Well-paid and Complacent

Germany’s entrepreneurial climate is improving (with baby steps)

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Shorts + Nikes = startup. Source: DPA

Employees in Germany are comfortable. The economy is booming, and they have stable, well-paying jobs. This positive news is one of the main reasons why Germany’s entrepreneurial climate is just so-so.

Germans have little benefit or incentive to ditch their corporate cages and become their own boss by founding a startup, or launching a new business. In economic speak, the “opportunity costs” keep increasing.

In 2017, the number of people in Germany starting their own business hit a record low of 55,700, sinking from 115,000 in 2016, according to the business development bank KfW.

“There has been no breakthrough in Germany’s startup climate,” said Rolf Sternberg, a professor of economic geography at the University of Hannover. “It has slightly improved in recent years, but at a very slow pace.”

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That slight improvement refers to the number of active entrepreneurs, defined as those who in the last three-and-a-half years have either founded or are planning to found their own business, rising to 5.3% in 2017 (see graphic), as reported in the Global Entrepreneurship Monitor (GEM) published this month. While it’s a positive development, Mr. Sternberg said not to read into it too much, because overall Germans aren’t very confident.

In a survey of nearly 5,000 German citizens, only 37 percent of respondents between the ages of 18 and 67 believe they have the skills and experience to follow through and launch a startup. More than 54 percent of Americans, meanwhile, think they have the acumen.

The fear of failing alone keeps 40 percent of men and almost 50 percent of women from founding a company.

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Germany would also need to remove many structural and cultural hurdles to really allow the country’s entrepreneurial climate to flourish, the GEM report said.

While the country’s political and institutional frameworks are quite good at providing subsidies for young entrepreneurs, they fall short in simplifying tax law and streamlining bureaucracy. Further, there is a lack of startup training in schools or via extracurricular activities. In an international comparison of 24 countries looking at entrepreneurial training in schools, Germany came in 23rd place.

“We should be conveying to adolescents that entrepreneurial self-employment is a natural alternative to full employment,” Mr. Sternberg said. In Germany, students are inundated with the message that being hired at the biggest employer possible is the ideal, he said. The result? Latent despondency.

This article first appeared in Handelsblatt’s sister publication WirtschaftsWoche.

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