🇩🇪 I will keep making the case that there isn’t anything intrinsically anti-entrepreneurial in German culture, or in European culture for that matter:
• Germany is a surplus country specialized in manufacturing. It wants to export more goods than it imports.
• To do this means repressing wages and consumption to maintain competitiveness. The relatively weak euro, shared with indebted Southern European countries, helps to some extent, but much of the wage repression is the direct result of the 2004 Hartz reforms.
• This means there isn’t a compelling case for investing more in Germany. Because of wage repression, the domestic market is stagnant, with the situation made even worse by weak demographics, which means there is little need for additional investment to serve that market.
• This is compounded by two things. First, wage repression means that most savings end up trapped in corporate balance sheets and are therefore paid to shareholders, most of them US asset managers, rather than reinvested at home.
• Second, the government itself doesn’t invest because of its religious (and constitutional) commitment to balanced budgets. This helps explain the deplorable state of German infrastructure, which in turn makes the country even less investable. Why would you put money into a country where the trains are never on time?
• If you can’t invest domestic savings at home, those savings are invested abroad, notably in the US.
• And if the direction of capital flows is generally outward rather than inward, it means two things. First, whatever domestic capital is invested at home goes primarily into the safest assets, not VC or startups.
• Second, because Germany sends most of its own capital abroad, there isn’t a pull effect whereby foreign investors would be compelled to invest more in Germany. There is simply no relatively attractive yield, whether in VC or in any other asset class, and domestic capital is more than enough to cover what investment there is anyway. As a result, viewed from abroad, Germany is not even on the map as an investment destination, let alone as a place to allocate VC.
• Which is why a German version of Zuckerberg or Musk can’t scale their company at home: there simply isn’t enough capital, whether domestic or foreign, willing to fund the whole journey.
• The corollary is that those who really want to scale emigrate to the US and succeed because the US, being a deficit country, is the opposite of Germany: it is a magnet for capital! They then look back at Germany and say, in a condescending manner, “Oh, but it’s German culture and a lack of ambition.”
Germans want to build companies as much as any other people. The problem is that Germany has built an economy that sends the capital needed to build them elsewhere, betting the whole house on manufacturing and exports rather than startups.
And then China enters the room…
Cc
@HMangesius @michaelxpettis @humanandtheloop @patrickc @SineadOS1 @lugaricano @robin_j_brooks @daveg @christianmiele @kofinas
Peter Thiel just said Europe fears success.
His argument: German founders treat a working company as something to sell, not something to scale into a Musk- or Zuckerberg-sized giant. The result is almost no large new firms built in decades.
Think missing follow-on jobs. No employee millionaires at scale. Rich lists full of heirs instead of builders.
When he compared the 50 wealthiest people in each country, Thiel laid out the numbers:
- Of the 50 richest Americans, 12 are Gen X or younger.
- 9 of those 12 made their own money.
> Of the 50 richest Germans, 20 are Gen X or younger. All 20 inherited it.
> “Not a single person did something new, made some new money, built a large, new scalable company.”
Then he added the cultural twist people usually miss:
“One of the things in Germany that people always talk about in this entrepreneurship context is there’s a fear of failure. A ‘no risk’ culture… Perhaps there’s also a fear of success.”
If something works, “you’re not going to scale it to this extreme degree like an Elon Musk or Mark Zuckerberg. At some point you’ll sell the company or exit.”
It seems that Germany’s (& Europe's) real entrepreneurship problem may not be starting companies.
It’s refusing to let the winners get too big.