Commentary: Rx For Germany: A Dose Of ThatcherismJohn Templeman
The news seems bad in Germany. In January, the unemployment rate soared to a record 10.8%. Consumers are pulling back. Car sales are slumping. Economists are ripping up forecasts and pushing down their estimates of growth.
Many Germans are wondering if their country has entered an era of inevitable decline. Such gloom is understandable: No one relishes the prospect of joblessness. But a closer analysis suggests that Germany may just be starting a process of necessary regeneration.
The cause for hope lies in Corporate Germany, the source of the country's wealth. Germany's giants--and, increasingly, the family-owned companies of the Mittelstand sector--are responsible for a substantial portion of the country's job losses. The sad fact is that most of those layoffs are necessary: German bosses have finally decided they must pare overgrown workforces and fire managers who don't generate enough profit to pay for big offices, personal secretaries, and upscale company cars. Production that cannot be justified in Germany's high-wage environment is moving abroad--already $50 billion worth a year by some reckonings.
The bottom line is that German companies are actually making themselves a lot more competitive. True, this process means fewer jobs in the short run. But those jobs are more likely to be durable. Says Frankfurt-based Goldman Sachs International senior economist Thomas Meyer: "It's like an illness where the fever runs highest just before you start to recover."
As they cut jobs, German companies are also recasting themselves. After it bought Marion Merell Dow Inc. for $7 billion last year, Hoechst quickly moved to shake up its whole worldwide pharmaceutical business. Elimination of 8,000 jobs, regrouping research and development activities, and sharpening its focus to core markets will cut costs by 10%, or more than $740 million a year by 1998--a huge and continuing payoff.
The restructuring wave started by blue chips such as electronics giant Siemens is now washing over midsize and smaller companies. The German Auto Industry Assn. expects suppliers to BMW, Mercedes-Benz, and Volkswagen will shed 70,000 jobs by the end of the century.
There are already clear signs that Germany's corporate makeover is paying off. Earnings are up at companies from electronics giant Siemens to carmaker Mercedes- Benz. As in the U.S., share prices now soar when German companies announce credible restructurings. Companies have no problem financing their global expansion, thanks to strong cash flow and a sterling reputation among lenders. Meanwhile, a generous social safety net eases some of the pain of layoffs.
Yet if this painful restructuring is ever to create millions of new jobs, the government needs to push ahead a lot faster with deregulation of such industries as retailing and telecommunications. It also needs to eliminate subsidies to industry and cut onerous taxes that stifle job creation.
The full message hasn't sunk in yet with Chancellor Helmut Kohl. In a Feb. 8 debate in the Bundestag, he took time out to pour scorn on the policies espoused by former British Prime Minister Margaret Thatcher. "I never thought," he told Germany's parliamentarians, "[that] Mrs. Thatcher's example was a desirable one for Germany."
LAME DUCKS. Thatcherite policies were painful. Few British businesses or families escaped entirely unscathed in the 1980s from radical reductions in government spending or the ending of state aid to industrial lame ducks. But Britain now benefits from lower taxes and a much more flexible labor market, which is creating new jobs. And after a terrible period of de-industrialization, Britain attracted billions of dollars of new industrial investment.
Kohl persists, however, in supporting the so-called Alliance for Jobs. The idea, floated by Klaus Zwickel, canny boss of the IG Metall labor union, is basically a huge national job-sharing scheme. The unions are promising not to demand pay increases greater than the inflation rate in return for the creation by business and government of 300,000 new jobs this year.
If Zwickel gets his way, Germany will be creating jobs the market is not asking for. That would be a setback just when Corporate Germany is starting to create wealth again. Kohl would do far better to let the markets do their work and generate real jobs for the long haul.