Why Germany Dominates the U.S. in Innovation
blogs.hbr.org
blogs.hbr.org
'Germany innovates in order to empower workers and improve their productivity; the U.S. focuses on technologies that reduce or eliminate the need to hire those pesky wage-seeking human beings.'
First, hogwash. Second this whole article is an attempt to pick a bit of this and that and get to a conclusion, like some high school debate club.
Germany's manufacturing sector is more innovative than the US' at the moment. This has all sorts of reasons. They’re good at industrial engineering. The US’ software industry is by far the most innovative in the world, especially consumer facing software. Israel has a strong generic drugs industry and South Korea are great at consumer electronics.
Different countries are different and if you want to draw a narrative explaining why, you’ll need to set a higher bar than this.
These things are not some inevitable outcome of a policy. They are organic developments that happened. They have a history. They’re caused by culture, and luck and magic as much as and more than they are caused by the “three factors” that he lays out.
His evidence is that US manufacturing is only 13% of GDP, where it is 21% of GDP in Germany.
Well, percent-of-GDP is, by definition, a zero-sum game. There are only 100 percentage points to go around. What other industry has been "decimated" in Germany by those 8 percentage points going into manufacturing?
This is HBR's "blog network." Can any Harvard Business student make an equivalent entry, or is there some kind of editorial control here?
It's well known that US manufacturing is down
The US really is manufacturing more stuff than ever. http://2.bp.blogspot.com/-OyF5jxwDPa4/T7b90wKmj5I/AAAAAAAARn...
Manufacturing is high-beta relative to GDP, so trying to increase its percentage of GDP would increase overall volatility.
That's why this soft headedness is infuriating.
Is this an example of the non-'hogwash' way of reasoning about reality?
I'm objecting to this article on two levels. One, that it is at all possible to pick a result (even if it was defined) like innovation in manufacturing and relate it back to policies which can be then implemented somewhere else to achieve the same result. Policy isn't the only thing at play and
IE, if the US would understand like Germany understands that "innovation must result in productivity gains that are widespread, rather than concentrated in the high-tech sector of the moment." then GM would have good software like BMW does.
Second, I don't think the author even tries. WTF is he even saying. Who is Germany? What exactly does she understand? Does "understand" mean implement a policy? What policy? Are we talking about changing high school curriculum or tax codes? He's basically isn't saying anything while trying to give his audience the impression that some very obvious mistakes are being made needlessly.
The conclusions are populist and political, nearly implying a belligerent conspiracy.
"Germany’s innovations create and sustain good jobs across the spectrum of workers’ educational attainment; American innovation, at best, creates jobs at Amazon’s fulfillment centers and in Apple stores."
And it's mostly untrue, to the extent that weasely implications and unspecific statements can be true or untrue. The bones of his non-argument seems to be that German innovation creates good middle class manufacturing jobs while US innovation eliminates them. That's not true.
Amazon & Apple do not employ only low wage staff. They have nothing to do with displacing auto workers. They employ mostly people in "middle class" jobs. The German manufacturing sector isn't increasing employment in good old 1950s style manufacturing jobs either. They sector is employing engineers, accountants and such, just like Apple and Amazon.
I don't literally mean magic.
I must be reading this wrong, but it seems like you're denying the effects of policy on outcomes, and denying that similar policies tend to result in similar outcomes. That would be an argument against having policies altogether.
If you stick to results like innovation, I think you'll be hard pressed to find the former, and its pretty much the latter.
Look at hack days at companies. A really innovative company holds a really successful hack day. Are innovative companies doing hack days to drive their innovation? Or are hack days the result of other factors that drove innovation?
Should leadership of a company with innovation stagnation hold hack days? Or, is that just following the cargo-cult antipattern?
The implication that one could take the best of an economy and expecting that this is achievable elsewhere by copying policies or a policy approach is nonsensical. Germany's industrial engineering is superb (as is California's software) and that is the result of a lot of history and organic development. Policy played a role, but probably a small one. Even if the role is bigger than I think, it is still a complicated role that was played by interacting with time and place sensitive uncopiable factors. California's software is part of an ecology (Universities, VCs, Angels) and it is part of a culture. You can't copy RMS & a history of hippies in Berkley.
The extent to which 'innovation' they can be encouraged at all and how is fairly disputed. It's certainly harder than encouraging (for example) investment. Innovation is inherently unpredictable. Trying to direct the eventual impact of innovation "innovates in order to empower workers" is snake oil. And, I don't think it's even true that Germany's innovation has these characteristics.
The whole article is layered nonsense from a Professor. grrrr
^My apologies. Reading back, I don't like the tone I wrote in.
South Korea is also strong in shipbuilding. I think about nearly half of the ships being built these days are from South Korea. And these are not just simple container carriers. Lots of LNG carriers and also a few billion dollar LNG floating plants that are being built by Samsung Shipyard.
And Hyundai is also 4th largest car manufacturer as of 2012, ahead of Ford, Nissan, Honda.
Oh btw, I don't see any German corporation in top 30 US Patent Assignees. Top 20 are dominated by US, Japan, Korea, and Taiwan. Highest ranked German firm is Siemens at #33.
I agree the article is standing on weak reasonings.
That being said, why would German companies rush to register their patents in US patent office? What is the ranking of US companies registering patents in Germany?
Not ALL patents are useless, only some. And it's preposterous that Apple wants $50 per Samsung mobile device for allegedly infringing 2 or 3 patents when each mobile device touches upon about 250,000 patents (patent on manufacturing tool, patent on the manufacturing tech that was used to build the manufacturing tool, material, etc etc). But I digress.
And # of patents assigned WAS one of the best tool for measuring innovativeness before some started abusing it (filing bogus patents, patent trolling).
Global corporations file patents in US because US has largest market (or used to) and rule of law is strong.
There are 3 very large shipbuilders in South Korea as it turns out.
I got a chance to get a tour of the Daewoo Shipyard back about 6 years ago now. And they had all manner of ships under construction, including ships as advanced as submarines -- all for external countries. The submarines were all for Germany IIR. It was very impressive.
Germans don't believe in luck and magic, maybe that's why they make great industrial engineers :) Although you're right that it's surely a complex process. We'll have to wait and see how much and which investments really pay off, but in the meantime it is nice to live in an environment where billions are invested (check out http://ec.europa.eu/programmes/horizon2020/ to read details about a new European wide program).
Anyway, these billions should be counted on the negative side of things, is the point. Tell me instead of the return on your investment!
I think it's fine to put money into fundamental R&D, NASA and the like. But, that's an expense. Treating it as such, lets us ask the right questions.
I didn't invest €3,000 last year in lunch, I ate €3,000 worth of lunch. The right question is "was it tasty?" In the kind of discourse that gets put around policy, I would be asking "what productivity gains did I make be eating lunch?"
As far as I know, R&D is not a fundamental entertainment or the like (although NASA is), so it is an investment.
Plus, there's the baggage of accepting public money. In private money, your failures are fairly private. Its not front page news when Kleiner Perkins put $30 million into a failure. But Solyndra failing was a huge deal in the US. In Canada, where I grew up, public money going into failures is always newsworthy.
When 50 million Euros of that 80 billion goes to some fraudster, it'll put the whole program at risk. That's why its difficult for countries to legislate innovation. There's a large party of people who are rewarded when those investments fail.
There's a comment after the article by 'LaughingTarget' that touches on a lot of great points but I wanted to bring up this specifically:
> For example, if an accountant is hired at BMW is classified as a manufacturing employee while an accountant in an accounting firm supporting Tesla Motors is classified as a service employee.
Classification of jobs matters, and the article's analysis of manufacturing jobs between Germany and the US seems like an apples to oranges comparison.
Well that's unknowable. Based on the perceived quality of life of people the USA bombs/embargoes/invades, it's better to be the giver than receiver.
The war spending, coming at the same time as the derivative crash, could be blamed for speeding the end of American global preeminence. That's likely to have a negative effect on quality of life, and those were avoidable errors.
Isn't this kind of on purpose? I get how we're now bemoaning the loss of manufacturing in the US, but before times "got hard" the shift to a services based economy was seen as a good thing. Or at least a good thing as long as the economy was/is healthy.
One could argue that it isn't, and that the loss of manufacturing caused the US economic problems but that's another discussion entirely.
The article seems like it's conclusions are based on job classifications between two countries that don't tell the entire story.
I do think something has been lost though. In a healthy manufacturing area of generations past someone who was 'hardworking and reliable' could get a 'decent' job. The financial rewards, self esteem and such from these jobs were deemed adequate by the people of the times. Get over the hurdle and you can be fine. Today, 'hardworking and reliable' is not really sufficient. Those cookie cutter jobs don't exist. I think politicians are at a loss because it just isn't clear what a person needs to do to qualify them for employment in this world.
Some new jobs are highly specialised, like programming. These are hard to get people in to, but at least it sounds possible to train people for them. But, how the hell do you qualify people people who are 32 and have been unemployed for the past 3 years to be social media analysts?
More sold as a good thing. The same media outlets that were pushing the 'transition' into services were part of larger conglomerates that stood to benefit from overseas manufacturing.
I've heard a lot of references to how we need to bring manufacturing back, but what's the TL;DR on why they're so necessary? Is it just that they're stable blue-collar jobs? My understanding has been that the issue was that blue-collar jobs aren't economical any more (when competing with automation and workers in poorer countries), but that we failed to educate our population enough that they could fill white-collar jobs. Aside from the national security argument (domestic manufacturing and energy production per se have those advantages), is there something I'm missing about the benefits of manufacturing jobs?
http://www.nam.org/Statistics-And-Data/Facts-About-Manufactu...
√ Linkbait headline
Reading the headlines, you might think that the most urgent question about national success in innovation and growth is whether the U.S. or China should get the gold medal.
√ Strawman argument
True, Americans do well at inventing. The U.S. has the world’s most sophisticated system of financing radical ideas, and the results have been impressive, from Google to Facebook to Twitter.
√ Content that contradicts linkbait headline
Americans need to recognize that the purpose of innovation isn’t to produce wildly popular internet services. It’s to sustain productivity and employment growth in order to ensure real income expansion.
√ Political agenda exposed by end of article
Failure in the US is expected in the startup world, whereas you'll often not even get a fucking cellphone contract once you went broke in Germany. For years.
On the other hand, I only know the U.S. startup world from what I've read, so I might be totally off there. So please correct me if I'm wrong.
Its New York financing vs Silicon Valley financing. Remember that Hacker News is based on YCombinator: a West Coast incubator.
You'll probably never hear about the tons of small scale restaurants, small government contractors (I've seen teams of 10 or less), and one-off donut shops. But they're relatively common in the East Coast. There's a "MicroBrew Beer" restaurant every block in some areas.
Its a bit different on the East Coast. There are tons of business owners that I know of, but all of them are quite small businesses. My High School math teacher owned a franchise restaurant, another high school teacher owned a potato chip company, my cousin owns a Pho shop, my uncle owns a private Sports-Medicine practice (finances are run by his wife). A lot of blue collar work (like HVAC, Roof Repair, and other household tasks) are done by contractors or small businesses.
None of these businesses plan to strike it big. Its more about day-to-day operations and basic work.
Naturally, you'll see more "Big or Bust" methodologies around YCombinator. The small organic growth of the East Coast startups don't really make news and are frankly... very mundane and boring.
"Startup" is generally used for something that is (or seeks to be) VC funded based on a vision of investors realizing immense gains in an eventual acquisition or IPO.
It sounds like its quite likely what you are calling "startup" in Germany and what is called "startup" in some US-centric contexts (like HN) are not really the same category, and that the former is broader than the latter more than what is acceptable in Germany being different.
It's cited as being a huge source of strength for the German economy, seems to be similar to what Americans might call a "lifestyle" business. You see lifestyle businesses portrayed as "settling for less" in American media, whereas Mittelstand has a very positive connotation in Germany.
I only see it portrayed as "settling for less" in American media focussed on serving the executive/investor/startup-founder groups as their target market.
Stable small businesses are pretty much treated as icons of the national culture on a level with baseball and apple pie and set up on a pedestal everywhere else in American media and culture.
There is no stigma attached to an entrepreneur who's company goes bankrupt, but the personal bankruptcy is a sign of failure.
Failure is not so much of an economical than a social problem in Germany. If you fail only once, you will always be the guy/girl with the idiotic idea that didn't work out. Of course, anybody could've told you that! If you succeed you will face a lot of jealousy. This leads to a culture where following your dream will earn you so much negative reactions that it's really hard to sustain.
Now you have e.g. a data breach, or your entire inventory goes down in a flood/fire/accident and you're not properly insured (most private insurances will not cover your business assets, even if your business is in your home), you're out of luck.
And as we're speaking of capital: in the Valley, you basically have to have a good business plan, a sales pitch and a bit of luck and you'll be bathed in cash (at least, this is my impression of reading here). In Germany, no luck obtaining a larger credit or startup financing as long as you don't put up your house or car as collateral.
That's why we now have the "small limited" company (Mini-GmbH or UG). You can start a company with limited liability with just a few bucks^H Euros.
I don't see any other business that has "experimental software engineering" in germany. And yes we have some lighthouses, like every other country too.
The point isn't so much that there are German IT companies, the point is that pretty much every company nowadays is an IT company.
You may just see the consumer innovation and not the industrial innovation. I invest primarily in B2B companies, and I think the US innovates more in this sector than any other country.
If you're just thinking of incremental/internal innovation, then Germany may or may not be better than the US, but there's no widely accepted way of measuring this so any opinion is purely anecdotal.
(I'm not arguing against creative disruption. I'm wondering how to square the two concepts.)
http://www.finfacts.ie/irishfinancenews/article_1025980.shtm...
See the number of 'hidden champions' in Germany, a country with 1/4 the US population.
1. is among the top three in its global market or is number 1 on its continent
2. has less than $5bn in revenue
3. and is little known to the general public.
I'm certain the US has a plethora of companies which meet the first criterion, but we (rightfully) fail on the second and third. What is advantageous about a business culture where successful companies languish in relative unprofitability and/or obscurity?
A newer example is Herrenknecht. In the town of Schwanau - population 6807. Herrenknecht made a little over one billion Euro in revenue in 2012.
Their business: huge tunnel boring machines.
http://www.newyorker.com/reporting/2008/09/15/080915fa_fact_...
A list of their projects:
http://www.soic.de/tunnelbohrmaschinen_herrenknecht.php
Herrenknecht at work in New York:
http://www.tunneltalk.com/East-Side-Access-Mar11-Queens-TBM-...
I find this pretty exciting.
That's a highly dubious criterion, one which Germany's inelastic labor market certainly has an advantage in. Since strong unions make it much harder to lay off employees in Germany, German manufacturers have substantially less incentive to invest in labor-saving innovation. Their American counterparts do, which contributes to our GDP continuing to grow steadily. Also, US manufacturing is certainly bigger than Germany's—it's just taken as a percentage out of a bigger whole: the US GDP per capita is nearly $10k higher than Germany's. [1]
For the rest of us, it's well-accepted that one of the key drivers and outcomes of innovation is to increase output without increasing factors of production, including labor. Put simply, a more innovative society is almost certainly one that's losing jobs (particularly jobs in traditional sectors). Keynes, a favorite of socialists and liberals, absolutely acknowledged that the expected outcome of technical innovation is less and less work. [2] Though we've continued to invent new jobs for people displaced by disruption ("social media manager"), it's completely expected that employment is lagging in traditional sectors like manufacturing.
By reasonable criteria, the US dominates Germany in innovation. We innovate people out of jobs.
1: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_... 2: http://www.marxists.org/reference/subject/economics/keynes/1...
High employment in manufacturing doesn't seem like any proof of innovation to me. OK, so they make their own stuff and Americans outsource to China. Maybe that's a smarter way to go. But it has little to do with actually inventing and developing a product.
This report covers the entire globe.
I'm not german, but I have lived around 8 years in Germany, I studied at a technical university there and worked at one of the Fraunhofer Institutes, which are mentioned in the article I have to say - they are definitely doing it right. I mean... just comparing how affordable universities are there. I am always amazed when I read stories about students in the US who graduate with $50.000 or more in debt. What I paid in Germany was around $300 per semester (for which I received also a travelling ticket for the entire transport system in the entire province... just the value of this ticket exceeds the $300) and that was about it. Later they introduced semester fees and I had to pay around 700$ per semester. And that was really high. I mean ... people were protesting and the province's government removed the fees. And it's really easy to find a part-time job in your field of studies in a high-tech cluster. In the case of my university the government spent like 2.5$ billion to extend the existing high-tech cluster so it can acommodate another 10.000 highly skilled researchers. This is all happeneing in a small city with 250k people. In areas like Stuttgart and Muenchen it's even crazier what they are doing.
The only thing I am not fond about Germany right now is the high taxes. But AFAIK the government are planning in reducing the tax burden on companies to keep the economy competative.
I don't know... is it easy to find a part time job in your field of studies in the US?
> What I paid in Germany was around $300 per semester
> In the case of my university the government spent like 2.5$ billion to extend the existing high-tech cluster
> The only thing I am not fond about Germany right now is the high taxes
Ever think those might be related?
> I don't know... is it easy to find a part time job in your field of studies in the US?
In the U.S., like the rest of the world, this is entirely dependent on what your field of study is.
> Ever think those might be related? I never said that. But there are a lot of different possible scenarios here, where to put the higher tax burden - on the companies or on the employees. Check for example Denmark and Sweden as they follow different paths in that matter.
The US has a higher % of people with higher education degrees than Germany. If anything, your argument needs to be that crippling student debt inhibits the capacity of a nation to innovate.
As to manufacturing, sure, the German manufacturing sector is larger as a percentage of GDP, but you'd expect that, as the German government subsidizes manufacturing to a greater extent that the US (particularly in the area of training).
Truth is, US 'innovation' is all about ideas, whereas a high level of collaborative intelligence is used in Germany.
I imagine the most successful German companies are more like GE and IBM and not like Google, Apple, or Uber.
"The U.S. has the world’s most sophisticated system of financing radical ideas, and the results have been impressive, from Google to Facebook to Twitter."
Not one of these began as a "radical" idea. I have a ton of respect for Google, as it certainly does some radical things today, but it started out as just a better search engine. And Facebook is hardly even an idea. Don't even get me started on Twitter. They certainly provide lots of value, but the initial concepts are not radical whatsoever.
Concepts/companies like solar roadways, Tesla, and SpaceX blow Facebook, Twitter, and even Google out of the water in terms of radicalness.
It's not that Twitter and Facebook aren't important (they aren't to me but that's irrelevant), it's that there are other arguably more important and very importantly (in this context), different, innovations from the US.
When a person is saying "radical ideas...from...idea1, idea2, etc." one expects a continuum or line of DIFFERENT ideas. Not two ideas that are pretty similar and three in the same industry. The "From" scale is way too short for the article's concept. It's like saying "Radical clothing designs from jeans with no pockets to jeans with stonewashed fading and jeans which are dyed green".
End nitpick.
You don't think there's value to networking social connections together online for ease of communication and media sharing? How else would all the things these networks do, be performed in an efficient manner?
There's no value to KiK, WhatsApp, instant messaging, email etc? Because all Facebook is primarily, is a communication platform, whether you're sharing text or images or video.
I think you've got it dramatically wrong. These things are worth a trillion dollars, and the value has been proven true across every culture on earth.
My point was only that while these social networks seem obvious, and boring, they are in fact pretty radical.
The US invents other things besides Twitter and Facebook.
Maybe they understand innovation but no kudos to them for that.
http://www.bmw.co.uk/en_GB/new-vehicles/bmw-i/i3/2013/start....
NB The i3 has been getting great reviews and is only £25K or so in the UK after the £5K you get back from HMG.
Edit: I just checked and a base Tesla Model S is £50K after the same rebate - so I don't think they are competing.
http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/forschung_ent...
The company I work for is involved in a tiny part of the software for it.