When the financial crisis of 2008 sent U.S. automakers to the precipice of failure, conservatives, notably Mitt Romney, urged the Obama administration to let the car companies go bankrupt. Neoconservatives blamed “high wages” paid to unionized autoworkers for the inability of GM, Ford, and Chrysler to compete. In his book The Crash of 2016, author Thom Hartmann points out a flaw in the argument that high wages to American workers are the problem. He says:Actually, Germany paid their autoworkers about $67 an hour (including wages and benefits). But the United States paid its average worker only $33 an hour (also including wages and benefits). On top of that, German car manufacturers were highly profitable, despite the comparatively large paychecks of their workers. BMW earned a before-tax profit of 3.8 billion euros, and Mercedes-Benz hauled in profits of 4.6 billion euros.
So how did Germany just completely blow up the myth that car companies have to pay their workers less to be more profitable and manufacture more cars? How can Germany do the opposite: pay their workers more, be more profitable, and make more cars?
The answer: democracy.
First, Germans have completely democratized the auto plant by unionizing nearly every single autoworker in the country—under IG Metall, the German autoworkers union. With such a high union membership rate, autoworkers hold a lot of sway when they threaten to go on strike. That’s how workers have been able to keep wages high and working conditions satisfactory. But as Horst Mund, the head of the International Department of the German autoworkers union, pointed out, unions hardly ever go on strike in Germany “because there is an elaborate system of conflict resolution that regularly is used to come to the sort of compromise that is acceptable to all parties.”
How did Germany just completely blow up the myth that car companies have to pay their workers less to be more profitable and manufacture more cars?
One reason for the more collaborative relationship between CEOs and workers is that, unlike in the United States, unions aren’t under attack and there aren’t any “right to work for less” zones in Germany to which car manufacturers can flee so they can ignore the voice of organized labor.
Another and perhaps more powerful reason is that there is a constitutional amendment in Germany that forces corporate executives to listen to labor unions. The Works Constitution Act requires every factory to set up a works council that gives representatives of the workers a seat at the table in every decision-making process at the factory. That is the democratization of capitalism, expanding the decision-making process to not just the corporate elite but the entirety of the company, from the bottom up.
This, according to Mund, is the real reason why the autoworkers union has a loud voice in the German economy. Pointing to the adversarial relationship between employers and labor unions in America, Mund says, “The accusation that American unions are more radical and destructive … definitely has to do with the hostile environment in which the unions have to act. How can they be constructive and friendly if their asses are kicked all the time?” He goes on to say that without the Works Constitution Act in Germany, “employers would not talk to us either if they had the choice.”
But intentions aside, the empowerment of labor unions in Germany and the democratization of the workplace through an enforced constitutional amendment have been an economic boon for Germany, as demonstrated by car sales, employee wages, and profitability.
As Mund concludes, “We have strong unions, we have strong social security systems, we have high wages. So, if I believed what the neo-liberals are arguing, we would have to be bankrupt, but apparently this is not the case…the economy is working well in Germany.”
So how do we democratize capital in the United States and give workers more of a say in how our economy is run?