Europe’s focus on saving jobs pays off

 BERLIN — The soaring glass and iron Siemens factory here opened almost exactly a century ago. At first, it churned out electricity turbines, then munitions during World War II before being looted by the Soviets, which required it to be rebuilt at the dawn of the Cold War.
         Today, it is manufacturing turbines again — except these models are among the most advanced in the world, each one able to power all the homes in this city of 3 million.
         “It’s not a museum; it’s a workshop,” said Michael Schwarzlose, a project manager at the plant.
         The same might be said for much of Europe itself, despite American suspicions to the contrary. European companies may not be as nimble as their counterparts in the United States, but in moving to preserve jobs through the worst global downturn since the end of the war, they have forged a different path toward recovery.
         They are making old plants more modern and effective rather than watching workers or companies deemed uncompetitive fall by the wayside.
         European companies have paid a price: lower profits and productivity than their American competitors. But as long-suffering American workers face the prospect of a jobless recovery, many analysts believe the European model may deserve another look.
         “American companies have been faster to adjust their work forces and quicker in protecting profit margins,” said Gilles Moec, a senior economist at Deutsche Bank. But that does not mean companies on the Continent have fallen behind in innovation, experts say.
         Americans often assume that newer, smaller companies are the engines of innovation and job creation — hence President Barack Obama’s decision to make a $30 billion program to encourage small-business loans a centrepiece of his jobs plan.
         Europe, in stark contrast, often relies on its large companies to sustain both employment and a cutting edge in important industries. One crucial tool, along with measures like work-sharing, is a reliance on environmental innovation.
         “The large incumbents in Europe, which might have been considered technological laggards, have used green technology and sustainability as a core new element of growth,” said Luc Soete, a professor of international economics at Maastricht University in the Netherlands.
         Some large companies are surprisingly resilient. The Siemens factory added 500 workers here in the depths of the economic crisis last year; beginning production of new gas-burning turbines that are the most powerful Siemens makes but emit substantially less carbon dioxide than older models.
         In Europe, fuel is heavily taxed, and there are substantial subsidies for producing alternative energy. Such incentives serve a dual purpose: supporting employment at green-oriented companies in the short term and, Europeans hope, giving their companies a strategic advantage when the global economy and demand pick up.
         At Siemens, for example, with revenue increasing 11 percent from 2008 to 2009, its broad green portfolio is now growing faster than its other businesses, Barbara Kux, the chief sustainability officer at the company, said.
         She points to the state-of-the-art products of the Berlin factory that manufactures turbines. “It’s part of sustainability, and it shows you think long-term and are there to stay,” she said. “It gives you the chance to keep experienced people, to keep their knowledge in-house and develop a high level of loyalty and trust so they feel like part of a family rather than just doing a job.”
         The varying responses to the economic downturn come amid a fierce debate in the United States over whether the country is headed toward a more European economic model, given Washington’s huge support of big banks and the auto industry, as well as Obama’s proposal to overhaul the health care system.
         “The end result would be an America much closer to the European model of a social-welfare state, which prioritizes cohesion over innovation,” warned a recent article in National Affairs, a quarterly journal. The article was by Jim Manzi, a former software executive who is now a senior fellow at the Manhattan Institute, a conservative research group.
         While unemployment has soared to 20 percent and higher in European countries like Spain and Latvia, the relative success of other European countries in avoiding deep job cuts adds a new wrinkle to a longstanding trans-Atlantic argument.
         The overall European unemployment rate of 10 percent matches that of the United States, but northern and central Europe have fared much better, with joblessness at 4 percent in the Netherlands, and 5.4 percent in Austria, for example.
         Germany’s economy contracted 5 percent last year, yet its unemployment rate of 7.5 percent is actually down from two years ago. By contrast, the economy of the United States shrank 2.4 percent last year as unemployment doubled, to 10 percent, over the period.
         The ability of the German economy, the biggest in Europe, to stanch job losses despite a markedly deeper recession than that in the United States is “something of an economic miracle,” Joerg Kraemer, chief economist for Commerzbank in Frankfurt, said.
         Much of the attention on saving jobs has focused on the government’s short-work program, in which taxpayers and companies share the cost of furloughing workers. But Kramer said the government-financed program of shorter workweeks was responsible for saving only about 20 percent of jobs.
         “Half of this miracle can be explained because firms allowed workers to do less; they tolerated a 2.5 percent drop in productivity,” he added. “You can either cut workers or cut hours.”
         In the more flexible American labour market, where industrial unions are weak and contracts far less rigid, companies responded more often by letting workers go, sharply cutting costs and preserving profit margins.
         German companies not only reduced hours on the job, but they also made a decision to accept lower profit margins in the short term, Kramer said, a practice he called “labour-hoarding.”
         In Germany, profit margins have fallen to just 0.58 percent in the latest quarter, from 6.26 percent in the first quarter of 2008, according to Thomson Reuters Datastream. Similarly, French profit margins have dropped to 1.2 percent, from 6.5 percent. By contrast, corporate profitability in the United States has shrunk to 3.6 percent, from 7.8 percent.
         Europeans hope that as the recovery picks up steam, European competitors will be well situated to take advantage of new growth opportunities while American companies will be required to rebuild their work forces.
         But if the feared “double-dip recession” does arise, the leaner profile of big companies in the United States could help them hold up better.
         European experts say that the varying strategies of companies during the financial crisis, and the different ways they treated their workers, ought to prompt a revision of the traditional American view that Europe’s social democracies are condemned to slow growth and high unemployment.
         “It’s not true that there is a correlation between how much you spend on social policy and welfare and economic growth,” said Paolo Guerrieri, a professor of international economics at the University of Rome I. “The best-performing group — Denmark, Sweden, Holland, Germany — are exactly the kind of countries that shouldn’t be doing well according to the American stereotype of high taxes and high welfare benefits.”
         Siemens is an example of the kind of European company that is leading the way.
         Although its global work force has shrunk over the last five years as it exited businesses like telecommunications and auto parts, that has not stopped it from making advances in facilities like its Berlin factory, even if the setting resembles “Metropolis,” the 1927 film from Fritz Lang.
         The 163-year-old company spent 500 million euros to develop the new turbines being built at the Berlin factory as part of a push into green technology, which it broadly defines to include low carbon dioxide-emitting turbines and locomotives, solar panelling and wind technology, as well as air and purification equipment.
         Siemens managed to save its customers an estimated 190 million metric tons in carbon dioxide emissions last year, the equivalent of the amount generated annually by New York, Tokyo, London and Berlin combined.
         “The global economic crisis has actually allowed us to increase our green advantage,” Kux said. “It’s an opportunity to jump ahead, cut costs and improve our own resources.”