The competitiveness of science and technology in Germany remains high. However, persistently slow economic growth is the Achilles’ heel of Germany’s technological performance. As a result, the country is now facing an acid test. It is imperative that industry and government stay on course. Unless Germany wants to risk its future science and technology performance, forward-looking investments in research are the last thing that should be permitted to fall victim to cuts required for budget consolidation.

Back in the mid-1980s, the then German Federal Minister for Research and Technology realized that his government issued many economic reports, but had no report on the technological competitiveness of the country. I happened to hear about this need and, together with a colleague, we drafted a proposal to prepare a comprehensive annual report on science and technology in Germany. The first such report was issued in 1985, the most recent one some months ago.

Germany spent 2.5% of its gross domestic product (GDP) on research and development (R&D) again last year. Companies had planned to increase their investment by another 1.5%. The situation in 2003 will probably reflect the uncertainty in medium-term prospects for growth. Throughout the 1990s, Germany was able to defend its position as the second most important net technology exporter, even edging slightly ahead since 2001. Companies in the advanced technology sector have managed to hold their own quite well, in spite of the general downward trend. A main driving force in this sector is the automobile industry, one of Germany’s traditional strengths; the information technology sector suffered greatly, as was the case elsewhere.

Since Germany depends on the world market to a considerable extent, it needs patents as an instrument in international technological competition. ‘Triad patents’ (patents filed in the US, Japan, and Europe) are regarded as an indication of the intention to expand into innovative markets. Since the second half of the 1990s, Germany has taken a leading position in terms of triad patents per capita. These efforts underline the dominant world market orientation of innovative German companies. In comparison, the US, which has the largest domestic market in the world and a generally low level of foreign trade intensity, applies for far fewer triad patents than one might expect. One reason is that the extensive cutting-edge and defense research activities in the US have a lower patent intensity.

Education and science provide the basis for technological performance. The sluggish performance of the German economy can be felt in many areas within the innovation system, but fortunately it has not yet affected the performance of basic scientific research. The output of research, in terms of publications and their citation rates, has a high quantity and quality ranking, but the attention given to German scientific output through citations has flagged in recent years. Many countries have enriched the international scientific competition with highly competitive new facilities. In Germany, however, university budgets and staffing levels have been slashed across the board in a spirit of ‘solidarity’ with the present weak economic situation. Some cuts of basic research budgets were mitigated or offset by external funding of projects but, overall, not everything has changed for the better since the mid-1990s. At the same time, and uncoordinated with national policies, the European Union (EU) has not engaged in any form of support for basic research and large firms are abandoning or reducing their involvement in intramural basic research.

This is not the fault of the present government, which is trying hard to catch up with fewer resources at its disposal, but is rather a consequence of the cost of Germany’s unification. A decade ago, 17 million inhabitants from East Germany joined 60 million in the West. The R&D budget remained constant. This means that, per capita, Germany dropped from a leading position (together with the US and Japan) to the midfield, and is now trying to creep back up. In times of economic crisis, officials should recall that government R&D funding prompts the business enterprise sector to increase its own R&D budget. The rule of thumb is that government R&D funding will trigger at least the same amount from the private sector. This ‘leverage effect’ could also help reach the EU objective of increasing R&D spending to about 3% of GDP by 2010. Future R&D budget appropriations send an important message to the private sector. Relatively simple calculations show that several hundred thousand additional R&D staff are required in Germany to achieve the EU target. Politicians pressing for innovations would be well advised to urge industry, at least, to abandon zero-rounds not adjusted for inflation. What is needed to pass the acid test is both R&D funding and an efficient ‘non-monetary’ innovation policy (which does not require any additional expenditure).

[1] Hariolf Grupp is deputy director of the Fraunhofer Institute for Systems and Innovation Research, Karlsruhe and a professor at the Universität Karlsruhe, Germany.

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DOI: 10.1016/S1369-7021(03)01164-7