How the trade unions changed their spots: As the German pay round enters its final stages, adaptability has become the new mark of labour relations, writes John Eisenhammer

IS IT advisable for a senior manager to praise trade unions as 'impressively reasonable' in one breath, only to denounce them in the next for 'pushing industry to the edge with their unrealistic demands'?

Yes, or at least it is in Germany, provided the first commment is uttered in private, while the second is for public consumption.

The 1994 pay bargaining round in western Germany is entering the decisive phase.

The country's biggest union, IG Metall, with 3.2 million engineering worker members, is drawing up campaign plans for warning strikes, to begin once the mandatory 'peace period' expires at the end of this week. From the employers' encampment, the drums are beating ever more loudly.

At this tense stage, few managers are going to start praising those occupying the opposite chair at the negotiating table. But that is precisely what a growing number are thinking, and even saying, they should be doing.

Only 18 months ago, western Germany's unions were being vilified as a main cause of industry's misery.

Excessive wage demands and sclerotic working regulations had helped to drive production costs through the roof, leaving business gasping for competitive breath.

Today, the talk is more of the speed with which the unions have reacted to the economic difficulties. During 1993, German business provided an impressive lesson in how to move from idling speed to cost- cutting overdrive.

This would have been difficult to achieve without an important measure of co-operation from works councils and unions.

The ritualistic tough talking that heralds the closing stage of the pay bargaining should not distract attention from the more important conclusion - that the German industrial relations system has 'again demonstrated not just its resilience, but also its adaptability', according to Heiner Flassbeck, chief economist at the DIW research institute in Berlin.

A year ago, a senior General Motors executive in Europe was decrying how German workers were pushing industry to its knees. Last week, it was a very different story.

'They react more quickly, and I would say better than in any other place I have known. They understand what is going on, and do something about it. A lot more is possible now,' he said, sotto voce.

Few think the key engineering sector talks will degenerate into all- out conflict. Neither side has the stomach for a real fight. The pointers so far suggest moderation has the upper hand.

The chemical workers union, IG Chemie, earlier this month signed a deal for a wage increase of, in effect, just 1.6 per cent - well under the current inflation rate of 3.5 per cent.

With many analysts expecting average wage settlements in western Germany of less than 2.5 per cent, the year looks set to extend the real wage cuts already begun in 1993.

Pay accords averaged 3.3 per cent last year, compared with an annual inflation rate in the west of 4.2 per cent. Together with the productivity gains as manufacturing processes are slimmed down, corporate Germany's cost-cutting offensive is being rushed forward.

According to Hans Terbrack, IG Chemie's chief negotiator, the reason is simple. 'When there are four million unemployed also sitting at the bargaining table, the unions cannot act as if they do not exist,' he said.

Even though the German recession appears to have bottomed out, with sporadic hints of fragile improvements, most economists expect unemployment to rise next year.

IG Metall is losing 20,000 members every month. The unions' negotiating agenda is now dominated by the need to find ways of safeguarding jobs. Countless agreements in companies up and down the country attest to a growing flexibility in German working conditions.

Even more important than the real wage cuts has been the loosening of the contractual shackles on working times and production processes.

The recent chemical sector accord introduced several novelties. It set a flexible working time corridor around an average of 37.5 hours a week.

Those who work less earn less, but those who do more receive no overtime bonuses.

Moreover, it punctured the hallowed principle of equal pay for equal work, so that new employees receive 90 per cent of the going rate. The most significant breakthrough came at Volkswagen, where the agreement on the four-day week did away with one of the most tenacious dogmas of the prosperous Eighties - no reduction in working time without full wage compensation.

Although VW's management is still having great difficulty in settling the details of an eventual four- day week programme, the principle of a cut in wages has been established.

Other firms, such as IBM Germany, have chosen a different path, increasing working hours while keeping weekly pay at current levels, representing, in effect, a 6 per cent hourly wage cut.

Opel, the European subsidiary of General Motors, has signed a four- year contract guaranteeing low wage increases. The package also includes flexible working arrangements, and links bonus payments to the achievement of structural cost- cutting targets. Bosch has an agreement permitting Sunday working for its new semi-conductor plant at Reutlingen, while numerous unions have accepted Saturday as a normal working day.

'In the past 18 months, IG Metall has become very flexible,' according to Uwe Loos, board member at Porsche in charge of production.

'The change seen in the unions marks a qualitative improvement in flexibility,' notes Kurt Vogler- Ludwig, labour market specialist at the IFO economic institute in Munich. 'The acute problem in Germany of machine running times is being eased.'

That the sudden attack of reasonableness is in large part due to the miserable economic situation is evident. But there is a case for arguing that the German industrial relations system has a built-in capacity for reacting swiftly to difficult times.

The economic crisis of the beginning of the Eighties in western Germany was also followed by two years of stiff real wage cuts.

'Because of the centralised system of sectoral bargaining over wages and conditions, German unions are more sensitive to macro- economic shifts.

'If we had plant-based deals, the situation would be very different now,' Mr Vogler-Ludwig claimed.

This awareness is strengthened by the mechanism of having regional and national union notables represented on the supervisory boards of big companies.

The very official who is heading the wage negotiations for IG Metall, for example, probably enjoys a detailed knowledge of the books of a handful of Germany's biggest industrial groups.

In good times, this tends to mean that the unions push harder for more. But in bad times, such as now, they are acutely aware of just how high the stakes are. The umbrella organisation of the German trade union movement, the DGB, is looking for 13 per cent personnel reductions and a wage freeze in negotiations with its own employees, for instance.

Not that, as a manager itself - for once - it is talking too loudly about it.

(Photograph omitted)