Can new technology firms succeed in coordinated market economies? A response to Herrmann and Lange

Abstract

The performance of the therapeutics segment of the German biotechnology industry has become a focal case for debate over the usefulness of the varieties of capitalism (henceforth VOC) perspective in helping to explain cross-national variation in the organization and strategy of companies (Hall and Soskice, 2001). Articles in a recent and the current volume of SER by Herrmann (2008) and Lange (2009) draw on the existence of numerous German biotechnology firms focused on therapeutics discovery to contest the saliency of one of the VOC approach’s core claims: that patterns of comparative institutional advantage structure patterns of national specialization across different types of innovation focused industries. Both authors present evidence that German firms in recent years have come close to matching the performance of those in the United Kingdom, once Europe’s clear leader in biotechnology and an ideal-typical liberal market economy, in inventing new drug therapies. Lange also demonstrates that between 2001 and 2007, German biotechnology firms have narrowed a once large gap between the two countries in the drug development pipeline. The apparent success of German firms in a radically innovative industry such as biotechnology clearly runs counter to the key claim made by VOC proponents, including myself, that coordinated market economies should perform poorly in radically innovative industries.