How Germany's south became the backbone of a vibrant economy

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Niccolo and Donkey
How Germany's south became the backbone of a vibrant economy

Guardian UK

Julia Kollewe in Memmingen

September 17, 2012


It is hard to imagine now that southern Germany – Baden-Württemberg and Bavaria – was very poor in the 19th century, a largely agricultural area little touched by industrialisation. After the second world war, when hard graft and financial aid via the Marshall plan resulted in Germany's " Wirtschaftswunder " (economic miracle), the region rose to become the country's economic powerhouse.

Today the south is Germany's most prosperous part and home to tens of thousands of small and medium-sized privately-owned companies – known as the Mittelstand – hi-tech clusters and household names such as Daimler and Bosch.

Gerhard Pfeifer, who runs the eponymous ropemaking business in the picturesque town of Memmingen, where the unemployment rate is a mere 1.9%, says the Mittelstand is the backbone of the German economy. Crucial to its success is Germany's tradition of craftsmanship – on-the-job training with some theory thrown in. For example, Pfeifer's late father, who took over the business after the second world war, was a master ropemaker, as is Gerhard Pfeifer's sister, Renate Pfeifer-Lerner. The firm has taken on 12 new trainees this year, taking the total to nearly 50.

Pfeifer also credits the south-west's entrepreneurial spirit. About 95% of the 128,000 Mittelstand companies in Swabia (Bayerisch-Schwaben) are family businesses which despite their high export activity – 40% of their turnover goes abroad – remain rooted in the region through their close involvement with local social and cultural institutions.

"The German Mittelstand sees itself as rooted in the real economy – not finance-oriented but focused on quality and performance," he said. "You need banks that support this and don't treat companies as commodities." He is horrified at the idea that only 10% of global capital is based on real values, with the vast majority driven by speculation on financial markets.

The Pfeifer business, whose steel ropes are used in lifts, cranes, bridges, mines and sports stadiums, as well as featuring in the London 2012 Olympics opening ceremony, is a typical Mittelstand company, albeit older than most. It has been run by the same family since the 16th century, when the oldest surviving document mentioned a dispute between two ropemakers, one of whom was Pfeifer's ancestor. Today the business employs 1,200 people, with nearly half of them working in its historical base in Memmingen. It generates an annual turnover of €220m (£176m) and has subsidiaries in 17 countries around the world, including China, Russia and Dubai.

Pfeifer is hopeful that the company can survive in an Asian-dominated future thanks to its hi-tech products. The firm is one of Germany's "hidden champions" – little known companies that have carved out a niche for themselves and become successful internationally.

In nearby Leipheim, Wanzl is a third-generation family business that makes every second shopping trolley in the world (2.8m a year), along with hand baskets, luggage trolleys, baggage carts and vending units, and also designs shop interiors. It employs about 4,000 staff, more than half of whom are in Germany, and has factories in seven countries including China. Its clients include Tesco and Sainsbury's.

Gottfried Wanzl, whose grandfather and father were locksmiths and started the business after the war, inspired by the American inventor of the shopping trolley, Sylvan Goldman, said: "Germans tend towards perfection. Our work mania is often sneered at abroad but it's typical German culture – if you start something you do it with passion and see it through to conclusion."

German manufacturers have been quick to set up factories and sales offices in China and have invested heavily in technology and design. When Wanzl said: "We remain the innovator, not the plagiarist", and argues that his firm's broad product range is known for high quality and reliability on the world market, this sums up the situation for many German companies.

Germany's local savings banks (Sparkassen and Genossenschaftsbanken) are a key pillar of the Mittelstand, a source of funding for small firms. While supporting traditional German values like saving, Pfeifer admitted: "Saving alone has never catapulted a company to the top." He also recognises that the debt-laden southern European countries in the eurozone have a different financial culture and cannot be expected to change from one day to the next.

There is a clash of cultures and values. He notes that "a stable currency, formerly the D-mark, and the independence of the Bundesbank are key elements of Germany's prosperity, having contributed to the economic miracle after the war, and this is in danger of evaporating. This is what Germans are afraid of." But while structural reforms are clearly needed in the southern European countries, "Germany will not want to be the bogeyman that drove them to ruin", he added.

Pfeifer believes that Angela Merkel's cautious stance on more help for crisis-ridden countries and her resistance to eurobonds – commonly issued debt – are merely tactical behaviour designed to maintain pressure on those countries and to placate Germans.

Wanzl also sees no alternative to more EU bailouts for troubled eurozone countries: "There would only be losers if Europe fell apart." He notes that even Germany has highly indebted cities and regions – such as Berlin, Hamburg, Bremen and the Saarland state – that are subsidised by the wealthier parts. "If Europe were to break up into small states, we would play a diminishing role in a globalised world," he added.
Niccolo and Donkey
Team Zissou

I'm skeptical that these closely-held companies don't enjoy some legislative barriers that keep them from being gobbled up by publicly traded MNC's but maybe not. Perhaps it's just German/local patriotism that keeps them in the family.

Niccolo and Donkey
Living in Switzerland for a year, I was taken aback at how many small shops there were in the country. Every village had a manufacturing concern or two, highly specialized and highly valuable.

This proves that had Hitler focused on promoting entrepreneurship and productivity instead of the blood and soil nonsense, germany would have conquered the market, crushing the jews on their own turf. Heil Schwerindustrie!

Legislation of this type wouldn't be that surprising in Germany. Certainly German football clubs (with a few exceptions) are required to have 51% of shares owned by club members in order to prevent takeover by external investors.

Some detail here:

That's intolerable. Free market must prevail.

Which is why they have low prices and hugely attended games and yet still have teams that compete at the highest level of Europe and a very successful national team
President Camacho
Not too long ago this fact would have alarmed Americans as well...

In Abraham Lincoln's America, for example, there was clear distinction in the popular consciousness between "productive" and "unproductive" classes just as now. The difference is that back then, the latter group included not only the unemployed and those dependent on charity but also speculators and financiers-- people who made money but didn't actually produce anything. Christopher Lasch gets into this in one of his books while tracing the evolution of the American school system...

Alexander Hamilton's "American School" of economics (which is rumored to have inspired Friedrich List) is in ruins now, barely 50 years after it took America to the apex of its power. And while the "protectionist" economics of men like Hamilton and List are now discarded as "obsolete" throughout the Anglosphere-- among adherents of the Monetarist, Keyensian, and Austrian schools alike-- they have left an indelible mark on Germany, South Korea, and Japan, among others. These are precisely those countries still reliant on industrial output in lieu of financial speculation as the engine of economic growth.