Engine of Europe's Economy Tries to Become a Jobs Maker

Germany needs another Grunderzeit - an "age of founders" who can revive the entrepreneurialism of the last century that helped make the nation the global economic powerhouse it is today.

This statement may be just about the only thing politicians here can agree on nowadays. But it's not clear that the government's economic program introduced April 26 - which aims to shrink the deficit and create jobs - is going to have much effect. Yet creating jobs and cutting its deficit is precisely what Germany will have to do if it is to keep its role as the economic powerhouse of Europe.

During this period of record unemployment here, people have glommed onto a fact already familiar to many American observers of labor markets: New enterprises, not established, household-name companies, generate the most new jobs.

Yet the Thyssen elevators Germans ride in, the Mercedes-Benz automobiles they drive, and the Siemens appliances in their homes are all products of companies going back to that Grnderzeit. The pattern is repeated across Europe.

A German Silicon Valley?

Peter Glotz, an economic policy expert for the left-of-center Social Democratic Party, says he finds it "alarming" that "in the past three decades Europe has not produced a single company which subsequently grew large and which today is operating worldwide.

"Take, on the other hand, the classical example of Microsoft, but also Sun Micro Systems, LSI Logic, Apple, and Silicon Graphics," he says. "In Europe, there are no such developments."

What needs to be changed to foster such innovation, Mr. Glotz adds, is not just Europe's legal systems but also its regulation-minded way of thinking. He is not convinced that Germans and other Europeans will be able to make that shift.

The need to create jobs is particularly acute in the former East Germany, which in effect has been "deindustrialized" since it reunified with West Germany in 1990.

The decision to exchange East German marks one for one with West German marks immediately priced eastern German products out of their traditional Eastern European markets and put them at a disadvantage in the West.

"Why spend 13,000 marks [$8,500] for a Trabant," the homely car ubiquitous in the former East Germany, "when you can get a good used Volkswagen Golf for that much money?" asks an oil executive in Stuttgart.

Andreas Schneider founded a bathroom-tile company, Tile Paradise Inc., in the former East German town of Neubrandenburg 5- 1/2 years ago with a loan from his grandmother.

A transplant from western Germany, he can attest to the regulatory mind-set still prevailing in his new home city. "You almost can't take a breath without asking someone," he says in a phone interview.

The last few months have been tough for his business. Along with other entrepreneurs, he suggests that Germany's banks could stand to learn more about making loans to fledgling enterprises. Banks "are like someone lending umbrellas - but only when it's not raining."

"Technologies keep changing," says Christian Trenner, owner of a small firm that employs 12 and makes electronic components outside Berlin. "What Germany needs now is a new environment for entrepreneurialism."

His wish list is the same as those of would-be entrepreneurs nationwide:

*Changes in tax laws that would make it easier to plow profits back into a business.

*Changes in the layoff-protection law, which makes it very difficult for firms to discharge employees, according to economic analysts and business leaders. The law now applies to every firm with five or more employees. The government has set off an uproar by proposing to raise that threshold to 10 employees.

*More access to venture capital. "There are many products here that simply do not come to market because the producers cannot find capital," Mr. Trenner says, echoing an often-voiced sentiment.

A 'developing country'

"By international standards, Germany is a developing country as far as venture capital goes," says Hans-Dieter Over, chairman of a Bonn-based group of young entrepreneurs called Wirtschaftsjunioren Deutschland.

He further blasts the government's proposal to cut taxes on the profits of new enterprises as grandstanding - too few new firms make a profit for that "tax cut" to be meaningful, he suggests.

Ernst Schwanhold, a Social Democratic colleague of Glotz's in the Bundestag, or lower house of parliament, likes to joke that if billionaire Bill Gates had been trying to start Microsoft in a garage in Munich, he would have been caught between the German labor law that requires all workplaces to have windows and the German fire-prevention law that prohibits any garage from having windows.

But this kind of thing is no joke for Mr. Over and his fellow entrepreneurs.

For example, if a new firm cannot certify that it has whatever number of parking spaces municipal regulations require, it may have to pay about $17,000 in compensation per space.

It's not that the government doesn't want to help entrepreneurs, Over says, but "more than 700 programs [meant] to encourage new business, at the federal, state, and European Union level are better equipped to confuse young entrepreneurs than to help them."