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German banks and the modernization of the small firm sector: long-term finance in comparative perspective

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  • Vitols, Sigurt

Abstract

This paper analyzes the contribution of the German banking system to the modernization of small and medium-sized enterprises (SMEs) in industry. The simultaneous greater relative importance of and relatively high wages in German SMEs appear to be paradoxical in terms of dual labor market theory, which claims that lower wages and greater flexibility in the use of labor are important for helping small firms compensate for their constrained access to capital, R&Dk and skills resources relative to large firms. This paper suggests that the successful modernization of the German small firm sector despite pressure from below from industry-level wage bargaining and strong job protection can be attributed to support from above in terms of an institutional infrastructure helping small firms overcome the organizational deficiencies they face relative to large firm. The decentralized provision of long-term finance and sophisticated financial services for the modernization of SMEs is enabled by a three-tiered federalist form of corporatist organization in the cooperative and savings banks sectors, in which smaller banks at the bottom tier of the organization receive access to refinancing on capital markets and specialized services -- normally only available to large banks -- through the upper tiers of the banking organization.

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  • Vitols, Sigurt, 1995. "German banks and the modernization of the small firm sector: long-term finance in comparative perspective," Discussion Papers, Research Unit: Economic Change and Employment FS I 95-309, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbece:fsi95309
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    1. Bronfenbrenner, M., 1982. "Segmented Work, Divided Workers: The Historical Transformation of Labor in the United States. By David M. Gordon, Richard Edwards, and Michael Reich. Cambridge, London, and New York: Cambridge Univers," The Journal of Economic History, Cambridge University Press, vol. 42(4), pages 958-959, December.
    2. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-132, March.
    3. Acs,Zoltan J. & Audretsch,David B. (ed.), 1993. "Small Firms and Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521431156.
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    1. Casper, Steven, 1996. "The development of decentralized supplier networks in East Germany: a challenge to the German model of industrial organization," Discussion Papers, Research Unit: Economic Change and Employment FS I 96-322, WZB Berlin Social Science Center.
    2. Afsharian, Mohsen & Ahn, Heinz & Thanassoulis, Emmanuel, 2019. "A frontier-based system of incentives for units in organisations with varying degrees of decentralisation," European Journal of Operational Research, Elsevier, vol. 275(1), pages 224-237.
    3. Steven Casper, 1997. "Automobile Supplier Network Organisation in East Germany: A Challenge to the German Model of Industrial Organisation," Industry and Innovation, Taylor & Francis Journals, vol. 4(1), pages 97-113.
    4. Deeg, Richard, 2001. "Institutional change and the uses and limits of path dependency: The case of German finance," MPIfG Discussion Paper 01/6, Max Planck Institute for the Study of Societies.
    5. Mohsen Afsharian & Heinz Ahn, 2017. "Multi-period productivity measurement under centralized management with an empirical illustration to German saving banks," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(3), pages 881-911, July.
    6. Vitols, Sigurt, 1995. "Corporate governance versus economic governance: banks and industrial restructuring in the US and Germany," Discussion Papers, Research Unit: Economic Change and Employment FS I 95-310, WZB Berlin Social Science Center.
    7. Hancké, Bob & Casper, Steven, 1996. "ISO 9000 in French and German car industry: how international quality standards support varieties of capitalism," Discussion Papers, Research Unit: Economic Change and Employment FS I 96-313, WZB Berlin Social Science Center.

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