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Covid-19 and Global Value Chains in the Industrial Health Economy

Thanks to an efficient health care industry, thus far Germany has been able to cope very well with the corona crisis. However, as the world’s pharmacy, Germany is losing ground. Its resilience to crises must be further increased and its competitiveness strengthened. Germany and Europe need targeted foreign health policy and a resolute industrial policy. Considering that globalisation will continue despite the coronavirus, compartmentalisation is not an option.

The corona crisis shows how quickly the topic of health can become the focus of our social, political and economic activities. One thing is clear: the performance of the industrial healthcare industry in Germany is one of the keys why Germany is on average coping better with the Corona crisis than other countries. “Made in Germany” for diagnostics, medical devices, pharmaceuticals, biotechnology, and information and communication technology (ICT) continues to be an international seal of quality. The industrial healthcare industry is competitive and has positively contributed to the German trade balance for years: according to the IFO institute, the trade surplus in medical goods in 2019 stood at 37 billion Euros.

The “Pharmacy of the World” Loses Ground in International Competition

Germany is one of the top 5 industrial healthcare industries worldwide. The companies operating in Germany cover almost all areas of this value chain – from research and development to production and sales. This is a decisive criterion for securing European sovereignty and crisis resilience in medical care. In order to ensure the future preservation of all sub-sectors of industry in Germany and thus of the entire value-added chain, the industrial healthcare industry needs political and social backing. This is the only way to stabilise the entire value chain.

Innovation Driven Elsewhere

For years now, a worrying trend has appeared in the industrial healthcare economy: Germany is losing ground to other countries, particularly the United States and Asian countries. This affects all important future-oriented fields of the industrial healthcare economy, for example digitalisation in the medical technology and pharmaceutical sector, clinical research, and highly innovative biotech production. Thus, the number of biotech start-ups in Germany is sharply declining. Their financing with venture capital is below average. New investments, particularly in novel therapies such as gene and cell therapy, are almost exclusively made in the United States and Asia. Parallel to the creeping relocation of research and production, protectionist trade policy on the part of some nations is becoming increasingly apparent, shaking up even previously stable supply chains. If these trends continue unchecked, Germany will give up a large part of its health and economic independence in the strategic key industry of the industrial healthcare economy.

Reducing the Vulnerability of the Healthcare Industry to Crises

As a first consequence of the corona crisis, the German Federal Government and the European Commission have intensified the discussion on strengthening crisis resilience, i.e. the resilience of the German and European healthcare systems. This debate on joint European pandemic and crisis preparedness is vital; however, it does not go far enough if it excludes the necessary strengthening of the industrial healthcare economy in Europe in terms of industrial policy. Contingency plans and strategic emergency reserves of medical goods will not halt the creeping loss of know-how and value creation in the industrial healthcare economy.

Rather, a clear policy commitment for a competitive industrial healthcare economy is needed in Europe. It is crucial to maintain and expand existing innovative know-how, future-oriented research and development, and production in Europe. This can only succeed if the European Commission and EU Member States strengthen the competitive factors for the industrial healthcare economy in a targeted manner.

Foreign Health Policy: Globalisation Continues on Despite Corona

Existing industrial policy challenges and possible ways of overcoming them are not new, including innovation promotion, bureaucracy reduction, training skilled workers, and sustainable digitalisation of the healthcare system. In addition, strengthening Europe’s position as a business location should also include proactive foreign health policy that ensures fair access to the most important export and investment markets. However, the sovereignty of a strong industrial healthcare economy location in Europe should not be confused with a departure from global value creation. To declare globalisation to be over as a result of the corona pandemic would be wrong. Demands to produce all medical supplies on a national level are not credible for any country that depends on exports and global supply chains. Such a national symbolic policy will be of little help in the post-corona era.

The BDI aims for Germany to become the central hub for future-oriented innovation in the global industrial healthcare economy value-added networks – from which the impulses for global research, development, and production emanate and where the worldwide knowledge and production strands converge again at the end. In view of the resilience of European healthcare, this includes, among others, reassessing the risks of one-sided dependency on suppliers and markets – particularly when it comes to the supply of critical medical goods such as antibiotics and vaccines.

Industrial Policy Without Compartmentalisation

One thing is certain: globalisation is not an end in itself. What matters is its performance record – which is quite good in the industrial healthcare sector, also considering the global corona stress test. Germany is one of the strongest production locations for pharmaceuticals and medical products in the world. It produces what is then used across the globe for the treatment of cancer, rheumatic diseases, strokes, diabetes, flu, and diphtheria. This strength in production of pharmaceuticals, medical technology, and biotechnology lies in guaranteeing quality, even in complicated processes. This is why companies in this country occupy the top position in Europe in terms of the number of active ingredients produced for biopharmaceuticals. Furthermore, it is why Germany ranks second in the world behind the United States in biotech production – for example, for insulin, rheumatism, and cancer drugs. Established products should not be called into question.

Rather, it should be critically observed whether further regulatory measures, such as the 15th amendment of the Foreign Trade and Payments Ordinance (Link) are the result of an appropriate weighing of national protection interests and those of an attractive location for innovation and investment. How can we prevent further planned economic intervention from diverting the urgently-needed risk capital to the United States or Asia? How can we ensure that our talents in pharmaceuticals, biotechnology, electromobility and digital innovation can continue to see success in this country? More isolation is the wrong answer.

The key regulatory issue is the attractiveness of the location for investors – assessed in global competition. This means opening up instead of closing off. In addition, bold investments in education and its institutions, as well as in new technologies such as digitalisation are vital to continue to enable broad participation in society.

Now is the time to set a decisive course. Now is the time to pursue a modern policy that provides targeted support for research and production in the industrial healthcare in Germany and in Europe with reliable international partners.