Economies thrive—or flounder—based on the incentives they offer to business owners and investors. Growth doesn’t happen by accident. It’s the direct result of environments where risks are manageable, returns are promising, and decisions aren’t weighed down by disincentives.
This is a lesson I learned firsthand when I sold one of my companies.
After the sale, the new owner hired me to explore opening a branch in Germany. Being of German descent and having a conversational command of the language, I was intrigued by the opportunity. I flew to Stuttgart, where one of my old company’s U.S. clients had a major operation. The goal was to establish a German GmbH to service them locally. It seemed like a logical next step—until I started digging into Germany’s labor laws.
Working closely with a German law firm, I began to understand just how rigid and employee-centric their system was. Under German labor law, even new employees could become nearly impossible to dismiss without facing massive severance payouts or drawn-out legal battles. The cost of terminating an employee, even underperformance or strategic shifts, could exceed two years of salary—even if they had only been with the company a short time.
I picked up the phone, called the new owner, and laid it out plainly: “Germany’s pro-labor laws are just too strict. This expansion would expose the company to significant financial risk and strip him of the flexibility he’d need to respond to market changes.”
Instead of establishing a physical presence in Germany, we continued to serve our client using remote contractors. This allowed us to remain nimble, reduce overhead, and avoid the legal quicksand of German employment regulations.
That experience underscored a broader economic truth: incentives matter. Countries like Germany, where labor protections are designed to safeguard workers at all costs, create environments where business formation and growth are significantly hindered. It’s not that companies don’t want to offer fair wages or good jobs—it’s that they need the flexibility to scale up or down as conditions demand.
By contrast, in pro-business environments like the U.S., companies can hire more freely because they can also make adjustments when needed. Layoffs, while never pleasant, are less burdensome. Severance obligations generally range from a couple of weeks to six months of salary—far more manageable than the multi-year obligations common in parts of Europe.
These differences have real economic consequences. Pro-business countries enjoy greater investment, faster innovation, and a more dynamic job market. Their economies are built for both business creation and business destruction—the twin engines of economic renewal.
In pro-labor countries, however, economic policy often reflects political motivations more than market realities. Laws designed to “protect” workers may buy votes in the short term, but over time, they suppress investment and stunt growth. These nations often cling to outdated economic models, especially in manufacturing, in a desperate attempt to preserve jobs that the market no longer values.
This doesn’t mean pro-labor ideas are inherently wrong. There’s a place for protections, especially to prevent exploitation. But when regulation becomes a straitjacket—when companies are punished for adapting—it’s the entire economy that suffers.
Entrepreneurs and investors gravitate toward opportunity. And opportunity thrives in systems that reward risk, reduce red tape, and allow businesses to respond quickly to change. As my experience in Germany demonstrated, when those elements are missing, even a promising expansion can turn into a liability.
Would your country’s labor laws attract someone like me—or send me looking for options elsewhere?
