Why Mittelstand and not self-employment will save the UK economy

Recent figures suggest that employment is increasing yet the UK economy is struggling. How come? In this post I’ll give my opinion.

  by  Fräulein Schiller

Self-employed up 367,000 in four years, mostly since 2011

It’s been suggested that this increase:

might just save Britain’s economy

Further:

A recent study by Adam Lent of the Royal Society of Arts, called “Generation Enterprise”, pointed out that young people today are far more entrepreneurial than their elders, and are setting up their own businesses in ever-increasing numbers.

The figures show that it’s not only the young who are involved in this trend rather:

The average age of a self-employed worker is 47 – older than an employee where the average age is 40, according to official statistics. Much of the growth in self-employment has apparently been driven by “baby boomers”, the generation aged 55 and above. Almost 20% of workers aged between 50 and 64 are self-employed, and 37% of those aged over 65.

For me there are three explanations here:

1. An entrepreneurial boom
2. Encouragement into self-employment by people on the government’s welfare-to-work scheme as shown in the investigation by the BBC thereby avoiding unemployment
3. Firms moving people to self-employed contracts to avoid the full range of employee benefits to which they would otherwise be entitled

So are we just manipulating the figures, risking more damage to an already fragile UK economy?

For me the solution is to look to countries such as Germany in helping to shape our economic future. Germany has a knack of avoiding recessions and it’s their Mittelstand companies which are largely to thank for this:

These companies focus on innovative and high value manufactured products and occupy worldwide niche market leadership positions in many B2B segments. They are typically privately owned and often based in small rural communities.

Many of the successful Mittelstand companies aren’t fixated with the bottom line and combine a cautious and long-term oriented approach to business with the adoption of modern management practices, like employing outside professional management and the implementation of lean and total quality management. The Mittelstand emphasis on long-term profitability stands in contrast to the public corporations of many countries (including German public corporations) which face quarterly or annual pressure to meet expectations. They also invest generously in research and development too:

There are some Mittelstand companies who file more patents in a year than an entire country like Portugal or Greece.

Mittelstand businesses also have systems of works councils make sure that staff have a real say in the management of the company and in the on-going training of their workforce to improve and embed the ability and talents of its employees.

Personally while I believe we shouldn’t discourage an entrepreneurial spirit in the UK we need to look to this model of as a way forward in the UK to make a real difference to our long-term economic success.

What do you think? Leave a comment below:

Further Reading

Venohr, Bernd (2010): The power of uncommon common sense management principles – The secret recipe of German Mittelstand companies – Lessons for large and small companies. [PDF]

Venohr, Bernd and Meyer, Klaus E. (2007): The German Miracle Keeps Running: How Germany’s Hidden Champions Stay Ahead in the Global Economy, Working Paper 30, FHW Berlin. [PDF]