Which Path for Europe?

It’s hard to say what Wal-Mart’s top executives were thinking when they decided to expand the chain to Germany in 1997. Germany, after all, was a nation where retail establishments were actually regulated—indeed, stores, by law, were closed on Sundays. In Germany, management is required to meet regularly with employee councils, most major employers are unionized, and pay-scales are set by sectoral labor-management contracts that apply to all large employers. 

In short, Germany just didn’t look like Wal-Mart’s kind of place. Nonetheless, in December 1997, the company purchased the 21-store Wertkauf supermarket chain and one year later, bought 74 stores from Interspar. Predictably, a collision of cultures soon followed. And while Wal-Mart’s leaders ultimately decided that Germany was not for them, the economic pressures that Wal-Mart embodies continue to threaten the economic egalitarianism and social solidarity of Germany and continental Europe.

Wal-Mart’s German road was always a rocky one. In 2001, the German government’s cartel office accused Wal-Mart of selling such staples as milk and butter below cost. Such practices, the office said, could drive independent stores out of business. Much of Wal-Mart’s meteoric rise to the position of the world’s largest retailer, of course, was fueled by its success at driving independent stores out of business, but German anti-trust laws were apparently made of sterner stuff than their U.S. counterparts. In 2003, Germany’s highest court found Wal-Mart had violated those laws.

The company also refused to follow the statewide labor-management agreements for its own pay and working conditions. In July 2000, ver.di, Germany’s service-sector union, began picketing 30 of Wal-Mart’s stores in a campaign to compel the chain to join the employers who recognized the agreements, resulting in a spate of bad publicity which damaged its image in Germany. 

For Wal-Mart’s executives, however, perhaps the company’s greatest failing was that other German retail chains were able to match and beat its own everyday low prices. What the Bentonville brain trust had failed to understand was that there already was a low-cost sector of German retail marketing and that German shoppers patronized those stores for bargains even as they shopped elsewhere for higher-standard goods. (The chains that owned these stores didn’t offer their workers the pay and benefits that most German employers did, but they still adhered to more German labor practices than Wal-Mart.)

At least one such chain, the ALDI Group, could and did undersell Wal-Mart: The week that Wal-Mart opened its superstore in Berlin, selling a loaf of bread for the equivalent of $1.13, the ALDI store across the street was offering a loaf of bread for 34 cents. 

How could ALDI make money with prices that low? Unlike Wal-Mart, which was publicly traded and thus susceptible to shareholder pressure, most German retailers were family-owned or organized as cooperatives, with no shareholders demanding higher profits. In 2006, Wal-Mart sold its German stores and beat an ignominious retreat to nations (such as Britain and Mexico) that indulged its labor and pricing practices more readily.

 

In a sense, Wal-Mart’s failure in Germany can be seen as a transnational version of its failure to gain entry to the cities of the American Northeast and Pacific Coast—America’s most “Europeanized” regions, if by that we mean the most heavily unionized and with the most requirements on business to heed the interests of its neighbors. And while a lower-wage model may be making some inroads in Germany, in Scandinavia and other labor strongholds, retail work still enjoys pay and protections unheard of in the U.S. 

The Northern European advantage begins with the health care and pensions provided by the governments. In Sweden and the Netherlands, says Michael Bride, deputy organizing director for global strategies at the United Food and Commercial Workers (the largest U.S.–based union of retail and supermarket workers), industry-wide bargaining largely ensures that companies can’t gain a competitive advantage by paying lower wages than the prevailing standard. Unionization is still the norm (the current rate in Sweden is 71 percent), and most nonunion workers are nonetheless covered by collective-bargaining agreements (90 percent of all Swedish workers are covered, so roughly two out of three nonunion workers get union wages and benefits). In 2007, when Sweden’s retail workers’ union reached an agreement with management that gave workers a 13 percent raise over three years, nonunion retail workers got the same 13 percent raise as well.

After decades of such egalitarian arrangements, employer norms also tend to be more worker-friendly. In unionized supermarkets in the U.S., Bride says, management generally posts its workers’ schedules for the following week on Fridays—a little late for workers to do much advance planning. In the Netherlands, schedules are posted a full three weeks in advance. When Bride asked a store manager why, the manager replied, “It’s only fair.” 

 

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In Denmark, meanwhile, retailing is very much within the national system of union sectoral bargaining. According to a 2008 study published by the Russell Sage Foundation, the roughly 100,000 retail workers in Denmark enjoy a collectively bargained minimum wage equivalent to almost $20 per hour. For more highly skilled workers, the minimum is even higher. So a nation with a major role for unions and a commitment to assure that all work pays decently can avoid the Wal-Mart model.

It may be that one mark of a successful national economy is a small retail sector. According to a 2006 report from McKinsey & Company, which examined data from 2003, Sweden and Finland were at the bottom of a list of nations with advanced economies for their share of the labor force employed in the retail sector. They also ranked at the bottom for their retailing sector’s share of gross domestic product. The Swedish and Finnish economies have substantial high-end manufacturing sectors geared to exports, and large public sectors with jobs in teaching and child- and elder-care that are among the most highly skilled and well paying in the world. As of 2003, only about 5 percent of Swedish and Finnish workers were in retail—a level substantially lower than that in the United States, which then had nearly 8 percent of its workforce employed in retail and today has 11 percent.

 

Yet despite the equalizing effects that widespread unionization and collective bargaining have on retail work in Northern Europe, the jobs are still among the more marginal in the region’s economy. In 2005, wholesale and retail workers in Sweden had relatively low rates of unionization—about 14 percent below the national unionization rate. And in Germany, despite Wal-Mart’s failure to penetrate the market, the increasing number of low-wage retail workers in recent years may be undermining the nation’s otherwise prosperous and relatively egalitarian economy.

Unionization in Germany is a good deal lower (at 20 percent of the workforce) than in Scandinavia. As in the Nordic countries, German collective-bargaining agreements do apply to a far greater number of workers (61 percent of the workforce) than just union members. That, however, still leaves nearly two-fifths of the workforce to fend, increasingly, for itself. In recent years, after a series of labor-market reforms were enacted by then-Chancellor Gerhard Schroeder’s “third way” Social Democratic–-led government in 2003–2004, the number of low-wage German workers, concentrated in the retail sector, has considerably expanded. 

Indeed, between 2000 and 2008, says Dierk Hirschel, the chief economist for ver.di, real wages declined by 1 percent even as, in the latter years of that period, the German economy started to boom. “It’s the low-wage sector that drags down wage growth,” Hirschel says. Since the Schroeder reforms, American-like disparities in the incomes of owners and workers have begun to appear in retail. 

“The 10 richest Germans own retail, food, and drug chains,” Hirschel says. The rate of union membership in retail is now just 2 percent to 3 percent—a tiny fraction of its level in manufacturing. German low-wage retail chains, Hirschel adds, have also adopted American management practices previously alien to postwar Germany. Some retailers began anti-union surveillance. “They fired [union] organizers,” he says, “and hired U.S.–based consultants” to help them thwart workers’ attempts to organize. 

German unions have begun some modest efforts at organizing the chains, but in Hirschel’s estimation, they have yet to allot sufficient resources to the task. More fundamentally, a large number of German (and European) unions haven’t focused on organizing for many decades and are only now recognizing that economic liberalization requires them to do so. IG Metall, the union of German metal workers, recently began a campaign to organize auto dealers in several cities, while ver.di has organized the employees of contractors at Berlin’s new airport. Large-scale organizing, however, is not yet on the horizon.

The more promising arena for labor may be politics. The post-Schroeder Social Democrats, who are polling well today in the wake of Christian Democratic Chancellor Angela Merkel’s many troubles, have repudiated Schroeder’s core economic policies and now call for the enactment of a national minimum wage (Germany is one of the few European nations not to have one) and for equal pay for temporary workers. 

Without such labor-market regulations and increased levels of union representation, it’s hard to see how the German economy, for all its strengths, won’t drift toward greater levels of income inequality and become home, as the U.S. has long been, to millions of the working poor. Though Wal-Mart may have been forced to flee the German market, the pressures that Wal-Mart embodies—for lower wages, higher profits, and harsher labor relations—have begun to erode even the more egalitarian economies of postwar Europe, as its unions and center-left parties are recognizing. A Wal-Martized Europe, they understand, really isn’t Europe at all.

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