Handelsblatt: Curse and blessing: How Germany can play a leading role in the new high-tech era

By Steven Hill, Handelsblatt, February 26, 2016

(German language PDF version, Fluch und Segen,” online version here (paywall)

Many Germans I have spoken to are puzzled by the US presidential election, and the controversial rhetoric used by some leading candidates. It is hard to believe that these candidates are running for the most powerful elected office on the planet.

But it’s not hard to understand if you consider recent economic history. Populist and nationalist candidates thrive when economic times are hard. Average wages in the US have been flat for several decades. Following the economic collapse in 2008, the richest 10% of Americans owns three-fourths of the nation’s wealth, while the share of the bottom 90% is the same as their grandparents’ in the Great Depression.

And future prospects do not look much brighter. While corporate profits are at an all-time high, these businesses have stashed much of that profit in overseas tax havens. The largest companies pay an effective tax rate of just under 13 percent – lower than most middle class families. The corporate share of federal tax revenues has declined from 33 percent in 1952 to 11 percent today. These businesses have quit investing in America, and economic growth has suffered.

So it is hardly surprising that many Americans are gravitating towards populist candidates that are loud and angry. Fasten your seatbelts, the US presidential election is going to be a roller coaster.

A major factor in the decline of US jobs has been a dramatic change in the employer-employee relationship. Many employers want a labor force they can switch on and off like the latest Netflix movie. Increasingly, businesses are relying on “non-regular” employees such as freelancers, contractors, temp workers and part-timers.

Businesses that use non-regular workers reduce labor costs by as much as 30 percent, since they don’t have to provide health care or other social benefits. Also, contract workers can be easily dismissed. Nationwide, temp workers have provided nearly a fifth of the job growth during the economic “recovery.”

Now from Silicon Valley comes the latest economic trend:  the so-called “sharing economy,” with companies like Uber, Airbnb and Upwork allegedly liberating workers to become “independent entrepreneurs” and “their own CEOs.” In reality, these workers have ever-smaller part-time jobs (called “gigs”), with no safety net or job guarantee, while the companies profit.

In this new gig economy many freelancers and contractors having multiple employers in a single day. These workers spend a lot of (unpaid) time hustling to find the next job. In a regular job, a worker gets paid “on the clock” for an agreed-upon number of hours per day. Rest breaks, staff meetings, training, even time at the water cooler, is paid time in a regular job.

But the gig economy overturns this social contract. It reduces a worker’s labor value to only those exact minutes you are producing a report, or designing a logo, or cleaning someone’s house. It’s as if a football star only gets paid when kicking a goal, or a chef is paid by the meal. There are no annual salaries, or paid training or research. It’s piecework, like in the 19th century.

Many business leaders speak glowingly of this hyper-efficiency, but we have to ask – efficient for whom? How are we to define efficiency in a modern economy? Isn’t full employment with decent-paying and stable jobs “efficient”?

But no worries, while more workers might be under-employed and underpaid, you will be able to earn extra money by “monetizing your assets” — rent out your house on Airbnb, or your car on Uber, or your spare drill and other personal possessions on other websites.

Add to this the steamroller of automation, robots and artificial intelligence potentially replacing millions of workers, and the jobs picture starts looking grim. This is the new digital economy in all its glory:  contracted, freelanced, robot-ized, Uber-ized.

Don’t get me wrong, the digital economy and innovation certainly show potential – but only if properly regulated. Otherwise, these services threaten to further undercut the middle class.

I am currently a fellow at the American Academy in Berlin, and many of the Germans I have spoken to seem to believe that this could never happen in Europe’s leading economy. Yet Germany already has seen a significant increase in precarious jobs. Around 4% of Germans are now working in “solo self-employment,” in which not only is pay often low with little job security, but these vulnerable workers don’t benefit from something like Künstlersozialkasse, the welfare support for artists and musicians. Could it be because these workers often are immigrants, working jobs like home care, house cleaners, drivers and janitors?

And now there are a lot more immigrants in Germany, willing to work at precarious jobs – a ready-made surplus labor pool. True, the majority of German workers have “mid-level skills.” But automation and robots will hit these jobs hardest over the next 10 to 20 years. Recently the website ListMinut.com launched in Belgium, which is a labor brokerage like Task Rabbit where people with money can hire people without money for menial jobs. The workers auction themselves to the lowest bidder. Upwork has 10 million freelancers from all over the world, hustling and underbidding each other in a global race to the bottom.

The digital economy has landed – here, there and everywhere.

German-style prosperity has been based on a degree of solidarity and co-determination between all the different economic actors. But these new ways of work have a tendency to undermine a strong social dimension in labor markets. The current differences between the US, German and European economies may prove to be temporary, since the pressures of global market competition tend to homogenize national economies over time.

Yet Germany has a number of advantages that give it a chance to preserve its “social capitalism.” Compared to the US, it has a more developed welfare state, stronger labor unions and a more “visible hand” of government. Germany could be a leader in ensuring that a more tech-driven economy doesn’t further enlarge the gap between the “haves” and “have-nots.”

Germany should act to create a floor beneath all workers, regardless of occupation or industry, by designing a “universal and portable safety net” that covers any worker as she moves from job to job. Each worker would be assigned an Individual Security Account, and every business that hires that worker would pay a small “safety net” contribution, prorated to the number of hours worked. That would help pay for the worker’s safety net.

Such innovative policies would allow Germany to lead in a way that ensures that technology and innovation will enrich all of society, instead of just a handful. The US, on the other hand, is clearly having trouble finding its way, which is obvious from listening to some of the leading presidential candidates.


Steven Hill is a journalist and the Holtzbrinck Fellow of the American Academy in Berlin. His most recent book is Raw Deal: How the ‘Uber Economy’ and Runaway Capitalism Are Screwing American Workers. 
He will give a lecture on 2 March 2016 at noon at Telefónica’s Base Camp.