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WZBBerlin Social Science Center

Ulrich Jürgens

The German CaseLabour Institutions as a Countervailing Power?

Conference on Financial Institutions for Innovation and DevelopmentFord Foundation, Hans-Böckler Foundation, SOFI

10-11 November 2014, Berlin

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Characteristics of German Corporate Governance & Innovation Systems

Corporate Governance

• Weak capital market exposure; patient capital• Technical orientation of

business leaders• Strategic role of banks and

supervisory boards• Co-determination of labour

Innovation System• R&D intensive• Industry (medium-high

tech) dominated• Incremental rather than

disruptive

What Impact has Financialization?

R&D Expenditure in % of GDP R&D Personnel (full-time equivalent) per 1,000 Dependent Labor Force (in %) from 1995 to 2012

3Schasse, U. et al.. (2014): Forschungs- und Entwicklungsaktivitäten der deutschen Wirtschaft: Studien zum deutschen Innovationssystem Nr. 2-2014, NIW, DIW, SDW, Hannover: p. 17 and 58.

GermanyPrivate Sector: 61.2%Public Sector: 28.8%

R&D Intensity has been increasing

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The Classical Profile of Sectoral Distribution has been maintained

Schasse, U. et al.. (2014): p. 42.

Focus of R&D in Germany vis a vis OECD Countries, 2011Relative share of the economic sector in R&D expenditures of the total economy

*OECD-24: GER, FRA, GBR, ITA, BEL, NED, DEN, IRL, ESP, POR, SWE, FIN, AUT, POL, HUN, CZE, SVK, SLO, NOR, TUR, USA, JPN, KOR, AUS.

Services

DV-Equipment, Opto-electronical Products

Pharmaceuticals

Automotive Engineering

Other Industries

Air and Space Vehicles

Mechanical Engineering

Chemicals

Electrical Engineering

Other Economic Branches

Other Vehicles

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Importance of Hindrances for the Achievement of Business Goals of Companies in Germany, 2010-12

Relative Share of all Companies High Medium Low Irrelevant

Strong Price Competition

Strong Competition on Product Quality and Marketing

Lack of Demand

Innovation done by Competitors

Market Dominance of Competitor

Lack of specialized Personnel

Lack of suitable Sources of Finance

High Entry Costs to new Markets

High Costs of State Regulation

Aschhoff, B. et al. (2013): Dokumentation zur Innovationserhebung 2013, Dokumentation Nr. 14-01, ZEW, Mannheim und Karlsruhe: p. 107.

Access to Finance is not a critical Issue

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Growth Dynamics are the strongest in the upper Midmarket

Sales Growth 2006-2012 according to Turnover Classes in %

Turnover Volume in Mio. €

Creditreform and IKB (2014): Wachstum finanzieren. Eine Analyse der sich wandelnden Finanzierungsmuster im deutschen Mittelstand, Düsseldorf: p. 8. (https://www.ikb.de/MediaLibrary/139648e7-34ab-43ad-a010-fbe04033d1b7/140818_IKB_Studie_Finanzierungsmuster%20im%20Mittelstand.pdf , 05.11.2014)

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Credit Volume and GDP on a quarterly Basis in Germany (Index first Quarter 2000 = 100) Investments of Pension Funds in % of GDP, 2012

Credits to Companies and Self-employed GDP (nominal)Switzerland

United Kingdom

Australia

USA

Canada

Japan

Spain

Germany

Italy

Creditreform and IKB (2014): p. 23 and 27.

Banks lose in Importance and Pension Funds still play a minor Role

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Internal Financing has been increasing

External Financing

Internal Financing

Creditreform and IKB (2014): p. 29.

Volume of Internal and External Financing in Bill. €

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Labour Institutions as Drivers of Innovation

• Promotion of better working conditions, as well as high product quality and innovative processes and products• Focus on developing arguments and ideas for sustainable

economic activities within the company• Major approaches

• Strategy workshops and future workshops • Analysis of innovation abilities and capacities• Advice on establishing an early warning system with regard to

neglecting innovations • Analyses concerning material consumption and the efficiency of the

use of energy and ressources • Employee suggestion system • Assessment of new technologies and product innovations

IG Metall (2014): Besser statt billiger: Innovationen mit Mehrwert für sichere und gute Arbeit, Düsseldorf.

Example One:The IG-Metall Campaign „Better instead

of Cheaper“

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Example Two: Involvement of the National IG Metall in the Steering Commitee of the Industry 4.0 Programme

Kurz, C. (2013): Potenzial, Auswirkungen und Gestaltungsbedarf aus Sicht der IG Metall, Presentation at TU Berlin: p. 24.

Labour Institutions as Drivers of Innovation - continued

National Plan Electromobility

National PlatformElectromobility

4 Showcase Projects amongst others Bayern/Sachsen

IG Metall leadsAG 3 Qualification

Works Councils of Audi, BMW, ZF + Regional IG Metalldevelop Qualification Modules for Electromobility

Duration 2013-2017

Labour Institutions as Drivers of Innovation - continuedExample Three: Involvement of the regional IG Metall in the Activities of the

Government Programme „National Platform for Electromobility“

Training and

further Education

Challenge: The Coexistence of current and new Fields of Activities and the associated double Competency Requirements

Existing WorkforceFurther Training and

Education of the existing Workforce for newly

required Competencies-For new Products,

Procedures and Processes -Upskilling (i.e. 1000V and

Automatization)

Future WorkforceFuture and Need

oriented Educational Planning and Education of future Employees in academic and technical

Occupations

Meißner, H.-R. (2014)

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Collective Labor Agreement„Zukunfts-Tarifvertrag“ 2006/2009

IG Metall & Volkswagen AG

Innovation Fund I – 20 Mio. € p.a.

• Since 2007 • Strategic Site Development• Strenghtening of domestic

Sites• Enhancement of

technological Compentencies

Innovation Fund II – 20 Mio. € p.a.

• Since 2011• Generation of new Fields of

Activities• Diversification • Searching for new Business

Models

Example Four: Labour‘s Innovation Funds at Volkswagen

VW (2014): Business Information, Wolfsburg.

Labour Institutions as Drivers of Innovation - continued

For risky Projects at an early StageThe Project must have a positive Impact on the Site concerned and should contribute to Job Security

Project Funding Criteria

Degree of Innovation (Idea, Technique or Project must constitute a genuine Innovation)Prospect of ProfitabilitySecuring EmploymentImplementability at one of the domestic Sites

Innovation Fund II: New Fields of Activities

New Fields of Activities

Environment

Prospect of Profitability

and Employment

Energy

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Machinery and Plant

Engineering

Autonomous and Mobil Assistants

New Vehicle Design

Concepts and

Components

Alternative Drive

Concepts and

Components

Sustainable Mobility

Raw Material

and Energy

Efficiency

Sustainable Energy

Production

Health and Ergonomics

VW (2014): Business Information, Wolfsburg.

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Conclusion

• Labour Institutions can function as countervailing Power to Capital Market Pressure

• They can also be a Driver of Innovation on different Levels (Company, Regional/Sectoral, Economy)