Nokia and German Economic Isolationism

Germany, Europe's biggest economy, loves to outsource some of its industries to the much cheaper Eastern European countries. Its half socialist, half conservative and free trade supporting government allegedly understands the importance of freedom. Freedom of movement, freedom of investing, freedom of relocating. Beautiful principles, as long as they don't affect German workers. Especially West German workers from the highly industrialized region along the Rhine river. Like Bochum, a small town with some important factories like Opel and until recently, Nokia.

A huge scandal started in Germany last week, when the Finnish cellphone manufacturer Nokia announced that it will close down the 2,300 employees-factory in Bochum and relocate it to the small Romanian village Jucu. Strikes, ridiculous boycotts and angry political statements followed immediately after and are still hopelessly trying to change Nokia's mind. With no success so far.

It is certainly normal for local and even regional politicians to try to stop a decision like Nokia's - they need such kind of actions in front of their own constituencies. Never mind that from an economist's point of view, Nokia's move from Bochum to the small Transylvanian village Jucu makes sense: Romanian employees cost ten times less than German ones. And in building an industrial park, Romanian authorities can benefit from EU subsidies that generously flow towards Eastern European countries who recently joined the European Union.

But when members of Angela Merkel's cabinet call this move a proof of "caravan capitalism" and start a boycott by giving up their Nokia phones, one starts to wonder how firm that German commitment to "European principles and values" such as freedom really is.

The "Nokia affair" was brought up last week even in the plenum of the European Parliament. The leader of the Social-Democrat group, Martin Schulz, a German himself, suspected that EU funds had been used in relocating this factory from Germany to Romania. He asked the European Commission, the EU's executive body, to investigate the matter as this would "cast a very bad image on the EU".

The president of the European Commission, Jose Manuel Barroso denied these allegations and even ironically suggested that German politicians also explain some of the benefits of EU enlargement to their constituencies, not just the negative effects. Romania, a 23 million former Communist country joined the EU block just a year ago and still struggles with the second lowest GDP in Europe. "If it is possible to relocate from Finland to Germany, then it must be possible also to relocate from Germany to Romania. After all, the jobs stay in the EU", said Barroso.

But the fight went on this week, with a mass rally in Bochum staged by Germany's biggest trade union, IG Metall. Its leader, Berthold Huber claimed Nokia's decision to be a "declaration of war" to IG Metall. Government officials are still trying to persuade the Finnish company to change its mind. Even chancellor Angela Merkel made a phone call yesterday with Nokia's CEO and criticized his communication policy.

Yet the Finns stand firm, despite being called all sorts of populist names such as "subsidy locust", invented by the regional premier Jürgen Rüttgers. Although a conservative, member of the same party as chancellor Merkel, Rüttgers marched along side with the trade unions and even doubted that Romanian workers were "as punctual and reliable" as German ones. The premier might be right in respect of Nokia cashing in over 80 million euros from the federal and regional authorities in order to develop the factory in Bochum. But, as chancellor Merkel herself remarked, subsidies are not a guarantee for a company's eternal fidelity. Subsidies, no matter if granted from local, regional, national or EU funds, are after all a fake promise. True, a company might take advantage of them and establish its operations there, at least for a while, but moral arguments have no value when it comes to a business decision for a global company which wants to stay on top.

As a German tv journalist put it: boycotting Nokia by giving up one's phone is ridiculous. "Which phone brand should we use then? Motorola left for Asia last year, Siemens-BenQ did the same two years ago." Bochum was already regarded as an "exotic" location for a cell phone manufacturer like Nokia, whose other operations are in Mexico, China, Brazil and South Korea.

Quite an ironic twist for Germany, such a staunch supporter of the "European project" to be claiming subsidies now from EU's "anti-globalization fund" for the loss of 2300 jobs that went to...another EU member state, Romania.

In the carousel of European subsidies, abuse, frustration and anger seem to be the main effects, not job creation and focus on innovative thinking. Remember that the EU wanted to become by 2010 "the most competitive and innovative economy in the world"? It even had a plan, called "The Lisbon Agenda". But somewhere between structural and agricultural subsidies, between protectionist and anti-globalization funds, the EU got stuck along the way. Cutting subsidies altogether, as radical as it might seem, might do the trick. But then again, what would Brussels be left doing?

"The New European," a Romanian journalist, blogs at Transatlantic Politics.