Face value. Two Hartz beat as one

Peter Hartz is a double agent of change in Germany

HIS name has become a sort of expletive, just because he headed a government commission that has blown a hole in Germany's cherished social safety net. From January, Hartz IV, the deeply unpopular final phase of the commission's lawmaking, will force the rich-but-struggling economy's long-term unemployed to find work or face a new level of (relative) poverty. Every Monday for the past few weeks tens of thousands of protesters have taken to the streets to try to stop the reform.

Hartz, the law, is the butt of placards, graffiti and furious letters in the media. Peter Hartz, the man, a mild person by all accounts, is about to face another storm thanks to his day job, as head of personnel at Volkswagen (VW). Germany's biggest carmaker is squaring up for fierce wage negotiations with its employees, represented by the mighty blue-collar union IG Metall.

Last week Mr Hartz fired his opening shot by calling a press conference and stating categorically that any wage increase is out of the question. The union wants a 4% wage hike and job security for ten years. Negotiations are due to begin on September 15th. Failing an agreement, union bosses do not rule out a strike.

VW is in trouble, after two years of flagging sales. Bad marketing and misguided management decisions have left it with models, such as the luxury Phaeton, built in a special show factory in Dresden, that are not selling. In the past, Mr Hartz, who clearly hates to fire people, has always found a compromise, in the traditionally consensual German way. In 1993, the year he joined VW, the hard numbers argued for laying off 30,000 workers. Instead, he introduced a four-day week and trimmed the average wage by 15%. In 2001, to justify building a new factory in Lower Saxony rather than in low-wage eastern Europe, Mr Hartz devised an innovative employment model to side-step the union wage agreement. For Auto 5000, which started building Touran minivans last year, a brand-new workforce was recruited from among the unemployed. These workers are organised in “families” and paid, in part, according to performance.

Now Mr Hartz wants to extend this concept to VW's core German operations, making 30% of salaries performance-related and treating workers as what he calls “co-entrepreneurs”. He also plans “internal competition” whereby different VW factories may bid to produce new models. As a sweetener, VW managers are prepared to freeze their pay too. But will Mr Hartz carry the workforce with him this time, or has his luck run out?

Some other big firms have already had a showdown with IG Metall. Siemens threatened to move production of mobile phones to Hungary unless its workers accepted longer working hours for no extra pay. IG Metall caved in to what it called “blackmail”. With DaimlerChrysler, IG Metall won a degree of compromise: it preserved the 35-hour week, hallowed in Germany, but gave some ground on working hours for research and service staff, and on future cost reductions. Opel, the hard-hit German subsidiary of General Motors, is likely to win concessions from IG Metall because its sales have collapsed.

But IG Metall may not yield so easily to VW, a firm with which it has long boasted of a special relationship. Some 97% of the workforce are union members, including an estimated 75% of the management - even Mr Hartz. VW is special in the eyes of the government, too. Gerhard Schroder, the chancellor, sat on VW's supervisory board as prime minister of Lower Saxony (the Lower Saxony government still owns 18% of the firm). Laying off workers at VW is fraught with political difficulty.

Mr Hartz's skill, so far, has been to find compromises that avoid lay-offs. He has become known in Germany as the human face at the negotiating table, with a flair for pulling solutions out of a hat. As a director of the stricken steel firm, Saarstahl, in the 1980s he softened lay-offs with a job-creation scheme. His four-day-week solution at VW was seen, in the relatively prosperous 1990s, as a way of enhancing quality of life and extending leisure time. The “company that breathes” is how he described his philosophy of labour relations in a book of that name.

His closeness to the Social Democrat party led Mr Hartz to co-found a group of industrialists that backed Mr Schroder's re-election in 2002. He refused several times the chancellor's offers to join his cabinet. But in 2002 he agreed to head a new commission to “modernise the labour market” which, for better or worse, came to bear his name. The Hartz laws I to III have tried to make job-seeking and job-seekers more entrepreneurial, revamping the Federal Jobs Agency and encouraging part-time “mini-jobs” and one-man firms called “Ich-AGs”. Hartz IV, voted into law in July, limits unemployment pay to the first year out of work, after which much lower, and means-tested, social security benefit will be paid. From January, opting for unemployment will not be the cushy alternative to working that it was for decades, when it contributed mightily to Germany's economic stagnation. In some parts of former East Germany, where unemployment levels reach 20%, the shock will be cruel. But even in the east the looming deadline has miraculously increased the number of people actively seeking and finding jobs.

Lonely Hartz

As Mr Hartz prepares for the showdown at VW, it can hardly help that his name is being dragged through the mud. His public declaration last week hints of a change of tactics, too, by a man who usually bargains behind closed doors. He may have concluded that VW, with labour costs 11% higher even than its German rivals, cannot compromise this time. Arguably, his past compromises made VW less competitive. Now he wants to cut VW's labour costs by 30% over the next seven years. Why, thunders a union spokesman, should innocent workers be punished for the mistakes of managers and marketing directors. Can Mr Hartz's vision of the worker as co-entrepreneur survive?

Feature on Peter Hartz, the author of a report in Germany advocating major social welfare reform policies.

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