The NYT has an article about efforts to change German corporate governance rules that require "co-determination," representation of workers on corporate supervisory boards. The article notes several recent instances in which there have been payoffs involving worker representatives, and tells readers that this law is making Germany uncompetitive. The article does not make clear what definition of "competitiveness" it is using, but it is worth noting that Germany has a current account surplus of 0.4 percent of GDP, compared to the U.S. deficit of 6.0 percent of GDP. Germany exports almost as much as the United States even though its economy is less than one-fourth the size. The article implicitly suggests that a U.S. type system of corporate governance is inherently superior to the German system of co-determination and that it is less prone to corruption. This does not seem obvious. In the same paper, the NYT reported that Ford paid a new CEO $28 million in his four months of service, even though it has been losing money. Germany has not seen the same sort of inflation in CEO pay, perhaps partly because of co-determination. (Certainly the German auto industry has fared much better than the U.S. industry, although co-determination could not keep Daimler Benz from paying $38 billion for Chrysler.)
--Dean Baker
