In Germany works councils and supervisory boards can take substantial credit for the fact that, while the US unemployment rate has more than doubled during this economic crisis, Germany's has barely increased. That's because Chancellor Angela Merkel was heavily influenced by works councils and labor unions, and by the culture of consultation in general, to adopt a policy called
Kurzarbeit, or "short-time work," in which, instead of laying off millions, employees agreed to spread the pain by working shorter weeks. Most of the lost wages have been made up from a special fund squirreled away during more prosperous times. As a result, more Germans have money in their pockets, and communities and households haven't been decimated by layoffs like they have been in the United States. (Despite the advantages, when Larry Summers, one of Barack Obama's closest economic advisers, was asked why the president didn't pursue short-time work to stem the economic bleeding, he dismissed the idea, saying the White House wanted to create new jobs, not preserve old ones.)
Co-determination has proved crucial to Europe's economic success and its broadly distributed wealth. "The practical effect of co-determination," says Levinson, "is that corporate managers and executives must confer extensively with employees and unions about a range of issues, even about the future direction of the company." Co-determination reflects European "social capitalism," with its communitarian values, long-term strategic vision and emphasis on manufacturing, much the way huge executive bonuses, quarterly earnings and a bloated financial sector reflect America's Wall Street capitalism. Social capitalism has both produced and benefited from the culture of consultation, which has also contributed to the creation of cooperatives and resulted in a vibrant small-business sector that produces two-thirds of European jobs, compared with only half of US jobs.
Interestingly, the conquering US powers in World War II can take some credit for co-determination. After the war a group of prominent German economists, led by future chancellor Ludwig Erhard, Walter Eucken and others, proposed what they called the "social market economy" in the belief that the market should serve broader social goals. And it was conservative Christian Democrats, not the leftish Social Democrats, who introduced this idea. The Allied powers encouraged this line of thinking, since it decentralized economic power, shifting it away from the German industrialists who had supported the Nazi war effort. In effect, US planners "punished" postwar Germany with economic democracy as a way of handicapping concentrated wealth and power, helping to birth the most democratic corporate governance structure the world had ever seen.
In the decades after Germany's launch of social capitalism, co-determination spread throughout Europe; it has been adopted in most of the new EU member states from Central and Eastern Europe. Sixty years after its genesis, co-determination is a core element of the European economy, and it distinguishes Europe's social capitalism from America's Wall Street capitalism.
Critics allege that co-determination hurts competitiveness, but the success of the European economy and of its many global businesses belies this criticism. Contrary to the US media stereotype that "old man" Europe is chronically plagued by a weak, sclerotic economy, Europe has the largest economy in the world, producing nearly a third of the world's GDP. Indeed, its economy is almost as large as those of the United States and China combined. Europe has more Fortune 500 companies than the United States and China together, and Europe had a higher per capita growth rate from 1998 to 2008 than the United States. Long denigrated by US pundits as the land of high unemployment, the EU currently even has a slightly lower unemployment rate than the United States. Indeed, the World Economic Forum in 2008-09 ranked Denmark, Sweden, Finland, Germany and the Netherlands--all of which employ some degree of co-determination--among the top ten most competitive economies in the world. They are also ranked at or near the top of most lists for quality of life, healthcare and social benefits. That's not a coincidence, since co-determination allows for both economic vibrancy and more egalitarian social policy. And while the United States also ranks high in competitiveness, it is near the bottom among most-developed countries in healthcare, social benefits and quality of life.
Sweden, Germany and other European countries are proof that you can have it all--but only if you have the right institutions to facilitate both a powerful economic engine and the supportive institutions and benefits to harness that engine and keep employees and families healthy and productive. These distinctly European advances may be the most important innovations in the world economy since the invention of the modern corporation, since they encourage free enterprise combined with economic democracy and worker consultation that does not unduly burden entrepreneurship and commerce. The advances allow businesses to be both competitive and socially responsible.
In effect, Europe has reinvented the corporation. Yet the latest critiques of capitalism by leading authors like Naomi Klein, Noam Chomsky and the producers of the popular film
The Corporation tend to view all corporations and all capitalisms as the same. American progressives, while searching for effective responses to globalization, appear to be mostly unaware of these intriguing European inventions. Movements to revoke the charters of offensive corporations, while having gut-level appeal, have failed to recognize that European corporations are fundamentally different animals from their "disaster capitalism" US counterparts. When I asked a leading globalization critic from the Economic Policy Institute his opinion of co-determination and works councils, he replied dismissively, "Bah, those just lead to company unions," a demonstrably false claim.
Of course, the American right rejects co-determination as socialism incarnate, ignoring its potential to renew capitalism and support real family values. While the United States does not have a strong history of economic democracy, we do have a recurring pattern of responding to economic crisis by extending stakeholder rights as well as New Deal-type supports. This has resulted in employee stock-option plans, a small but vigorous co-op movement and stakeholder laws passed by an unusual labor-business coalition in Pennsylvania as a shield against corporate raiders, and other reforms. The Steelworkers alliance with the Mondragon cooperatives is another encouraging sign. These are some of the American threads of consultation and economic democracy that can be used to fashion a progressive response to the stunning failure of Wall Street capitalism. There is nothing magical or culturally determined about Europe's use of co-determination. All it takes to start the ball rolling here is a legislator, a governor or a president willing to introduce such a law. What would be the argument against it--that the CEOs who nearly destroyed the American economy and then came back for a government bailout know best? That's a debate any progressive leader should relish.
Source URL: http://www.thenation.com/article/europes-answer-wall-street
