highly-skilled work force; a longstanding “dual system” of education/apprenticeship, which marries academic learning and practical skills; the export prowess of Germany’s small and medium enterprise (Mittelstand), which dominates hundreds of world markets for niche technologies; a web of mutually-supporting networks of companies, associations, and research organizations that can address complex technological challenges and diffuse technology through collaboration; and the excellence of German engineering and manufacturing technology in companies of all sizes. The Fraunhofer plays a central role in supporting all of these aspects of German competitive strength.

Reflecting Germany’s international competitive performance, the Fraunhofer is probably the world’s most thoroughly studied applied research organization, with other countries examining the question of whether they could apply the “Fraunhofer model” wholly or partially and emulate Germany’s success. Of particular interest is Fraunhofer’s role in Germany’s abiding strength in “traditional” industries which have eroded in other developed economies, such as automobiles and machinery. Germany companies have remained competitive in these sectors through a continual process of incremental improvement in existing products and processes, an approach that may not yield technological breakthroughs but builds a competitive edge over a long timeframe. The Fraunhofer emphasizes performance of a large number of short-term research projects that have near-term commercial impact, an approach which reinforces the German method of incremental innovation. It continually diffuses competitively relevant innovation technology throughout the German economy and trains highly-skilled engineers, technicians and managers. Public funding of the Fraunhofer reflects a longstanding German national consensus that public investments must be made in research infrastructure that includes infrastructure for applied research with commercial relevance. 1

It is important, however, not to overrate the impact and the importance of Fraunhofer Gesellschaft for the German research and innovation system. While Fraunhofer Gesellschaft have contributed in significant ways to the recent success of German industry, this success has also rested on factors such as the high demand for capital goods/machinery by emerging economies and the match of this demand with Germany’s industry profile. Other factors supporting German competitiveness include a competitive currency, worker training programs, policies to subsidize the retention of skilled workers in economic downturns, and a dense network of supporting institutions, including localized banks with long-term relationships with Mittlestand firms.2

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1Dirk-Meints Polter, a former Fraunhofer deputy director, addressed this point in 1992, characterizing “subsidy,” as a misleading word: “we see ourselves as part of a scientific and technological infrastructure that is provided by the government, just as phones and roads are provided.” New Scientist. 1992. “German Innovation, British Imitation.” November 21.

2Additional instruments include innovation vouchers and Industrial Collective Research institutes. “In numerous Länder, including North Rhine-Westphalia, Baden-Württemberg and Bavaria,



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