Germans plan overhaul of industrial democracy

Like any good German businessman, Arend Oetker pays more than lip-service to the interests of his workforce. Four times a year he addresses the workers' council at Schwartauer, his 100-year-old jam and baking-ingredients company. His 1,700 employees in Germany have the legal right to organise, to have dedicated staff working for an elected workers' council and to take part in many company decisions - particularly regarding overtime, hiring and firing.

But Mr Oetker's goodwill might soon be tested. Mr Walter Riester, Labour Minister in the Social Democratic-led government, is drawing up plans for a substantial overhaul of the legislation on workers' councils. The Minister's aim is not to dismantle the system. It is quite the opposite. Mr Riester argues Germany's system of workers' councils is a real competitive advantage and has to be reinforced against the corporate change sweeping across Europe. Mr Riester is worried that companies such as Schwartauer have become the exception, rather than the norm. According to the German trade unions' association, DGB, only 35 per cent of today's employees are represented by workers' councils, down from more than 50 per cent in 1980. The fall is partly a consequence of Germany's reunification in 1990 - eastern German employees were not so unionised and many saw little need to exercise their right to establish workers' councils.

But there are also structural factors. Workers' councils have less appeal to a younger, more mobile generation of workers who see little need for formal institutions to defend their interests. Workers' councils have been outmanoeuvred as employees are contracted out or spun off into new companies with no replacement councils. The effect has been to undermine an institutionalised system of councils dating back to the 1920s, when the idea was to ensure democracy did not stop at the factory door. Suspended by the Nazis, the councils were revived in the 1950s, with legal-backed concepts of Mitbestimmung, or co-determination between management and workers. Businessmen such as Mr Oetker argue that few tears should be shed. He is happy to keep working within the existing system. But the need in the 21st century, he says, is to remove the rigidities in the German labour market - workers' councils regiment labour conditions and, by including trade unionists in decision-making, help bind companies into restrictive, industry-wide wage tariff deals. The country's influential trade unions argue differently. The DGB is lobbying hard for reforms to the 1972 Betriebsverfassungsgesetz, the law that governs workers' councils, that would make the legislation more applicable to the age of the Internet and high technology, when many companies are small or even "virtual".

The DGB wants the right to establish workers' councils extended to companies with three employees instead of five, as at present. Companies with 200 employees (as opposed to the current 300) would have to free up a worker to serve full-time for the workers' council. Election procedures would be streamlined, and Mitbestimmung rights extended. Revisions to the 1972 legislation being drawn up by the labour ministry are expected to incorporate many of the trade unions' arguments. Mr Riester's draft Bill, promised for the autumn, is expected to promote what the ministry sees as greater flexibility.

When two concerns were merging, the remit of a workers' council could perhaps extend beyond one company. When employees are being transferred into new companies, existing workers' councils should have a "transitionary mandate" to take responsibility for departing employees until new workers' councils are set up.

All this alarms industry - workers' councils that covered more than one company would at best complicate the system. At worst, it is impractical as workers would in theory have influence over the affairs of a rival concern. Industry's hopes of seeing off the reform depend on whether Mr Gerhard Schroder, the German Chancellor, is prepared to let the issue quietly drop. In the past, he has been inclined to listen to the business lobby rather than Mr Riester or other Social Democrat colleagues - agreeing in the past few months, for example, to give foreign information technology specialists the ability to move to Germany without enduring the usual immigration bureaucracy.

Mr Oetker says Mr Schroder has far more pressing issues to deal with - particularly the reform of Germany's complex tax system and an overburdened state pension system. "These are much more important to the country's competitiveness. The Betriebsverfassungsgesetz is simply the wrong issue," he says.