For more growth, we also need more courage to take risks
Clemens Fuest
Aug 12, 2025
The framework conditions in Germany are geared toward preservation. As long as that remains the case, we will not overcome the growth crisis.
English translation
The federal government wants to overcome the growth crisis in which Germany currently finds itself. The key to this is the revival of innovative forces. So far, however, there has been no convincing economic policy concept for this.
Investments in the development of new products and production processes, as well as in business start-ups, are risky. They require a lot of capital and perseverance. Innovative companies must be able to absorb losses and respond flexibly to successes and failures. This includes quickly halting projects that are failing and redirecting the resources invested in them to other uses.
In Germany, the regulations governing capital and labor markets, as well as the tax system, are not very innovation-friendly. They are oriented more toward preserving the status quo and avoiding risks. This may be well-intentioned, but it hinders innovation. This can be illustrated by three obstacles. [...]
Job protection as an obstacle to innovation
[...] The third obstacle to innovation is Germany’s employment protection legislation. Companies must be able to quickly terminate failing innovation projects. That includes being able to dismiss employees hired for those projects without incurring high costs.
In research and development, the focus is on highly qualified employees who can quickly find new jobs. In Denmark, low levels of employment protection are combined with good unemployment benefits. This approach is called “flexicurity” and could at least be adopted in Germany for highly qualified workers.
Germany needs well-designed and comprehensive reforms to strengthen its capacity for innovation. Otherwise, a lasting return to higher growth rates will remain wishful thinking.
