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FT.com / Home UK / UK - Not everyone is happy in east Germany's Solar Valley

Not everyone is happy in east Germany's Solar Valley
By Hugh Williamson

Published: March 11 2008 02:00 | Last updated: March 11 2008 02:00

Visitors to Thalheim in eastern Germany enter a grey landscape of abandoned industrial buildings, the remnants of the communist-era chemicals industry. Yet amid the blight, a few dozen shiny low-lying factories provide signs of a long hoped for revival. Dubbed the Solar Valley, the area around the town south of Berlin is at the heart of one of Germany's newest high-technology industries, manufacturing the cells and other components needed to generate sun-powered renewable energy.

Eastern Germany now boasts the world's largest concentration of such companies: 40 businesses, many foreign-owned, employing an estimated 12,000 staff, have found greenfield sites here. Others are queuing to invest, keen to supply directly to the German customers who form the world's largest market for solar panels. Another 24,000 jobs are expected by 2020, industry officials say.

The trend has been embraced by Angela Merkel, the chancellor, who has led calls for a shift to renewable energy to slow down climate change. An easterner herself, she is keen to support a region that, in spite of pockets of sustained growth, is still struggling to cling to the west's economic coat-tails.

Yet critics argue that this mini-revolution has a darker side. Trade unionists and local politicians, while pleased with the new jobs, have filed complaints with some of the solar companies over low wages, difficult working conditions and hostility towards or-ganised labour. Companies counter that they are breaking new frontiers by reshaping Germany's rigid approach to labour relations and offering jobs - albeit modestly paid ones - to people in unemployment black spots.

This debate brings into focus bigger questions about Germany's economic future. Experts agree that western Germany's postwar evolution into Europe's biggest economy is based on high-quality products made by high-quality - and well-trained - employees, set in a co-operative, union-friendly atmosphere.

Almost two decades after reunification, the question of whether the east is moving in the same direction - or becoming home to low-wage zones attractive to footloose assembly-line companies - remains unanswered. The region's workers still earn about a third less than their western counterparts, a pattern little changed in the past decade. The unemployment rate is double that of the west, as it was 10 years ago.

Wolfgang Tiefensee, Ms Merkel's minister for east Germany, says the whole country is tackling new pressures from globalisation and can learn from the "flexibility" of the region's workers. But should this mean a break with Germany's formula for postwar success? Mr Tiefensee casts the decision, especially for the east, as one between "jobs, jobs, jobs" and "good-quality jobs". Business must choose the latter, he says. "It would be a Pyrrhic victory for companies to believe they can build a new sector based on wage dumping and poor working conditions. I'm sure this will not happen."

This may be wishful thinking. Few solar companies are willing talk openly about labour issues, but industry officials have told the Financial Times that hourly wages for production workers of €9 (£7, $14) or less are common. By comparison, east Germans earn on average about €16 an hour, while their western counterparts bring home €26 an hour, according to latest available data.

One company willing to speak is Aleo Solar, a solar module maker in Prenzlau, north of Berlin. Jakobus Smit, its chief executive, says production workers are paid between €7.50 and €9 per hour, including bonuses for shift work. He admits the sums are modest: for example, €7.50 is the figure under debate in Germany as a legal minimum wage. Yet he argues that the company, with 550 staff, is "helping create jobs in one of the weakest regions even within east Germany".

Other companies in which the IG Metall engineering trade union is trying to get a foothold pay between €6.30 and €9 per hour, according to Olivier Höbel, the union's leader in Brandenburg, the region around Berlin.

Working conditions are also an issue. First Solar, which employs more than 500 people in Frankfurt an der Oder on the Polish border, is one of several US companies that run 12-hour production shifts - rare in Germany and criticised as "inhumane" by some union officials. Many companies also refuse to sign Germany's standard regional wage agreements and are hostile towards works councils - the workplace committees that employees have a legal right to set up.

Joachim Ragnitz, director of the Ifo economic research institute in Dresden, says the knock-on effect of low wages is a low-skilled workforce. In spite of high unemployment, east Germany is facing labour shortages in some sectors because of a rapidly ageing population and outward migration. "Solar companies could face skill-shortage problems in the future," he says.

Peter Ernsdorf, a local IG Metall official, complains of a "completely new business culture in east Germany". Yet solar entrepreneurs such as Anton Milner argue that such a business culture is needed. He is the British-born chief executive of Q-Cells, the world's second-largest solar cell manufacturer and the biggest employer in the Solar Valley, with 1,800 staff running five factories of conveyor-belts producing solar cells.

He told the Financial Times recently that he located his business in east Germany in part because worker flexibility was greater than in the west, and that he has no time for organised labour. Employees have a role in corporate decision-making but trade unions and a works council are unwelcome. "Formalities [such as works councils] are a block on progress" he said.

Ralf Segeth, solar expert at Invest in Germany, the government's inward investment agency, says many investors are keen on the country but worry about rigid labour relations. "There is a strong impression that German labour is inflexible and well organised. Therefore it's important to show companies that in east Germany they can act in a different way," he says.

What does this mean for the future? Dagmar Ziegler, labour minister in Brandenburg, says her ministry is stepping up financial support for solar companies that give skills training to their staff in order eventually to improve job conditions. "Germany has no future as a low-pay, low-skills economy," she says.

Carsten Körnig, director of the BSW solar industry business association, says companies already have "many high-skilled, high-salary workers - so the image of a purely low-wage sector is wrong".

Q-Cells and other companies insist they are taking skills training seriously and argue that employment conditions will improve as the industry puts down roots. The new companies have already attracted research institutes, engineering companies and other suppliers.

Mr Tiefensee is enthusiastic that this is "the beginning of a virtuous circle leading to the region's self-sustained economic growth". Experts wonder how many such cycles will be necessary before eastern Germany's real economic take-off.
Copyright The Financial Times Limited 2008