German Social Democracy and the third way: Is there a future for SPD-trade union relations?

Since Germany's current "red-green" government came into office in autumn 1998, the relationship between the Social Democratic Party (SPD) and the trade unions has been deteriorating continuously. This feature describes and discusses recent developments, focusing mainly on the June 1999 joint paper by the UK and German premiers, Tony Blair and Gerhard Schröder, entitled "Europe - The third way/Die neue Mitte" - and its implications for SPD- trade union relations.

Historically, the German Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and the German socialist trade unions, as opposed to the Christian and liberal unions, have the same roots in the labour movement of the second half of the 19th century. Since then, the Social Democrats and the trade unions have maintained close links.

Although in the post-war trade union system, the individual member unions of the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB), the German White-Collar Workers' Union (Deutsche Angestelltengewerkschaft, DAG) and the German Federation of Career Public Servants (Deutscher Beamtenbund, DBB) do not see themselves as unions with particular ideological or party political links (""Richtungsgewerkschaften), and despite the fact that they stress their ideological and political neutrality, there are strong bonds between the Social Democrats and the union movement, especially as regards the DGB member unions. It is estimated that between 75% and 85% of the officials of DGB-affiliated unions are members of the SPD, and that three-quarters of the SPD members of the German parliament (Bundestag) are members of a DGB-affiliated union.

The unions and the 1998 general election

The close relationship between trade unions and the Social Democrats becomes especially prominent before general elections. For example, in early 1998, DGB launched its election campaign for Employment and social justice (Arbeit und soziale Gerechtigkeit), with the central aim of making employment the number-one issue in the election debates. The campaign focused mainly on the inability of the then CDU-FDP conservative-liberal government to reduce the level of unemployment. Consequently, DGB demanded a fundamental change in policies, including, among other items: the improvement of internal economic demand through a fairer distribution of income and wealth, as well as new investment programmes in infrastructure and environmental needs; a more effective industrial and services policy with participation of the social partners; redistribution of employment through individual and collective working time reductions; more active public employment policy; reforms of social security system and a reduction of non-wage labour costs; a reform to create a tax system which was fairer in social terms; the reintroduction of 100% continued payment of remuneration for employees in the event of sickness; and the reintroduction of stronger dismissals protection legislation for smaller companies. Furthermore, various trade union leaders called for a renewal of a tripartite "employment alliance" (Bündnis für Arbeit) (DE9803254F).

In the 1998 general election, the former opposition parties - the SPD and the Greens (Bündnis 90/Die Grünen) - gained a majority of 21 seats in the Bundestagand formed a coalition government, led by Chancellor Gerhard Schröder, after 16 years in opposition. A survey found that that 56% of trade union members voted for the SPD, compared with 40.9% support for SPD among all voters. A further 6.4% of trade union members voted for the post-communist PDS party (Partei des demokratischen Sozialismus), and 6.3% for the Greens. The latter two parties received 5.1% and 6.7% of total votes, respectively (DE9810280N).

Since the election, the "red-green" government has implemented some of its election promises with regard to industrial relations (DE9811281F). In January 1999, a package of labour law amendments came into force, revoking some of the more controversial changes introduced by the government's conservative-liberal predecessor regarding continued payment in the event of sickness, dismissal protection and regulations on posted workers (DE9901291N). The government and social partners agreed on new regulations on bad-weather allowances (DE9906217N), while the establishment of a national "Alliance for Jobs" produced its first results in July 1999 (DE9907219F).

The current discussions

Although discussions have been going on for quite some time between the leadership of the SPD, members of the red-green government and the DGB unions on the "right" course of economic and social policy, tensions have intensified recently due to a number of events. In March 1999, Oskar Lafontaine, an enthusiastic supporter of Keynesian demand management and expansive fiscal policy and a favourite of the left wing of the SPD as well as of the trade unions, stepped down from his positions as party leader and minister of finance. His successor as party leader was Chancellor Schröder, who has a reputation of being "business-friendly" and more inclined to supply-side policies. Mr Lafontaine's successor as minister of finance was Hans Eichel, who has since subscribed to a strict austerity policy. In the current discussions around the Alliance for Jobs, there are voices from within the SPD calling for the introduction a low-wage sector in the German economy and for the issuing of wage policy guidelines in order to reduce unemployment, instruments which are fundamentally rejected by most trade unions, and especially the powerful metalworking sector union IG Metall.

In early July 1999, two SPD minister-presidents from Rhineland-Palatinate (Kurt Beck) and Northrhine-Westphalia (Wolfgang Clement) demanded real wage freezes, ie linking nominal wage increases to inflation, for the next two years in order to reduce unemployment. Recently, Mr Clement also announced pilot projects for a low-wage sector, subsidised by the Northrhine-Westphalia government. Also in July 1999, the annual report of the government's Federal Ministry of Economics and Technology demanded increased wage differentiation according to qualifications, industry, region and labour market situation.

The Blair-Schröder paper

The most serious incident in the recent difficult relationship between SPD and the trade unions, however, was the publication in June 1999 of the so-called "Blair-Schröder paper" - Europe: The third way/Die Neue Mitte- in which the UK's Labour Prime Minister Tony Blair and the German Chancellor Gerhard Schröder set out their ideas on a modernised programme for a social democratic movement in Europe. The paper caused controversial discussions within the SPD and was largely criticised by most trade unions. The main points of the paper are summarised below.

General outline of policy

First of all, the paper states that, following the abandonment of the world view represented by the dogmas of left and right, fundamental social democratic values remain - fairness and social justice, liberty and equality of opportunity, solidarity and responsibility to others. The paper goes on to emphasise the role of enterprise and of the markets, which need to be "complemented and improved by political action, not hampered by it". Drawing on the experience of the past, social democrats ought to change old approaches and traditional policy instruments in areas such as the concept of social justice, the role of the state, the balance between individualism and collectivism, and entrepreneurial spirit. The promotion of social justice, states the paper, has sometimes been confused with the imposition of equality of outcome, resulting in the neglect of the importance of rewarding effort and responsibility. Social democrats should also refrain from the idea that achieving social justice is necessarily associated with ever higher levels of public spending regardless of what this achieves or the impact of the taxes required to fund it on competitiveness, employment and living standards. Furthermore, the belief that the state should address damaging market failures has all too often led to a disproportionate expansion of the government's reach and of the bureaucracy that goes with it, distorting the balance between the individual and the collective. Values that are important to citizens, such as personal achievement and success, entrepreneurial spirit, individual responsibility and community spirit, have too often been subordinated to universal social safeguards.

The paper goes on to state that the politics of the New Centre (Germany) and Third Way (UK) are about addressing the concerns of people who live in and cope with societies undergoing rapid change - both winners and losers. In this newly emerging world, people want politicians who approach issues without ideological preconceptions and who, applying their values and principles, search for practical solutions to their problems through honest, well-constructed and pragmatic policies. Voters who in their daily lives have to display initiative and adaptability in the face of economic and social change expect the same from their governments and their politicians.

Business and entrepreneurship

The Blair-Schröder paper states that in a world of globalisation and scientific change, conditions have to be created in which existing businesses can prosper and adapt, and in which new businesses can be set up and grow. Furthermore, "for the new politics to succeed, it must promote a go-ahead mentality and a new entrepreneurial spirit at all levels of society," which requires: a competent and well-trained workforce eager and ready to take on new responsibilities; a social security system that opens up new opportunities and encourages initiative, creativity and readiness to take on new challenges; and a positive climate for entrepreneurial independence and initiative.

Work organisation and industrial relations

The paper argues that new technologies and the internationalisation of production might lead to deskilling and make some businesses obsolete, but they also create new business and vocational opportunities. It maintains that successful modernisation requires: investment in human capital; labour market flexibility linked with minimum social standards; and a partnership approach in the relationship between state, industry, trade unions and social groups. This latter approach might help overcome the traditional conflicts at the workplace, implying a rekindling of a spirit of community and solidarity, strengthening partnership and dialogue between all groups in society, and developing a new consensus for change and reform. With regard to industrial relations, the paper demands the development of real partnerships at work, with employees having the opportunity of sharing the rewards of success with employers, and "modern trade unions protecting individuals against arbitrary behaviour, and working in cooperation with employers to manage change and create long-term prosperity".

Employment policy

In order to make employment policy effective, the paper demands that the state become "an active agent for employment, not merely the passive recipient of the casualties of economic failure". Periods of unemployment in an economy without jobs for life should be regarded as an opportunity to attain qualifications and foster personal development. Part-time work and low-paid work are better than no work because they ease the transition from unemployment to jobs. In addition, in order to put a high value on providing people with the skills and abilities to enter the workforce - eg by training - the tax and benefits systems need to ensure that it is in people's interests to work. A streamlined and modernised tax and benefits system would be a significant component of the left's active supply-side labour market policy. Moreover, setting up one's own business as a viable route out of unemployment should be supported.

The role of the state in the economy

Messrs Blair and Schröder argue that public expenditure as a proportion of national income has more or less reached the limits of acceptability, and demand a radical modernisation of the public sector and reform of public services to achieve better value for money. The public sector should be efficient, competitive and high performing. Problems should be solved where they can best be solved: as a general principle, power should be devolved to the lowest possible level. The ability of national governments to "fine-tune" the economy in order to secure growth and jobs had been exaggerated, and the importance of individual and business enterprise in the creation of wealth been undervalued. The weaknesses of markets have been overstated and their strengths underestimated.

Social policy and social security

As regards social policy, social security systems need to adapt to changes in life expectancy, family structures and the role of women. Social policy instruments ought to improve life chances, encourage self-help and promote personal responsibility. A welfare system that puts limits on an individual's ability to find a job needs to be reformed. Modern social democrats want to "transform the safety net of entitlements into a springboard to personal responsibility".

Structural change

It is argued that the left's "supply-side agenda" (see below) will hasten structural change, but at the same time make that change easier to live with and manage. Change will inevitably destroy some jobs, but create others. The dislocating effects of structural change will be greater the longer they are resisted, but it is no good pretending that they can be wished away. Adjustment will be easier, the more labour and product markets are working properly. Barriers to employment in relatively low-productivity sectors need to be lowered if employees displaced by the productivity gains that are an inherent feature of structural change are to find jobs elsewhere. The labour market needs a low-wage sector in order to make low-skilled jobs available. The tax and benefits system could replenish low incomes from employment and at the same time save on support payments for unemployed people.

Policy prescription: a new supply-side agenda for the left

A significant part of the paper addresses the issue of prescribing new policies, and it seeks to develop a "new supply-side agenda for the left". In order to face the challenge of the global economy while maintaining social cohesion in the face of real and perceived uncertainty, Messrs Blair and Schröder do not seek a renaissance of 1970s-style deficit spending and state intervention, but a new supply-side agenda for the left which includes the following:

  • a robust, competitive and properly working market framework and open trade. These are seen as essential to stimulate productivity and growth;
  • the complementarity of demand- and supply-side policies. Modern economic policy should aim to increase the after-tax income of workers and at the same time decrease the costs of labour to the employer, requiring the reduction of non-wage labour costs through structural reform of social security systems and a more employment-friendly tax and contribution structure. Social democratic policy should aim at a fruitful combination of micro-economic flexibility and macro-economic stability, ensuring adaptable economies via flexible product, capital and labour markets;
  • sound public finances. Although not ruling out the necessity of government deficits, deficit spending should not be used to overcome structural weaknesses in the economy that are a barrier to faster growth and higher employment. Social democrats should also not tolerate excessive levels of public debt, which would represent an unfair burden on future generations;
  • tax reform and tax cuts for workers, families and business to meet social objectives. Among other items, it is argued that corporate tax cuts would raise profitability and strengthen the incentives to invest. Higher investment would expand economic activity and increase productive potential, helping to create a "virtuous circle" of growth, increasing the resources available for public spending on social purposes. A high tax burden jeopardises competitiveness and jobs;
  • modernisation of the welfare state and embarking on new ways of expressing solidarity and responsibility to others, without basing the motivation for economic activity on pure undiluted self-interest;
  • "welfare to work" programmes. If successful, such programmes can raise incomes for people previously out of work as well as improve the supply of labour available to employers; and
  • small and medium-sized enterprises. It is maintained that these firms represent the greatest potential for new growth and jobs in the knowledge-based society of the future. It should be made easy for individuals to set up businesses and for new companies to grow by lightening administrative burdens, exempting small businesses from onerous regulations and widening access to finance. It should be made easier for small businesses in particular to take on new staff by reducing the burden of regulation and non-wage labour costs.

Reactions from the trade unions

Most trade unions and the left wing of the SPD sharply criticised the paper. DAG chair Roland Issen stated that the paper, especially as regards the parts on the welfare state and deregulation, meant a departure from the election programme on which the SPD was elected. The paper would not be supportive for the future development of the Alliance for Jobs.

In a first reaction, Heinz Putzhammer, a member of the DGB board, placed the paper in the context of efforts by "New Labour" and the SPD to recruit voters in the so-called "new centre". He said that both parties were seeking majorities in places where they could not be found. He criticised the paper's references to "neoliberal" thinking and demanded redistribution of work and the opening up of new areas of employment to reduce unemployment. Dieter Schulte, the DGB chair, and IG Metall's leader, Klaus Zwickel, criticised the proposals and the social and economic policies of the new red-green government as "copying" from the previous liberal-conservative government.

However, the chair of the IG BCE chemical workers' union, Hubertus Schmoldt, called the Blair-Schröder paper an interesting and courageous contribution to the current discussion. He said that SPD and trade unions had to accept that the integration of Germany into the world economy required new paths in the areas of public finance, collective bargaining policy and social policy.

Commentary

For the past few years, German social democracy has been engaged in the process of searching for a new programmatic identity, especially as regards the "right" policy prescriptions to meet current social and economic challenges in an increasingly complex environment. The pressure to make choices in innovative ways has generated strains in the SPD, frequently leading to quarrels between the traditionalist left wing with strong links to the trade unions - which regards Keynesian economic policy, a strong welfare state, collective institutions and the aim of equality of outcome as being characteristic of social democratic policy-making - and the more business-friendly modernisers - which have a more differentiated view of the economy and the welfare state, support an appropriate mix of demand- and supply-side policies, subscribe to the principle of subsidiarity in social policy, put more responsibility on the individual, and emphasise equality of opportunities. Whereas the Blair-Schröder paper was welcomed by the modernisers, it was sharply rejected by the traditionalists and most trade unions.

Without seeking to evaluate its contents in detail, it can be said that the paper contains ideas which might serve as a blueprint for future social democratic policy, which in turn might inevitably challenge the traditionally close relationship between the SPD and German trade unions. The paper takes more positive views on the values of entrepreneurship, the market mechanism, competition, subsidiarity, labour market flexibility and structural change, and more critical views on state intervention, public sector performance, centralisation, demand management, and a comprehensive welfare system, resulting in the new supply-side agenda for the left. This runs counter to the traditional positions and political demands of most German trade unions, which are based around Keynesian economic policy, expansive wage policy, redistribution of work and far-reaching state intervention in the economy. The paper is very brief on the role of the trade unions, reducing it to participation in partnerships at national and workplace levels and cooperation with management.

Although the conflict between traditionalists and modernisers within the SPD has not yet been resolved, it seems to have entered its crucial phase. At a time when the new government has consolidated its work, and with opinion polls showing its lowest post-election support, it might make sense to take the initiative and start a new round in the unpopular and lengthy SPD internal debate. In the likely event that the modernisers will succeed, a further deterioration of the SPD-trade union relationship seems very likely. The DGB unions have already increased the pressure on the SPD and the red-green government, and DGB and IG Metall have already announced that it would be very easy to launch mass protests of their members against the austerity policy of the red-green government, if necessary in cooperation with the conservative, liberal and post-communist opposition parties.

The discussions on the programmatic renewal of the SPD and its relationship with the unions touches upon fundamental issues for both parties concerned. First, the SPD faces a strategic political dilemma. In order to be elected into government, it has had to depart from traditional left-wing positions and to position itself closer to the economically more liberal political centre, at the cost of frustrating its traditional core electorate on the left. This creates opportunities for competitors. Immediately after the publication of the Blair-Schröder paper, the post-communist PDS party issued "12 theses for a policy of modern socialism" in order to attract disappointed left-wing voters, trade unionists and SPD members. However, as electoral behaviour shows, only 56% of union members voted for the SPD in the 1998 elections. Furthermore, as the membership figures of the unions are declining (DE9908113F), losses on the left should not be overestimated. The question of the representativeness of German trade unions is also increasingly raised.

Second, the current discussions also reveal a strategic dilemma for the trade unions. As they stick to traditional theories and views of the (social and economic) world, which might be useful in legitimising their demands for expansive wage, fiscal and monetary policy and general working time reductions, but are nevertheless inappropriate in solving the current structural economic problems, they seem to be losing touch with a - sooner or later - modernised SPD and losing influence in decision-making within the German political system. At this point, however, it should be noted that, as a lobbying institution, the DGB and its member unions also maintain frequently-used links with the labour wing of the Christian CDU and CSU parties. On the other side of the political spectrum, it also appears that some trade union officials, who have so far been shying away from cooperating with the post-communist yet still largely Marxist PDS, because of the party's history under the East German regime, might change their minds and transform their sympathies into cooperation, thus abandoning the SPD in order to join ranks with PDS in the class struggle.

Every relationship reaches points where the fundamental elements on which it is built have to be put under scrutiny and, if necessary, adjusted. This process necessarily involves discussions, sometimes hard struggle, and mutual voluntary agreement on whether to stay together of to pursue different paths. This is especially true for a long-term relationship such as that between the SPD and the (DGB) trade unions, which has lasted for more than a century. There are many who argue that the time has come for both the trade unions and the SPD to modernise their organisations and to redefine their political identities. This will not be possible without conflicts, both internally and between the two sides. However, whether SPD and trade unions will finally break their bonds or not is still largely a matter of speculation. (Stefan Zagelmeyer, IW Köln)

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