COVID-19 Crisis Drives Digitalisation of the German Economy

Events

#ZEWlive on “COVID-19 and the Digital Economy”

Since the coronavirus-related shutdown in spring, companies and employees in Germany have made extensive use of remote working. In the digital event #ZEWlive, Professor Irene Bertschek, head of the ZEW Research Department “Digital Economy”, and Luka Mucic, CFO of SAP SE, discussed how the experience gained during the coronavirus crisis could be of benefit in the long term. This edition of the #ZEWlive digital event series focused on “COVID-19 and the Digital Economy: The Crisis as an Opportunity?”. The event was moderated by the journalist Elif Şenel and attracted about 150 spectators, who could participate in the discussion via chat.

“Those who digitalise are better able to cope with the crisis,” said ZEW digital expert Irene Bertschek in her introduction to the topic. As a study by ZEW Mannheim shows, companies with a higher level of digitalisation were better able to weather the financial crisis of 2008/09. Three factors have so far been particularly important in the ongoing coronavirus crisis, Bertschek continued. “Companies had to react flexibly to the drop in demand and, for example, by switching production to respirators. They had to observe social distance rules, for example by offering remote work arrangements or using robots. And they had to try to remain visible via their online presence. Digitalisation is a driver for all three of these factors.”

At the same time, however, the ZEW economist noted that, “Germany is not fully exploiting the potential of digitalisation.” There is still catching up to do in the use of cloud services and artificial intelligence (AI) applications. “COVID-19 has uncovered shortcomings in the digital infrastructure and in the public sector,” explained Bertschek. SAP executive board member Luka Mucic agreed: “Germany’s digital weak spots are clearly evident, particularly in public administration, education and healthcare,” he said. “I believe this is a focal point from which many initiatives will and must emerge,” said Mucic. “Another obstacle is federalism, which now works to our disadvantage because it leads to fragmentation. Austria has managed to optimise the coordination of the individual federal levels much better than we have.”

Germany Is Lagging behind in International Comparison

When it comes to the use of digital technologies, the German economy ranks only 18th out of 28 among European countries. “The corporate landscape here in Germany is characterised by small and medium-sized enterprises that are more hesitant with regard to adopting new technologies,” explained Bertschek. “Also, concerns about data protection and data security are more pronounced in Germany than in other countries. The GAIA-X cloud project initiated by the German government gives hope that infrastructures are created which meet European standards and are used by European companies and public authorities.” She also pointed out that the German economy has very successful years behind it. “For many, this is a reason not to worry about digitalisation. It can also be an obstacle if things go well.”

As figures from ZEW show, only six per cent of all companies in Germany have been using AI applications so far. Mucic said that, “in order to establish a powerful and robust AI, you need a large amount of data that is as reliable as possible. We still lack data pools, especially in comparison to China and the USA.” Here, too, the topic of data security plays a role. “We need to develop an overarching European data strategy and provide better access to data platforms in line with data protection regulations, from which industrial applications can then be developed,” Mucic demanded.

Path to a Successful Future Lies in Technology and Innovation

ZEW researcher Bertschek expressed the hope that the COVID-19 crisis will give the German economy a permanent boost towards digitalisation. “However, remote work and video conferencing are certainly not enough. We have to develop new products and services and use this momentum to take a leap forward. The digital infrastructure and a data strategy are the prerequisites for this.” She was confident that these prerequisites would now be created. “The course has been set at the political level. With this package of measures, the German government has sent a signal that the path to a successful future lies in technology and innovation.”

Luka Mucic agreed that policymakers had mastered the crisis well. “We must now invest the same energy in sustainable programmes. We need to promote AI, digitalisation in public administration, and generally improve the framework conditions for digital innovation. To achieve this, we need tax incentives for innovation processes, a good balance between data use and data protection, and processes to promote cloud computing,” explained Mucic. “I believe that we will see a sustained surge in digitalisation, particularly in the private sector, but also in public administration,” he predicted.