Whether independently active or integrated in efficient, cross-sectoral value-added networks: the German Mittelstand with its many family businesses offers innovative systems, versatile products and appropriate services. Solutions that are in demand worldwide, but are mostly conceived, developed and manufactured in Germany.
The Mittelstand as well as family-owned companies of all sizes create attractive jobs and good training opportunities, even in rural areas, and create revenue for the tax system and the social security system. Company structures differentiated by size and sector remain a guarantee for the dynamic competitive advantages of German industry and for the sustainable resilience of the social market economy as a model for a successful economy and a vibrant society.
Politics must recognize and meet the Mittelstand's needs
The German Mittelstand and family-owned companies are facing considerable challenges – be it rising tax burdens and energy prices, high bureaucratic burdens, shortages of skilled workers or rising social security contributions. Politicians are called upon to set the right course with a viable strategy. This is even more urgent as Germany is falling behind in many areas of the international competition for business locations and as the economy is losing momentum. Uncertainty regarding foreign trade development remains high due to trade disputes, protectionism and Brexit, among other things.
In addition, there are "home-made" burdens, for example in energy, climate, environmental or labor market policy. Against this background, it is essential that Germany’s Mittelstand is relieved quickly and noticeably in order to improve its competitiveness. Anyone in politics who recognizes the special quality of Mittelstand and family-owned companies should consider at least three things:
- Mittelstand companies are located in more rural regions – usually for generations. There, they need reliable connections to the metropolitan areas, for example through efficient infrastructures for energy, transport, data and education.
- In terms of personnel and finances, the Mittelstand is unduly strained by administrative burdens. An ambitious reduction in bureaucracy and better regulation are needed for them to be able to concentrate on product and process innovations to ensure their competitiveness.
- More and more Mittelstand-companies are successfully engaged in trade and investment, particularly across borders. They need open markets in Europe and worldwide.
An important goal of almost all Mittelstand and family-owned companies is to be able to hand over their business well-equipped to the next generation. This requires the appropriate regulatory and economic policy framework. The viability and sustainability of any Mittelstand-strategy must be measured against this.
A strategy for Mittelstand and family-owned companies: policy areas
1. Limit energy costs
Mittelstand companies in particular suffer from high energy prices. Companies are rarely exempted from the national levy for the promotion of renewable energies ("EEG levy"). Nevertheless, they must survive in international competition. In any case, further burdens are looming – not to mention rising grid fees. Through a premature reduction in coal-fired power generation, electricity prices could rise further. Without targeted compensations, the politically driven national increase in electricity prices will severely damage Germany’s Mittelstand and family entrepreneurs.
2. Implement structural reforms in taxes and charges
Germany is a high-tax country that places too great a burden on its Mittelstand in too many areas. Tackling tax reforms also means finally accepting the globally intensified tax competition. It is high time for a comprehensive and tangible reform of corporate taxation, which reduces the financial burden to a maximum of 25 percent. At the same time, tax bureaucracy – for example in the case of tax audits or retention periods – must be reduced. In order to provide a positive impetus, companies should receive tax incentives when undertaking research and development. Urgently needed structural reforms in the social security system must also be implemented. Otherwise, based on current law in Germany, social security contributions alone could rise to 50 percent of gross wages by 2040.
3. Strengthen rural areas
The Mittelstand is often – mostly for generations – rooted in rural areas and medium-sized towns. This is also where internationally active hidden champions can be found. This brings economic and social strength in breadth. While many towns and selected regions in Germany are booming, entire regions are increasingly feeling disconnected. This is becoming more and more of a problem for companies. Insufficient or even missing infrastructures – from road and rail to the data networks and the provision of health, mobility and culture – are placing ever greater stress on companies. Noticeable deficits in this area encourage further migration and wear out social cohesion including political tolerance. This, in turn, makes it more difficult for companies to attract skilled workers from Germany and abroad.
4. Involve Mittelstand enterprises in environmental and climate policy
Small and medium-sized enterprises are committed to a high level of environmental and resource protection. Market opportunities increase if environmental policy is pursued with a sense of proportion. Increasingly invasive needlesticks due to environmental regulations, however, are gnawing away at the quality of locations in rural regions. This reduces the basis for successful entrepreneurship, sustainable growth and new jobs. Germanys Mittelstand has often grown up in small-town structures over a long period of time. Therefore, specifications for distance space or air level limits for pollutants do not always fit in with the daily routine of the companies. The national overfulfillment of European regulations and legal requirements also creates considerable disadvantages in the increasingly international competition.
5. Reduce bureaucracy and ensure better regulation
Bureaucracy burdens companies of all sizes and industries. Mittelstand companies in particular suffer from new and planned regulations due to limited personnel and financial capacities. This applies to environmental or tax laws as well as to labor law. A high level of bureaucracy is a locational disadvantage in international competition. Bureaucracy ties up capacities that are ultimately lacking for innovation, growth and job-creation. This harms companies, the economy and society in equal measure. A European perspective on less bureaucracy and better regulation is furthermore necessary, because more and more legislation comes from the European Union.
6. Strengthen Europe
The Mittelstand is at home in Germany and active in Europe. Almost 90 percent of industrial Mittelstand companies are either directly or indirectly involved in export. In the case of industry-related services, the proportion is over 50 percent. These foreign activities focus on Europe: around two thirds of overseas sales, purchasing and production capacity are in Europe. In the second half of 2020, Germany will hold the EU Council Presidency. This is a good opportunity to put the economic and social value of Mittelstand and family-owned companies high up on the European agenda.
7. Counteract the shortage of skilled workers
There is an increasing lack of trained specialists in Mittelstand and family-owned businesses in Germany. Bottlenecks more often relate to qualified professionals than to workers with a university degree. Finally, the digital transformation of the working environment requires constant further training of employees. Today, 85 percent of companies are already investing in this area – around 33.5 billion euros flow into further training every year, and the trend is rising. Despite the priority given to tapping domestic potential, it is also essential to consistently recruit foreign specialists. Easier immigration opportunities for professionals can strengthen the skilled labor base. The adoption of the Skilled Immigration Act is therefore to be welcomed. However, the immigration law can only be as good as its practical implementation. Months of waiting periods at foreigners’ registration offices and diplomatic missions abroad must be ended. Mittelstand and family-owned companies cannot cope with this task alone; targeted legislative support is needed. Additionally, there are still obstacles to the free movement of workers within the EU. Structured information with reliable knowledge of what to observe when dealing with authorities in other EU countries is needed.