T o the visitor just back from two weeks in Europe, Germany certainly doesn't look or feel like the "sick man" of the continental economy. Everything still seems so prosperous, modern, efficient.
But the data tell a different story. Although a decade ago Germany's economy was the biggest and richest in Europe, its growth rate since then has been half that of its neighbors. Over the decade, real wages have fallen, business investment has stalled and business start-ups are way down. German companies are now so busy growing their operations elsewhere that, as one wag put it, jobs have become the country's number-one export.
In the last few months there have been signs the country has finally begun to undertake the kinds of structural reforms it has long resisted. Overly generous unemployment benefits that encouraged workers to remain on the dole have been reduced, and small companies have been granted greater flexibility to hire and fire. The government has even made minor cuts in the payroll tax, which had reached a job-killing 40 percent of salary.
Equally noteworthy have been recent concessions made by IG Metall, the country's major industrial union, that are likely to be quickly replicated elsewhere.
To avoid having their jobs shipped off to Hungary, Siemens workers at two cell phone plants acceded to company demands that they increase their workweek from 35 to 40 hours without any increase in pay. They also agreed that once-automatic holiday "bonuses" based on salary would now vary according to personal performance and company profitability.
Meanwhile, DaimlerChrysler's union has accepted pay cuts and longer working hours for select employees in exchange for a promise of no layoffs for the next seven years and a ban on outsourcing the work of security guards and cafeteria workers. To seal the deal, top management agreed to a pay cut of 10 percent.
While for many Germans these reforms are nothing less than traumatic, to American eyes they look almost trivial when compared with the size of Germany's competitiveness problem. The reforms suggest that Germans remain in a defensive crouch, prisoners of their past success. Rather than embracing the challenge of making the sweeping changes needed to lay the groundwork for a globally competitive economy, their aim seems to be to try to hold back the forces of globalization and maintain as much of the old German model as possible.
It's hard to understand, for example, how any company in the current environment -- let alone an auto company -- could promise not to lay off any workers for seven years. And how competitive can a company be if unions continue to insist that security workers earn as much as skilled welders, or cafeteria cooks make as much as chefs in downtown restaurants?
More to the point, this wrangling over the length of the official workweek, the structure of holiday pay or the process of laying off a worker ignores the larger truth that it is precisely such national rules that have robbed individual companies of the flexibility they need to adjust quickly to the demands of a global marketplace.
Particularly telling is the attitude many Germans have toward the fast-growing economies to the east. Instead of viewing Poland and Hungary as fertile new markets for their products and low-cost production platforms that can make German companies globally competitive again, the public discussion is fixated on lost jobs for German workers. Few business or political leaders seem to have the courage to point out that the $60,000-a-year basic assembly job in Stuttgart is about to be lost forever, with the real choice being whether that job will remain with a German company somewhere within an expanded European Union, or will be captured by a more efficient competitor in Asia or North America.
