The international expansion and employment growth of many German family firms has made family enterprise a component of the German political economy that can no longer be ignored. A theory of ‘social capital enterprises’ is developed to explain the competitive advantages of many family firms over ‘capital market enterprises’, i.e., publicly traded, ‘financialized’ large companies. The theory takes account of multiple contingencies: (1) not all sectors are propitious for family firms; (2) not all family firms base their competitive advantage on social capital; (3) not all owning families are able to maintain effective family control when the firm grows large, albeit the number that do is surprising. For this reason, we focus on the industrial Mittelstand of Germany as having an especially high concentration of family firms that meet all three of these contingencies. Family firm ownership appears to be especially advantageous in capital goods segments where accumulated social capital forms an important competitive asset.
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