The Wall Street Journal

August 2, 2004


Auf Wiedersehen to the Leisure Economy

August 2, 2004; Page A11

It was springtime for unions in Germany. During May and June of 1984, bumper stickers picturing a smiling sun advocating a 35-hour workweek were everywhere. Hundreds of thousands of people took to the streets in the name of shorter working hours. Some 70,000 workers laid down their tools while employers locked out 130,000 more before finally caving in and accepting the shortened workweek without cutting pay.

Just as the Reagan and Thatcher revolutions were in full swing, Germany was stomping on Adam Smith's toes. While the U.S. and U.K. emphasized low taxes, deregulation and hard work, union leaders in Germany were realizing their vision of a "leisure economy." The mandatory reduction in working hours was supposed to miraculously combine the "humanization of the working environment" with a giant job-sharing program. As people worked shorter hours, the theory went, employers would just have to hire more people to pick up the slack.

But guess what? If you pay people the same money for doing less work, employers have less money, not more, for hiring. Unemployment rose instead of falling, taxes went up to pay for the additional jobless benefits and the economy stagnated, forcing consecutive governments to pile on more and more debt to finance the welfare state. But despite these unintended if predictable consequences, touching the 35-hour workweek remained taboo.

[Gerhard Schroeder]

Until now. This summer, the German unions' springtime -- along with the 35-hour workweek -- has come to an abrupt end. But instead of calling for a general strike, the unions gave the expanded working hours their blessing -- and then denied that anything had really changed.

It all began when electronics giant Siemens AG reached an agreement with union workers to extend the working time at two of its plants to 40 hours a week -- without wage compensation. Not surprisingly, the unions play down the significance of this event. The official party line was that the deal was only an exception to help out a company in distress and that for the rest of the industry the 35-hour week still stands.

The union's confidence, however, quickly evaporated. "We have to pay attention that we don't leave the barn door open and everybody walks through and we then have the 40-hour week countrywide," said Jürgen Peters, the head of Germany's engineering union.

But it looks like the cattle are already on the loose. Some 100 companies are reportedly looking into negotiating similar deals, among them such heavyweights as MAN, Philips and Deutsche Bahn. Two weeks ago, DaimlerChrysler pushed through a 500 million euro ($602 million) cost-cutting plan -- which also included raising the working week to 39 hours for the company's 20,000 service-sector employees. Retailer Karstadt wants to go to 42 hours.

"Longer working weeks will become the standard in Germany. We'll soon be talking about 43 hours," said Continental Chairman Manfred Wennemer from his office in Frankfurt.

What's changed? With a jobless rate twice as high as in the U.S. and a "recovery" (1.7% economic growth projected for this year) that would be considered stagnation in America, Germans are no longer so sure about their economic model.

In typical German fashion, this self-doubt is giving way to prophecies of doom and gloom. Books forecasting the country's imminent demise unless drastic actions are taken make the bestseller lists. They carry such uplifting titles as "Can Germany Still Be Saved?" -- penned by Werner Sinn, one of the country's leading economists. Another is "Germany -- The Decline of a Superstar," authored by veteran journalist Gabor Steingart.

The prophecies of doom seem to be having some effect. After years of wavering, Chancellor Gerhard Schröder finally embarked on a cautious reform project to curtail the spiraling costs of the welfare state. As timid as it might be, last year's reform package is nevertheless unprecedented in its scope. Germans who have watched their welfare state expanding for more than five decades suddenly have to come to terms with real cuts to the country's health-care, pension and unemployment systems.

Germany's weekly Der Spiegel calls it "Farewell to Paradise." This expulsion from the socialist garden of Eden has been hastened by the arrival of 10 new members in the European Union. It was the threat of moving production sites to Hungary -- where labor costs are a fraction of those in Germany -- that concentrated the workers' minds at Siemens. Earlier this month, the German firm Bosch threatened to move a car parts plant from France to the Czech Republic unless workers agreed to longer hours for the same money. They overwhelmingly agreed to the deal, sparking a debate within the French government -- zut alors! -- about scrapping its 35-hour workweek.

The discussion about longer working hours is in the end a debate about Germany's high labor costs. Supplementary wage costs typically add another 78% to the workers' base salary and the government reforms have done nothing to change that. This has forced companies to take matters into their own hands.

Thanks to the new competition from the east, Germans are increasingly finding that if they want to keep their standard of living they will have to work harder and longer. In short, Germany has to become more like America just to stay Germany. That, however, is not a very popular notion in a country where "American conditions" is still a common slur that invokes images of the hapless slave-driven U.S. worker, in constant fear of losing his job and no time to enjoy his life. In this German caricature of American reality, there are only millionaires and ghetto dwellers.

How fortunate then that apart from the many bestsellers predicting their imminent demise, Germans have another option for some fun beach reading during their long summer vacation. The former U.S. correspondent of a German business weekly just published a book dispelling the many misconceived ideas his fellow countrymen have about doing things the trans-Atlantic way. It's called "American Conditions: The Germans' Misguided Fear of Cowboy Capitalism." For the sake of Germany (and of course the author), let's hope it becomes a bestseller as well.

Mr. Schwammenthal is an editorial page writer for The Wall Street Journal Europe.

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