Prof. Dr. Ulrich Hermann, Chairman of the Charlemagne Prize Foundations’ Advisory Board and Managing General Partner at Einstein Industries Ventures

A critical component of our current era is that crises and renewals follow one another at a much faster pace, making transformational processes as well as collaborative approaches to the challenges of our time imperative.

Probably the greatest joint project in post-war history is the idea of a united Europe, which is crisis-proof due to its interconnectedness and structure and is taken seriously as a unified actor on the world stage. For more than 70 years, the Charlemagne Prize has been awarded to personalities and institutions who have rendered outstanding services to European unity and the European idea of peace and understanding, and who are thus a living reflection of the European integration process.

But in addition to rewarding action and creating value, it is always important to be part of the development process – not only through appropriate agenda setting, but also through your own content and initiatives.

In the future, how the Community positions itself in the context of current crises – such as rising inflation, energy shortages, and the unstable security situation on its eastern borders – but also in solidarity with its neighbours, partners, and the rest of the world will be of enormous importance for cohesion in Europe. Africa will be of great importance to Europe, as will the transatlantic alliance and how to deal with regimes that disrupt its values and order.

In Europe, I think that the economic topic of digital transformation is one of the most important practical issues for maintaining peace and prosperity, just like the energy issue, the security issue, the immigration issue and the climate issue. I would therefore like to take a closer look at this economic topic and highlight some very important areas for action on the road to an ecologically just and economically prosperous future.

There is a growing understanding that the global economy as a whole, and in its global entanglement, is by no means heading for a “classic” recession. Once the weak companies have been cleaned up and the innovative and forward-looking companies that have been strengthened during the crisis have been reinvigorated, it will not be back to business as usual.

What is coming seems like a harbinger of a fundamental reordering of our economic model. We are observing asymmetries, i.e. broken supply chains with simultaneously full order books, global dependencies and at the same time national foreclosure, exploding energy costs and initially ineffective interest rate interventions. The experts disagree: is it stagnation, stagflation, inflation. It is a cocktail. Why this cocktail? The reason: never before has there been such violent and global intervention in the economy before a “recession” at such short intervals. We have stormed our global economy, with the following:

Nearly all governments of industrialized economies flooded their economies with cash in the Corona years 2020 and 2021. At the same time, states, on the recommendation of epidemiologists unfamiliar with economics, have intervened harshly in highly complex, systemically laterally interconnected, globally steady-state, decentralized supply chains, in some cases with trade and production disruptions lasting months. Quite comparable to this, the war-related intervention in the course of politically motivated economic sanctions of the Ukraine crisis in the energy market, with the consequence of a complex reorientation of the global economic forces Russia and China in their relations with the Western industrial nations, especially with the energy consumer Germany.

As necessary as ad hoc measures to contain the pandemic, respond to the war and ease the energy crisis may initially seem, we also suspect that their long-term consequences can only be positively resolved in a systemic change of our current economic paradigm. Moreover, the transformation towards an ecological and sustainable society seems to stand in the way of the acute management of the crisis ahead. Green concepts and the complete absence of a target image of a “green” digital market economy today make an exploitation of carbonized resources at the expense of the environment seem economically superior again. Thus, in today’s energy crisis, what was unthinkable just two years ago is back on the agenda. Such as the extension of the operation of coal-fired power plants in Germany – the country of the energy turnaround.

The established economic system of the former analogue economy, with its large organizations based on the division of labour, overproduction, the dependencies of global “just in time” supply chains, the lack of economic incentivization of a shared use of products, can no longer be the target image of a post-crisis society without further increasing the ecological damage already done. A recognized “green” business model is needed that enables the prosperity of a further growing earth population, but at the same time renews the resources of our earth, and brings our life as a whole into a balance with nature.

The “Internet of Things” offers a perspective for this. Here, inefficiency in the use of our resources is increasingly being eliminated. Digital business models help to open up completely new revenue potentials. Overall, the Internet of Things presents itself as a solution space for the ecological question. It sells “usage” not “products.”

Durable physical products require fewer resources over the utility cycle. Software features replace mechanical ones and reduce wear and tear. Users perceive the next generation of products via improvements in digital user experience (UX, UI). Economic obsolescence shifts from physical to digital product features and increases (material) product lifetime. The interconnectedness of products in platforms and their autonomous capabilities leads to smarter deployment and massive increases in unused capacity. Overall, fewer products are in use per user. In the economic system of the Internet of Things, which we call the “green digital economy of things,” it becomes possible that, by focusing our innovation cycles on usage, not product sales, we industrially deplete fewer resources than they can regenerate – and not vice versa.

And we see a lot of hope from consumers Behaviour:

· In the spirit of the times, customers are already exchanging their “possessions” for convenience in exchange for “access” to platforms that manufacturers create with their systems of smart, intelligent products and services.

· The connectivity of smart, autonomous product systems on platforms lead to a superior user experience for consumers, in which the sharing of products is understood as an advantage, accepted as a fundamental product characteristic, and even incentivized as an opportunity to participate in a value creation.

· In order to master the data hunger of the digital economy of things, the “operating system” of an Internet of Things is moving into space. With the launch of more than 100 thousand satellites in the next five years (that is about ten times more since the launch of the world’s first satellite “Sputnik 1” 65 years ago), a completely new industry is currently emerging with the “New Space”, which will grow to approximately 1500 billion euros in revenue by 2035.

· Reorienting the business models of intelligent networked product systems to “usage” requires long-lasting products. This increases the importance of production systems for renewal compared to those for manufacturing products.

· With decreasing marginal costs for energy and communication, large organizations based on the division of labour that were created to overcome them are disappearing. The digital twin of production of one becomes the central “asset” of production. The construction of first-time profitable “micro factories” lowers the barriers to reindustrialization and the export of industries to low industrialized countries. With large or changing organizations, rigid structures are also disappearing.

· However, a new business model involves a fundamental realignment of the organization. The demands on leadership are by far the greatest in the area of change management. The fields of action are leadership and creating purpose from employees.

Let me summarize:

Our structural crisis today may not just be a result of war, inflation, and Covid-induced interventions in the economic cycle, but the end of the economic model of the analogue era.

An era in which, despite all the regulations at the end, the total cost of the ecological footprint of the producers was not in the least borne by their business model.

In short, growth and prosperity were essentially based on the assumption that the next generations would bear the cost of environmental damage. But the crisis presents itself as an opportunity to fundamentally solve the problems of today’s industrial and production systems and their business models in the areas of supply chains, overproduction, resource scarcity.

The green digital economy of things shows the solution space for this. It can be understood as an economic model whose goal is to replace sales and ownership, with access and usership, to replace the paradigm for growth and innovation through product replacement with that of constant product renewal. It is an economic model in which networked and intelligent products instead minimize their unused capacity and place the digital user experience at the centre of innovation programs.

In this context, a new economic model will require investments and the promotion of innovation, research, and the radiance of new ideas. For Europe and its partners, for Africa and for the international community, it will be particularly relevant in the coming years how the bridge between economic necessities, political challenges and networking in knowledge transfer can actually be built.