Germany in an innovation emergency: The editor-in-chief’s weekly review

Good morning dear readers,

As a subscriber to the Handelsblatt, you know it anyway: Hardly any other topic is as important to our editorial staff as innovations and the question of how new technologies will change business models, entire corporations and ultimately the lives of millions and millions of people.

Innovations, that much is clear, have made this country rich. If you look at the current figures, however, things are not looking good for Germany:

• While companies in the USA and China have massively increased their spending on research and development in the first corona year of 2020, German industry invested 6.3 percent less.
• Economy and state were in Germany only 3.19 percent of gross domestic product (GDP) in research and development (R&D).
• In concrete terms, this means that they only wanted to reinvest 3.19 percent of the value of all goods and services produced that year in order to provide for future growth. By 2025, the federal government wants to increase the rate to 3.5. Front runner Israel has 5.4 percent (R&D expenditure).
• And the German innovation emergency continues: Due to inflation, supply bottlenecks and the Ukraine war, many innovation projects canceled instead of being accelerated.
• Above all, the automotive industry reduced their intentions to innovate by more than a quarter since the beginning of the year.
• According to McKinsey there is a problem in Germany, especially when it comes to start-up activity and scaling of start-ups to listed corporations.
• This has consequences: In the US, five of the most valuable companies are less than 30 years old. In Germany, seven companies were founded more than a hundred years ago.
• In the World Intellectual Property Organization’s Global Innovation Index 2021 Germany only occupies tenth place.

This German innovation emergency analyzed a team of Handelsblatt authors led by Larissa Holzki, Barbara Gillmann, Christof Kerkmann, Luisa Bomke and Julian Olk.

What makes the story so worth reading: It doesn’t end with the description of the situation – it also shows strategies from countries and companies from all over the world how the innovation crisis can be broken.

What else kept us busy this week:

1. These are difficult days for VW boss Herbert Diess. The big software project is stuck, and one of the causes of the misery is a fundamental rift on the board, as the Handelsblatt car team heard. At the beginning of the year, Diess took over responsibility for the software from Audi boss Markus Duesmann. Today they both blame each other for the problems. Now the supervisory board has intervened – and given the CEO three weeks to submit proposals for solving the problem. A delicate situation. Because more and more models of the group are delayed.

2. The situation is also difficult for other automakers. For many suppliers it is even catastrophic. In a report that is well worth reading, my colleague Martin Buchenau describes the crisis facing the suppliers using the example of Mahle: “The meter-high pistons in front of the company’s headquarters seem like a reminder from Charles Darwin,” says Buchenau, “that neither in nature nor in the corporate world it is not necessarily the fittest who survive, but those who adapt best. Electromobility hit the German car industry just as ruthlessly as the Ice Age hit cave bears and other prehistoric giants.”

3. Banks should be on the alert as of this week: In the future, Apple Pay users will be able to pay for purchases in up to four installments. It sounds like a small step, but it could have dramatic consequences. It is Big Tech’s entry into the core business of banks. It was feared for a long time – now the time has come. And it might just have been the beginning.

4. The European Central Bank has initiated the long overdue turnaround in interest rates. But the ECB is acting too late, too slowly and too timidly. This has damaged their credibility in recent months. Central bankers had to adapt their communication to reality month after month – and only did so when the pressure had become so great that they could no longer help it, commented opinion leader Jens Münchrath. At the same time, month after month it had to correct its inflation forecasts upwards – consumers have long since felt the rise in prices.

5. EU Commissioner Thierry Breton addresses an extremely important issue: With a new industrial strategy, he wants to ensure security of supply with critical raw materials. This refers to rare earths, cobalt, lithium or magnesium – minerals that Europe needs for the energy transition and has so far mainly been obtained from China. Breton wants to prevent Europeans from stumbling from one dependency to the next. He wants to find new suppliers and strengthen funding in Europe.

6. The conflicts between Economics Minister Robert Habeck and Finance Minister Christian Lindner, so much is clear, will shape the traffic light coalition in the years to come. This week, the dispute between the two entered a new round: Habeck wants to relieve low and middle incomes by flattening the so-called “middle class belly” and in return increase the top tax rate.

Lindner promptly had this calculated, as our Berlin office found out. The result: With a revenue-neutral relief, the top tax rate would have to rise from the current 42 to 57.4 percent from a taxable income of 80,000 euros per year. Older readers in this group will remember that this would be higher than in the days of Helmut Kohl, when the top tax rate was 53 percent.

7. There are numbers that should alarm investors: Hedge funds no longer just bet on individual stocks, but on falling markets. According to calculations by my colleague Andreas Neuhaus, short sellers are now betting 250 billion dollars on entire stock market segments, which are often represented in large ETFs.

8. Hybrid cars are nonsense, both economically and ecologically. They are heavy, in many cases never run on electricity anyway and consume too much. Therefore, in a few years, they will be practically worthless. And so it happened as it had to happen: the boom in partially electric models is dying down, and some manufacturers are already taking them out of their range. All that remains is politics, which puts an end to the spook with a funding freeze.

9. And then we dealt with bottles. Yes, you read that right. And the result is an amazing story: because breweries are becoming increasingly individual when it comes to bottle design, thousands of empty beer bottles travel across the country every day. That alone is crazy enough. But now the bottles are getting scarce. I promise you, after reading this article, you will look at your beer bottle with different eyes.

I wish you a relaxing weekend.

It greets you cordially
Her

Sebastian Mathes
Editor-in-Chief of the Handelsblatt

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