Austerity marks German spending plans but research is still a priority

The German government pumped billions into stimulus measures over the past two years in a bid to head off the worst effects of the financial crisis - and in doing has emerged with one of Europe’s strongest economies. The German economy grew 3.7 percent in 2010 and reached record levels of employment.

But despite the apparent success of the stimulus, critics say that it will take more long-term efforts by the government to support the climate for innovation in Germany.  To take one example, higher education institutions did receive funds from a €17 billion public investment package, as part of a €50 billion financial aid packaged approved in January 2009. But most of that went towards things like renovating buildings, rather than on new laboratories, or improving training, which would improve Germany’s ability to compete, according to Gero Stenke, director of Germany’s Stifterverband, a German industry initiative to promote science and learning. “The funds did not have that much directly to do with promoting R&D,” he notes.

The Expert Forum on Research and Innovation (EFI), an independent commission established in 2007 to advise the German government on its innovation policy, has also been critical of the government’s aid packages for not being focused enough on supporting research and innovation.

A need to focus innovation investment

Stenke also said that other measures, such as designating €500 million up to the end of 2011 to support development of electric vehicle technologies, could have been more effective use if the government had invested the funds in one or two pilot projects, rather than spreading it out over eight cities and regions across the country. “This is typical federalism,” said Stenke, referring to a political system that gives each of the country’s 16 states a large degree of autonomy.

And now, while Germany may have weathered the financial storm, other European countries are mired in debt, and austerity is the buzzword in German political corridors. The government has committed itself to lowering debt over the next four years, with new federal borrowing to be cut from around €65 billion in 2010 to €57.5 billion this year. Further decreases are planned, of €40.1 billion in 2012, €31.6 billion in 2013 and €24.1 billion in 2014.

Strong commitment – on paper

So where does that leave German spending on innovation and technology? Certainly on paper, the commitment remains strong. In November, the government voted to increase the Federal Ministry of Education and Research’s budget for 2011 by €789 million - or more than 7.2 percent over 2010 - to a total of €11.6 billion. The increase reflects, “The willingness of the federal government to invest in Germany’s future,” the Minister for Education and Research Annette Schavan said at the time, noting that such moves anchor education and research in the federal budget on a long-term basis.

Specifically, about €910 million of that will go towards the Pact for Higher Education, an effort to increase the number of places available and improve research at universities. Another €140 million will be invested in improving the teaching quality of higher education. And €327 million will be put into the Initiative for Excellence, an ongoing programme to create “elite universities” that compete with one another for additional funding.

Funding for new technologies

The government will also increase basic funding for large research organisations by another €228 million. Support is also continued for the Pact for Research and Innovation, which guarantees German research organisations an annual funding increase of 5 percent.

In the areas of new technologies, €500 million will be invested this year in life sciences projects and another €709 million in new technologies, with a focus on electric vehicle and battery research and on photovoltaics. Some €131 million will also be put towards funding for the High-Tech Strategy - the government research and innovation policy programme - with a focus on Germany’s Cluster Competition, improved validation of research results, and cooperation between industry and research.

Innovation system survives the crisis

The moves show the government is taking the EFI’s criticisms seriously, and indeed in its 2010 report, the EFI declared that the innovation system had come relatively well through the crisis, with appropriate importance attached to research, innovation and education in the plans of the federal government.

But the lack of a dedicated R&D tax credit for companies that invest heavily in basic research is still an obstacle, according to EFI chairman Dietmar Harhoff, also Director of the Institute for Innovation Research, Technology Management and Entrepreneurship at the Ludwig-Maximilians-University in Munich.  “We are frustrated at the lack of political action on the R&D tax credit,” he notes, pointing to the success that France has achieved with such a scheme.

Changes to innovation policy

Reinhard Prügl, Chair of Innovation, Technology and Entrepreneurship at Zeppelin University in Friedrichshafen, Germany, says he sees indications the government is now ready to focus on changes in its innovation policy. “There have been some measures taken that show a stronger long-term orientation,” he notes.

One such effort is the creation of Innovationsdialog, a committee made up of representatives from science, the economy and politics, to address issues related to finance and innovation policy. In April, the committee will present recommendations on the topics of innovation clusters and innovation culture to the government.

But Prügl says there is still room for new ideas. “I see reluctance to emphasise topics such as the development of a national open innovation strategy,  business model innovation or technological competence leveraging, the systematic search for and application of technological knowledge in new markets. This is especially important as a way to decrease dependency on a single industry.”