Britain Has Much to Learn from German Firms

Daily Mail March 2013A new German word has entered the English language after ‘Rucksack’, ‘Kindergarten’ and the phrase ‘Vorsprung durch Technik’, namely Mittelstand.

It means different, yet related things – it describes a medium-sized company, but it also means doing business in a very German way.

Mittelstand companies are family owned, in 95 per cent of cases, and 85 per cent are owner-managed. They are oriented towards customers, employees and communities rather than just obsessed with shareholder value.

They are typically embedded into a region, where they take their responsibilities seriously. Often, they are strong exporters, world leaders in their chosen field of operation like Brita Water Filters, which has raked up around £7billion annual turnover in 2012 from very humble beginnings.

Although the official definition of a Mittelstand company is up to €50million turnover and 500 employees, many have outgrown these numbers by far – including my former company, the €2.2billion turnover fork-lift truck maker Jungheinrich AG. But culturally, they retain the Mittelstand outlook.

Staying with the narrower definition, Germany has 3.5 million Mittelstand companies, representing 52 per cent of total economic output, 61 per cent of employment and €200billion of exports from Germany. Of these, 1,300 rank as so-called ‘hidden champions’ – world market leaders in their niche, against 67 in the UK and 366 in the US.

These companies are regarded as the backbone of German manufacturing, giving it a resilience that has stood the economy in good stead in the economic turmoil.

That leads to an inevitable question. Why can’t the UK create a Mittelstand of its own? Britain has brilliant inventors and entrepreneurs, but is not so successful at evolving their ideas into the creation of sustainable businesses, which can grow in to the world-leaders of tomorrow. The likes of Sir James Dyson and the Bamford family of JCB fame are the exception, not the rule.

The talent is there, but it seems to be driven too early into the wrong direction. 
Entrepreneurs cash in, either through a trade sale, to private equity, or by floating on the stock market. It may bring personal rewards, but getting into the short-term profit race can be detrimental to developing new products and markets.

I believe that the key difference between our two countries lies largely in the financing of these companies, and the role of banks.

Typically, Mittelstand firms finance themselves from retained profits, with bank debt and equity funding playing a smaller role. Germany has around 3,000 independent banks with excellent regional coverage, while the UK has not even a dozen business banks. Although they have many branches, they no longer have bank managers who can make local lending decisions based on a thorough knowledge of customers.

The manager of a small or medium-sized regional Sparkasse, Volksbank or Raiffeisenbank in Bavaria or Lower Saxony knows the businesses in his area and probably plays tennis or golf with the owners. Their kids attend the same school. During their last few years at school children make frequent trips to companies in the area and the companies make presentations to get the best candidates for apprenticeships.

Universities and colleges also work closely with the companies in their region.

Here, we have an opportunity right under our nose. Around 1,000 branches of Lloyds and RBS are up for sale. Rather than selling them to a City conglomerate which no doubt would offer a similar centralised structure, they should be offered in small clusters to regional institutions or individuals with the right background.

In co-operation with the Local Enterprise Partnerships they could be part of the ‘business bank’ structure for small and medium firms, which the Government is trying to get off the ground. Lord Heseltine has pointed the way in this direction.

The UK could make a start in following this model and building a unique and successful Brit-elstand right now.

This article was published in the Daily Mail, 24 March 2013

Beware Abandoning Europe, Mr Cameron

This is an extract of an article published on January 13th 2013. It can be read in full on the Daily Mail website here.

Article Daily Mail January 2013The Obama administration has voiced its concern about Britain’s future in Europe. Some prominent business leaders are getting nervous that political posturing could result in the UK sleepwalking out of the European Union. Prime Minister David Cameron is under pressure from his right wing and the rising UKIP vote to renegotiate the treaty and hold a referendum on EU membership.

The key question in this increasingly heated debate is whether the UK could become a Switzerland or Norway with a trading agreement with the Union.

During the past two decades Britain has looked mainly west towards America for political and economic inspiration rather than east towards Europe. As the headlong rush into globalisation emasculated the unions and kept real wages low, demand had to be stimulated in new ways.

Under the last Labour government, Gordon Brown and Ed Balls took their guidance from Federal Reserve supremo Alan Greenspan and Wall Street.

Following the US example, wage increases were replaced by increased limits on credit cards and rising mortgages on the back of the asset bubble.

When Margaret Thatcher came to office in 1979, private household debt stood at around £60billion. When Labour got into office in 1997 it had risen to £750billion and when the Coalition took over, it had reached £1.45trillion.

Instead of government debt being reduced during the boom years, the opposite happened, with the rescue of the banking sector completing the disaster.

Taking the lead from the US in economic strategy has been an unmitigated disaster not only for Britain, but left other countries such as Ireland, Spain, Portugal and Greece. It even influenced such countries as Switzerland, France and Germany, as their banks were trying to become global players, pay their managers Wall Street salaries and adopt the casino culture.

Fortunately, in the northern European countries the excesses were not quite as pronounced, but they now have the unenviable task of bailing out their profligate southern neighbours. Following the US lead during the past decade has not been a great success and no wonder open-minded people all over Europe are looking for alternatives.

A lot of my German business colleagues regret, as I do, that Germany and Britain did not get together as leaders of Europe, as Helmut Schmidt and other German chancellors had hoped.

Britain is approaching the crossroads and my hope is that leaders will look at the alternatives carefully and not be influenced by political expediency.

Ordnungs- politik: the real third way

This letter appeared in the Financial Times Saturday 7 April 2012

Bob Bischof Letter in the FT April 2012

Sir, Michael Portillo hits the nail on the head with his suggestion of funding political parties out of tax revenues. Britain is the nation of common sense and everybody knows instinctively that “Who pays, says!” . Neither the union barons nor the rich donors should do either and it is pure logic that the voting, taxpaying public should do it. The Allies introduced this system in Germany after the last war and it works well – as do so many of the checks and balances, which govern modern Germany’s public life. There appears to be a growing murkiness in Britain in the relationship between business, unions, politicians, the media and police, which eats at the fabric of this free, open and liberal society. David Cameron would be well advised to forget about the “Big Society” with less regulation and rather re-establish a more “Orderly Society” with a dose of “Ordnungspolitik” to save it.
Yours sincerely
Bob Bischof

Neue Labour: Can German Business Ideas Revive the UK Economy?

Sunday 11 March 2012 – Bob Bischof appeared on BBC Radio 4’s ‘Analysis’ to share the ideas from Germany that could help improve the UK’s fortunes.

Presenter Matthew Taylor travels to Bob’s birthplace, Hamburg, to discover how apprenticeships are set up to buffer businesses and workers against hard times.

You can listen to the programme in full here: http://www.bbc.co.uk/programmes/b01cvkg6

The BBC article by Matthew Taylor is at http://www.bbc.co.uk/news/business-17213556

‘Hire and fire’ has destroyed Britain’s jobs economy

Europe’s biggest problem now is youth unemployment – we should be looking at the German labour model

As published in the Guardian: by David Marsh and Robert Bischof. http://www.guardian.co.uk/commentisfree/2012/jan/26/hire-and-fire-destroyed-uk-jobs

These days we tend to talk about the divisions in Europe as one between net creditors and debtors. In reality this is just a sideshow. There is a much more fundamental gulf, hinted at by Angela Merkel in her Davos speech yesterday: between countries with organised industrial training systems such as Germany, the Netherlands, Belgium, Scandinavia, Austria and Switzerland – all currently with jobless rates of between 3% and 7% – and those with much higher rates of unemployment, often in double digits, in peripheral Europe.

The issue pits Anglo-Saxon precepts of free market regulation against the Germanic “Rhineland” system of managed capitalism, with modern apprenticeship systems built on a long-term compact between labour and employers. In the years before and immediately after the euro’s birth in 1999, the peripheral countries of the European monetary union (Emu) often followed Anglo-Saxon principles by liberalising parts of notoriously inflexible labour markets. “Hire and fire” became the motto.

Initially this seemed to work. But as debt market conditions worsened and growth stalled after the 2007-08 financial crisis, Emu’s periphery has been left seriously exposed by the failure to replace unproductive regulations with new mechanisms to generate jobs.

In the battle between rival systems, “Rhineland capitalism” appears to be winning hands down. In the two years since the global economic downturn in 2009, Germany has expanded employment by 1.8m, while the UK, US, France, Italy and Spain have shed 7m jobs. In 2007, when most other countries were nearing the end of a boom driven by excess credit, Germany had the highest unemployment rate (8.7% of the workforce on a harmonised basis) of the group of seven leading industrialised countries. Yet in late 2011, according to OECD figures, German unemployment, at 5.2%, was the lowest in the G7 apart from Japan.

While the UK struggles with record youth unemployment, Germany’s youth unemployment rate is one third of the OECD average and one eighth of the rate in Spain. High youth unemployment is the most pressing problem in Europe right now – Merkel acknowledged as much when she admitted that mere austerity would make the European project meaningless for the next generation of young people. “Structural reforms that lead to more jobs are essential,” she said in her opening statement.

But Merkel is drawing strength from Germany’s own experience with low unemployment in the mid-noughties, and she is right to do so. While the German labour market underwent some Anglo-Saxon-style deregulation under Gerhard Schröder in 2003-2005, it still places more emphasis on employers’ freedom to build long-term loyalty between employers and workers. These relationships are embedded in a strikingly different cultural approach to industrial training, closely tied to the German tradition of family-owned Mittelstand businesses buttressed by long-term savings that take a generational approach to assembling skills and technology.

British politicians are keen to talk about “skills”, but at the same time they are reluctant to let go of the flexible labour laws that have set them apart from the European mainland in the past. They can’t have it both ways. Employers who do not have a sense of social responsibility for training are unlikely to be durably persuaded to hire apprentices through one-off state payments. Instead, governments should consider building comprehensive vocational training schemes that could be funded through a reduction in the social costs ensuing from unemployment. Tinkering with apprenticeship programmes on a piecemeal basis, as has been done in the UK, is unlikely to yield long-term results, as such half-hearted reforms result in expensive and wasteful systems that lack both scale and content.

And it’s not just the German system of apprenticeship schemes that could do with being copied. One of the main reason why Germany’s economy was able to recover so quickly after the downturn was the system of short-time working support (Kurzarbeit), introduced in the 1920s and extended in recent years.

Funded by an employment insurance levy, it pays for firms to keep workers for six to 12 months, provided employers can show their businesses are in a cyclical and not a structural downturn. Imagine a small engineering firm that ran into financial trouble in 2008: rather than letting go of the 17-year-old apprentice who had recently joined the firm, it would have been able to keep employees on board and then benefit from their experience when the economy was back on its feet. Even if the company had gone bust, the apprentice would by law have been sent to another company.

Sir Anthony Bamford, chairman of UK excavator maker JCB, points out that his company was forced to shed more than 20% of staff in Britain when production halved in 2009. By contrast, the Kurzarbeit system enabled him to keep all his labour force in Germany.

Such examples underline how Germany’s previously unfashionable model has enabled it to become the industrialised world’s premier job machine. As the economic climate darkens, 2012 will be a difficult year both for Germany to hold on to its advantages and for other countries striving to follow the German lead. Yet unless they start to lay the groundwork for longer term gain, time for catching up will soon run out.

Hit the Loan Sharks

Published 23 Jan 2012, Daily Mail, Letters to the Editor

Sir

James Coney in the Money Mail 18th January 2012 (“Banks can easily fix this flawed system”) highlights rightly the fact that the system is geared towards “the vulnerable paying for the better off”.

However, this is only the tip of the iceberg. Banks, Credit Card and Store Card operators, Mail Order companies and worst of all loan sharks and those known by a camouflaged name, the so-called Pay-Day loan providers all work on a similar principle. They can afford to lend money out indiscriminately at exorbitant rates, as these include provisions for defaulting customers: The higher the risk, the higher the interest rate. They are exploiting the socially weak and uneducated by luring them often  into spending money they do not have and  in the most expensive way. Frequently they are driven  deeper into debt and in the end it is invariably the state that has to pick up the pieces with social welfare support. It is a disgrace of the first order and one of the reasons for British private household debt to stand at 1.5 trillion.

The Mail has often been critical of European ways – I wished it could break with this tradition and start a campaign to outlawing this practice of exploiting the weakest group in society. Countries like Germany, the Netherlands, Switzerland have tough usury laws to protect this most vulnerable group. There any contract or deal that carries interest rates above 18-20% pa are nil and void and unenforceable in court. Repeated offenders can be imprisoned. It is noticeable that the above mentioned countries are also those doing reasonably well in the present economic climate.

As this proposal would put half of Britain’s financial services operators behind bars, a law like this would have to be introduced over time and with decreasing rates starting maybe with 30%, which put at least an immediate end to the horrible loan sharks.

Bob Bischof

Bob Bischof Letter printed in the Daily Mail January 2012
The letter as printed in the Daily Mail, 23 January 2012

Letter to the Times: Firing Up UK plc

Bob Bischof Letter to the Times June 2011
Bob Bischof Letter to the Times June 2011

This letter appeared recently in the Times and is republished here:

“Instead of accepting the CEO’s whining about high taxes and too much regulation, the Prime Minister could have interrogated them at the Times CEO Summit about their abysmal performance in world markets. As we heard, Britain has been exporting more to Ireland with 4.5 million people than to the BRICS countries (Brazil, Russia, india, China and South Africa), with nearer 4 billion people. German companies have to cope with far more regulation and carry substantially higher payroll costs, but have managed to reduce unit labour cost by more than 20 per cent in the last decade and raise productivity. Moreover, Germany was until 2009 the largest exporter in the world.
Britain, on the other hand, had a more than 20 per cent devaluation of sterling but British exporters have not taken advantage with higher sales volumes. Mr Cameron is right to try to turn bad regulation into useful regulation, but he should look at taxing profits which stay in companies and are re-investe in markets and products differently from those that are paid in dividends and share buy-backs.
In the absence of credit-induced consumption and state spending to drive the economy, growth depends to a large degree on our companies’ performance over the coming years. One precondition is to increase the skill base. Here again, should the Government beg companies to engage in its ambitious apprenticeship programme or should there be a training levy, against which companies can reclaim some of the cost of training? Either way, feeding companies carrots does not seem to work: more stick might work better.”

Apprentices in the UK: A Proposal

German Industry UK (GIUK) has been in discussion with John Hayes MP, Minister of State for Further Education, Skills and Lifelong Learning.  Conversations regarding the development of German models of vocational training to benefit the UK economy have led GIUK to develop a proposal for progressing UK Apprenticeship schemes to become more successful.

Britain has been pretty good in training its elites but has neglected the training of “foot soldiers” for decades. If one wants to turn innovations into successful products, one needs both, and if David Cameron’s “Big Society” is to have any meaning in further education then his government has to look at apprenticeships in a new structured manner.

John Hayes himself recently made an announcement regarding the government’s commitment to progressing Apprenticeship schemes in the UK, saying  “We must create a radically new model for workplace training, with apprenticeships at its heart”.

In view of John Hayes’ statement, during a meeting between GIUK and Mr Hayes on 3 February 2010, about his interest in bringing key elements of the German Dual Vocational Training System to Britain, GERMAN INDUSTRY UK has developed the following proposal.

UK Apprentice Training

GIUK is of the opinion that the present UK apprentice training system requires simplifying, restructuring and more relevant content, for companies to buy into it.

Since successive governments largely abandoned apprenticeships, a vacuum was created, which has been filled with a myriad of well-meaning but chaotic initiatives, duplicating many efforts and lacking structure and transparency.

From comparisons with continental systems we are also sure that it is possible to reduce cost drastically whilst increasing transparency and efficacy.

The Example from Germany

The German government spends around Euro 1,9 bn per annum on its Vocational Training Colleges and the certification of apprentices through local chambers of industry and commerce. German industry spends around Euro 18.5 bn p.a. net on training apprentices. Around 650,000 youngsters (or 58% of school leavers) enter into apprenticeships every year.

The completion rate is always well over 90%. In total, there are approximately 1.6 million youngsters training as apprentices in Germany, at any one time, at a cost to the state of about Euro 1,200 ( GBP 1,000) per person p.a. and about Euro 12,000 ( GBP 10,000) per person p.a. for the employers.

Proposal

Setting up of a small working group to:

  1. Pick out of the 343 apprenticeships offered for instance in Germany the ca 200 most relevant to the UK
  2. Determine the minimum training content of each of those in the work place
  3. Determine the minimum training content of each in Vocational Training Colleges
  4. Determine the length of the apprenticeship according to grade of difficulty (2-4 years)
  5. Determine the Examining and Certification bodies for apprentices
  6. Transfer Vocational College training content to Further Education Colleges or set up new ones
  7. Propose sources of funding of colleges for apprentices’ training
  8. Propose pathways for steps from skilled person – after a period of practical work – to Master Craftsman, Technician, Bachelor of Administration, access to University etc for those with aspirations

Budget

A budget needs to be agreed by the Minister for Skills.

The Way Forward

Once the basis of the above has been agreed with the government and work commences, GERMAN INDUSTRY UK will actively support the new apprenticeships and will encourage its members to take on as many young people as possible as apprentices.

*******************************

GERMAN INDUSTRY UK  – THE VOICE OF GERMAN INDUSTRY IN THE UNITED KINGDOM
Ymwlch Isaf, Criccieth, Gwynedd LL52 0PW · Telephone: 01766 523 113
Email: info@gi-uk.co.uk · Website: www.gi-uk.co.uk

Investment in Skills & Productivity: German-British Forum Conference

Better training as the key to economic dynamism

Bob Bischof will be co-chairing the upcoming German-British Forum Conference on Monday 22 and Tuesday 23rd November this year.

Entitled Investment in Skills & Productivity: Better training as the key to economic dynamism, the conference will address pressing macro- and micro-economic themes around how to ensure young people are being trained in the right ways to address the future needs of modern European economies.

Investment in Skills: the German-British Forum Conference
Download the Conference Programme and Registration Form PDF

Europe as a whole recognises that a high-skill, high-productivity economy provides the most effective platform to boost competitiveness and enhance well-being.

As Peter Loescher, Chief Executive of Siemens AG, put it at the Annual Dinner of the German-British Chamber of Industry and Commerce on 9 June 2010 in London;

“We have to get the message across to our youngsters in schools and universities that we need to out-innovate the innovators all over the world.”

German Industry UK (GIUK) has been at the forefront of efforts by German businesses in the UK to attempt to provide in Britain a framework similar to the German Dual Training System.

GIUK has held constructive meetings with Ministers from both the Labour government and the new Conservative-Liberal coalition administration and has now set up a working group within the Department for Business, Innovation and Skills to determine how this can be done for England.

The new UK government has made tackling the skills gap a significant priority in its efforts to spur economic renewal. There is considerable interest in learning lessons from Germany, where equipping the workforce with competitive skills through the vaunted apprenticeship and vocational training system, in partnership with industry, has long been a centre-piece of economic policy.

The presence of a large number of German companies in the UK has added impetus. Underlining this point, Robert Bosch, BMW, EON and Siemens are all giving support to the conference.

The gathering will highlight the role of the Technician Council, a new body set up in the UK to promote a new non-academic route to technical excellence for employees in many different fields.