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How Germany Lost its Einsteins

Recent research shows that the high inequality of opportunity associated with low inter-generational economic mobility is shrinking America's pool of potential inventors. In Germany – where social mobility is even lower than in the US – this dynamic is severely undermining innovative entrepreneurship.

MUNICH – Why has Germany, the land of history-making innovators like Johannes Gutenberg and Albert Einstein, not produced high-tech giants like Google, Amazon, or Facebook? Some blame the stigma associated with failure in Germany for discouraging innovative entrepreneurship. Others point to high bureaucratic hurdles to starting a business. But there is another, more worrying reason why Germany has lost its innovative momentum: its potential pioneers from disadvantaged households are not getting the chance to thrive.

According to the OECD, inter-generational earnings elasticity in Germany stands at about 50%, meaning that if person A’s parent earned double what person B’s parent earned, person A will earn, on average, 50% more than person B. With such persistent earnings differentials across generations, Germany has one of the lowest rates of inter-generational mobility in the OECD – where the average elasticity is 38% – and it seems to be declining.

Low rates of intergenerational mobility in the advanced economies often correspond to high rates of income inequality. What Princeton University economist Alan Krueger has called the “Great Gatsby curve” illustrates the connection between concentration of income in one generation and the ability of those in the next generation to move up the economic ladder.