Mannesmann-Vodafone: Capitalism German style

By John Hooper and David Gow

LONDON: As political and business correspondents pored over the latest developments in the Mannesmann-Vodafone affair, a columnist in Die Welt was musing on the spirit of what he termed fin de siecle Germany. Though he didn't labor the point, the two matters are not as far removed as one might imagine.

The millennium, Die Welt's writer noted, offered an opportunity "cheerfully to bid goodbye to the old and passionately to say hello to the new". Yet, in Germany, all was stagnation, he lamented. The dominant political ethos remained one of consensus, but what that meant in practice was "shying away from conflict and seeking broad approval in the hope of postponing change".

The battle for one of Europe's juiciest mobile telephone networks has highlighted a profound inertia, a deep resistance to global trends, at the heart of its biggest nation. It is an inertia that worries a lot of Germans, and not only those on the right. But, to judge from the events of the past week or so, it is not one that unduly concerns those who run the country.

Strip away the jargon and the figures, and the facts of the affair are simple. A British firm has made a unwelcome bid for a German one -- something that happens every week of the year in London and New York. But, in this case, it has provoked a reaction from the German side bordering on the hysterical.

In part, it is straight forward financial xenophobia. In part, it is fear of the unknown. Astonishing as it may seem, there has never been a successful hostile bid by a foreign company for a German one.

But in part too, it reflects a fear that Vodafone's audacious, pounds sterling 77 billion (US$123 billion) bid for Mannesman could be the first step towards Germany's involvement in a no- holds-barred form of predator capitalism, one radically at odds with a culture which prizes consensus, not only within but among companies. Even more astonishingly there has never been a successful, overtly hostile, bid by one German company for another. Some bids may have been unwanted, but such is the emphasis on harmony in Germany they have always been portrayed as friendly.

The hysteria in the Vodafone-Mannesmann affair has been evident at several levels. When the German company tried unsuccessfully last week to get the High Court in London to force Vodafone to ditch its advisers, the judge accused one of its directors of "disgraceful and unacceptable" conduct. Mannesmann's application had been "completely hopeless"; the director's evidence "totally false".

Back in Germany, an editorialist for the mass-circulation Bild newspaper was squealing in apprehension at the prospect of a "pearl of German industry" falling "prey to greed". Politicians in Germany's biggest region, North Rhine-Westphalia -- where Mannesmann is based and where most of its 130,000 employees live -- have been no less overtly nationalist.

As Michael Mueller, a Social Democrat member of the lower house for Mannesmann's home base of Dusseldorf, railed against "global business cannibalism", the president of the region, Wolfgang Clement, stated flatly: "Mannesmann in Dusseldorf should not become a branch of a London concern."

Not dissimilar sentiments have been aired in the past in Britain by tabloid leader writers and MPs with constituents with jobs at risk. But last Friday, the Chancellor, Gerhard Schroder, took the row to an altogether different plane.

In an interview with Le Monde, he made it quite clear that he was opposed to the bid. Attempted hostile takeovers, he said, should be viewed with the "utmost possible caution". They destroyed corporate culture. They harmed not only the target firm, but also the predator company, he said.

Schroder was echoing a widespread suspicion in Germany of everything connected with stock markets. "Germany does not have a history of stock exchange culture," said a leading German investment banker who asked not to be identified. "It has an economy which is dominated by medium-sized companies and companies which are not quoted on the stock market. Historically, capital was extended to companies by the big banks rather than by the stock exchange. If you look at their balance sheets, what you see is far more bank debt than would be the case in Britain."

If the banks, with their preference for stability and agreement, have been one powerful disincentive to naked competition, there have been others: Germany's trades unions with their statutory representation at board level, a traditional preference among investors for bonds over shares, and a comprehensive welfare system set up specifically to inure people to risk.

For Germans, the "shock of the new" in the form of Vodafone's unsolicited bid for part of their country's industrial heritage, adds a new and potent threat to the cozy post-war consensus, already upset by the fall of the Berlin Wall and the unwanted acquisition of east Germany.

The ironies in the present situation are nonetheless rife. In an increasingly globalized economy, Germany is no longer an island, and Mannesmann is already, in a sense, foreign-owned: 60 percent of its shares are held by non-Germans.

While Vodafone has made no secret of its plans to shed the German firm's older engineering divisions, which provide some 80 percent of its jobs, Mannesmann itself has said it could sell some of the divisions to finance its own friendly bid for a British firm, Orange.

There is the obvious irony that German firms gobbled up Rolls- Royce and Chrysler. And there is the rather less obvious, but perhaps more important, irony that Schroder is meant to be a market-friendly Socialist in the mold of British Prime Minister Tony Blair. It was left to Blair himself to remind Schroder: "We live in a European market today where European companies are taking over other European companies, are taking over British companies, and vice versa. That's the European market."

Behind the open spat between the two leaders lies a fundamental clash of corporate cultures whose outcome will shape the European single market for years to come. It pits, in the struggle to come to terms with globalization, the Anglo-Saxon model of relatively unfettered capitalism in which the shareholder is king against the Rhineland model of a "social market economy", based on a consensus among stakeholders: workers, unions and politicians as well as shareholders.

The clash between Schroder and Blair also underscored a fact that Monday's Florence summit of the center-left had been intended to disguise: that there remains a huge gulf in thinking between Britain's post-Thatcherite Labor party and America's post-Reaganite Democrats on the one hand and the socialist and social democrat parties of the continent on the other.

The Blairite way is to modernize or die, to promote a Californian-style enterprise culture in Britain from which, it is hoped, successful, innovative companies will go on to conquer the world. Globalization for the Prime Minister is an opportunity and a challenge, not a risk.

Schroder is equally pro-business but, like his Christian Democrat predecessor, Helmut Kohl, he embraces an evolutionary process of change to the German model of capitalism. He cut his teeth, while premier of Lower Saxony, on the supervisory board of Volkswagen, where six years ago he helped engineer a four-day week to staunch a hemorrhaging of profits that threatened to make tens of thousands redundant. For all his talk of a "middle way", he remains wedded to an approach which is very different from the one taking root in the Anglo-Saxon world.

And if the German chancellor's commitment to free market finance is shaky, then the same is true of Massimo d'Alema in Italy and Lionel Jospin in France. Blair and Clinton are a long, long way ahead on their "Third Way".

In Schroder's case, moreover, foot-dragging is a pressing electoral requirement. Intellectuals like Die Welt's columnist may chafe at the absence of a new approach among Germany's leader, but the message from the electorate is that voters are deeply frightened by the new world on offer from the Anglo-Saxon center-left. Schroder's timid attempts to steer a Blairite course have so far cost him a sharp drop in electoral support and a rift within his party, the SPD.

Next month, he faces a foreseeably fractious party conference. But the real test of his leadership will come next spring at a regional election in Germany's most populous region, North Rhine- Westphalia -- not only the SPD's power base, but also home to Mannesmann.

-- Guardian News Service