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Industry: Strengthening the Location, Ensuring Competitiveness
As a driver of research and development, a pioneer in the use of climate and environmental technologies, and a key component of value creation chains, industry decisively shapes economic development in Germany and Europe.
It is a significant employer and trainer, ensuring well-paid jobs in this country through its productivity.
The industrial core also forms the basis of the Industry Network at the German location – a close association of producers, suppliers, and service providers with start-ups, small and medium-sized enterprises, and major industry players. The Industry Network faces a multitude of challenges such as digital and green transformation and demographic change, which put business models under pressure and demand new processes, products, and services. In addition to a challenging economic situation within the industry, there are growing structural deficits at the German location. These include sluggish planning and approval procedures, high energy costs, and a multitude of bureaucratic requirements. The domestic location is losing attractiveness. As a result, necessary investments, particularly in the Industry Network, are either not made or undertaken at other locations – even outside Europe. This not only sets back Germany as an industrial location but also Europe in many cases.
Therefore, it is all the more important to pursue policies aimed at improving location factors based on market economy principles. Such horizontal industrial policies benefit the broader economy. Vertical industrial policies in the form of selective government interventions, however, can create market-distorting effects and should only be used in particularly well-reasoned exceptional cases.
The following guidelines should shape economic policy actions:
To preserve and strengthen Germany as an industrial location, reliable framework conditions for businesses are essential. These provide the necessary planning security required for investments. The key site conditions for industry include affordable, reliable and climate-friendly energy supplies, well-developed infrastructure such as high-quality transport links, comprehensive digital networks, and sufficient readily available industrial and commercial space.
Furthermore, long-term planning security for raw material supplies and well-trained professionals are required. An internationally competitive industrial base also needs a modern tax system, reduced bureaucracy and digitalized administration. Overall, national and European regulations should place greater emphasis on the competitiveness of German and European industries compared to their global counterparts, and stimulate investment readiness.
To strengthen value chains in this country, businesses need functional site conditions as well as an innovation-friendly environment covering all parts of the value chain. This requires broad, flexible, technology-neutral and low-bureaucracy approaches to research policy, including innovation-friendly tender processes by public authorities and a greater use of cross-sectional technologies relevant to industry. These include the dynamic application and development of Artificial Intelligence (AI) in business and science. Political action is required to make framework conditions more practical, enabling businesses to make use of AI applications while maximizing opportunities to increase productivity.
Companies are essentially responsible for independently shaping their path to sustainability or resilience—primarily through their own diversification measures. The EU should support these diversification measures in businesses, such as by concluding new trade agreements, which can result in additional options for businesses. For EU critical dependencies on other countries, clearly defined and targeted state measures can be a meaningful complement. Instead of unilateral national actions, the EU should coordinate such initiatives at a European level (e.g., within "Important Projects of Common European Interest") and pursue them only in close consultation with businesses. However, such interference should only be used in very few and well-founded exceptional cases.
Looking ahead, it is crucial to eliminate the causes of a partially lost connection in key technological fields. This primarily includes adapting corporate framework conditions so that future innovative technologies, including mid- and high-tech, can be developed and produced globally competitively by companies within the EU. This would prevent the creation of import dependencies for strategically important products in the future.
As a strongly export-oriented nation, Germany as an industrial location depends on open markets and foreign capital. Competitive locational factors help to attract foreign capital to the country. This also includes property protection and the free movement of capital as pillars of the market economy order. Companies should be able to freely dispose of their property in order to respond to market changes. Therefore, governmental restrictions on selling companies or parts thereof to foreign investors should be very well justified and subject to judicial review. Policymakers should ensure that state interventions in foreign capital participation in German companies remain the exception. Interventions should primarily serve to maintain public security and order. For some parts of the organisation of the German Chamber of Commerce and Industry (IHK), state interventions should also apply to other (key) technologies.
Clusters play a significant role in connecting stakeholders such as businesses, academic institutions, civil society, and political entities — spanning various industries and technologies. By fostering research, innovation, and entrepreneurial dynamism, clusters can initiate transformative processes. Further synergies can be unlocked through deeper networking among cluster initiatives. However, successful clusters cannot be politically mandated; they require medium- to long-term sustainable structures. Political activity should be grounded in the needs and actions of local businesses ("Bottom-up" approach). Cluster support, such as for cluster management, should be regularly evaluated, extended for adequate periods, and designed to be progressively phased out.
Industry plays a vital role in achieving climate protection goals. It is also a problem solver for challenges such as digitalisation and demographic change. To achieve this, private sector expenditures for research and development (R&D) are needed—mostly in industry. New technologies should also be societally understood and accepted. This is especially crucial considering the global race for innovations. Hence, it is necessary to better highlight industry's importance for innovation, employment, and prosperity than before: Media and regional industry initiatives involving businesses and the German Chambers of Commerce and Industry (IHKs) are of significant importance here.
To foster receptiveness to technological progress, economy, politics, media, as well as schools and universities should work even closer together than before—at regional, national, and European levels. Interest and a better understanding of industries, innovation, and technologies should already be cultivated during school education. (compare Chapter "Securing Skilled Labour: Strengthening Vocational Education—Realising Potential")
