How can Germany drive digital growth?

Over the next four weeks, I’ll be travelling through the United States to explore how U.S. citizens balance digital innovation and data privacy as a Marshall Memorial Fellow. From my own country, Germany, I’m bringing two feelings for the trip as my mental luggage: envy and concern. Concern, because we are seeing various challenges to enabling consumers and citizens to navigate the new digital world. Envy, because we are at the same time afraid of losing out on the economic dynamic of digital innovation. Both feelings are struggling to win the upper hand.

If you ask entrepreneurs, however, the state of mind is much clearer: too much German angst, too little courage and progress. This is the diagnosis over Germany’s current role in shaping the digital future.

Recently, Angela Merkel’s governing Christian Democrats (CDU) organized a tour of Berlin’s digital start-up scene.  Whatever optimism participants might have felt after visiting several buzzing start-ups was quickly tempered by Hasso Plattner, founder of software company SAP. Germany, once a pioneer in innovation, had been to slow in its transformation from its traditional focus on engineering to developing interface solutions for smartphones, tablets, self-driving cars – all innovations originating from outside Germany, he claimed. Without taking radical steps, Germany would fall behind in economic competitiveness on the global market. A prediction that sounds scary to Germans who pride themselves for their export balance (and have already taken a blow with the Volkswagen scandal).

The dominant internet companies are coming from the USA. Facebook, Amazon, Apple and Google have built empires with data. There is not a single equivalent in Germany or Europe. Naturally, the lack of competition has led to a dominant market share. For example, Google’s market share has been above 90 per cent in Europe for years now. The European Union has tried time and again to level the playing field and seems to have found renewed confidence to take on the internet giant. Günther Oettinger, the European Commissioner in charge of digital economy, has not been shy in defending his regulatory agenda in Silicon Valley.

Regardless of these steps, Germans seem to favor the incumbent companies over fledgling European competitors. Even where alternatives exist, consumers apparently prefer the services and offerings of Silicon Valley’s big players.

At the same time, and not without irony, German customers are worried about the collection of their personal data and threats to their privacy. Data protection is important to Germans. According to a current survey of the Federation of German Consumer Organizations, 97 percent of consumers in Germany do not want companies or government to use their data for other purposes than they explicitly agreed to. Nevertheless, they entrust their data to companies which do not have to adhere to the strict data protection standards in Germany.

This leads to a situation where German companies are restricted in developing business models based on data while US companies are free to collect bid data in Europe. Or as Chancellor Merkel noted in Berlin: “We do not allow for our data to be turned into revenue in Germany – thereby leaving the field to Americans who are already doing it.”

Data are the driving force for innovation. Not just the internet giants but also startups such as AllyApps are testament to that. AllyApps is selling anonymized traffic data. Without data, they wouldn’t exist, according to managing director Tom Kirschbaum. If we want innovation in this country, he says, we need to release the data.

Key questions to address for me during my Marshall Memorial Fellowship include: Who owns the data (anonymized or not), that could drive growth and revenue for companies old and new? And if data is the most important currency of the digital age, why shouldn’t the owner of the data, the users, earn too?

Protection and innovation are the two competing positions in Germany. German entrepreneurs are looking enviously to the innovative power of the U.S. economy, which is also built on the loose handling of data, while German citizens and regulators are concerned first and foremost with the safety of their personal data. Reading the Süddeutsche Zeitung, one of Germany’s leading dailies on my flight from Frankfurt to Washington DC, I found ample proof of this conflict: one article describes how European start-ups make the pilgrimage to California to find insights and capital that they can’t get at home. The article right next to it covers the decision by the Attorney General of the European Court to challenge the EU Commission’s decision for a free data transfer to the US (Safe Harbour Agreement), because it is in violation to the Charter of Fundamental Rights of the EU.

Germany and Europe will need to find a way to reconcile envy and concern. The U.S. might face challenges of its own. In a world of ever closer connectedness and a quickly growing digital economy surpassing national boundaries, I believe it is essential to find these answers through a dialogue just as connected and transnational. I’m looking forward to contributing to it over the next four weeks.

This article is published in collaboration with The German Marshall Fund of the United States. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Mirjam Stegherr is head of communications and a member of the Executive Committee of the Federation of German Consumer Organisations.

Image: A German national flag is seen atop the Reichstag building. REUTERS/Fabrizio Bensch.