In Part I of this topic, I wrote about how “patient capital” is emerging in mainstream thought as U.S. policymakers conceptualize how to create inclusive economies, or economies that provide everyone (especially the poor, vulnerable, and marginalized) a shot at social and economic opportunity with some level of stability and security. Patient capital lies at the core of social capitalism and of Germany’s economic stability and resilience in the post-World War II era. Here, I examine another German concept that also has also been making its way into U.S. policy discourse: works councils. 

Photo by Thomas Drouault on Unsplash

A New York Times opinion piece recommended including worker representatives on corporate boards. Throughout much of Germany’s lifespan as a nation-state, worker representation has been vital. Representation in a business’ management or “co-determination” is a right in the country’s constitution. Commercial law requires companies with 20 or more workers to create a “works council” where workers and managers agree upon working conditions and ensure that collectively-negotiated wages (by employers’ associations and trade unions in industrial firms or by guild associations in crafts firms) are applied to all eligible workers.  

But not all of Germany’s workers are employed by large corporations. In fact, co-determination comes from the country’s historical Handwerk (skilled crafts) sector. By working side by side in the workshop, salon, or studio, Handwerk entrepreneurs and workers collaborate on innovations and competitiveness—an organization much different from a corporate hierarchy one learns about in business school. Handwerk organization favors smaller teams for effective collaboration. As a result, 98% of Handwerk businesses have fewer than 20 workers, exempting them from works council requirements. So what delivers co-determination to these workers? 

Instead of just hoping the employer will include workers in management decisions, Handwerk’s system of guilds and chambers (not the firm) takes responsibility for co-determination. Each profession-based local guild, like the auto mechanic’s guild in Mönchengladbach, holds assemblies where workers and owners gather to create and vote for universal standards. These decisions cover all professionals (in this example, auto mechanics), since guild registration is compulsory for Handwerk’s 94 professions. This complex system’s crafts unions and guilds also facilitate wage negotiations for their regions and influence wages for skilled workers in large industrial firms. Regional crafts chambers oversee training and certification delivered by the guilds and crafts unions. Chambers also ensure that businesses observe the legal and social norms of each profession. This structure elevates the works council model to the sector level, giving workers and small employers a voice in local production markets—even freelance photographers or certified workers in a three-person hair salon. 

In the past 30 years, however, German policies have weakened works councils. The 2002 Hartz Reforms, for example, repositioned atypical work like temporary, contract, and marginal part-time work as desirable, low-risk, flexible employment. Prior to the reforms, German workers and employers had frowned upon atypical jobs due to their poor wages and social protections. The reforms inspired firms to use atypical work to restructure their workforces into smaller subsidiaries: firms with fewer staff could avoid minimum thresholds, create more (albeit poor quality and low-wage) jobs, and discourage rampant informal work. In another example, a 2003 reform of the Handwerk Code eased training and socialization requirements for more than half of the sector’s professions. Unlike other sectors, Handwerk is a professional group with strong, historically-rooted social norms where three-year dual education programs have traditionally trained apprentices in both technical skills and vocational norms. The additional two-year mastery program provided certified workers with advanced business management skills and prepared them for teaching the next generation of apprentices. The 2003 Handwerk Reform eliminated the socialization norms, deskilled seemingly “simple” professions, and excluded workers from democratic decision-making processes. Although federal law requires workers to register with their local guild, many entrepreneurs in micro-enterprises no longer see professional participation as a benefit to remaining competitive in today’s impatient capital-based economies. 

Now, some Germans are calling for a reversal of liberal capitalism’s commodification of human effort by once again focusing on protecting people’s livelihoods and reframing markets as an integral part of the social fabric. Successful rollback of some of the above reform measures, like this year’s reintroduction of mastery to 12 Handwerk professions, make it clear that not all Germans have faith in the promise that liberal capitalism will lift all boats. Growing issues such as the polarization of firms, worker inequality, the dwindling middle class, and multigenerational poverty show that liberal capitalism has failed to include those who do not have boats to navigate the rising tsunami of uncertainty. Some Germans are calling for more inclusive domestic and global economies by returning to old practices.

Other countries, too, face growing calls for inclusive economies. If U.S. and other leaders are serious about including workers on corporate boards and using patient capital to advance economic inclusion in low-wealth and low-income households and communities, we will have to advance an economic system that invests in people, not just markets. Patient capital and works councils are two tools that Germany’s social capitalist history can offer as part of a push for putting people at the center of development.