GA Trade July-Aug 2014 - page 14

Dominates the
U.S. in Innovation
eading the headlines, you
might think that themost
urgent question about national
success in innovation and growth
is whether the U.S. or China should
get the goldmedal. The truth is:
Germanywins hands down.
Germany does a better job on
innovation in areas as diverse
as sustainable energy systems,
molecular biotech, lasers, and
experimental software engineering.
Indeed, as part of an effort to learn
fromGermany about effective
innovation, U.S. states have encour-
aged the Fraunhofer Society, a
German applied-science think tank,
to set up no fewer than seven
institutes inAmerica.
True, Americans dowell at inventing.
TheU.S. has theworld’smost sophisti-
cated system of financing radical
ideas, and the results have been
impressive, fromGoogle to Facebook
to Twitter. But the fairy tale that the
U.S. is better at radical innovation
than other countries has been shown
in repeated studies to be untrue.
Germany is just as good as theU.S. in
themost radical technologies.
What’smore important, Germany is
better at adapting inventions to
industry and spreading them through-
out the business sector. MuchGerman
innovation involves infusing old
products and processeswith new
ideas and capabilities or recombining
elements of old, stagnant sectors into
new, vibrant ones.
Germany’s style of innovation
explains itsmanufacturing prowess.
For example, many, if notmost, of
the Chinese productswe buy every
day are produced byGerman-made
machinery, and the companies that
make them are thriving.
It also explains why Germany’s
industrial base hasn’t been decimat-
ed, as America’s has. Germany is
better at sustaining employment
growth and productivity, while
expanding citizens’ real incomes.
Evenwithwages and benefits that
are higher than those in the U.S. by
66%, manufacturing in Germany
employed 22% of the workforce and
contributed 21% of GDP in 2010.
The bottom line: Germanmanufac-
turers are contributing significantly
to employment growth and real
income expansion.
In the U.S., by contrast, fewer and
fewer people are employed in
middle-class manufacturing jobs. In
2010, just under 11% of the work-
force was employed inmanufactur-
ing, andmanufacturing contributed
13% of GDP. Inequality is on the rise,
and the country’s balance of pay-
ments is gettingworse.
Three factors
are at work here:
Germany understands that innova-
tionmust result in productivity gains
that are widespread, rather than
concentrated in the high-tech sector
of themoment. As a consequence,
Germany doesn’t only seek to form
new industries, it also infuses its
ByDanBreznitz, Universityof Toronto
GermanAmerican Trade July/Aug 2014
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