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Bureaucracy is becoming a brake on growth

A recent study conducted by the Institut für Mittelstandsforschung (IfM) in Bonn on behalf of the New Social Market Economy Initiative (INSM) shows that the burden of bureaucracy has now become a key obstacle to investment. Most companies are investing less in Germany because of bureaucracy.

Nov 21, 2023, 11:04:17 AM
Dr. Jutta Gröschl , Institut für Mittelstandsforschung (IfM) Bonn

Logo: Institut für Mittelstandsforschung (IfM) Bonn

According to the recent IfM study, two-thirds of companies in Germany feel disproportionately burdened by government bureaucracy. This is an increase of 14 percentage points compared to a similar survey in 2018. None of the efforts made by politicians to date, such as the SME test in the legislative process, the "one-in-one-out rule", or the various bureaucracy relief laws, are perceived by companies as providing any noticeable relief. 92% perceived a substantial increase in the bureaucratic burden over the last five years. Almost all companies (almost 97%) are bothered by the large number of laws and government regulations. The predominant feeling of entrepreneurs regarding bureaucracy is anger (55 %), followed by powerlessness (42 %) and confusion (41 %). For more than half of the companies (53 %), these "psychological costs" of bureaucracy outweigh the time and costs involved. Only four out of ten companies stated that they fully comply with all regulations. Most companies intentionally do not apply individual regulations or are at least unsure whether they fulfil all regulations correctly. The overwhelming majority of companies (80 %) feel controlled by the state, with only 9 % having the impression that the state trusts them. As a result, 58% of all companies surveyed plan to avoid investing in Germany in the future. 18 % are considering investing more abroad due to the bureaucracy. Study director Dr Annette Icks from IfM Bonn sees this as "an alarming economic finding": "8 out of 10 entrepreneurs see their enjoyment of entrepreneurial activity diminish due to the bureaucratic burden. Our study confirms that we must fundamentally move away from the command-and-control approach of the authoritarian state towards a more trust-based approach." The study shows that Germany performs very poorly in international comparisons regarding bureaucratic burdens, particularly due to the lack of administrative digitalisation. The situation is different in the UK and the Netherlands. According to the IfM study, both countries have very good examples of a successful, innovative transformation of legislation and the reduction of bureaucracy. For example, companies and business organisations are involved in the entire legislative process much earlier and much more intensively than in Germany. In the UK, a review is carried out at an early stage to determine whether a planned statutory regulation is necessary and if less burdening alternatives could replace it. INSM Managing Director Thorsten Alsleben: "Bureaucracy is becoming the number one disadvantage for businesses. If politicians do not take quick and visible action against overregulation now, it will cause irreparable damage to our economy." Although Federal Minister of Justice Buschmann's planned Bureaucracy Relief Act is to be welcomed, it is not enough to tackle the dramatic findings of the study: "It is no longer enough to delete individual paragraphs; instead, politicians must completely rethink and structurally reduce and avoid regulation." The study "Analyse zur Bürokratiebelastung in Deutschland - Wie kann ein spür-barer Bürokratieabbau erreichen werden?" (only in German) is available on the website of the New Social Market Economy Initiative (https://www.insm.de/insm) and the Institute for SME Research (https://www.ifm-bonn.org/).