Britain can prosper by understanding how Germany succeeds

Movement is everything.

A VW car store near Wolfsburg.
The ordered, competitive economy: the VW car store near the company's production plant in Wolfsburg. Image: Christian Charisius/Reuters.

“The lives of the dead hang like a nightmare on the minds of the living,” wrote Marx. His words apply to the relationship between Margaret Thatcher and the Labour Party. She defeated us in life and her ghost was not laid at her funeral. Thatcher’s inheritance still sets the parameters of political rationality and government policy today. She argued that Labour spent too much, taxed too much and borrowed too much. In terms of what used to be called “ideology”, she fused a theory of human nature (self-interested, patriotic) and history (an adventurous island people weighed down by taxes and regulation) with a theory of reason (markets distribute goods more efficiently than states). These added up to a political position that could both explain the causes of decline and give a clear orientation for action in the present. Thatcher had a narrative and a strategy, and she generated energy.

The trajectory of the Labour Party over the past 35 years has been defined by the challenge Thatcher posed. What is the alternative to the market as the exclusive generator of innovation? What is the alternative to managerial prerogative in the pursuit of efficiency? Part of Labour’s challenge is historical: to show that the durability and comparative strength of Europe’s most successful economy – Germany’s, which has come to be understood exclusively as a function of its monetary discipline –was in fact rooted in a series distinctive, decentralised institutions. The “equalisation of burdens” act of 1952 stipulated that there had to be negotiation between capital and labour both inside firms and in society as a whole.

The coming together of Social and Christian Democracy, the latter characterised by a strong commitment to the dignity of labour espoused in Catholic social thought, led to a system of “co-determination”, rather than nationalisation, in which the workforce had significant representation on management boards; and to a vocational system of labourmarket entry which was organised by democratically elected institutions and by regional banks not permitted to lend outside their area. Sectoral pension funds were run with an equal representation of capital and labour and were based on current rates of earnings. The irony is that these institutions were built after the war in the British zone of occupation, and were signed off by the then foreign secretary, Ernest Bevin.

Incentives to virtue were built into the German system through institutions that renewed knowledge, good practice and intergenerational solidarity. Neither neo - classical nor Keynesian economic theories can conceive of value being generated by anything other than the individual or the state. Neither has a theory of the firm, or of those mediating institutions that preserve and generate value within the economy. Nor is there a vision of Europe that involves the strengthening of decentralised institutions, cities, universities, vocational colleges, regional banks and community-owned football clubs.

The current economic debate is suspended between austerity, on the one hand, and stimulus, on the other. Neither perspective recognises the centrality of conflict and cooperation between classes or institutions, nor do they seek to strengthen the internal practices of good institutions as a necessary condition for flourishing states and markets. Neither offers incentives to virtue nor establishes a common good between previously estranged interests, as happens in the German model.

What Labour should take from the Germans is a governing ideology that understands human nature as based on self-interest broadly conceived, an ideology in which the well-being of others is a condition of our own flourishing, and in which the preservation of quality through the practices of democratically organised, non-pecuniary institutions is as necessary as fiscal discipline and the upholding of individual rights.

The prevailing paradigms cannot explain why the economy with the highest level of workforce participation in its governance, the greatest degree of regulation of labourmarket entry through vocational enforcement and the most severe constraints on capital in its banking system should be the most competitive in Europe, as well as its most efficient. However, an explanation of the comparative superiority of the German economy should be central to Labour’s new economic offer. We are all in this together in ways that George Osborne cannot begin to understand.

Such a political position requires the following: a reassertion of the value of labour and the representation of the workforce in corporate governance; a renewed role for vocational institutions in reproducing skill; selforganised universities run by academics on the basis of the internal goods of knowledge rather than the external goods of money or policy objectives; self-governing cities with the power to shape the destiny of their citizens; and the endowment of regional banks that can resist the domination of the “Big Six” in internal investment and enable access to capital in regions where there is no nourishment to be found. A renewal of solidarity in social security and welfare is also required, one that establishes solidarity, subsidiarity and status as guiding principles. A politics of mutual sacrifice is the necessary complement to that of mutual benefit. That is the meaning of reciprocity.

The domination of internal investment by the banks that had to be bailed out following the crash of autumn 2008 must be challenged by the creation of new financial institutions and the renewal of old ones. These should be funded by using 5 per cent of the bailout money to endow new Banks of England. This would challenge the centralisation of capital, offer an alternative to payday lenders and offer tangible investment to local businesses. Jon Cruddas, in his “earning and belonging” speech in February this year, told the story of how the Northern Counties Permanent Building Society, which was rooted in the north-east of England, survived four depressions, growing through each, but could not survive its demutualisation as Northern Rock in 1997. In maximising returns, the asset was lost and a trusted local institution was destroyed.

The overwhelming lesson of the German economy is that a balance of interests in corporate governance between capital and labour is as necessary as a more relational and localised banking system. Accountability is too important to be left to accountants. The only group with the expertise and an interest that could hold elites accountable and have an interest in the flourishing of the business is the workforce. This is double-edged: on the one hand, capital must negotiate with labour and share information about firms and their environments. On the other hand, the workforce must commit itself to good standards of work and to the well-being of funders and consumers. The common good is a demanding category.

This offers a constructive alternative to the current government, which is still working with the same failed banking institutions, refuses to make a connection between apprenticeships and labour-market entry, and cannot conceive of a different form of corporate governance. A state investment bank combined with a continued reliance on migration for skills, without regional investment institutions and vocational colleges that are aware of local realities, could stimulate short-term excitement but would not offer the framework for long-term relationships that are the basis for innovation and growth. “One-nation” economics is pro-business and pro-worker, and seeks a balance of power in fostering innovation. A more competitive economy requires shared institutions that generate quality and value. Quality and equality are mutually supportive concepts.

That is what is at stake with “one-nation Labour”: the possibility of a life together that is different and better, of a politics of the common good that is equal to the challenges we face and offers partnership to people. Relationships precede action. We need to rediscover the need for each other. The founder of German social democracy Eduard Bernstein was right: the movement is everything.

Maurice Glasman is a Labour peer