In 1977 the Bullock Report on employee participation in the direction of firms was published.* It came at a time when trade union power had reached a crossroads. It could cease to be oppositional and take an active role in economic development through incomes policies at the national level and worker participation at the level of the enterprise, and so move labour towards a more socialist form of society.

On the other hand, it could continue to act as if the working class was largely powerless and continue with short-term opposition to the wishes of managements and shareholders. As this journal has pointed out on numerous occasons, it chose the former course, frightened the bourgeoisie out of their resigned stance towards the advance of working class power, brought Mrs Thatcher to government and eventually led to the adoption by the Labour Party of the neo-liberal ideology whose possibilities Thatcher and Major had exploited, with disastrous consequences for all but the very well-off.

One would have thought that the terrible legacy of the rejection of ‘corporatism’ in the 1970s would have led to some re-evaluation of that period by the labour movement and, in particular, of the wrong decisions concerning incomes policy and worker participation that were made at that period. It seems, however, as if only this journal has bothered to do this. However, given the triumphalism of New Labour concerning the ‘flexible’ Anglo-Saxon model of labour relations, even in the face of growing evidence of recession in the UK and growth in Europe, it seems necessary to go on repeating the point.

The comparison with Europe and with Germany in particular is especially important because it must be evident that the German economy has been spectacularly successful in both the manufacturing and the financial sectors, buying up chunks of the British and American economy along the way. This hardly squares with the image of an inflexible, out-of-date featherbedding system of labour relations such as is gleefully presented by the right-wing press in this country.

One key aspect in Germany’s economic success is Mitbestimmung, or ‘co-determination’. This is a system of corporate governance and labour relations very similar to the one that the Bullock Report recommended, although without any explicit reference to Germany. At the time, the Bevin Society argued that the Bullock recommendations of one-third employer, one third employee and one third from nominees determined by the first two groups (the 2x + y’ formula), would lead to higher productivity and greater competitiveness and that this would result from the greater orientation towards production of a workforce holding a real stake in the company.

These arguments appear to have been validated by the German experience. In 1977 nobody paid much attention to the German experience; fashionable ideas about employee participation usually related to revolutionary experiences such as the Italian factory occupations after the first world war or to the dimly understood market socialist experience of Yugoslavia, neither of which provides useful lessons for Britain in the late twentiety century. Tribune bothered to look at Germany, only to sneer at the fact that German worker-directors appeared comfortable and worked in plush offices. Apparently this was enough to disqualify the German experience from consideration by British socialists. This contribution by Tribune is typical of the abysmal state of socialist thought in Britain at the time, and one can scarcely say that it has improved a great deal since then.

Clearly a system of class collaboration cooked up by the Germans was not worthy of consideration by British left-wing intellectuals. At the time, with few exceptions, the labour movement in Britain was strongly anti-European and its gut feeling was also anti-foreigner. The Germans, in particular, were pariahs because of the war and because of the long dominance of the right in German politics after 1945.

No-one bothered to notice that in 1977 the German government was Social Democrat and was, in fact, at that very time, engaged in a long battle to broaden the scope of German co-determination. However, in 1998, European integration is on the agenda, there is greater co-operation between trade unions in Britain and the rest of Europe, and German influence on the British economy is growing steadily. It must now be time to see what the German experience of industrial democracy has to tell us.

The Origins of Mitbestimmung
I have not been able to establish the full story of the origins of the system after the Second World War. There seem to be two theories, which are, to some extent, compatible with each other. One, supported by the prominent German industrial relations expert, Wolfgang Streeck** holds that it was established by the allies in order to limit the power of the industrial magnates who supported Hitler. Circumstantial evidence supporting this theory comes from the fact that Ernest Bevin was a strong supporter of industrial democracy and was active, as Foreign Secretary, in the post-war reconstruction of Germany. But I have not been able to find any evidence of his active intervention in the development of corporate governance in Germany at this period.

The other theory is that it was developed and encouraged by the then West German chancellor, Konrad Adenauer, in accordance with the Christian Democratic ideology described by Mark Cowling recently in this journal [No. 75, May l998]. This ideology was in its turn influenced by the political economy of the nineteenth century German writer Friedrich List, which emphasised social inclusion and co-operation as a key element in economic development. Whatever the truth of the matter is, it appears that the system was instituted in favourable circumstances, with at least the approval of the allies, and that it was very well suited to the German taste for the consensual working out of conflict and economic life. It has now been in existence for fifty years.

At first, full Mitbestimmung was confined to relatively few large firms. In order to understand it, it is necessary to realise that German firms have a two-tier board of directors. There is a supervisory board which oversees strategy and a management board which deals with the day-to-day running of the enterprise. Mitbestimmung, under legislation passed in 1951, stipulated that joint-stock companies in the coal and steel industries, originally put employee representatives on the supervisory board to the proportion of one half of the total for firms with 1000 or more employees. To prevent deadlock, the board had to co-opt one additional member. Legislation passed in 1952 gave employees in firms with over 6 employees a legal right to an elected works council, entitled to information, consultation and joint decision-making on a range of specified subjects.

Joint-stock companies with more than 500 employees had to allocate one-third of seats on the supervisory board to representatives of the workforce. Provision was made also for a proportion of directors to be nominated from outside these two groups, often in practice these turned out to be full-time trade union officials. It is important to realise that the whole system was set up in a highly elaborate legal framework which prescribed rights and obligations for all parties. The main difference between this early post-war set-up and the Bullock proposals was that British firms have only one board of directors.

The German arrangements thus set up a direct link between the workplace and the strategic direction of the firm. Even in firms where there were only works councils, there were statutory rights to information and consultation, which materially altered the relationship between employers and employees. One important feature of the first set of legislation was that the employees had the right, in practice, to nominate the labour director, or director in charge of personnel matters, and that person sat on the management board, thus giving employees an important representative at that level as well. Mitbestimmung was thus established at the early stages of the German ‘economic miracle’ and had an important role in its development.

Further Developments
The Brandt and Schmidt-led Social Democratic governments of the 1970s made the decision to extend Mitbestimmung by increasing the number of seats on works councils and increasing the range of their powers (1972). In 1976 the Co-determination Act increased the proportion of employee-nominated directors on the supervisory board to fifty per cent, increased trade union influence on supervisory boards and increased the influence of the work force in appointing the labour director in the firms not affected by the 1951legislation.

The Act requires that all management board members are appointed by a two-thirds majority on the supervisory board. This move was bitterly contested by the employers and their organisations, and all kinds of changes, more favourable to employer control were proposed, such as making a proportion of employee representatives nominated exclusively by management employees. It is hardly surprising that employers were angry.

Mitbestimmung already gave a very powerful position to the workforce at two crucial levels of a firm. Further extending that power would undermine the very idea that shareholders were the dominant stakeholder in an enterprise. Eventually, the new legislation was taken to the constitutional court by the employer organisations, but was upheld in 1978. Germany then entered into a long settling-in period in which the very elaborate provisions of the new legislation were gradually put into effect in a spirit of cautious co-operation between the two sides of industry.

There the matter has rested until the present time, at least in terms of the legislative framework under which Mitbestimmung operates. It is clear, however, that it has taken diverse forms and has been affected by general changes in the German economy, such as the increasing prominence of the service sector. It is now pretty evident that, despite a reluctance to further the legislative framework of Mitbestimmung, the employers, by and large, accept the system as one which they can work with and one which actually increases the profitability of their firms despite the loss of shareholder control which it entails.

Conclusion
The Germans have developed a system that has worked very successfully for them over the past fifty years. It has worked through giving employees a degree of control over the enterprises in which they work which is probably unparalleled in the history of capitalism. It is important to realise that this system is now having a great impact on the British economy; firms such as Volkswagen and BMW are run on the principles of co-determination. By any standards, these are phenomenally successful and adaptable companies, which are now consolidating their global competitive position, as has been remarked, by buying into large chunks of moribund British industry. It is time we took notice of how they are organised and run. In the next issue, I will look at the current state of play in Germanuy regarding co-determination.

References
* Report of the Commission on Industrial Democracy, London, HMSO, 1977

** Wolfgang Streek, Social Institutions and Economic Performance, Sage, 1992

See also, Horst Osterheld, ‘Konrad Adenauer’ in Hans Klein (Ed.), The German Chancellors, edition q 1996