Want to grow the British economy? Learn the lessons of Germany's Mittelstand

A Berlin factory in 2008. Image: Getty.

Low productivity and limited access to finance have bedevilled Britain's SME manufacturers for decades. Beverley Nielsen, the LibDem candidate to be mayor of the West Midlands, believes the solutions lie in Germany.

I've been on many overseas trade missions since becoming the CBI's West Midlands director in 1995, and Germany's remarkable achievements in export markets were always cited as the model to follow.

However, I think this country has more to learn from the harmonious relationship between Germany's financial sector and its so-called “Mittelstand” – the vast array of successful enterprises operating between the giant quoted PLCs, and its small businesses.

These companies tend to be family-owned and managed. Their planning horizons span generations, rather than extending merely as far as the next set of results, and although they tend to be rooted in their regions, they have global ambitions.

I have been working to support our manufacturers for more than 20 years, and although successive governments have preferred financial engineering to the real thing, in the West Midlands we still compare favourably with Germany.

Roughly 5 per cent of our manufacturers in this region are medium-sized, and able to power future growth and innovation, compared with 4 per cent throughout Germany.

However, when we look at the access to finance enjoyed by the Mittelstand, there is no comparison with the West Midlands – or any other UK region. German companies enjoy far greater support, and from a wider mix of banks in their regions, notably via municipal savings banks, co-operatives and development banks.

They also have a well-established nationwide structure of grants, and governments at the state and national level offer continued and long-term support to reduce the risk faced by the Mittelstand. The whole focus is for the long-term, and about building regional jobs and regional economies so that their national economy is balanced and sustainable.

Sadly, in this country, we see politicians – notably, the previous chancellor – only paying lip-service to “rebalancing” our economy. And when the current government abolished the highly-successful Manufacturing Advisory Service last year, it said everything about its approach to our mid-sized manufacturers.

I also believe we have much to learn from how Germany encourages those ventures to not only deliver high-quality training to their employees, but to deliver it to the wider business community.

Germany has more than 4,000 family businesses with a turnover above €50m, and more than 600 industrial family-owned companies with more than 500 employees.


The Mittelstand trains its nation: establishments with fewer than 500 employees (including branches of large companies) provide more than 80 per cent of all training in Germany. That’s 1.27m of the 1.54m training places in German companies at the end of 2013.

In sharp contrast, 57 per cent of British SMEs do not offer any staff training or development, according to a 2016 survey by the Federation of Small Businesses.

As a result of greater access to finance, and a willingness to think beyond the next set of results, the Mittelstand is far more productive than its British equivalent.

Employment in SME manufacturing in Germany accounts for 20 per cent of all employment and 22 per cent of value added. In the UK, the figures are just 15 per cent for employment and just over 15 per cent value added.

In the UK, policies towards manufacturing chop and change as government programmes swing between Conservative and Labour administrations – but always with a relentlessly centralist view.

However, the German approach to the Mittelstand combines long-term business viability, and a relentless focus on delivering the bottom-line results required for survival and success, embedded in regional culture.

As mayor of the West Midlands, I will set the building blocks in place so that our SME manufacturers can finally get the support they have deserved for so long.

I will establish a West Midlands Bank, and a £1bn Innovation Fund, to encourage young talent, skills development, expertise, universities and research centres to link into our Mittelstand, to devise practical market-applicable solutions that deliver real growth and jobs.

The focus for these businesses must also be about delivering a “mind-to-market” approach where innovations are about servicing and meeting customer or user need, through good design, real understanding of markets worldwide and a relentless desire to be best in class.

We stand at a real moment of opportunity – with renewable energy and electric vehicles taking off in world markets, with new local energy systems, battery power and energy storage all combining with connectivity to link homes and mobility for the benefit of our communities in new, exciting and sustainable ways.

Sadly though, the lack of understanding of the asset that we have in our manufacturing businesses, across the West Midlands, has been demonstrated by both Conservative and Labour governments.

They do not understand what we are contributing and how important it is. Now is our time. We must back our Mittelstand and watch it take off, to both rebalance our economy, and deliver much needed growth which must be shared across our communities.

 Beverley Nielsen is the Liberal Democrat candidate to be mayor of the West Midlands.

Want more of this stuff? Follow CityMetric on Twitter or Facebook

 
 
 
 

Quiz: Can you name the UK city from a map of its public transport?

I'm so confused. Image: Chris Sharp.

Come on, this is an easy one.

 

 

Want more of this stuff? Follow CityMetric on Twitter or Facebook