View from Frankfurt: A dispute on the cusp of industrial history

THE DRAWBRIDGES are being hauled up in eastern Germany in preparation for the final battle of a bygone era. It is a conflict about the fruits and habits of prosperity, being waged at a time of unusual hardship.

The pay dispute in the metal and engineering sector is the vestige of that supreme over-confidence in the German economy that reached its height at the beginning of the 1990s. It was characterised by a widespread conviction, bred by years of steady success, that nothing could stand in the way of Germany's industrial juggernaut; that unification, after a brief and not unduly stressful transitional period, would further boost the country's performance.

Such self-confidence encouraged a cheque-book approach to problems. Hence the 1991 accords on the staged equalisation of the much lower wages in eastern Germany with those in the west, among the highest in Europe. At the time the agreement was regarded by most employers as clever and affordable. Now it has been spurned as utter lunacy, causing the unfolding eastern strike drama.

In western Germany, the economy's steep descent into recession has slowed wage settlements sharply. Having averaged more than 7 per cent in 1991 and 5.5 per cent last year, they will settle at about 3.5 per cent this year and should go even lower in 1994. This process has not been allowed to take place in the economically devastated east because of the commitment to large annual wage rises under the four-year equalisation programme. A rise of no less than 26 per cent should have been paid in the metal and engineering sector on 1 April, with a further 30 per cent next year, to reach basic western levels.

That the employers, claiming an economic emergency, decided to tear up the contract, an event unprecedented in modern Germany's consensus-obsessed industrial relations, shows that this is no ordinary dispute. It is about far more than percentages and pay. This is the last labour conflict of the old, prosperous West Germany - even though it is taking place in the east. Its outcome will point the way for the changing industrial relations needs of a country that is having to get used to the politics of scarcity and sacrifice.

Significance should not be confused, however, with melodrama. This is, or will be, a strike about making incremental changes to the system, not destroying it. Amid the sound and fury of the preparations for real battle - after weeks of preparatory skirmishes, Germany's largest union, IG Metall, is to hold a ballot next week for a full strike in three regions of eastern Germany - there is a great deal of bluff.

None of the parties is confident. Few workers in the east have much stomach for a fight to the finish. The process of de-industrialisation there has already wrought havoc - the total number of jobs in manufacturing industry today is about a fifth of what it was in 1990.

Despite this overwhelmingly unfavourable climate, IG Metall will almost certainly get the strike vote it wants. It has done its homework and found sufficient frustration in the east, and above all a deep-seated fatalism, to produce the support for an initial resistance to the diktat of the western bosses.

In Gesamtmetall, the employers' federation, morale is not nearly as high as it would have the outside world believe. In media coverage of the dispute so far, the employers have come off far worse than the union. For all the outrageousness of IG Metall's insistence that the full 26 per cent wage increase be paid as agreed, the balance of public opprobrium has swung against the employers.

Kurt Biedenkopf, the influential Christian Democratic premier of the eastern state of Saxony, who has sought to mediate in the dispute, has been withering in his condemnation of the employers' obstinacy. But as the prospect of a proper strike nears, this front is cracking. A number of efficient firms in the east, such as Volkswagen at Zwickau, have already said they will pay the 26 per cent. The employers' favoured line that a strike would be the 'lesser evil' sounds increasingly hollow in certain mouths.

IG Metall, by contrast, seems prepared to go most of the way. Not only is it hugely rich and powerful, with its 3.6 million members, but it views the stakes as sufficiently high. For all his public posturing, the shrewd leader of IG Metall, Franz Steinkuhler, is less interested in getting back the 26 per cent pay increase than in nailing the employers on their erosion of the principles of collective bargaining.

The union's concern is not unfounded. When the engineering employers tore up the wage accord, they said it was an exceptional move never to recur. But it was promptly repeated by steel employers. And the trend is not confined to the east. The western textile employers say that they will honour the 1993 wage rise only if the unions discard the accord on further reductions in the working week.

Growing numbers of firms are seeking to follow Bosch's example of telling the workforce there will be no basic wage rise this year, as the agreed increase is being offset against bonuses and benefits. Such a move is not against the letter of the law, but certainly breaches its spirit.

Lurching about in a structural crisis, German manufacturers are looking to clamber down from the uncompetitive cost heights they recklessly scaled in recent years. But the industrial bargaining system, increasingly used to distributing ever- larger shares of bounty, has become rather too inflexible for the needs of a Germany undergoing today's exceptional strains. In their desperation to impose a new flexiblity, some employers have opted for high-risk methods.

As the head of the national employers' federation, Klaus Murmann, noted, the current crisis offers the chance for a fundamental shift. The unions, IG Metall at the forefront, are determined to blunt such efforts.

Although it is probably the most willing to conduct a real battle in the east, it is IG Metall that will have in the end to climb down furthest. With the eastern German economy still spluttering on Bonn's life-support machine, many firms in the engineering sector would close if forced to pay the 26 per cent now, followed by 30 per cent next year.

Mr Steinkuhler knows this. But he also knows that many other firms, not just Volkswagen, can pay. The situation in the east has exposed in dramatic fashion a new problem for all of Germany - inflexible sectoral agreements are ill-suited when there are vast differences between firms.

As the recession hits in the west, there are growing numbers of small and medium-sized firms claiming they cannot afford the industry deals negotiated by the giants of the sector, and threatening to leave the employers' federations. In the east this exodus is already well advanced.

The complex solution to the eastern metal workers' dispute will probably hinge on ways of achieving greater flexibility while somehow preserving the principle of sectoral bargaining, by which the unions set such store and which has served western Germany well over the past 40 years. Some form of escape clause would allow those firms that cannot afford to pay the full amount to get by with less. It will not be easy, but the skill of German negotiators to compromise when the pressure becomes irresistible should not be underestimated.

If successful, the formula that emerges from this dispute will lay the groundwork for Germany's industrial relations, as the country drags itself through the lean 1990s, away from what Chancellor Helmut Kohl once famously described as the temptation to see itself as a giant leisure park.