Five years ago - maybe even two years ago - most people would have declared the German biotechnology sector dead, never given a chance by the combined memories of eugenics and Green Party fears of genetic engineering.

Times have changed. The growing number of successful biotech drugs has pointed up the life-saving potential of the technology, while the worst fears of genetically altered escapees into the environment have proven to be unfounded.

At the same time, the structural decline of older German industry has, much as elsewhere in the industrialized world, pointed up the necessity of supporting dynamic, young economic sectors.

Economic conditions

As a result, a small, but dynamic and growing biotech sector is beginning to emerge, supported by a variety of government agencies. This group of entrepreneurs, venture capitalists, academics and government supporters is well aware of the distance it must travel to catch up with its U.S. counterparts. But it has also identified the critical issues it faces and is taking steps to either remedy or work around the impediments in the German economy that have made it difficult to grow a high-risk sector.

With some 1,200 biotechnology companies, Americans tend to take the sector for granted. But novel industries don't grow on trees. The German experience is a potent reminder that possessing an industrial potential is no guarantee that it can or will develop. Sophisticated science isn't enough without the right economic conditions.

The nascent German industry has two difficult hurdles to overcome.

First and foremost are the regulations and structures that determine the capital and stock markets. The effect of these is to make risk capital scarce in a wealthy country. As a result, while the rest of the world views Germany as an economic powerhouse (despite increasing unemployment and problems with integrating the eastern portion of the country into the west), the Germans we talked to during a recent visit see their nation living off the proceeds from older, maturing industries. Their vision is of a country in danger of being left behind by the new technologies.

Underlying the unavailability of capital is a strong cultural aversion to risk. Entrepreneurs are given few incentives to start ventures, and expect to be stigmatized for failure. Unlike the U.S., where CEOs of failed companies simply move on to the next startup, in Germany one shot is all you get.