Mid-sized companies: Why doesn’t France have a Mittelstand?

The word Mittelstand has no exact equivalent in French but has a clear enough meaning: as the euro crisis eats away at the confidence and success of France’s big national champions, emulating Germany’s medium-sized, mostly family-owned businesses is seen as the way to boost French growth, jobs and exports. The Mittelstand has become an ambition. What is not clear is how far the French can achieve it.

This week they unveiled their big effort to do so. François Hollande’s government announced a new bank, merging various bodies set up by the previous administration to steer finance (public and private) into middling firms. The new Banque Publique d’Investissement (BPI) looks very like Germany’s venerable KFW (Kreditanstalt für Wiederaufbau), the reconstruction bank set up after 1945.

Characteristically, the French in their centralising way are latching on to the only bit of the German system that has anything to do with the federal government. The heart of the Mittelstand miracle lies not in Berlin but under the rolling fields of the German Länder (states).

By sticking to their knitting and improving efficiency, the French believe, German firms have prospered in specialized markets, earning good margins which finance more innovation and produce a virtuous circle. In contrast, despite their strength in consumer industries such as fashion, food and drink and in high-tech nuclear and aerospace, France’s large companies have been left behind since 2000.

Ludwig Erhard, the economics minister who crafted West Germany’s post-war revival, the Mittelstand was never just about numbers. “It is more an expression of a state of mind and a specific attitude,” he wrote in 1956.

France went in the opposite direction. Private firms left basic industries and capital goods to Germany and competed with Italy in consumer goods, while the state built up national champions in then-emerging sectors such as nuclear power and aerospace. This history helps explain the different roles of the state.

Guy Maugis, chairman of the Franco-German chamber of commerce, points out that when France wants to do something to improve competitiveness it starts with top-down decisions in Paris; the new bank is a case in point.

EU-Digest: bottom line: when it comes down to economics we got to go back to basics

Read more: Mid-sized companies: Why doesn’t France have a Mittelstand? | The Economist