Germany, once the home of the Wirtschaftswunder (miracle economy), has had the slowest or second-slowest economy in the European Union for six years running—unemployment often tops 10 percent, while heavy government spending has pushed the budget deficit close to the limits for members of the eurozone. Despite the debilitating effects of unification more than a decade ago, the sluggish economy is often blamed on the Germans themselves: they are a people opposed to economic risk, so the thinking goes, too firmly attached to generous government social programs and protective labor laws. But an extensive on-line survey gives the lie to this stereotype, thus suggesting that policy makers have room to embark on bold reform measures that could unleash the hidden economic energy of the German people.

The German people could be more ready than their politicians for economic reforms that might solve some of the country’s problems

The on-line Perspektive-Deutschland survey,¹ which was commissioned by McKinsey, T-Online (an Internet service provider), and the Stern publishing group, attracted responses from 170,000 Germans, making it Europe’s largest in-depth on-line survey. Some of the results were expected—for instance, the large gap in the quality of life between the former East and West Germany—but the survey also uncovered some important new insights; it suggests that Germans may be more ready than their politicians for economic reforms that could solve some of the country’s problems. Indeed, in the same spirit that imbued the Wirtschaftswunder years (the 1950s and early 1960s), the people seem keen to take the initiative and to work hard if they aren’t hindered by the political system, its regulations, and its inflexibility.

To begin with, Germans are more willing than is commonly realized to exchange job security for independence. About 9 percent are already self-employed, and fully 33 percent more could either "definitely" see themselves as self-employed or imagine being so under certain circumstances (Exhibit 1). For these people, federal and state regulations were the greatest obstacles. One recent study ranked 85 countries by the degree of regulation they impose on new businesses, with the least regulated among them topping the list. Germany ranked 40th, far behind leaders such as Canada, Australia, New Zealand, and Denmark.² If Germany’s entrepreneurial spirit could be tapped, it would clearly be a strong job creator in both east and west. Yet a study carried out in 2000 showed that even in Germany’s entrepreneurial centers—Düsseldorf, Munich, and Stuttgart—less than a quarter of the companies with annual sales of more than $50 million had been founded from 1985 to 2000, as compared with about 73 percent in Silicon Valley and 58 percent in Austin, Texas.³

The time could also be right for reforming the country’s inflexible labor market regulations, a key barrier to greater productivity and growth. Germany’s employment laws and traditions emphasize job and income security and make it hard for employers to fire people or to match their pay to performance. Nevertheless, 45 percent of those responding to our survey would welcome pay based on results; 61 percent would like to have more influence over the development of their careers and greater responsibility in their jobs.

Furthermore, Germans seem willing to contemplate lower levels of government support than politicians generally acknowledge. The pay-as-you-go state pension system is starting to creak, for example, and 88 percent of the respondents are convinced that private plans will be needed to supplement the state program. In a country accustomed to free university education, only about a third of the respondents said that they would not under any circumstances pay part of the cost of improving the system. A larger group—40 percent—would pay tuition if low-interest loans were available, while an additional 28 percent would pay a part of the cost of higher education if their money could improve it in a noticeable way.

More predictably, a decade after unification the survey found that people in the eastern part of the country are significantly less satisfied than their counter-parts in the west. Policy makers simply can’t afford to ignore that difference, for though 65 percent of those who answered the survey said they were content with life in Germany, that figure hides a gap between the east (51 percent) and the west (69 percent). The division was even greater when participants were asked whether, all in all, they lived in a very good place (Exhibit 2): in the west, 71 percent said yes, compared with 35 percent in the east. This discrepancy indicates that migration from east to west will continue, par-ticularly among talented young people. The general satisfaction with life in Germany was based not on agreement with government policy but rather on strong social ties and leisure opportunities.

The survey didn’t aim to suggest what government policy ought to be. Nor did—or could—it address questions such as whether job security is more important than labor flexibility or which provisions of the country’s labor laws should be abandoned to create a more nurturing environment for entrepreneurs. Answers to such questions must be left to the nation’s leaders.

Nonetheless, the politicians should heed the opinions of the people. After all, many Germans said they were very dissatisfied with the government, particularly in the area of labor policy. Formerly taboo subjects—from greater job flexibility to tuition for higher education to private retirement funds—are open for discussion, and this new climate has created valuable opportunities to break out of Germany’s economic stagnation. The time is right for the leaders of the country to engage its people in a serious dialogue about economic reform and revival.