Volkswagen isn't dying.
It's moving abroad because Germany is terrified of debt.
For the first time in the company’s history, Volkswagen is considering closing factories in Germany.
And Volkswagen workers are, understandably, pissed.
The past few days I’ve essentially been binge-watching interviews with ‘experts’ trying to come up with their own explanations for the current crisis.
Too often, I’ve been hearing the same old tropes being thrown around: “too bureaucratic”, “labour rights are too stringent”, “Germany can’t innovate”, yaddah yaddah.
Essentially the same kind of deregulatory agenda espoused by those who still fantasize over entirely free-markets and want to use the crisis to push for “reforms”.
Aren’t we past this by now?
Some of the other, more compelling, explanations include falling demand for Volkswagen cars, especially in China where the Chinese EV manufacturer BYD is doing very well, and Europe’s notoriously high energy prices.
I would concede that these two factors are pretty undeniable and contribute significantly to the current crisis.
But there are some the other diagnoses that are rather more interesting that I think deserve a bit more attention.
Germany is terrified of debt
From my (perhaps excessive) time bingeing news clips on VW the past days, I’ve heard so many 'experts’ and economists make the claim that VW can’t innovate and that it’s already lost the Electric vehicle race that it’s starting to make my head spin.
The truth is that VW is investing heavily in EV’s. It’s not just making these investments in Germany (or Europe, for that matter).
At the same time that Volkswagen is planning on closing three factories in Germany and shrinking its others, it is simultaneously investing in a $2 billion plant in South Carolina. It also cancelled plans for a battery plant in Lower Saxony while building a €1 billion EV center in Shanghai.
So what’s making Germany so unattractive and making the US so appealing?
Germany’s fear of debt is killing its economy.
BMW is also planning on a $1.7 billion expansion in one of its US plants, largely because of the massive subsidies and financial fuel the US is providing.
In the US, policymakers learned that if you want to save industries that provide good, stable, union jobs, you need to spend money and accept some debt. The IRA was an enormous bet, and it has paid off (at least for now).
We’re in an economic and ecological crisis. This is going to require ambitious industrial policymaking.
While the US decided to invest heavily and accept the debts involved, Germany has instead decided to maintain their stance on not taking on public debt.
Germany has a debt break that essentially puts a constitutional limit on the amount of debt the government is allowed to take on. Earlier this year, the government nearly collapsed because of it.
But scholars, economists, and political scientists have frequently said that the debt brake is essentially arbitrary. Some are going as far to say that the austerity that it’s forcing could be a threat to democracy.
One of the worst parts is that Germany essentially exported its fear of debt to the rest of the EU. Recently, the EU signed up (again) for fiscal rules that also block member states from taking on too much debt.
These rules are fuelling Europe’s industrial crisis which has already seen the EU lose nearly a million jobs over just the past four years.
I wrote about this a while ago here.
What comes now and the risks of right-wing populism
Chancellor Scholz and several of his ministers are running from meeting to meeting in a desperate attempt to resolve the situation. There was even some drama because he didn’t invite his finance minister Christian Lindner (from the mega-neoliberal FDP) to one of the meetings.
Promising.
But at least there is a current political discussion on whether or not the debt brake is sensible. It seems that the current crisis could serve as an opportunity for meaningful change.
Meanwhile, labour unions are threatening strike action if Volkswagen doesn’t change its course and continues with its plans to close the German factories.
It seems the current German industrial crisis has reached a boiling point. To be honest, I’m not entirely sure this isn’t, at least partially, a power-play by Volkswagen to convince German politicians to re-implement policies to subsidise the industry and domestic car consumption while pushing for labour ‘reforms’.
At a minimum, this should serve as a wake up call for German politicians that fundamental change is needed. This can be an opportunity to really rethink public spending, the purpose of industrial policymaking, and how to invest for the future.
Underlying all of this is the urgent need for a Just Transition in German industry that is both ecologically and socially sound.
One thing is sure - if these jobs get lost, and the government’s response is ineffectual, the greatest winners will be the AfD. Letting these industrial jobs die is an exceptional way to fuel resentment and right-wing populism.
Whatever the outcome, it looks like there are some bumpy roads ahead (sorry for the car pun - couldn’t withold myself).