Germany on the long road to intelligent regulation

The 2023 Country Index for Family Businesses revealed that when it comes to the location factor of regulation, Germany performs poorly. But how and where exactly is the country inefficient? A new ZEW study shows that in certain respects, the country is already on the right path to a more evidence-based economic policy. But more incentives via market mechanisms would increase the acceptance of state intervention – and cut costs.

Munich, 03 May 2024. A high-cost location can remain attractive if the state offers companies the right benefits in return. Germany, however, is less and less able to provide such benefits. This is what the authors of the Country Index for Family Busi-nesses from ZEW – Leibniz Centre for European Economic Research in Mannheim write in a new in-depth special study on the topic of regulation commissioned by the Foun-dation for Family Businesses.

Significant use of financial resources combined with inefficient public spending – the researchers draw this conclusion from a wide range of OECD figures. Compared to the 21 other countries, the balance of bureaucracy and governance to the quality of the location is poor.

Other findings include the fact that the intensity of regulation is high, which undermines the business model of the foreign trade-orientated German economy, particu-larly when it comes to trade. For example, it takes 37 hours to complete a standard export transaction in Germany, putting the location in penultimate place. Germany also lags far behind when it comes to attempts to provide more public services via digital channels. In contrast, Austria, for example, is extremely successful in reducing the regulatory burden on companies through digital platforms.

The team of researchers led by Professor Friedrich Heinemann also has words of praise, however. The assessment of the consequences of legislation and the evaluation of regulatory measures implemented in Germany is rather good in comparison with other OECD countries. Germany even ranks in the upper middle range when it comes to the time it takes to obtain building permits. The country also ranks well when it comes to public procurement.

Greater optimism and acceptance of regulation via prices

The study “Efficiency and Regulation: Bureaucratic Burdens in International Comparison” places particular emphasis on climate policy. Germany has chosen a highly regulatory approach here, which severely restricts the freedom of companies. This is measured using the OECD’s Environmental Policy Stringency Index.

This may be the reason for the pessimism with which economic players view climate policy. They see complete decarbonisation as a risk, but are not alone in this in a global comparison. This is different in Scandinavian countries, which pursue a market-based approach and utilise the carbon pricing mechanism – in this region, companies are more optimistic and accepting.

According to Professor Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses: “Family businesses in Germany are operating in an increasingly dense network of rules governing their activities. This inhibits growth and investment and generates anger. The societal consensus that we actually need to tackle the challenges of the future is thus disappearing. Politicians should encourage companies with clear market signals and not frustrate them with bureaucracy.”

Family businessman Dr. Nikolas Stihl, Chair of the Advisory Board of STIHL Holding AG & Co. KG and Chair of the Supervisory Board of STIHL AG, commented:
“As a globally active family business, we can compare the levels of bureaucracy in different countries around the world. Germany performs extremely poorly in this regard. Particularly when it comes to combating climate change, we need a market-based climate policy instead of small-scale regulations and bans. In other words, a regulatory framework to promote the competition of ideas. In this con-text, the rules should be technology agnostic to allow, for example, a choice between battery technology and e-fuels technology. Business owners and consumers want to be responsible and free to make their own decisions and not be told what to do.”

teaser image © iStock, 2024