The German Mittelstand

Comment SME’s

Economic policy dampens investment joy

Not a flattering testimony to our elected officials: Small- medium size enterprises see the development of business as fraught with great risk under the economic policies presently being pursued by the Federal Government. This is the state of affairs that emerges from the most recent economic survey by the German Chamber of Industry and Commerce (DIHK), conducted over more than 25,000 companies with a payroll of up to 500 employees. The result comes as no surprise; with the DIHK in the coalition agreement, the Federal Government has identified some three dozen projects that are expected to undergo financial reassessment, in turn triggering cost revision (aka increases), and more red tape for companies to deal with.

This uncertainty is all-pervasive and casts a shadow over small-medium sized companies and their willingness to invest; purchase of machinery and equipment is being put on hold while companies downsize for next year and DIHK expecting a mere 100,000 new jobs to emerge from within the rank and file of SMEs, half the number for previous years of 200,000.

Added to this, the uncertainties in the Ukraine are as fuel to a time-bomb. Total yearly exports to Russia in 2014 have fallen by one fifth.

The great number of SMEs that are family owned are also fearing the consequences of the inheritance tax, prompting, DIHK Managing Director Martin Wansleben, to send a salutary warning to Berlin: "in its coalition agreement the government promised that companies could be passed down to new generations without being subjected to material losses. This was a binding promise which must be kept" [http://www.dihk.de/presse/meldungen/2014-12-08-auswertung-mittelstand]

Political decisions are motivated, but not always by electioneering promises. The biofuel industry could write a book about it. At the turn of the millennium, many medium size entrepreneurs were lured into investing in biofuel plants and infrastructure by the promise of long-term subsidies and funding at the beginning of the new millennium. A sudden reversal of the political landscape changed everything, and the investors were left high and dry..

A flourishing economy calls for investments in men and machines which can only bear fruit in a climate in which political and economic policies can be relied on. At this point, the Federal Government must act swiftly to salvage its own image, and a reversal of the initiatives regarding the inheritance tax would be a good place to start. If, in addition, it succeeded in shielding the economy in general and SMEs in particular from undue pressure, and began to prepare a reasonable corporate tax reform, it would have made a quantum leap on behalf of the otherwise less flamboyant groupings in the Grand Coalition.