Lessons from the German experience

Ralf Dahrendorf Three times in the last sixty years, changes in the constitution of companies designed to give workers' representatives • a greater say have dominated political debate in Germany: in the years preceding the Works Council Act of 1920; again before the Co-determination Act of 1950 (and the Constitution of Enterprises Act which followed it in 1951); and then since the formation-of the Brandt-Scheel government in 1969 which had pledged an extension of participation. The political constellations of these periods are as extraordinary as the substance of the debate, and in describing them a story emerges which has many unique features: the story of an industrial system which was developed under the benevolent autocracy of Imperial Germany and therefore never strictly capitalist, in which a reformist trade union movement had a major say from well before 1914, which reflected the prevailing preoccupation of German society with 'constitutional' matters — that is, rules incorporating and binding everyone, and in which the only major deviation from a sense of co-operation within accepted rules was the ruthless 'leadership principles' of National Socialism.

But let me look at some of the specifics. When soldiers and workers became restless in 1918, they borrowed from the Russian experience the idea of the 'soviet', that is a 'council', self-government by elected representatives within limited social units. "Workers' and soldiers' councils" were formed in many places at the end of the War, and the LiebknechtLuxembourg wing of the Socialists regarded the council movement as the epitome of the new pattern of social organisation. Once the constitutional turmoil of the immediate postwar period had subsided, the Weimar constitution being drafted and a new government formed, the more radical notions of this kind receded.

But it was a Socialist government, supported by the emerging Communists, which enacted ligislation to set up workers' councils in all firms above a certain size, consisting of elected representatives of the workers of that firm,

responsible for representing the interests of workers vis-d-vis management as well as for helping management to implement the aims of the company. With numerous modifications, most of which have added to the managerial functions of work councils, the institution has survived, indeed blossomed, until the present day.

After the second world war, an entirely different constellation emerged. For one thing, the government was not Socialist, although the Christian Democrats of the time tried to. combine Catholic social reformism with traditional conservatism. For another thing, there had been no internal revolutionary pressure to speak of; most changes were in fact imposed by the occupation powers, among them notably Bevan's idea of a trade union system structured into a small number of powerful industrial unions. In this climate, the idea of 'co-determination' represented something of a multiple 'historic compromise': a compromise between the German government and the occupation powers about ways of controlling the Ruhr; a compromise between feuding factions of the Christian Democratic Union and above all a compromise between Adenauer and the trade unions.

The law was enacted; it provides, in the coal and steel industries, for an equal number of shareholders and of labour representatives on supervisory boards, and for a 'labour manager' on executive boards, who cannot be appointed against the votes of the labour representatives on the supervisory board; in all other enterprises, the subsequent Constitution of Enterprises Act foresees a supervisory board on which labour representation would amount to one third of all members.

In the late 'sixties, a number of European countries went through a reformist phase, a period in which people were prepared to listen to those who promised not simply more. prosperity, but (in the words of Brandt's first policy statement as Chancellor) "to venture more democracy". Co-determination and participation were very much a part of this notion, and while Liberals had traditionally resisted any restriction on entrepreneurial initiative, one of the changes which made the BrandtScheel coalition possible was an acceptance by both sides that co-determination should be extended to all companies. Six years have passed since then, and still no legislation has been enacted. There are a number of matters still under dispute: many Social Democrats demand full parity on supervisory boards, where Liberals demand procedures for resolving stalemate which would give shareholders' representatives the last word. Many Social Democrats want to give the unions a greater say in nominating all members, whereas Liberals insist on the direct election of as many as possible; many Social Democrats insist that 'labour' is one homogeneous category, whereas the Liberals want to distinguish between middle management and the rest. Despite all delays and disputes, however, there can be little doubt that legislation to extend co-determination will find a broad majority in the Bundestag, including many members of the opposition who share the preoccupation of the coalition with more participation.

This then is the present position in Germany: works councils, elected by the employees in all firms; labour representatives on all supervisory boards, forming very nearly half of board members in the coal and steel industries; labour managers in the coal and steel industries; and a lively political debate about the extension of such scriemes, which is likely to lead to new legislation. Before I begin to assess the impact of Germany's constitution of the enterprise, one personal remark may be in place. For many years, I have been one of the more outspoken critics of the German preoccupation with constitutional problems rather than interests in industry. From an opinion prepared for the German trade unions council in 1960 to my contribution to the Free Democratics 1969 election manifesto, I argued that lowering the obvious lines of industrial conflict must in the end lead both to a violation of legitimate interests and to the repression of conflicts of interest until they erupt from underground

With disastrous consequences. The dynamics of industry, and of society, in general, depends on open and accepted, if regulated conflict. I have also argued that a separation of enterprise representation (work councils) and industrial representation (trade unions) is likely to backfire. Moreover I subscribe unions), the theory

that it would be difficult if not impossible for the same man to vote the dividend one day and attack the profit margin the next. While I see no reason to retract the argument in terms of regulator conflict, I do believe today that the case for, or against, participation is more complex, as I have tried to show in my Leverhulme Memorial Lecture on "conflict and contract" (Liverpool University Press 1975). At least the following statements can already be made about the effect of industrial democracy in Germany: • German industry has clearly not suffered from participation, whether in terms of profit margins, or the investment climate or adapta bility to change..

• German workers have clearly not suffered from participation, whether in terms of wages or security of employment, or conditions of work or influence.

• German trade unions may on the whole be moderate and reformist, but they are not weak. It is widely argued that their (successful) big wage demand in 1974 was the remote cause of Brandt's fall; it is probably as difficult, not to say impossible, to govern against the unions in Germany as it is in Britain (although few have tried to do so).

• When official trade unionists have been elected to boards by works councils, this has reinforced union legitimacy. When, as often. happens, official union candidates are defeated in works council elections, the unions are forced to think seriously about the basis for their authority.

• The fact that forms of industrial democracy have worked over a fairly long period in varying economic situations has led to the creation of a basic sense of confidence between d,ivergent groups based on common experience; this in turn makes communication much easier.

Labour leaders do not, on principle, question management statements, nor do entrepreneurs on principle suspect labour representatives of ulterior motives.

• A system of relatively open industrial government has by now made it possible to agree even on disagreeable decisions, such as redundancies. Social schemes for helping

redundant workers (redundancy pay, retraining, assistance in moving houses etc) have

become a major area of joint effort by management and labour.

• A generation of trade unionists and other workers' representatives has grown up which has some experience in industrial management; a generation of managers has grown up which realises that labour is as important a constituent as shareholders. Deliberate training

efforts on the part of the German equivalents of the TUC and the CBI have helped this development. • Effective industrial democracy has made it easier for the federal government to draw on the advice of the contestants in industrial disputes, so that a social contract involving only one side would be unthinkable.

The list of effects is clearly biased in favour of industrial democracy, and the bias is deliberate. Nevertheless, a more complete picture would have to take into account several other factors. In the early years, the election of workers' -representatives to supervisory boards led to a number of absurdities and disruptions, especially in coal mining. There are cases where the relationship between work councils and management amounts to collusion; and there are cases where trade unionists on boards are hypercritical to say the least. Above all Germany was lucky in being able to develop its system of industrial democracy after the War, at a time of almost continuous economic growth during which neither side ever came to feel the possible disadvantages of a system which undoubtedly militates against explicit clashes of interest of the British kind. (Although' this raises the chicken and egg problem: has growth in Germany been possible because of good industrial relations, or vice versa? Has British industrial strife been a result of slow growth or vice versa?) And once again of course one has to remember the political context in which German industrial relations developed, that is a tradition of constitutionalism rather than pragmatisrh, and a series of ruptures which made radical change inescapable.

Are there then lessons to be drawn? There is one lesson certainly: a simple translation of German schemes to Britain would be impossible. Differences in historical background, organisational experience, economic condition, political culture are too great to allow such a transfer. Indeed even in Germany it is doubtful whether without the disruptions of 1918 and 1933-1945 the system would have been feasible. However, as one who has become a convert to industrial participation, and who is fond of both Britain and Germany, I would find it very unsatisfactory indeed to stop at this point. Indeed I think there are further lessons; although the three which I am going to mention are probably less specific than some would like.

The first lesson is that if participation is to be effective at all it must be real. Participation offered by a tired management, or one in an 'impasse, as a desperate last move, is likely to remain as ineffectual as token participation for .a 'few powerless representatives. Unless it involves an effective shift of the basis of legitimacy of industrial decision-making — and in due course a major change in attitudes by those involved — participation will vitiate industrial relations and do harm to industry into the bargain. This is not the place to speculate about the structure of industrial enterprises, public and private; clearly the existence of supervisory boards makes it easier to introduce effective participation without discouraging initiative, and a careful study of Proposals for a European company law is therefore indicated. But whatever the structure it is the central decision-making process which has to be amended in any real scheme of Participation or co-determination. As long as management does not accept this, and unions do not want it I see little prospect for progress.

The second lesson I draw as a liberal. Clearly the assistance of powerful trade unions has to be taken into account in devising legislation for Worker participation. At the same time any Scheme of participation that does not give the employees of the company concerned effective rights is in fact a scheme for the further enslavement of individuals by organisations. I do not expect Britain to adopt the notion of Works councils which German union leaders curse more often than they praise; and I would' not be surprised if British unions, like their German counterparts, fought against the inclusion of 'outsiders' on supervisory boards. At the same time I feel that, unless individual workers are given a direct opportunity at least to elect their representatives, there will in fact be that collusion of organisations which management and labour in Britain are said to fear so much. Once again there are clearly many ways of satisfying this demand, as compromises will undoubtedly have to be found, but the point remains valid that participation must mean participation of the industrial 'electorate', and not just of the officials of industrial 'parties'.

The third lesson I draw with considerable hesitation, since it borders on that apparently greatest sin in British politics, consensus politics. Let me state the case nevertheless. For changes in industrial structure to be effective, that is in order for them to give workers new rights and opportunities and at the same time strengthen the confidence of the investors and customers, there should be fairly wide agreement on the scheme. I have recently read a new biography of one of my distinguished predecessors as director of the London School of Economics, Lord Beveridge: and it struck me' that his two most successful ventures in social policy, the introduction of labour exchanges before 1914 and the Beveridge Report of 1942, were both successful because they met with .support among enlightened people of all political convictions.

If the story of industrial democracy in Britain becomes another pensions story, then all attempts in this direction will only weaken further an industrial system which continues to puzzle the observer by its mixture of inherent strength and apparent weakness. If on the other hand industrial democracy is introduced on the basis of full information and argument, it may well turn out to be a source of unexpected new strength. But this is a suggestion which transgresses my brief to write about the German experience, and my competence as one who recognises a year after his return to this country that British politics is even more difficult to understand than British industry.