Mellowing Out? Not This Union Boss

IG Metall's Zwickel throws a wrench into Schroder's reforms

In his three-piece suits, chauffeured Audi limo, and wood-paneled office outside Frankfurt, Klaus Zwickel could be just another rich investment banker. But when he jabs his thick index finger to make a point, his rough toolmaker's hands reveal someone far more fearsome: the head of IG Metall, Germany's largest labor union. With a wave of one of Zwickel's fat cigars, his union's 2.8 million members could shut down most of German heavy industry, including companies such as DaimlerChrysler and Mannesmann.

Now, as Chancellor Gerhard Schroder finally shows signs of delivering the reforms long sought by business, Zwickel is the guy standing in the way. Schroder just found that out. On Jan. 9, he got union leaders to say they would seek moderate pay increases if business agreed to make it easier for workers to retire at 60 rather than 65. Zwickel signed--then days later demanded a 5.5% raise for his people, far above what anyone expected. Business leaders were enraged. "The demand violates the letter and spirit of the agreement," says Dieter Hundt, president of the German Employers' Assn. Schroder remained silent, not wanting to risk alienating IG Metall before some crucial state elections.

OLD-FASHIONED. Although the union is likely to settle for 3% to 3.5%, business leaders and economists say any raise above the estimated 2.5% growth in productivity will kill jobs and add to Germany's 10.2% unemployment rate. "There is no union that has more radical, more militant, more old-fashioned views than IG Metall," rails Hans-Olaf Henkel, president of the Federal Association of German Industry.

Don't whine to Zwickel, 60, about holding down wages to make Germany more competitive. The beefy, crew-cut labor boss, whose salary runs into six figures, personifies the resentment many Germans feel about giving up their social perks in the name of globalization. His membership is among the best treated in the world, earning an average of $30,000 a year, with 35-hour work weeks plus six weeks of vacation. Zwickel wants to keep it that way.

He has the clout to do it. His union is so feared that companies such as IBM's German unit have redrawn their corporate structure to minimize the number of workers who would qualify for IG Metall membership. And Zwickel's power radiates beyond the union. He sits on the supervisory boards of two of Germany's most important companies, Volks- wagen and Mannesmann. IG Metall typically sets the tone, prompting other unions to seek similar pay hikes.

But critics say the union is digging its own grave. By winning annual raises of up to 6.8% in the last decade, the union drove German business to invest in machines rather than people. And as industry moved production to cheaper locations overseas, IG Metall lost members--600,000 since 1992. As chairman of the union for the last seven years, Zwickel, who declined requests for an interview, shoulders much of the blame.

Both sides could win in the current showdown. If unions accepted a 1.5% increase, companies would boost hiring and create 350,000 jobs over the next four years, estimates economist Harmen Lehment of the Kiel Institute of World Economics. Any increase over 2.5% would have the opposite effect, fueling unemployment and gnawing at union membership. But economic theory doesn't play very well on the assembly line. "The problem is that the rank and file want to see a high [percent-increase] number and aren't interested in the unemployed," says Lehment.

Some see signs that Zwickel realizes a more moderate approach would boost job creation and bolster union rolls. The union hasn't mounted a lengthy strike since 1984, though it typically stages local warning strikes during negotiations. At the local level, IG Metall officials have quietly bent their own rules to aid companies in trouble.

Optimists hope Zwickel, who is expected to retire when his term expires in 2003, will display more flexibility now that he doesn't have to worry about reelection. In the final agreement, expected in March, he could be willing to accept a hike below 3% in return for concessions on his pet issue of early retirement. But the union's powerful bureaucracy is unlikely to tolerate a softer line. That's too bad, because it could be the key to Germany's growth.

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