Germany has prided itself in striving for social consensus, while following a capitalist economic system. This has led to a high degree of social responsibility for companies operating out of Germany. They try to protect their employees from lay-offs, even when market conditions require adjustments in the work force. This protection of the social contract is backed by generous labor laws, high social security cost for both employers and employees (essentially taxes) and affects the bottom line of German companies, when compared with their international competition. In return it provides stable teams of long term employees, low turn over and predictable output. But the cracks in the system are starting to show. Much of the stability for the more senior part of the work force (with sometimes outdated skill sets) is paid by the younger generation. New college graduates are rarely offered a permanent position, and are frequently offered low paying internships, or time limited employment contracts. Frequently they are only able to enter the permanent work force after multiple years of lower paying employment arrangements.

So far the system has mostly worked, in large part thanks to the continuous productivity gains in the industry through automation, innovative technologies and dedicated work at reasonable pay by a large and highly educated work force.

When structural changes occurred in the past, such as the rotation out of coal mining into higher paying jobs such as production line workers, the government has heavily subsidized programs to retrain the work force. The results were mixed. It became clear that the workers that lost their jobs in the mines wouldn’t be the same workers that the booming automotive industry would hire for higher paying assembly line jobs. So there was a mismatch. The industrial transition was softened by state-financed early retirement programs, and retraining initiatives. Money that was ultimately lost to steer research activities into new technology sectors. (I remember a 65 billion subsidies program for the coal industry in the 90ies , when biotech startups needed money to get off the ground).

Now fast forward to 2020, where AI threatens to automate a vast number of high paying jobs in our societies: Sales clerks, cab drivers, truck drivers, assembly line workers, even lawyers and some say doctors will be largely replaced by AI in the medium term. This transition will have a brutal effect on western societies. Companies associated with BIG DATA will be the winners, everybody else pretty much a loser. If we’re not careful, highly functional societies run the risk of ending up in civil unrest and maybe civil war. A war across socio-economic classes. The socio economic shifts will be massive.

This is where social capitalism could shine. As companies in less protected capitalist countries such as the USA will shift fast and release large numbers of previously highly compensated workers and employees, countries like Germany will soften the blow by slowing the transition. It might help that Europe’s desire for privacy will help to slow the AI transition (which requires the free movement and access to all information).

So maybe Germany will be one of the big winners in this transition. In another scenario it will be left behind as the loser, which couldn’t adapt fast enough. AI will have outsized productivity advantages over any human being (think 24/7 operation). China is on its way to try. With lacking privacy laws and the centralized willingness to become the world leader in AI, there’s a good chance they might ultimately succeed. As of 2018 they’re graduating more engineers in China every year, than the rest of the world combined. IP protection is non existent, so the best western technologies are deployed rapidly in a country where IP rights cannot be enforced. Incremental innovation on top of novel technology – achieved locally with massive work forces will do the rest.

I would like for Germany to be successful in this scenario and be the role model of human capitalism as a way going forward. But based on the trends I see I’m unfortunately not very hopeful that this will be the reality we’ll experience.

Only time will tell.