Wanted in Germany: a few good risk-takers

For Germans who are revaluating the economy that rose out of the ashes of World War II, the news couldn't have been worse.

Last month, a group of companies headed by DaimlerChrysler and Deutsche Telekom conceded that they could not produce a high-tech toll-collection system in time to meet government deadlines. The government canceled the contract, sparking a national debate on the decline of the "Made in Germany" standard.

"Can't we do anything anymore in Germany?" read a headline in Bild, the country's widest-circulating tabloid.

Once Europe's economic powerhouse, Germany is facing an identity crisis as it reforms structures that steered its postwar economic miracle.

Analysts say Germany's welfare programs have made its workforce too costly, scaring away both foreign and German firms. The German economy, the largest in Europe, shrank by 0.1 percent last year. Researchers and academics quickly list two reasons Germany is falling behind in the global economy: Years of declining investment in research and development by both the government and private firms, and an overall aversion to risk.

"We're finding the interest in licensing new research comes from foreign companies ... even though we ask German companies first," says Ulrich Schmoch of the Fraunhofer Society, a think-tank network that develops new technology for companies and the government. "There's a whole culture that's behind it."

Germany remains competitive in certain areas. Advances in micro- and laser technology have benefited the auto industry, supporting the reputations of BMW and Porsche. That is less the case with biotechnology, where aspirinmaker Bayer has failed to develop new products, says Mr. Schmoch. A Fraunhofer report also revealed that information technology, an area the government has wanted to push, is yielding few results. Only 1.5 percent of workers are employed in Germany's IT sector, fewer than in Sweden and the Netherlands.

"We need another climate," says Volker Wanduch, a chemical and nuclear engineer who works as a lobbyist for the German Association of Engineers. "There is no progress without risk."

Those same mantras are echoed by some of the country's top politicians. In January, Chancellor Gerhard Schröder declared 2004 as Germany's "Year of Innovation," and appointed an Innovation Council that will report on the country's technology shortcomings. The chancellor also set up a $616 million "risk" fund for mid-size companies, seen by many as engines of new technology.

Germany's academic and scientific community, which pushed this message for years, has reacted coolly to the plan. "Innovation is always good.... The question, of course, is what is behind this," says Henning Klodt, an economist at the Kiel Institute for World Economics.

The government initiative, says Mr. Klodt, follows a tradition of "industrial politics" by which German governments fund massive projects that don't yield their expected economic benefit.

An example of this, says Klodt, can be found in Emsland, home to the world's first magnetic-levitation railway track. In the 1970s and '80s, the German government invested millions to develop the technology, according to Klodt. In 1984, a test track was built, but it remains the only "maglev" track in Germany. Plans to build more tracks were later dropped because of fiscal concerns.

"The technology is deployable, but it costs too much," says Klodt. "You of course learn all of that after the fact. But there is a major difference if a company invests its own money in the project. [It will] realize quickly if it makes sense. If the money comes from the state, then the tough questions aren't asked as frequently."

Yet all too often German firms aren't willing to invest in new technology or license new patents.

In 1991, German audio engineer Harald Popp was on the conference circuit touting a new method of audio-file compression, which they called MP3. The technology was ignored by Germany's big companies, while the country's mid-size companies were limited by their "financing options," says Mr Popp. An American firm got on board, and major companies later followed into what has become a billion-dollar market.

Mr. Wanduch, the engineer lobbyist, says that such stories are typical in a society with an aversion to risk. "We have endless numbers of objectors, but we have few people that are willing to take the next step," he says. "We must be ready to invest in something despite not knowing if it will bring profit tomorrow."