Were You Born on the Wrong Continent? Why You'd Probably Be Healthier and Wealthier in Germany
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The German model
In the United States, our elite, scoffing, says that there is just not enough labor-market flexibility in a country like Germany to allow it to adapt to globalization as we do. But it's precisely because of our flexibility that we can't compete. What the laws manage to do in Germany is to keep people together and to hold onto their skills in groups. Co-determination and works councils -- in other words, worker control -- keep people in groups, rubbing elbows with each other, and all this rubbing of elbows helps build up human capital.
Indeed, for some economists this is now a fashionable idea. Think of all the buzz about the "knowledge" economy, which, in the world of academic economists, is an inquiry into how knowledge drives economic growth. David Warsh in his 2006 book, Knowledge and the Wealth of Nations , introduces us to economists trying to untangle the connections between the kind of knowledge that comes from groups and economic growth.
German worker control contributes to a group interaction that over time not only builds up but also protects a certain amount of human capital, especially in engineering and quality control. This kind of knowledge is not just individual but group knowledge. It's the kind of group knowledge that our efficient, "flexible" labor markets so readily break up and disperse. It's our flexible labor markets that make it so hard for the United States and the UK to compete. We spend vastly more on basic research than the Germans do -- U.S. companies are unrivaled. We spend far more on higher education. But with our flexible labor markets, we're unable to capitalize on this research and education. Sometimes we try the Japanese model of work, but we never try the German, because we don't want to cede any real control to workers. Supposedly it's a great mystery why Germans keep investing in manufacturing and even prospering, despite the claims that the German education system is broken (OK, it needs help) and they aren't spending enough on research (OK, they aren't). But they're doing something right. What is distinctive about Germany is the privileged position the worker has within the firm.
And we must look to that privileged position of the worker to explain how our own middle-class way of life can survive. Putting more money into education is a waste of effort. Putting more money into basic research is a waste of effort. We already spend enough. In fact, we have every factor of production going for us: We have more land, more labor, more capital and higher levels of formal education. But with our flexible labor markets, we cannot develop the human capital or knowledge needed to wean ourselves away from turning out crap. In global competition, the United States has almost every comparative advantage over Germany, but the one great comparative advantage Germany still has over us is that it is a social democracy. Yes, I admit Germany has its problems. But we're losing our middle class, and our problems are even worse.
The real knowledge economy
The strangest thing I saw this year is a YouTube video, with a hip-hop soundtrack, about a lot of German kids on strike. These were IG Metall apprentices, and they weren't like the kids in the cafés. (IG Metall is the largest metal workers' union in Germany.) Instead they wore black, gray and white car coats and were from obscure little German towns, but all of them were marching, at night, both boys and girls, striking against the big global companies for not delivering on jobs. At about the same time as the strike, IG Metall held a rock concert with Bob Geldof, which drew 50,000 people, mostly kids. Here's a shocking thing to a U.S. labor lawyer like me: In 2008, youth membership in IG Metall -- kids under 27 who voluntarily pay union dues -- climbed yet again, this time by 6 percent. At last count, IG Metall had more than 200,000 of these kids! As someone who ran for Congress and found out why campaign staffs think it a waste of time to bother with young people, I find that stunning. Even the Financial Times , which always writes off labor, has had to admit that in Germany, unions are resurging among kids who are highly skilled.