International cooperation in an interconnected world

June 24, 2024
BGD Insights
BGD Insights

How can Germany adapt to a changing economic and geopolitical reality? Jörg Kukies, State Secretary at the German Chancellery, discusses the country's new role in an interconnected world - and what it takes to remain globally competitive.

Interviewed by Klara Marie Schroeder

Both the geopolitical and economic situation have changed drastically since you joined German Chancellor Olaf Scholz as State Secretary in 2021. What are the three biggest challenges the globalized economy is facing?

The world has changed dramatically during last years.

First: The Russian war of aggression against Ukraine does not only mean suffering for the Ukrainian population. It has also led to disruptions in food security and global energy markets. This latter is particularly relevant for Germany as a large industrial energy importer – but primarily, food and energy insecurity hit the most vulnerable in the world disproportionally.

Second: Trade conflicts and sanctions are increasing:  Escalations in geopolitical tensions lead to trade conflicts between countries, which affect international trade and disrupt supply chains. In addition, sanctions against certain countries affect business relationships and access to markets.

Third:  Global climate change requires a transformation of the economy and global action. The Dubai Consensus to triple renewable energy, double energy efficiency rates, and transition away from fossil fuels underscores that there is still the will to act globally. Transformation is not a zero-sum game. If we shape it together, every country can determine its place in climate-neutral value chains. For successful industrial transformation, we need to develop common solutions and guardrails. The Climate Club, which now has 38 members from all regions of the world, is helping us with this. Mobilizing capital for transformation remains a major challenge. We need to expand the donor base and activate private investments.

In an increasingly interconnected world, these challenges can only be met through enhanced international cooperation, especially with partners in the Global South.

As an export nation, what are Germany’s main challenges in times of increased geopolitical tensions and trade wars? Is the German business model still working?

Germany, as an export-oriented economy, is particularly exposed to geopolitical tensions and trade wars. The resulting challenges include disruptions in supply chains, lower demand for German goods due to tariffs or trade barriers, and uncertainty impacting investment decisions. The German business model, known for its focus on manufacturing, innovation, and trade, can weather these storms. Market diversification, investments in technology and innovation, and strategic partnerships help Germany remain competitive in changing global dynamics.

Strong medium-sized companies, the so-called Mittelstand, are crucial to the German economy. How can we help them adapt to this new economic era?

The German Mittelstand is the backbone of our economy. All measures to support the economy – i.e. addressing the skill shortage, reducing the administrative burden, accelerating planning and approval processes, and ensuring safe and affordable energy – therefore also benefit the many small and medium-sized companies. To help medium-sized companies adapt to the new economic era, we are working on improving their access to digital technologies, digital infrastructure, and innovation support. Simplified regulatory processes, i.e. as little bureaucracy as possible, and the provision of tax incentives can further support their growth. In addition, promoting connections between medium-sized companies and research institutions will drive technological progress and competitiveness.

The current rise in populism demonstrates that the success of democratic systems is closely tied to an equal distribution of wealth. Do we need to rethink Germany’s social market economy for the 21st century?

I disagree that populism is rooted in rising inequality. Populism is a phenomenon that is spreading in many countries with very different economic developments. In Germany, for example, income inequality has been relatively stable for around 20 years, and yet there are populist tendencies here, too. I see populism more as an expression of an increasingly uncertain and confusing world. The social market economy in Germany, which emerged after the Second World War, aims to combine a market-based economy with social policies that ensure fair competition and social welfare. This model was largely successful and contributed to Germany's economic stability and social cohesion.

Many governments are reintroducing or increasing tariffs and promoting a more active industrial policy. How can we respond at a European level to remain competitive in this new geo-economic era?

To remain competitive, the EU must make competitiveness a top priority. This will be one of most important tasks of the new commission. We need concrete improvements to promote integration of the internal market. Companies need to exploit economies of scale more consistently. This is central to growth and for a successful transformation. Openness and integration into the world market are absolutely essential for our competitiveness and resilience, and for the innovation and growth of our companies. Moreover, we need to simplify regulatory frameworks, reduce bureaucratic burden, and invest in faster permitting and approval procedures.

Europe has a persistent gap with the US in net investments, with the US attracting $210 billion more in greenfield foreign direct investment in the first three quarters of 2023. Why?

Europe does not have to hide behind the US. In recent years, numerous large international corporations have settled in Germany. Investments by global corporations such as Tesla in Brandenburg, Intel in Magdeburg, TSMC in Dresden, Eli Lilly in Alzey, Daiichi Sankyo in Pfaffenhofen, Northvolt near Hamburg, Microsoft in North Rhine-Westphalia and Amazon's plans for a data center in Brandenburg show the attractiveness of Germany as a business location. I expressly welcome the fact that companies are also investing globally because the transformation of industry towards climate neutrality must also progress there.

Berlin Global Dialogue promotes the exchange between business, government, and academia. Your personal career is an embodiment of that. From your experience, what does it take to improve cooperation between the public and private sectors?

Improving cooperation between the public and private sectors requires fostering open communication, building trust, and establishing shared goals. We need to encourage public-private partnerships by creating collaborative frameworks and incentives. Regular dialogues, like Berlin Global Dialogue, facilitate mutual understanding.

Jörg Kukies is State Secretary at the Federal Chancellery of Germany, where he works on climate, economic, finance, and European policy.

He is the Chief Economic Advisor to German Chancellor Olaf Scholz, and serves as Germany's G7 and G20 Sherpa. Previously, Kukies was Co-Head of Germany and Austria at Goldman Sachs and Head of Equity Derivatives for Europe, the Middle East, and Africa for Goldman Sachs International.

Jörg Kukies has a Ph.D. in finance from the University of Chicago, a Master of Public Administration from the Harvard Kennedy School, and a Bachelor in economics from Pantheon-Sorbonne University, Paris.

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