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Small Business Economics

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01.08.2014

How much of a socialist legacy? The re-emergence of entrepreneurship in the East German transformation to a market economy

verfasst von: Michael Fritsch, Elisabeth Bublitz, Alina Sorgner, Michael Wyrwich

Erschienen in: Small Business Economics | Ausgabe 2/2014

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Abstract

We investigate how institutional change—the transition from a socialist system to a western type market economy—relates to the re-emergence of entrepreneurship in East Germany. This region is particularly well suited for such a study because of the rapid change of the institutional framework and the possibility to use West Germany as a benchmark. It took about 15 years until self-employment levels in East Germany reached those of West Germany. Despite this catch up, we find a number of peculiarities in East German self-employment that appear to be a continuing legacy of the socialist period. There is also a considerable correspondence of the regional levels of self-employment before, during and after the socialist period, suggesting the existence of a long-lasting regional entrepreneurship culture that can be regarded as an informal institution. This is in line with the hypothesis that informal institutions change much more slowly than formal institutions.

Vorheriger Artikel Entrepreneurship and survival over the business cycle: how do new technology-based firms differ?

Nächster Artikel Non-R&D SMEs: external knowledge, absorptive capacity and product innovation

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Baumol (1990) seems to at least recognize the role of informal institutions by mentioning the low social prestige of entrepreneurship in ancient Rome.

The German Micro-Census, conducted by the Federal Statistical Office, has a general sampling fraction of 1 % of the total population living in Germany, providing information about 820,000 individuals in each wave (Statistisches Bundesamt 2009).

This rise in the self-employment rate is slightly overestimated because of the decreasing employment, which is the denominator of the self-employment rate.

The peak of start-up activities around the year 2005 is probably due to diverse governmental support programs for self-employment among previously unemployed persons, as well as offensive promotion of entrepreneurship as a career option in Germany.

The sample is restricted to employed individuals between 18 and 65 years of age. Civil and military servants as well as helping family members are excluded from the analysis.

For instance, people who had been between 35 and 39 years old in 1999 were 40–44 years old in 2004. However, we want to avoid respondents who are in the old age cohort in 2004 and 2009 but in the young age cohort in 1999.

Findings of a related study (Wyrwich 2013a) show that the negative origin effects among East Germans are more pronounced for self-employed people with dependent employees than for solo self-employment.

One main reason for this relatively strong indoctrination is that the universities were supposed to nurture the future “elites.” This ideological conditioning of university graduates was supported by a pronounced tendency to admit only those persons to higher education that declared conformity with socialist values (see Connelley 2000; Fritsch and Rusakova 2012).

A detailed discussion of the variable definition is available in Bublitz and Noseleit (2014).

The survey was conducted by the Federal Institute for Vocational Education and Training (BIBB) and the Federal Institute for Occupational Safety (BAuA) in 2005 and 2006.

Own calculations based on the official statistics (Statistik des Deutschen Reichs 1927).

Particularly home workers, an occupational status that was widespread in the 1920s in certain sectors such as the textile industry, can be regarded as an intermediate position between being an employee and being the owner of a manufacturing firm.

Data on start-up activity are obtained from the Foundation Panel of the Centre for European Economic Research (Zentrum für Europäische Wirtschaftsforschung, ZEW) in Mannheim (for details, see Almus et al. 2002). This data set provides the most reliable information on East German start-up activities in the early 1990s on a regional basis. Very small start-ups are underreported in this data source. Hence, many necessity start-ups (e.g., start-ups due to unemployment) are not included in the data.

Many technological fields of the GDR economy, like in other former socialist countries, followed technological trajectories that were quite different from those relevant in western-type market economies (Radosevic 1999). Thus, a considerable part of the respective knowledge stock became obsolete and economically worthless. For this reason, the positive effect of a high share of people with an academic degree in a region may be mainly driven by the regional abundance of individuals with good entrepreneurial judgment and the ability to detect viable opportunities (e.g., Davidsson and Honig 2003) once the “window of opportunity” had opened in 1990.

Another aspect of a socialist legacy in East Germany is the performance of the economy. Despite massive policy support and subsidization, most East German firms still have great problems when competing on international markets. More than 20 years after the beginning of the transformation process, the average level of labor productivity amounts to only about 80 percent of the West German level.

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Titel: How much of a socialist legacy? The re-emergence of entrepreneurship in the East German transformation to a market economy
verfasst von: Michael Fritsch
Elisabeth Bublitz
Alina Sorgner
Michael Wyrwich
Publikationsdatum: 01.08.2014
Verlag: Springer US
Erschienen in: Small Business Economics / Ausgabe 2/2014
Print ISSN: 0921-898X
Elektronische ISSN: 1573-0913
DOI: https://doi.org/10.1007/s11187-014-9544-x

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