Berlin There is one topic in politics that everyone agrees on, it is an insane problem for the citizens, the state and the economy – and yet it is almost impossible to get a grip on: the growing number of regulations, administrative rules, and development barriers . “We are looking at a huge bureaucratic monster in Germany,” says Rainer Kirchdörfer, director of the Family Businesses and Politics Foundation, describing the current situation.
It is a monster whose paradox is that the more you try to tame it, the more it grows. Because while other social problems can be solved by new rules and laws, the bureaucracy monster is only fed further with each new regulation.
As of today, the Handelsblatt is devoting its own series to the largest and most absurd excesses of this problem in a wide variety of sectors such as energy, social or industrial policy. Current figures show how much time and money the monster eats: Last year, it cost the German economy 5.8 billion euros to adapt to new regulations – more than ever before.
The Regulatory Control Council (NKR) presented this record amount to Chancellor Angela Merkel (CDU) on Thursday. Money that companies only spend on complying with legal requirements. This additional bureaucratic effort is called “compliance effort” in technical jargon. This record high is primarily due to regulations relating to the corona pandemic.
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“Germany is, thinks and acts too complicated,” says Johannes Ludewig, Chairman of the NKR, summarizing the results. At ten billion euros, the adjustment costs for public authorities were even significantly higher than those for the economy. “We’ve never had that before,” says Ludewig.
For family business expert Kirchdörfer, these numbers are even underestimated. The calculation of compliance costs is a “standard procedure that only calculates the direct costs,” says Kirchdörfer. For the inheritance tax reform, for example, only 10,000 euros in additional expenditure per year were estimated for the entire German economy.
Searching for traces of those entitled
“That is complete nonsense,” says Kirchdörfer. “The actual burdens on the economy are many times higher.” In fact, a lot of time and money would have to be invested in obtaining information – partly with the help of external consultants, says Kirchdörfer.
For example, for the new regulations on the transparency register that have been in force since August, companies must specify all beneficial owners individually – i.e. all persons who can exert influence in the company. Even if this information can actually be read from other registers.
The cost of red tape
The complex shareholder structures and legal relationships between shareholders make the answer to the question of who is the beneficial owner very complicated for family businesses. Examples are structures following an inheritance or shareholder agreements with usufructuary rights and multiple voting rights. “In the case of an international group of shareholders, the circumstances surrounding beneficial ownership must also be clarified abroad,” reports Kirchdörfer. He is aware of companies that have paid 100,000 euros in consulting costs alone to prepare the report properly.
Volker Wittberg is professor for medium-sized business management at the Fachhochschule des Mittelstands in Bielefeld and reports that, according to studies at his university, an average of three percent of company turnover is only spent on fulfilling bureaucratic obligations. “Small and medium-sized companies in particular are burdened disproportionately,” says Wittberg.
Receipt required in the bakery
This group includes, for example, bakeries that, according to the Baden-Württemberg Regulatory Control Council, in addition to selling baked goods, are only busy with fulfilling bureaucratic duties on average 12.5 hours a week. In addition to baking, more than a quarter of a full-time position also has to be spent on creating documentation or filling out forms.
The obligation, which has been in force since January 2020, to issue a separate receipt for every bread, roll or croissant sold, creates additional annoyance. Printing them out costs time and money and creates residual waste that has to be disposed of – because most customers would not even take their receipts with them, according to the Regulatory Control Council.
Not only in bakeries, but also in other companies, there is considerable additional work involved in sending and reporting information and data that would, however, already be available elsewhere. There are around 120 business registers in Germany. According to the Federal Ministry of Economics, a central office for economic reports will not be available until 2024. In some cases, the registers required different data formats, reported family business expert Kirchdörfer. Adaptation work is the responsibility of the company.
According to an unpublished representative survey by the Ifo Institute on behalf of the Family Business Foundation among 1,500 entrepreneurs, which is available to the Handelsblatt, almost 78 percent of the respondents consider the “reduction of documentation requirements” to be a suitable instrument for improving competitiveness.
After all, that is what the ultimate goal of reducing bureaucracy is: to free up capacities that could be invested elsewhere in productivity. Professor Wittberg speaks of “free business promotion”.
However, and this is another paradox of the bureaucracy monster, clear rules and information also mean legal security. “So it is difficult to say: the less bureaucracy the better,” says Professor Wittberg.
Instead, according to the Regulatory Control Council, the main thing that needs to be done is to reduce complexity: “In Germany, things are organized in an incredibly complicated way, especially between the federal and state governments,” says NKR chairman Ludewig.
The President of the German Chamber of Commerce and Industry (DIHK), Peter Adrian, emphasizes the importance of business representatives in the legislative process. “It is important to involve the economy in the legislative process at an early stage so that regulations are more effective, more practical and more modern.”
Driver training despite driving license
There is also a lack of practical relevance when it comes to driving a car in connection with the workplace. Here, companies have to test the skills of their employees that they have long proven elsewhere. For dedicated company cars, employers have to regularly check the driver’s licenses of their employees, and for vehicles from a vehicle pool, even every time they drive.
In addition, according to the accident prevention regulations, employers must offer additional driver instructions. “Completely superfluous” is the verdict of the Family Businesses Foundation.
In order to keep the burden on the economy, administration and citizens from new regulations within limits, the Regulatory Control Council and the Federal Government agreed in 2014 to enact laws based on the so-called “one in, one out” principle.
A different one should be removed for each new regulation. Family business expert Kirchdörfer considers this regulation to be good in principle, but criticizes that the compliance costs are not fully taken into account. It can therefore happen that a “cheap” regulation is replaced by an “expensive” one.
More food for the German bureaucratic monster comes from Brussels. Additional work that is generated by EU regulations is not even included in the calculations of the NKR. “As far as EU regulations are concerned, we don’t have an overview because they go through a different process,” admits NKR chairman Ludewig.
However, this is necessary in order to get an overall picture of the burden on companies. “That remains an open point,” said Ludewig.
In an international comparison, Germany is in the middle when it comes to regulation, according to a survey by the Leibniz Center for European Economic Research and the consulting firm Calculus Consult on behalf of the Family Businesses Foundation. Twelfth place out of 21 OECD countries, according to the result, in first place of the countries with the least regulation is the USA, followed by Ireland and Canada. Italy brings up the rear.
Internationally, the German bureaucracy is definitely a competitive disadvantage, says family business expert Kirchdörfer. When he talked about German regulation elsewhere, many foreigners would laugh and pat each other on the thighs.
Delayed building permit
However, Tesla boss Elon Musk should have passed the laugh by now. He too had to deal with German regulations when he decided to open a new plant for his electric vehicles in Grünheide, Brandenburg. The US group has not yet had an official building permit and, after the points of contact with the Brandenburg bureaucracy, complained about the enormous amount of time required to exchange documents in paper form.
Digitizing these processes would be the most effective weapon in the fight against the bureaucratic monster. However, a lot of valuable time is likely to go into the country before that is fully achieved. Too much for NKR chairman Ludewig, who warns: “The world is not waiting for Germany.”
More: These are the five biggest bureaucracy annoyances for entrepreneurs
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