Deindustrialisation is the new scare word in Germany. The main trigger is the comprehensive subsidy measures of the "Inflation Reduction Act", which has massively increased the attractiveness of the USA as a location for investment and production. There are fears that companies will migrate and that Germany will lose competitiveness as a business location. These concerns are certainly justified, but the phenomenon is not new - and above all, it is of its own making.
The structural trend of deindustrialisation has unfortunately been going on in Germany for about ten years. This is mainly because we have done far too little in this country to improve the conditions for companies to locate here. As a result, the environment for investment and innovation in Germany has only worsened.
Take the automotive industry as an example. From Munich to Wolfsburg, vehicle production has slumped by 36 percent in the last ten years. While car manufacturers still produced around 5.6 million passenger cars and vans in 2012, this figure was only 3.6 million in 2022, according to the information service MarkLines. The decline is mainly due to high wages, taxes and energy prices. The shift towards e-mobility, which for a long time passed Germany by, is exacerbating this trend. This has been a bitter blow for what was once our flagship industry.
Germany falls behind in innovative capacity and location conditions
Our innovative capacity is also no longer what it used to be. The number of German patent applications at the European Patent Office has been stagnating for years, while patents from Asia, especially from China, have been catching up rapidly. It is particularly noticeable that far fewer patent applications for key digital technologies come from Germany than from China, Japan and the USA. Moreover, there is a lack of venture capital and vision in this country. While Washington and Beijing are investing billions in AI and blockchain technologies, people in this country prefer to debate endlessly about the issue of data protection. So we are falling further and further behind in key technologies.
The current Country Index for Family Businesses published by ZEW Mannheim also shows that conditions in Germany as a business location have continuously deteriorated. As a result of the relative location weaknesses in the areas of regulation, taxation, energy and infrastructure, Germany is now only in 18th place among the 21 industrialised countries considered, i.e. it is in fourth last place. It is inconceivable that politics has allowed it to come to this!
Our politicians must act now if they want to turn the tide. Five points to make Germany attractive again as a location for innovation and industry:
1. Removing bureaucratic hurdles
Germany urgently needs to remove bureaucratic obstacles and speed up its lengthy planning and approval procedures. While companies here often experience obstacles being put in their way, these processes are much simpler and less complicated in other countries. But instead of dismantling bureaucracies, new ones are being created unchecked: The new Supply Chain Act adds further obligations and enormously high bureaucratic costs for companies - an additional obstacle to investment and settlement. Meanwhile, Germany is already being ridiculed as the "Silicon Valley of regulation". It is high time that Bureaucracy Relief Act agreed in the coalition agreement was implemented!
2. Reducing the tax burden
The tax burden in Germany is high and sets the wrong incentives. Income is taxed here from as little as €11,000, and with an annual income of €62,000 you already pay the top tax rate. Moreover, we are world champions in redistribution from workers to recipients of social benefits. More than 40 per cent of German voters receive their income as social benefits and pensions from the state, which absorbs more than half of the national income for its own purposes. The taxes that finance this state share inhibit private economic activity. We appeal to our politicians to implement a radical tax reform!
3. Stopping the shortage of skilled workers
We have a serious demographic problem, as our workforce is shrinking. Without well-trained skilled workers, our companies cannot grow. We have been aware of these problems for years, but politicians have still not managed to organise qualified immigration and make it easier for foreign skilled workers to take up employment in Germany. There are plenty of exemplary solutions in other countries such as Canada. The traffic light coalition has finally introduced a law on the immigration of skilled workers, which is about to be passed. It remains to be seen whether and how quickly this will be effective.
4. Guaranteeing energy supplies
The conditions for companies in Germany (especially in the energy-intensive sectors) have steadily deteriorated due to the Ukraine war and the situation in the energy markets. But we could solve the energy problem if we really wanted to! However, instead of constructively determining how renewable energies can be developed as quickly as possible (and what solutions need to be found if renewables cannot deliver), the traffic light coalition argues endlessly about the right measures and gets lost in the minutiae. This haphazard energy policy means that no company is willing to invest in Germany any more. Our government urgently needs to create framework conditions here that guarantee security and calculability. Otherwise, more and more companies will vote with their feet.
5. Promoting innovation
Germany is traditionally inventive, but other countries often bear the fruit of its efforts. In order to bridge the so-called "valley of death" between invention and finished product, start-ups in Germany need above all to have better access to venture capital. Start-ups in this country are often denied access to further large-scale financial support after early-stage financing, as is the rule in the USA, for example. With its new start-up strategy, the government wants to take countermeasures and activate resources from the Future Fund. But it is also important to bear in mind that a strategy is only as good as its implementation.
Our daily conversations with small and medium-sized companies show that there are successful companies in Germany despite the structural problems.
A good example of this is Carl-Zeiss Meditech. This innovative company produces surgical instruments for ophthalmology, among other things, and has, for example, invented a minimally invasive laser procedure for eye correction that is increasingly replacing the conventional LASIK method. Or take SGL Carbon, one of the world's leading companies in the development and manufacture of carbon-based solutions. It produces special graphite materials that are needed for the production of semiconductors, lithium-ion batteries and solar cells. Or the machine manufacturer for the semiconductor industry Aixtron. This company is the world leader in the efficient conversion of electricity, with a market share of 40 percent. Its technology, which develops car batteries with an increased range and shorter charging times, for example, could save 50 megatonnes of CO2 annually.
When I think of these examples, I do not fear for the German economy. We should not underestimate ourselves; other countries have their problems too. We just have to do our homework now and finally improve our location conditions after years of standstill instead of making them worse. Then the German business model will have a future again.