Merkel’s Little Ray of Sunshine

Remember the sunshine option? You might think it was getting some traction. Berthold Huber, the leader of IG Metall, has set some goals ahead of this year’s payround, which opens on the 27th and covers the steel industry. IG Metall is the German metalworkers’ union, which in practice represents most of the industrial economy – the wider importance of the steelworkers’ pay round is that it acts as a price-leader for the rest of the German collective bargaining year. Huber clearly reckons that Germany is recovering well enough that he can insist that the workers get a share of the benefit. Further, he wants to reintegrate some of the short-time or temporary workers, a sector that grew during the Lohnzurückhaltung years and then during the crisis.

Interestingly, someone has gone further and nailed a target to the wall. Peter Bofinger, a member of the German council of economic advisers, has named a figure of 3% earnings growth as necessary to achieve a broad-based recovery. Bofinger has appeared on this blog before; looking back, these remarks are highly telling

If the SGP is regarded as a framework that contributes to price stability, it suffers from the weak link between government deficits and inflation. This is due to the fact that a negative budgetary position can be caused by excessive government spending but also by a dismal growth performance….However, already in the 1990s it should have been obvious that the link between public debt or deficits and inflation is very weak, at least in OECD countries with relatively moderate inflation rates….Together with the depreciation of the dollar this insufficient macroeconomic stabilisation can be regarded as the main reason for the underperformance of the euro area in the last few years.

Bofinger’s words are here, in an interview with the Rheinische Post. Bofinger argues that German employees have seen no growth in their buying power in the last 10 years (the unions’ research group reckons no growth in real wages in 6 years), while exports grew by 70% at constant prices – to put it another way, there’s been a “massive redistribution at the expense of workers”. Of course, the flip side of holding down wages in a major export economy is that somebody has to buy the stuff. He further argues that the Lohnzurückhaltung has contributed to European economies drifting apart: in Der Spiegel, for example.

Anyone who sees this as a virtue must ask themselves whether Germany’s export successes would have been possible if other countries had behaved as “virtuously” as we have. It says a lot about the level of the debate that such simple and fundamental insights are apparently difficult to get across in Berlin.

(Die Zeit has an article about Bofinger and his predecessor on the council, Jürgen Kromphardt, which describes them as the last Keynesians. To read, as a period piece from the distant age of 2004.)

So what’s happening in the other superexporter? Even The Economist has not only noticed Chinese labour activism, but thinks it’s a good thing. Doug Saunders reckons that this is the only lasting gain from the boom.

That’s the theory; the practice is here.

The week-long strike at Honda supplier Atsumitec ended Thursday after workers and management agreed to a 45 percent increase in the basic wage from 980 yuan a month to 1,420 yuan.

The roughly 200 employees at the Foshan plant were, in addition, offered a 250 yuan monthly living allowance and a performance related bonus; a significant victory after management had earlier in the week threatened to fire striking workers and hire replacements if they did not return to work…. The fact that workers are asking for increases of around 50 percent, even higher in some cases, is a clear indication that wages in the Pearl River Delta have been kept far too low for far too long.

As the strikes continue, a high-level delegation from the Guangzhou Federation of Trade Unions arrived in San Francisco, the first leg of a four-city tour of the United States designed to improve relations with American trade unions and labour groups.

Delegation head Chen Weiguang was quoted by the Chinese media as saying American labour groups had already secured a commitment from Apple to improve payments to Foxconn so that wages at that company’s factories in China could be increased.

Even the People’s Daily thinks so, although I’m not sure what to make of this:

Nonetheless, even as these doubts remain over the ACFTU [the official unions, under pressure to demonstrate real representative power – not-ed], it’s not stopping in its “union-building” efforts. The Financial Times reports that it’s unionizing many large foreign investment banks, including Goldman Sachs, JPMorgan, Morgan Stanley and UBS. According to a foreign banker in Suzhou, “(t)hey are actually telling us [to establish union chapters], not asking us…the feeling from everyone was – we just got a 2 per cent tax.”