Security Over Risk

Anja Hock-Wagner belongs to a dwindling breed of people in Germany-- those who choose to take a financial risk over the security of a job and set up their own business.

Despite the high investment involved, Hock-Wagner, a single mother of four, managed to convince a bank of her dream project of an indoor playground. She got the necessary financing. The risk was high. If she failed, the bank would take her home.

But luck was on her side. The people in this area south of Kaiserslautern in Rhineland-Palatinate took to the US-style playground with its jungle gym and inflatable slides. Hock-Wagner is happy and the region is profiting from her idea, as well. After all, visitors to "Meer4Kids" come from all over, bringing valuable euros to the area.

Start-ups crucial for Germany's economy

A study published by the government-owned KfW banking group showed a strong decline in business start-ups in 2006. Last year, the number of people who entered into self-employment by setting up a new business, taking over an existing enterprise or an equity stake dropped by 200,000 to 1.1 million persons.

This is the lowest number of business start-ups recorded in Germany since KfW began its "Start-up Monitor" in the year 2000. Every year, KfW surveys 40,000 randomly selected German residents. According to KfW, it is the most comprehensive source of information on this sector in Germany.

Ingrid Matthäus-Maier, spokeswoman of the KfW management board, said the latest figures should be food for thought.

"Start-ups are important for our economy," Matthäus-Maier said at the presentation of the study last week. For one, they create jobs. Secondly, they had a positive impact on the country's economy and, therefore, increase Germany's international competitiveness."

Heinz Klandt, a professor at the prestigious European Business School in Oestrich-Winkel, said it was important for companies to be founded particularly in those sectors with a future.

"This will really have a strong impact on the economy and create jobs in growth-oriented sectors," said Klandt, who holds the first chair for entrepreneurship to have been set up in Germany in 1998.

According to Klandt, more needs to be done to stimulate these sectors.

"There need to be more structural changes to develop new sectors," Klandt said. "The money being sunk into subsidizing coal, for example, is missing in areas such as biotech, nanotechnology or other sectors with a future."

A matter of attitude

But German attitudes towards self-employment also play a decisive role. In comparison to other highly developed economies, such as the United States, there is a pessimistic start-up climate in Germany.

"Our analyses on the influence of personal attitudes show that a positive approach to entrepreneurship, the willingness to take risk and optimism are major prerequisites for successfully starting into self-employment," Matthäus-Maier said.

But this necessary ideology is missing in Germany, said Klandt.

"There isn't this pioneering spirit here," he said. "We don't have the American dream." Entrepreneurship did not have the same status in the German education system as it did in other countries, he said.

"In Finland, for example, the ideas behind entrepreneurship such as creativity or independence are already taught in kindergarten," Klandt said. "In our education system, these things are pushed back."

Germans were also often much more focused on security than risk in their thinking.

"We'd rather buy life insurance policies than stocks," Klandt said. This was due to the strong safety net which existed in Germany.

Matthäus-Maier said a broad package of measures was required to improve the start-up climate in Germany. These needed to be "firmly anchored in the education and training system," she said. But society's attitudes also needed to change, she added.

"If we want to have more lively and sustainable start-up activity, we have to improve the subjective attitudes towards entrepreneurship," Matthäus-Maier said.

Hope for 2007

Germany's current economic upswing has also contributed to the dip in self-employment. Many people previously had no other option than to start their own company, since they often had difficulty finding a job.

"But during an economic upswing, there are a lot of attractive jobs out there again," Klandt said.

But times could change, according to Matthäus-Maier. "There is hope that a turnaround will take place in the course of the year," she said, since the number of planned business start-ups was "extraordinarily high." As a result of the current stable upswing, many more people were expected to venture into self-employment in 2007, she said.

"This is urgently required because without strong start-up intensity, and the related creation of jobs and innovation, Germany's economic efficiency might be hurt," she said.