The Germans struggle – but aren’t becoming more productive!

Now you might say Germany’s doing fine. An economic growth of 2,5 per cent has been estimated for 2018. German companies have been able to sell more goods to foreign countries than ever before. The amount of employees has reached a record high as well. Yet for the long term, it isn’t enough to maintain the current standard of living to compensate that less employees are going to have to pay for more pensioners in the future. Like other industrialized countries, Germany exhibits a decline in productivity growth in spite of the continued economic growth – an observation which, in light of the extensive economic digitalization, is astonishing. Economics puzzle over the reason for this stagnation, or rather cannot comprehend at first glance how the alleged innovation wave and the slacking productivity statistics are supposed to fit.

Out of all industries, it is Germany‘s showpiece industries that threaten to fall behind in global competition. The metal and electrical industry these days is still about as productive as it has been five years ago – in spite of new technological possibilities that should have normally increased the productivity. But why do German companies only invest so little in progressive information and communication technology (ICT)?

For one, that is due to the strong regulation of German product and labor markets. But especially a great number of small and medium-sized enterprises (SME) can potentially apply new digital technologies less effectively than large enterprises. The productivity-stimulating effect of digitalization almost entirely remains absent. The expert commission Research and Innovation (EFI) even speaks of a ‘digital divide’.

Furthermore, a restrained willingness to make investments with simultaneous implementation difficulties of Industry 4.0 technologies leads to industry-overlapping potentials for cost reduction as well as the development of new customers and markets through product innovations still too frequently going to waste.

To counteract this misery, tremendous investments need to be made. Especially a fast expansion of web infrastructure is necessary to implement the technological advantages of digitalization through new products, processes and business models. In doing so, it is important to provide incentives to make the necessary investments not only in foreign countries but also in Germany.

Germany has been resting on the reforms of the previous years. This way, the diminishing enthusiasm has led to a noticeably weakened competitiveness in comparison with other countries. Right now, the focus should be on turning the trend. Due to the demographic development, this would have to happen on the basis of a significantly stronger investment activity on the part of companies and the state. If we fail in that, Germany’s economic dynamism is going to sustainably slow down and strain the labor market.

Author: Marion Jörg
Figure source: © erhui1979 / istockphoto.de

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