How does Germany’s innovation performance compare to other OECD countries?
Key indicators show Germany belonging to the countries in the OECD with strong innovation activity, as reflected in one of the upper ranks in the number of patents filed per population and above average levels of R&D spending in terms of GDP. Some weakening in Germany’s position relative to other OECD countries has occurred over the last one or so decade. While the redirection of resources towards unification-related spending as well as low economic growth has contributed to this development, more fundamental structural issues have also played a role. Germany has benefited less than other high-performing countries from the surge in new technologies, such as ICT and biotechnology, as innovation activities continue to focus on sectors such as machinery and automobiles in which Germany has a long record of strong export performance.
1. Patent families filed at the European Patent Office, the US Patent and Trademark Office and the Japanese Patent Office. Data for 1999 are OECD estimates.
Source: OECD, Patents and Main Science & Technology Indicators Databases.
Innovation in 'high-tech' industries
Specialisation index, average 1992-2000 1
1. Share of country X (in OECD total) in ICT or biotechnology divided by share of country X (in OECD total) of all patent applications to the European Patent Office. Index greater than 1 indicates relatively specialised.
Source: OECD, Main Science & Technology Indicators Database.
How can additional reforms for higher education, immigration, capital and labour markets improve innovation performance?
The supply of well trained and highly qualified labour is a key contribution to innovation performance, in particular the generation and diffusion of knowledge. The efficiency of the German tertiary education system is relatively low, as witnessed by long study durations and high drop-out rates. While the government plans to promote a competition based selection of a small number of additionally funded high performance universities, a broader approach is required to raise the performance of tertiary education overall. Within the university sector itself, a greater degree of competition among institutions should be established. Major measures should include:
Institutional reform in the secondary education system toward a clearer focus on outcomes, as outlined in the 2003 Economic Survey.
Better preparation in the non-academic track to direct university entry.
Bureaucratic allocation of students to universities should be given up and universities obtain more discretion to choose students.
The allocation of public sector funding should be linked to performance indicators.
Consideration should be given to allowing universities to levy tuition fees from their students, enabling students to act as purchasers of the universities’ services at the institution of their choice. The distributional issue could be addressed by obliging students to pay such fees in instalments only after graduation and provided that their income exceeds a certain threshold.
Universities should be given more autonomy with respect to the use of funds and their personnel management.
Graduation rates and spending in tertiary education
1. Rates are estimated as [number of graduates]/[population of typical graduation age]. Tertiary-type A programmes provide qualifications for advanced research or higher skill professions. Tertiary-type B programmes focus on practical, technical or occupational skills.
2. Cumulative spending on educational institutions over study duration (average duration of tertiary studies).
Source: OECD, Education at a Glance 2003.
Net migration to Germany appears significantly biased toward low qualifications. On average, immigrants have significantly lower qualifications than the domestic population. The relatively high tax wedge is a disadvantage for Germany to be chosen as a location by internationally mobile high-skilled workers. New immigration legislation that aims at introducing qualification standards for immigrants seeking dependent and self-employment in Germany has been decided. Legislation along these lines that raises the qualification profile of immigrants should be implemented.
Some features of the regulation of capital, product and labour markets are hampering the supply of risk capital, the creation of new firms and the reallocation of labour. In addition, firms are finding it increasingly difficult to recruit highly qualified labour. The government envisages a policy initiative to foster innovation. Several reform proposals addressed above are equally appropriate to improve the framework conditions for innovation. To summarise, the following points are of particular importance:
Reform the taxation of capital in order to remove disincentives to take risks and to provide capital to new rather than to established firms;
Raise the efficiency of the higher education sector, inter alia by improving access and giving universities more autonomy and incentives to attract students;
Evaluate government-funded innovation programmes more consistently in order to increase efficiency and eliminate ineffective subsidies;
Remove hurdles to firm creation by reducing the complexity of the tax system, taking further steps to reduce administrative opacity and further reducing the costs imposed by employment protection.
The full edition of the OECD Economic Survey for Germany is available from:
Return to the OECD Economic Survey - Germany 2004 homepage
A printer-friendly Policy Brief (pdf format) may also be downloaded. The Policy Brief contains the OECD assessment and recommendations, but does not include all of the charts available from the above pages