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National institutional frameworks and high-technology innovation in Germany: the case of biotechnology

Can German national institutional frameworks be reconfigured to allow radical innovation in science-based industries? This paper examines the development of commercial technologies for entrepreneurial biotechnology start-up firms in Germany. During the 1980s and early 1990s an inadequate institutional infrastructure stifled virtually all attempts to organize entrepreneurial biotech start-up firms within Germany, while most large German pharmaceutical firms quickly invested in international alliances with US biotechnology companies and university research labs. The paper links the poor performance of the German biotech industry with a variety of institutional disincentives created by the broad institutional orientation of the German economy. Problems discussed include inadequate performance incentives within German firms, rigidities within the labor market for scientists and managers, and constraints on the provision of venture capital created by the broadly bankcentered orientation of German capital markets. Because these institutional arrangements strongly advantage a large coalition of German firms in a wide variety of engineering intensive industries, the paper argues that fundamental institutional reforms to better support science-based industries like biotechnology are unlikely. However, noting the recent upswing in the German biotechnology industry, the paper suggests that sector-specific policies may create an atmosphere conducive to largescale entry into some quickly growing market segments of biotechnology in which the financial and technological risks are lower than in pure therapeutics research.