Bertelsmann: Germany threatens to become a global outsider due to two effects

JThe longer the fight against the Covid-19 pandemic on the global economy, the more profound the permanent changes will be. Germany has a particularly strong international focus and is therefore greatly affected by the change.

Two effects are already becoming particularly clear: the crown crisis is accelerating digitization, while globalization is slowing markedly. This is a central statement of a Bertelsmann Foundation “Megatrend Report”, to which WELT is exclusively available.

Under the slogan “The Crown Transformation”, the authors analyze the major changes that are emerging as a result of the worst economic recession in the postwar period. For Germany, there is also a demographic change, which will accelerate in the coming years, as an additional burden. Together, these changes created massive pressure to adapt, which had to be cushioned in terms of social and educational policy, according to the study.

The pandemic as a “wake-up call” to digitization

The fact that the Corona crisis acts as a “catalyst for digitization” should be the most noticeable effect for citizens in the short term. Whether working from home or by mail, telemedicine or digital school lessons, in many areas of life in recent months people have seized technological possibilities as an opportunity to cope with everyday life in conditions of crisis.

Economists and business associations assume that the technological change that has been taking place for years will continue to accelerate. After all, the pragmatism caused by the crisis has shown many of those involved the advantages of digitization.

In addition, companies, the State and individuals have invested in technological equipment and therefore have increased interest in continuing on this path. And, unlike before the pandemic, today the focus is primarily on the benefits and less on the risks of digitization.

However, the last few months have also clearly demonstrated how dependent Germany, and Europe as a whole, is on IT vendors from the US or Asia. “Europe should understand the pandemic as a wake-up call”, urge change and urgently become more competitive and independent in this future-oriented field, the study authors warn.

The delay of the EU can be seen in the main patents in the field of digitization. The United States with its IT giants dominate the field with a share of around 50 percent. But Asians have caught up recently and are already nearly 30 percent. Europe, on the other hand, lags far behind with just ten percent.

The second megatrend on which the Corona crisis is having a significant impact is globalization. Disrupted value chains and delivery bottlenecks, for example for medical protective clothing or test materials, showed the downside of the international division of labor.

While the main focus so far has been on efficiency and cost minimization, the issue of delivery security will also play an important role in the future. Although the authors do not anticipate a total reorientation in international economic relations, they do anticipate greater diversification within the value chain so as not to depend on a supplier, country or region, as well as greater storage. To a certain extent, a “renationalization of production processes” can also be expected.

According to economists, slowing down globalization also has downsides. Because this makes production more expensive. A “protectionism race” could also turn out, especially since trade conflicts with China, for example, had caused more and more disruptions before Corona.

Germany, as a costly production site, is threatened by enormous competitive price disadvantages in the event of deglobalization, which in turn should lead to calls for state subsidies and even more protectionism. “Companies are faced with the difficult task of finding the right balance between security aspects and cost considerations,” says co-author Thieß Petersen.

Protectionism is not the solution

The local economy has a lot to lose here given its traditional export strength. However, a heavily forced relocation of production parts to Germany would also be costly for consumers. However, according to polls, skeptics of globalization in this country are now the majority. Of the large industrialized countries, only France views the international division of labor more critically.

In view of the economic boom in Asia, especially in the industrialized countries of Europe, it is clear that there is a growing fear that, following the relocation of simple jobs, well-skilled jobs may fall victim to low-cost competition from the Far East.

“But not protectionism, but strengthening one’s own competitiveness is the correct response to increasing competitive pressure,” warns Bertelsmann Petersen’s economist.

For Germany to be ready for the future, investments in education, research and infrastructure are needed. According to the study, Germany must strengthen its capacity for innovation.

The crown crisis has shown how important it is to be at the forefront of the international career in fields of the future such as medical technology, vaccine development or digitization.

Share public funds in a “socially acceptable” way

Especially since China and the US have now stepped up their efforts to achieve global technology supremacy. In order not to lose contact, not only the local economy but also the state must invest more money in the future in Germany.

However, the fight against the consequences of the pandemic has already left deep marks on public finances. During the crisis, the trend towards increasing social spending, which has been developing for years, intensifies. And as the aging of society will accelerate considerably in the coming years, the financial scope threatens to get ever narrower.

Precisely because demographic change is affecting Germany’s growth prospects particularly severely, it is even more important to use scarce public funds “socially acceptable for future investments and the guarantee of age-related security benefits”. distribute ”, is the conclusion of the study.

“However, digitization can help cushion the negative consequences of demographic change, especially the looming long-term shortage of skilled workers,” says co-author Petersen. “This is one of the reasons why it would be worthwhile if Germany stabilized the digitization momentum caused by the crisis and accelerated structural change.”