Working Paper No. 2014/38. New Trends in Innovation and Knowledge Society. Dr. Jürgen Rüttgers¹. 5 September 2014.

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1 Working Paper No. 2014/38 New Trends in Innovation and Knowledge Society Dr. Jürgen Rüttgers¹ 5 September 2014 The author, 2014 ¹ Former Federal Minister of Education, Science, Research and Technology, Former Prime Minister of North Rhine-Westphalia, Honorary Professor of the Maastricht School of Management.

2 The Maastricht School of Management is a leading provider of management education with worldwide presence. Our mission is to enhance the management capacity of professionals and organizations in and for emerging economies and developing countries with the objective to substantially contribute to the development of these societies. The views expressed in this publication are those of the author(s). Publication does not imply endorsement by the School or its sponsors, of any of the views expressed.

3 New Trends in Innovation and Knowledge Society Keynote speech by DR. JÜRGEN RÜTTGERS Former Federal Minister of Education, Science, Research and Technology Former Prime Minister of North Rhine-Westphalia Honorary Professor of the Maastricht School of Management at the MSM 4 th Annual Research Conference Global Business, Emerging Markets and Human Rights: Old Concerns or Fresh Hopes? 5 September 2014 Maastricht School of Management Maastricht, The Netherlands

4 2 Mr President, dear friend René van der Linden, Mr Dean, Professor Naudé, Ladies and Gentlemen, Dear Students, I. In my key note at last year s Annual Meeting, I made some remarks about the great changings in our time: the globalisation, the revolution of the media and the changing from the industrial society to the knowledge society. Perhaps you can remember that I explained that each of these three trends has an influence on the other two. The globalisation forced the process that built a world without frontiers, the digital revolution transforms communication in our world and turns it into a real-time communication all over the world. The changing into a knowledge society is not the end to industrial production. But the aggregation of value added in our industry more and more will be a production of goods and services that are based on knowledge. In other words: The production factors land, capital and work will be complemented by a new production factor which is knowledge. In our times, the knowledge of human kind will double every five to seven years. More than twenty thousand scientific articles are published each day. Knowledge is the most important commodity in our time. Knowledge is the new social question of the 21 st century. War and violence, hunger and poverty today can no more be combatted by conquest of land nor by more money, but only by more knowledge. II

5 3 A second thought: In order to build up a stock of knowledge and information in a modern society, it is necessary to have a permanent process of innovation. In former times, it was enough that brilliant scientists had new ideas from time to time. Today, an economy needs a constant flow of innovations, be it from the basic idea to implementation into a production process and consequently into an economic process leading to customer growth and even a new industry. Technical progress is taking place every day. No university, no company, no administration can sit back and rest on what they achieved. Worldwide, a new medical fact is established every five minutes, a new physical correlation is researched every three minutes, a new chemical formula is developed every 60 seconds. Those who decide for a stand still will fail. But it is also true that technology makes us free and feel secure. Technology gives us a clear look towards the future. However, the dialectic of progress gives us new dependencies, insecurities and burdens. The scandal of the American secret service NSA, the loss of privacy, the spying of allied governments, the business with user data in companies like Google, hackers who have stolen 18 million pass words give us a message: Neither is the internet a new world nor a global village. It is but an infrastructure that needs reglementation. Every citizen has the right to use streets, trains and rivers. Likewise, networks need net neutrality. And everyone who uses the infrastructure must stick to the rules. The Internet is subject to human rights and civil rights all the same. But there is not only a new infrastructure. With the algorithms, there is also a new world language. III

6 4 The digital revolution in our times needs quick adaptations, new ideas, clear objectives and a good industry. Those who will be at the top must innovate themselves all the time. Those who do not understand this will soon be forgotten, even if you were as big in the past as Sony, Microsoft, Nokia, Yahoo or Black- Berry. What is the answer? For many scientists and also analysts the answer has a name: www 3.0. What does this mean. I will give two examples. 1. Industry 4.0 Industry 4.0 means the fourth revolution after the invention of the steam engine, the introduction of assembly lines, the automation of industrial production through computers and robots. Now we shall see the end of mass production. Instead of mass production, we will create individual products, by individual but industrial production. As a consequence machines, assembly lines and products will communicate with each other in the future. Plant construction will be complemented by information and communication technologies, especially by software. In the future, every engineer will also be a programmer. Machines and workpieces will organise the production by their own doings. The result is called smart factory. In different studies, companies have predicted that in the next ten years, the economy worldwide will grow by 1 to 6 trillion dollars thanks to industrial internet. It will be achieved by lower cost, a more efficient production and a better protection of the environment.

7 5 2. The second part of the revolution happens in trade: Trade 4.0. Today nine out of ten Internet users buy goods via Internet. Books take the top ranks with 64 per cent, followed by shoes and clothing (60 per cent), entrance fees for events (51 per cent) and films and musics, software and electronic goods. These are data from Germany. And more and more people buy their goods online abroad. But e-commerce is not possible without mail order business. The new trend is to combine production, services and software. In the future, the value-added chain will consist of purchasing, real and virtual presentation of goods, logistics, accounting, customer services, payment processing, exchange services, and computers provided. As purchasing is based on trust, data and consumer protection will become increasingly important in the future. It would be necessary also to talk about smart grids, big data, medical technology, digitally controlled cars, but it would take too long to go into all this now. IV In our days two Havard professors debated about the great changes in economy. The book of Professor Clayton Christensen with the title The Innovator s Dilemma tells the story about innovation. People like Facebook founder Mark Zuckerberg, Amazon chief executive Jeff Bezos and SAP co-founder Hasso Plattner recommend to read this book. Christensen s story is the story of creative destruction, an idea invented by the Austrian economist Joseph Schumpeter in It is the story of rebuilding the old industry through new technology. (FAZ 7. Juli 2014, p. 20)

8 6 The Historian Jill Lepore marks a fundamental objection. She writes that the role of start-ups is being overestimated by Christensen. Three out of four start-ups fail. Nine out of ten companies never achieve to make a profit. I believe that this is an old debate. Both of them are right. Without innovation, there is no progress. Without a sound economic base, there is no success. And only with economic bubbles, there is no stability. I have told you that there are new innovations, a new infrastructure and a new world language. Now, we need new rules to make sure that human rights and civil rights will be respected in this context as well. But we also must develop a new idea of economic rules in this world. The world financial crisis of the last years has shown this clearly. In Europe, we have a system for economy and society called ordoliberalism. It is not the same as neoliberalism. But it is a social economy. In many countries of Europe it is called the Rhenish capitalism. The system comprises a liberal market system and a caring society system. Its founders described it like the rules of a football match. On a football ground you can play freely. But there are rules by which all players have to abide. If you make a mistake or if you play unfair, you are penalized by the referee. And you never may forget that you are a team. This system, you know it, is very successful. The economic and debt crises in the last years were not only normal economic crises, not only a bubble. They were crises of trust in the market systems. Today, in many great countries trust in the state and in planning economies is greater than in market

9 7 systems. The reasons are evident. In many countries the gap between the rich and the poor has become bigger than in the past. The income of the CEOs is much higher than the income of normal people. The unemployment rate is growing fast. Many managers believe that their job is to produce with less jobs and more robots. But jobs are not destroyed by new technologies. They are destroyed by managers whose salaries are linked to stock prices. [Zuboff 2014] The growth rate is decreasing. The mountain of debt is colossal. All this must be paid by the next generation. This is unfair. It is too dangerous to give our world into the hands of some mathematic algorithms. Therefore it is necessary to discuss about new rules for the Western economies, rules that are based on economic reason and social justice. In times of globalisation and digitalisation, a market system needs rules for a free, social and sustainable economy and society. I will give you some ideas for such rules. - In a market system, we need a relationship between decision and responsibility. Salaries may not be combined with share prices. They have to be combined with longterm business objectives. - Salary decreases do not lead to more jobs. - Salary decreases lead to less innovation. Only mankind have new ideas. New technologies give companies higher values. - Salary decreases result in less consumption. Unemployed people and low-wage workers do not have money to spend for products and services. - Algorithms cannot produce new things. They only combine known facts. - Monopolies and cartels have to be prevented or dissolved because they weaken the freedom of the people. - Every man has the right to decide about his own data. Everyone has the right to receive from all databases information about his own data (information freedom act).

10 8 - Everybody has the chance of social advancement through education. The social contract is re-activated. - Human and civil rights also apply in the digital world. The right of privacy and the right to be forgotten are achieved. The MIT professor Daron Acemoglu and James A. Robinson, professor at Harvard, had published a book about the question: Why nations fail. Their reason is: Some nations let their inhabitants participate or not in economic growth. Whether they do it or not depends on the infrastructure and not on religion or culture. Good institutions lead to welfare, bad ones to poverty. (Acemoglu/Robinson 2013) I believe they are right. And that is the reason why a free and social market system is better and more innovative than a planning system or a system that tries to combine a market system with a political system without liberty.

11 9 Literature Daron Acemoglu / James A. Robinson, Why nations fail, German: Warum Nationen scheitern. Die Ursprünge von Markt, Wohlstand und Armut, Frankfurt/M Sie schimpfen wie die Rohrspatzen. Zwei Professoren aus Harvard streiten über die Theorie von Innovationen, Frankfurter Allgemeine Zeitung , S. 20 Wilhelm Röpke, Maß und Mitte, 2. Aufl. Bern 1979 Shoshana Zuboff, Der menschliche Faktor, Frankfurter Allgemeine Zeitung , S. 8 Ringen um Vorherrschaft über Industrie 4.0, Frankfurter Allgemeine Zeitung , S. 23