Thursday, 12 January 2012

Mittelstand, German, American and British

To deal with this subject in full and in detail would take many thousands of words. This bare sketch can only be a slight introduction. The word “Mittelstand”, see Wikipedia, is German and refers to the extent of middle and small sized businesses at the heart of the economies of Germany, Switzerland and Austria.

Such businesses were also at the heart of other western economies at one time and the changes that have occurred are part and parcel of the deteriorating conditions that are affecting so many of these others.

Essentially, between 1950 and 1990, Germany and Austria were no longer powers with any major military commitment or much of a role on the world stage. They were able to attend to their own affairs and concentrate on wealth creation, trade and building democratic and socially integrated nations. In this way they followed Switzerland who had kept out of wars and major foreign commitments.

In Austria the peculiar situation meant that Vienna did not exert the economic dominance over the rest of the country that occurred elsewhere. Switzerland has been a Confederation for centuries with Bern as its political capital since 1848 but with economic and other controls highly dispersed.

In West Germany the political capital was Bonn, a small town with the economic clout elsewhere, notably Frankfurt, but with extensive devolved authority to other major cities and centres of trade.

It was a Federal State and the consequence of this between politics and finance was to support and assist industry and trade across the board, large and small, creating a formidable strength and depth.

When I began to revisit Germany in the late 70’s the contrast between what was going on in the UK and the extent of the revival and capability of German economic activity came as a shock. The contrast with the Germany I had seen under Occupation with that of 25 years later was stark, almost as much as the decline I was witnessing in the UK.

The USA being very big, a Federal State and with its belief in enterprise and the creation of wealth also had an economy which was not the same as that of the German, but certainly widely dispersed, vigorous and allowed to develop without too much in the way of control. Also, middle and small companies had good access to capital and funding and were integrated politically into its democratic system.

In the USA now the events of the last decade coupled with the errors of the previous one have now triggered what could be a severe decline in this Mittelstand and maybe with the risk of collapse. Financial power has become too concentrated on Wall Street and Washington DC has become too inward looking and dominating in economic affairs.

The loss of flexibility, incentive, capital and the gross distortions of the financial markets in the USA have all conspired to seriously damage the basis and the functioning of the middle and lower and have shifted too much power, control and money to too limited a group of big business operations. This is not capitalism, it is oligarchy.

In the UK recently we have opened our doors to and showered favours and finance on the oligarchs of the world. But between 1950 and 2010 the centralisation of government, the concentration of economic decisions, the extensive and costly interference across the board have imposed intolerable burdens on the middle and lower sectors of business and trade.

Between 1945 and 1980 in order to prop up large scale declining industries and activities the political imperatives were to extract from profitable business so much as to deny it the ability to create its own capital. Central controls of capital made matters worse.

Neither the banks nor the City did much if anything for the UK Mittelstand, essentially chasing financial butterflies across the world instead, with the encouragement of one government or another, all London centric.

The result was to put areas with a strong UK Mittelstand into decline without saving the old industries. Given the extreme centralisation of the Westminster system the UK economy became more and more dependent on the City and other service activity. Our Mittelstand is now only a shadow of what it once was.

Just look at the UK political parties and their actual membership and see where their money comes from and who they work for. It is certainly not the middle and lower reaches of the economy, it is all for the big boys with deep pockets and the ability to walk in the back doors of 10 and 11 Downing Street at any time.

In Germany their prime concern about the Euro and its troubles is not just the issues for its many banks, it is for the Mittelstand at the heart of their economy. They now have the problem that Berlin may have become too powerful.

The USA is in economic cardiac arrest. In the UK the vampires have already done their worst.

How can the UK begin to rebuild its Mittelstand? Because if it cannot; then the game is well and truly up.


  1. Very insightful and succinct, Demetrius. if only the three monkeys would take note.

  2. Interesting that a few years ago the british politicians laughed about the manufacturing/mittelstand and now there are programs to do something for it...

    But im not so sure if this had so much to do with politicians in germany. sure there was more support for it but i think also because the family companys etc. demanded it and because even before WW1 there were alot more than in the UK. Something like the chamber of handicrafts is half state run but some of that stuff like the apprenticeships etc. is even older than germany. as it was swabia,prussia etc.

    Big difference was maybe that in the UK in the industrialisation and even today there was a much bigger class difference /nobility etc. not this didnt existed in germany.

    From Wikipedia "guilds"

    In Germany they are first mentioned in the 10th century. The German name is Zunft (plural Zünfte) for guilds of craftsman and Gilde (plural Gilden) for guilds of merchants. Métiers in France and craft gilds in England emerged in the 12th century.

    So there were earlier skilled workers and family companys. But than ofcourse UK had the Industrialisation maybe because merchants in london etc had more money. So England was earlier industrialised but with a bigger inequality.
    Also in germany all the financial stuff came alot later because here alot of stuff they did already in London was forbidden in germany even hundered years later like selling harvest that hasnt harvested yet etc. So the British would maybe say primitive you just sell/buy what you see.

    So this is here much more and longer in the culture and had not so much to do with politicians.

  3. You know what some even think that in WW1 The German Empire wasnt in the war with England but with the "City of London" because Germany had a central bank that was not "private" as in England&France and if people in other countrys would see how the economy can work and how much better the majority of people can be better off than they will also want this.And Germany's economy was growing like hell. Just as America was and then there was the "American War of Independence" because of that. America won but it came trough the back door 100 or so years later what is now the FED(a bank by the model of the Bank of England)
    But you know what the Bankers dont go to war they make media propaganda and send the "underclass" and there was more underclass as in germany maybe its even today (no offense)
    The fed is founded 1913 just at that time the USA came to help England in WW1 coincidence?