Sum of its Parts

by Mario Ohoven
A new economic report shows that Germany’s decentralized economy is one of its greatest strengths. Mario Ohoven, president of the German Association for Small and Medium-sized Businesses, explains how fragmentation has led to greater prosperity.

June 2019

VAUDE is one of Germany’s “hidden champions” – a family-run business from the provinces which enjoys success on the global stage. The renowned manufacturer of mountaineering equipment and mountain sports gear has its headquarters in the tranquil setting of Tettnang-Obereisenbach (population 19,000) in Baden-Württemberg. © VAUDE

Imagine Great Britain without London, France without Paris or Austria without Vienna. Of course, a nation is more than its capital, but many European capitals are also the political and economic centers of their country, far exceeding other cities in prosperity and power.

A study conducted by the German Economic Institute calculated how much per capita income would decrease in each European country if its capital were removed from the equation. The result: Austria’s per capita income would be six percent lower, Great Britain without London would be down by 11 percent, and prosperity in France would decline by 15 percent. Germany represents an anomaly. If Berlin were excluded from the sum of gross domestic product (GDP) per inhabitant, its GDP would be 0.2 percent higher. This is down in part to the city’s history. But it also shows, above all, that the economic strength of our country is not based on a single region. From an economic perspective, Berlin is one urban area among many in the Federal Republic, and not the most important.

»Decentralization is the magic word«

Mario Ohoven, president of the German Association for Small and Medium-sized Businesses

© picture alliance/dpa

Distributed prosperity

In addition to booming exports, a high employment rate and its innovative Mittelstand (SMEs), Germany’s fragmentation is a major contributor to its economic success. Decentralization has prevented the emergence of a prosperity gap within the nation. Almost every state has at least one area of high economic and entrepreneurial productivity. The heart of the maritime industry beats in northern Germany, big IT and high-tech companies have settled in and around Munich, and a dynamic start-up scene is booming in Berlin. In the eastern states, too, a highly innovative Mittelstand has developed since Germany’s reunification.

Two thirds of Germany’s SMEs and at least half of its 2,700 “hidden champions” (our world-leading SMEs) are based outside the urban areas. For example, BHS Corrugated Maschinen- und Anlagenbau, the world’s largest supplier of solutions for the corrugated board industry, is located in Weiherhammer in Upper Palatinate, a town with less than 4,000 inhabitants. In the age of digitalization, location is not as important as it was 20 years ago. The prerequisite for success is optimal infrastructure, beginning with transport connections and extending to a super-fast broadband connection. And this continues to be a huge problem in Germany. Politicians must support the Mittelstand through investment-friendly framework conditions, so that success can continue to be achieved in decentralized way.