Germany has impressed many with the speed and scale at which it has been able to respond to the global health threat caused by coronavirus. When it comes to PCR testing, the country has shot ahead of its European peers, expanding capacity and rapidly ramping up test numbers.
There is no single reason why Germany has been able to mobilise its testing campaign in this way. Influential factors range from policy decisions made in January to the public health institutions which are in place in respective countries.
But when comparing Germany and the United Kingdom specifically, the divergent paths taken by British and German industry and the economic history of the two nations count, a lot.
In the nineteenth century, Britain became the world’s first industrial power – but others were close on its heels. In the later nineteenth century, Germany led what has been called “the second industrial revolution”.
Where Britain’s industrialisation was shaped by coal, iron, and textiles, Germany emerged as a world-leader in the more sophisticated industries of the second wave. The Germans developed a commanding comparative advantage in complex chemicals, engineering, and technical manufacturing – one which they have never really yielded.
The British economy pivoted more towards entrepôt industries, emerging as “the warehouse of the world”. British ports, especially in London and the South East, swelled with international trade as goods from elsewhere were imported and re-exported around the world. In the process, Britain also became a major clearing house for the world’s finances.
These divergent histories matter today when it comes to the supply of necessary materials for testing which can be provided by national industries. They have had a profound impact on the different possibilities and constraints experienced by the two countries in the present. And these divergent paths have also shaped the ways in which the economics of public health is now operating in the middle of a global health crisis.
Today, Germany and the UK have very different economies and life sciences industries. It is in the life sciences industry that the reagents required for PCR tests – which are now in shortage globally – are produced by biotech companies.
On the face of it, the UK and German biotech sectors seem to be roughly comparable. The turnover generated by German dedicated biotech companies amounted to EUR 3.54 billion in 2016. And in 2018, the UK biotech sector posted a turnover of £4.2 billion.
But while this is helpful as an indicator of investment and the circulation of capital – it does not indicate the goods that are being produced and which companies are driving these respective biotech industries. In this case, the same name disguises two slightly different set-ups.
One of the key reasons the UK’s efforts to ramp up testing have been sluggish is, ironically, precisely because our biotechnology labs and companies are world leaders in clinical trials and innovative research. They specialise in making ideas rather than manufacturing raw materials. The fruits of this research are patented and sold worldwide.
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A considerable proportion, about 39%, of spending by the British Biotechnology Research and Sciences Council (BBRSC) goes on “ideas”. In 2018-19, £170 million out of a total budget of £438 million went on developing innovative ideas and discovery research which supports “new, emerging and disruptive technologies”.
Britain’s biotech has a lot of investment activity going on, but not as much of the large-scale production of the reagents which are crucial in carrying out tests. The UK industry is focused on high risk investment and R&D directed towards discovering new biotechnologies. Germany’s biotech sector involves much more manufacturing of the raw materials, such as those reagents for PCR testing.
In Germany, one of the great drivers of growth in the Biotech sector is the sub-industry of In-vitro diagnostics (IVD). IVD tests are defined by the WHO as tests which are used for “examination of specimens derived from the human body to provide information for screening, diagnosis, or treatment”.
According to Germany Trade & Invest, the diagnostics industry in Germany produced revenue of EUR 2.2 billion in 2018. This is rather extraordinary when considered as a proportion of the total 4.5 billion of revenue produced by all of Germany’s dedicated biotech companies in that year.
At the same time, the diagnostics industry in the UK had a revenue of £936 million, although precisely how the UK sector is measured could be disputed. This means that Britain starts from a lower base when ramping up the complex biotech materials needed for PCR testing.
This is not to say that Britain does not manufacture, or that Germany does not have extensive R&D programmes – both do. The differences are of degree rather than totality. But generally, the UK’s pharma, biotech, and biopharma industries represent the knowledge economy par excellence – and as a consequence, they are often reliant upon supply chains extending beyond the UK for their supply of materials. This model is highly lucrative, but unused to coping with an unexpected surge in demand for reagent supply.
This is ultimately a reflection of wider differences in our national economies. They have long been structured with different priorities in mind. Germany’s post-war industrial strategy has focused on world-class, skilled technical manufacturing on a large scale. Where Germany specialises in making and exporting goods, Britain has become a services-led entrepôt for global trade.
The key decisions here were not made in February or January – they were formulated over many decades, if not centuries, of history. And in history, it is often the aggregate of a great many decisions, rather than a few choices, which shape the course of events.
What we are now seeing in the responses of the UK and Germany to the pandemic are not only two different systems of public health, but two divergent models of industrial capitalism which have developed over a long period of time.
Germany’s post-war industrial policy, shaped by strong strands of “Ordoliberalism” and social market economics, sought to combine efficient services with large-scale, skilled technical manufacturing and higher levels of public investment. This outlook continues to value a strong balance of trade, which is an ongoing priority for German policy makers.
Britain’s recent experience has been guided by a greater emphasis on skilled services, a flexible labour market, and lower taxation. Since the 1970s, the economy of modern Britain has become increasingly industrious but less and less industrial. In certain sectors, like biotech, it could even be considered as post-industrial.
The differences which separate our countries are philosophical as well as structural, but they are again differences of degree. Both of these models have their triumphs and limitations, strengths and weaknesses. They provide different types of opportunities, encourage varying types of economic behaviour, and generate and redistribute wealth in alternative ways.
We are about to discover how well these two states and models can manage the shockwaves created by the global Covid-19 pandemic.