The German Innovation System and Its Challenges

When one thinks of innovative nations, one of the first that comes to mind is Germany. The list of scientific discoveries, inventions, and technologies adapted and improved in Germany is breathtakingly long. The innovations include aspirin, morphine, the modern assault rifle, the smart card, the printing press, coal liquefaction, and much more besides.

Innovation is nothing new in Germany. Gutenberg developed the first practical printing press in Europe in 1440, a development that exploded the number of books in existence, inspired public literacy, and helped inspire the Renaissance and the Reformation by facilitating the rapid dissemination of new ideas.

The list of inventions and technologies adapted and improved in Germany is breathtakingly long.

Phil McKinney

More recently, Germany’s skill at innovation made that country a tough enemy to defeat during both of the world wars. After Germany was all but destroyed in the Second World War, the same knack for innovation made West Germany a great industrial power in short order, as the Germans learned to make money, not war. Now that Germany is unified, the goal is to incorporate the former East Germany into its economic system. Thus, even as much of Europe is facing economic stagnation, the German economy remains relatively vibrant, especially in its manufacturing sector.

What are the characteristics that make Germany such an innovative nation? The Harvard Business Review recently noted that while the United States does well at inventing new technology, the Germans, no slouches where it comes to invention, are better at adapting inventions across the broad sector of its economy. Germany often takes old technology and improves it with new ideas, thus revitalizing once stagnant sectors of its economy.

Harvard found that three factors existed that help to drive German innovation:

1. Innovation Is Used to Create Widespread Productivity: Germany takes the approach that innovation should improve all sectors of the economy, such as the automobile industry. BMW, for instance, has led in incorporating computer and communications technology into its automobiles. Germany does not allow old industries to wither and die, but rather attempts to keep them vibrant by introducing new, seemingly unrelated technologies to improve their products and services.

2. Strong Institutions Make Innovative Ideas A Reality: Germany’s network of institutions that support research and innovation is vast and deeply rooted, many going back to the 19th century or earlier, according to Matthew M. C. Allen of Manchester University. From the Max Planck Institutes to the Fraunhofer Society, Germany has a strong sense that innovation thrives when it is supported by robust institutions whose sole purpose it is to advance research that will improve people’s lives and contribute to the national economy.

3. Education and Training Are Lifelong Endeavors: Most countries give lip service to the importance of education to create a highly trained and innovative workforce. Germany recognizes that the advance of technology will often make what an employee learns at a university or a trade school obsolete in due course. So, Germany has developed a system in which its workers receive constant training so they can keep their skills sharp as new technology is incorporated in the workplace. Hence, German companies can keep productivity at a high level.

The Government Makes Innovation a Priority

Allen at Manchester, in the chapter cited above, discusses several efforts by the German government to advance innovation and bring the country fully into the 21st century. The German innovation system has traditionally been driven by medium- to high-tech industries such as automobiles and mechanical engineering, whereas most future growth will lie in higher-tech sectors. In 2006, the government announced the High-Tech Strategy for Germany, which spans all ministries and includes representatives from industry and science.

Through this and other initiatives, the German government is clearly and explicitly prioritizing innovation, and institutionalizing policies that will advance research and development in coherent ways to help bring new ideas to the market as quickly as possible. The government recognizes the problem of the nation’s reliance on medium-tech sectors, and is taking concrete steps to diversify the innovation system, and therefore the German economy itself.

A Precautionary Note About Germany’s Impending Demographic Crisis

One factor that may derail Germany’s strength as an innovation superpower is the fact that it has an aging population made worse by the fact that not enough children are being born to maintain German population growth. According to the Financial Times, Germany’s population is slated to decline from its peak in 2002 of 82 million to 74.5 million in 2050. The percentage of Germans who are under 15 is slated to decline to 13 percent. At the same time, the percentage of Germans over 60 will rise to 39 percent.

Since, like most European countries, Germany has a generous social welfare system, including old age pensions, the country is faced with a calamity. For any social welfare system to work, there have to be enough workers making salaries and thus paying taxes to finance the system. As the percentage of Germans working declines and the percentage of Germans collecting their pension rises, the system becomes impossible to sustain.

Currently, the German government is trying to address the problem by admitting hundreds of thousands of refugees from war-torn regions in North Africa and the Middle East. The idea is that these mainly young migrants will augment the German workforce and thus keep that country’s economy humming.

The controversy arises due to the perception that these new migrants may not assimilate easily into German society. Ethnic tensions in other European countries, such as France and Sweden, suggest that this fear is not exactly unfounded.

In the best case scenario, Germany may find itself solving its demographic problem by changing its identity as a homogeneous society with a singular culture to a multicultural, multiethnic country much like the United States. How this development will shape Germany as an innovation nation is hard to predict. But Germany has weathered greater storms. Perhaps the German ability to innovate will help it to survive and even thrive during this time uncertainty.

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