What exactly is the “Mittelstand”? Its importance for society and economy

by Professor Dr Eberhard Hamer, Hanover (Germany)

The “Mittelstandsinstitut Niedersachsen e.V.” (SME Institute Lower Saxony) has been conducting independent research into small and medium-sized businesses as well as the middle tier of our society (the “Mittelstand”) for almost 50 years. In this institute, “Mittelstand” economics was created – today a discipline of the study of economics, concerned with the independent companies and family enterprises in our economy.
For five years now, this institute has also developed a previously non-existent “Mittelstand” sociology concerned with “Mittelstand” employees.

The “Mittelstand” in society

Since Karl Marx, society as a whole has been divided into three strata:

  1. a small upper class of about 5 % (Marx called this the capitalists).
  2. the “Mittelstand”, formerly 20%, now about 50% (which Marx mistakenly called the vanishing “bourgeoisie”).
  3. a lower class that used to make up the majority of the population, but today comprises less then half (which Marx called the proletariat).

These three strata live from different sources of income:

  • The upper class lives from capital assets, i.e. not from its own work, but from that of others. This source of income has always been privileged, i.e. not taxed at all or taxed least of all, in history and even today.
  • The “Mittelstand” lives from its own work, either from self-employed or from qualified salaried work. Since this factor is the main tax feature, the “Mittelstand” is also the main payer of all public taxes.
  • The lower class consists of poorly paid, unskilled workers, but also receives many state and semi-state transfers.

Probably not least because Marx, among others, saw the middle class as dying and therefore pictured only two classes – capitalists and proletarians – engaged in a class struggle, the “Mittelstand” has so far been neglected scientifically, socially and politically.
The term “middle class” (or “Mittelstand”) for the middle stratum of society developed in the corporative state of the 19th century and has remained popular to this day, although we have long since turned from the corporative state into a functional society.
“The decisive function of the “Mittelstand” in society is to bear responsibility. Either self-responsibility i.e. personal responsibility for their own existence in their own company or practice as ‘self-employed person’ or externally responsible in their exercise of responsibility in the public sector or in the private economy or society (“salaried Mittelstand”). This own or external responsibility usually requires higher qualifications and training than that of the lower class, but remains decentralised responsibility, while the upper class demands central responsibility for itself.”1
Accordingly, SME research distinguishes between economic SMEs and societal SMEs under the generic term “Mittelstand”.
The “economic Mittelstand” includes not only the self-employed (entrepreneurs) as individuals, but also the personnel companies of the self-employed, entrepreneurs, freelancers, farmers and foresters, artists and others. Characteristic of the members of this independent “Mittelstand” is that they want to lead their life with independent responsibility and to acquire their income according to their own goals. In this aspect, they are connected with the upper class, which also leads its life self-responsibly and lives from its own capital property or participation.
The “salaried Mittelstand” exercises its leadership and responsibility function and its freedom of decision not in its own name but in the name of others, either from a position of responsibility or because of its higher qualifications. This includes senior employees and civil servants, but also persons who exercise responsibility for other external tasks as researchers, specialists in industry, government or as teachers or artists or with other special qualifications.
Employees of the middle and lower classes do not work on their own but under external responsibility. They work for others, and their wages are paid by others – persons, companies or organisations. However, the “employed Mittelstand” distinguishes itself from the lower class by having more responsibility, higher qualifications, a higher position and thus an above-average income.
However, SME research no longer includes employed top managers from business and administration, such as Friedrich Merz, as these are seen as belonging to the sociological upper class of “rich capital owners”.
According to the aforementioned criteria, we have an upper class of about 5 %, a middle class of about 47 % and a lower class of about 43 % in our society. The latter, however, is tending to grow as a result of immigration.

The “independent Mittelstand”

According to our laws, anyone who acts independently in his own name (§§ 1 and 17 HGB), on his own account (§ 2 para. 1 EstG) and at his own risk (§ 145 et seq. BGB) (§ 1 GewO) for the purpose of making a profit in business life (§ 1 GewO) is deemed to be independent, i.e. self-employed.2
Self-employed persons include not only entrepreneurs in manufacturing occupations (1.25 million) or in service enterprises (3.3 million), but also farmers and foresters (0.21 million) and independent asset managers (0.24 million). In total, the 5 million self-employed account for 11.6 % of the working population (44 million).3
Compared to the 88% of employed persons in our society, the self-employed have a completely different function and life situation:

  • The self-employed always act in their own name and on their own account because they themselves are the company. All employees, on the other hand, act in someone else’s name and at someone else’s risk.
  • The self-employed person always has total responsibility, the highest competence and the final decision in his company. Employees, including managers, are always under the control of a superior or supervisory body.
  • Self-employed persons can determine their own goals and purposes in their activities and in their business (e.g. family goals). Employees, on the other hand, serve the purpose of the company, the authority or the organisation which pays them.
  • An entrepreneur has a profit in the event of success, but a total loss or loss of livelihood in the event of loss. Employees receive a fixed wage or salary (possibly even bonuses), but do not participate existentially in the losses. It is above all this risk in self-employment that discourages most dependent employees – including managers – from self-employment.

The “employed Mittelstand”

As a non-self-employed person, you belong to the “Mittelstand” if you earn a salary above the median income. This in turn presupposes a position of responsibility, which again can only be achieved through appropriate qualification. The only way to get into a function or position of the “employed Mittelstand” is through education.4
A total sum of about 8.1 employees work in such qualified and therefore higher paid positions, especially in the economy (about 5 million), but also in the public sector (about 2.8 million) and in other organisations (0.3 million).5
If we add the self-employed (5 million) and the persons of the employed “Mittelstand” (8.1 million) together, this results in a total sum of 13.1 million persons.
If to these middle-class working persons we also add their spouses (4+5 million = 9 million), their children (3+6 = 9 million) and their pensioners (1+8 = 9 million), a total number of more than 40 million persons belonging to the “Mittelstand” can be calculated for 2017; this is about 47% of the total population and almost as much as the local lower class population share up to today (before immigration).

Source: Hamer, E. “Wer finanziert den Staat? ” Munich, 2 1982, p. 146

The role of the “Mittelstand” in society

A. Self-determination as the foundation of bourgeois society

According to their higher education, qualification, position or level of independence, the people belonging to the “Mittelstand” want to live in a self-determined and self-responsible way. In 1517, the religious uprising against the guardianship of the Church began with the Reformation, when people wanted to read God’s Word in the Bible for themselves and face divine grace directly. This development continued with the ethical sequel of Kant’s categorical imperative and the moral self-responsibility of each individual, with political self-responsibility in the French Revolution, and eventually with freedom of trade. The “Mittelstand” was always the driving force behind these demands for freedom and self-responsibility. In the long run, the citizens did not want to be dictated to theologically, morally, politically or economically, but wanted to take over responsibility and decide for themselves.
So only the “Mittelstand” wants a decentralised system of self-responsibility. The upper class wants to dominate others centrally and hierarchically, demands power for itself, for the king, the dictator, the Politburo or the EU Central Commission. The lower class wants security, and is in this quest also controlled hierarchically and dictatorially by its functionaries.
Only the “Mittelstand” has therefore always been the bearer of democracy vis-ā-vis dictatorships of the upper and lower classes. Self-responsibility in all areas has always been fought for, supported and defended by the bourgeoisie. But where-ever the “Mittelstand” melted down or became too weak, the decentralised system of democracy based on the sovereignty of the individual was never strong enough to hold its own.
A strong “Mittelstand” is, therefore, an important prerequisite both for the emergence and the continued existence of all decentralised regulatory systems as well as for democracy.
Nobody profits as much from democracy as the bourgeoisie, whose whole existence arises from self-determination and self-responsibility. The upper class and the functionaries of the lower class, on the other hand, want power concentration instead of self-determination. If they gain power in a state, power no longer springs from the people, but from above, from the power elites of the upper or lower classes.

B. “Mittelstand” and culture

Luther’s Reformation brought not only freedom from the dictatorship of faith, but also a decisive leap forward in education. Luther demanded from the princes that every child should have to learn to read and write in order to read the Bible itself. This was the beginning of compulsory schooling in the protestant countries. So, starting from the parsonages as the cultural nucleus, more than half a million places were created for teachers – one of the largest groups of the employed “Mittelstand” – and the education system became a core area of our bourgeois life. Without one of the world’s best education systems Germany would not have been a leading research country and world export champion in the last century, and the education-based “Mittelstand” would not have become so dominant in Germany.
“However, the importance of education for the employed “Mittelstand” is not only apparent from the outside, but also applies internally. Education plays a central role in “Mittelstand” families – even more so than in the upper tier of society – in contrast to the lower tier. The families of the “employed Mittelstand” speak differently, think differently and talk about different topics than the lower class, and the education of their children is of central importance.”6 The reason is that the “Mittelstand” can only qualify its children for higher tasks and achievements in a free functional society through education. This also makes clear why education has remained, for decades, to be politicly one of the most important social issues for the  “Mittelstand”, more so than for marginalised groups.

C. The middle acquires our prosperity

More than 80% of our gross national product is created by or through work. Official statistics show a total population of about 82 million in 2018. However, only half of them (43.5 million) are economically active. These working persons not only financially support 20 million (24%) relatives with their earned income, but also 19 million (22.8%) pensioners and 6 million recipients of social benefits – a total majority of 54.7%.
The picture becomes more dramatic when one differentiates the type of employment according to the different sources of income, the market on the one hand and public transfers on the other. Only one third of the population works directly for the market, namely the self-employed and employees of private enterprises (33.9%). These market providers provide not only for their relatives (28.4%), but also for all recipients of transfer income living from taxes and social security contributions (37.7%). The latter group also includes those employed in the public service who, although they also work and pay taxes, do not receive their income from the market but from the taxes and social security contributions of the market providers, so that on balance one third of the population on the market has to earn the national product for two thirds of the population, i.e. dependents and transfer recipients.
Therefore only a strong and capable “Mittelstand” has so far been able to create that prosperity from which even the upper class has profited and which, through redistribution, has up to now also managed to finance the lower class so abundantly.
So if our “Mittelstand” as driving force of our prosperity were to lose out in a crash or crisis, this would not only affect them, but also the capital gains of the upper class and the social benefits of the lower class.

D. The “Mittelstand” as the payer of society

So far, only our “Mittelstandsinstitut Niedersachsen” has calculated who is financing our state, on the basis of official statistics.7

  • Concerning direct tax burden of the three tier groups, the “Mittelstand” bears the main burden of direct taxes, namely 63.1%, while the lower tier group bears 22% and the upper tier group 14.9%. In other words, almost two thirds of direct taxes paid to the state by all households are contributed by the medium tier, i.e. “Mittelstand” households.
  • Also in the case of indirect taxes, 52% come from the “Mittelstand”, 47% from the lower class and not even 1% from the upper class.8
  • The case is not different concerning social security contributions. Medium-tier households bear 56% of the total social security contributions, the lower-tier group 44%. The upper-tier group is practically not subject to social security contributions (less than 1%).
  • In the case of corporate taxes, small and medium-sized enterprises pay 70 % and large enterprises only 30 %.
  • Overall, the “Mittelstand” is therefore the gross main payer in all tax burden areas by about two thirds.

If, on the other hand, we compare the above-mentioned burdens with state reliefs such as subsidies, transfers and social benefits and calculate the net contribution of the three population stratum groups, the burden injustice becomes even greater: the capital income of the upper stratum is not only taxed less than the work of the other two strata; the free movement of capital also gives capital owners the opportunity to flee to foreign tax havens, so that in relation the richest pay the least taxes, as they can evade taxes being imposed on them by the German tax administration. The same applies to corporations, most of which belong to foreigners,9 whose profits are thus passed on, away from German tax law. By contrast, large companies receive more than 90% of all subsidies, so that the total net financial contribution of the upper stratum group is only 13.73% – or only 17%, if we include corporations.10 Social benefits received by this subgroup are even 7.83% higher than its own financial contribution, i.e. instead of contributor it is net recipient of public finances.
As a result, the middle tier finances our society, our state and our social system to a gross value degree of two thirds and to a net value degree of 80% (one third of GDP).11
“Our public financial system takes and gives. It takes mainly from the “Mittelstand” and gives to the other groups – mostly to the lower one. Therefore the standard of living of the entire population is crucially dependent on the performance, taxes and levies of the “Mittelstand”. Above all, it is the source of blithely flowing state revenues, healthy finances, lush social systems, a high standard of living and political stability. If the “Mittelstand” or its performance is reduced, this inevitably also means a loss of prosperity for all.”12

Political importance of the “Mittelstand”

If a social class not only makes up half of the population, but even bears four fifths of the net financing of state and society, should it not effectually be the decisive political force in the state?
In fact, however, middle-class policy and consciousness only take place rhetorically – if at all.
In 1992, I had to close my SME institute in Magdeburg because the CDU state government told me that SME and SME research were not needed for “Aufbau Ost”, the rebuilding of East Germany. Also the injustice in the redistribution of subsidies to the upper class and transfers to the lower class at the expense of the “Mittelstand” shows that the exploited “Mittelstand” apparently has no power and no political advocates.
In the 20th century socialism became the political power of the lower class, which at that time not only represented the majority of the population, but also emerged from the collapse of the corporative state as the ideological leading force. The consequence was the greatest historical redistribution in favour of the lower class (one third of GDP). We have experienced this in the time since then, and it was exclusively made possible with the accomplishments of the “Mittelstand”. Even today, many left-wing politicians dream of greater prosperity through more redistribution, right up to a transfer income for the unemployed.
With the turn of the millennium, however, the political power structure changed, the representatives of the lower class play only a minor role, and the representatives of capital set the tone nationally and internationally. The battle order in the parliaments is therefore no longer left against right, but rather national against global. The global Anglo-Saxon financial syndicate with its four freedoms (freedom of capital movement, freedom of products, freedom to provide services, free labour mobility) has blown up national borders and structures, eliminated national taxation by transferring capital and profits to tax havens, relocated production worldwide to low-cost locations, monopolised services globally (IT companies) and exempted them from taxes.13 It has also globalised international labour for its labour market with its demand for free borders for workers from all countries, so that now only national medium-sized companies are fully taxed nationally, burdened with social security contributions and subject to all bureaucratic state constraints.
Now the global financial elite – a small group of persons – extraterritorially dominates not only central and private banks, but also the 500 largest companies in the world. It apparently exerts so much global pressure on the national governments that they even disadvantage their national voters in favour of global capital, such as shown by Angela Merkel’s assumption of debt within the monetary union, the energy turnaround or the mass immigration demanded by the financial syndicate at the expense of the German population.
The Global Financial Syndicate controls, finances and corrupts policies such as those in the US deep state by its financing the substitution of national politicians with employees of the Financial Syndicate, such as Draghi, Juncker, Macron, Merz or Poroschenko.
Globalisation is meant to establish the global financial syndicate’s upper class rule everywhere, hierarchically from top to bottom, in contrast to the democratic right of citizens to self-determination and the responsibility of governments towards their citizens. Thus globalisation always means the abolition of nations, the drying up of democracy and the centralisation of citizens’ rights of control over their government.
 International financial capital is now claiming power all over the world and therefore also in Germany. As a result, the “Mittelstand” is globally even more exploited than it would be through national redistribution in favour of the lower class. World finance demands not only levies from “Mittelstand” performance yield, but even total dispossession through money explosion and currency reform, by opening the national social systems to the world’s poor, by global sanctions against competitors or by relocations of national productions or services. The international redistribution is reflected in the European liability, debt and financial union.
Today, the “Mittelstand” is threatened by the greater danger posed by the global upper class of the World Financial Syndicate with not less but more exploitation and political incapacitation.
If our bourgeois central group is to remain the source of our society’s performance and prosperity, then not only national but above all additional international plunder must be prevented. The “Mittelstand” must become more politically active in resistance, because at present the greatest danger for the “Mittelstand” no longer comes only from below, but even more so from above.
If global centralisation continues – including centralisation of the EU – the “Mittelstand” would no longer stand a chance against the power of the upper class. So as long as we still have remnants of national sovereignty and democratic structures, we must use them to fight the dictatorship of capital by political means:
The old parties have betrayed or neglected the “Mittelstand”:

  • The former “Mittelstand” party FDP (Free Democrats) has sold itself to big business and is following its instructions.
  • The CDU (Christian Democrats) is no longer a party of the middle, but a party of international redistribution.
  • The SPD (Social Democrats) has always been a party of the lower class and in favour of national redistribution.
  • The Greens dream of an income free of work, of a world without production, without cars and of a dictatorship of functionaries instead of market freedom, i.e. the opposite of everything the “Mittelstand” lives for.
  • The AfD (Alternative for Germany) did emerge from the protest of the bourgeois “Mittelstand”, but it has not continued to distinguish itself as a “Mittelstand” party.

The “Mittelstand” could mobilise voter majorities on its own and thus force a different government and different politics. If even the 5 million entrepreneurs with their family partners (10 million) alone mobilised their 23 million employees for genuine “Mittelstand” politics, this would already result in 33 million voters out of 61 million, i.e. already a majority.
The “Mittelstand” groups allow themselves to be exploited only because they have not yet recognised the power wielded by the international financial capital and the personal danger this spells to themselves, so they are not yet afraid and do not mobilise.
It should therefore be our task to mobilise our people, our media and our politics and to make them realise that it is to their own advantage to maintain a strong central force for our people! We will then be able to use the majority of “Mittelstand” votes to impose a “Mittelstand” policy.
To sum up, our bourgeois middle-class is

  • the social core of our society, on which the life of our entire society depends,
  • the core force for the development of our prosperity for all our people,
  • the promoter of our education and culture,
  • the source of 80 % net of tax of the finances for government, social security systems and subsidies to the upper class as well as social benefits to the lower classes
  • and the potential wielder of the main political power in our democracy, if it were only awakened and mobilised.

Since democracy is the self-responsible “Mittelstand” system of government, all democrats should fight for political power of the “Mittelstand”. Democracy lives from the middle. If the centre becomes weak, so will our democracy.

And as long as we can still assert national democracy against global financial dictatorship, we need parties that rediscover the central function of the middle tier for our economy and society and take it more seriously than before.    •

1    Hamer, E./Jörgens, O. “Mittelstandssoziologie des selbst. und angest. “Mittelstandes” (Sociology of the “independent” and the “employed Mittelstand”), Hannover 2019
2    Hamer, E./Jörgens, O. loc. cit. Section 3.2
3    Federal Statistical Office. Erwerbstätigenübersicht. (Mikrozensus Overview of gainfully employed persons). Microcensus 2017
4    Jörgens, O. “Der angestellte Mittelstand” (The “salaried Mittelstand”). Hanover 2015, Chap. 8, pp. 115.
5    Jörgens, O. loc. cit. p. 136/137f.
6    Jörgens, O. loc. cit. p. 152
7    Hamer, E. “Wer finanziert den Staat?” (Who is funding the state?) Hannover 1982; id. In: “Mittelstand unter lauter Räubern (“Mittelstand” amongst the robbers)”, loc. cit., pp. 17.
8    Hamer, E., loc. cit., p. 166
9    70 % of DAX companies are in foreign hands.
10    Hamer, E. loc. cit. p. 168
11    Hamer, E. loc. cit.
12    Hamer, E./Jörgens, O. loc. cit., chapter 6.5
13    Due to relocations to tax havens, Amazon paid only 1 % taxes in 2017 instead of 34 billion.

(Translation Current Concerns)