Economy · Small and medium-sized enterprises
The German Mittelstand: an economy of three and a half million firms
Not a sector but a way of owning and running companies: mostly family-held, rooted in a region, often in manufacturing, frequently exporting. This page looks at the economics of that ecosystem and at the policy arguments Carsten Linnemann has made about it.
01 / Definition
What “Mittelstand” means — and what it does not
In statistics, the Mittelstand is usually approximated by small and medium-sized enterprises (SMEs). The Institut für Mittelstandsforschung (IfM) Bonn uses the European Commission definition: fewer than 250 employees and either an annual turnover of up to €50 million or a balance-sheet total of up to €43 million.
In everyday German usage the word means more than size. It describes companies where ownership and management lie in the same hands — usually a family — and where decisions are taken with a horizon of generations rather than quarters. Some well-known “Mittelständler” have thousands of employees and would not count as SMEs at all. The IfM therefore also reports on family businesses as a separate category.
This distinction matters for policy. A tax rule designed for small firms helps the bakery but not the family-owned machine-tool maker with 2,000 staff; an inheritance-tax rule for family businesses does the opposite. Debates about “the Mittelstand” often slide between the two meanings.
Related pageThis page is about the Mittelstand as part of the economy. Linnemann’s eight years as federal chair of the CDU’s business association, the Mittelstands- und Wirtschaftsunion (2013–2021), are covered on the MIT page.
The Mittelstand is defined less by its size than by who owns it and how long they intend to stay.
The SME economy in figures
All figures from one release: IfM Bonn, published 6 July 2026, reference year 2024 (EU SME definition). An earlier release used a different data base, so figures are not directly comparable across releases.
Share of firms that are SMEs · 2024 · IfM Bonn
Share of employees in SMEs (≈22m of ≈40m) · 2024 · IfM Bonn
Share of turnover generated by SMEs · 2024 · IfM Bonn
Reading the gap
The three rings tell the story of the Mittelstand in one picture. Almost every firm is an SME, more than half of all employees work in one, but SMEs generate under a third of turnover. Large companies are fewer but more capital-intensive and more export-oriented.
The training figure is the one most often overlooked. Two-thirds of apprentices learn their trade in SMEs, which means the dual vocational training system — and with it the supply of skilled workers — depends heavily on small firms continuing to train even when they cannot be sure that apprentices will stay.
The IfM release also notes that family businesses make up the large majority of all German companies and employ more than half of all employees subject to social insurance; that estimate refers to 2019 data.
Eight forces around a family firm
The diagram places a typical Mittelstand company at the centre. Inner ring: what it draws on. Outer ring: the pressures it faces. Each force is explained below.
The forces, one by one
Skilled workers
The Federal Employment Agency counted 157 shortage occupations in its 2025 analysis, down from 163 a year earlier. Shortages are most marked in care and health occupations, construction and skilled trades, and among professional drivers, cooks and educators. Small firms feel shortages acutely because a single unfilled post can stop a production line or a workshop. The agency reports that foreign workers’ share of employment in shortage occupations roughly doubled from 7% in 2014 to about 14% in 2025. More on the labour market page.
Financing
Mittelstand firms traditionally finance themselves through retained earnings and long relationships with savings banks, cooperative banks and the KfW development bank, rather than through capital markets. That makes them sensitive to interest rates and to tax rules on retained profits and depreciation. The investment programme of July 2025 introduced 30% declining-balance depreciation for machinery bought between July 2025 and the end of 2027 — a measure that helps firms with taxable profits most.
Regional economies
Much of German industry sits outside the big cities: in East Westphalia-Lippe, where Linnemann’s Paderborn constituency lies, in Baden-Württemberg, in southern Bavaria, in the Sauerland and Siegerland. Firms are often the largest employer and sponsor in their town. When such a firm closes or relocates, the local tax base and training places go with it, which is one reason why Mittelstand policy is also regional policy.
Innovation
Many Mittelstand firms are specialists in narrow industrial niches, competing through incremental engineering improvements rather than research-lab breakthroughs. The challenge identified by many economists is digitalisation and software: products where value increasingly lies in data and services rather than hardware. The CDU’s Agenda 2030 set a target of 3.5% of GDP for research and development by 2030.
Energy costs
Energy-intensive SMEs in metals, chemicals, glass, ceramics and food processing are exposed to electricity and gas prices without the bargaining power of large groups. Since 1 January 2026 the reduced electricity tax for manufacturing, agriculture and forestry has been fixed permanently at the EU minimum, and a federal grant of about €6.5bn lowers transmission grid charges in 2026. A cut for all consumers, promised in the CDU’s 2025 programme, has not followed.
Regulation
Reporting duties weigh more on small firms because fixed compliance costs are spread over fewer employees. The National Regulatory Control Council estimates the bureaucracy costs of business at €64bn a year and warned in 2025 that EU rules on cyber-security (NIS2) and sustainability reporting (CSRD) would add new burdens. See bureaucracy reduction.
International competition
Germany exported goods worth €1,563.0bn in 2025 (+0.9%), with a trade surplus of €200.5bn, down from €242.9bn. China was again the largest trading partner (trade volume €251.8bn), but exports to China fell by 9.7% to €81.3bn. For machinery and component makers, Chinese competitors increasingly sell the same products the Mittelstand once exported to China. US tariffs add a second front.
Succession
KfW Research’s succession monitor (January 2026) estimates that around 109,000 SME owners a year plan to hand over their business by the end of 2029, while about 114,000 a year intend to close it — roughly one firm in four. Some 57% of Mittelstand owners are aged 55 or over. Finding a suitable successor is the main obstacle (69%), and 45% cite legal and tax complexity, 15 points more than a year earlier.
What happens when owners retire
SourceKfW Research, Nachfolge-Monitoring Mittelstand, January 2026.
05 / Economic analysis
Succession is a demographic problem in disguise
The Mittelstand’s owners are ageing with the population. The baby-boom cohorts who built or took over firms in the 1980s and 1990s are reaching retirement age at the same time as the cohorts behind them shrink. A business that is closed because no one wants to take it over is not necessarily a failure — some are very small and have no value independent of their owner — but every closure takes jobs, training places and know-how with it.
Policy can only partly help. Inheritance-tax relief for business assets keeps family succession viable but is contested on fairness grounds; management buy-outs depend on financing; and the shortage of potential successors reflects the same demographic squeeze described on the demographic change page.
Linnemann’s Mittelstand arguments
Documented positions from his period as MIT chair, CDU programme chief and Secretary-General. These are political positions, not established facts.
Less bureaucracy as the first economic policy
He has consistently placed administrative burden at the centre of his economic argument, from his time at the MIT to the CDU’s Agenda 2030, which called for faster approvals for industrial plants and infrastructure.
Lower taxes on retained profits and business
The Agenda 2030 proposed cutting corporate income tax gradually to 10%, simplifying trade tax and improving depreciation. The corporate tax cut has since been legislated for 2028–2032.
Energy prices as a competitiveness question
The CDU’s 2025 programme promised at least 5 cents per kWh lower electricity prices through lower electricity tax and grid charges.
Work must pay — including for older workers
The Aktivrente, which lets people past retirement age earn up to €2,000 a month tax-free from 2026, was intended partly to keep experienced staff in small firms. See work and performance.
Social contributions as a labour cost
The Agenda 2030 set a goal of bringing combined social contributions back towards 40% of gross wages. As health minister, he has repeated the concern about non-wage labour costs.
Is the Mittelstand in danger?
Yes — structural pressure is real
- Manufacturing value added fell by 1.3% in 2025 (Destatis), and many SMEs are manufacturers.
- Planned closures (≈114,000 a year) exceed planned handovers (≈109,000).
- Exports to China fell by almost 10% in 2025 as Chinese firms moved up the value chain.
- Compliance costs fall disproportionately on small firms.
Not as a whole — the picture is mixed
- The SME share of employment remains above half and IfM Bonn calls the economic weight of SMEs “still high”.
- Many closures are very small firms whose owners retire; they do not signal economic decline.
- Services, crafts and construction SMEs face different conditions from industrial exporters.
- “The Mittelstand” is sometimes invoked to justify tax breaks that mainly help large family fortunes.
Both readings can be true at the same time: the SME economy as a whole is stable, while industrial, energy-intensive and China-exposed segments are under pressure.
Sources & further reading
- IfM Bonn (via idw) — Economic importance of SMEs remains high (6 Jul 2026)
- IfM Bonn — Mittelstand im Überblick
- KfW Research — Nachfolge im deutschen Mittelstand (Nachfolge-Monitoring) (Jan 2026)
- Federal Employment Agency — Shortage analysis 2025 (2 Sep 2026)
- Destatis — Foreign trade 2025: China again largest trading partner (Feb 2026)
- Destatis — Gross domestic product 2025 (15 Jan 2026)
- Deutscher Bundestag — Energy and electricity tax amendments (Oct 2025)
- Grant Thornton — Changes to energy and electricity tax law from 1 Jan 2026
- Federal Ministry of Finance — Investitionssofortprogramm (Aug 2025)
- Nationaler Normenkontrollrat — Annual report 2025 (2 Oct 2025)
- Schwäbische Zeitung (dpa) — CDU Agenda 2030 (Jan 2025)