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Business

"Me, Inc." Plan Could Be Victim of Its Own Success

The German government’s plan to get people back to work by becoming self-employed is showing signs of success. But skyrocketing subsidies are causing doubts about the long-term future of the scheme .

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Self-employment could spell an end to the daily search for a job.

News that 83,000 Germans have left the nation’s unemployment rolls should be very welcome in a country where 4.18 million are out of work.

But in this case, it might be too much of a good thing. Those 83,000 are taking advantage of a program that offers state subsidies to individuals who set up their own small businesses. But the pace at which people are signing up for the program, known as "Ich-AG” or “Me, Inc.” has some worried.

The numbers signing up for the micro-business scheme are surpassing expectations by a factor of four.

More applicants than forecasted

Although on the surface a cause for celebration, by exceeding government forecasts, the new generation of "Ich-AG" businesses may begin to put a strain on funds that were initially planned for 20,000 people.

The program was launched at the beginning of this year as part of sweeping labor market reforms put forward in August 2002. The government provides state subsidies for “the creation of an individual business” under the conditions that the applicant be unemployed or the beneficiary of welfare assistance and agrees to work at least 15 hours a week for annual earnings of less than €25,000 ($30,000).

The conditions have proved favorable to many jobless people who now supplement their unemployment benefits with earnings from their own business. The “Ich-AG” participant received €600 a month for the first year from the government, €360 the second and €240 the third.

Subsidy costs set to dwarf estimates

At the beginning of 2003, total subsidies for the first year of the program, using the government’s initial estimate of 20,000 applicants, were projected at €1.4 billion. Now, with the number of applicants exceeding 80,000, the amount of subsidy will reach almost €6 billion, if not more.

Ironically, success in lowering the unemployment figures is now in danger of becoming the problem for Germany’s already strained public coffers and could make it more difficult for the government to keep its escalating budget deficits under control.

Uncertain future

The thinking behind the government project is that "Ich-AG" participants do not claim full unemployment benefits and, in time, overall amount of benefits the German government pays out will go down. Businesses set up under the program, if successful, would also aid the economy.

But some employment experts warn that success of the micro-enterprises is anything but guaranteed. The nature of the "Ich-AG" agreement does not do enough to advise participants on the possible business pitfalls ahead, neither demanding a detailed business plan from the applicant or explaining the fact that there are very few unfilled niches in the market. The effect, say some, is that many of the start-ups will fail.

"To have an assured minimum earning level for three years is reassuring when making the leap" toward financial independence, said Karin Denisow, head of the business consulting agency Uniue-Berlin in an interview with press agency AFP. "But I think the people should be better advised."

Although the German economy is showing signs of a rebound, the government is still insisting that there will be no new jobs available for the foreseeable future. Therefore, the collapse of any of the projects set up under the “Ich-AG” program will leave those entrepreneurs who initially benefited from the scheme with no other option but to return to the queues at the job center.

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