For nearly half a century, "Germany Inc." has been extolled as a remarkable success story. Prizing consensus over conflict, the nation's banks, government, industries and labor unions worked in harmony to construct one of the world's most affluent societies.
But the rise of global corporations and the collapse of national barriers are buffeting the German model and straining the special relationships that serve as its core. As banks and corporations are prodded by investors to bolster share prices, German politicians and unions are being tugged in the other direction by demands to save jobs and tame the excesses of "predatory capitalism."
Last week, the struggle to preserve two of the nation's flagship companies dramatically illustrated how much resistance remains toward overhauling Germany's traditional economic model.
First, the British telecommunications giant Vodafone AirTouch PLC announced the biggest hostile takeover in history by offering $127 billion for Mannesmann AG, an aging industrial behemoth that has transformed itself into a successful cellular telephone enterprise.
Then, just days later, the country's second largest construction firm, Philipp Holzmann AG, declared bankruptcy after banks refused to pay its soured real estate debts. Riding to the rescue, German Chancellor Gerhard Schroeder put together a $2.3 billion bailout to keep the firm alive and prevent the loss of as many as 70,000 jobs.
Since he was elected last year, Schroeder has been attacked by fellow Social Democrats for espousing the interests of big business as he struggled to infuse a new entrepreneurial spirit into Germany's flagging economy.
But after securing Holzmann's salvation, the leader who favors Brioni suits, Cohiba cigars and Audi sports cars was suddenly transformed into a hero of the working class. "We did it!" he declared Wednesday night, as more than 1,000 construction workers gathered outside the firm's headquarters chanted "Gerhard! Gerhard!" and whooped with delight.
He added: "I came here to get the banks to be responsible--to be responsible not to let a company that I consider salvageable to break up."
Schroeder also criticized Vodafone's takeover plans--even though German companies have mounted raids on British and U.S. firms in recent years. He insisted Europe must find ways to contain "predatory capitalism" and urged other political leaders to protect their people from the excesses of globalization.
"Hostile takeovers are never helpful," Schroeder said, demanding new restrictions on unfettered deal-making across national borders. "They can destroy an enterprise's culture."
Schroeder's new display of national populism in the Vodafone case was hailed by party leftists and labor leaders, who had grown disenchanted with his austerity measures and pro-business concessions. Facing an important party congress next week, Schroeder may have calculated that tacking to the left was necessary to ensure his political survival.
But others expressed alarm that Germany was backtracking on market reforms and adopting double standards in dealing with foreign takeovers. "We cannot have it both ways," said Hans-Dietrich Genscher, who served as Germany's foreign minister for 18 years. "It is intolerable to say it is fine for German companies to swallow up foreign firms, but unacceptable for foreign companies to take over German ones."
In the last two years, German companies in pursuit of higher profits have fled exorbitant labor costs at home and made massive investments abroad. In the United States, the Bertelsmann media giant purchased Random House; the Daimler-Benz carmaker merged with Chrysler; and Deutsche Bank spent more than $10 billion acquiring Bankers Trust of New York.
In Britain, the Munich-based carmaker BMW swooped in to buy Rover; Volkswagen picked up Rolls-Royce; and Deutsche Bank bought up the investment bank Morgan Grenfell. That the German government encouraged such forays, but now balks at allowing a British company to buy a German competitor, has infuriated Britain and drawn a sharp rebuke from Prime Minister Tony Blair.
"Schroeder and his people may not realize how much damage is being caused by this kind of national populism," said Mathias Doepfner, chief editor of the conservative daily Die Welt. "The British are talking about German xenophobia again, and the Americans wonder whether the Germans really understand what globalization actually means."
An editorial in the Frankfurter Allgemeine newspaper also cited the risks of taking a selective view about the demise of national barriers: "It seems part of German nature to talk about globalization, but when it arrives not to want any part of it. And that is why there will be no progress with the urgent reforms that this country requires."
Other industrial powers have made wrenching adjustments to the demands of a global economy. The United States and Britain have drastically curtailed the role of government and fortified the private sector. Even countries with large state sectors, such as France and Italy, have made great strides in creating new jobs while selling off bloated government-run enterprises.
But in Germany, the process of change has moved more slowly than in any other industrial nation.
The traditional German approach called upon banks to act as shareholders, advisers and sources of finance for the nation's biggest industries. Labor peace was ensured by offering union leaders a place on corporate boards. And the government provided export credits and subsidies on a massive scale to secure markets and profits.
In the Holzmann case, the refusal of leading banks--under shareholder pressure--to pay for management's mistakes came as a jarring break with tradition.
With the banks rejecting their prescribed role, Schroeder said he was forced to intervene to stave off a hemorrhage of jobs at a time when nearly 11 percent of Germany's labor force is out of work. While Schroeder insists the Holzmann bailout will be an exception, a recent study by the Kiel Institute for World Economics showed that government subsidies have reached a record level of more than $170 billion.
"It should not be my job to jump in and save these companies, because it is the responsibility of management to prevent insolvencies," Schroeder said. "But we all must take care to ensure that globalization does not become something that people fear."