The constructive destruction

The year is only a few weeks old. And yet one term has already become the (un)word of the year: Weak growth. Following COVID-19 and Russia’s sudden war of aggression, run-away deindustrialisation is threatening Germany’s economic stability and thus our prosperity and democracy. This is a development that our European neighbours are also observing with concern. There is a growing fear among them that the “sick man” could infect the rest of the continent. Germany coughs – Europe gets the flu.

Something is different about the latest crisis: It didn’t come overnight. And it won’t leave overnight. How do we get out of the crisis? The previous political responses to Germany’s deindustrialisation – the “Doppel-Wumms” (double-whammy) and the “Growth Initiative” – sounded like major reforms. But behind them were small reforms; too small and too inconsistent to actually stabilise the economy and slow down the negative development.

They both had well-chosen names in common. They were to give the impression that they were what citizens had been longing for: a big change. But the ideas in the draft degenerated into a fraud. The political decision-makers were reluctant to ask their voters to accept monumental changes. What if nobody wanted to bear the consequences? Understandable. And yet it remains undisputed that this is exactly what we need – in Germany, but also in Europe – in order to become competitive again: a monumental change, controlled disruption.

1. Disruption: Controlled radical upheaval

The term, which has become known as technological disruption, refers to the radical displacement of the status quo. The photo film company KODAK was caught cold by digitalisation and its disruptive effect – it went bankrupt. Others benefited considerably from the upheaval. But disruption is by no means just a phenomenon from the business world. Processes, systems, even societies and cultures are also affected by sudden, radical change.

And political systems too, of course. In politics, disruption can act as creative destruction in a similar way to the market. The upheaval of political systems knows winners and losers. People who were barely involved in politics, let alone heard, are suddenly included in political processes. Political disruption virtually pushes these people to the top. Established interest groups, on the other hand, lose influence. Those who were important yesterday may no longer be so today.

The advantage of disruption, whether political, economic or social: something starts to move. The disadvantage: it is radical. It is also unclear whether disruption produces more winners than losers. Disruption as a concept for change or even for crisis management is therefore highly controversial, as is the term itself. Because calling for disruption is easy – much easier than proposing concrete, piecemeal reforms.

If you want to use disruption as a tool for change, you must not forget to shape the free spaces created by the upheaval afterward. What happens once old structures have been torn down? This is the first necessary condition for the success of disruption. The second is: even before disruption, you need an overarching plan – a strategy. Provoking radical change must be justified by a noble goal. And the third, probably the most important: destruction needs non-negotiable boundaries so that the upheaval becomes a controllable demolition.

Let’s make it concrete. We can observe the beginning of a new disruption in the automotive industry in China. The state provides considerable support for the industry, which has acquired a great deal of expertise in the field of battery and software development. Both are the focus of Chinese automotive development. Chassis, bodywork, interior? Secondary. The hardware becomes a by-product. The disruption emanating from China’s car manufacturers is made possible by the political will of the Communist Party: it is striving for China’s long-term technological leadership in the field of electromobility. An overarching plan for which disruption is worthwhile, at least in China’s eyes.

With the re-election of Donald Trump, the United States of America is experiencing a disruption that began as a political one and has quickly taken an economic form. The radical decrees and maximum demands of the President and his entourage are turning the markets and supply chains upside down. They are causing the biggest American technology companies to question their principles and strategies and, in some cases, to abandon them. They are driving the prices of cryptocurrencies to record highs, at least in the short term. Disruption finds its limits in the Constitution of the United States. The judiciary has already proven itself resilient in the face of Trump’s decrees on several occasions.

And Europe? Europe does not lack occasions for disruption, but it does lack the strength and – even more importantly – the understanding for disruptive change. The European Union considers Donald Trump’s election and re-election and his policies to be a historic accident that can be sat out. The EU has apparently given up on countering Xi Jinping’s geopolitics with a European blueprint. While the powerful in America and China govern to the limits of the resilience of political systems – whether you agree with their policies or not – the EU is still a lame duck in geo-political terms, trying to achieve change only through evolution.

3. The new European industrial policy

Europe therefore needs a geostrategy worthy of the name. It also sets the economic direction. In turn, a coherent industrial policy can be derived from the geo-economic guidelines of a holistic geostrategy. Disruption slowly becomes tangible here: it is undeniable that we need resilient industry to protect Europe’s independence, prosperity and democracy. It is the glue that holds the European economic area together. However, a coherent industrial policy along the value chains would be a novelty, especially for Germany.

Industrial policy has long been regarded as incompatible with the free market economy. It has been considered too much like a planned economy dictated by politicians: too restrictive of technological openness and too damaging to competitors. However, saying no to industrial policy is only seriously justifiable as long as there is a global consensus. It’s all or none. If the first countries or alliances pull out, the mechanisms of the free market will be overridden anyway – in favour of those who pursue the industrial policy and to the detriment of those who do not.

The market alone does not correct anything under these conditions. The decision as to whether industrial policy is needed or not has already been taken away from Europe by players such as the US and China. Industrial policy measures in the broadest sense can include subsidies, but also sanctions and customs duties. The geo-economic turning point as a consequence of the geo-political turning point led the world into Globalisation 2.0. The 30 years of hyper-globalisation are now over. Protectionism and isolationism as part of industrial policy measures have been gaining ground ever since. Mechanisms of liberalised world markets are failing as a result.

Europeans alone can take the initiative and formulate a disruptive approach to confidently shape an industrial policy. But how do we shape industrial policy? A new European industrial policy strategy must (at least) find answers to the following questions:

What is Europe’s critical infrastructure?

We need to determine and thus prioritise which infrastructure we need to protect in particular in the future, even beyond energy and defence. Dependence on non-EU countries should be significantly reduced for all critical infrastructure.

Which future markets are to be developed in Europe?

In particular, the question of which products, systems and solutions will be used to serve the markets of the future in the digital age of climate protection within and outside Europe must be strategically addressed. In which sectors will Europe provide global champions in the future?

How do we tap into these future markets?

An industrial policy with foresight also answers the question of “how?” and “when?” and thus makes itself verifiable. Concrete instruments and measures must be defined to show the way.

What raw materials are needed and where do they come from?

It is important to define relevant raw materials for critical infrastructure and future technologies. Wherever possible, Europe will keep them in stock itself; for all other raw materials, it needs strategic partnerships with countries and regions outside the EU.

What is produced within the EU and what is imported?

“Make or buy” decisions are part of everyday life for industrial entrepreneurs. The EU must ask itself whether the goods relevant to critical infrastructure in particular need to be produced efficiently in Europe or imported. We simply can’t do everything ourselves. Multilateral structures and processes are also a must here.

Where is what produced within the EU?

It makes economic sense to fulfil the demand for certain industrial goods from certain European countries. The best framework conditions for production and value creation in the respective EU member states should be decisive for each sector. The diversity of framework conditions in Europe, which are often complementary and not substitutive, should be harnessed.

Where does the funding come from?

Financial resources are needed to implement a coherent industrial policy. Industrial policy must therefore consider the establishment of globally active major European banks.

In addition to these more or less difficult strategic directional decisions, there is a bigger task ahead: mindset change. The best industrial policy strategy is worth nothing if Europe does not change its political attitude towards business and industry.

Industrial policy measures only have a chance of success if politics and business understand each other as equals. Efforts must once again be focussed on economic success, especially in Germany, otherwise not only will our labours be in vain, but our prosperity and, in the long term, our democracy will be at risk. It’s the economy, stupid!

4. The new European development policy

“China is a source of certainty in a world of turbulence”, wrote the Chinese State Council on its online portal in January 2025. The name “Middle Kingdom” is no coincidence: China sees itself – and rightly so – as a world power. This is even truer since the re-election of Donald Trump. Beijing has been pleased to take note of the US President’s announced withdrawal from international cooperations. It is now easy for China to gain considerable influence internationally.

Europe has nothing to counter this. The countries of the European Union have so far left it to the United States to represent Western values and interests in development policy. On the one hand, this is due to tradition: Europe is only too happy to rely on the US to take the lead, be it in trade, security or even development policy. On the other hand, it is due to a lack of clout: In the past, the sluggish tanker Europe has not managed to set up and implement a holistic connectivity strategy.

This is coming back to roost. The “Build Back Better World” initiative serves as the US connectivity strategy with the Global South. Initiated by the Biden administration, it is being called into question under Donald Trump. Only China’s “New Silk Road” project remains, which was originally budgeted at around 1 trillion euros and has been correspondingly powerful for more than ten years. In any case, there is no comparison with the “Global Gateway” initiative, which aims to connect European Union countries more closely with emerging and developing countries. It is too bureaucratic, too complicated and too unattractive for small and medium-sized companies. It is also significantly underfunded. A drop in the ocean.

Most serious, however, is the neo-colonial spirit that the EU programme breathes. The Global South is currently gaining new self-confidence. The countries of the southern hemisphere are using geo-economic upheaval to become political and economic players on the world stage. We need a new perspective on their development and above all: partnerships at eye level to take account of this new reality. This is also a necessary mindset change that Europe must consider when it finally defines a connectivity strategy derived from an overarching geostrategy.

However, the European Union no longer suffers only from its bureaucracy, but also from its vetocracy. The term was coined by the economist Mike Moffatt. In addition to bureaucracy, there is a well-intentioned but poorly organised participation of all conceivable stakeholder groups in the decision-making process at European level. In short: Everyone has a say – and can veto the decision if in doubt. The principle of unanimity makes the strategic development of the EU impossible. It prevents change processes and thus constructive disruption. The introduction of majority voting rights would make the EU institutions much more effective.

However, structural disruption also involves bold expansion. Europe must not allow itself to be swayed by rampant protectionism, Euroscepticism or even hostility towards Europe: Europe is a unique, valuable peace project that must not only be preserved, but also expanded. We need more rather than less Europe. But first we have to do our homework, create the strategic framework and implement disruptive reforms. Then the long-overdue geographical enlargement through the accession of the Western Balkan states, for example, will be easier and more successful.

6. Germany’s pioneering role

German deindustrialisation will not be slowed by Europe’s disruption. Although Germany will benefit from a strong European Union in the medium to long term, too much time will have elapsed by then. Germany needs far-reaching changes, and it needs them now. The order is therefore the other way round. Germany – one of the pillars of the EU – must reinvent itself and could once again become a role model.

The government to be formed after the federal elections presents an opportunity for constructive disruption in Germany.The run-away deindustrialisation is increasing the pressure on traditional structures. We can manage to mitigate Germany’s major locational disadvantages by removing them – in particular the high energy costs, bureaucracy, shortage of skilled labour and high taxes. Ultimately, our European neighbours will also benefit from this, as they will not catch the disease from the “sick man”.

But there is also a need for creative destruction with regard to our German foreign trade policy. Germany would do well to stop acting in a value-orientated, even feminist way, and instead act in an interest-led manner. The decisive factor must be what makes our counterpart tick. In dealing with the US and China, we must therefore adopt a different approach than in dealing with the countries of Asia, Africa and the Arab world, which continue to believe in rules-based Globalisation.

An example: although the Russian war of aggression against Ukraine has polished the image of the defence industry, we still do not think economic and defence policy interests together. This is the key to shaping German trade relations with the US. Let us signal to Mr Trump that we are responding to Germany’s much-criticised current account surplus by expanding our investments in security and defence accordingly.

7. Disruption: Our last chance?

What’s the bottom line? Disruption means a radical change that goes through politics, business and society like a shockwave. This is precisely where the opportunity lies: in the momentum of creative destruction. Europe must use it to regain geo-political and geo-economic significance. It is up to Germany to unleash disruption in order to slow down, halt or even reverse run-away deindustrialisation.

Conscious and constructive disruption represents an opportunity for Europe and Germany. It could be the last one before the rest of the world completely takes the reins from our hands.