Prospericity

Germany a Winner in More than Soccer

German Football

German football logo. Downloaded from Wikipedia.  “DFB Eagle” by DFB – http://www.dfb.de

After watching more of the recent World Cup than I’m quite willing to admit, I find I’m at least grudgingly willing to admit one thing. The best team won. Germany had the most balanced, disciplined, and skilled team in the tournament, and the rest of the world clearly has a lot to learn from the way the Germans develop young soccer players.

More to the point of this blog, Germany of late also seems to have a lot to teach the rest of the world about urban (and national) prosperity. After all, as The Economist recently reported, the German economy grew at a 0.8 percent clip for the first quarter of 2014, or an annualized rate of 3.3 percent. Meanwhile Germany maintains the enviable status of being both a high-wage country and an export juggernaut, with an amazing 2013 current account surplus of 7.5 percent. While the US, together with other deficit countries, have criticized Germany for its surplus I for one would like to find ways build up our own export sector and stop sucking sour grapes.

Yes, of course it’s true that simply copying the ingredients of another country’s economic strategy is not necessary going to bring success back home. And yes, it’s true that Germany faces long-term structural problems related to a low birthrate and what many experts perceive to be low levels of domestic investment. Still, even with these caveats, two aspects of the German economic story seems quite relevant to those concerned with creating prosperous regional economies here in the US. First is an apprenticeship system that generates high quality workers able to succeed in high wage jobs (I’d like to look at the German apprenticeship system in a future post). Second is the phenomenal success of what are termed “Mittelstand” companies.

The official statistical definition of a Mittelstand company is a firm that employs fewer than 500 workers and brings in revenues of less than 50 million euros – although many observers have pointed out that larger German companies operate much like Mittelstand firms. This desire to identify as “Mittelstand” is culturally unsurprising. As Jeffrey Fear, Professor of International Business History at the University of Glasgow points out. “The Mittelstand form the heart and soul – really mindset – of the broader German economy.” (See article in “The Conversation.”) Just like wealthy Americans consider themselves middle class, all evidence to the contrary, very large privately held firms in Germany want to consider themselves Mittelstand.

If the Mittlestand form the mindset of the German economy, that mindset seems a fundamentally conservative one. The archetypal Mittelstand company is one in which ownership and control are linked. Owners of these companies are not looking to cash out in an IPO, and in fact many Mittelstand firms are multigenerational family-owned businesses. Mittelstand tend to be associated with smaller German cities, though to call such firms provincial would deny the fact that these are export-driven companies, sometimes described as “hidden multinationals” with workers around the globe.

Tetra

Sherlock with his Mittelstand-produced fish food

Examples of Mittelstand companies surfaced through my brief internet research include Klais Orgelbau (a Bonn-based organ manufacturer), the Fruedenberg Group (an 8th-generation family maker of seals and lubricants), Mennekes ( a producer of charging apparatus for electric vehicles in a place called Kirchhunden), and Tetra (a Melle-based fish food producer). This last company in turns out, is the food source for Sherlock, the Mitchell-Redman family goldfish.

Springfield

Downtown Springfield, MA as seen from train. June 2014

In listing these obscure (but successful) export companies in obscure (or at least mostly obscure) cities, I find myself thinking of all the shuttered factories and declining small cities I saw on my recent train trip through the Northeast US. Could some of the companies that once made cities like Springfield, MA or Meriden, CT, or Trenton, NJ prosperous places somehow have become American Mittelstand if we had not been so  ready and willing to abandon such cities during the deindustrialization wave of the 1970s and 1980s? It’s impossible to know, I suppose, although our collective willingness to simply abandon old places and old connections in this country reflects a national mindset of our own – a frontier mentality that has never gone away.

Here it’s tempting to simply say that, well, Germany is a very different place from the US, and that it would be impossible to reproduce a Mittelstand scenario in US urban regions, just like it would probably be impossible for Germany, which lacks a frontier mentality, to reproduce Silicon Valley. Both the Mittlestand and the Valley reflect their distinct national (and regional) economic cultures.

But then again, simply writing off the Mittelstand story as German oddity won’t cut it either. The fact is that Germany has very intelligently focused, as a matter of both national and regional strategy, on building stable, high-wage export firms. And since “traded” companies (the ones that export goods and services outside the local region) are the means to bring new wealth to urban regions, whether those regions are in Germany, the US, or outer Kyrgyzstan, it follows that an economic model that focuses on traded companies ought to be at the core of any regional economic development strategy. In this broad sense the US does not get a pass on the Mittelstand model just because it’s culturally specific.

In truth, we already have several models in this country for producing successful export-oriented firms. The Silicon Valley model, mentioned above, is one of them. But there is only one Silicon Valley. Perhaps more relevant for most US cities is a strategy humbly termed “economic gardening” that will form the subject for my next post.