A Contrarian View: Learning From The East

When the German automaker BMW decided to build a new assembly plant for its 3 Series sedan, executives scouted 250 locations around the world. They considered sites in France and the Czech Republic, where lower wages and a friendly regulatory climate meant they could operate more cheaply and efficiently than in high-cost Germany. But in the end they picked a green field outside Leipzig, in Germany's east. The reason: labor costs that are more than a third lower than in western Germany, coupled with a flexible agreement with the local union that would allow BMW to run its plant 140 hours a week--not quite 24/7, as you might find in some parts of the globe, but as close to it as BMW could wish.

The deal, says BMW spokesman Hubert Bergmann, is better than the company could have gotten anywhere else in Europe. And it's clearly good for Leipzig and surrounding towns, which stand to gain some 11,000 new jobs when the plant opens in 2005. Perhaps most important, it's a sign of good news for eastern Germany as a whole. The former German Democratic Republic still suffers from the legacy of half a century of communist mismanagement, despite half a trillion euros in reconstruction subsidies. Unemployment is more than twice the national average, and incomes are lower. But as the example of BMW shows, there are cases where the east is working--and that's often in places that are conspicuously more business friendly than in Germany's west.

Think of them as oases of economic modernity, islands of corporate independence where local officials, workers and union leaders are willing to bend (or even ignore) the thousands of pages of rules and regulations that trammel businesses in the rest of the country. It's a spirit of rebelliousness that you don't often find in Germany's consensus-driven society, and Wolfgang Heinze, for one, considers himself something of a guerrilla in an emerging movement. "We east Germans didn't launch a revolution against communism just to get make-work jobs, 100 percent sick pay and big welfare checks," says the general manager of the Dresden subsidiary of Southwall Technologies in Palo Alto, California. Along with other area business leaders, he's helped spearhead a push for change. East German shopkeepers are flouting Germany's famously antiquated store-opening laws, which force businesses to close at 4 p.m. on Saturdays and stay shut on Sundays. Town mayors desperate for investment often see to it that new businesses quickly get their permits, instead of getting entangled in western-style red tape that can put new businesses on hold for months if not years.

And across the old east, workers are changing their attitudes. With 90 percent of them no longer doing the job they had before unification, they've developed an adaptability and can-do outlook that's often lacking in the west. They're willing to work longer, and for less money, and they don't care much for the Wessi union activists who come in and try to keep them from doing that. Hourly labor costs average 36 percent less than western Germany's, and easterners work 1,725 hours a year versus 1,592 in the west. Small wonder that companies like AMD and Fujitsu, Porsche and General Motors have invested billions in the east.

It's telling that, instead of encouraging such healthy developments, the country's mostly western bureaucrats seem determined to snuff them out. Last year, to cite but one example, regulators drafted a law that would have obliged eastern construction companies to pay the same wages as their western competitors. It was blocked, at the last minute, after harsh protest from east German politicians and business leaders, who rightly foresaw that it would put thousands of their workers out of jobs. "Virtually all of the western bureaucracy has now made it to the east," complains Udo Ludwig, economist at the Institute for Economic Research in the eastern city of Halle. That's a bad sign. After a decade of making Ossis copy the west, perhaps it's time for Wessis to start learning from the east.

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