If copying the German model is as the answer, Labour doesn’t understand the question

by David Butler

Jonathan Wilson’s masterpiece on football tactics, Inverting The Pyramid, sets out how success on the pitch regularly came through great managers innovating with formations and strategies. But this success was often fleeting; Alf Ramsey’s “wingless wonders” quickly reached a nadir in failing to qualify for the 1974 World Cup. Other teams absorbed the successful strategies and modified them, sometimes completely overhauling them. This drove change in the game as teams sought new marginal advantages. Those who sought merely to directly copy and not innovate themselves were left trailing in the dust. This is the danger that deifying a single system brings, from football to economics, and why we should go beyond Germany in thinking about a new capitalism.

Germany acts as a lodestar for those in the vanguard of Milibandism. This is not a new phenomenon on the left; in a speech in 1980, Denis Healey praised the social market as a middle path between Bennism and free market right. For Will Hutton in the mid 1990s, it offered a post-Thatcherite path for Britain. Now, once again, Germany is supposed to point the way towards developing a “supply side of the left” and the transformation of Britain into a European-style social democracy.

Importing individual economic institutions is difficult enough, let alone copying large sets of institutions from a single economic model. In labour-management relations, for example, there are sizeable differences between our island home and the continent. Continental unions are traditionally less adversarial towards management and this enables more consensual institutions to flourish.

The historic conservatism of the labour movement towards their internal structures makes the prospect of Continental-style unionism a dim one. This is not a land without hope; USDAW and Community have been successful in gaining localised victories and engaging (often younger) new members.

Unite have attempted engagement through community organising and launching a credit union. Business too would have to modify its approach towards labour relations. One only needs to look at the behaviour of Ineos and Unite at Grangemouth to see that there is a long path to walk before Britain will achieve more cooperative labour-management relations.

Germany’s dominant status within the EU and the Eurozone has helped enhance their prosperity in recent years. The cheap credit fuelled by low interest rates and creative lending practices from within the Eurozone enabled the Greeks and many others to buy German goods.

Germany’s regular trade surpluses reflect both the success of its manufacturing in creating export-led growth and the chronically anemic spending on imports that has done nothing to help its Eurozone neighbours. For Britain to obtain this position is neither possible in the short term, in the case of being more powerful within the EU, nor desirable under the existing structure.

Without taking this into account when considering German economic institutions, we fail to properly understand their economic success.

Germany itself offers no panacea; significant faultlines have begun to appear in their economic model. German productivity is at the same level as 2007, representing the worst period of stagnation since the Second World War. The benefits of the Schroder-era labour market liberalisations appear to be wearing thin; as the Economist reported in June, increasing numbers of German firms, especially in the service sectors, are abandoning collective wage tariffs. This is combined with a decline in union membership and the abject failure of the labour movement to attract members in emerging areas such as e-commerce.

Andreas Worgotter of the OECD identified that the German service sector is bloated and inefficient depending “on barriers to entry, subsidies and not developing and reaching out for new activities”, with Germany’s manufacturing acting as Dr Jekyll to the service Mr Hyde. This should offer a sober reminder both of the difficulty in sustaining prosperity and of the need to avoid deification of a single system.

If an existing economic system is perceived to be successful, it can threaten to crowd out important heterodox thinking; the dominance of the German model is no exception. This can leave us, in the words of Keynes, slaves to defunct economists. The recent work of Adam Lent on enterprise, Eric Beinhocker on complexity, or Steven Johnson on knowledge and networks all offer important ideas that should inform Labour’s future political economy. Yet they are not often heard in mainstream party thinking, to our great cost.

Improving British capitalism is a long and difficult task. Indeed, it is a process that never ends. Our economic and social institutions must be flexible and innovative, taking ideas from a plethora of sources. Germany may be one source of inspiration, but it cannot be allowed dominate our thinking. Otherwise, we, like English football, risk living on past glories and outdated lessons from more successful nations.

David Butler is a Labour party activist

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8 Responses to “If copying the German model is as the answer, Labour doesn’t understand the question”

  1. aragon says:

    A model of outsourcing the economy and Government services to foreign entities including the Chinese state, while driving down wages through immigration and concentrating wealth through neoliberal policies and further dispossessing the poor and unemployed.

    A model the parliamentary Labour still subscribes to, how could it get any worse?

  2. Robin Thorpe says:

    Interesting piece and a good message to bear in mind for those who would make either arguments or policy.
    I think at some point on this website I have advocated that the UK should attempt to adopt some of the practices that are commonly used in Germany; as you say here merely copying the German system is not sufficient for improvement in the UK.
    Simon Wren-Lewis, who writes the Mainly Macro Blog, has just written a couple of pieces about the German economy that both warrant further reading for anyone interested in the German economy

    Simon is not entirely complimentary about the Germans; but then he is more interested in Macro-economics then in Labour relations.

  3. swatantra says:

    Personally, I prefer the Scandinavian model: ‘Borgen’ is back next week.

  4. Ulric says:

    “Unite have attempted at engagement”

    One feels the tortured grammar is a mark of the gritted teeth through which any compliment of Unite was made.

  5. Editor says:

    More a result of the slightly haphazard subbing on our part – corrected now! Ed

  6. Ex-Labour says:

    The German way may be an option but unoirtunately there are unions, or more specifically individuals from within unions, that would try to take advantage and make trouble with other comrades of the same ilk.

    Many years ago I sat on a “works council” as an employee where the aim was to engage with managment and put our views to them on everything from toilet facilities through to the strategic direction and capabilities of the company. There were 10 of us and needless to say the whole thing was scuppered by constant sniping within the meetings and agitation outside from two union officials. These dullards could not see that potentially this was an enlightend management team who wanted input from the workforce from which the employees could profit if approached sensibly.

    What could have been good for the workforce was destroyed and the same would happen again if we tried this I’m afraid.

  7. Robert says:

    I agree to some extent but we should try to learn from the most successful large economy in Europe. We should also remember that conservative parties have dominated politics in Germany, so the lessons might not be particularly left-wing.

  8. Rational Plan says:

    There are lots of aspect of German culture we would not really want to import.

    A key aspect of the Labour market is the difficulty of women in working full time. German primary schools are only open in the mornings and are finished by 1pm.

    The system like a lot of continental systems is geared towards to promoting and protecting employment of men in the prime family rearing age. Women and the young get short shrift.

    Germany has social insurance for medical care, and does not have a NHS, It’s all insurance based.

    Social insurance is quite generous, often based on a percentage of your full time income with no piddly little limits on the amounts earned, but it only lasts a short period,after a period time their benefits system is much tougher than ours.

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