[OPE] German politics (was A profit squeeze in Germany? A study in punk economics)

From: Jurriaan Bendien <adsl675281@tiscali.nl>
Date: Tue Dec 23 2008 - 16:20:40 EST

Paul B.,

I could just as well argue that if wages increase, the profit share will fall, other things remaining equal, or that if wages increase, profits will increase or be sustained, since then there is additional demand for products. But Niels de Hoog's argument is different - his argument is that the additional income would be saved not spent, plus, capitalists would have additional financing problems. Then I mooted, that if workers indeed saved their extra money, that would amply resolve the direct losses by German banks suffered from their greedy investments in US subprime tranches. Thing to remember here, is that the actual consumables constituting the bulk of the "cost of living" of the population are largely mass-produced by a small minority of the population, insofar as they are not imported.

The peculiar thing about Niels de Hoog's otherwise interesting short piece is, that he implies that 40 billion euro or so extra wage costs would threaten profits, although he doesn't even mention ANY data on profit volumes, or ANY profit rates by industrial sector, or provide ANY model of how wages and profits are really related in the German economy as it is, or ANY model of income distribution. You could query, "why does a policy analyst of the Dutch Reserve Bank talk so blithely about German wages" but okay, that's globalization. It's a lot better than a lot of other obscure academic articles written by bank employees for their own status edification at taxpayers expense, actually.

Let us have however a look at what e.g. Der Spiegel itself reported on February 28, 2008:

"Large German firms are releasing employees in huge numbers. But they're are also making massive profits. Whatever the rationale, German politicians are enraged, and some want to rein in the firing-happy managers' behavior with new corporate regulations. Germans don't understand why BMW is cutting jobs amid record profits. The headlines have come in quick succession. BMW on Wednesday announced it was eliminating 8,100 jobs, 7,500 of them in Germany. Engineering giant Siemens announced on Tuesday it was slashing 3,800 workplaces worldwide. And Henkel, which makes an array of household products from cosmetics to detergents, announced Wednesday it is cutting 3,000 employees -- the largest such cuts in company history. But that's not all. Every one of those companies will be posting sky-high profits for 2007. Some German firms, it would seem, are reaping billions while releasing thousands." http://www.spiegel.de/international/germany/0,1518,538356,00.html

Probably, the corporate bosses thought that they might as well cut staff when times are good, and workers are more likely to get other work - in a recession, it is even more difficult to justify laying off staff, and it can become more expensive.

I do not say that all German business has been making "sky-high profits" these last few years, but it is undoubtedly true that in the last half decade there was a sort of "mini boom", and if you look at comparative corporate growth data provided e.g. by Forbes magazine, Fortune magazine, Business Week etc. you can easily work out that German corporate profit volumes rose sharply, during that time, more than wages did (of course, accounting profit is calculated after the opulent salaries of corporate officers are subtracted as a "cost").

This recent boom created a "netto" half million extra jobs (the "jobs miracle"), but in reality a lot of these jobs are "sub-contracted" jobs or "temping" placements, and so, in the event of a downturn in sales, they can disappear very, very quickly. "Sub-contracting" was the response of employers to the problem of labour market flexibility - if somebody has a permanent position with labor rights, then you reorganise the work so that his job disappears, and then you hire in temporary workers instead, to whom you have no further financial obligations (Joachim Hirsch writes on these issues). The social democrats and christian democrats are doing the same in Holland as well, and it happens all over Europe. Suppose even that you are an entrepreneur - it often makes no financial sense to work on own account, because the state bureaucrats hate entrepreneurs and try to exploit them to the max, you are often better off then hiring out your own services via a "jobs capitalist" who pays your social levies.

Because of the profits surge, German unions campaigned strongly for more pay, and most probably will continue to do so. And they are bound to do so, since if they don't, the rentiers get the wealth, and the rentiers are mainly not interested in job-creating production or a better society, only in more net profit income, they own the property wealth and the holidays already. I think also that German unions will be moderately sucessful in their pay claim, particularly since everybody is now running around calling for an economic "stimulus". Unless... the German unions are bamboozled by the "financial crisis" that exists in the laptops of the financiers.

If capitalists will not lend to each other, that is not a workers' problem to solve, and in fact they cannot solve it, short of taking over the state. They have to be concerned with their own living.

Remember that in Germany if you earn an average 2,600 euro a month, then 36.6% of that is the average tax and social security levy, so your net income will really be about 1675 euro. Your basic living costs (food, housing, clothing, medical stuff, phones and transport) are comfortably around 1,000 euro a month in Germany, you might possibly screw that down to a minimum 800 euro e.g. in Berlin, but then you are basically just renting one room. Point is, that many German workers have to finance their whole family on 1675 euro or less (the "mode" is below the "average"). It seems like German wages are high, but in real terms they are not - average labour costs are in fact higher in Denmark, Sweden, Belgium, Luxemburg, France and the Netherlands in that order.

If you are unemployed in Germany, you get a standard 347 euro a month, plus some extra if you have an unemployed partner aged 19 or older (312 euro a month per person); 80% for children between ages 15 and 18 (278 euro a month); 60% for children younger than age 15 (208 euro a month). You can also get some money towards other specific expenses. Thus, an unemployed family with two kids might get a basic income of 1,100 euro or so, that's simply not so easy to live on. It's obviously a fortune to somebody living e.g. in Bangladesh, but then they don't have the same kinds of living costs we do here. You might in fact earn less, but be better of in Bangladesh, come to that (I don't think it's very likely though, other than in a fairly small percentage of cases - average wages there are about 40 euro a month).

Paul Krugman has been touring Europe calling for a coordinated "stimulus" (a pretty good storyline to have). He says "a significant stimulus, soon, is crucial whatever its composition" but "I won't try to prescribe details - I am still working on the US situation". http://www.spiegel.de/international/business/0,1518,596520,00.html He is either on the side of the bourgeoisie, or he is on the side of the workers, depending on who can give the stimulus.

The real spectacle however is, that nobody can really agree "what causes what" in the economy anymore, and consequently, what the real effect of any stimulus package would be. The reason is that only a few people have really mastered the data. Contrary to what Krugman says, the "composition" of the stimulus is crucial to whether it WILL BE a stimulus.

In this regard, Angela Merkel has much better sense than a lot of hysterical economists, she is in fact to the Left of Sarkozy and Brown. Krugman panics that a coordinated European response is necessary quickly, but what he forgets is, that there's meantime a whole new "gravy train" developing around the "crisis chorus", where everybody wants an extra handout because of their crisis problems and screw more money out of other people.

The issue which the propertied classes really have is, how can we create a stimulus, without raising our labour costs? They try to contrive a package which will give more tax money to (big) business, that is all. Well they can do that, but in that case the state loses legitimacy in the eyes of the workers. How can you make sure that you can keep people working for you, if you have nothing to offer? That's the real problem they're grappling with.

Why has the German Left not profited politically from the crisis? According to Die Zeit, mainly for moral and emotional, rather then intellectual reasons: "Weil ihrem Führungspersonal ähnlich systemisch etwas fehlt wie dem Markt das Mitgefühl: die Demut." [Because its leading staffs systematically lack something in the same way as markets lack compassion, namely humility/modesty". http://www.zeit.de/2008/52/Leiter_S_15 The Left acts as though it has all the answers already and is arrogant, but nevertheless it lacks any real bond with what most ordinary folks feel; Oskar Lafontaine comes across as a movie that screened thirty years ago. At a deeper level, the Left is not saying anything better than what the bourgeois intellectuals are mouthing: Keynes, state intervention, social cohesion etc.


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Received on Tue Dec 23 16:23:11 2008

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