In terms of digital transformation, Germany is supposedly sluggish, slow and out of date. Other countries are much more advanced, goes the accepted narrative. But some developments are more promising than is commonly thought.
Germany and digital transformation: is it ever going to happen? Felix Wiegand has no time to contemplate the question. “There’s always an investment project underway,” laughs the young man. He’s just out of a Skype conference; his next starts in fifteen minutes. Wiegand’s approach is full throttle. His declared aim is to fetch the transport industry into the digital era. His company Pamyra offers free price comparisons for freight transport. A business wishing to ship a pallet of freight from Hamburg to Munich can use his site to find and commission a forwarder in just seconds. The Leipzig start-up went live at the start of this year, and business is booming. Does that mean digital Germany has come of age? It does for founder Wiegand. Networks, staff, capital investment – Germany has it all. “We couldn’t have got off to a better start anywhere else.”
A developing country in digital terms?
What about the overall picture? Germany is supposedly a digital slowcoach, a developing country in digital terms. At least, that’s the impression given by studies. It ranks no better than 17th of 35 countries in the current digital ranking of the Fraunhofer Institute for Systems and Innovation Research (ISI). Germany and the digital leader Finland are worlds apart, and the world champion exporter also ranks way behind the United States, the other Nordics, Great Britain, the Netherlands, Switzerland and Singapore. The researchers investigated a total of 66 factors with an impact on a country’s digital credentials, from the availability of fast broadband to PC equipment in schools. Germany scores no better than average on nearly all counts. So who’s right? The study, with its damning verdict, or the optimistic founder? The truth lies in between: Germany’s digital credentials are better than they appear in the rankings – in terms of technology, politics and the legal position. You just have to look more closely.
Do you want to ship pallets within Germany? Digital portals help (iStock. com/xavierarnau) Take the much-cited fiber optic statistics, for instance. At first pass, the verdict is grim: just 1.8 percent of all German households enjoy fiber optic connectivity, says the OECD . Germany comes a sorry 29th in international rankings, behind even Turkey, Chile and Colombia. In Japan, by way of contrast, 74.9 percent of households have “Fiber To The Home”, or FTTH. This ranks as a vital indicator of a country’s digital fitness, because fiber optic cables are the only way to transfer data at gigabit speeds. For the challenging Internet applications of the future, like high-resolution video streaming, nothing less will do. No fiber optic connection – no future, is the simple formula.
Good reasons for slow fiber optic expansion
So is one to believe the problem is technology – in Germany of all places, with “German Engineering” a global byword for excellence? Again, first impressions deceive. There are good reasons why the fiber optic ranking is so poor. One is the distribution of population: in top-ranking digital countries such as Japan, Latvia (3rd place) or Estonia (6th ), most of the population is clustered in relatively small areas, making it easier to get people connected. Germany is at a clear disadvantage because there is also considerable population outside urban areas. In addition, in many countries, the fiber optic lines are simply laid above ground, creating unsightly cable clutter. In Germany they generally have to go underground. “For Fiber To The Home, you’d have to dig up every front yard,” says Philipp Blank, spokesman for Deutsche Telekom. Blank also points out it would take a long time and the costs would be formidable: 60,000 euros per kilometer of cable.
For Fiber To The Home, you’d have to dig up every front yard.
That’s why Telekom is taking a dual approach. It lays fiber-optic cables to the gray junction boxes on the streets, and from that point it uses the old copper cables, which are made slightly faster using a technology called vectoring. This is a good, fast way to get large numbers of people connected – but it doesn’t deliver great scores in the fiber optic rankings. In terms of overall broadband coverage, however, Germany is doing reasonably well. 88.5 percent of German households connect at a speed in excess of 16 megabits per second, says the Ministry of Transport. This isn’t world-class, but nor is it developing-country standard. Continued reliance on copper, kicking the expense of underground fiber optic installations further down the road, might even pay off in the long run. The new 5G wireless standard is due out in 2020, and this could potentially enable households to connect wirelessly to ultra-fast Internet. “There’ll be a mix of technology on the last mile,” expects Telekom spokesman Blank.
Too much data protection in Germany?
“Our data protection is breaking us!” This complaint is voiced sooner or later in any debate on Germany’s digital economy. According to the popular narrative, Berlin’s love of red tape is stifling digital innovation. Yet in actual fact many practitioners consider Germany is in good shape, from a legal perspective, for the challenges of the digital era. “Data protection can also be a competitive advantage,” says Nina Diercks, a lawyer from Hamburg and a leading data protection expert. One example: the smart home: A provider of networked home appliances who handles customer data in a trustworthy manner can leverage this to stand out from competitors, says Diercks. “It’s a definite competitive advantage that data protection is taken so seriously in Germany.” The EU also sees it that way. Its new General Data Protection Regulation (GDPR), which comes into force in May 2018, sets standards that go beyond even the German level of protection.
Two cables are being laid in Germany: Glass fiber complements copper (iStock. com/deepblue4you) What tends to be disregarded in the digital rankings is the fact that the German legal system continues to be one of the best in the world. In the international Rule of Law Index, for example, Germany ranks 8th , ahead of Great Britain, Japan and the USA. Granted, not all members of the judiciary have arrived in the digital era. “You can always come across judges who have no competence on digital issues,” admits data privacy expert Diercks, but is at pains to point out that this isn’t an exclusively German problem. Diercks also identifies a clear need for the legal parameters to catch up with what’s happening in the digital world – from the old debate on private web browsing in the workplace, all the way to whether there should be a right to a home office. “The legislator missed the boat on a lot of issues,” says Diercks. But the lawyer gives her home country good marks overall. “IT law has a good, mature structure. From a legal perspective, Germany is totally underestimated.“
Politics as a drag on digital transformation?
Which brings us to policymaking on digital issues. Here too, the verdict tends to be negative. “The Federal Government has been just about muddling though. But the time for ‘winging it’ is over,” says Alexander Rabe of eco, the Association of the Internet Industry, which represents over 1,000 member organizations. Although the lobbyist commends the fact that the last Federal government presented a digital agenda (the first ever), he makes clear there is still much catching up to do. “We need greater digital literacy in parliament and at the cabinet table,” demands Rabe, who heads the eco office in Berlin. The association supports the idea of a dedicated digital ministry. It also calls for pro-active policymaking to make Germany a more attractive environment for the digital economy. This is already happening in other countries, as Rabe points out: “Scandinavia attracts data center operators with electricity prices of 3 to 4 cents per kilowatt-hour. The charge in Germany is 15 cents.”
We need greater digital literacy in parliament and at the cabinet table.
Too little IT education in schools, too few government services via the web (eGovernment), too much caution in promoting research – the eco Association’s list of digital “to-dos” is a long one. Many of the deficits are undisputed, with numbers to back them up. A case in point: confirmation that Germany lags behind other countries on eGovernment came just recently in an EU Commission report. Of the 28 EU member states, Germany ranks 18th . However, other supposed drawbacks don’t stand up to scrutiny. The assertion that the public sector does not spend enough on research is simply wrong. Germany’s public sector is in fact global vice-champion on research investment. Apart from South Korea, between 2005 and 2012 no country invested more in research than Germany relative to its gross domestic product, says the German Institute of Economics (DIW).
Not a digital champion, but not a digital loser either
“Digital Deutschland” isn’t as bad as it appears in the rankings. Germany is definitely not a digital champion, but nor is it a digital loser. The networks are fine, the legal framework is reliable, and policymakers have at least woken up to the issues. So what’s next? “That depends on how the German mindset evolves,” says Karl-Heinz Land. The 55-year-old from Cologne is one of Germany’s pioneers in the digital economy. He moved to Silicon Valley back in the early 1980s, where he founded several IT companies and made them big. What the network pioneer feels is lacking in Germany’s digital economy is the spirit of adventure. “The Scandinavians seek disruptive change, the Germans only “do” incremental change.” To give an example, a German manufacturer of keys tries to improve the key itself, whereas a Swedish competitor is preparing for a future in which doors will be opened by an app.
What are the chances that Germany will learn to think differently? “The first Internet, the consumer version, has been won by Facebook, Google & Co.,” says Land. In his view, German companies have good opportunities in the second Internet, the Internet of Things and industrial applications – but only if they understand the new rules of the game. Large parts of value-added will in future derive from digital. That’s why every organization has to become a software company. If people realize this, Germany can still be a flourishing digital economy, says Land. “We can still turn things round!”
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