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Good quality, affordable prices: This has been Germany's place in the global economy for over 100 years. But they excel in traditional industries. What if artificial intelligence sets the pace?
Germany has a problem: the economy is not doing well. The economy has been stagnating for some time now, and in the future, Germany's flagship industries such as automobiles and mechanical engineering will probably come under pressure from competition from China.
It therefore seems all the more important that research and industry in Germany develop new products and applications. The major driver of innovation will probably be artificial intelligence (AI) – and will change the economy worldwide. What does this mean for Germany?
Encouraging at first glance
When it comes to innovation, it's easy to look at patent applications. And Germany isn't doing too badly there. Last year, Germany came second in patent applications at the European Patent Office.
Second place is good, especially when you consider that significantly fewer patents are filed from similarly large European countries such as France and Great Britain – and although the USA has filed around twice as many patents, it also has four times as many inhabitants.
Strong in “conservative” sectors
A closer look at the patent applications shows, however, that the majority of applications from Germany are in the established automotive, chemical and mechanical engineering industries – precisely the areas where Germany is already strong.
The Federal Republic is less strong in the digital world. This is shown by the analysis of digital competitiveness that has been carried out for years by the Swiss business school IMD. The USA is also at the top of this ranking. The top group also includes smaller Asian countries and the Netherlands, Switzerland and the Nordic countries from Europe. Germany is far behind in 23rd place. It is obvious that Germany needs to improve digitally.
Billions for strategic independence
It is one of the largest investments in Germany: the new chip factory in Dresden, for which the foundation stone was laid last week. Enormous subsidies are being paid for the establishment of the new factory: five billion euros. Considering the approximately 2,000 jobs that will be created, the sum seems extremely high, because each job is mathematically subsidized with 2.5 million euros.
But in this case, the focus is not just on jobs, but above all on strategic independence. This is emphasized by Monika Schnitzer, the chairwoman of the expert council. They believe that promoting the chip industry is the right strategy: “It's about ensuring that we get access to technological know-how, which is only possible if we produce locally ourselves and learn from TSMC – a company that really is the market leader worldwide.
The Taiwanese group is working in Dresden with Bosch, Infineon and NXP Semiconductors, which are already based there.
Long-term patience is necessary
The example of Dresden shows what is needed to create a strong economic cluster of research, large companies, suppliers and service providers: As early as the 1980s, Dresden, with its universities and VEB Robotron, was the center of microelectronics in the former GDR. There was also a lot of technical know-how.
After reunification, large companies such as Infineon settled on this basis. Even then, considerable subsidies were paid. As a result, other suppliers and service providers came. Today, Dresden is the strongest production location for semiconductors in Europe – with a long history. Germany will also need this staying power if it wants to be at the forefront of the next big technological developments.
Funding for “Breakthrough innovations”
In October, the Federal Agency for Breakthrough Innovations (SprinD) will celebrate its fifth anniversary. Its mission is to identify promising technologies and provide financial support for their development – and thus compensate for something that currently happens too rarely in Germany: not only developing new technologies, but also bringing them to market maturity. After research, value creation should also take place in Germany.
The agency is currently supporting research into cancer immunotherapies and the development of solutions to the microplastics problem, as well as high-performance high-altitude wind turbines that can generate significantly more electricity than previous models. For SprinD director Rafael Laguna, one thing is important: “It is not enough to just rely on existing industries. We need real breakthrough innovations that create new markets.”
So-called breakthrough innovations are technological developments that fundamentally change life and that shaped the earlier “industrial revolutions”. Historically, these included the steam engine, the railway and the car. Currently, artificial intelligence in particular is believed to have the potential to fundamentally change the economy and life.
Where Germany has some catching up to do
According to SprinD director Laguna, Germany is doing quite well in terms of AI research. However, there may be insufficient financing options for companies founded out of universities. The result: young companies are financed by US investors instead of German or European ones. Better financing for young companies is an important prerequisite to ensure that companies do not move away, but that there is long-term value creation in Germany.
When it comes to specific technological applications, economists see the greatest opportunities in the areas where AI applications are used in industry. This is because German companies are often located there – the market and the opportunities are correspondingly large. It is not about building an alternative to Microsoft, Apple and others, but rather about looking at where Germany can contribute its particular strengths in the field of AI.
The third point could be the most difficult: a change in mentality. German engineers are very good at perfecting existing technologies. This has worked well for many decades, but is probably not enough for the rapidly changing world of technology. That is why Germany needs to invest more heavily in research and development and also be bolder in its approach to new technologies.
