Opinion: IMF′s criticism of German family firms is flawed | Business| Economy and finance news from a German perspective | DW | 16.07.2019
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Opinion: IMF's criticism of German family firms is flawed

The IMF says Germany's family firms share part of the blame for the nation's rising inequality. But the head of the foundation for German family businesses rejects the IMF's stance, and claims the opposite is true.

It makes one sit up and take notice when the International Monetary Fund (IMF) pays attention to the role of family businesses in Germany. At last, one would like to think, the IMF also recognizes that the globally active German family businesses are making a significant contribution to prosperity.    

Surprisingly, however, the IMF sees them more in a negative light. The institution says the strength of the large German family businesses is the main reason for an unequal distribution of wealth in the country. The study provocatively states that in Germany the largest assets are in the hands of "industrial dynasties."

This statement is grossly false. The nation's social market economy proves the opposite. It's uncertain why key details went missing in the IMF's assessment. It is precisely the family businesses that have prevented uneven development in many ways. Family businesses account for almost 60% of all jobs in Germany.

Brun-Hagen Hennerkes head of the Foundation for Family Businesses in Germany and Europe

Brun-Hagen Hennerkes head of the Foundation for Family Businesses in Germany and Europe

It is therefore these companies that ensure that inequality doesn't rise through unemployment.

But this is not the first time the IMF's opinion has caused astonishment. Following the global financial crisis, when the German government put the state budget in order by tightly controlling public spending, there was criticism from the IMF. The Washington-based body said Berlin should not overdo it with saving.

The successes of our exporters, reflected in Germany's current account surplus, are also met with a lack of understanding on the part of the IMF. Their current analysis is one-sided, inappropriate and flawed.

Family businesses counter regional disparities

The IMF fails to recognize how important family businesses are for the country. It is the family businesses that keep the job engine running all over Germany. They are rarely active in large urban areas, but rather in rural regions and thus counteract regional disparities. Despite rapid globalization, they pay the majority of their taxes in their home country.

The IMF's assessment that a few large family-owned companies are controlling the German economy is absurd. It is precisely the diversity of family businesses that ensures our prosperity and is the envy of many other countries.

In Germany, there are 1,300 global market leaders, which are active in niche markets worldwide. The 500 largest family companies, including well-known names such as the Schwarz Group, Oetker, Stihl and Kärcher, have created more jobs in Germany in the past decade than the anonymous DAX-listed companies. While the top 500 family companies increased the number of their employees in Germany by 23%, the corresponding figure for the DAX companies stood at just 4%.

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Sibling rivalry - family feuds in family businesses

The question of asset concentration raised by the IMF must be seen in its historical context. German family businesses are successful because they operate on a long-term and sustainable basis. They strive to pass the company to the next generation. In the course of time, large internationally active family businesses have emerged in this way and with them large assets. However, this is not a disadvantage, as the IMF mistakenly believes, but it secures our competitiveness, because these assets are productively tied up in the company.

Ensuring stability even in times of crisis

It is typical for family businesses to reinvest profits. Berthold Leibinger, Trumpf's CEO for many years, who passed away last year, once said: "I have always been of the opinion that the profits generated must first be available to the company."

Most family businesses follow this maxim. That means more investment and more jobs. The strength of family businesses has demonstrably helped to survive times of crisis without mass redundancies. It would be negligent to want to change that.

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The economic policy advice given to politicians by the IMF is in no way convincing. The IMF recommends taxing wealth more heavily and, in particular, encourages higher inheritance taxes.

In doing so, the IMF is completely ignoring the fact that Germany has long been a heavily taxed country. It's been 11 years since the nation's last corporate tax reform, and Germany is falling way behind its peers when it comes to tax competitiveness.

It is irresponsible to demand higher inheritance taxes in this situation. Since the inheritance tax reform of 2016, the transfer of company assets to the next generation has been associated with considerable burden. This is proven by the rising inheritance tax revenue. Any new burden would be toxic for our country's economy and growth prospects.

The IMF's analysis overlooks the fact that Germany performs well in terms of income distribution. At any rate, countries with high asset taxation and a high proportion of listed companies are not doing any better than us. If income inequality is measured, Germany is in a better position than the other G7 countries — the US, the UK, France, Italy, Japan and Canada. At any rate, there is no reason for alarmism.

Brun-Hagen Hennerkes is head of the Foundation for Family Businesses in Germany and Europe.

This piece first appeared in the Frankfurter Allgemeine Zeitung in German on July 15.

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