Learning From The German Social Compact
German Chancellor Helmut Kohl is attempting to pull off a new "solidarity pact" in his country. If he is successful in forging an accommodation among Bonn, the business community, and labor, it could yield some lessons for many industrialized countries, including a U.S. under new management.
The Germans realize that something is badly wrong with their nation's economy. Wages and social benefits are so expensive that German companies are rapidly losing competitiveness. The costs of reunification have been so great that taxes must be raised. Kohl is marshaling all his formidable one-on-one persuasive powers to persuade German industrialists that rather than export jobs, they must take a longer-term view and maintain the social compact that has characterized German life for decades.
To achieve this grand goal, Kohl is taking the lead, a refreshing change in today's industrialized democracies. It isn't always a pretty sight, but he is wheedling, bargaining, and twisting arms to forge a consensus among a patchwork of political parties; among the federal, state, and local governments; and among unions, companies, and banks. The underlying notion is hardly radical: If everyone sacrifices a little bit, everybody will get through the current crisis. The country might even set the stage for the next leg of growth.
The immediate benefit of all this to the rest of the world should be lower German interest rates, and hence lower rates in other countries. But the longer-term issue is how does a nation face up to the necessity for some pain now if that creates conditions for future prosperity? Kohl's approach warrants careful study on this side of the Atlantic.