Germany needs to invest more in R&D

Research and development play a decisive role precisely in economies short on commodities, such as Germany. To secure qualified jobs and thus income levels and prosperity in the international competition between economic hubs, what is required is a broad-based, efficient R&D industry that “produces” ideas and develops them into new products and technologies.

Indeed, in the past the inventiveness of German researchers and developers has repeatedly seen success on the market. In recent years, research activities have in fact been tangibly boosted. Thus, Germany swiftly achieved the target level for research expenditure of three percent of gross domestic product at an early date. On a European comparison, the German economy is not only well positioned as regards research intensity, but also as regards research, development and marketing successes, as is borne out by patent filings and exports of high-tech goods.

However, innovation cycles are growing ever shorter and international competition is growing. Traditional rivals, such as the USA, are now being joined by new innovation rivals, such as China and South Korea. In order to keep its place in the long term in the competition to provide world-leading R&D, research activities need to be strengthened further. The Commission of Experts for Research and Innovation, for example, calls for German research expenditure as a ratio of gross domestic product to be raised to 3.5 percent by the year 2025. To achieve this goal, R&D expenditure would need to be increased by 5.0 percent every year. Compared to keeping the research expenditure ratio steady at 3.0 percent, the aggregate additional outlays would be over EUR 100 billion through 2025.

In order to raise research activities in Germany sustainably, however, a simple increase in government grants does not suffice. We estimate that the funding for universities and extra-university research institutions would need to be restructured and above all a new, changed stimulus be given for research in corporations. To this end, short-term programmes such as the “University Pact” should be transformed into ongoing financing. As part of growing funding levels for university and extra-university research, however, the additional funding must be funnelled directly into the core areas of research and greater efforts must be made to promote top-level research. A first step has been taken in this direction in the form of the “Excellence Initiative”.

Whether it will prove possible to boost research activities sustainably will depend above all on corporate Germany, which is responsible for a good two thirds of the R&D volume. While as early as 2015 a sharp surge in research expenditure was recorded of almost ten percent, in particular SMEs still conduct too little research compared to their importance for the German economy and the number of innovators among SMEs has fallen in recent years. Overall, a permanent, sustained strengthening of private research efforts has not been secured. For this to happen, a new stimulus is required which could be provided by fiscal support for research by companies, supplementing project grants and support programmes that exist to date.

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