Germany edges towards deregulation

Date: 01/05/1997

By Thomas Klau

ANYONE who has lived in Germany knows that Europe's biggest country has a long-standing love affair with regulation. An impressive array of rules govern all areas of public and many aspects of private life, ranging from closely monitored shopping hours to hugely detailed legislation on how to - or more specifically how not to - build a house.

Tight controls and a general inclination to obey the law also mean that rules which in other countries would be systematically circumvented or ignored tend to be closely followed in Germany - a fact frequently highlighted by businesses and politicians when complaining about new EU regulations.

For decades, legislators in Bonn have been busy outbidding each other in the elaboration of new proposals all seeking to make life safer, healthier, more comfortable, more risk-free and generally speaking as predictable as possible.

And while Germany can now flaunt one of the highest levels of social and ecological protection in the world, this was achieved at the price of an expansion of state regulation almost unparalleled anywhere else in the West.

Yet the general consensus amongst almost all economists, a growing number of politicians and the government itself is that enough is enough.

As Germany's former Chancellor Helmut Schmidt pointed out in a recent newspaper article in the influential weekly Die Zeit , anybody endeavouring to start a new business in his country has to overcome the hurdle of over 5,000 pages of often arcane legal text.

The daunting complexity of the regulatory framework means entrepreneurs need an army of costly experts to advise them on the legal consequences of their every move - a fact which deters foreign investors from opening plants in Germany, encourages German firms to relocate or expand abroad, and causes many would-be entrepreneurs to opt for the comparatively hassle-free comforts of a salaried job.

Schmidt cited the example of a company which waited six years to obtain planning permission for a building in its home country while six weeks sufficed to get the green light for a similar project in Japan.

The number of laws and decrees also means Germany has to employ a huge army of judges to interpret the constant flow of fresh legislation.

The city-state of Hamburg alone provides work for more judges than all of England, while Germany as a whole employs about as many as the litigation-mad US with three times more inhabitants.

The fact that, in modern Germany, hardly anyone is dismissed without the employee mounting a challenge before a labour court, and that sales of individual insurances against lawsuit costs are booming, shows how deeply ingrained the habit of litigation has become.

For decades, the country's mounting and impressively widespread prosperity meant entrepreneurial grumblings about the difficulty of doing business in Germany went largely unheeded.

But the twin impact of global competition and the enormous financial burden of subsidising living standards and business activity in former East Germany - which together have resulted in up to 6 million citizens being un- or underemployed - has finally prodded the ruling coalition into cautious action.

Amongst other measures, an ambitious reform plan has been brought forward to simplify the dauntingly complex income tax system and alleviate the fiscal burden on business, although it remains to be seen how much of the plan will survive as it makes its way through the opposition-controlled Bundesrat, the upper chamber of parliament.

And while large-scale privatisation and deregulation of sectors such as telecommunications are being pushed through with the help of the EU, the government has also started to slash subsidies to massive aid recipients such as the coalmining industry.

Earlier this year, thousands of angry miners took to the streets in Bonn. In a compromise typical of the way reform is being achieved in Germany, the workers won a substantial reduction in the size and pace of the cuts - but the principle of an eventual end to all subsidies was maintained.

It remains to be seen whether such an approach will suffice to preserve Germany's famous social consensus while cutting enough red tape to tempt investors back into the country.