire manufacturing, to operate their factories on Saturday and Sunday. That's certainly a dramatic shift in a nation where the plants typically shut down early on Friday for the weekend. "I always make decisions that will save jobs," Schmoldt says.
In the meantime, Schmoldt and other pragmatic union bosses are loosening the stranglehold of industrywide "pattern" contracts. Popular among unions as a means to consolidate power, they hamstring companies that are under competitive pressure. Now, in France, Germany, and Italy, bare-bones national contracts set the guidelines for annual wage increases in industries such as metalworking and chemicals. Individual companies are left to negotiate such issues as the length of the workweek, productivity-based pay increases, and work rules.
The problems of Europe's heavy industries are long-standing. A new and potentially bigger test for the labor unions comes as Europe begins to deregulate its remaining cartels. Vicious competition has already started building up in the utilities and in high-tech and service industries, such as telecommunications and the airlines. Some corporations are totally unprepared for the fight. Increasingly, the workers will be faced with the choice of compromising on wages and benefits--or else losing their jobs.
WORKER-OWNERS. Such a dire choice confronted workers at Alitalia, Italy's loss-plagued state airline, last June. The company, wracked by strikes, came close to collapsing. But then, its unions agreed to a groundbreaking proposal that was made by Alitalia's new management to create the first employee stock-ownership plan at a major Italian company. In return for $1 billion in labor-cost reductions, Alitalia will give employees up to 20% of the company's outstanding stock. "We had to totally rewrite the rules," says Alitalia Chief Executive Officer Domenico Cempella.
Not all employees like the new deal, however, partly because of high Italian taxes on capital gains. Claudio Bussetti, 38, a chief cabin officer, complains that his take-home pay of $3,000 a month could fall by as much as 40%. "I don't care about shares. I just want to make a decent living," he says. Alitalia will come under even fiercer pressure next April, when the European Union eliminates the rules protecting domestic European airlines from competition on their own turf. Bussetti and some of his co-workers will be out of jobs if Alitalia's controversial stock-ownership deal does not work.
PRICEY LAYOFFS. To be sure, the biggest problem that worries union leaders is joblessness. Europe's unemployment averages 11% but ranges as high as 22% in Spain. Now, some unions are beginning to relax the rules that make furloughing workers so expensive. Economists say such regulations discourage hiring and are one reason that the unemployment figures remain stubbornly high.
Spanish union chief Antonio Gutierrez has been a surprising proponent of helping companies sidestep his country's tough layoff laws in special cases. Companies typically must pay tens of thousands of dollars to each worker they let go. But earlier this year, Gutierrez, who heads the formerly communist union federation Comisiones Obreras, gave his blessing to groundbreaking reform at Catalan auto parts maker Estampaciones Sabadell. Should sales dip 20% or more, the company can now lay off up to 75 of its 450 workers with only modest severance payments. In return, the company agreed to make 75 temporary workers permanent, countering a nationwide trend to staff with contract employees.
Such arrangements would have had Gutierrez' union-leader predecessors pounding their fists with anger. But Gutierrez says Spain's sky-high unemployment simply means that his union must adapt. He is now trying to extend the agreement to other companies. Such deals "reduce insecurity," he says.
Sweeping change won't come without many reversals. In Britain, for example, Alan Johnson, head of the Communications Workers Union that represents postal workers, negotiated a contract earlier this year that would have awarded workers a 15% pay hike. But the union's executive board shot it down because it also called for "teamworking"--a concept they feared would increase work loads. Says Johnson: "I was trying to do too much. Change has to be more gradual." The two sides recently agreed to set up a team to negotiate new work rules.
Europe's labor chiefs are sure to feel uncomfortable as they continue to walk a fine line between leading their members and alienating them. But they agree that guarding the status quo would be riskier yet--and would likely lead to a weak and irrelevant labor movement. "That just won't work," says IG Chemie's Schmoldt. For Europe's workers, it's now a choice between the leaders with business suits and those with leather jackets.By David Woodruff in Bonn, with Stanley Reed in London, John Rossant in Rome, Andy Robinson in Madrid, and Mia Trinephi in ParisReturn to top