Socialism need not detain us too long. The breakdown of the Soviet Bloc in 1990 revealed for the first time the enormous inefficiency of socialist central planning, resulting in shortages, imbalances and abysmal productivity throughout Russia and its European satellites. Though there may indeed be a place for state monopolies in essential infrastructural services, the general principle throughout industry and commerce remains: the market rules OK.
But is unqualified capitalism the answer?
An old established company, a public company specializing in quality hand-painted pottery was jogging along nicely, not fabulously profitable, but profitable nonetheless, employing two hundred people, its products appreciated by collectors. The shareholders received an offer too good to refuse from a little-known “holding company” and they accepted. The product range was pared down to a few best sellers which were outsourced to China. The staff was laid off, and... here we come to the nub of the deal – the factory being on a now valuable urban site, was sold for development, bringing a good profit for the new company’s directors and shareholders. Good or bad? You decide. Whichever – it’s capitalism, the market rules.
Is there a third way?
Think German industry, and you may be thinking global champions like BMW and Siemens, but it’s the mittelstand – 3 million mid-sized businesses, often family-owned, with fewer than 500 employees and annual sales of less than 50 million euros – that employs more than 70 percent of German workers and contributes roughly half of the country’s GDP. And they’re not concentrated in the great industrial cities but in hundreds of small to medium towns spread across the country.
Though mittelstand simply means “middle-sized companies”, it’s the ownership profile and business philosophy which defines and sets them apart. In the typical mittelstand company, the management doesn’t worry about quarterly growth figures but rather thinks long-term, an approach which allowed most to weather the financial recent crisis without needing to lay off any permanent staff. Most of them are managed by their owners; they grow long-term and they don’t have to please the financial community. And they enjoy a consequent sense of stability which makes for teamwork and longterm commitment on the part of owners and workers – though they are often the same.
Tital, a firm that makes precision titanium- and aluminium-cast products for the aerospace and race-car industries, is a typical example. Based in the small town of Bestwig in the Ruhr Valley, Tital has about 420 workers – mostly from the local area – and is owned by its management team.
Germany’s unique apprentice system ensures that mittelstand companies have a steady flow of qualified workers. They take on 83 percent of all apprentices in Germany, more than their share of total employment. The apprenticeship system has roots in the Middle Ages, when master craftsmen across Europe taught young men the skills of stonemasonry, carpentry, and roof-making.
“Tital is training 16 apprentices. Two will be offered a scholarship to study engineering at a nearby university in exchange for returning to the company after graduation”, says the General Manager, who, along with five colleagues, owns 80 percent of the company.
Although big German firms aren’t part of the mittelstand, some still think of themselves that way because they remain family-controlled, with small-company habits. "mittelstand is a philosophy rather than an order of magnitude," says Ralph Wiechers, chief economist at the VDMA machine makers’ association, which represents 3,000 mainly midsize companies. "The mittelstand is the defining element of our economy," he says.
Though ownership is mainly concentrated in founding families, workers and managers, regional banks have also played a major role.
In Germany, the Regional Banks, or Landesbanken have traditionally provided low-interest loans to local firms, both as startup capital and as on-going investment. In fact, the regional, industry-sponsoring character of the Landesbanken goes back to their somewhat extraordinary origins.
In 1818 the Swedish government stunned Europe by offering 160,000 Taler to the German province of Westphalia as reparation for the damages incurred when Swedish and Dutch soldiers marched through the province during the Napoleonic Wars. This money was decreed the property of all Westphalia by its President, Freiherr von Vincke. The funds were used to develop the region’s economy and pay for public-works projects, a tradition of local sponsorship and involvement which would continue as part of Germany’s banking structure.
In the post-WW2 years, the Landesbanken played a major role in the creation of Germany’s “Economic Miracle”, in particular through the provision of on-going credit to the German “mittelstand” (small and medium-sized companies) in their respective regions.
Project-Secured Investment is
Yes, there is an “or”.
without increasing the deficit.
PRACTICAL - SIMPLE - TRIED and TESTED.
