France has the necessary assets to become the unicorn country of digital Europe. Providing it gives itself the means to do so!
The decrees that are reforming labor law engage the modernization of the French model which, for decades, has condemned our country to de-growth, mass unemployment, impoverishment, the abasement of our citizens and a double deficit – in international trade and public finance. The removal of obstacles that stifle entrepreneurship and job creation also affects the renewal of innovation, with a view to improving productivity whose rate of increase has stagnated at around 0.5% per year.
Innovation creates wealth for companies and for nations. This is borne out by the recovery of the American economy after the 2008 crash – a recovery driven by the digital economy and the exploitation of unconventional hydrocarbons –, by the upward move of China, which has become the world leader in filing patents, and by the massive investment of Scandinavian countries in the knowledge-based economy, which accounts for 7% of GDP in both Sweden and the USA, in order to reconcile competitiveness with a high level of solidarity.
France must make up for all the time it has lost and which thas meant private R&D reaching only 1.4 of GDP as against 2% in Germany and has put it into 11th place in the world of innovation, far behind London and Berlin. It must capitalize on the emergence of French Tech and take full advantage of the way it’s image has improved with entrepreneurs and investors, in contrast to the decrease in the attractiveness of the UK and the USA because of Brexit and the disastrous presidency of Donald Trump.
The rise of French Tech is backed up by a real entrepreneurial dynamic, based on the blossoming of almost 10,000 start-ups and the increased numbers of incubators, such as Station F, backed by Xavier Niel. The financing of French Tech is increasing sharply, involving about 2.75 billion euros, which puts us in 2nd place in Europe as far as fundraising is concerned, on a competing level with London. At the same time, thirteen French cities have launched ambitious plans for supporting innovation.
However, the renewal of entrepreneurship in France remains fragile. The profitability of innovation capital is far from adequate, reaching only 2.2% for current funding and being negative (1.6%) for closed funding. There are more and more start-ups in France, but the true unicorns are rare – Criteo, Talend and DBV – and they are all quoted on the US stock exchange.
Despite multiple initiatives, France has no coherent or all-encompassing framework for developing innovation. Business angels and funds are in short supply; they are small and have a weak international presence. The financing of the sector is skewed by state intervention, which account for two-thirds of finance through BPI France and the FCPI and FIP tax funds. Getting investors to emerge is made extremely difficult by the anemic nature of the Paris financial center and the massive numbers of successful entrepreneurs relocating abroad. The universities and the CNRS are hardly present when it comes to financing innovation.
Innovation is in no way a lost cause. It must serve as a testing ground for France’s recovery. It is indispensable to have a global innovation strategy which includes attracting talent, linking up closely with the scientific community, rationalizing and focusing state aid, providing incitements to invest in shares – particularly by changing the regulatory requirements of life insurance –, and revitalizing the Paris financial center.
The role of the State is crucial, but it would be better off concentrating less on the financing of start-ups – at the risk of encouraging speculative bubbles – than on education (900,000 jobs remain unfilled because of the lack of people with the right qualifications and skills), on digital infrastructures and on establishing effective European regulations covering the digital economy. Finally, it is more urgent than ever before to normalize the regulatory and fiscal framework, which is primarily responsible for the France’s insufficiency in terms of competitiveness and attractiveness. The confiscatory tax on savings, which blocks the financing of companies’ equity capital, alone caused the growth rate to lose 2 points during the last decade.
Because France has ignored successive revolutions that have taken place since the Trente Glorieuses [the 30 years of economic boom after World War II] and has missed the boat of recovery that other developed countries have seen since the 2008 crash, its future will depend on digital transformation and renewed activity within the euro zone. It still possesses some vital assets, one of the main ones being a new generation of highly-talented entrepreneurs. France must give them every possible chance by no longer attempting to bring them into line with State policies. On the contrary, the public authorities should be at the service of entrepreneurs’ ability to create wealth and jobs. Let us transform France from being the “sick man of Europe” into a unicorn nation!
(Column published in Le Point, 11th September 2017)