Friday, May 06, 2005

Schröder's New Crusade

Desperate to explain Germany's faltering economy - and place the blame anywhere but at his own feet - Germany Chancellor Gerhard Schröder has launched a surprisingly venomous rhetorical campaign against large foreign and domestic companies, which he accuses of being like "locusts," buying up German firms and firing workers. These locusts are responsible for Germany's economic difficulties, according to Mr. Schröder and his Social Democrat acolytes. Mr. Schröder's Social Democrats have watched their poll numbers have decline precipitiously in recent month along with forecasts for the German economy.

Wolfgang Thierse, the Social Democrat parliamentary president, accused foreign and domestic companies which dismissed staff while simultaneously reaping large profits of arousing feelings of "helpless anger" among thousands of Germans.

The SPD's most frequently cited "locust" is Deutsche Bank, which is committed to axing 6,400 of its 64,000-plus employees despite accruing profits of 25 per cent.

Other cases include KKR's buyout of the German telecommunications firm, Telenovis, resulting in the axing of nearly half the company's 8,000 workforce despite agreement on a 12.5 per cent wage reduction.

Last week, it emerged the Social Democrats had even compiled a secret "locust list" of investment companies considered guilty of antisocial business practices. The list, leaked to the German media, includes the names of several American investment firms such as Kohlberg, Kravis Roberts and Company, Blackstone and Goldmann Sachs.

"The anger results in aggressive criticism of the political system," Mr Thierse said, adding that companies which enforced mass redundancies were guilty of "Social irresponsibility which endangers democracy and social cohesion."

Mr Thierse's remarks were the latest in a barrage of criticism delivered by the Social Democrats against foreign and domestic firms deemed to pursue casual hire-and-fire business practices.

The criticisms have provoked a backlash from German employers and prompted one prominent Jewish-born historian to accuse Mr Schröder's party of using "Nazi language" and propaganda to heap shame on big business.

Critics have dismissed the campaign as an attempt by Mr Schröder's party to deflect blame over latest unemployment figures of 5 million, in the run-up to an important state election in just over a fortnight.
Perhaps Mr. Schröder should explain to the German people why he continues to admit tens of thousands of immigrants - mostly from the Middle East - into Germany, even when unemployment current exceeds eleven percent. Of course, that would mean admitting that Germany, like most other European nations, isn't producing enough children to keep its economy functioning in the long term, and maintain the expansive social welfare system that Germans love. Immigration is seen by many European leaders as the only means to prop up their founder demographics and save their welfare systems from collapse. The fact that many of the immigrants flooding into Europe want no part of European culture - and, in fact, a sizeable number want to destroy it - has been a problem deliberately overlooked by the European elites in the hopes that if they didn't acknowledge it, it really didn't exist. September 11th changed that by emboldening the Islamists who have infested Europe over the past three decades. From London, to Amsterdam, to Berlin, the Islamist have made their presence know through violence, murder and intimidation. Now, Europe, having drank too long of the intellectual poison called multiculturalism - doesn't know what to do with the millions of hostile aliens living within its fraying borders.

But Germany's immediate economic problems have more to do with Mr. Schröder's desperate clinging to the outdated quasi-socialist welfare state. Such welfare states were once the dominant economic model of Western Europe. That changed when Margaret Thatcher revived the funereal British economy by slashing the heavy taxes and crippling regulations that had been strangling British industy since the 1930s. In the last decade, free market reforms have spread across Northern and Eastern Europe, igniting the economies of the nations that implement them. Germany, however, remains defiance, along with France a last bastion of the "social market" failed economic model. Desperate to keep their crumbling system going, Germany's Social Democrats have chosen a smear campaign against the usual subjects: "big business" and foreign investors. Whilst blaming these two usual suspects may play well with leftwing voters, it does nothing to address the nation's structural economic issues and only encourages large corporations and foreign capital to avoid Germany - to Germany's economic detriment.

This is all good rabble-rousing stuff in the run-up to a crucial election in North Rhine-Westphalia on May 22nd. (Chancellor Gerhard Schröder has so far kept out of the debate, but is undoubtedly listening with interest.) But it has actually touched a deep national nerve. This has to do with the painful transition that Germany is making from a social market economy, in which firms and services were supposed, at least publicly, to be run by consensus for the “general good”, to the starker mechanisms of the market and shareholder value. Competition from abroad, and especially from new EU members in central Europe, is driving this change in part. But the biggest factor is Germany’s persistent economic malaise.

The social market economy is still hallowed by politicians, but it survives only in fragments: for example, in the two-tier structure of German companies, where the workforce is represented on the supervisory board; in the role of workers’ representatives in even the smallest companies; and in collective wage agreements. A reform in January this year, called Hartz IV, controversially punched a hole in the social safety net, ending generous benefits for the long-term unemployed and penalising those too picky about job offers or who have working partners.

Hartz IV so far has brought only more woe: it has added to the social-services bill and unemployment has hardly fallen (see chart 1). Moreover, this year and last have been full of bad news from big employers: Volkswagen, DaimlerChrysler and Opel (a German subsidiary of General Motors), KarstadtQuelle and others have cut thousands of jobs. Wages have been forced down or frozen by companies threatening to relocate abroad. Even Deutsche Bank, despite rising profits, has been laying off staff, inviting the particular wrath of Mr Müntefering. “The economy (ie, big business) must realise,” he railed, “that it exists to serve people and not the other way round.”

The public are angered by the fact that big German companies are beginning to make record profits again, after three bad years, and have achieved that by cutting costs, particularly their wage bills, and by reducing investment, especially in Germany. Last year the 24 top industrial companies reduced their investment in Germany by 20%, and worldwide by 10%, according to Handelsblatt, a business daily. At the same time they increased their dividends and payouts to shareholders by 40%. So there is an impression that companies are rewarding their owners, but not cosseting their workforce as they did in the past—they are, in other words, adopting an increasingly Anglo-Saxon approach.

German conservatives - the Christian Democrats - realize the danger of Mr. Shroder's foolish rhetoric. During the last election campaign, Mr. Shroder played to anti-American sentiments over the Iraq War, damaging Berlin's critical relationship with Washington, which remains chilly even today. The conservatives worry that the Social Democrats are about to do to the German economy what they did to US-German relations.

Germany's conservatives have lambasted Mr Schröder's party over its campaign. Volker Kauder, the Christian Democrats' general secretary, said the attacks on companies would only create a climate that deterred investors and destroyed jobs.

"This sort of campaign is damaging our country. If a few companies have made mistakes in the past, it does not justify this kind of wholesale criticism of the business community," he said.

Nevertheless, the Social Democrats seem determined to push the issue, ignoring Germany's real problems in a pathetic bid to keep their hold on power.

Earlier this week, Mr Müntefering [the Social Democrat party leader] committed his party to a programme that will oblige senior managers to publish their salaries and German companies to pay their foreign workers union rates.

"In times of globalisation, we Social Democrats have to say how we are going to remain committed to a social market economy and not slip into pure market economics," he said. So far, the Social Democrats' campaign appears to have done little to win over voters. In elections on 22 May in the state of North Rhine Westphalia, Mr Schröder's party is almost certain to face a defeat which would seriously undermine the chances of winning the 2006 general election.

Despite the usual appeal of this rhetoric on generally left-leaning Germans, it doesn't seem to be working anymore. According to recent opinion polls, the Christian Democrats hold a 10-point lead over Mr. Schroder's Social Democrats.


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