Berlin Spending on research and development (R&D) in Germany fell by a total of 5.3 percent in the Corona year 2020 compared to the previous year. Companies in Germany alone reduced their R&D budgets by almost eight percent – especially in industry and again in motor vehicle construction.
This means that Germany is in an extremely bad position internationally: the industrialized countries organized in the Organization for Economic Cooperation and Development (OECD) increased their R&D expenditure on average in 2020 for the first time in a crisis year. China grew the most. This is the result of a recent study by the German Institute for Economic Research (DIW), based on inflation-adjusted data from the OECD, the EU and the Stifterverband.
“Germany is and will remain an important research location internationally, but is in danger of falling behind,” warns DIW author Heike Belitz. “This is mainly due to structural reasons, because research and development spending is growing worldwide, especially in sectors in which German companies are not specialized, such as software and computer services, hardware production as well as pharmaceuticals and biotechnology.”
Expenditure has been falling for a long time
Initial data from the EU for 2021 indicate that at least the research-intensive large companies have increased their R&D efforts again in the second year of the corona virus. Compared to international competitors, however, the growth remains “still below average”.
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In general, the negative trend in Germany is not new: the growth in R&D expenditure has been less dynamic for several years. In the period from 2016 to 2020, companies in Germany spent an annual average of 1.3 percent more on research and development. But that was already significantly less than in the previous five-year periods, writes Belitz.
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And even more important: It was less than in the competing nations. In the EU, the average increase in this five-year period was 2.9 percent, in the OECD 4.6 percent and in the USA 6.7 percent. In China it was even 8.7 percent. This means that “China is now the world’s most important industrial research location, followed by the USA, Japan and Germany in fourth place,” according to the DIW study.
Companies hardly reduced staff
The R&D intensity of German industry – i.e. the ratio of research expenditure to economic output – is still relatively high: it fell only slightly in 2020 to 3.14 percent of gross domestic product. This put Germany behind the USA and Japan in the first year of Corona, but still well ahead of European countries such as France and Italy. However, R&D expenditure fell somewhat more than production. At the same time, the federal government’s goal of achieving an intensity of 3.5 percent in 2025 was further afield.
The DIW researcher sees the fact that German industrial companies hardly reduced their research and development staff during the crisis as encouraging news. In motor vehicle construction, for example, R&D expenditure fell by more than 13 percent in 2020 – but the number of employees only fell by 3.7 percent.
This was probably done out of concern that, given the shortage of skilled workers, it would not be possible to find suitable personnel later. “This gives hope that companies will continue to invest properly in Germany as a research location,” writes Belitz.
“German economy relies on access to global knowledge”
In order for the German economy to be able to master the enormously challenging dual transformation to a climate-neutral and digitized economy, “it is dependent on access to global knowledge – both through its own research abroad and through international research cooperation,” warns the innovation researcher. The globalization of research and development is “an important prerequisite for the innovative ability of local companies and thus also for the preservation of Germany as a research location”.
In order to compensate for disadvantages compared to the large locations in China and the USA, research policy should also be strengthened at European level. “As Europe’s largest industrial location, Germany must play a key role in this.”
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