How Entrepreneurial is Germany? The Institutional Context of Entrepreneurship and Business Start Up Costs in Germany in International Comparison

Course: International Entrepreneurship Research & Practice

Abstract
The importance of entrepreneurial activities is integral to a nation’s economic growth. This paper reviews the results of the 2000 Global Entrepreneur Monitor (GEM) country report with a sole focus on Germany in evaluating its degree of entrepreneurship. The factors examined include the costs, legal procedures, and institutional context via a look at the formal and informal entrepreneurial frameworks. The view of entrepreneurship in Germany will be explored as well as comparison to other countries in the GEM report. It is found that entrepreneurial activities differ within regions in Germany and the cultural and social norms place a barrier to start-ups despite the government effort in financing and state promotion programs.
TABLE OF CONTENTS

1. Introduction……………………………………………………………….3
2. Overview of Germany’s entrepreneurship and international comparison...4
3. Institution context………………………………………………………....6
The regulation of entry……………………………………………………6 Political context- government policies……………………………………8
Human Capital…………………………………………………………….9
Education…..……………………………………………………………10
Psychological and sociological context………………………………….12
Regional context…………………………………………………………15
4. Conclusion……………………………………………………………….18
5. Works cited……………………………………………………………...20

Introduction
The German economy encountered a slow and sluggish growth for the past decade. With a high unemployment rate that has just slightly shifted upward by 0.1%, the economy’s growth is slow (Goldstein, 2007). However, the improvement is derived from and dependent on a strong global economy, especially in Asia. According to research from the Global Entrepreneurship Monitor, start-up and entrepreneurial activities can have a positive effect on economic and employment growth (2000). Countries with the highest proportions of start-ups and entrepreneurial activities identified by this survey demonstrated the highest gross domestic product growth and the lowest levels of unemployment. Therefore, this paper will examine the entrepreneurial characteristics Germany possesses through an institutional context including formal frameworks such as government policies and informal frameworks such as social norms and psychological attributes. It will also compare Germany’s entrepreneurial inclination to other developed countries such as the United States and Japan to evaluate its degree of entrepreneurship.

Based on the Schumpeterian view, capitalism entails the process of creative destruction, a continuous cycle of destroying the old and less efficient products or services and replacing it with new and more efficient ones (Schumpeter, 1934). As Schumpeter’s take on entrepreneurs being the creative destructors who disrupt the economics equilibrium, entrepreneurs can initiate economic development and implement changes that are necessary for economic advancement and success. The positive correlation between national economic growth such as GDP and the total entrepreneurial activity rate shows that countries’ future success and competitiveness in a global market depends on their ability to be innovative and on the dynamics of entrepreneurial thinking and acting. (Raab et al, 2005). This is due to the fact that entrepreneurship brings positive effects on economic prosperity as it initiates new technical, organizational and procedural solutions (Bouncken, 2004). However, analysts have found that many industrialized countries seem to be losing momentum in their economic development; this is specifically true for Western European countries due to the insufficient entrepreneurial activity (Minniti et al, 2004). As a result, a close look at Germany’s entrepreneurship will help identify forces to improve the nation’s economy. Overview of Germany’s