The joke has more than a kernel of truth to it. During the Covid-19 crisis, health authorities infamously still relied on fax to collect data like PCR-test results and hospitalisation rates, resulting in constantly outdated statistics and chronically underinformed decision makers. It was a symptom of a broader sclerotisation of Europe's economic engine. Industries that have long been led by German ingenuity and organisational talent – automotive, machinery, logistics –, are now facing digital disruption. Not long ago, German inventors were at the forefront of technological innovation, from automation to safe nuclear technology. German carmakers developed many of the ‘smart’ assistance systems that come with today’s cars, yet they might soon find themselves being overtaken by Tesla’s autopiloted cars. Digitalising Deutschland doesn’t seem able to get going.
Late Adopter
While Germany is well positioned in 5G, fibre optics is only slowly being deployed, indicative of reluctant government: mobile service providers can easily update their cell-tower hardware, but opening up roads to lay cables is dependent on public investment. There’s constant talk of ”Digitalisierung“ in public discourse, and of course, Germany even has a ministry of digitalisation–or to be precise, there are over a dozen ministries dedicated to the task, due to the state’s complicated federalist system. To some, Germany’s governments seem to be incapable of adapting the country to the digital demands of 21st century societies. Perhaps, however, it is not so much incapability as unwillingness. German politics has, for many years, been preoccupied with other agendas. Hundreds of Billions of euros have already been funneled into projects like mass immigration or the ”Energiewende”—an effort to beat the laws of physics and run Germany’s entire industry solely on solar and wind. Migration costs Germany 25 to 30 billion euro per year in direct expenditures by the federal government and the states, and German Energiewende has been financed with 500 billion euro in 2018–2025, most of it as subsidies for electricity producers, not building infrastructure. In contrast, a total of -60 billion euros was spent on the digitalization of public administration between 2019 and 2023. 3 billion euros are planned to be invested into the expansion of broadband internet in 2025. Meanwhile, other countries have invested in their digital infrastructure, laying down fiber optics, deploying 5G, digitalising their governments, bureaucracies and health systems,
But there is yet another reason for Germany's reluctance in embracing 21st century high tech: its culture. There exists among many Germans a deep-rooted suspicion against modern technology. They tend to see risk very clearly, some could argue to the degree of being paranoid about it, but less so opportunity. Fear of technological catastrophe—one expression of German Angst—fed into decades of German protest against nuclear energy. And it’s not only nuclear, which Germany hastily abandoned, fearful of the specter of another Fukushima. German technophobia extends to the entire spectrum of cutting-edge high tech that will define the next half-century. It is hard to see how under such conditions the pivotal NBIC-technologies of the 21st century—nano, bio, info, and cogno—can find a home within Germany's borders, as long as German policy makers adhere to the principle of precaution: But that might just be the wrong strategy in a time when agility and speed are crucial. Consider, for example, autonomous driving. It’s the future of the automotive sector, the very heart of Germany’s industry. But due to safety and ethical concerns, German car makers can’t test and roll out their cutting edge technology as easily as its global competitors.
Regulatory Zeal
There exists a detrimental synergy between Germany's ambivalent relationship with technology and another well-known German trait: the penchant for bureaucracy and regulation. Consider, for example, how cryptocurrencies, currently the most interesting and exciting applications in the interplay of tech and finance, are handled. Germany's financial markets authority BaFin has created one of Europe's most complex regulatory frameworks, intending comprehensive consumer protection and market stability. But the legal and bureaucratic hurdles for operating crypto services in Germany are comparably high, discouraging entrepreneurs and innovators, who prefer more favourable conditions in Switzerland’s crypto valley instead. Another example is Germany’s health care system—the sick man of the country—whose bureaucratic and regulational complexity has grown over many decades. Digitalisation is meant to be the remedy, but is itself challenged by those very hurdles of bureaucracy, federalism, and data protection concerns. The digital patient file, discussed for many years, is now finally rolling out, but is rejected by many Germans for reasons of privacy. Digital communication between medical practices, hospitals and insurance companies has been worked on for a long time, but in practice suffers from many standards, data protection obstacles, dysfunctional equipment, and poor usability.
While Germany still excels in scientific research and education, the translation of theoretical insight into practical applications is hindered by regulations prioritising caution over innovation. You get your education in Germany, but you take your startup to Switzerland or the U.S.. The impact regulation has on innovation is obvious. Germany's regulatory zeal has turned the country into a bureaucratic maze for startups and big corporations. And it’s not only IT and finance. Consider the ”Lieferkettengesetz”, mandating German companies to apply rigorous German moral standards up to the first link of their global supply chains. It is almost impossible to fully comply with the law. Some international companies don’t even want to do business with the Germans anymore, as it’s too much hassle for them. German data protection and compliance laws increase documentation and administration costs to such an extent that some business models are not viable anymore. German politicians’ recent inroads in formalising hate speech and censorship laws effectively deter the creation of new social media platforms within the country (while at the same time German politicians publicly dream of a European or German Facebook or X).
Open-air Museum
But not all is lost. While to investors, caution is warranted, Germany's potential still offers significant upsides if reforms materialise in the near future. Germany's industrial base, high education, and ingenuity offer ground for innovation and renewal, particularly in manufacturing and engineering. But Germans need to reduce their risk aversion and be more optimistic about the future. This also applies in particular to the existential fear of a climate catastrophe that has been stoked for years, and led to a great misallocation of public funds. Germans should once again start to see technology as a problem solver and not as a problem maker. This was their strength for many decades. In this process, Germany must learn to reconcile its ideal of regulatory stability with the dynamic nature of technological progress. What is needed is a multifaceted strategy for reform, one that involves not only easing regulatory burdens but also cultivating a culture that fosters innovation and progress; understanding risk as opportunity, not menace; lauding entrepreneurial boldness; seeing failure as an opportunity to learn. This change in mindset is essential to becoming a global player in 21st-century NBIC-technologies. As far as concrete measures are concerned, a first step will be for Germany to quickly catch up to other countries in digitalising its bureaucracy and government processes, its judicial system and its healthcare system.
Strategic attention to political and regulatory developments will be key for those looking to capitalise on the necessary transformation. Investors should watch for signs of regulatory reform and reducing bureaucracy, while scrutinising how EU-regulations like the new Markets in Crypto-Assets Regulation and Artificial Intelligence Act are implemented into the German legal framework, and how they are enforced by authorities. The upcoming elections will be decisive. Bureaucracy reduction and deregulation are demands that have long been made by liberal and conservative parties. However, another government following left-wing and green policy ideas will continue doing what they have been doing for many years: More regulation, more bureaucracy, less economic freedom. Should Germany continue down this path, it might quickly find itself losing touch with younger and more dynamic nations. In a few decades, the former industrial giant might be regarded as an open-air museum for early 21st century technology.