Entrepreneurship in USA and Germany

Entrepreneurship in USA and Germany

The nature of entrepreneurship varies significantly between the United States and Germany. According to the Global Entrepreneurship Monitor, the United States has an entrepreneurship index of 11.3%, higher than the world average of 9.5%. Germany, on the other hand, has an entrepreneurship index of just 5.1%, lower even than the European average of 5.4%. There are many factors that account for this difference, including cultural, legal and fiscal considerations.

In Germany, several factors work against entrepreneurship, as outlined by the International Entrepreneurship group in 2006. For example, there is a cultural disapproval of enterprise. Contrast this with the United States, where entrepreneurship is a prized attribute. Entrepreneurs who enjoy significant success become cultural and business icons, like Fred Smith of FedEx or Bill Gates and Paul Allen of Microsoft.

Another factor is the differences between the legal and fiscal structures of the two nations. Germany has higher corporate tax rates, and workers receive a far more comprehensive benefits package, which ultimately discourages entrepreneurship by adding to the costs of running a small business. Local tax rates vary in the U.S., but are kept low by competition. States and counties compete with one other for the opportunity to have entrepreneurs locate in their jurisdiction. Regions with higher unemployment often offer incentives to attract entrepreneurs and small businesses, further lowering the risk to entrepreneurs and small companies. This type of intense competition is not a factor in Germany, and many of the expensive components of workers' benefits packages are entrenched in federal law, negating the role of states and towns in attracting new business.

The legal treatment of foreign workers is another key difference. Foreign-born residents are less integrated into the economic system, and thus suffer reduced employment opportunities. This gives rise to forced entrepreneurship among that group, as members will start businesses to give themselves gainful employment. In Germany there are legal structures to discourage this. For example, foreigners from outside the EU must take their business ideas to the Aliens Office, and in that process the nationality of the applicants plays a role in approval. The result is that foreigners account for 8.3% of entrepreneurs, compared with 7.3% of the population. This, however, actually compares favorably with the United States. While U.S. immigrants enjoy the same legal rights at as the U.S.-born when it comes to starting a business, entrepreneurship amongst the foreign-born in the U.S. is on the decline, and actually lags entrepreneurship amongst native-born Americans (Camarota, 2000).

Camarota's findings run against conventional wisdom that the entrepreneurial culture in the U.S. has been driven by successive waves of immigrants. These immigrants have difficulty integrating into the established economic system but have large immigrant groups that can provide a market should they start their own company. That Germany is now starting to see stronger entrepreneurship amongst the foreign-born than could be indicative of the beginning of a trend mirroring the early American experience, at the same time when other variables are contributing to a reduction in immigrant entrepreneurialism in the U.S. That said, the country's long history of immigrant entrepreneurialism, however tenuous the notion might be today, has left a cultural legacy as evidenced by the relatively high entrepreneurship index score given to the U.S.

There are other structural factors as well. In Europe in general, there are a myriad of impediments to entrepreneurialism, including legal barriers, a consumer sector that is unventuresome about new products, stronger unions and higher levels of state intervention in the marketplace (Phelps, 2007). Phelps also outlines several cultural factors as well, such as the desire amongst workers for responsibility, interesting work or the chance to take initiative. The United States scores much higher in these metrics than does Germany. He frames these as differences in economic dynamism.

There is a correlation between the level of entrepreneurship and the level of economic growth (Aernoudt, 2007). Aernoudt's findings imply that European SMEs do not have an adequate support structure, which he feels should be more entrepreneurial in mindset. The existing structure, he argues, is geared more towards larger enterprises. His case study is Wallonia, but that region has a similar entrepreneurship index to Germany and many of the structural issues are pan-European.