Hurry Up, Germany! Digitization Waits for No Man

In a way, digitization is old hat. E-mails turned 45 on September 30, 2016. In 1997, 4.1m Germans were online; today the figure is 58m. Growing up in today’s world, it is impossible to imagine being without a smartphone. But not having a landline phone or not owning a car? No problem.

Keen to play in a band, but don’t have the opportunity to meet up with others? You can play in online sofa sessions. Thanks to a Vienna-based start-up, you can jam with other musicians in real-time – from home.

Even self-driving cars are run of the mill, at least in agriculture. Tractors find their own precise way across fields, scan the soil conditions and always spread just the right amount of seed, fertilizer and pesticides. For this they need accurate location signals, even more accurate than traditional GPS.

Digital pills are another technology from the future. Such “e-pills” are designed to be swallowed and then broadcast medical data on their way through the body. The doctor can see any pathological changes detected by the pill and then tell it when and at which dosage to release its active ingredient. There are numerous other examples: machine control in Industry 4.0, smart buildings in the construction and housing sector, smart grids and smart metering in the electricity sector, and smart traffic and e-mobility in traffic.

Digitization is seen as the key driver of global growth. Offline is no solution and won’t work as a concept for politics, the economy or society. Globalization and digitization are interdependent megatrends which continuously reinforce and feed off each other.

This creates opportunities: companies in high-wage countries such as Germany are looking at bringing simpler production activities back into the country. Digitization and robotics are making it economically viable. A greater share of manufacturing is taking place closer to customers, not least because they expect more customization. 3D printing and autonomous machines are bringing so-called Lot Size 1, i.e. industrial manufacturing of customised products, closer to reality.

This shows that digitization offers great opportunities to add value. The Cologne Institute for Economic Research (Institut der deutschen Wirtschaft, IW Cologne) estimates that over the next ten years, an increase of 20% to 30% in industrial gross value added is realistic.

If Germany wants to maintain its position among the world’s leading industrial and economic nations, the conditions have to be right for digitization to succeed. The changes brought about by digitization don’t happen by themselves and require considerable effort. Metrics which track the progress of digitization show Germany in a mid-ranking position, with South Korea heading the table.

High-performance, high-speed networks – both wired and mobile – are a fundamental and indispensable requirement. Various empirical studies indicate that there is a significant positive correlation between broadband coverage and economic growth. In an expert report, IW Cologne estimated that boosting the average speed of internet connections by 1% could raise GDP by 0.07%. For Germany, this would mean a welfare gain of EUR 2 billion. The expansion of fibre-based internet connections (Next Generation Access, NGA) should give a strong boost to growth.

When it comes to broadband expansion, Germany is not among the world’s frontrunners. According to OECD figures, just under 37% of the population had fast wired broadband access in 2015, while there were about 65 mobile broadband connections for every 100 inhabitants. The international leaders are Switzerland, with over 50 fast wired broadband connections per 100 people, and Finland, where statistically, each inhabitant has 1.38 mobile broadband internet connections. According to the OECD, only very few people in Germany have cutting-edge fibre connections at home: a mere 1.3% of all broadband connections use pure fibre. Compare this with Japan, where 70% of all broadband connections are fibre-based; the average for all OECD countries is just under 18%. Clearly, there is a considerable need to catch up, but the federal government is still placing its bets on copper cable through vectoring.

Similar findings were made when it came to mobile broadband networks: in 2013, 81% of the German population had access to 4G. By way of contrast, Korea, the US, Japan and the Netherlands already boasted over 95% 4G network coverage at the time. In Germany, there are quite a few coverage gaps that still have to be closed if we want to keep up with global standards.

The trend is also expected to impact the labor market. In Germany, the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) considers about 15% of all employees subject to social security deductions to be at risk of substitution, meaning that their jobs may be replaced by computer-controlled machinery. However, as Kevin Kelly, former editor of Wired, the technology magazine, said: “machines give answers, but humans ask questions”. We certainly won’t run out of curiosity, but we will continuously have to raise our levels of knowledge. The higher the degree of specialization and expertise, the lower the substitution risk. In other words: good education and training offers the best protection against unemployment. Here, too, digitization can help.

In both academic and vocational education and training, Germany is only beginning to set out on the path it needs to pursue. In schools, 45% of teachers forego digital media because of a lack of IT equipment. IT equipment at German schools is at the level of 2006. And even when there are computers, fear of digital overload often prevents sensible use of modern media. No wonder that Germany is the worst-performing industrialized nation when it comes to the use of computers in the classroom.

According to the European Commission, over 90% of jobs will require digital skills in future. Thomas Sattelberger, former board member at Deutsche Telekom and an expert on Labor Market 4.0, sees a significant change when it comes to the types of qualification that will be needed. In his view, education – unlearning, adjusting, relearning – is becoming a bottleneck both for companies and the economy as a whole. But occupational profiles are changing with agonizing slowness in Germany. From 2017, the first group of trainees will start out on the training path to becoming e-commerce business specialists – 22 years after was founded. This is simply too slow to keep up with the future.

Annett Witte
Steffen Hentrich