Germany’s labour reforms. How far dare the chancellor go?

Date: 08/03/03

The unions are angry. Gerhard Schröder may make them angrier yet

THE long-ailing Alliance for Jobs, a forum of trade unions, employers and government, is dead at last - and with it Chancellor Gerhard Schröder's hopes of consensus for his supposedly radical package of labour-market and welfare reforms.

The package is to be revealed to the Bundestag, the lower house of parliament, on March 14th. When he chaired a meeting of the alliance on March 3rd, the chancellor called for “talks without taboos”. But no one was ready for compromise, and the union leaders, who see almost any reform in these fields as an attack on themselves, stalked out, declaring that they would not accept a “dismantling of the welfare state”.

They are especially angry that Mr Schröder plans to relax Germany's strict job-protection rules, despite his campaign pledge last year not to do so. At present, any worker in a company with more than five employees is protected. So micro-employers hesitate to hire extra workers because they won't be able to fire anyone when business turns down. Wolfgang Clement, the superminister for economics and employment, is proposing a more flexible system: only the longest-serving employee, not all five, would get protection when a sixth worker was taken on, the next-longest-serving when a seventh one was hired, and so on, up to an as yet undecided limit. In larger companies, Mr Clement wants those laid off to have to choose: they can have a fixed level of compensation (which is not now automatic) or go to a tribunal to protect their jobs but abandon all right to financial compensation.

Mr Clement does not pretend his proposals would create many jobs. But he sees the issue as a “highly symbolic” test of the government's ability to push through taboo-breaking reforms. The unions too see it as a test - of the government's ability to break their power. “We're not talking about peanuts,” one union leader said: “This is all about crushing our influence.”

It is. Though the DGB, the giant union confederation, and its eight member unions by now represent only one worker in five, their power is still great. They sit on company supervisory boards and works councils. With the employers, they run the state's welfare-insurance schemes (health, unemployment, pensions). They sit on the labour tribunals. And - whatever government is in power - their advice is sought on a whole range of policy issues, from taxes and immigration to genetic engineering and local-government finance.

This is all part of Germany's post-1945 tradition of consensus politics. But many are beginning to question the system. It has brought industrial peace but it also blocks radical reform. Christian Democrat leaders want the unions' influence cut back; Guido Westerwelle, leader of the free-market Free Democrats, Germany's liberals, has called the unions “the grave-diggers of the welfare state” and “a plague on our country”. He believes it is time for a Thatcherite confrontation.

Mr Schröder - a union member, like Mr Clement and three-quarters of his Social Democratic backbenchers - jumped to defend the unions, condemning attacks on “a well-tried system that has made our country strong”. But he plans to press on with reform. His forthcoming state-of-the-nation speech to parliament will provoke “cries and gnashing of teeth”, he says. It will be carefully scrutinised to see just how just how far he is ready to go in confronting the unions and his own left wing.

He plans to sweeten the pill with news of a huge public-investment programme. But it will still be hard for the unions to swallow. It is expected to include: less job protection; lower long-term unemployment benefits; big cuts in official job-creation and training schemes; an extension of the low-wage sector; a review of the “co-determination” rules that give workers a say in management; more flexible wage bargaining; abolition of the “master” qualification for self-employed craftsmen; longer shop-opening hours; obligatory private insurance for certain health services (eg, false teeth and sporting accidents) now covered by the public system; and the introduction of a basic charge for each visit to the doctor.

In many ways, the time is ripe for pushing through such unpalatable reforms. The unions are under pressure. Their membership has fallen by more than a third over the past decade and is still falling. The economy is stagnant and, on unadjusted figures, 4.7m Germans, more than 11% of the workforce, are out of work. The generous welfare system is near financial collapse. Even the toughest union leaders realise that something has to give.

Battered in two state elections in January, the Social Democrats suffered again in local ones in Schleswig-Holstein on March 1st and 2nd. But Mr Schröder has a “window for reform” before the next big wave of state elections late next year. His opposition to any war in Iraq has helped rally his party around him. His backbenchers on the left may rage against his government's “neo-liberal experiments”, but they are loth to bring it down. Now is the time for him to act - if he has the guts.

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