Germany must embrace realism over wages: The head of Germany's CBI talks to John Eisenhammer

GIVEN the choice between 'industrial suicide' and an all-out strike, Tyll Necker sees the latter as the 'lesser evil'. Since yesterday the head of the Federation of German Industry (BDI) - which represents industrial employers in western Germany - he is facing, along with fellow employers in the metal and engineering sector in eastern Germany, the prospect of escalating industrial action.

Yesterday was the day when a 26 per cent wage rise should have come into force as part of the process of quickly bringing eastern wage levels up to western ones. Facing a desperate economic situation the BDI took a step unprecedented in German industrial relations history and tore up the agreement. Instead, the employers are offering 9 per cent, to cover inflation, from 1 April. The unions, fearing the precedent that would be set by this challenge to the fundamentals of wage bargaining, called out more than 90,000 workers in the first round of warning strikes that began a campaign of escalating industrial action.

The 63 year-old Mr Necker knows how high the stakes are, less because of his office as Germany's senior representative of industry, than because of his experience on the ground as boss of a machine-tool firm in Brandenburg. Mr Necker's western company, Hako-Werke, specialising in cleaning machinery, bought up the eastern Havelladische Maschinenbau in 1991 and has invested heavily in it. 'But it is still making losses, and if we had to pay the 26 per cent wage rise, then I would have to think about pulling out,' he says.

For many manufacturing firms, the burden of another 26 per cent increase, while productivity remains way below western levels, would mean suicide. 'It would massively boost the process of de-industrialisation in the east, which has already ravaged some three quarters of the jobs which existed in manufacturing back in 1990,' he says. Sheer desperation, according to Mr Necker, justified the fateful step of cancelling the 1991 wage equalisation contract. 'We had to get out of it, because it did not just imply a 26 per cent rise now, but also a 30 per cent one next year. You cannot kill an industry with deals that cannot be paid,' he says.

From the outset, Mr Necker was one of the most vociferous critics of the wage equalisation idea. Back in 1991 he was not president of the BDI, so it appeared less contradictory when his first act on purchasing Havellandische was to pull it out of the employers' association. 'They had struck a dangerous and illusory deal, so leaving was the only consistent thing for me to do,' he says.

The pitfalls of the four-year wage equalisation process, concluded under strong political pressure to encourage eastern Germans to stay and help rebuild their shattered economy, were plain. 'Nowhere in the world is there an example of firms carrying annual wage increases of over 20 per cent with relatively stable prices. It is simply not possible,' says Mr Necker. But most did not heed his warnings. 'Too many people were carried away by the illusion that things would get going quickly,' he says.

The consequence of the rapid increase in eastern wages has been to accelerate the collapse of numerous firms there, and to put off potential investors from western Germany and abroad. 'The dissuasive effects have been mighty,' he says. 'Managers have to ask themselves where alternatives lie, and it is clear that eastern Europe offers considerable cost advantages.' Like his own Havellandische, increasing numbers of eastern German firms are deserting the employer federations. But they all find that this offers little immediate relief. 'German wage law states that even if you leave the federation, you remain bound by the contract until it expires. This is acceptable with the normal 12-month contracts, but the one in eastern Germany lasts for over four years,' he states.

But even if largely symbolic for now, the exodus from the employer associations has exerted considerable pressure not just in the east. Increasing numbers of small and medium-sized firms are threatening to leave the engineering association in the west because of high sectoral wage deals. Tyll Necker is not prepared to consider such a move yet for his own Hako business, but he understands the trend. 'Firms feel they have to leave in order to force the association to correct its wage strategy. I cannot as an employer say I will not defend myself,' he says.

All of Germany is facing a 'cost crisis', says Mr Necker. During 1991 and 1992, western German unit wage costs rose by 12 per cent, as much as four times those of its competitors. Aggravating the situation has been the appreciation of the mark. 'But getting this cost burden down is one thing. Another altogether is increasing and making more flexible the amount of working time,' he says.

The working week in the key western engineering sector has been cut to 36 hours from 1 April. 'This is the real challenge, but even here I am not too pessimistic. Even though the unions do not want to think about it now, I believe changes will occur much sooner than many expect, given the crisis that is still to hit us,' he says.

For he is convinced that the recession is only just getting under way. 'So far it has been limited mainly to manufacturing industry, but it will soon spread to other sectors. In the coming months we shall see a sharp rise in unemployment - it will be our number one social and political problem,' he believes.

Despite the self-congratulation surrounding the solidarity pact on financing unification, the politicians in Bonn have not yet dug themselves out of their hole, argues Mr Necker. 'They have just put off the worst - the cost question in public-sector finances has still to be tackled'. When it comes to the crunch, he says, the German people will accept the 'realistic counter-measures needed'. The problem is getting the politicians to present them in the first place.

Such doubts underpin Tyll Necker's unwillingness to talk of matters improving in 1994. 'That entirely depends on us, on the businessmen and politicians,' he says.

(Photograph omitted)