The Growing Burden of Bureaucracy in Germany: A Concern for Companies

Everyday life for family businesses in Germany: A district office informs a company that the excavation of earth necessary for business expansion is only possible on two dates a year. This further delays the project. One example of many.

Although there is a shortage of employees everywhere in the public sector, companies are expected to fulfill more and more bureaucratic requirements and obligations. The effects can also be seen in the example of the German Supply Chain Due Diligence Act.

Companies are legally obliged to check their suppliers to see whether they respect human rights and comply with environmental standards. This leads to absurd situations: The Argentine subsidiary reports to the parent company in Germany because it had to lay off its cleaning crew.

Money flows into compliance rather than innovation

The daughter had to go to the cleaning company in South America quit, because this cannot guarantee German standards. Worst of all, the law leads to gigantic bureaucracy.

A family business with 20,000 suppliers worldwide had to employ ten employees to introduce the Supply Chain Due Diligence Act, which has been in force since 2023. Start-up costs: two million euros. For a single law! The entrepreneur would have preferred to spend the money on innovation.

An unexpected tsunami of bureaucracy is descending on Germany. Chancellor Olaf Scholz now wants to counteract this with a “Pact for Germany”. The country should become faster and easier. But citizens and companies have so far waited in vain for the “Germany pace”. Large companies report that they have had to create dozens of new administrative positions in recent years to cope with the flood of regulations.

Dear state, have more confidence in us!

If the state had more trust in citizens and companies, it would not have to constantly invent new accountability measures. Politicians must resist the temptation to measure their performance by the number of new laws. Reporting, testing and documentation obligations fall on companies in an unprecedented abundance and depth of detail.

Improvements can be made quickly here. Companies currently have to implement around 20 new laws from Berlin and Brussels with reporting requirements – this ranges from pay transparency to protection for whistleblowers from companies.

Many of these documentation requirements in particular are related to the EU’s Green Deal: The need to change course in environmental and climate policy is constantly leading to new paper tigers. For example, the Sustainability Reporting Directive (CSRD), which is intended to help companies become environmentally friendly: The EU’s first draft provided for 2,000 individual reporting points.

After the protest from business, the EU Commission has now announced that a few hundred points will be removed. Medium-sized companies will have little choice but to hire expensive consultants. Politics gets bogged down when it tries to tell the economy exactly what to do in more and more areas.

This is what needs to be done now

What is needed now has nothing to do with new billions from the budget. A first step would be for politicians and society to place more trust in the over three million companies. Here lies the key to progress. The state cannot and does not have to regulate everything, but rather trust companies to do something. Family businesses in particular live by responsibility. Many of them have been concerned about fair supply chains for a long time.

Simple appeals like “Stop the bureaucracy” won’t get us anywhere. Although bureaucracy is necessary to a certain extent, it ensures equal treatment and creates planning and legal certainty. But the regulatory madness has reached unprecedented proportions. This starts with the ban on advertising sweets and extends to the complex restructuring of property taxes, which is overwhelming citizens. We are experiencing a dictatorship of small print.

Dictatorship of the small print

Politics can change that immediately. Lawmakers in Berlin and Brussels should quickly agree not to introduce any new reporting, disclosure and accountability requirements. This should be accompanied by a bureaucracy brake: All new laws should be examined in advance with a “practical check” to ensure that they have little bureaucracy and are digital. In this way, cutting bureaucracy becomes a free economic stimulus program.

And something else has to be added: Many companies that want to build or expand new plants wait years for approvals. This is how Germany loses touch. Expediting approvals must be a priority.

We have around five million public sector employees in Germany. The shortage of skilled workers in the public service requires politicians to set priorities. We need administrative staff, for example in building authorities, tax offices and environmental authorities.

There is a lack of employees to comply with the law

How can it happen that the Federal Office of Economics and Export Control (BAFA), which is responsible for monitoring the Supply Chain Act, hires 100 new employees when at the same time there is a lack of staff in strategic positions?

Governments and parliaments cannot constantly decide on new tasks if the public service is miles behind in completing basic tasks. The Bafa authority is also responsible for export controls in Germany.

There have been delays in this area for some time. Companies complain that applications for export licenses are left lying around for many months. There is simply a lack of staff. This in turn leads to anger among foreign customers who do not understand why “Made in Germany” no longer means on-time delivery.

The current crisis is an opportunity to clear out the bureaucratic jungle. The motto must be: just do it!

The article “Companies complain: “A bureaucratic tsunami is falling on Germany”” comes from The European.