Can Germany's Economy Hit Net Speed?

Chancellor Schröder is slowly realizing that the Internet is a key to goosing the country's -- and Europe's -- growth

By Jack Ewing

German Chancellor Gerhard Schröder couldn't resist. As the keynote speaker at the 21st Century Literacy Summit in Berlin on Mar. 7-8, he told a story about some low-level bureaucrats who were caught using a government online connection to visit porn sites. The running joke was that, well, at least the bureaucrats knew their away around the Net. "I don't think that's so off base," Schröder quipped, drawing a chuckle from AOL Time Warner Chairman Steve Case, who sat in the audience.

After all, a little humor couldn't hurt with this gathering, which was devoted to the slightly banal idea that people in the next 100 years must be as conversant with electronic communication as they are with traditional skills such as reading, writing, and arithmetic. As Schröder put it: "We have to ensure not only that children have access to the media but also that they learn to process it."


  The conference actually drew an unusual constellation of political and business celebrities. Besides Case, attendees included Spanish President José María Aznar López, and former U.S. Secretary of State Madeleine Albright. One reason for all the interest may be that opinion leaders are realizing that slow technology uptake is one reason European economic performance lags behind that of the U.S.

As Aznar pointed out later over a dinner of salmon ravioli in the nearby Reichstag, the U.S. economy grew more than 3% every year in the 1990s but one. Europe managed to clear 3% just once. As a result, EU per-capita GDP slipped to 70% of the U.S. level in 2000, from 77% in 1990, according to the Organization for Economic Cooperation & Development (OECD).

The conference reflected a growing awareness that better use of the Net could help solve a lot of Europe's underlying problems. While the Continent as a whole is catching up with the U.S. in Internet use, big gaps still exist between the tech-savvy Scandinavian countries and slow-growth countries like Germany. Schröder is justly proud that his government (with help from business) has finally got almost all of Germany's schools hooked up to the Internet. But an average of 40 German students must share each connection. In Denmark, Sweden, and Finland, the ratio of students to Net links is well below 10.


  German bureaucrats are also behind in using the Internet to speed up government procedures. The country is last in Europe to put new-business registrations on the Net, according to a November study for the EU Commission by Cap Gemini Ernst & Young. That helps explain why it takes 90 days to open a business in Germany vs. seven in the U.S. and just two in Canada.

And using the Net as an educational tool could help the nearly 4 million German jobless, more than 10% of the workforce, acquire modern skills. "We're moving toward an era where education is no longer limited to the young," Case told the conference, which was sponsored by the AOL Time Warner Foundation and Germany's Bertelsmann Foundation.

The question now: How energetically will Schröder and other European leaders back up their words with action? With the exception of a few aggressive reformers like the Scandanavians and Spain's Aznar, European leaders have not been very bold. "They don't have enough faith in the public to push to new horizons," says Gerd Schulte-Hillen, chairman of Bertelsmann's supervisory board, who also attended the conference.


  So far, Schröder, who has slowed down the pace of economic reform ahead of elections in September, has also avoided some of the tougher areas of digital reform, like pressuring telecommunications companies to stop billing by the minute for Internet access. That may not seem like a big deal, but an OECD study last year found that Americans stayed online more than five times as long as Germans. The main reason was metered telecom billing. "A big part of the problem is the lack of affordable flat-rate consumer access," says Case.

In the end, making Germany more Internet-friendly requires fewer tough political decisions than, say, rolling back the thick mesh of legislation protecting German workers at the expense of national competitiveness. Judging from Schröder's presence at the conference, it's dawning on him that the Internet could help budge Germany and the rest of the Continent out of its economic rut.

Ewing is Frankfurt bureau chief for BusinessWeek

Edited by Thane Peterson

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