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Some comments on the session “Spreading the Success of the ‘Mittelstand'”
by Cyrus de la Rubia
The idea seems to be appealing: If you could transfer the concept of the German “Mittelstand” to other European countries, the growth problems of the euro-zone would be solved. This was basicaly the subject treated by some experts like the entrepreneurs Peter Jungen and Reinhard Cordes as well as the president of the Institute of Mittelstand-Research, Friederike Welter. The answer to this question was a somewhat sobering “Nein”. More concrete: The structure of the German Mittelstand has grown through decades and generations and the set up is characterised by conditions which are difficult to be replicated in other countries.
The Moderator Henrik Müller from the German weekly magazin “Manager Magazin” noted, that there is no clear defintion for Mittelstand. While the size is not the decisive criterion, it is more the corporate culture where the entrepreneur treats his company and the employees as his family – in the best sense of the word. In addition, Müller asked if the German Mittelstand has already past its zenith of success.
What are the conditions to make it possible, that comparable companies to the German Mittelstand can prosper in other countries? One of the first issues mentioned was the sector of Sparkassen or saving banks. The regional structure of this sector is quiet specific to Germany and alleviates the availability of credit for local rooted, but globally acting companies. There are only few countries in Europe with a comparable sector of Sparkassen. Austria is an example. In Spain, however, the sector was broken up recently, in Italy the corresponding banks were privatised many years ago and in France the saving banks were taken up by the cooperative banks. Of course, the dual system of vocational training was also mentioned as one receipt of success. In addition, discussants pointed out that while these companies target the global market, they are deeply rooted in their region and can rely on a social consensus. Thomas Lasse-Müller, Undersecretary of State at the Ministry of Finance in Schleswig-Holstein, emphasized that in his Bundesland many firms are placed in small villages and could count on the support of the neighbourhoood given that many people are employed with this firm. If for example a new road is planned which is needed for the firm there is a local consensus about the necessity of this infrastructure project. And finally entrepreneur Cordes from OnlyGlass (renamed from Frerichs Glas) made very clear that the mentality and attitude play an important role: his firm exists since 137 years and is now in its third generation. His son is already in the starting blocks. Hence, the decisions are taken with a very long term view.
Lasse-Müller raised another issue with which he pointed to all those who would wish to “transplant” the Mittelstand to their country. He asked: are you aware of the fact that the Mittelstand has been characterised over the last 20 years by low profitability, weak growth and high risk aversion? Is it this what you are wishing for? This point was certainly rather sobering for the CEO of SME Corporation Malaysia, Hafsah Hashim, who asked for the “quick wins” and the “big wins” coming from the Mittelstand concept.
Finally, the discussion was steered into another direction: How long the German Mittelstand will remain successful? What has to be done to guarantee that the Mittelstand continues to contribute to growth in Germany? Moderator Müller noted that there were some challenges with which the companies are being confronted. This included not only the end of the extremely low interest rate environment and the possible changes of the enheritance taxes but above all the demographic changes. Indeed, the entrepreneurs Cordes and Jungen confirmed the problems they have in getting qualified staff. This was an area where the state should do something, namely incentivizing women and the elderly to look for work as well as improving the educational system.
At the end of the day, there were a few things to take away from this session. Firstly, it is very difficult to transfer the concept of the Mittelstand to other countries. It takes a long time, quick wins are not to be expected. Secondly, the success of the Mittelstand cannot be measured in terms of profitability, strength in innovation but instead by high stability. And finally: The signs are suggesting that the Mittelstand will rather shrink if politics does not counteract swiftly.