Government Reorganization Plan Bails Out the Industry

After a spectacular post-war revival, the West German steel industry, like that of the rest of western Europe, is in deep trouble. A government reorganization plan currently being considered for approval by a Common Market commission will restructure the traditionally independent industry under government auspices.

By 1975, the West Germans had built the largest and probably the most modern steel industry in Europe, which supplied a booming home market to shipbuilding, auto, and machinery makers.

In that year, the oil crisis sparked the bursting of a bubble in the steel industry that could not have expanded much more. Though demand would have dropped anyway, instead, it plummeted. Suddenly tanker shipyears were no longer building the 200,000 ton behemoths of the preceding boom years. Cars became smaller, used thinner plates, and switched to lighter, gas-saving alternative alloys where they could. But even as the market shrank, world production rose as Third World countries and eastern Europe started up or increased production.

By 1976, the Common Market knew that its steel industry was in a major crisis. Nonetheless capacity continued to expand as investment in labor-saving equipment proceeded apace. At the peak of the boom in 1974, the Common Market as a whole (by now including Britain) had a capacity of 179,000 tons, and was actually turning out 87 percent of that amount. Three years later, the investment juggernaut had pushed capacity to the 200,000 ton level; production however, was down to 126,000 tons (or 63 percent of capacity). West Germany had slipped to 30 percent of EEC output and to a mere 58 percent capacity level.

In May 1977 the EEC responded to the crisis with the Davignon plan, which was designed to limit competition within the EEC and to restrict imports. It set mandatory or "guidance" price floors for steel products, and also established shipment quotas for producers within the market. The plan required the negotiation of trade pacts with 14 foreign countries which ship steel to the market.

The renewed recession, which has struck hard at its export levels, has finally destroyed West Germany's ability to escape the consequences of the crisis in its traditional backbone industry. Unemployment is now at two and a half million in the country as a whole, and in the industry, employment dropped more than 30 percent from 300,000 in 1979 to 200,000 in 1981. Even that was considered much too high by the country's economic experts, so that a plan for the reorganization of the industry became the top priority of the new conservative government led by Helmut Kohl when it took over last fall. Kohl's economics minister, a rightwing liberal named Count Otto Lambsdorf, had set in motion a study for restructuring steel while serving in the same post for the Schmidt administration.

In charge of drafting the plan was a group of "three wise men" all top corporate executives with experience in steel -related industries. Gunter Vogelsang is a steel executive who is said to be a prospective member of the board of directors of Thyssen, one of the two steel giants. Alfred Herrhausen represents the interests of the industry's creditors-he is a manager at the largest and most important of them, The Deutsche Bank. Marcus Bierich comes from the Mannesmann Corporation, a major steel customer.

To save an ailing major industry, European experience offers two routes: consolidation under private owership, but with strict government and EEC regulation; or else, nationalization. The three wise men obviously preferred to take the former course now, with a conservative government in power, than risk having the latter imposed on them later. They therefore advised restructuring the industry under two huge "groups."

The six production sites which will remain under the plan-three for each group-will probably have to be cut to four by 1990 unless there is a dramatic reversal in the market situation, which only the wildest optimists can foresee. Total employment will fall immediately below the 150,000 level, down two-thirds from the 1960 peak, and another two-thirds slash is likely before the rationalization process ends, according to Eckhardt Stratmann, a member of parliament from the Ruhr of the Green Party and steel expert.

The effects of the crisis are most starkly evident in the Saarland, a small state in southwestern Germany. In 1978, the area's main steel firm came under the control of the Luxemburg multinational Arbed as part of the first major government attempt to deal \kith the looming steel crisis. What Arbed was after, apparently, was a number of patents owned by the German company. These were then used to upgrade production in Luxemburg, while Arbed failed to invest a penny in the Saarland. The only investment, a modern mill in Volklingen, was paid for by the West German federal government.

On taking office in 1981, EEC President Gaston Thorn said that, for declining industries, "The role of the Community is to ensure that policies designed to assist restructuring are market-oriented and do not simply lead to reinforcing the national character of productive processes, or to the recreation of preferential markets for their benefit. "

These words ring hollow in the light of such disinvestment tactics as those practiced by Arbed-the dominant corporation in Thorn's homeland of Luxemburg - in which holdings in foreign countries are the first to be slashed, and it's once again everyone for themselves. If European integration is to work, it will definitely need a new infusion of ideas.

Saarland steel is now living on borrowed time, but at the expense of its workers. They have taken pay cuts, short hours, lay-offs and give-backs-the latest series in a deal worked out just before Christmas, when they surrendered half their holiday bonuses in order to insure a government plan that will continue to subsidize Arbed until 1985. Since it is not included in the steel reorganization plan, and since the Luxemburg government is considering a plan to have Arbed pull back from its German operations all together, the future of the industry is bleak.

Even if it is "saved," it will be shrunk so small that it will no longer be able to serve as the economic backbone of the state. The modernized Volklingen mill, may remain; Burbach, the traditional steel center in the state capital of Saarbrucken, will almost surely collapse. Already, stores are closing in the neighborhood, people are moving away to find work, and a working-class community a century old is disintegrating. Not only local businesses are suffering; even the federally-owned railway is cutting back, transferring workers elsewhere-and dropping them from full-time status.

The cuts are part of Count Lambsdorf's economic prescription for the country's growing economic woes. The Social Democrats of Helmut Schmidt had no better ideas for dealing with the recession, and consequently lost the election in March. Also elected, however, were representatives of the Green Party, who have a series of radical new ideas for dealing with the crisis on a long-term basis. Usually denigrated as hopeless romantics, the Greens in fact are remarkable well informed about economic issues.

Their program for the failing steel industry, drafted primarily by parliamentary deputy Stratmann, calls for the "transfer of the steel industry to a new form of social property holding"-a formulation clearly designed to avoid the pit falls of a nationalization scheme under which the government would take over the industry and run it as before. They demand greater in-plant democracy, and reject the centralization plan for the industry as a counterproductive move that will take control even further away from the people in the local areas who need the factories and their products. "Smaller production units will be more flexible in regard to demand," the party's statement on the issue points out. They also demand an immediate reduction of the work week to 35 hours-they are the only party to support this trade union demand unconditionally-and later reductions to 30 hours.

Still, they recognize that many of the industry's problems are structural, and cannot be easily solved. "If we implement our overall economic policy concept in this country," Stratmann told the Monitor, "there will be a drop in steel production. Technological innovations will continue to reduce the demand for steel. Public transportation, which we support for ecological and social reasons, requires less steel than cars."

What can be done with the workers displaced by such changes? Clearly, they will have to be retrained, says Stratmann. "There are no alternatives open within the steel industry. You can't do anything with a steel mill besides make steel." The same cannot be said, however, for all branches of heavy industry. The shipbuilding industry of the North Coast, which is largely owned by the steel giants, is, if anything, even more stricken by the recession than its parent; here, however, workers are coming up with alternatives. Uli Schmorss, who works for the Blohm & Voss shipyard in Hamburg, told the Monitor of a Metal Workers Union study group in his local that has been working on plans for alternative production at the yards. "We started looking at some of the areas that have been neglected, where there are things that have to be produced," he said. "We don't want to have to depend on nuclear power, so we looked at the possibilities of building block-scale power plants. The Elbe River is so dirty here that the ground water is polluted. We think that water-purification equipment is needed. We have the machines and the skills to manufacture these things."

Key to the production Schmorss is envisioning are local needs-not the requirements of an export market. That market, as far as the shipyards are concerned, is largely weapons-oriented at present. "Our two biggest contracts recently were for frigates for Argentina," he points out. "Now they want to sell some to Turkey. Of course, Turkey can't pay for them, so there's a plan whereby the United States will pay for a part of the deal and West Germany will provide $240 million. And there's a totally new twist. They even want the state governments of Hamburg and Schleswig Holstein [another coastal state] to provide part of the aid to Turkey! They say that if we don't pay, we'll lose so-and-so many jobs. That's where we think we have an alternative."

It is an alternative that is increasingly attractive as the dream of the Common Market goes sour.

Phil Hill writes regularly for East-West Magazine, The Guardian, and Jiji Press.