Roundtable

Competition and Cooperation: Systematic Challenges

Chair:
Peter Engardio
Senior Writer, BusinessWeek (retired)

Mr. Engardio introduced the roundtable by reporting to his German hosts that there was a great deal of interest in Germany on the part of Americans, “a kind of ‘Germany envy.’ Everybody marvels at how Germany can continue to be such a productive industrial power and exporter, given a higher cost base than the United States. He recalled an issue of BusinessWeek magazine that called Germany “Japan on the Rhine” in 2003—which was not then taken as a compliment. As a result, he said, many U.S. scholars are studying how Germany’s innovation systems function, and how the United States might do better. Germany’s heavy emphasis in innovation strategy is to promote areas where the country seems weak, such as entrepreneurism, transferring university research to the private sector, and public-private partnerships.

He then recalled that when Dr. Beyer spoke to the STEP Board in November 2010, he had noted one difference between the U.S. and German economies. That is, the United States is a highly entrepreneurial economy, while Germany emphasizes solid, steady progress. He asked whether this model would continue to serve Germany well in the coming decade, and also asked what the panel saw as their main innovation challenges.

SOME INNOVATION CHALLENGES FOR GERMANY

Dr. Beyer said that the situation today is somewhat more favorable for Germany than it had been the previous fall. He saw “quite a solid boom in the economy, with a lot of companies technologically competitive, especially the larger companies.” He said that some sectors of the labor market seemed to have reached full employment. He did see several challenges. First, “it is not self-evident that you can continue the huge increases in financing research and education in the public sector. This is a huge political task.” Second, it is uncertain how disruptive change, such as cloud computing, might transform



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PROCEEDINGS 101 Roundtable Competition and Cooperation: Systematic Challenges Chair: Peter Engardio Senior Writer, BusinessWeek (retired) Mr. Engardio introduced the roundtable by reporting to his German hosts that there was a great deal of interest in Germany on the part of Americans, “a kind of ‘Germany envy.’ Everybody marvels at how Germany can continue to be such a productive industrial power and exporter, given a higher cost base than the United States. He recalled an issue of BusinessWeek magazine that called Germany “Japan on the Rhine” in 2003—which was not then taken as a compliment. As a result, he said, many U.S. scholars are studying how Germany’s innovation systems function, and how the United States might do better. Germany’s heavy emphasis in innovation strategy is to promote areas where the country seems weak, such as entrepreneurism, transferring university research to the private sector, and public-private partnerships. He then recalled that when Dr. Beyer spoke to the STEP Board in November 2010, he had noted one difference between the U.S. and German economies. That is, the United States is a highly entrepreneurial economy, while Germany emphasizes solid, steady progress. He asked whether this model would continue to serve Germany well in the coming decade, and also asked what the panel saw as their main innovation challenges. SOME INNOVATION CHALLENGES FOR GERMANY Dr. Beyer said that the situation today is somewhat more favorable for Germany than it had been the previous fall. He saw “quite a solid boom in the economy, with a lot of companies technologically competitive, especially the larger companies.” He said that some sectors of the labor market seemed to have reached full employment. He did see several challenges. First, “it is not self- evident that you can continue the huge increases in financing research and education in the public sector. This is a huge political task.” Second, it is uncertain how disruptive change, such as cloud computing, might transform

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102 MEETING GLOBAL CHALLENGES companies for better or ill. Third, Germany will see demographic change accelerate around the end of this decade. Fourth, it will be “a huge challenge to make Germany attractive to the brightest talent.” And last, the energy sector must be reoriented toward control of emissions, with costs that are competitive for industry while the atomic energy sector is reduced. Mr. Engardio asked Mr. Curran whether he would start a new company in Germany or the United States. Mr. Curran said it would depend heavily on the type of company. He had started five companies, four in Germany and one in the United States. One was successful, and the others were “okay.” The success had less to do with which country it was in, he said, than the “good and fertile environment” of the location—in that case, near MIT in Massachusetts where the company, Component Software, was founded. “We were looking for people who were able to design a certain type of software, and at the time we would have had trouble finding those people in Germany. Also, given the culture, we would have had trouble convincing them to leave large organizations to join a startup. On the other hand, Germany is a very process oriented culture and economy, and if I wanted to design software for the automobile industry, I would consider doing it in Germany, where you have the engineering expertise and customers. In general, it’s more difficult in Germany to approach a large organization with a new innovation than it is in the United States.” Mr. Engardio asked whether Germany is developing a more competitive entrepreneurial ecosystem for new tech companies, or whether the United States is still the primary magnet? Mr. Curran said that in the United States 100 years ago, entrepreneurs and industrialists were regarded as heroes, and they were the first “globalizers of industrial thinking.” In the 1960s through 1980s, the United States continued to have many successful entrepreneurs, a tremendous belief in change, and a market eager for it. “In the late 1970s, Bill Gates would hawk his Altair computers at university fairs. There was a belief that something was going to happen that was larger and more important than going to work for a large organization. A respect for risk taking was in the culture.” “The first company I started,” he continued, “was in Berlin. I was 24 at the time, sort of stuck here, and I decided to start a company to make money. I had to go twice to the German better business bureau for interviews on whether I was qualified to start a business. It seemed strange, coming from the United States where I was recognized at the university for certain software skills. It seemed like a way to protect the rest of the culture and industry against entrepreneurs instead of encouraging them. THE IMPORTANCE OF AN ENTREPRENEURIAL CLIMATE “I’m very involved in venture capital and innovation,” he went on. “There has been a lot of change since I first came here, but even today, I think Germans still don’t have the same cultural and social motivations to be entrepreneurs. When I started at SAP, the company was seen as an

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PROCEEDINGS 103 entrepreneurial organization, but it was already 20 years old. It didn’t have the entrepreneurial flair it could have had in the United States. Today there are few companies in Germany to be partners with young software entrepreneurs or high-tech entrepreneurs, and despite the structural innovation going on, which is positive, there is still lack of talent and experience that would make it more comfortable for an entrepreneur to start here.” Mr. Engardio asked Dr. Beyer how important it was for Germany to have a more entrepreneurial climate, and how much it could be improved through policy. Mr. Beyer replied that it was “extremely important,” and that many people at all political levels were discussing the issue and working to improve it. There are now entrepreneurship programs in universities, for example, and “a lot of money is spent there.” Nearly every university had offerings in this area for students, he noted, “but it’s a question of the culture. It is also the question of giving people a second opportunity. Bankruptcy laws have recently been changed to give people another chance when they have failed as entrepreneurs. I would argue that we are moving forward—hard.” Mr. Engardio then asked what lessons Germany offers the United States. Mr. Dahlman answered that Germany has a “more developed process for taking knowledge into action.” The United States has focused more on breakthrough innovations, and hasn’t been as systematic about moving them to the market. “I’m most impressed by what we just heard about the changes in the education system in Germany, in particular the Excellence Initiative. I am most interested in how well that is doing, and the research metrics that are used for institutes that are very different from one another.” Mr. Wolff said that Germany’s emphasis on human capital is very impressive, as is the willingness to reexamine the education system with the understanding “that we live in a world of competition and that educational institutions have to compete.” This is true not only in Germany, he said, but across Europe and internationally. There has to be a metric to measure the universities’ contribution to society. Dr. Wessner said he was impressed by the diversity of opinions, including the view that EU policy should not support applied research, and the contrasting view in favor of the research supported by the Excellence Initiative. He also noted the strength of technical and vocational education in Germany. “The quality of educating the work force seems far superior here,” he said. “This is a major difference, and one that has an impact on manufacturing.” Mr. Curran said that his children had grown up in both systems. He had respect for the level and quality of vocational training in Germany. One drawback was that “there are many more vocational trainees than there are interesting positions for them,” but he found this “a good challenge to have.” A positive aspect, he said, was the custom of a high school graduate spending 1.5 or 2 years as a vocational trainee at a bank or large company. One of his sons had vocational training at an Internet company, where he could learn what was expected by industry, and the company could test his ability as a potential hire.

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104 MEETING GLOBAL CHALLENGES In the United States, he said, the broader education system offers many possibilities even to vocational trainees, but it creates a level of confusion for employers, who often cannot identify a student’s primary vocational skill. He also commented about excellent university initiatives in Germany, which large employers are eager to work with. But he warned of the danger of brain drain. He cited the example of India, where many of the top students from the IITs go to work elsewhere for global companies. “I think you need to be careful about equating excellence, elite, and innovation, as we seem to be doing in this room.” THE STRENGTH OF GERMAN APPRENTICESHIPS AND TECHNICAL TRAINING Mr. Beyer affirmed that apprenticeships and technical training “is obviously one of the underpinnings of the German economy.” Germany is specialized in engineering and technology, which would not be possible without such training. “That explains a lot of our success in exporting and increasing value added.” Also, he said, part of the success of the Excellence Initiative is its overwhelming support by the majority of observers and people involved, despite its different approach. A point not yet discussed, he said, is the current huge inflow of young people into German universities. “Politicians are trying to cope with this, but it will stop at the end of this decade, when numbers will decrease rapidly. You have to look ahead in questions like this and prepare policy.” This change, he said, would affect major features of education, including immigration, brain drain, and the inflow of bright students. Charles Ebinger of the Brookings Institution said he was struck by Prof. Mayer’s emphasis on quantitative measurements of success. In the states, he said, many evaluations are written that probably didn’t need to be, which he attributed to the “publish or perish mentality. We’re writing more and more about less relevant issues. Why do we not hear more about evaluating the quality of teaching and the time professors actually spend with students?” Mr. Wolff added that in the case of China, the abundance of patents was not surprising, given the centralized political system. “When you have a command economy,” he said, that promotes patenting and publishing, “you’re going to get a lot of utility model patents that haven’t had much review. And you’ll have a lot of papers written that don’t measure up.” He said that such figures are not helpful as metrics, but alternative metrics are not available.