How economy is the key to prosperity

Entrepreneurship: the key to tomorrow's prosperity

Constantly new start-ups are necessary in order to maintain the economic basis, to generate innovations and to remain future-proof. Because the entrepreneurial spirit is waning in this country, the economy threatens to lose touch with the world's best.

In the last few decades, Germany's growth has been based primarily on incremental innovations. This business model, which has been successful to this day, benefits significantly from company start-ups from the middle of the last century. This resulted in internationally successful companies that made Germany the world champion in terms of efficiency and exports.

Future growth will, however, be generated less and less from incremental, but increasingly from sudden innovations with new business models. Therefore, the associated change is carried out by companies with radically new approaches.

This change is currently proving difficult in Germany because, firstly, there is a high degree of path dependency due to the success of the previous business model and, secondly, the consequences of the dot-com bubble have manifested a skepticism towards digital innovations.

Central tasks of start-ups

As an innovation-based economy, Germany's business model must therefore develop more in a direction in which start-ups perform the following central tasks:

  1. Ensure the future viability of the economic structure: In order to maintain the high standard of living through growth in the long term, the renewal of the company portfolio is of great importance. New companies identify ideas and market opportunities. The resulting competition promotes dynamic development of the company portfolio, which is essential for the future viability of the economic structure.

  2. Creating competitive advantages through rapid innovations: Germany relies on rapid innovations that generate competitive advantages and growth. Established companies also create innovations, but really radical innovations are usually developed by start-ups. This is also reflected in the global startup boom, which has already produced numerous innovative digital technologies.

  3. Strive for a technological pioneering role in a globally competitive world (leading edge): The advancing networking enables many efficiency gains, larger sales markets and a multitude of economic and social advantages. Nonetheless, this also intensifies international competition. In order to preserve the future viability and thus the prosperity of Germany, we have to remain connected and position ourselves among the technology and trendsetters in the future.

In addition to risk aversion to sudden innovations, two other aspects particularly inhibit entrepreneurship and start-up activities in Germany. Firstly, many people in Germany prefer a secure employment relationship to the step into self-employment. Second, companies have so far only supported radically innovative ideas and start-ups to a limited extent, for example through research or spin-off collaborations. These and other influences have recently resulted not only in low start-up dynamics with an already weak level of start-ups, but also in a negative balance from start-ups and liquidations.

The comparison countries

Against this background, the present study sheds a new and comprehensive perspective on entrepreneurship. Cultural, social and individual founding characteristics were examined in an international comparison with Great Britain and Israel. Israel and Great Britain were chosen as comparison countries since

  • Despite the unfavorable political framework, Israel has a flourishing start-up scene and

  • Great Britain still had a negative start-up balance up to five years ago, but can now record a strong growth in start-ups. In comparison to Germany, decisive framework conditions for start-ups have improved there in recent years.

Key Findings

A comprehensive econometric analysis and an international comparison of Germany's start-up activities and infrastructure, cultural aspects and government measures on the basis of a large number of statistical data and expert interviews provide the following findings:

  • Germany is relatively weak in terms of start-ups. The situation has worsened in recent years, resulting in a negative start-up balance. So more companies are being liquidated than newly founded.

  • Every business start-up is accompanied by an average increase in gross domestic product of 940,000 euros.

  • German start-ups are currently of a lower quality than British ones because they are less innovative and are founded in less productive sectors. That is why the effect in Great Britain is significantly higher with an increase of 1.96 million euros.
  • Improvements in the start-up climate, i.e. social behavior and the start-up mindset, go hand in hand with a statistically significant positive effect on start-up activity. It follows that two dimensions influence start-up activities:

    1. the behavioral dimension and

    2. the framework.

  • Insufficient financing conditions through venture capital are a major obstacle for those interested in starting a business in Germany.

  • In Germany, young, male skilled workers are primarily interested in start-ups. Due to the generally low level of start-up activity, all population and training groups should be addressees of start-up promotion measures and they should be shown attractive career and employment opportunities.

The detailed results, further findings and the complete study can be found in the PDF file below.

Study - Entrepreneurship