(Bloomberg) -- Germany’s industrial motor may be its Achilles Heel when it comes to integrating digital technologies into mainstream work processes.
Digitalization poses a greater threat to jobs in Europe’s largest economy than more service-based economies such as France or the U.S., according to Achim Wambach, the head of the Mannheim-based ZEW Center for European Economic Research. The government can do much to safeguard the country’s economic prowess with steps to boost technological know-how and infrastructure to counter the risk, he said in an interview.
“Services are harder to substitute,” Wambach said. “Ten years ago we were criticized for our strong industrial focus because economies of industrial nations are moving more toward services. Now we’re glad about the strength of our economy, but that’s also the area that is more strongly affected by digitalization.”
Germany’s army of small and medium-sized enterprises -- collectively known as the Mittelstand -- has helped the economy outperform European peers, spurring a booming current-account surplus and record-low joblessness. Yet many of these say a lack of IT skills is hampering innovation, adding to the challenges the country faces as employers contend with an aging population and the government gives balancing the budget a higher priority than investment.
“There are reasons to support R&D through tax incentives -- that would be a job for the next government, since many countries are more active than Germany in that area,” Wambach said. “Where we’re behind is in the availability of skilled workers. That’s what you hear when you ask companies about their main hurdles in rolling out digitalization.”
For companies to succeed in the future, they need the infrastructure that will keep them competitive, Wambach said. The shortage of high-speed broadband in rural areas is a major hurdle for the multitude of smaller companies located in Germany’s hinterland, he said.
It’s an issue the government has already started recognizing with a pledge to invest in networks with speeds of at least 50 megabits per second by 2018, as well as expand gigabit-speed connections by 2025. While companies have a strong need for such developments, demand among nearby households is lower, slowing the uptake, Wambach said.
Elections in the fall will probably prompt a long overdue investment boost as well as tax cuts, Wambach said, highlighting health care and public services as areas that lag other sectors such as finance in embracing digitalization.
While both blocs in Chancellor Angela Merkel’s Christian Democrat and Social Democratic coalition government have digitalization on their election agendas, “it’s a question of implementation,” Wambach said.