Political upheaval as the last chance: the digital transformation as a question of survival for Germany

The political events of recent weeks have had a direct impact on Germany. The keyword here is digital transformation, especially in product development and systems engineering. Germany is still at the very beginning of this transformation, while the USA is right in the middle of it.

Less visible aspects also play a role: for example, the fact that the USA is now the largest producer of oil and gas, overtaking Saudi Arabia and Russia, has barely made the headlines.

The geopolitical interests of Trump and Musk have a direct impact on Germany's upcoming digital transformation and that is what this article is about. And one way that I see that Germany could still turn the tide. But that requires political courage.

The automotive industry is visible, but not alone

The crisis-ridden automotive industry will suffer from the new constellation for two reasons: Firstly, it is already becoming apparent that German cars will be affected by protective tariffs in the USA. This is not surprising because Trump already addressed the issue in 2017 when he was first elected president.

Angela, how many Chevrolets do we have in Berlin?

Donald Trump (2017)

The German automotive industry has at least already adapted to Trump's policy: A large proportion of German cars for the US market are already manufactured there. The pressure will certainly increase to increase this proportion.

Secondly, Elon Musk will become one of Trump's most important economic advisors. In other words, the CEO of the world's most valuable car manufacturer is now working closely with the head of state of what is still the most influential country in the world. It is likely that this will influence Tesla's interests to the detriment of the German automotive industry.

Even if the media has focused on the automotive industry, protectionism is not limited to this industry. The entire SME sector in Germany is suffering and reacting accordingly: with bankruptcies and closures, which is leading to an outflow of skilled workers abroad, among other things.

Deindustrialization of Germany?

The 2022 energy crisis has once again significantly intensified the debate about the deindustrialization of Germany. However, the topic has been brought up regularly since the beginning of the century: first because of the financial crisis (2008), then in the 2010s because of climate change. And now because of energy prices. But this is exaggerated and not the only reason, as the economic service confirms.

As a country with few raw materials, Germany must focus on its strengths in human capital. A focus should be placed on strengthening education and training in order to align the level of qualifications with the new requirements of tomorrow's digital industry.

Economic service

There are a number of other causes. In addition to the digitalization of the industry, these include poor framework conditions, from lack of private capitaltoo much bureaucracy, protectionism and unrealistic subsidies.

The role of energy policy

Nevertheless, at least part of the problem was caused by an energy policy in the 2000s and 2010s that, in retrospect, turned out to be highly risky. Low energy prices masked many structural problems in Germany and made products cheaper than they should have been. Many infrastructure projects that are intertwined with energy policy have also fallen by the wayside. These include, in particular, the electricity grid (construction of power lines) and the railroads, which are largely electrified.

However, a look at the USA shows that cheap energy can also have a transformative effect. This is because the USA has continuously expanded fracking since the early 2000s. As a result, the USA has now overtaken Saudi Arabia and Russia to become the world's largest producer of fossil fuels. And that will not change under Donald Trump.

Since 2019, the USA has exported more energy than it consumes

The Economist

While cheap energy (before the Ukraine war) has made Germany complacent and lazy, the US has used the resulting value to drive digital transformation.

Systems engineering: more development, less production

The bad news in the media is the closure of at least three Volkswagen plants. But this is a sign of the times, no matter what Donald Trump says: manufacturing is becoming a "commodity", the real value creation takes place in development.

I even see it as an opportunity that the place of development and the place of manufacture are often not identical and do not have to be identical: The computer industry has long since shown us how. As it says so beautifully on Apple products, for example: "Designed in California, Made in China". There is still an opportunity here to restore the reputation of "German engineering".

And the reason for positioning this topic in this blog: We (systems engineers) have little or no influence on many factors. But development is precisely the area in which we can make a difference.

Driving forward the digital transformation in Germany

I had actually hoped that the Diesel scandal from 2015 would be a wake-up call to make "Engineering made in Germany" what it used to be. Especially because just a few years earlier, in 2012, Google had announced with a bang that test vehicles had already covered half a million kilometers autonomously at the time. Oliver Beige put it nicely in the embedded tweet: "The USA is struggling with the social consequences of its entry into the information age, while Germany is struggling with the economic consequences of its failure."

Unfortunately, we have made much slower progress with the digital transformation than I would have liked. As a result, we are unprepared for a President Trump who will indirectly increase the pressure on Germany. Indirectly, because Germany is becoming less and less important.

Digital transformation is a management issue

I am not (only) talking about corporate governance, but in particular also about the leadership of a country (Germany) or business association (EU). In this respect, the new government to be elected at the beginning of next year will have a signal effect: Do we carry on as before? Will the populists win? Or will we achieve a turnaround?

With its long-standing tradition in the environmental sector, Germany is in a unique position worldwide to combine the drastically increasing challenges of climate change with an economic policy that simultaneously enables the digital transformation. This is where I see the opportunity for Germany, not in the automotive sector. The train (sorry, the bus) has left the station.