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Europe's Hotbed of Entrepreneurship? France

Street vendor in Paris

Photograph by Witold Skrypczak/Alamy

Street vendor in Paris

(Corrects description of RSM in the second paragraph)

You don’t need to be Gérard Depardieu to think that France’s high taxes and generous welfare state smother entrepreneurship. It’s surprising, then, that France gained more new businesses from 2007 to 2011 than the rest of the wealthy economies known as the Group of Seven (G-7), which include the U.S., Canada, the U.K., Germany, Italy, and Japan, combined.

That’s according to a new tally of government data by accounting network RSM. France registered a net gain of 562,000 businesses in that period, compared with 95,000 in the U.S. and 75,000 in Germany, according to the report (pdf). (RSM used each country’s national statistics and acknowledged that direct comparisons are difficult because governments report the data differently.) What happened in France?

The jump can be traced to a change that then-President Nicolas Sarkozy’s government made in 2009 to simplify the rules and lower taxes for people forming very small businesses through a program called Auto Entrepreneur. (It has nothing to do with cars: “auto” refers to “self,” as in self-employed.)

The program proved so popular that the current Socialist government of François Hollande has proposed limiting who can take advantage of the favorable tax treatment. The Financial Times reported in June that the government was considering limiting how long businesses could qualify for the program and lowering the ceiling on revenue. The move sparked backlash online, with tens of thousands of French entrepreneurs defending the program.

The FT also notes that most of the auto entrepreneurs earn less than France’s minimum wage of €9.40 an hour (that’s about $12.54, or 73 percent higher than the U.S. federal minimum of $7.25). The suggestion is that “the regime is soaking up significant numbers who would otherwise join the growing unemployment lines,” according to the paper. Like many freelancers in the U.S., the French are turning to self-employment to generate income when they can’t find jobs. And that’s happening in a country with much more generous benefits for the unemployed than in the U.S.

The government may be backing off the proposed limits, according to a report citing the French paper Les Échos. It probably won’t be enough to woo Gérard Depardieu back from Russia.

Tozzi is a reporter for Bloomberg Businessweek in New York.

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