Germany has a lawyer problem

Most of Germany’s famous firms, including AEG, Deutsche Bank and Mercedes-Benz, were established in the late 19th century. The time is known as the Gründerzeit, or founding period, referring not just to the proclamation of the German empire in 1871, but also to the hundreds of companies that set up shop. Less well-known is that in the same era Germany’s peculiar—and peculiarly dominant—bureaucracy took shape. It is top-down, formalistic and lawyerly. And it is causing problems.

Germany faces trouble on a number of fronts. Its industrial and export-oriented growth model is struggling because of both fierce competition from China and America’s abandonment of global trade rules. The country is ageing quickly at a time when productivity growth has stalled. Indeed, its economy shrank in both 2023 and 2024, and is forecast to have stagnated this year. But inside and outside government, recognition is at last building that Germany’s bureaucracy stands in the way of change. On December 4th the government agreed with regional leaders to a major modernisation of how the state works. The question is whether the country’s lawyers can be knocked off their perch.

Economists have long appreciated the role played by institutions in nurturing economic growth. By limiting political meddling and efficiently running services, bureaucracies can also raise productivity, as in 19th-century Germany. The problems come when they are entrenched and try to command mature economies. Oliver Falck, Yuchen Mo Guo and Christian Pfaffl, all of the Ifo Institute, a think-tank, looked at 27 big-bang reforms, designed to reduce the bureaucratic burden, introduced globally since 2006. They found that had Germany experienced such reform in 2015, GDP per person would have been 4% higher by 2022.

Germany’s bureaucracy has especially deep roots. In contrast to those of America and Britain, it pre-dates democracy. The increasing complexity of industrialising German states in the 19th century, and competition between them, led many to call on experts. This was especially true of Prussia, later to become the dominant power, which modelled its disciplined, hierarchical bureaucracy on its army. In the autocratic, constitutional monarchy that followed, the monarch and the bureaucracy found themselves on one side, with parliament and its liberal reformers on the other, as Max Weber, the godfather of sociology, observed at the time.

The king and his bureaucracy wanted to govern unimpeded by democratic nuisances; parliament wanted a state limited by laws. The result was a compromise in the form of a complex rules-based machine, which only lawyers could navigate, and from which Germany’s modern bureaucracy hails. It was swept aside by Adolf Hitler in the 1930s, but returned with a vengeance after the second world war. “The lawyers’ monopoly...is based on the idea that, in a state governed by law, administration is above all the application of statutes,” wrote Ernst Fraenkel, a legal scholar, in the 1950s.

Such a monopoly is still alive and kicking. According to Victor Lapuente of the University of Gothenburg and co-authors, in 2012-15 just 9% of civil servants had significant experience in the private sector, against 28% in Britain. Sylvia Veit of Helmut Schmidt University and co-authors find that nearly half of leading positions in federal agencies and ministries are today occupied by lawyers. That compares with roughly a quarter in France and less than a sixth in Britain. Those who get ahead have served their time, and made few errors. All of which leads to excessive “fear of criticism from watchdogs or the revocation of decisions by administrative courts”, Andreas Vosskuhle, a former president of Germany’s constitutional court, has written. A survey by the Institute for Employment Research, an official body, finds that German companies have taken on 325,000 people over the past three years simply to ensure regulations are met, four times as many as were hired overall by IT and engineering firms in the same period.

Cautious, legalistic governance kept things ticking over when Germany’s export machine was flourishing. It is less well suited to instability. During the euro crisis of 2012, the finance ministry was led almost entirely by lawyers, who focused on southern Europe’s rule-breaking, ignoring potential macroeconomic remedies. Constitutional rules introduced in 2009 kept the German government’s own annual structural deficit to 0.35% of GDP. Politicians eventually snapped, creating exemptions first in 2022 and again this year. Other moments of boldness, such as accepting lots of Syrian refugees in 2015-16 and replacing Russian gas in 2022, have also required the circumvention of rules. And it is not just national rules that must be skirted. Each region has its own cautious, legalistic governance, with lawyers closely watching for infringements in areas such as data privacy and planning.

The civil service will not reform itself. Its response to a recent proposal to raise tolerance of errors was, says an insider, that a “German bureaucrat does not make mistakes”. What is needed, reckons Christoph Schmidt, formerly head of the government’s council of economic experts, is “basically the antithesis of our legally watertight procedures”. In July a group of luminaries, including Mr Vosskuhle, published proposals for Friedrich Merz’s new government, suggesting that “gold-plating” (ie, adding on to) EU rules should be banned and seeking space for officials to experiment. The modernisation agreed on December 4th incorporates some of their ideas and includes measures such as a tight deadline for planning applications, after which they will automatically pass. Although the agenda will meet its own bureaucratic opposition, the situation is grim enough that change may still be on the way. Weber called politics the “strong, slow boring of hard boards”. It is time for Germany to make a start on that work. ■