Germany is in gridlock, but don't blame business. German industry is becoming trimmer and more competitive, thanks to cooperation from the nation's big unions. Most recently, companies have countered sky-high wage costs with a whole series of innovative, productivity-boosting labor deals. Such progress only makes Bonn's dithering all the more apparent. Despite years of promises, Chancellor Helmut Kohl and his ruling coalition simply cannot find the political will to deliver on promises of lower taxes, cuts in government spending, and deregulation. With the 1998 election fast approaching, time is running out for the Kohl government to take the steps necessary to reinvigorate the economy.
The opposition shares plenty of blame for blocking legislation. With their majority in the Bundesrat, the upper house, the Social Democrats have scotched all efforts at tax reform. They prefer to play politics and position themselves for the upcoming election rather than take painful steps at structural reform. But Kohl must accept the major responsibility. The bear-like chancellor's instinct is to sweep problems under the rug. He could use his considerable political heft to create a sense of urgency and get reform rolling. Instead, he has fiddled for years while the ranks of the unemployed swelled to more than 4 million, a jobless rate of 11.2%.
The big change in the private sector comes from the new flexibility shown by labor. Workers at Deutz, a machinery maker, for example, are accepting pay cuts ranging from 2.5% to 10% in exchange for stock. At Bayer, the chemical union is agreeing to introduce flexible work hours and reduced bonuses. In return, Bayer will limit staff cuts to attrition. At BASF, the company's 22,000 workers are tying a percentage of their pay to individual and company performance. There are other German companies where unions are simply increasing the workweek. Other unions are permitting companies to hire temporary workers during busy seasons. This is very new for Germany.
The results? Productivity was up a stunning 4.6% in 1996, sharply boosting profits. The 30 companies represented in the DAX stock index showed profits rising 45% last year, sending the stock market to new highs. A lower German mark, plus these productivity gains, are giving some life to the economy.
But deep structural changes are needed in the German economy before it can regain its old vigor. Social security taxes, which Kohl promised to cut to less than 40% of gross wages, are rising to 42%, instead, to pay for higher unemployment payouts. And the governing coalition's much-heralded tax-reform plan, which was supposed to lower tax rates for companies and individuals, is moribund. With parliamentary elections only 15 months away, electioneering has pushed aside sober lawmaking and replaced it with political posturing. Both Kohl and his opponents should lay down their political cudgels. If Germany's corporations and labor unions can do it, so can its two major political parties.