The Day The Factories Stopped
Car Workers Bear the Brunt of a Global Reality for Many German Workers
The headline sounds like something from "Atlas Shrugged" and in many ways it is. In Germany, General Motors (which operates as Opel in Germany) is to cut 10,000 jobs, nearly a third of its workforce. In the towns affected, this is a "man made disaster" (see here for the article in this week's "Economist" - the World's greatest weekly periodical, in my not so humble opinion!).
Needless to say, the workers involved are not happy and there has been strike action. However, General Motors has little choice. Incredible though it may seem, GM (and Ford) face a fight for survival. Neither company actually makes any money from car making these days. They both rely on profits from their finance arms to stay afloat. They also face huge unfunded pension liabilities (sorry, I know I do talk about this a lot!) and other promised employee benefits (primarily healthcare).
Germany itself is facing a crunch because, basically, it's industries are no longer competitive. High labour costs and the burdens of a very generous welfare state have finally proved too much. Add to that the additional burdens of the cost of re-unification (in hindsight, a financial catastrophe, although there were plenty of warnings at the time - ignored, of course, by politicians anxious to secure their "place in history") and the EU (Germany has always been a net contributor to the EU budget - a kind of disguised war reparations to the French!).
In addition to these factors, the adoption of the single European currency, has made things worse. Interestingly, this was anticipated as far back as 1996 by Stephen Roach at Morgan Stanley. His argument was that if EMU went ahead it would be very deflationary for the core EMU countries (primarily Germany and France). This is certainly how it has turned out for Germany.
Back to the main story. No doubt there will be a clamour for protection of jobs and further vilification of "capitalism" (particularly the global variety). The real "man made disaster", however, is the welfare state and the illusion that you can get "something for nothing". German industry has been crippled with unsustainable costs and regulation. The post-war German "economic miracle" is long over and the real miracle is that the economy hasn't collapsed before now.
What's happening in Germany is merely a preview of what will happen across the Western World and as the old order collapses, things are likely to get ugly. I'll finish this with a quote from Stephen Roach's article (remember, this was written back in 1996).
"Our guess is that EMU, far from creating a sexless, tasteless, supranational Europe, would give us excitement aplenty. It would be a Europe where the balance of power in parliaments is held by the populist parties of economic nonsense and the balance of power in the streets of riot-torn capitals is held by jobless, crypto-fascist yobs."
The headline sounds like something from "Atlas Shrugged" and in many ways it is. In Germany, General Motors (which operates as Opel in Germany) is to cut 10,000 jobs, nearly a third of its workforce. In the towns affected, this is a "man made disaster" (see here for the article in this week's "Economist" - the World's greatest weekly periodical, in my not so humble opinion!).
Needless to say, the workers involved are not happy and there has been strike action. However, General Motors has little choice. Incredible though it may seem, GM (and Ford) face a fight for survival. Neither company actually makes any money from car making these days. They both rely on profits from their finance arms to stay afloat. They also face huge unfunded pension liabilities (sorry, I know I do talk about this a lot!) and other promised employee benefits (primarily healthcare).
Germany itself is facing a crunch because, basically, it's industries are no longer competitive. High labour costs and the burdens of a very generous welfare state have finally proved too much. Add to that the additional burdens of the cost of re-unification (in hindsight, a financial catastrophe, although there were plenty of warnings at the time - ignored, of course, by politicians anxious to secure their "place in history") and the EU (Germany has always been a net contributor to the EU budget - a kind of disguised war reparations to the French!).
In addition to these factors, the adoption of the single European currency, has made things worse. Interestingly, this was anticipated as far back as 1996 by Stephen Roach at Morgan Stanley. His argument was that if EMU went ahead it would be very deflationary for the core EMU countries (primarily Germany and France). This is certainly how it has turned out for Germany.
Back to the main story. No doubt there will be a clamour for protection of jobs and further vilification of "capitalism" (particularly the global variety). The real "man made disaster", however, is the welfare state and the illusion that you can get "something for nothing". German industry has been crippled with unsustainable costs and regulation. The post-war German "economic miracle" is long over and the real miracle is that the economy hasn't collapsed before now.
What's happening in Germany is merely a preview of what will happen across the Western World and as the old order collapses, things are likely to get ugly. I'll finish this with a quote from Stephen Roach's article (remember, this was written back in 1996).
"Our guess is that EMU, far from creating a sexless, tasteless, supranational Europe, would give us excitement aplenty. It would be a Europe where the balance of power in parliaments is held by the populist parties of economic nonsense and the balance of power in the streets of riot-torn capitals is held by jobless, crypto-fascist yobs."
posted by Kevin Francis at
8:23 pm
