Industrial Policy in Germany after the Global Financial and Economic Crisis

Abstract

The paper gives a review of recent key German industrial policy developments after the global economic crisis. In particular it discusses the German energy policy which has redirected its activities towards renewable energy and the decision to end nuclear energy completely in the next years. Furthermore to make major progress in the decarbonization process by closing domestic coal mines and most of the electric power stations based on coal as an energy source will follow suit. From the technological site this gives the development of new green energy technologies in Germany a major demand pull. In particular beside wind and solar energy generation new storage and distribution technology will be needed including the development and implementation of smart grids. Contrary to other major industrialized countries German manufacturing industries have been successful to maintain their global market share even after Chinese manufacturing industries rose significantly over the past decade. In particular in the area of machinery and automotive industries Germany could expand or at least maintain overall their global position. However, in the automotive industry the strategy of electromobility to develop and sell electric cars in large numbers so that 1 mill. cars will be registered on the roads in Germany by 2020 has been lagging significantly behind the initial targets. This is not a particular German problem. At the global scale electromobility still is at its infancy. Two key factors hampering its market success. From the technological side the distance traveled with one battery charge is too low to compete with those cars using fossil fuels. Additionally the recharging of a battery is too slow. Both obstacles need an improvement of about a factor ten to become nearly equal to the traditional cars. From the economic side the costs are still to high to offer potential buyers an incentive to switch to electric cars. Subsidies might be a potential remedy, but will only be useful if the technological obstacles are overcome as well. Otherwise customers will still have to judge if they would accept the technological shortcoming of the current generation of electric vehicles. The push to self-driving cars is another key driver in the automotive industry. It will have major implications on the future structure of the global automotive industry. Currently German car manufacturers are well positioned, but have to be careful that disruptive innovators like Google, Apple or Tesla will not challenge the traditional car manufacturers globally. Another area where German industrial policy has become very active is the area of the digital economy which should be addressed with the digial agenda launched by the German government in close cooperation with the EU-commission. However, this is still in its infancy and Germany will face stiff competition from other major global key players like the US, Japan, South Korea and China. Strategic alliances between different countries and players are emerging. Last but not least the German government with the German manufacturing industry started a new initiative under the label of Industry 4.0. The aim is to significantly push foreward the integration of manufacturing goods and services utilizing the internet as the platform of the internet of things. The technologies which have to integrated are big data applications in global communication networks including data collection collected by embedded sensor systems, additive manufacturing technologies, and robotics based on AI embodied in self-learning and mobile autonomous robots with a much broader area of application in the society as before. Again the problem of cost savings for such systems will be essential for a successful diffusion. Last but not least training and retraining of the workforce will be important to make good use of the new technological innovations. Here Germany still needs to make more efforts to keep their current and future labor force up-to-date. All in all the past and current success of the German manufacturing industry in particular after the global economic and financial crisis gives some reason to look optimistic into the future, however, there is no reason for complacency since the global competition of the future high-tech markets will be intense and might even intensify with China as a major new player.

Keywords: industrial policy, Germany, manufacturing industry, renewable energy and decarbonization, electricmobility, self-driving cars, industry 4.0, robotics

JEL Classification: O25, O32, O33, O38