Monday, July 30, 2012

The imprint of socialism on entrepreneurship

It is often difficult for immigrants to integrate in a new culture, including economic culture. Yet, those who immigrated self-selected themselves as people most likely to succeed in such a change. Imagine how difficult it would be for people who did not choose for a change of culture but have it imposed on them. This is what happened to East-Germans with the reunification of Germany. Almost from one day to the other, they switched from one economic dogma to the other and had to adapt to very different circumstances. One aspect of this is entrepreneurship, which was non-existent in the previous regime for several decades. So how is entrepreneurship doing in Eastern Germany now?

A pair of recent papers looks into this. Michael Fritsch, Elisabeth Bublitz, Alina Rusakova and Michael Wyrwich show that it has taken fifteen years for self-employment rates to converge in both parts of Germany. Part of it was out of necessity: Eastern Germany had a high unemployment rate after the reunification. And it is mostly the young who became entrepreneurs, the old seeming too used to be told what to do. What is not clear from the study is how internal migration may have contributed to the evolution of regional entrepreneurship levels.

Michael Fritsch and Alina Rusakova look at the socio-economic determinants of entrepreneurship. Usually, parental role-models are very important. If one of your parent was self-employed, you are much more likely to become self-employed as well. This relationship seems to have been severely damaged in East-Germany, especially among those with tertiary education, who are also the ones who got the most indoctrinated by the regime.

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