Time To Leave The Cocoon?

A declaration of war. That's how officials of I.G. Metall, Germany's largest union, described the announcement by Gesamtmetall, the country's biggest employers' federation, on Sept. 28. What Germany's bosses did to arouse such ire was to cancel union wage and vacation contracts_for the first time ever.

The cancellation sets the stage for a struggle to wring give-backs from unions used to some of the best working conditions on earth (table). While it's a tough move, Germany's managers don't call it an act of war. "It's an alarm_an S.O.S. [signaling] that industry can't survive with the existing wage and benefit burden," says Dieter Kirchner, Gesamtmetall's president.

Hostile act or cry for help, the Gesamtmetall's action has angry workers preparing for combat. Although negotiations on a new metalworkers' wage contract for 1994 don't begin until November, a flurry of brief warning strikes broke out to protest the contract cancellations. In more prosperous times, employers might have taken the hint. This time, however, Germany Inc. swears it isn't going to budge. "The price for consensus is too high," warns Hans-Olaf Henkel, the German boss of IBM Europe.

FOREIGN THREAT. Employers are betting that Germany's labor leaders eventually must make concessions or risk seeing major cracks develop in the German labor model. For starters, job losses are mounting dramatically. In sectors covered by the I.G. Metall contracts, including autos and machine tools, Germany lost at least 116,000 jobs from May through July. And the recession isn't the only reason for job losses. There's something even scarier: As many as 60% of German industrial jobs are threatened by competition from Eastern Europe, Asia, and the U.S., consultants say. Thanks to generous wage agreements and sharp appreciation of the mark, labor costs in Germany run 25% higher than in the U.S. and 33% higher than in Japan.

In opening up contracts for renegotiation, employers have specific goals: lopping off holiday time, cutting workers' mandatory vacation-bonus pay, and holding wage increases below the rate of inflation. But that's only the beginning. Companies want to break the unions' rigid, top-down control over industrywide contracts, so instead of setting pay down to the last pfennig, the union leadership would simply negotiate a broad framework for wage increases.

Such latitude would give management a chance to set wages at the local level with workers' councils. These employees are often more sympathetic than union headquarters to their employers' financial pain. "I'm convinced it's necessary to cut costs and relieve pressure on companies," says Heinz Mayer, workers' council chairman at money-losing Siemens Nixdorf Information Systems. German workers must accept a decline in real income, he says. Already, workers' councils have allowed weekend work at a number of plants, including IBM and Hewlett-Packard Co. And as many as 10% of east German companies have forged in-house agreements that ignore union contracts.

For its part, I.G. Metall continues to reject employers' efforts to win greater local autonomy on wages. "It would destroy the whole role of wage agreements in society," says Klaus Lang, a senior I.G. Metall officer. Unions fear a downward spiral of wages and benefits akin to that which has hit the U.S. and Great Britain.

I.G. Metall bosses also argue that industry is to blame for some of the decline of German competitiveness. Many German companies let innovation lag and failed to adopt lean production methods. So, I.G. Metall wants to cooperate to boost productivity and innovation. "Cutting wages isn't the solution," says Lang. "The Czechs will always be cheaper than us." Indeed, existing contracts have already given companies new options, including that of having up to 18% of the work force put in 40-hour weeks, up from the negotiated level of 36 hours.

WHO'S TO BLAME? But so far, union leaders are reluctant to let more companies negotiate for different pay scales. To settle a bitter two-week strike in April in east Germany, union leaders at first agreed to an escape clause for troubled companies there that couldn't afford to raise wages 21.7% under an existing agreement. But since then, the union has refused to allow two-thirds of the east German companies applying for the exceptional provision to use it.

Meanwhile, some companies are simply opting out. IBM's German subsidiary, for example, divided itself into five companies in June, leaving only one inside Gesamtmetall, which is bound by wage agreements with I.G. Metall. "I don't like my company dying for an obscure collective agreement," says IBM's Henkel. The move freed 18,600 IBM workers from union control. Now, only the production unit, with 6,000 workers, is covered by I.G. Metall wage agreements, while employees in the other divisions will soon work 40 hours a week.

As more companies follow IBM and try to make end runs around the system, I.G. Metall chief Klaus Zwickel and other labor leaders will have to hammer out a new consensus by the mid-1990s or risk seeing their power ebb at an accelerating pace. No matter who is to blame, the German model that coddled workers for churning out high quality at a high price is broken. A painful task of repair lies ahead.