A triumph of failed ideas European models of capitalism in ... - Journal

German capitalism and the European crisis: part of the solution or part of the problem?.................................................................................................................................................................are most wide open to international competition. Even though thecomparatively strong and assertive trade unions in these sectors havebeen unable to avert an ongoing redistribution of income to thedetriment of wage-earners, pay rises have more or less exhausted theso-called ‘distribution-neutral’ room for manoeuvre, which is defined asthe sum of the inflation rate and productivity growth in the economy asa whole (Bispinck 2011). Therefore the main causes of the low averagepay rises as agreed upon in collective agreements clearly lie in thosesectors that are exposed to global competition only slightly or not at all:the construction industry (where wage levels are under pressure as aresult of labour mobility), the retail trade and, in particular, the publicsector which lags behind all the other major sectors. This focuses ourattention on the first structural change, namely a dismantling of thetraditional architecture of German-style pattern bargaining. The gapbetween labour costs in industry and services has therefore become –and increasingly so – wider than in any other EU country, meaning thata whole range of domestic inputs have become considerably cheaper formanufacturing industry (Horn et al. 2007).The second structural change finds expression in the fact that effectivepay rises from 2000 to 2010 lay on average almost 50 per cent belowthe collectively agreed rates of increase (nominally 12.7 per cent asopposed to 23.6 per cent), meaning that real per capita wages fell by 4per cent (Bispinck 2011). The reasons for this were:— the weakening of the trade unions: their net organisationaldensity fell from about 30 per cent in the mid-1990s to around20 per cent on the eve of the crisis (ICTWSS Database 2011);— a decline in the collective bargaining coverage of firms: justover 60 per cent of German employees were still covered bysectoral or company agreements in 2009, including 50 per centin East Germany (Ellguth and Kohaut 2008; IAB 2010);— a systematic weakening, on the initiative of the employers’umbrella association, of the extension mechanism whichpermits collective agreements to be declared universallybinding by the federal government (Bispinck and Schulten2009);A triumph of failed ideas – European models of capitalism in the crisis 83