Germany's Bureaucracy Stifles Business Investment and Innovation

Germany's bureaucracy is deterring businesses, with 58% deciding against investing due to time-consuming processes and lack of digitalization. A pop-up museum in Berlin highlights the issue, as the government prepares to pass new legislation to reduce bureaucracy by the end of June 2024.

Bijay Laxmi
New Update
Germany's Bureaucracy Stifles Business Investment and Innovation

Germany's Bureaucracy Stifles Business Investment and Innovation

The Initiative for a New Social Market Economy (INSM) has created a pop-up museum in Berlin to highlight Germany's notorious bureaucracy, which is considered the number one disadvantage for businesses. According to the initiative, 58% of companies decide against investing in Germany due to time-consuming processes and a lack of digitalization.

Why this matters: Germany's bureaucratic hurdles not only deter businesses from investing but also have a ripple effect on the country'seconomy, potentially leading to a decline in competitiveness and job opportunities. Streamlining processes and embracing digitalization is crucial for Germany to remain an attractive destination for businesses and talent.

Germany's bureaucracy is time-consuming for companies and individuals, with in-person appointments and paperwork taking an average of 2 hours and 21 minutes. Small and medium-sized businesses devote an average of 13 hours a week to paperwork. "There is bureaucracy in all countries, but this has become the No. 1 disadvantage for Germany as a business location, ahead of taxes and energy prices," said Thorsten Alsleben, managing director of INSM.

The country is also a laggard in terms of digitalization, with only 81 out of 580 services fully digitally accessible by the start of 2024. Germany's approach to digitalization is too decentralized, leading to a variety of software and hardware for similar services in different places. "German politics and bureaucracy are killing innovation and entrepreneurial spirit," Alsleben added.

Several factors contribute to Germany's bureaucratic burden. Risk aversion and distrust of businesspeople have led to over-regulation. The country's parliament and administrative apparatus have too many lawyers and legal experts, and not enough people with business experience. Germany also lacks a strong public service culture, with historical roots in Prussian rule. Lobbying by the private sector has contributed to the creation of many laws as well.

To address the issue, some have proposed workshops between policymakers and small and medium-sized enterprises to test the practicability of planned legislation. Better communication and less top-down government could also help. Events like the Creative Bureaucracy Festival aim to encourage change from within the government. "The most important values and norms in the administrations of bureaucratic countries are not so much efficiency or being citizen-friendly or saving taxpayers' money. It is very often about implementing the law," said Corinna Funke of GFA Public.

The INSM's pop-up museum will be open until June 25, 2024. A new legislation aimed at reducing bureaucracy is due to be agreed by parliament at the end of June 2024 as well. With Germany's bureaucratic hurdles deterring over half of potential business investments, the pressure is on for the government to streamline processes and embrace digitalization to remain competitive in attracting companies.

Key Takeaways

  • 58% of companies avoid investing in Germany due to bureaucracy and lack of digitalization.
  • Germany's bureaucratic hurdles cost businesses 2 hours 21 minutes per in-person appointment.
  • Small and medium-sized businesses spend 13 hours/week on paperwork.
  • Only 81 of 580 services are fully digitally accessible in Germany.
  • New legislation aimed at reducing bureaucracy is due to be agreed by parliament by June 2024.