Keys to Regional Resilience: Lessons from Germany

As we continue on the long path to economic recovery, all communities should be thinking about resilience, i.e. what can they do to not only recover from the devastating impacts of COVID-19, but also about what can be done to ensure a more effective response in the event of future economic shocks, such as a natural disaster or an economic downturn.   Of course, there is huge research and policy literature on this topic (good resources can be found here and here), and I won’t attempt to summarize it.  However, we do know that a strong base of home-grown entrepreneurs is an important ingredient in the recipe for regional economic resilience.  A new research report from the Munich Society for the Promotion of Economic Research (CESifo Working Paper no. 8777) offers compelling evidence in support of this claim.  The researchers studied the performance of Germany’s Mittelstand firms (small and medium-sized firms) during the 2008/9 Great Recession. While there is no single definition, Mittelstand firms tend to have a long-term outlook, a heavy export orientation, strong regional ties, and active owner-managers.  Using a new business tracking tool, the researchers found that these characteristics helped these companies outperform other German firms during the last major economic downturn.  In particular, the researchers found that active owner management and local ownership were key factors in this impressive performance. These findings offer further evidence that economic developers will need to pay more attention to supporting local ownership, active business retention and expansion programs, and a more long-term business development perspective.   These investments will help ensure a more rapid and equitable recovery and enhanced resilience in the event of future economic shocks.

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