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Challenge-driven economic policy: A new framework for Germany

Germany needs to develop a bold new industrial strategy that encompasses science, technology and innovation, financial and procurement policies.

Challenge-driven economic policy: A new framework for Germany

24 November 2020

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View the original working paper on the New Forum website.

Authors

  • Rainer Kattel | Deputy Director, UCL Institute of Innovation and Public Purpose
  • Mariana Mazzucato | Director, UCL Institute of Innovation and Public Purpose
  • Keno Haverkamp | PhD Student and Research Assistant, UCL Institute of Innovation and Public Purpose
  • Josh Ryan-Collins | Head of Finance and Macroeconomics, UCL Institute of Innovation and Public Purpose

Reference

Kattel, R., Mazzucato, M, Haverkamp, K. and Ryan-Collins, J. (2020). Challenge-driven economic policy: A new framework for Germany. Forum for a New Economy, Working Paper No. 5, 2020.

Abstract

German government is stepping into a new era with its COVID-19 recovery support measures. It is leaving behind its ordoliberal foundations which see the role of the state as making sure policy conditions enable markets to function properly. In this view, the state should fix market failures and leave the rest to industry. Already before the pandemic, German policy makers were showing increasing appetite to go beyond market-fixing and experiment with a more overt activist state. With the handling of COVID-19, Germany has taken another step in this direction– it is now at the forefront of taking bold policy action to reshape its economy in the face of the pandemic. Yet, this paper argues Germany’s public funding of R&D supports mostly incremental advances and its financial system is largely still funding carbon lock-in and value extraction rather than transforming the economy to deal with 21st century challenges. Germany needs to build on its recent economic policy initiatives, and successful institutions such as the KfW, and develop a bold new industrial strategy that encompasses science, technology and innovation, financial and procurement policies. The new industrial strategy is not about ‘more state’ or ‘less state’, but a different type of state. One that is able to act as an investor of first resort, catalysing new types of growth, and in so doing crowd in private sector investment and innovation which represent expectations about future growth areas. This requires a new form of collaboration between state and business – more about picking the willing than picking winners.