Why Germany Has It So Good -- and Why America Is Going Down the Drain
While the bad news of the Euro crisis makes headlines in the US, we hear next to nothing about a quiet revolution in Europe. The European Union, 27 member nations with a half billion people, has become the largest, wealthiest trading bloc in the world, producing nearly a third of the world's economy -- nearly as large as the US and China combined. Europe has more Fortune 500 companies than either the US, China or Japan.
European nations spend far less than the United States for universal healthcare rated by the World Health Organization as the best in the world, even as U.S. health care is ranked 37th. Europe leads in confronting global climate change with renewable energy technologies, creating hundreds of thousands of new jobs in the process. Europe is twice as energy efficient as the US and their ecological "footprint" (the amount of the earth's capacity that a population consumes) is about half that of the United States for the same standard of living.
Unemployment in the US is widespread and becoming chronic, but when Americans have jobs, we work much longer hours than our peers in Europe. Before the recession, Americans were working 1,804 hours per year versus 1,436 hours for Germans -- the equivalent of nine extra 40-hour weeks per year.
In his new book, Were You Born on the Wrong Continent?, Thomas Geoghegan makes a strong case that European social democracies -- particularly Germany -- have some lessons and models that might make life a lot more livable. Germans have six weeks of federally mandated vacation, free university tuition, and nursing care. But you've heard the arguments for years about how those wussy Europeans can't compete in a global economy. You've heard that so many times, you might believe it. But like so many things, the media repeats endlessly, it's just not true.
According to Geoghegan, "Since 2003, it's not China but Germany, that colossus of European socialism, that has either led the world in export sales or at least been tied for first. Even as we in the United States fall more deeply into the clutches of our foreign creditors -- China foremost among them -- Germany has somehow managed to create a high-wage, unionized economy without shipping all its jobs abroad or creating a massive trade deficit, or any trade deficit at all. And even as the Germans outsell the United States, they manage to take six weeks of vacation every year. They're beating us with one hand tied behind their back."
Thomas Geoghegan, a graduate of Harvard and Harvard Law School, is a labor lawyer with Despres, Schwartz and Geoghegan in Chicago. He has been a staff writer and contributing writer to The New Republic, and his work has appeared in many other journals. Geoghagen ran unsuccessfully in the Democratic Congressional primary to succeed Rahm Emanuel, and is the author of six books including Whose Side Are You on, The Secret Lives of Citizens, and, most recently, Were You Born on the Wrong Continent?
Terrence McNally: You start your book Were you Born on the Wrong Continent? with a personal experience, a stopover in Zurich. Could you talk about that?
Thomas Geoghegan: In 1993 I got it in my head, for reasons too long to tell, to go see a woman I'd met who happened to be in Moscow. Because of the coup in October 1993, all the flights to Moscow were canceled, and I ended up in Zurich. I had not been in Western Europe for years, and, while I was waiting for clearance, I happened to walk around the streets and I was just thunderstruck by how nice it was. Every bookstore seemed like a boutique and even the train station was like a perfumery. And I thought, how did this part of the world get so wealthy without my knowing it? That was the epiphany that led me to take a bigger and bigger interest in how Europeans live, and to ask ultimately, were you born in the wrong continent?
McNally: In talking about that walk, you point out that if you don't have much poverty, life is better for everybody. Not just better for the poor, but for everybody.
Geoghegan: You have more of the city available to you. [My hometown] Chicago's fantastic, but there's a huge swath of it that you don't particularly want to go to -- not because of any criminal danger, but just because it's run down. Largely white ethnic neighborhoods on the northwest side are unattractive and dilapidated. Plus there are huge parts of the city that are downright dangerous. Europe isn't like that. It's the argument for social democracy: more equality and less poverty and disorder.
McNally: In their book, The Spirit Level, Richard Wilkinson and Kate Picket point out that on average everything is worse for everybody in the countries with the most unequal distribution of wealth.
Geoghegan: As a labor lawyer, I can see that janitors and truck drivers I represent would be better off in a social democracy. I make the argument in the book that even people who are doing relatively well would be literally, materially better off in a more egalitarian social democracy. Some of the public goods that are available there for free- - university education, for example, are skewed towards the people who are relatively at the top.
McNally: Someone who doesn't go to university doesn't get that benefit, but a family who sends two or three kids gets an enormous benefit.
Geoghegan: Of course, low income sectors do better too. Nonetheless, it could be said, there's a growing amount of poverty in Germany. Especially during the 1990's and the early part of the last decade, there was a scaling back of social democracy. For a while the bubble of casino capitalism in the US and the UK led to an allocation of capital into the US and UK looking for hot returns. Since the collapse of casino type capitalism in 2008, money has shifted back where it should have been in the first place, to the virtuous economies of the world like Germany, based in manufacturing.
McNally: I recall Kevin Phillips pointing out in his book Bad Money that year after year the US shifted more and more of our money and our best and brightest young people into finance. When the casino seemed to be paying off, other countries also shifted in our direction, but when it broke, we didn't have the manufacturing and export base a country like Germany has to fall back on.
Geoghegan: The Germans had a certain amount of schadenfreude about the whole thing. They're basically a very pessimistic people by temperament, and when they saw a world debacle that they weren't responsible for, they actually became a little more upbeat.
They had what they call a good recession. The German government was very quick off the mark, and immediately put in place what they called kurzabeit. Through this short work-week program, the government paid people to stay on the job when they otherwise might have been let go.
We got ahead of the curve," one German labor minister said, "employment didn't drop here the way it did in the US." When the economy recovered, there was no incentive to hold off hiring because the people were already on the job. Their unemployment is now significantly lower than ours and the economy is booming.
McNally: When asked why Obama didn't pursue a similar policy to stem the economic bleeding, Larry Summers dismissed the idea, saying the White House wanted to create new jobs not preserve old ones.
Geoghegan: A pretty lame answer.
Terrence McNally: And an arrogant one. Good for you, Larry. What about the guy who lost his job? And his family and his kids?
Geoghegan: Larry Summers is the villain of my book. He was an architect of deregulation, and was doing a war dance back in the late 1990's about how the US model was triumphant over all. Now, the shoe's on the other foot.
McNally: What's the status of the crisis in Europe right now? The EU includes not only virtuous, productive economies like Germany, but also others not nearly so.
Geoghegan: Those less virtuous economies were the so-called "new Europe" that Donald Rumsfeld was touting. People in the countries that are in trouble now economically were the ones willing to go to Iraq -- and there is a connection. These are the countries that were much more inclined to go the American route, going into debt heavily, using housing speculation as the engine of the economy, and opening their economies big time to global bank debt and finance.
Goldman Sachs poured tons of money into Greece, and other New York, London and German banks poured money into Spain. None of the bubbles occurred in Germany and in the "old Europe" that Donald Rumsfeld wrote off. Part of Europe is in trouble to the extent -- and only to the extent -- that it's involved in the American model. Those countries most resistant to the American model are doing fine.
By the way, why was Goldman Sachs willing to lend money to weak economies like Greece? Because Greece was in the EU. Because Spain was in the EU. These countries would never have gotten all this money from US banks. And what is so important about the EU? At the end of the day the Germans with their trade surplus are able to pay -- and in fact that's what has happened.
McNally: How is the relationship unfolding between Germany and the economies it is bailing out?
Geoghegan: It's working out pretty well. The Germans are doing even better because the Euro fell -- it was overvalued to begin with -- and that made German goods more competitive. After the great debt crisis, the Euro became relatively cheaper, and that made Germany more profitable as an export country. Greece didn't collapse, partly because the Germans bailed it out and partly because there was belt tightening in Greece and plenty of tourists still coming in.
McNally: By the way, Greece represents only 2% of the EU's total GDP, whereas California represents 14% of the US. Yet when California reached out to the federal government for similar help, it didn't get it.
Geoghegan: You see a story in the New York Times every six weeks -- ever since I graduated from college in 1971 -- about how Europe is going to collapse. They come out like clockwork.
McNally: I pulled one of those Times articles in May when the Greek crisis was hot. The headline: "Europeans Fear Crisis Threatens Liberal Benefits." But you point out that when a country like Germany takes something away from the safety net, they usually balance it with a benefit.
Geoghegan: They cut back on holiday and they add a nursing home benefit. But the US press always focuses on the cutback. One of the reasons I wrote this book was to show that there's a leadership class over there that is very clever about these things. I don't mean in a spurious, tricky way, but actually thinking, "What do we have to cut back now so that we can go forward in the future?"
To quote a wonderful line from the Lampedusa novel, The Leopard: as the old order is collapsing, the Sicilian aristocrat says to his young prince, "We have to change so that everything remains the same." How do you change social democracy so that you preserve it, and maybe even create an opportunity to expand it in a year or two when the wheel of fortune turns again?
McNally: Let's talk about some of the contrasts in the book between our culture and theirs. People here work nine more weeks per year.
Geoghegan: In the US, the most driven work 2300 hours a year, and people a notch or two below the most driven are working 1800 hours a year. That doesn't count hours that are off the clock.
McNally: Why do we work so hard? You say one of the reasons is because we don't have unions or job security. People are afraid that if they don't work weekends and overtime, if they don't skip their kid's soccer game, they'll get laid off.
Geoghegan: Nobody knows who's going to be laid off next. It's all arbitrary, Chainsaw Al could knock down your cubicle door at any time. So everyone has an incentive to stay five minutes longer than everyone else, and that creates anarchy. According to labor economists Richard Freeman at Harvard and Linda Bell at Haverford, in the US there's nobody to tell you to go home.
McNally: Given the fact that we work more, are we more productive?
Geoghegan: If you consider productivity as output per hour, working longer probably decreases it. My friend Isabelle came to the US to attend grad school at Northwestern, and was upset when she discovered there were no holidays here. In the middle of the year, I found her very stressed, and I figured out what was happening: she was working American hours with German efficiency. When you look at the fact that Germans rank at the top of the world in terms of export sales -- on a par with the Chinese who work till they drop -- you realize they must be doing something that makes them more efficient.
Leisure time also has material value. The fact that Americans work longer and longer hours increases GDP per capita, but it doesn't necessarily raise our standard of living.
McNally: Americans don't know how things actually work in European countries. For many people the fact that Germany is neck and neck with China as the number one exporting country -- give or take the rise and fall of currency - must be mind blowing. Even progressives in America don't look overseas for models that work. I find it almost pathological that our exceptionalism infects even those who assume they don't believe in it.
Geoghegan: I have a friend who's just come back from being a journalist for a long time in France and now works as a political reporter in Washington DC. She recently told me, "It's become impossible for me to stay in a carpool with other women journalists because all I do is say to them, 'Oh, it's so much better in France This is so much better If this happened we wouldn't' She said, "They're just so sick of me, they don't want to hear anything more about France."
In some ways it's understandable and in some ways it's tragic. Another journalist friend of mine told me, "The three most deadly words in American journalism are 'in Sweden they' People just won't keep going from there, and why is that? These are economies that have developed a level of sophistication and look like the US in so many ways. People say, "Europe's becoming just like America," but it's not.
McNally: Let's make a quick comparison of GDP. The problem with GDP is that it has only an addition side, it doesn't have a subtraction side. So an auto accident increases GDP; crime increases GDP.
Geoghegan: Waste and fraud and gambling; Katrina increases GDP; urban sprawl especially increases GDP. Hours stuck in traffic increase GDP.
McNally: plus the fact that we've monetized so many things that we used to do for ourselves or for our families
Geoghegan: You're shelling out $50,000 in tuition for NYU law school and your counterpart in Europe is getting it for free. How pathetic for the poor European adding nothing to GDP. In America we're increasing GDP, but dragging down people's standard of living.
It's a very perverse system of accounting. You say it's all addition and no subtraction, but it's not even all addition. Nothing increases your well-being or your material standard of living as much as leisure time. Among the untouchables in India, of course, that's absolutely not the case; leisure is a nightmare, unemployment is a nightmare. But for many, a loss of leisure is a loss of material value.
For example, leisure to go to a free concert at Millennium Park in Chicago. It's a glorious experience. People in Europe are gaga about it, because it's the one thing in America that seems to them the most European -- wonderful orchestras, pop bands, jazz bands, playing right in the middle of the city; gorgeous lawns; people picnicking, etc. -- and it's all free. It's so un-American, there's no money going out the door. It makes a mark on your life but you can't turn it into a sum of dollars, so it doesn't mean anything -- even though of course it means everything.
McNally: You say the three building blocks of German social democracy are the works councils, the election of boards of directors by workers as well as by hedge fund managers, and the regional wage setting institutions.
Geoghegan: First: work councils. The analogy I used in the book is fictitious: Imagine you elect a works council from among the employees at the Barnes & Noble bookstore where you work. They don't bargain for wages, that's done by the unions; but they have all sorts of rights that relate to working time, who gets laid off, even whether the store is going to close or not. They can go in and look at the books. The management has to enter into agreements. The works council can't dictate, but they have enormous influence over what working hours will be, who's going to work when and how.
Co-determined boards are mandated at German companies with 2000 employees or more, the global companies that are beating us, although you can have them in other situations. These are maybe more like super boards that don't do as much day-to-day managing as our boards of directors do. It consists one half of people elected by and from the workers, and one half elected by the shareholders.
The chairman of the board is selected by the shareholders and has a double vote so that, if there's a tie between the shareholders and the employees, the shareholders win. But it creates a lot of potential influence over how the debate goes.
McNally: But you also say that the shoe is on the other foot when it comes to choosing the CEO, correct?
Geoghegan: If the shareholders are divided on who should be the next CEO, the clerks get to pick the king.
McNally: In contract negotiations over the last 10, 15, 20 years, American workers have been giving back things, agreeing to two tiers, lowering their pension guarantees. I've never heard of any of them trading a concession for the right to elect members to the board.
Geoghegan: The UAW had somebody on the board once.
McNally: Management can't even say it won't work because Germany's beating our pants in manufacturing, and the codetermined board is also spreading elsewhere, right?
Geoghegan: The German model has made inroads on the US model in other European countries.
McNally: You quote the German labor minister saying, "Our biggest export now is co-determination". Now, third: regional or sector wage settling.
Geoghegan: It's much reduced these days, but they still have some version of regional wage bargaining setting standards that everybody has to comply with. That used to be true here -- to a lesser extent than in Germany -- but it's disappeared.
McNally: Are you talking about a situation where you would negotiate with one of the big three automakers and the others would basically get the same deal?
Geoghegan: I was thinking more of the United Mineworkers negotiating a contract with multiple employer associations to produce a national agreement that covered every employer. That was true in the coal industry and with the Teamsters in the trucking industry.
McNally: Agreements across a whole industry create a sense of transparency, right?
Geoghegan: People know what their wages are. East Germany was a factor in the breakdown. You couldn't really have the same labor costs and labor standards that you had in West Germany because the economy wasn't at the same stage of development.
IMcNally: f you compare your quality of life and the prospective quality of life for your children with the German quality of life, things are only getting worse. To cite just one example, economist Robert Frank talks about the fact that American families end up moving into neighborhoods they can't afford because that's where the good schools are, and I'm sure this played some role in the mortgage collapse.
Geoghegan: We'd be much more competitive globally if Americans had six weeks off, and had a chance to go and see what people are doing in other countries. We'd come back much more sophisticated about them and probably have better ideas about how to sell things to them.
McNally: You point out that as globalization grew, the US chose to compete on the basis of cheap labor by outsourcing. We kept the marketing and executives here and moved the manufacturing elsewhere. We've been playing that game for 20-30 years now. Germany chose to play the opposite game.
Geoghegan: 30 years later the Germans are making money off of China, and China is making big time money off of us. One thing I really try to get across in the book: Many Americans think that we've got a trade deficit because we can't compete with China. We've got a trade deficit because we can't compete with Germany in selling things to China. Until people wake up and look at the kinds of things that the Germans are doing to keep their manufacturing base, we're going to continue to run deficits which leave us in the clutches of foreign creditors and compromise our autonomy as a country.
McNally: This is something that the right wing should be up in arms about.
Geoghegan: Absolutely. And they're clueless. They are mortgaging this country's future and they're too stupid to realize it.
McNally: This seems like a good point to turn to "10 Things the Dems Could Do To Win," a cover story I wrote for a recent issue of The Nation.
Geoghegan: The Democrats have to do something for their base, keep it simple and make it universal. Unlike the healthcare bill which was perceived as a handout for "them", the uninsured, many of them in red states. Democrats should focus on things that either give a direct benefit to people or give them a sense of power.
For example, increase Social Security so that it's a real public pension -- push Social Security benefits up to 50% of people's income. Of course we can't do this overnight, but we can set it as a serious goal.
McNally: Social security in the US is 39% at this point. In Germany it was 67%, but it's dropped?
Geoghegan: To the low fifties. But people have tons of money in the bank over there, there's a high savings rate and, at least in the unions, they also have private pensions that work much better than in the US.
McNally: They also don't graduate college with thousands of dollars of debt that many will carry for the rest of their lives.
Geoghegan: They do have a demographic crisis that they're going to have to get through, but they've protected the system.
McNally: Raising social security to 50% of working income means that when you go on to social security you'll get half of what you were getting when you were working. Currently you get less than two-fifths.
Geoghegan: The top 20 developed countries have an average rate of something like 60%, so we can do this.
My second proposal is simply the most effective way to move ultimately to a single payer healthcare system, which I think we have to do. I would say that even if I didn't think single payer were a better system. You have to have one consistent system of payment to get control of healthcare costs. All the European countries do. It doesn't have to be single payer, but it has to be a consistent system. You can't have a mix of private market and single payer.
Let's lower Medicare's eligibility to 55. What brought back GM and Chrysler? The government came in and took away their retiree healthcare costs. We've got to lower labor costs not by bringing down wages -- that would be a disaster, but by having the government assume wage labor costs that are making us less competitive. People of 55-65 will all vote for you because it will change their lives.
McNally: Folks like Alan Simpson and Pete Peterson are going to say, "Wait a minute, you're going in exactly the wrong direction."
Geoghegan: Social security basically is solvent now even at its current level. And I have ways of paying for it.
First, if you brought back the estate tax and dedicated the proceeds to the Social Security trust--as Robert Ball, former Social Security commissioner, once proposed. Second, lift the cap on the Social Security tax -- it's at $90,000 now -- so it applies to all incomes. After all, Social Security is for everyone. Third, if you did things like eliminate the corporate debt protection for debt that is used in leverage buyouts and non-productive uses right now, you could generate the financial reserve that could pay for this. Finally, I do think people should pay a little more for their Social Security because they're going to get a better deal.
All of these things have two purposes, to do something directly beneficial to the base now, and to do something that reduces the size and influence of the financial sector and increases the viability of manufacturing.
Lowering the age for Medicare, for example, allows employers to substantially lower their labor costs for their most expensive workers. It's not just to make them competitive, but it's also to induce investment into manufacturing which is right now inhibited by the uncertainty of healthcare costs. Ultimately the goal of all of this is to get the US out of debt.
The debt issue ought to be the Democrat's issue not the Republicans. The real debt issue is our external trade deficit. We either have consumers go into debt to make the books balance at the end of the day as we did during the Bush era, or we have the federal government do it when consumers cut back. We don't earn out way in the world, and until we do, we're going to be running either large consumer debts which lead to private financial panics, or federal debt which could lead to a sovereign default. We've got to get out of that box, and the only way to do it is to put in measures that make our economy more competitive globally.
McNally: You're saying that Obama and the Democratic party could transform the issue of debts and deficits by offering solutions that are not just about paying today's bill, but about restructuring our ability to pay the bill in the future.
Geoghegan: We will never get out of debt until we confront our inability to pay our way in the world. Somebody is going to be in debt, whether it's me the taxpayer paying off the federal deficit or me the consumer paying off my Visa card. It doesn't make a whole lot of difference at the end of the day. The Democrats ought to present themselves as the party that has a plan to get the country out of debt.
McNally: You also recommend a usury cap on credit cards.
Geoghegan: You've got to get returns down in the financial sectors and returns up in manufacturing sectors. That's the key. And proposing that will split the business community in this country in a very healthy way. The Democrats can be the party of the manufacturers, even if it's at the expense of Wall Street. For years, the Democrats have slipped the other way. People perceive that and they're frustrated by it.
McNally: The financial sector currently funds both parties. Republicans get to be true to their convictions, while Democrats end up negotiating with themselves. Though they may have some progressive leanings, their funders pull them in the other direction.
Geoghegan: Even progressive Democrats don't have the sophistication of their counterparts on the left in France and Germany in terms of understanding how important it is not to run up a national debt. Here we march against Mexico and put up tariff walls. They don't do that in Europe, they're not that unsophisticated.
McNally: Let me finish with a quote of yours that really struck me: Without an industrial base a democracy dies.
Geoghegan: My own favorite ending line would be: Countries like Germany do both capitalism and socialism better than we do.