In just two decades, Germany has transformed itself from the sick man of the Eurozone into its economic powerhouse. However, the German economic powerhouse is showing signs of decay, and action is needed to boost Germany’s economy. Given the country’s cultural-historical context and its current position, we can expect a new surge of German innovation.

Our observations

  • OECD data on digital infrastructure shows that Germany’s adoption rate of fiberglass is one of the lowest of all OECD countries (2.3%, compared to the 23.3% OECD average). Likewise, Germany has one of the lowest levels of point-of-sale (POS) transactions conducted with cash in Europe. Both can be considered proxies of Germany’s weak digital infrastructure, and indeed, German business leaders claim that Germany’s outdated digital infrastructure is hurting its competitiveness.
  • Germany is the fourth largest economy in the world, and very reliant on exports, which account for 47.2% of its GDP (compared to 11.9%, 19.8% and 16.1% for the U.S., China and Japan respectively, the world’s largest economies). Furthermore, five of its six largest export markets are in trouble: the U.S. and China are embroiled in their trade war, Italy is in a technical recession, the U.K. is coping with Brexit, and France is under heavy pressure at home (only the Netherlands, its fifth largest export market, is relatively stable).
  • Germany ran the world’s largest current account surplus in 2017 (the latest year for which data is available). Furthermore, Germany has one of the highest gross savings rates as well as the highest government budget surplus of large economies (only resource-dependent Norway and the small Cayman Islands have a higher budget surplus). As such, Germany is a major contributor to “global imbalances” between savers and investors, net importers and exporters as well as on fiscal policy, thereby increasing financial instability as well as hindering the post-crisis recovery of the Eurozone.
  • Germany has one of the highest GDP per capita in the world, with currently record-low unemployment. However, inequality is on the rise in the country, especially since the 2004 Hartz reforms that arguably eased some of the labor market rigidities that hurt Germany’s economy in the past decades. Furthermore, it has made Germany’s divisions change: instead of the East-West, the North-South divide is becoming more prominent on a whole range of socio-economic indicators. Furthermore, migration issues and a changing demographic make-up are hotly debated topics in Germany.
  • Germany, in contrast to other European and Anglophone countries, has taken a pragmatic stance in the global backlash against Huawei, and China’s Made in China 2025 plan in general. Indeed, this week, Merkel voiced willingness to work with Huawei and Chinese companies, as long as privacy is safeguarded and German regulation is respected. In the same line of thought, Germany has been critical of European sanctions on Russia, and Germany will continue to support a highly contested natural gas pipeline (Nord Stream 2) from Russia to Germany, despite the Ukraine tensions and S. sanctions.
  • There is strong affection between the Chinese and Germany: a 2016 extensive survey found that 89% of the Chinese say that German companies are excellent high-tech industrial producers, 85% have a very positive image of products “made in Germany” and 65% say that they like German culture, emphasizing German tolerance, flexibility, working ethos and pragmatism. Data from the World Value Survey and Geert Hofstede’s cultural dimensions also show that Chinese and Germans are similar on cultural themes such as “long-term perspective” or the importance of work in life (as exemplified in the German word “Arbeitsfreude”).

Connecting the dots

The growing awareness of the vast climate impact of the built environment and the subsequent debate on sustainable buildings, homes and commercial property, has created momentum for the development and implementation of sustainable solutions. However, architects are stuck in an architectural lock-in, characterized by the building of simple, square-shaped buildings, the quality of which is dependent on technology (e.g. electric lights and climate control systems). While these technological advances have the advantage of providing more freedom (e.g. building skyscrapers), they also make for buildings with high energy-consumption.
There’s great merit to today’s common solutions, such as insulation, energy-efficient heating and smart air conditioners, to improve the energy efficiency of existing buildings. When it comes to future homes and offices, we should be careful not to rely too much on these add-ons as they typically address the symptoms of flawed, non-sustainable architecture, rather than the root cause. In other words, the aforementioned technologies can only be one part of the solution. Several architects argue for complementing smart technology with traditional design features. This can include exploiting natural light and ventilation by the specific placement of windows and walls (e.g. mashrabiya, projecting windows that allow cool air to flow in from relatively cool streets, or Iranian windcatchers). These kinds of traditional ideas do not only relate to single buildings, but may also inform spatial planning. In southern

Taiwan, for instance, traditional villages were built on an east-west axis to make use of prevailing winds for ventilation and cooling. Traditional materials can also be used for their intrinsically useful properties (e.g. reed for insulation). One example of a modern building that makes use of such traditional principles is Bjarke Ingles’s skyscraper in Shenzhen (tropical climate). It uses 30% less electricity by playing with dress-like facades to block sunlight from the south, while still maximizing daylight.
These traditional ideas do not necessarily contradict high-tech solutions and the combination of the two would most likely provide the best results. Today, many of the technological fixes are supposed to right the wrongs of architectural path-dependency, caused by a narrow “architectural equation” made up of esthetics, functionality and cost. By radically rethinking architecture, and bringing sustainability into this equation, we can use technology to much greater effect. For instance, digital modeling techniques can factor in sunlight, prevailing winds, airflow and turbulence and help optimize designs. 3D printing provides unprecedented freedom to build any design while minimizing materials use. As such, high-tech can actually facilitate and optimize the old wisdoms of traditional architecture.

Implications

  • The above developments might be accelerated by Angela Merkel’s decision to leave German politics by 2021. After 16 years of serving as Chancellor, and as Europe’s strongest leader since the Eurozone crisis, Merkel might use Germany’s huge fiscal and savings funds to make boosting Germany’s digital competitiveness her legacy project.
  • From a cultural perspective, a German digital economy might also undermine its social contract. For example, big tech companies provide less employment than traditional, “old economy” companies do, which might face resistance from Germany’s labor unions and the German social contract. Furthermore, Germany’s war history has made it wary of privacy issues (e.g. Google Maps’ street view option is hardly available in Germany), further undermining the adoption of digital consumer practices such as fintech. However, there is also a chance to create a German or Rhinelandic version of the digital ecosystem, with an explicit focus on embedding digital technologies in society and a strong focus to collectively develop new technologies. We already see this in the industrial ecosystem of Bavaria, differing from Silicon Valley with its focus on cooperation instead of pure competition.