SMEs or… Mittelstand?

Editorial by CEA-PME Executive Director Stefan Moritz

As a German Manager of a European Confederation of Small and Medium-sized Enterprises, with strong German-speaking member associations like BVMW or the Austrian ÖGV, I am often asked to explain to either the German-speaking members the European concept of SMEs or, by companies from other countries, what Mittelstand means.

This challenge is not an easy one: hundreds of economists, historians, philosophers and politicians have tried to define what Mittelstand means for Germany and Austria in particular, and in Europe or the world in general.

By doing so, historians start with the guilds and craftsmen associations in German-speaking middle age cities, economists underline the economic success model of today and that has been in place since the second world war, and philosophers see another “consciousness” or “identity” of German or Austrian entrepreneurs. For all these reasons politicians like to be friends of the Mittelstand, to state their vicinity to an electorally important bloc of votes in our countries.

But this does not yet tell the real substantial difference between SMEs (or KMU in German – Kleine und Mittlere Unternehmen) and Mittelstand. I think it is time to try to add my personal vision to this dilemma, that of a Sociologist and a Business Networker, to help a better understanding of what we are talking about.

First of all, we go by exclusion: Mittelstand does not only mean the Medium-sized Enterprises, even if the German language (mittlere or mittelgrosse Unternehmen) would suggest so. When we talk about Mittelstand we equally mean the very small companies, of 1-2 or 3 persons, 1 entrepreneur and a few employees. So, the term does not reflect an exclusively statistical category, as "SMEs" instead does instead “SMEs”.

It also does not indicate the social and economic category of a class made by Marx. It would be confusing to say the Mittelstand would be the Middle Class, somewhere between the working and the propertied class, the favourite child of modern politics and marketing experts, wealthy, well-educated and financially capable, numerous but not (yet) the ones on the top of the pyramid. That is because, on one hand, many Mittelstand entrepreneurs stem undeniably from the working class, as skilled workers that made a step forward towards autonomy, as craftsmen that took over a business, as children of working class people that became engineers and technicians, and then managers of smaller or less smaller companies. But nonetheless they stay very connected to their class origins for what regards social affirmation and claims for equal treatment, e.g. in taxes, but also access rights to the market, claims to reduce bureaucracy seen as hurdles that were set up by the higher classes to limit the access to resources and rights to the less well-instructed, etc.

On the other hand, once the companies have success, the owners of these companies are part of the propertied class themselves. But also, under middle class we include the huge amount of well-educated and technically highly skilled professionals, that are important employees, also of the state or in bigger companies, as well as teachers, medical doctors, etc., but nobody would compare the majority of them to entrepreneurs.

Therefore, both definitions often used to explain what the Mittelstand is, do not stand to a more attentive analysis, and are either too limited or too large.

It maybe needs a qualitative sociologist rather than statistics and economists to get a better clue. First, the name: instead of focusing on the “mittel”, we first look at the significance of “Stand” (in German, always the last word part of composite words is the most important).

This wants to indicate the social group that is an important part of the society’s body, such as an “Estate”. When Louis XVI summoned the Estates General on 5 May 1789 for the first time after 175 years, apart from nobility and clergy, also the “commoners” or “Third Estate General” was represented, in fact the biggest group, representatives of the entrepreneurs, craftsmen and traders, but betrayed then by vote per order and not per head count.

Or following the division of society explained by Saint Augustine the general estates were defined as "those who prayed", "those who fought" and "those who worked". But here, “those who worked” were not intended as the working class that came up with industrialisation later on, but the traders, shop owners, farmers and craftsmen that often did not own much more than their work, and the great risk to lose easily the fight for resources, rights and security, if someone more powerful decided so, or wars and famine arrived.

It is first of all this position in the society, an important body of people that represented a “productive class of autonomous individuals”, not directly depending from clergy and nobility, but strongly reciprocally dependent from employees, clients, suppliers and subcontractors, either obliged or voluntarily ready to take risk, to make debts and achieve to pay them back, only able to get better conditions by doing a good job, with hopefully a bit of intelligence and luck more than others and with favourable conditions on the market.

This is, simply said, the origin of entrepreneurship. Not only in Germany or Austria, but in whole Europe, and nowadays in the world. So, to try a definition of what Mittelstand is, one could say: the cradle of entrepreneurship. And at the same time, a social group of people that have strong links with their humble origins, that struggle – often over generations - for defending and steadily growing their status, and of which some have managed to equal or even outstrip the supposed representatives of the leading classes of each age and society.

It sounds like a story of social heroes, a story of puritan working ethics and the very individualistic narration of capitalism. It is in a way, but it is also much more:

One important difference is that the Mittelstand have never been single individuals against all odds and the whole world. The Mittelstand wants rules, because it needs them to climb the social ladder or to have a fair competition. It trains young people, not only to work for them, but to do quality work, which is crucial to win on the market. And it needs good politics that tilts a bit the playing field for its advantage.

History shows that the Mittelstand is strong, when it stands together. Look at the guilds, but also at the Hanse. This includes self-taxation to set-up an own organisation. And it is lost, when for example entrepreneurs associations are abandoned in first place by its potential members themselves. Maybe because of the costs. Or because it is not fashionable anymore. These are SMEs: only statistical numbers.

And that’s why European Entrepreneurs CEA-PME works ideally for the European Mittelstand. Not because it is a German word. Because it means entrepreneurial mind-set, unity of intents with peers, creativity and productivity, social responsibility for future generations and for fair rules, and therefore the irreplaceable role of a large group of individuals for the wellbeing of our continent, so today as also tomorrow.

And finally, please allow me to say it frankly also in another way: what better than having one word for a fact that in itself opens up a world of images, values and identity? Much better than an acronym which first needs a lesson in economy and then 3-4 in European directives…


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