Transforming German and Japanese capitalisms required fundamental changes in small and medium-sized enterprises (SMEs), which were often far less developed technologically. That meant confronting the intractable problem of industrial dualism, with its negative social and political fallout. During the war, there had actually been considerable movement by some SMEs towards substantially higher levels of technological performance and productivity. Supplier networks to serve larger, technologically sophisticated producers, especially in the aircraft industry, forced SME companies to up their game. This mechanism for doing away with dualism disappeared in defeat. Only gradually, in the context of fundamental reorientation towards civilian technologies, did companies resurrect these networks. Proactive company action on the one hand and various combinations of state policy and support on the other, meant industrial dualism narrowed dramatically between the 1950s and the 1970s in both Germany and Japan. SMEs in both countries – the German Mittelstand – engaged in manufacturing have since formed buffers, providing larger firms with flexibility and stability, and also drove post-war economic development, complementing the performance of larger and more well-known firms. The resurgence of the two nations’ economies between 1945 and 1970 can be understood only by reference to the synergies between the two types of companies.