Germany to Nokia: Give us back our subsidies

Germany's western state of North-Rhine Westphalia (NRW) has told Nokia to repay all its subsidies plus interest by 31 March or face legal action. The German state paid €41m in aid for Nokia's mobile phone factory in Bochum, under the condition that at least 2,800 jobs would be created. However, the Finnish mobile giant is to …

[Anonymous Coward]

schadenfreude ....

...is a German word isn't it.

Ironic, really.

[Spleen]

"For you, Jukka, ze gravy train is over!"

The real story here is that if you want to create jobs, subsidy is a really shit way of doing it. Instead you need to reduce non-wage labour costs and regulation and make it actually worthwhile to employ people.

Unfortunately it's going to be inevitably drowned out by 1970s "wah wah companies should never sack people" rhetoric. (If society really is made better off by a company being bullied or bribed into retaining 3,000 unproductive jobs, the logical conclusion is that we'd be even better off if they were bullied or bribed into creating 3,000 more, or 30,000, or 6 billion.)

[Simon Ball]

Uh?

If Nokia were outsourcing to a third world sweatshop I could understand it, but are you seriously telling me there is a TENFOLD difference in overall labour costs between Germany and Romania? That's a lot more than the difference in GDP per capita, which is only about 3.5x.

[Luke]

Equality?

BMW has announced it will cut 8100 jobs, Siemens will cut 3800 jobs...

But I have not seen any news about Germans boycotting their products.

[Insane Reindeer]

Unions

Of course the local government is saying this, because in my opinion, the unions have them by the balls, they have done for years, and they will continue to do so for years to come. Across large chunks of "old" Europe the unions have had way too much clout for way to long, the case with Nokia is only one of many in Germany, the train drivers in Paris is one of many in France, the nurses in Finland, and don't even get me started on the U.K..... ;-)

So I don't give a stuff, and if it was the WHOLE of Germany that had exhibited an Anti Nokia/Finland backlash then I think Nokia's share would be a fare bit lower again than they are now!

[Aitor]

Tenfold? Nope

It certainly is not tenfold, except certain very specific jobs.

But it IS way cheper to hire people in Romania... but I certainly doubt that the quality can be the same...

But don't try to cheat yourselves, wages are a small part of the costs that are associated with a Factory. I suppose that electricity and waste disposal is also way cheaper in Romania..

[Anonymous Coward]

@Spleen

Couldn't agree more. Look at the 'massive success' of the union activities at places like Rover... remind me, how many people work there these days?...

[Vaidotas Zemlys]

@ Simon Ball

Do not forget the taxes. After tax salaries in Romania may be 3.5 times lower, but the taxes may add to the missing 6.5 portion. If employer pays all the taxes and social security for the employee the difference may scale up. I do not know the tax system in Romania and Germany, so I will take Lithuania as an example. To pay 1000 € to employee, in Lithuania, the cost for employer is roughly 1600 €, since the income tax is 24 pc, and the employer must pay the same amount for social security. (brutto salary is ~1300€, income tax 300€, social security ~300€, employee gets 1000€, goverment takes 600€). If we assume similar tax system in both Germany and Romania, but different tax rate, 40pc and 15pc, then if employee in Germany gets 3500 €, and 1000€ in Romania, the costs for employer are ~8222€ and ~1350€ respectively. Difference rises from 3.5 times to 6 times. Knowing that Germany is socialist state with higher tax rate and better social security system, tenfold difference does not seem so out of the blue. Count in shorter vacations, longer labor week, possibility to find people working for minimum wage, weak unions and you get major savings.

[Hollerith]

Carolina and Dell

I believe it was the state of South Carolina who gave Dell huge tax cuts, subsidies, free land, free lunches, the population's first-born children unto the tenth generation, only to find that Dell did not create enough jobs, the jobs were all so low-wage (a la Walmart) that the state had to cover health and so on, and Dell might even have closed the factory in the end.

If you have to pay people to like you, you will never have friends.

[yeah, right.]

about time

It's about time that companies who get huge government subsidies were told they can't just take them and run. If you want to live in a capitalist ideal and get to treat workers like crap, to be discarded at will, then don't take government handouts, paid for by the taxes of those very workers.

I for one am sick and tired of those huge supporters of "free market capitalism" invariably being the first ones deep into the government handout trough.

[Anonymous Coward]

Nokia: another bunch of shamless, greedy liars

To put the facts a bit straight:

-The factory in Germany was making some serious profit!

-The factory closure was announced shortly after the subsidies ran out and the state wouldn't add anymore.

-about 6 months before the announcement, Nokia categorically denied they had any plans to close the factory.

-who can tell me (truthfully and thinking realistically) that a company can close down a factory on such a short notice without having any prior plans?

Has anybody noticed the trend?:

Companies make more profit, execs and managers get more money, for failed projects, which then cause more employees to be "canceled".

Employees get less money, pay more tax, and have a less job security.

No, I am not depressed about all this crap going on, noooo, what could give one that impression?!?

....

Best regards

[Calin]

@Simon Ball

Actually Nokia pays in Romania roughly 250 euros for an assembly line worker.

[Mark]

@Spleen

However, three problems with your idea:

a) C*O/BoD jobs are never outsourced

b) the unemployed cannot afford your goods

c) you're asking for a race to the bottom

Instead, require that any jobs outsourced be to places that have the same or better worker protection. Extract all profit if this isn't done.

Then you

a) ensure there's no race to the bottom

b) give the workers in the third and disadvantaged world a REAL boost to their standard of living

[Chika]

A title is required (wish I could think of one!)

Nokia are hardly the only company going this way, and the tenfold labour cost difference is the big reason, just as so many service companies are sticking their call centres out to places like India. They want to keep their costs low, and exploiting workers in countries with lower wages and poor working conditions is a way of doing it. In a lot of ways, Romania *is* a third world sweatshop economy.

Having said that, I agree with Spleen in that subsidies are a really crap way of financing such jobs. It is self defeating as the money for such subsidies has to come from somewhere. Often it comes from taxation, which means that the workers end up needing higher wages to allow for this taxation (both direct and indirect), which effectively means that the government is pricing its own workforce out of the market. You can label Nokia as cynical for extracting the subsidy, but the government officials could be just as easily tagged.

Hm... Bochum... do they still have that planetarium?

[Col]

Going the way of the great Auk.

The manufacturing heart moves east, so does the money, plenty of eastern europeans moving west too, working for half the money their western counterparts will accept.

Its economic migration, they'll stop mowing west when theres no disparity in the wages due to the money going east.

Stupidest thing you could do, try and stop it by throwing government money at the problem, raising taxes in the process and making the playing field even less level.

Wonder if I can mix any more metaphors before i say we deserve everything we get?

[F MacIllFhinnein]

@ Insane Reindeer

If you imagine that unions in the UK are really so powerful, then the first part of your name is well deserved: this is the only country in Western Europe that denies its employees the right to withdraw labour. It's noticeable that executive snouts in the twin troughs of subsidies funded from taxation and bonuses funded by shareholders are never at risk, whereas the workforce making the products profitably (as pointed out above) are the ones to lose their income. It doesn't look like a successful way of ensuring a vibrant economy anywhere - even for the fat-cats themselves, who seem to be too busy diverting income from their potential customers to think of the future.

[Charles Manning]

Kick-back/subsidy bidding war?

Surely Nokia have a spreadsheet that could have told them the costs of operating in Germany. It is incomprehensible that they would set up a factory etc, cash the big subsidy cheque, then, and only then, work out that they can't make it fly and should have gone somewhere else.

[Neil Birchall]

exploitation?

How can workers be exploited if the cost of living is lower? In places like India and Romania the wages reflect the cost of living just as they do in western Europe. Unfortunately the cost of living is higher here.

I do think that government subsidies for foreign firms are the wrong way to go. If Germany doesn't get its money back through the courts then I'm sure that Nokia will feel the pinch when it tries to sell its products there in the future.

The only people who will lose out in this instance are the German taxpayers but it still doesn't make it right. Nokia were exploiting Germany in this case

[Greg]

Germany and France racing to the economic trash heap of history!!!!

But of course, Nokia would leave. There isn't much of any way around the fact that Germany as supported by her unions is destined to the economic trash heap of history!!! Who in their right mind,(and this is the amazing part of it all) could possibly think that the socialist republic of Germany would not face a long dreary road of high unemployment and dropping standards of living. The problem is once socialist policies are enacted they will grow like a cancer eventually consuming any long-term growth prospects till the policies are reversed. Now heres the hard part. Reversing these policies that a new generation of Germs have grown to love and believe in as their rightful inheritance is impossible without great long-term pain. The knee-jerk response will be to boycott other nation's products and eventually raising even more barriers to free competition. And what will that bring you? Tariffs on German goods by your former trade partners. Populist methods never, ever work. But they will be used, no doubt. In a couple of decades when Germany has moved down to about the 30th largest economy in the world, Germans like any other third-world nation will start reproducing again. At first it will seem like the wrong thing to do as their standard of living will drop even more on a per capita basis. But eventually, what with the much lower standard of living and a much larger unemployed population, German politics will once again open their borders to free trade and to corporations to set up a manufacturing base in the country.

But don't feel bad, you will have company from Japan, France and most of Western Europe.

[Chad H.]

I got a great way to save costs!

outsource the board of directors.

I'd add the joke alert icon, but i'm not, I'm sure there are lots of kids in India who will accept peanuts for 12 days "work" a year.

[skeptical i]

@ Neil/ exploitation

Many of the countries to which manufacturing jobs are being exported also have low or poor labor and/or environmental protection laws. So while the cost of living may indeed be much cheaper, multi- national corporations can get away with paying employees dirt wages, forcing long hours, keeping unsafe working conditions, &c. True, some of these countries may be grateful to have these jobs at all in the face of staggering unemployment (and may even compete against each other to cut minimum wages and/ or reduce environmental protection standards to attract these jobs), but just because a population is willing to work 14 hours a day, six days a week, with barely- existent protective gear for five dollars a day and no benefits, does that make it right for a company to create and maintain these conditions?

[Finn]

The real monster

That is the way of modern economics.

If you have factory somewhere making profit, but you could make more in some other location, you will have to move.

It is not greed, it is the nature of stockmarket driven investment. They (the stock holders) will change the board of directors until they get someone who will make most money possible for them, regardless of any given factors.

Of course this is disaster in the long run. The new location will produce the same amount of goods cheaper, but workers buying power is equally lower. That means that if the company sells its goods to their own workers, they don't make any extra profit. Meanwhile selling in the previous manufacture location will suffer too as the workers there have to make do with lower wages/unemployment due competititon from new location and when this emigration to the cheapest location goes on across the board, all jobs will suffer the same fate.

So the same amount of work will in the end produce same amount of wealth as should be obvious to anyone with brains. On long term this will have serious social effects and it will cause serious unrest across the globe. But for now: Stock-holders rule supreme.

And as stokmarket is a way of making a personal investment without any personal responsibility, there is nothing that can be done.

[Pheet]

@spleen

I hope that your job is outsourced ASAP, then hopefully you'll stop post sanctimonious comments here.

Preferably, due to understaffing a bureaucratic error is made resulting in your claim for unemployment benefit being denied, you go in to arrears with your mortgage and your home is repossessed.

You should look at the wages, employment figures, quality of life and life expectancy etc. of somewhere like Sweden where the unions are much stronger than in the UK, and stop your reactionary dribbling.

[Seán]

The stench of thatcher

There really is a horrible 70's style to some of these anti-union comments. The "subsidies kill" notions suggesting competing with China on employment terms are particularly funny.

[mario]

@By Greg

While there are certainly huge inconsistencies in French and German industry politics which are worthwhile discussing,

and which lead in conjunction with a similar inconsistent European development funding practices and tax brake shemes in

countries like Romania to the warmly welcomed opportunity for large cooperations to augment shareholder value at the

expense of the taxpayer (which might be - oh the irony - layed off at the end), there is, however, one remarkable thing

thing here to observe:

It's nothing short of amazing to observe the conviction of some "turbo-free-marketeers" residing in countries that lost

50% of their production sector since the 1970s to lecture the #1 export nation how to run it's busness.

[Anonymous Coward]

Hypocrites.

What ever happened to all those subsidies that Siemens got from uk.gov for their Newcastle fab that never produced anything?

[Anonymous Coward]

Bochum (germany) plant of Nokia was profitable...

... please check with your favourite search engine.

It is really a case of increasing profit by sparing on wages

[stizzleswick]

@Luke

"BMW has announced it will cut 8100 jobs, Siemens will cut 3800 jobs...

But I have not seen any news about Germans boycotting their products."

That's probably because they didn't receive a few dozen millions in subsidies to create those jobs in the first place. A German colleague of mine put it this way: Nokia wanted to screw the German tax payer in order to create more profits in Finland.

My guess is that a certain portion of Germans objects to that sort of thing.

[Spleen]

Re: Scargills

If you're that keen on socialist utopias like Sweden, you're quite welcome to move their just before the tidal wave of aging population hits them. Or if you just can't wait, move to Japan where it's already happened.

If I was sacked, at least I would have had a job in the first place and would have a very decent chance of getting another one within a few months, something virtually impossible for someone of my age in your ideal country. "I'm alright Jack, suck my job protection" is alive and well, it seems.

[TeeCee]

Terms and conditions?

NRW are trying to get Nokia to honour a money back guarantee?

That'll be a first!

Stock answer: "That's not our problem, you need to speak to whoever convinced you to pay for our factory in the first place."

[Pascal Monett]

This simply had to happen

Oh gosh, another multinational company accepting subsidies, then scampering off when there's none left. Like that never happened before.

Personally, I think there should be a, EU ban on subsidizing factory installations. The money is wasted anyway, since Nokia is only the last in a very long line of companies to have done this sort of thing. It's SOP now, people, for Pete's sake, they ALL do it.

So just stop giving them the money. If they say "Well we'll go elsewhere" then we can just answer "You will anyway, so get lost".

Besides, the whole thing really smacks of bribery to me, or maybe extortion is a more appropriate term. It's as if some guys in Armani suits cornered the mayor in the boardroom and beat the stuffing out of him until he "accepted" to pay them to install a factory. And, on leaving, one of them smiles and says "Nice to do business with you" while crushing the mayor's fingers under his heel.

Can't people understand that jobs "created" in such ways are nothing more than temp jobs ? That the state/region/city is simply paying unemployment fees under a different guise ?

How long are we going to continue putting up with this ?

The state should simply step in and say "Okay, you want to leave ? Fine, go. But the factory is seized and everything in it now belongs to the State. We'll use it as we see fit."

Okay, I've got to stop smoking the carpet now.

[chris]

Can I just echo

The comment above that says "Outsource the Board". And folk here are claiming that we need to make it easier to fire people? Let's start with the workshy, tax-dodging benefit scroungers at the top of organisations.

I'm not joking but I'll take the red and black hoodie, ta.

[Pheet]

@spleen II

If you're unable to get work because of ageist attitudes, it's another matter entirely, and I'd be sympathetic (though if I was you I'd reflect on my attitude a bit - you don't come accross as much of a team player for example). BTW, if you're currently unemployed, what are you living from? Accepting money from the evil socialist welfare state?

As you're getting nearer to retirement age (guessing from what you said), you should be concerned when large amounts of public money is wasted as bribe to large companies, instead of being used for pensions and the health service - those hip-replacement operations aren't cheap you know.

Arguing that companies should be able to fire people willy nilly, despite public subsidy, so you (theoretically) would have a better chance of getting a new job is ignoble.

Also Sweden has a completey different attitude towards imigration (and intergration) than Japan, so the aging population problem (as all countires in western Europe) shouldn't be as extreme. A bad comparison to make.

[mario]

@Oliver Jones

Dear Oliver,

Although I'm meanwhile not completely up to date anymore with respect to german labor law, maybe first a fact and than a little story from the pricvate sector in France for you:

The fact is, that in case you want to lay someone off for poor performance in France, you give him a warning in the OBLIGATORY annual personal performance assessment and you'll repeat the exercise three months down the road. In case his performance

has not improved you can lay him off for professional reasons. He'll take one month of salary, his remaining holidays and in case of seniority (for every 12 months in the company) another month of salary (however, there is a cap,

which I fail to remember).

That's it.

Not really too hard is it?

And you can believe me, since I HAD to lay off people like this.

And now the little story:

My wife is in the mid management of a small subsidary of a bigger US-based company. Since the downturn of the US-economy, the writing was on the wall that the company will have to reduce it's workforce.

Consequently, the french management advised the US-bigwicks to do the annual performance evaluation and tag the dead wood in the company with a warning, so that in case of lay-offs at a later stage, the procedings have already been started according to french labor law.

The american headquarter, however - at the time very busy with merger talks - could not be bothered with such small folkloristic labor law details overseas and prefered not to listen. Even worse - two weeks before Xmas they perform a "cut and paste style" evaluation which assignes even to the underperformers an "acceptable" performance.

Then the happy new year 2008 arrives and the US-board decides, well, this year we lay off some folk.

And, since merger talk should not be clouded by bad economic rumors, we call a lay-off for economical reasons (which has in France completely different proceedings) not by it's proper name, but we say we simply get rid of some dead wood and tell the underperformersto take a hike, because - well - they underperform.

Subsequently, they send a firing squad for immediate execution to France, which - despite a renewed warning of the french management that this will violate french labor law and thus will provide any half-way decent lawyer a huge opening to rake in huge compansations - summons the delinquents and let's them know that they mustn't drop in tomorrow morning, because it came to the managements attention that their performance sucks.

Naturally, the inevitable happens: These people print out their "acceptable" december evaluation, get a good lawyer who rips the proceedings legally apart and get a full featured six months of salary as a golden handshake out of all this.

IMHO - rightly so.

Since then the US-based human resource department runs around in the headquarter telling anyone who will listen that it's:

1) Nearly impossible to lay-off staff in France. That's a bloody commy cell over there.

2) Last thing we'll ever do is hire someone againin France.

I guess, they sound in their rants a lot like you Oliver.

And the french management came to simply two conclusions:

1) That this was the most botched up firing exercise they have ever had to witness. The diletantic way

in which it was MANAGED basically tripled the costs.

2) Apparently the wrong people were fired. Shoving the HR bums and one or the other bummer from the board over the

cliff would have lead to substancially larger savings...

And - since in your rant you're also giving the indian continent a kick - yet another thing:

My sister in law was meanwhile forced to change her job because the contractor of her Madras based company

expects the Indian IT staff to work nine months per year in Omaha.

Highly motivated and for an Indian salary, naturally.