America, There Is a Better Way: It’s Called Germany

Nearly two years after the financial crisis brought the U.S. economy to its knees, more than 20 million Americans are either unemployed or underemployed and Congress can barely extend jobless benefits. Republicans propose the same old nostrums--tax cuts--while President Barack Obama burnishes his deficit hawk credentials. Nearly everyone in power appears content to return to the status quo, circa 2007, with a few tweaks in place.

Even worse, alternatives to U.S.-style capitalism -- and its attendant inequality, poverty and instability -- are harder than ever to glimpse, as the sovereign debt crisis across the Atlantic distracts U.S media and politicians, once again, from the impressive achievements of European social democracies. That's a shame, because if we can't imagine a better world, our political and economic status quo appears inevitable and uncontestable, much to the benefit of those in power.

Thankfully, we have Thomas Geoghegan's new book Were You Born on the Wrong Continent?: How the European Model Can Help You Get a Life  (The New Press, 2010) to remind us that things like tax cuts for the wealthy, a healthcare system controlled by corporations and privatized retirement schemes are not inevitable.

The book's central mission--to detail a more humane form of capitalism -- couldn't be more relevant to overworked Americans quietly thinking to themselves, there has to be a better way. Indeed, there is: Contrary to apocalyptic U.S. news articles, European-style social democracy is not about to go extinct. Dig a little deeper and you'll discover that Europe is not an undifferentiated mass of debt, socialist profligacy and unemployment.

Germany's unemployment rate is 7.5 percent, below the U.S. rate. In fact, during most of the last decade, Germany was either the world's top exporter or tied for the top spot with China. Yes, a nation of 82 million people outcompeted the United States (307 million) while paying in full for the perks of social democracy. Or, as Geoghegan likes to say, Germans are beating Americans "with one hand tied behind their backs."

The idea that social democracy is both more humane and more competitive is at the heart of Were You Born on the Wrong Continent?, the subtitle of which ought to read "How the German Model Can Help You Get a Life." And that's why all dissatisfied Americans, not just progressives, should read the book. As America's so-called "recovery" begins with few jobs in sight, it would seem a propitious moment to deeply question the country's status quo.

Introducing the world's smallest industrial giant

And what is that status quo? Nearly two years after the U.S. government bailed out some of the country's largest corporations with billions in taxpayer dollars, the jobless rate stands at 9.7 percent with no sign of significantly abating. Fifteen million Americans are unemployed, 8 million part-time workers wish they had full-time work, and another 2 million are so discouraged they've left the labor market altogether. And as Inter Press Service recently reported, the country's 4.7 million millionaires saw their wealth grow by double digits in 2009, even as the U.S. Census and Department of Agriculture noted that 39 million very poor Americans struggled to find sufficient food.

This is America's grim new normal. Thankfully we have Geoghegan -- the tireless Chicago labor lawyer and erstwhile congressional candidate who has somehow found time to write six books during the last 20 years -- to appraise a different sort of political economy, Europe's export engine and labor stronghold: Germany. In his inimitable and hilarious fashion, Geoghegan tries to answer the book's titular question during a series of trips to Frankfurt, Berlin, Bonn, Hamburg and points in between.

Of course, anyone who knows Geoghegan's mind can easily guess his answer. (His classic book Whose Side Are You On? chronicled the decline of America's labor movement, while the brilliant Secret Lives of Citizens lamented the country's eroding civic life.) But that doesn't mean he's about to retire to Berlin and shred his U.S. passport. To the contrary, he goes out of his way to say he's no "European socialist."

But what he also says that in almost every quality-of-life measure, the German system surpasses America's. Yes, what you've heard is true: With six weeks of vacation time, Germans work less. Poverty rates for children and the elderly are less than half that of the United States. Unlike most Americans, the average German isn't perpetually indebted because basic "public goods" (healthcare, education, childcare, public transit, etc.) are paid for by the state. This last point is crucial for understanding the paradox of how Germans can pay much higher taxes and be able to save money. As Geoghegan notes,

    Over here, only some of our taxes come back to us. A lot of them go to the private market It's not just that Europeans spend more; unlike us, they know how to spend the money effectively. Even the least efficient health care systems, like Germany's, take up only 11 percent of GDP. In America, by contrast, health care takes up over 17 percent.

    That's why they call it socialism: not hung up on the word, they have a competitive advantage in the efficient distribution of public goods.

This argument for the state to negotiate lower prices for citizens en masse should be familiar to anyone in favor of a single-payer healthcare system, or even just a "public option." In fact, although its style is wholly original--Geoghegan is unable to write in cliches -- much of the ground covered by the first two chapters of Were You Born on the Wrong Continent? may be familiar to any committed progressive, or most people who ever spent a semester studying in western Europe. (Excepting a brilliant argument about why the one clear advantage America has over Europe and the rest of the world, its per capita GDP, has plenty to do with how unhealthy and unequal the country is.)

The real value of the book comes a bit later, when Geoghegan explains why he is in love with Germany: It vigilantly protects its industrial base, and it does so because it has a vibrant labor movement and civic life. "Without an industrial base," he writes, "a democracy dies." In its eccentric and roundabout way, the book is a bold rebuttal to Thomas Friedman and other acolytes of globalization, so enamored with our brave new world and comfortable "reforming" every labor market "rigidity." To those "flat" earthers, and to millions of Americans being pushed out of the middle class, Geoghegan pleads:

    You don't care about industry? Fine. You don't care about labor? I understand. But what about "character"? The existence of an industrial base and a labor movement may determine what that will be. Will people be independent and skill oriented, the way highly skilled industrial workers tend to be? Or will they be like our college grads: service oriented, dependent, trying to please, seducing us, giving us big smiles,and never registering to vote? Industry is destiny.

'Germany is industry!'

If industry is in fact destiny and "Germany is industry" (as Geoghegan proclaims), then the country's future should look pretty good today, like industrializing China's. And indeed, a June 21 New York Times story headlined "Debt Crisis in Europe Not All Bad," tells us: "Germany is arguably the big winner from the financial crisis in the form of lower interest rates and a more robust stock market." As sovereign debt concerns morphed into crisis in April and the Euro's value slid downward against the dollar, Munich-based electronics and engineering giant Siemens raised its 2010 profit forecast to $9.3 billion.

This is part of a striking trend. During roughly the same period Germany was busy becoming a global industrial powerhouse, the United States burnished its status as debtor nation par excellence and watched its manufacturing base crumble and average wage not only stagnate but drop. (As Les Leopold noted in his book The Looting of America, between 1973 and 2007 the average U.S. nonsupervisory wage adjusted for inflation dropped by 18 percent.) More than 40,000 manufacturing plants shuttered during the last 10 years, and--not coincidentally--the country's private-sector unionization rate, now just 7.2 percent, continued to fall.

So how did Germany do it? In a time of hypercompetitive globalization, how did such a (relatively) small country hold onto its industrial powerhouse status, along with its labor movement and middle class? Distilling what he learned during a handful of lengthy trips to Germany during the last 13 years, Geoghegan offers some answers -- and surprising ones, because their origins are actually partly American.

The "three big building blocks" of German social democracy, as he calls them, are the worker council, the co-determined board and regional wage bargaining. The last element is familiar enough--basically, unions bargain for wages and pensions just like in America, except instead of negotiating with one employer at a time, they do so with as many employers in the same industry as possible. (In fact, this used to be common in the United States.) To use Geoghegan's example, this system would allow clerks at Borders, Barnes & Noble and any other bookstores to be paid the same wage. Same work, same pay, so that companies aren't competing based on wages and the "race to the bottom" is stopped in its tracks. The system is powerful: Unions negotiate the wages of 60 percent of Germany's private sector workforce, more than eight times the percentage of U.S. workers covered by bargaining agreements.

But things get much more interesting with the other big blocks. Works councils, comprised of elected workers, actually help to manage companies. That means the councils help determine core issues, like when to open and close the store or office, who gets what shift, and who gets laid-off or fired. That's right: workers and bosses make decisions together.

And then, even more shockingly, there are the co-determined boards. Workers have a seat at the corporate table -- literally. In any German company with more 2,000 employees, workers get to elect half the firm's board of directors -- the same amount that shareholders get to elect. Although the board chairman, chosen by shareholders, gets to break ties, this arrangement gives workers--again, regular non-supervisory workers -- a modicum of control over the firm. They can try to block factory shutdowns and protect good manufacturing jobs and block capital flight and outsourcing.

The truly remarkable thing is that after World War II, U.S. Army leaders, overseeing Germany's reconstruction and steeped in the New Deal, advocated for works councils and co-determined boards. What better way to bring real democracy to post-Nazi Germany? "That's the point of social democracy," Geoghegan writes. "It's not just that workers get an extra chicken pot; more important, they get the right to stir the pot."

It's worth noting that Germany's social democracy is still firmly in place, despite the global recession (and pundits claiming Europe is broken). Union wage bargaining has declined during the last two decades--it covered more than 90 percent of private workers just twenty years ago -- but works councils and co-determined boards remain stable fixtures, according to Geoghegan. And the $103 billion deficit-cut plan approved by German Chancellor Angela Merkel this month, pushed through to calm German bondholders' jitters and eurozone skeptics? Yes, it does call for slight welfare reductions, but it also includes a financial-transaction tax on banks and a levy on nuclear power plants together worth billions, and cuts in defense spending. The great majority of German entitlements won't be sacrificed on the altar of globalization any time soon.

Real alternatives?

But let's be honest, perhaps more honest than labor-loving Geoghegan can bring himself to be: German-style works councils, corporate boards and regional wage bargaining won't be coming to America any time soon, even if Gen. Dwight Eisenhower did have something to do with their establishment across the pond. Labor will never interact so directly with capital in America, not if the U.S. Chamber of Commerce and Republicans (and most Democrats) have anything to say about it.

Thankfully, there is another part of the German model that is more importable: government banks, which ensure that money is invested in manufacturing companies rather than shady mortgage practices and market gambling (derivatives, credit swaps). By spurning usury (high interest rates, ATM fees) and consumer debt (sky-high credit limits) the network of Sparkassen banks effectively keeps private banks honest, because they have to compete. A happy result of this system was that German banks tend to avoid financial bubbles and support homegrown industry.

Nearly two years after U.S. taxpayers bailed out leading banks to the tune of billions--with no clear effect on private employment--it's time we learned how to bring American industry back to life with public money. "Public option" banks modeled on Germany's could go a long way toward meeting America's biggest challenge: reviving its industrial base and reducing its trade deficit. Doing both is something Americans of all political stripes should favor.

Looking at the two major political parties, Geoghegan writes: "There is no serious attemptto stop the bloating of the financial sector and try to reconnect the U.S. model to the most dynamic part of capitalism, i.e., buying new capital equipment or simply making things." And he's right: President Barack Obama's new "national initiative" to double U.S. exports in five years is certainly an attempt to expand manufacturing, but it's not serious. Especially not when Obama simultaneously touts a "free trade" agreement with South Korea that would actually help to deregulate the financial sector, according to Public Citizen. Talk of increasing exports is great, but if it's not backed up with ways to ensure steady and substantial investment into U.S. manufacturing firms, capital will keep flowing to where the easy money is: Wall Street.

Were You Born on the Wrong Continent? doesn't show us how to revive American manufacturing, but it makes a convincing case for why it must happen for U.S. inequality to lessen and the middle class is to thrive. The book isn't perfect--it papers over significant German poverty, and never even tries to explain how the United States, with a population more than three times that of Germany's, could shore up its future by focusing on high-end products that allow high labor costs. Everybody in the world can't buy Mercedes or BMWs. And at times it feels more like an (often hilarious) internal monologue than a tightly argued book. Which is fine, in a way: Geoghegan's particular genius is for making public policy, economics and labor relations entertaining while also transforming them into moral imperatives of the utmost importance.

With this book, he once again entertains and instructs us. And by showing that a more humane form of capitalism is not only possible but actually succeeding in the heart of Europe, he also gives us hope. For as we limp into a jobless recovery -- having barely altered our economic system after the worst crisis of capitalism since the Great Depression--we need viable alternatives more than ever. Without them, legislation fundamentally buttressing the status quo -- a healthcare bill that enriches private industry, new financial regulations that don't challenge "too-big-to-fail" banks--will continue to be successfully disguised as "reform." And we will lose our ability to imagine and achieve real reform.

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