Berlin If Zuwa customers have a problem with their pumps, they can save themselves a call to the service technician: Instead of tediously troubleshooting by phone, thanks to “digital twins” they can use a 3D model on the screen to identify defective parts and replace them order. Customer service and sales of the family business in Laufen, Bavaria, are relieved and the company works more productively.
But the example of the pump manufacturer is the exception rather than the rule. In terms of productivity development, Germany has been lagging behind its potential for years.
Armando Garcia Schmidt, Senior Project Manager at the Bertelsmann Foundation, warns that small and medium-sized companies in particular could be left behind. “We’re heading into a double productivity crisis,” he says. The Bertelsmann Foundation has dedicated a four-year project to the topic.
Labor productivity per employed person has increased by an average of less than one percent per year over the past decade. This is problematic if, in view of demographic change, fewer workers will have to generate wealth and pensions in the future. In addition, Germany could fall further behind in competition with competitors such as China.
Top jobs of the day
Find the best jobs now and
be notified by email.
But the Bertelsmann experts have identified a second part of the productivity crisis. If there is any progress at all, it is mainly in large companies and in urban centers.
A study by the Bonn Institute for SME Research (IfM) confirms this. Small and medium-sized businesses are falling behind, especially in rural areas, because they invest less and are less innovative.
Overwhelmed middle class
According to the Bertelsmann report, there are many reasons why SMEs are falling behind. Many companies shy away from investing in technologies where it is still unclear whether they will survive the next ten years. In some cases, smaller companies have difficulties finding qualified staff for innovation projects.
According to Garcia Schmidt, many medium-sized companies also seem to feel overwhelmed by innovations, for example in the field of digitization, and are therefore falling behind: “This is causing our economic and social model, which is characterized by a strong number of medium-sized companies, to falter.”
According to Marcus Wortmann, project manager at the Bertelsmann Foundation, it is by no means just about increasing labor productivity. Digitization can also help to reduce material or energy consumption and thus contribute to more efficient production.
The managing director of the IT industry association Bitkom, Bernhard Rohleder, sees investments in digitization as an opportunity for more efficiency and productivity, greater competitiveness and, ideally, completely new business models with access to global growth markets. “Every second company finds that competitors who opted for digitization at an early stage now have a competitive advantage, among other things through digitally generated advances in productivity.”
However, only 34 percent of German companies see themselves as pioneers in this important topic, while 65 percent describe themselves as digital laggards, says Rohleder with reference to Bitkom surveys. “Medium-sized companies give themselves just a three minus for their digital skills.” 40 percent of all companies complain about problems in coping with digitization, six percent even see their existence threatened by digitization.
The corona crisis has exacerbated the productivity problem. Labor productivity in particular fell significantly at the beginning of the pandemic.
The reason was the state support measures, which ensured that the number of people in work and the volume of work fell less sharply than economic output.
Capital available despite the crisis
According to figures from the Federal Statistical Office, the hospitality industry in particular had lost considerable productivity in 2020 compared to the previous year. Industry and service providers were also affected. In the construction industry, on the other hand, there was a slight increase in productivity.
The economic recovery should help here. According to the latest productivity report by the German Council of Economic Experts, state support has ensured that companies have retained capital and knowledge despite the crisis.
However, it is clear that the pandemic will have a long-term impact on productivity growth in Germany. It is unclear whether these will be positive or negative. Studies of past crises show that both effects are possible.
A large part of productivity growth can be traced to fluctuations in the corporate landscape. Companies that go bankrupt often do so because of low productivity. New companies can establish themselves if they are more productive than others.
In the pandemic, however, this dynamic has been muted. Because state support blocked structural change in some places and the impact of productivity on companies was diluted by the external influences of the pandemic, this is likely to hinder productivity progress at times.
However, there are again differences depending on the area. Unlike after the financial crisis 14 years ago, the number of start-ups in research-intensive industry increased in 2020. Many new companies also emerged in the field of drug or vaccine production and in internet trading.
Void in the coalition agreement
Concerned about Europe’s competitiveness, the EU Commission initiated the formation of national productivity committees in the middle of the last decade. In August 2019, the black-red federal government assigned this task to the German Council of Economic Experts, which since then has devoted its own annual report to productivity and, like this Thursday, is holding a productivity dialogue.
But from the point of view of Bertelsmann manager Garcia Schmidt, more should happen. He thinks it’s a big mistake that the traffic light government’s coalition agreement has a large gap when it comes to productivity. “The term appears exactly once, that’s not enough. What is needed is an agenda for productivity and participation.”
>> Read also: More sustainability or more growth? How Habeck and Lindner struggle for the annual economic report
His colleague Wortmann sees one reason for the misjudgment of politics in the so-called hidden champions, i.e. relatively unknown world market leaders. In view of the success of many of these companies, people in Germany may have weighed too much in security and invested too little in recent years. “Many companies could, for example, link their successful products even more closely with digital services.”
The experts at the Bertelsmann Foundation propose eight fields of action to remedy the situation. Greater efforts in the further training of employees are central because German companies invest less in knowledge capital than, for example, French ones.
Only then can it be guaranteed that employees can keep up with digital change, they warn. In addition, the state must invest more in education and research, universities should cooperate more closely with companies and academic institutions should also be located in rural areas.
Experts see the lack of digital infrastructure as a major obstacle to productivity.
(Photo: dpa)
The economist Achim Truger also sees problems in a lack of awareness of the economic potential, staff shortages and security concerns. In addition, there is a lack of competition in the platform economy.
A nationwide supply of fast internet is also required, says Truger. This is confirmed by a current survey by the Bavarian Business Association (VBW): Although Bavaria performs above average in terms of the degree of coverage of the digital infrastructure, 54 percent of the companies see their business as being impaired by an insufficient fixed network, 72 percent are affected by the mobile network.
Truger emphasizes that private and public investments as well as massive efforts in the field of education and further training are of central importance. “The coalition agreement addresses all of these points, here a specification including the financing strategy must be made quickly.” Finance Minister Christian Lindner (FDP) is committed to making his ministry the enabling ministry.
The spokesman for SMEs and free trade for the FDP parliamentary group, Carl-Julius Cronenberg, thinks it wise to set framework conditions that increase productivity. “If it succeeds, society will benefit from increased prosperity and the state from higher tax revenues.”
Cronenberg is hoping for impetus from the easier immigration of skilled workers as well as from increased depreciation for investments in digitization, the acceleration of planning and approval processes or the planned establishment of the German Agency for Transfer and Innovation.
More: Agenda for more growth and participation: What the Bertelsmann Foundation proposes to increase productivity