Germany's competitiveness is hotly debated: the country is on the decline ranks in terms of economic growth in Europe, the population is aging and while America is attracting investment, companies in this country are worried about comparatively high energy prices. A new analysis now draws attention to another area in which Germany is in a bad position: Much more worrying than energy prices should be "the fact that Germany has been living off its substance for years," according to a study conducted by economists from the Association of Research-Based Pharmaceutical Manufacturers (vfa). Her conclusion: "Compared to many other developed economies, Germany's capital stock has lost considerable quality over the past 20 years."
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A country's capital stock includes factory buildings, machinery, roads and schools, as well as intellectual property from research and development, software and databases. This capital stock, together with the workforce, forms the basis for how an economy can develop. "If all this becomes obsolete, there is a risk of disadvantages in international competition," says the analysis, which is available to the F.A.Z. in advance. The more modern the capital stock, the higher the value added per employee.
In order to find out whether this is the case in Germany, the authors put two variables into perspective: the gross capital stock, which comprises all goods with their new value, and the net capital stock, from which depreciation is deducted. This ratio can be used to determine how well factories and infrastructure are maintained by companies and the state: the smaller the net value compared to the gross value, the more obsolete the capital stock.
Canada is ahead
The result is not very flattering for Germany. "As in many places, the degree of modernity of the capital stock declined – but in this country it was most pronounced with twelve points," write pharmaceutical economists Claus Michelsen and Simon Junker, both of whom previously conducted research at DIW Berlin. It is understandable that the capital stock at home is somewhat outdated, as many direct investments flow to China and other Asian countries. However, the development in Germany is worrying. France, Great Britain and the Netherlands are in a much better position than Germany, while Canada is ahead (see chart).
There is one main reason why it is crumbling more in Germany than elsewhere: "Above all, the public capital stock has been neglected for years," the authors write. This is evident in the condition of schools, bridges or the railway infrastructure. This finding coincides with a 2019 study by the employer-oriented Institute of the German Economy, which identified the weak financial situation of many municipalities as the main cause.
A mixed picture emerges in the industry. Compared to 1991, only a few sectors were able to maintain or even expand the degree of modernity of the capital stock, according to the authors. While key sectors such as the automotive industry, mechanical engineering and the pharmaceutical industry are at least succeeding in strengthening intellectual capital, the loss of substance is clearly visible in other sectors. The chemical and IT industries are therefore at the end of their rope in the development of intellectual capital.
In order to trigger a modernization push, the economists of the German Pharmaceutical Association are in favor of strengthening particularly attractive depreciation options for investments and tax incentives for research. They would like the state to push ahead with digitization and the energy transition: "Without these public inputs, private investments will be rare."