Social Democracy works

from the book

Sharing the Pie

by Steve Brouwer

For years corporations and the investing class in the United States have been trying to convince the American people that the invisible hand of the global free market requires them to make life leaner and meaner in the workplace. For all the loose talk about the pressures of international competition inevitably forcing wages downward, recent history does not support the theory. Other nations have pursued different outcomes for working people. Germany pays the world's highest wages and still is the world's largest exporter of manufactured goods.

At the end of the 1970s production workers in American manufacturing plants were earning the same amount as their counterparts in Germany. Each country substantially increased its levels of manufacturing productivity in the 1980s, but only the German workers benefited.

The German manufacturing workers kept increasing their advantage into the 1990s, and by 1996 were earning 160 percent of the wages and benefits paid to their American counterparts. The U.S. effort to become a low-wage country had no effect on its dismal record in export production. From 1980 to 1995, the U.S. managed to record sixteen straight manufacturing trade deficits with other countries. At the same time other rich nations, which were maintaining high wages and decent standards of benefits and health care for their citizens, were able to sustain strong export economies. Germany, for instance, generated sixteen straight trade surpluses from 1980 through 1996; Japan also racked up sixteen out of sixteen; the Netherlands and Sweden did not do badly, either, with fourteen and thirteen surpluses, respectively, in the same time span.

Perhaps the United States has been playing the wrong game. Elsewhere in the advanced industrialized world, working people retain some power in relation to the owners of capital. This is made manifest in the strength of organized labor.

RATES OF UNIONIZATION IN ADVANCED CAPITALIST COUNTRIES IN 1990s

United States ---------------------------------15%

Japan and France ---------------------------28%

Canada -----------------------------------------36%

Germany ---------------------------------------43%

United Kingdom ------------------------------50%

Denmark and Sweden ---------------------96%

This degree of unionization in various workplaces and across all industries definitely promotes political programs that benefit the working class. However, the support for strong social policies and good wages transcends unions and the political parties that support them. In most of Europe it is considered offensive to national pride if industry, with the acquiescence of government, tries to undercut the standard of living achieved by ordinary people. Two major outbursts occurred recently, both under relatively conservative governments, in response to incidents that would be considered the normal course of events in the United States.

In the autumn of 1995, the people of France surprised the conservative government that they had recently elected by supporting a long transportation strike that inconvenienced almost everyone in the country. Middle-class and working-class commuters willingly endured hours of misery locked in traffic jams because they thought that the government was unfairly cutting back on the pay, benefits, and job security of the public transport unions. The solidarity between transport workers and outraged citizens forced the French government to back down; public officials faced humiliation because they had failed to protect a decent working-class standard of living. In the spring of 1997, French voters vented their anger by ousting the conservative prime minister and voting in a legislature that was led by the Socialists.

In the summer of 1996 German employers pressured the conservative Christian Democratic government to limit the generous sick pay standards that mandated 100 percent pay for up to six weeks of illness. The law passed, allowing reductions to an 80 percent rate, if negotiated with the unions. When big employers tried to put the measures into effect unilaterally, prompting widespread strikes and protests, the government of conservative Prime Minister Helmut Kohl stepped in on the side of the workers. Within a week, several of the biggest corporations in Germany-Daimler Benz, Siemens, and Volkswagen-were forced to back down from their position of not consulting the unions. During the protests, workers carried posters saying, "Don't Treat Us Like Americans!"

Workers Think They Deserve Good Treatment

Working people in Western Europe and Japan; have higher expectations than many Americans: they think it is perfectly natural for employers to treat everyone decently. They also earn relatively high wages, having surpassed the pay of U.S. working people over the past twenty years. Ever since 1979, workers in Europe and Japan have been gaining on Americans. One study compared ten countries with the U.S. and showed that those nations' production workers, who had earned 81 cents to every dollar made by Americans in 1979, were earning $1.18 to every American dollar in 1994.4

On top of high wages and benefits unheard of in the United States, the workers in other countries also worked fewer hours. In 1995 German manufacturing employees labored about 76 percent of the hours worked by their American counterparts; for the Danish it was 80 percent, for the French 81 percent, and for the Dutch 83 percent. To add insult to injury, the American came up short-very short indeed-on days of paid vacation.

TOTAL PAID DAYS OFF FOR ALL EMPLOYEES

Germany - 30 days vacation plus 12 holidays plus 20 sick days

France - 25 days vacation plus 10 holidays plus 19 sick days

U.S. - 12 days vacation plus 11 holidays plus 7 sick days

Americans have a difficult time understanding how countries which pay high wages, impose higher taxes, and practice careful intervention in their economies are n becoming more prosperous and productive than our own. It also comes as a surprise that these nations do not have nearly as many tiers of management and authority as American business and bureaucracies have. Efficiency and quality of production are enhanced by the low level of supervision:

Economist David M. Gordon has described the differences between "cooperative'' and "conflictual" styles of management, particularly contrasting "the carrot" approach used by capitalist firms in Germany, Japan, Sweden, and most of northern Europe as compared to "the stick" approach used in the United States and, to a lesser extent, in Great Britain and Canada. He noted what ought to be obvious: countries that treat their workers better and offer positive rewards (the carrot for performance are more productive. Punitive economies, those that practice the "stick" approach, waste far too much labor time on supervisory activity and often underestimate workers' abilities to perform a wide range of tasks independently (not to mention the fact that the pressure of intense management oversight aggravates many workers).

A study by economists Robert Buchele and Jens Christiansen identified the characteristics of countries that offer various "carrots" to their workers and foster "cooperative" relations between management and labor. These societies shared the following advantages over ours:

* greater capital investment in plant and machinery

* higher rates of unionization

* better unemployment benefits

* more provisions for social welfare

* more intensive worker training and continuing education.

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... in other countries the benefits from increased productivity have been passed along to the people who produce. In 1994 German manufacturing production workers got paid $1.60 for every dollar Americans earned, and workers in other countries did well, too: the Swedish, $1.10; the Dutch, nearly $1.22; the Japanese, $1.25. Of course, their bosses get reasonably compensated, too. But it is not deemed necessary to pay them anywhere near as much as American CEOs, even though they are presiding over operations that work more efficiently. A 1995 study of CEO salaries and bonus compensations at large firms showed that after-tax compensation of American CEOs was 3 to 5 times as great as their counterparts in Germany, Japan, France, and the United Kingdom.

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AFTER-TAX PAY OF CEOS IN 1992

UNITED STATES over $500,000

EUROPE AND JAPAN $100,000 - 200,000

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What About the Lower Classes?

If it is true that the poor will always be with us, then it is also true that societies can radically reduce poverty. Other nations have many fewer people living in poverty than the United States; according to one study of the early 1990s, the contrast in the percentage of children living in poverty was particularly stark:

PERCENTAGE OF CHILDREN LIVING IN POVERTY

United States ------------ 21.5%

Great Britain ------------- 9.9%

Germany ----------------- 6.8%

France -------------------- 6.5%

Belgium ------------------ 3.8%

Sweden ------------------- 2.7%

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The Threat of American-Style, Globalizing Capitalism

All is not rosy, however, in the more humane societies of Europe and Japan. The "welfare states" created by social democracy are being undermined as the rest of the world shifts toward marketization of every human activity. Many nations, particularly in East Asia, are helping to maximize corporate profits by imposing authoritarian management and austerity. The biggest single problem in Europe is unemployment, which hovered around 10 percent for most European countries in the mid-1990s. However, because Europeans use stricter criteria for measuring unemployment than the United States, the American claim that we have only half as high an unemployment rate should be taken with a grain of salt. Economist Jeff Faux found that the German unemployment rate of 1996 was 7.2 percent

... the threat posed by unemployment to the stability of European societies is very real. European working people are worried about becoming redundant in the worldwide scheme of production, threatened not so much by U.S. competition as by the goods produced for a fraction of the cost by exploited labor in developing countries. The left-leaning parties of Europe and their labor union allies would like to protect themselves within the fortress of the European Union. To a certain extent they can do that, especially through efforts to keep wages and benefits high while employing more people by providing for a shorter workweek. The French government announced plans in 1997 to start introducing a "full" workweek of thirty-five hours or less. In the Netherlands working people are concerned about the intrusion of U.S.-style contingent labor and part-time work; the danger of losing permanent jobs is real, but so far the Dutch unions have been largely successful in demanding full-scale wages and benefits for these new classes of temporary employees.

The greatest danger to working people in Europe is posed by their own financiers and capitalists, who are tempted to disinvest in their own economies because they smell higher returns on their money elsewhere. An instructive lesson was provided by Sweden in the l990s. After 1989, when Swedish financiers pushed the government to lift foreign exchange controls, there was a tremendous flight of capital as major Swedish transnational companies and banks rapidly pursued production opportunities in other countries. The old cooperative relationship with labor was, in the words of Stuart Wilks, "rejected by a domestic industrial sector which needed to develop more flexible production and investment strategies in a globalized economic system.'' The social democratic government was pushed out of power in 1991 because unemployment jumped to 3.5 percent, but the new conservative government was worse; its failure to control currency and speculation led to a "fiasco," according to economist Helen Lachs Ginsburg, which "converted a recession into a depression marked by three years of declining output, the loss of one-tenth of Sweden's jobs, and record unemployment" of over 10 percent. Social Democrats came back into their customary position in power in 1994, but in a much weaker position.

The populations of all advanced capitalist countries face similar threats. Those who have enjoyed the advantages of social democratic life on a national level for fifty years will have to consider taking new risks, but this should not mean allowing the global free market to exploit them. Europeans may have to go beyond the boundaries of fortress Europe, risking a progressive counteroffensive that commits them, the working people of the "North," to fight for better pay and more freedom for working people in the rapidly industrializing "South." If they do not keep up with the scramble of international capital, the humanizing values of social democracy may not survive.

Sharing the Pie